Towards sanctions-based trade and sustainable development chapters in the EU’s free trade agreements: Why is the EU’s new trade and sustainable development policy a step forward?

Abstract This article examines the European Union’s (EU) shift from a cooperative and non-binding model to a sanctions-based enforcement mechanism for Trade and Sustainable Development (TSD) chapters in free trade agreements (FTAs). Since 2011, all EU FTAs have included TSD chapters, traditionally enforced through non-binding panel recommendations and without recourse to sanctions, based on the assumption that reputational pressure and civil society oversight ensure compliance. NGOs, the European Parliament, and the EU Member States have criticized this ‘cooperative approach’, citing limited compliance incentives. The European Commission’s 2022 Trade Policy Action Plan introduced a ‘hard approach’ that underpins the enforcement of TSD Chapters with sanctions as a last resort. This policy shaped the EU–New Zealand FTA (in force since May 2024), which subjects certain TSD commitments to the general dispute settlement mechanism of the FTAs. This comprises binding rulings, compliance review, and, in cases of recurrent non-compliance, trade retaliation or financial compensation. The article argues that sanctions can strengthen the effectiveness of TSD chapters and mitigate legal uncertainty, especially in the aftermath of Opinion 2/15. It criticizes the cooperative approach, using as case study the EU–Korea Labour Commitments dispute, which is the only TSD case to date under an EU FTA. This article also draws a parallel between the EU-New Zealand FTA and the WTO‘s sanctions regime, which has yielded over the past decades a high compliance record.