Sustainability turn in India’s FTAs

Trade agreements are not isolated regimes; they serve wider universal goals including planetary and ecological health and social welfare while creating monetary and commercial opportunities for individuals and businesses. The India-UK Comprehensive Economic and Trade Agreement (CETA), which came into effect on July 15, has incorporated several progressive provisions on trade and sustainability. Trade agreements have moved past the traditional realms of market access in goods and services to include sustainability provisions on labour, environment, gender, anti-corruption, and indigenous peoples, often as stand-alone chapters.

In the past, India had resisted the inclusion of social clauses in trade agreements on the premise that they can serve as disguised and unreasonable restrictions on trade. Several environmental and labour measures in advanced countries are indeed protectionist, but the world has moved on to embrace sustainability in a holistic manner, led by the UN Sustainable Development Goals adopted in 2015. Today, there is a broad understanding that the distributional outcomes of trade agreements should benefit those that have been left out of their focus and that trade agreements cannot be passive or indifferent to larger societal concerns.

The CETA references 58 international treaties, a bulk of which are in the domain of non-core trade issues. Trade agreements thus become instruments for reaffirming parties’ international commitments and obligations. While autonomous regimes govern international agreements, references to such deals in an FTA can give a fillip for more effective enforcement and compliance.

Achieving sustainability goals is important, but it is critical to ensure India does not assume obligations that it cannot fulfil effectively or otherwise expose itself to consequences that can impact its development policies and priorities. In this regard, the CETA strikes a fine balance.

No obligation to ratify international agreements: Advanced economies often seek specific obligation(s) to ratify identified international agreements on labour or environment issues. For instance, agreements negotiated by economies such as the EU and the European Free Trade Association include obligations on sustained, continuous efforts towards ratifying fundamental ILO conventions. Of the 10 fundamental ILO conventions, India has ratified six. The rest are the Freedom of Association and Protection of the Right to Organise Convention, 1948, Right to Organise and Collective Bargaining Convention, 1949, Occupational Safety and Health Convention, 1981, and Promotional Framework for Occupational Safety and Health Convention, 2006. The latter two were added in 2022 by amending the ILO Declaration on Fundamental Principles and Rights at Work, originally adopted in 1998.

Ratifying a convention is a sovereign prerogative. The labour chapter in the CETA does not contain any obligation that would require India to ratify a particular international agreement — including the remaining fundamental ILO Conventions. On the whole, the sustainability chapters in the CETA reflect India’s approach of undertaking additional commitments or ratifying newer agreements in a progressive and incremental manner.

No dispute settlement or sanctions: Trade and sustainability chapters often include obligations not to weaken or reduce social, environmental, and labour protection, broadly couched under non-regression provisions. The recourse to sanctions or similar hard punitive mechanisms for breach of specific obligations in sustainability chapters is becoming increasingly common (especially in advanced country FTAs).

Importantly, none of the sustainability chapters in the CETA is subject to any form of dispute settlement mechanism, which means sanctions- and non-sanctions-based redress mechanisms are absent. However, to ensure parties can engage constructively to resolve any matters arising from it, the chapters on labour and environment offer a three-tier consultations mechanism — with the highest recourse to ministerial-level consultations for an effective resolution. The positions taken by parties and the outcomes of consultations remain confidential unless parties decide otherwise.

State-level carve-out: The trade and sustainable development obligations of most FTAs are generally applicable to both central and state-level measures — the default position in view of the responsibility of states under international law. The CETA excludes sub-federal laws and regulations from the scope of labour and environment chapters. This is critical as matters of labour and environment are concurrent with co-extensive powers of governance for the states. By excluding state-level laws and regulations, these chapters safeguard the regulatory space for state governments to account for their priorities.

Role of civil society: Usually, sustainability chapters of modern FTAs include elaborate, structured engagement of civil society actors. But in reality, external actors (including those in the territory of the trade partner) often influence such interventions. To ensure no external factors unduly influence the implementation of FTA obligations, the sustainability chapters do not envisage an explicit and structured engagement of civil society. But in view of public interest and transparency, the chapters on labour and environment provide for creating public awareness and procedural guarantees on domestic laws.

On the whole, the India-UK CETA takes a pragmatic and constructive approach, by including wide-ranging cooperation areas to supplement their respective sustainable development goals and deepen their trade partnership. A closer look at the key elements of these chapters reveals a balanced approach in ensuring respect for fundamental principles and standards of environment and labour protection, gender, and social equality, while retaining regulatory flexibilities. With specific obligations in crucial areas, the chapters account for differences in the parties’ levels of development, circumstances, and national priorities. Non-application of the dispute settlement and limiting the scope to Union-level measures safeguard India’s interests while respecting mutual obligations and priorities on core non-economic aims.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.