POSITION PAPER
ON THE ENFORCEABILITY
OF TRADE AND SUSTAINABLE
DEVELOPMENT CHAPTERS
IN EU TRADE AND INVESTMENT
AGREEMENTS
Amsterdam, June 2017

This position paper responds to the civil
society consultation initiated by the
Dutch ministry for Foreign Affairs, Trade
and Development Cooperation on
strengthening the Trade and Sustainable
Development (TSD) chapters in European
trade and investment agreements. The
paper looks at the short-comings of
current TSD chapters and offers
recommendations for improvement and
enhancing enforceability. It also takes a
longer view, questioning the continued
lack of binding responsibilities for foreign
investors and other core imbalances in EU
trade agreements and arguing in favour
of a ‘reset’ that prioritises human rights
and environmental protection over
unsustainable and inequitable trade
liberalisation, deregulation and investor
protection.

EU core values require addressing gaps
in human rights and environmental law
The European Union is founded on the values of
respect for human dignity, freedom, democracy,
equality, the rule of law and respect for human rights.
The Lisbon Treaty states that ‘in its relations with the
wider world, the Union shall, inter alia, contribute to
‘the sustainable development of the Earth, solidarity
and mutual respect among peoples, free and fair
trade, eradication of poverty and the protection of
human rights’. 1 The extraterritorial obligations that
the EU has signed on to, include the obligation not to
conclude trade and investment agreements that
potentially conflict with human, economic, social and
cultural rights.

So according to its own core values, the EU is bound
to address the gaps in the protection of human rights
and the environment in the context of globalization.
This includes addressing the lack of human rights
regulation and accountability of transnational
corporations and ensuring the effective application of
human rights and environmental law to investment
and trade laws and agreements the EU signs.

1 http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-

european-union-and-comments/title-1-common-provisions/4article-3.html

1

Recommendation:

Recommendations:

❖ We need a new trade model, that will not
lower tariffs across the board without
looking at the social, environmental and
climate footprint of traded goods; will not
include investment protection that can act as
a brake on policy measures to ensure basic
livelihoods, enhance social protection,
conserve the environment or mitigate
climate change; will not undermine the
provision of universally accessible and
affordable public services; will not allow IPR
protection to undermine access to affordable
generic medicines; does not automatically
liberalise all capital movements with
potentially highly destabilizing effects; will
not undermine equitable and sustainable
development, particularly in the global
South.

❖ In order to be meaningful, the sustainability
chapters in the EU’s trade and investment
agreements should govern the entire
agreement and firmly establish the primacy
of human rights and environmental law; its
stipulations should be fully applicable to all
their chapters, including the investment
chapter.
❖ TSD chapters should require both partners to
ratify and implement the core human rights
charters, i.e. the International Bill of Rights
(UDHR, ICCPR, and ICESCR and its two
optional protocols) and other human rights
treaties and conventions; ILO core
conventions, the Paris climate agreement
and
international
environmental
agreements; 2 in
line
with
the
recommendations issued by the European
Parliament.3
❖ Any government measures taken to
implement and/or ensure compliance with
the comprehensive (but non-exhaustive list)
of international human rights, labour,
climate and environmental agreements
would be presumed consistent with the trade
agreement, i.e. not a disguised restriction on
trade and not actionable under ISDS. For
greater certainty, the investment chapter
should contain a clause reaffirming the
supremacy of the sustainability chapter.

Towards better trade and sustainable
development chapters
The inclusion by the EU of ‘trade and sustainable
development’ (TSD) chapters in FTAs concluded with
its partners is intended to ensure that trade and
investment liberalisation does not lead to a
deterioration in environmental and labour
conditions. The Netherlands are looking for an
approach to give stakeholders such as trade unions,
NGOs and other civil society organisations an
actionable right to signal cases of human rights
violations or environmental abuse in the field of trade
and foreign investment.

