Trade can be used as a foreign policy tool – including as leverage on human rights issues. But there are two foundational principles of international trade law which dictate how this can and cannot be done.
The first, ‘national treatment’, requires that once a good or service has entered a country’s market, it should be treated equally to those produced locally. This means, for example, that once an item of clothing manufactured in Sri Lanka enters the Belgian market, the government generally cannot impose additional restrictions on the product which differ from those applied to clothing manufactured in Belgium; and there are restrictions on giving domestic companies advantages through, for example, subsidies (‘state aid’).
The second, known as ‘Most-Favoured-Nation (MFN)’, restricts countries from granting special access to only select other countries. It does this by requiring that if a country wants to grant special trade preferences to another country, it must do so for all. This means that the UK, for example, cannot unilaterally offer special exceptions to imports from India or the US without also offering them universally.
Since trade law lends its weight toward restricting countries from discriminating against foreign products once they enter their respective market, and also against selectively restricting this access before they get there, how can it be that trade is still a viable foreign policy tool for leverage to improve human rights?
Because there are exceptions.
One such exception is that countries can grant special preferences – beyond what they offer universally (MFN) – to countries with whom they have negotiated and ratified a free trade agreement (FTA).
Take the EU, for example. The extent to which human rights are effectively covered in EU trade agreements is debateable. All modern and comprehensive EU FTAs contain a ‘Trade and Sustainable Development Chapter’ which generally includes enforceable commitments on labour rights and environmental sustainability, because these are seen as being most immediately connected to the business of trade. Modern EU FTAs also include an ‘essential elements clause’ that permits either party to introduce ‘appropriate measures’ in response to broader human rights abuses – but these have never been invoked.
One example of how this plays out in practice can be seen in the EU-Vietnam FTA.
CSW and others continue to highlight egregious human rights violations underway in Vietnam, and yet the EU has so far refused to invoke the FTA’s essential elements clause. When we raised this with the EU’s Chief Trade Enforcement Officer, Dennis Redonnet, in a meeting last year, he stated that individual cases of human rights violations were being dealt with by the European External Action Service (EEAS, the EU’s foreign ministry equivalent) through diplomacy – in other words: ‘it is not in our wheelhouse.’
But this is a political decision.
An EU staff working document makes it clear that legally, the EU ‘maintains full discretion to take appropriate measures also concerning the FTA in case it considers that Vietnam violates its commitment to respect basic human rights obligations.’
It is also worth noting that the EU also failed to conduct a human rights impact assessment before the FTA with Vietnam was signed – which has since been condemned as a ‘maladministration’ by the EU Ombudsman.
A second exception in international trade law that ensures that trade remains a viable foreign policy tool has to do with the ways in which countries are permitted to grant special preferences to countries that are categorised by the World Bank as ‘developing.’
The terms are not reciprocal, and so are not negotiated – they are decided upon unilaterally – but they still must be managed systematically, under a ‘Generalised System of Preferences’ (GSP).
In our EU advocacy, CSW contributes towards helping the EU review whether third countries are complying with some of the pre-conditions of this special access, which include upholding international human rights law. The EU is in the process of establishing its new GSP for 2024-2034.
An understanding of these two categories of exceptions is critically important for EU advocacy on human rights because it identifies how, and over whom, the EU can effectively leverage its economy, for human rights outcomes.
It is clear that in theory, the EU holds strong trade policy leverage over at least two sets of countries: developing countries that are beneficiaries of the EU’s Generalised Scheme of Preferences (e.g., Pakistan and Sri Lanka); and those with whom the EU has trade agreements (e.g., Vietnam and Colombia). The EU’s Ombudsman has recently conducted a helpful review of these avenues.
In practice, leveraging trade preferences for human rights improvements involves threatening to withdraw access to one’s domestic market, contingent on improvements in a trade partner’s human rights record. This is exactly what the EU did in its decision to suspend GSP preferences to Cambodia in 2020 ‘due to serious and systematic violations of human rights.’
The leverage afforded by GSP also continues to be recognised as an important catalyst for reform in Pakistan. The EU is Pakistan’s second most important trading partner, and a European Parliament resolution threatening the withdrawal of GSP preferences is partially credited for the 2021 release of a Christian couple who was on death row on blasphemy charges. There is an expectation that the EU’s new GSP will improve transparency in the compliance monitoring process, which should further improve its effectiveness.
There is a debate over whether the withdrawal of preferences is effective for human rights outcomes, as by that point the negotiating leverage has been expended, and the economic costs ‘factored-in’ by the government in question, who invariably do not bear the brunt of the consequences, whereas the local economy does. However, CSW encourages the EU to maintain a credible threat of the withdrawal of preferences, and to refer to its past examples as evidence of its willingness to act in order to press for improvements in human rights.
Domestic regulation
Another area where trade can be leveraged is through regulating one’s domestic market with human rights in mind, such as the upcoming EU directives on forced labour and the so-called Corporate Sustainable Due Diligence Directive. These are unilateral decisions and non-discriminatory because the same requirements apply domestically. They are therefore not subject to negotiation with third countries.
This approach basically says, ‘if you don’t make things in ways we approve of, we don’t want those things in our market.’ While China is not explicitly named in either of these upcoming directives, it is no secret that its abuses of the Uyghur population and others as forced labour for the production of goods such as cotton are a driving political force behind the move, and that the directives implicitly have China very much in their crosshairs.
Sanctions
Other economic policy tools worth mentioning include export controls (e.g., the EU’s controls on technology which could have a dual-use for surveillance etc) and sanctions policy. ‘Trade sanctions’ can be an unhelpful term, as it is often confused with sanctions which are decided upon and enforced by government departments and authorities different to those that manage trade. In the case of the EU, the process is led by the High Representative of the EU for Foreign Affairs and Security Policy/Vice-President of the European Commission Josep Borrell and decided upon by the Council.
Sanctions policy is different in that it allows for countries to target specific individuals and entities. This is another highly technical area which deserves an explainer of its own, but recent examples include the EU’s fifth round of sanctions against the Myanmar military, which included connected business representatives – a call which CSW had made months prior.
One final aspect worth considering is the place of trade law within the wider multilateral system.
There is symbolic significance in the World Trade Organisation having its seat in Geneva, in the same quarter as the United Nations, International Labour Organisation, and other multilateral institutions: As a part of the wider multilateral system, it has faced a heightened level of opposition since the Trump administration. While the WTO limits the use of trade as a foreign policy tool, human rights practitioners should resist the urge to join the voices seeking its demise. Firstly, because the erosion of one aspect of multilateralism may indirectly impact others. And secondly because the ways in which the WTO limits how trade can be used for non-economic objectives is most often a beneficial feature, also from a human rights perspective. Consider, for example, how the European Parliament was able to use references to WTO rules for its rejection of a European Commission proposal to use its new GSP scheme to leverage the readmission of migrants.
In conclusion, while international trade law does restrict state action, it can also act as a safeguard and common rulebook, and at the same time does – in the ways we have shown above – continue to permit options for actions on human rights issues. And surely that is worth defending.
By CSW’s Europe Liaison Officer Jonathan de Leyser
FoRB in Full 