By Elina Leybold
Trump’s return to aggressive protectionism turned the clock back a century for United States trade policy. After months of uncertainty and repeated threats by Trump to raise tariffs to as much as 50%, the European Union and the U.S. finally reached a deal. Both parties agreed on a 15% tariff on EU goods and on the EU purchasing €750 billion worth of energy from the U.S.
In response to these developments, the EU has been racing to diversify its trade. Officials are seeking new deals, especially with countries in the Indo-Pacific and Global South. Talks are ongoing with India, Indonesia, South Africa, the UAE, and, most recently, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
But diversifying trade is not enough. As the U.S. is retreating from climate diplomacy, the EU must make sure that future trade agreements also fit its green agenda. With the Green Deal, the EU committed to be climate-neutral by 2050. In recent years, however, trade agreements have been criticised for weak enforcement of sustainability and labour standards.
With the EU-New Zealand Free Trade Agreement (EU-NZ FTA) entering into force in May 2024, the EU called it one of the most progressive trade agreements ever and presented it as a “gold standard” for future FTAs. Does the EU-New Zealand FTA really mark a break from the past – and offer a model agreement for future agreements? Or is it just another case of ambitious rhetoric with weak enforcement?
The EU’s Struggle to Enforce Its Sustainable Trade Agenda
EU law requires the EU to promote sustainable development in all relevant policies – including trade. One way to do this is by including so-called Trade and Sustainable Development (TSD) Chapters in their trade agreements. They call for the EU and its trade partners to uphold environmental and labour standards. Since 2011 they have become an important component of modern FTAs.
At the heart of the problem is that these chapters are toothless. Instead of establishing binding rules and credible enforcement mechanisms, they rely on cooperation, dialogue, vague language, and voluntary cooperation. The EU has traditionally relied on ambiguous language to reach consensus with its trade partners. However, the use of “constructive ambiguity” comes with certain caveats since it often leads to a situation where serious violations –such as the breach of labour rights– go unpunished. If there are no consequences for breaking the rules, then what’s the point? It ultimately undermines the EU’s credibility as a leader in sustainable trade.
Why the EU-New Zealand FTA Stands Out
Unlike past trade deals, where TSD chapters contain its own dispute resolution mechanism based on dialogue and cooperation, the EU-New Zealand FTA applies the general Dispute Settlement Mechanism (DSM) to its TSD chapter, making it legally binding. For the first time ever, violations of the Paris Agreement and key labour standards can lead to sanctions. If consultations fail, a panel of experts is formed, and, if recommendations are not followed, the complaining party may seek compensation or suspend trade benefits.
The agreement also has a non-regression clause which prevents each party from rolling back or not implementing environmental protections in a way that undermines the Paris Agreement. It also gives civil society groups (NGOs, business associations, trade unions) a bigger advisory role across the entire agreement, not just on TSD issues as in previous deals. It also removes tariffs on green goods and services, advances the circular economy, tackles fossil fuel subsidies and gender equality.
The Real Test for EU Trade Policy
The EU-New Zealand trade agreement has been praised as a “gold standard”, but whether it lives up to that title is still unclear. It depends on the political will of both sides to activate the dispute settlement mechanism in case of a breach. While government representatives can launch a formal dispute that could lead to sanctions, civil society groups do not have that option.
Most of the sustainability commitments –like those on deforestation, overfishing, fossil fuel reform or gender equality– are not backed by sanctions. Even the few sanctionable parts, such as cases related to the Agreement, can only be enforced if a country does something that goes against the goals of the Paris Agreement, or fails to do something that would be necessary to support them. But since its objectives are quite broad, it is not clear what actions would lead to sanctions.
Although the agreement represents a shift from past practices, it’s important to recognize that its success was facilitated by the EU and New Zealand’s shared values and beliefs.
The EU-Chile Interim Trade Agreement (ITA), concluded after the one with New Zealand, lacks the same progressive provisions –suggesting that the EU applies its standards selectively.
Many of the countries the EU is currently negotiating with –such as the UAE, India and Indonesia– do not necessarily share the same values regarding sustainability, labour rights, or democratic governance. This will be a real test for the EU’s commitment to its green agenda. Can it maintain high standards even when the political conditions are less favourable?
While some countries may respond with regionalisation or retreat under the Chinese umbrella, others might see a rules-based international economic system as more beneficial –making the EU a comparatively attractive trading partner. For these countries, accepting sustainability-related conditions may no longer be a matter of ideology, but rather a strategic necessity for securing stable market access.
The EU–NZ FTA Matters – But It’s Time to Rethink EU Trade Policy
The EU-New Zealand free trade agreement isn’t perfect –far from it. But it still matters. What matters is the EU’s effort to move beyond mere dialogue and cooperation. Finally, the bloc is making parts of its TSD agenda sanctionable. It’s a small step, yes –but a long-overdue and necessary one.
Improving the effectiveness of TSD provisions is only part of the picture, though. What’s really needed is a broader rethink of the EU’s entire approach to trade. That means shifting away from a model where the main goal is simply boosting trade flows and economic growth, while environmental, social, and human rights concerns are treated as residual problems. The climate crisis that we are confronted with requires sustainable development to be treated as a condition –and not an aspiration.
About the author
Elina is currently pursuing an Erasmus Mundus Master’s in European Politics and Society, studying at three universities across Europe. She specializes in European affairs, with a particular interest in EU trade policy as well as energy and climate policy. Her current research focuses on how the European Union can advance a green transition that aligns ambitious climate goals with a social justice agenda. In addition to her studies, Elina has volunteered with various NGOs and think tanks.
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