2

For an extensive list of international treaties on human rights,
labour and the environment, see Krajewski en Hoffman
http://reinhardbuetikofer.eu/wpcontent/uploads/2016/08/Model-SD-Chapter-TTIP-Second-DraftJuly_final.pdf

3

http://www.europarl.europa.eu/RegData/etudes/BRIE/2017/5958
94/EPRS_BRI(2017)595894_EN.pdf

2

Treaty, comprehensively taken into account
in trade and investment agreements.
❖ The legal relationship between a trade and
investment
agreement
and
the
accompanying PCA must be shaped to
ensure the primacy of human rights and
environmental protection over and above
trade and investment policy; inclusion of
human rights and environmental protection
as essential elements in a PCA should lead to
the inclusion of specific human right and
environmental clauses in trade and
investment agreements, ensuring that these
principles are not subordinated to economic
objectives.

Ensure policy coherence between UNGPs and
trade & investment policy
The EU and its Member States have repeatedly
expressed their commitment to the UN Guiding
Principles on Business and Human Rights (UNGPs;
2011), which include the state duties to protect
human rights from corporate abuse and to ensure
accountability and effective remedy when abuses
occur. However, with the exception of a few states,
the EU Member States have so far failed to take
legislative or other meaningful action to ensure
effective prevention of, and accountability and
remedy for, corporate human rights abuses. There
remain significant gaps in access to justice for human
rights abuses related to business operations.
The Netherlands are among the few states who have
devised a National Action Plan. However, this has
been criticized as incomplete, 4 among other things
for failing to establish a process for policy coherence
to bring trade and investment agreements in line with
the UNGPs. Policy coherence at the international
level is hampered by the separation of negotiating
tables on trade on the one hand, and human rights in
the accompanying political cooperation agreement
(PCA): trade agreements are negotiated by the
European Commission, while PCAs are negotiated by
the EU’s External Action Service (EEAS). 5

The Dutch NAP does refer to TSD chapters being
included in trade and investment agreements.
However, these pertain to the human rights
obligations of states. A serious omission is the failure
to address the responsibility to respect human rights
for transnational companies and investors.
Recommendation:
❖ TSD chapters should contain a specific
reference to the corporate ‘responsibility to
respect human rights’ and should include a
duty for the signatories to perform
Sustainability Impact Assessments, as well as
dedicated
Human
Rights
Impact
Assessments based on the Guidelines
formulated by UN Special Rapporteur Olivier
de Schutter 6 , prior to the ratification and
provisional implementation of the treaty.

Recommendations:
❖ An integrated policy process is needed to
ensure the human rights and sustainable
development is, as required by the Lisbon

4 Zie: https://www.somo.nl/nl/nationaal-actie-plan-is-onvolledig/

6

5 Sicurelli, D. (2015). ‘The EU as a Promoter of Human Rights in

http://www.ohchr.org/Documents/HRBodies/HRCouncil/RegularSe
ssion/Session19/A-HRC-19-59-Add5_en.pdf

Bilateral Trade Agreements: The Case of the Negotiations with
Vietnam’, Journal of Contemporary European Research. 11 (2), pp.
230-245. http://www.jcer.net/index.php/jcer/article/view/655

3

Foreseen negative impacts must be
addressed, by flanking measures and/or
amendment of the treaty, before the treaty
can be ratified or implemented. The
signatory Parties also commit to dedicated
SIAs and HRIAs periodically ex post, and a
commitment to promptly and collaboratively
address any negative impacts identified,
including, if necessary, by amending the
underlying FTA.

