When will stringent sustainability commitments (not) be a stumbling block in the negotiation of trade agreements? Although the existing literature has explored the determinants of the design of sustainability provisions in trade agreements, few works have explored when countries will accept/reject those provisions once their content cannot be changed. Based on insights from game theory, we flesh out the conditions under which there will be an equilibrium in favor of hard sustainability provisions in trade deals. We then present empirical illustrations related to Mexico's participation in the United States–Mexico–Canada Agreement (USMCA) and Brazil's participation in the EU-Mercosur trade negotiations. Our model shows that (1) fears of partner opportunism, (2) the costs of nonparticipation in trade deals, and (3) costs of adjustments to hard trade-sustainability commitments are key to understanding whether a compromise can arise on trade and strong sustainability commitments. The model highlights what sorts of concessions ought to be made for negotiations to prosper. The findings point to how the changing structure of trade governance may affect the decision-making process of Global South countries. The paper concludes with recommendations and avenues for further research.
Policy Implications
- Policymakers willing to reassure the feasibility of hard sustainability clauses in trade deals should consider the economic costs to the partners as an integral part of the policy debate.
- Policymakers willing to increase their ability to say “no” to trade provisions they see as illegitimate should consider diversifying their trade partnerships.
- Policymakers willing to further strengthen the case for harder sustainability provisions in trade deals can benefit from linking those clauses to the promotion and locking-in of domestic reforms in the partner countries.
- Policymakers willing to further strengthen the case for harder sustainability provisions in trade deals should keep in mind that bearing some of the adjustment costs of the deal is relevant to sending positive signals to foreign partners.
- Policymakers willing to further strengthen the case for harder sustainability provisions in trade deals should remain open to helping their partners meet sustainability criteria via cooperation and co-participation in funding a green transition.
Photo by Josie Stephens