Include concrete commitments
and access to remedy for affected parties
TSD chapters currently generally lack concrete
commitments, but merely voice intentions to engage
in state-to-state dialogues. The trade and sustainable
development chapters are excluded from the scope
of the state-to-state dispute settlement (SSDS)
procedure. In case of disputes over sustainability and
development issues, these are to be resolved through
mutually agreed solutions. TSD chapters contain no
binding obligations on the transnationally operating
companies and investor benefiting from the treaty
and contain no sanction mechanisms. This means
that, in stark contrast to the highly enforceable rights
for foreign investors established by trade and
investment treaties, human rights, environmental
protection and the protection of labour standards
continue to be enshrined in soft law. Obligations and
commitments in the TSD chapter remain essentially
voluntary and there is no effective complaints
mechanism for affected communities to call home
and host countries to account in case of violations.
Recommendations:

sustainable development, environmental
protection and conservation and climate
change, and the duty of care and product
chain responsibility for transnational
corporations in those same areas.
❖ Complementary to the investment chapter
which lays down enforceable rights for
investors, the sustainability chapters in trade
agreements should contain binding and
actionable obligations on investors in
relation to their social responsibility and
human rights and environmental due
diligence.
❖ In a first step towards articulating and
enforcing extraterritorial human and social
rights,
environmental
and
climate
obligations for (transnational) business
actors, the signatory governments should
take it upon themselves to proactively
monitor the conduct of their companies
when they work in other countries and to
investigate credible allegations of human
rights abuse and environmental harm linked
to those operations.
❖ TSD chapters should provide trade
unions/NGOs/affected communities with
access to remedy – e.g. a complaint
mechanism, whereby an independent panel
of experts (not only trade lawyers, but
labour/climate/human
rights
experts)
investigates the complaint; if the panel finds
violations of the TSD chapter and declares a
complaint eligible, this should automatically
trigger a treaty’s state-to-state dispute
settlement mechanism, with possibilities for
financial penalties or sanctions, and remedy
for the affected society/individuals/group(s).

❖ TSD chapters should specifically confirm the
responsibility to protect of the signatory
states in relation to human rights,
4

Towards binding commitments
for transnational corporate actors
While the investment chapter in trade and
investment agreements guarantees often farreaching and highly enforceable rights for
transnational investors and companies, immediate
and binding obligations on these same actors in
relation to corporate social responsibility, human
rights due diligence and environmental prudence are
not included either in the investment chapter itself,
or in the TSD chapter.
This has led to an imbalance where there is a lack of
enforceable corporate obligations in relation to
human rights and the environment. Even where third
parties do have the legal possibility to bring a case
against a company for violating human rights or
environmental regulations, they are often faced with
insurmountable obstacles to accessing remedy,
including the so-called ‘corporate veil’, lack of
transparency
(disclosure),
and
jurisdictional
challenges.
Human rights and environmental obligations ought to
be binding upon corporate actors, with effective
enforcement mechanisms in place. Such obligations
might be enshrined either in trade and investment
agreements themselves, and/or in a separate legal
framework. Effective mechanisms need to have the
mandate to monitor compliance , and give adequate
access to effective remedy for those adversely
affected by corporate violations. . The process
launched at the UN, for developing an internationally
binding instrument to regulate – in human rights law
- the activities of corporations, is an important
current multilateral initiative that demands positive
engagement from the EU and its Member States.

Recommendation:
❖ The EU and its Member States should, in
recognition of the existing governance gap
for transnational economic actors, engage
positively with the process towards a binding
instrument on business and human rights at
the UN.

Corporate obligations and responsibilities
The UN Guiding Principles on Business and Human
Rights clarify the roles that governments and
companies are expected to play in terms of protecting
and respecting human rights. An important principle
under the corporate responsibility to respect human
rights is for companies to act with due diligence. ‘Due
diligence’ is understood as a process through which
enterprises actively identify, prevent, mitigate and
account for how they address and manage the actual
and potential adverse impacts of their operations,
including in the value chain and through other
business relationships.
The UN Guiding Principles also specify that businesses
have a responsibility to address the impacts on
human rights that occur through their own activities
or as a result of their business relationships with other
parties, including in their value chains.
However, trade and investment agreements currently
contain no binding obligations on corporate actors to
give shape to this responsibility.
Recommendations:
❖ The sustainability chapter in trade and
investment agreements should include a
stipulation that foreign investors, in order to
meet their due diligence obligations, must
carry out a periodical human rights impact
assessment of their operations, including in
5

the value chain and through their business
relationships and devise a plan for
addressing actual and potential adverse
impacts of their business operations.
Transnational investors should publish
progress reports in relation to its
implementation. These, in turn, should feed
into the periodical HRIAs and SIAs that the
signatory states must commit to.
❖ Both home and host states of foreign
investors covered by the agreement must be
required to ensure a full investigation in
cases of (alleged) violations of human rights,
environmental
or
sustainable
development/climate obligations; if a party
to the agreement is found in breach, this
should ultimately lead to trade sanctions; If
a company has failed in its due diligence in
relation to the human rights or
environmental impacts of its operations, this
should – in addition to reparative measures automatically lead to a denial of the benefits
of the treaty.
❖ Sustainability chapters should establish a
permanent, independent human rights and
sustainability mechanism with a mandate to
investigate
complaints
from
civil
society/individuals/groups
affected
by
shortcomings in the state’s duty to protect
and corporate industry’s duty to respect
human rights and environmental protection.
Warranted complaints should trigger
immediate action by the signatories to
agreement. This mechanism should include
possibilities to receive and investigate
complaints, and make findings regarding
violations
of
human
rights
and
environmental protection provisions. Where
violations have been found, the mechanism
should have the mandate to impose effective

and proportionate sanctions, with the aim to
hold the violating party – including
transnational investors - accountable, and
provide adequate remedy to the affected
society/individual(s)/group(s).
❖ TSD chapters should contain an assumption
of parent company liability: Corporate
headquarters should be held ultimately
accountable for the conduct of their
subsidiaries in relation to human rights;
social, economic and cultural rights;
environmental conservation and protection;
climate-friendly business processes and
activities; and tax compliance.
❖ Parties affected human rights and
environmental
transgressions
by
transnational investors should not only be
able to hold these actors to account in the
host state, but should also have access to
home state courts. As the burden of proof
that rests on affected communities often
results in insurmountable obstacles to
justice, the burden of proof in particular
aspects of legal cases should be reversed and
placed upon the foreign operator or investor.
❖ Prima facie well-founded complaints from
affected communities should lead to
preventive halting of projects in order to
protect communities from potentially
harmful impacts.

Provide for effective monitoring
and enforcement
Together with the United Nations Guiding Principles
on Business and Human Rights and the International
Labour Organization’s (ILO) Conventions, the United
Nations Global Compact and ISO 26000 Guidance on
Social Responsibility, the Organisation for Economic
6

Co-operation and Development (OECD) Guidelines
for Multinational Enterprises are often referred to as
the ‘core set of internationally recognised principles
and guidelines regarding Corporate Social
Responsibility (CSR)’. 7 These frameworks include,
among other things, commitments on HR, labour,
environment and tax compliance.
The study by Leuven University, commissioned by the
Dutch trade ministry, extensively discusses the
benefits and weaknesses of the compliance
mechanisms associated with these frameworks,
highlighting that their efficacy is hampered by the lack
of adequate monitoring and enforcement
mechanisms. 8 The complaints mechanism of the
OECD Guidelines relies on mediation without
sanctions, and its effectiveness has been limited. The
UN Global Compact contains no monitoring or
enforcement mechanism at all. This underlines the
key issue with all of these mechanisms, which is and
remains, as civil society organisations have pointed
out time and again, their reliance on voluntary
adherence.
But while the OECD Guidelines contain no binding
obligations for multinational corporations, OECD and
adhering governments are under a legal obligation to
implement them, including by establishing National
Contact Points to handle complaints.
However, there are issues with accessibility for
victims of corporate abuse. The lack of a sanctions
mechanism also reduces the Guidelines effectiveness.

OECD Watch recommends, inter alia, to ‘attach
consequences to ensure that the Guidelines are taken
seriously. […] Attaching material consequences to
respect for the Guidelines will create a level playing
field for business, and will ensure that companies
failing to respect the Guidelines do not gain a
competitive advantage over those upholding the
standards.’9
Therefore, a mere reference to the OECD Guidelines
in the sustainability chapters of the trade and
investment agreements is not enough.
Recommendations:
❖ Companies that knowingly ignore the OECD
Guidelines; engage in violations of human
rights; are sullied by corruption or engaged
in fraud; are found polluting the
environment; fail to exert due diligence in
their supply chains; engage in tax avoidance;
act in contravention of the Paris climate
agreement; etc. should be denied all benefits
and protections of a trade and investment
treaty.10
❖ As a first step towards establishing extraterritorial obligations for transnational
corporations, states could embed the OECD
Guidelines and other CSR standards into their
own domestic legal framework in a binding
and enforceable manner, as for example
India and Italy have done.

7 For example: European Commission, Communication from the

8 A. Marx, et al., Dispute Settlement in the Trade and Sustainable

Commission to the European Parliament, the

Development Chapters of EU Trade Agreements, Leuven Centre for
Global Governance Studies, 2017.

Council, the European Economic and Social Committee and the
Committee of the Regions: A Renewed EU
Strategy 2011-14 for Corporate Social Responsibility, (Brussels, 25
October 2011), pp. 6-7 and MVO Platform,
CSR Frame of Reference, (April 2012).

9 A “4x10” plan for why and how to unlock the potential of the

OECD Guidelines: A briefing for policymakers, OECD Watch, June
2016
10 A “4x10” plan for why and how to unlock the potential of the

OECD Guidelines: A briefing for policymakers, OECD Watch, June
2016

7

Overarching conditions: tax compliance

Final remarks

Any trade and sustainable development agenda
needs to consider corporate tax avoidance because of
its impact on public revenues and knock-on effects on
poverty, inequality and development. Trade and
investment agreements should address the harmful
impact of corporate tax-dodging strategies, including
through transfer-pricing abuse, profit-shifting
through the strategic use of IPR and other methods.

Including strong and enforceable TSD chapters in
trade and investment agreements can only be a
partial solution when the whole architecture of such
agreements remains based on principles of farreaching and progressive liberalization and
deregulation of all trade goods and services, as well
as enhancing unfettered market access and
protections for foreign investors.

Recommendations:

A genuine trade ‘reset’ will have to look not only at
access to remedy TSD chapters (and the process of
investment arbitration as in ICS). It must also examine
the other substantial chapters of trade and
investment agreements, as the current architecture
of trade and investment agreements deprives
governments of the policy instruments necessary to
ensure sustainable development and hampers policy
interventions to protect people and planet, mitigate
climate change and ensure balanced domestic
economic development, particularly in the global
South.

❖ Corporate tax revenues are an important
source of income for states to realise social
and economic rights. TSD chapters should
contain commitments between the signatory
states to set up a process to engage in
dialogues to address legal loopholes and
counter tax-dodging, including by closing
down options to set up artificial structures
for the purpose of profit-shifting to low-tax
jurisdictions. Parties should subscribe to a
commitment to abolish policies and laws
that allow companies to avoid tax.
❖ Signatory states should confirm their
commitment
to
implement
the
internationally agreed standards to tackle
tax evasion and avoidance and ensure the
automatic exchange of information between
their jurisdictions ensure that transnational
economic actors pay tax in the jurisdictions
where they operate and create their added
value.
❖ Trade and investment agreements should
include a denial of benefits clause expressly
excluding artificial corporate structures from
the benefits of the treaty; denial of benefits
should also extend to tax benefits or
exemptions.

A stronger TSD chapter alone will not address the
structural imbalances of the current model.
If we are to meet internationally agreed targets
regarding equitable and sustainable development
(SDGs) and to mitigate climate change, we must work
towards trade agreements that do not simply
liberalise trade, but that regulate trade, in accordance
with such overriding objectives. I.e., trade
agreements that unequivocally prioritise human
rights and environmental protection over trade and
investment liberalization, and that hold transnational
economic actors to account under basic social
responsibilities.

8