Mindful of the socio-economic impacts a free trade agreement (FTA) may have, the European Union (EU) since 1999 has adopted the practice of conducting a so-called Sustainability Impact Assessment (SIA) as an accompanying part of FTA negotiations. Currently, SIAs are being undertaken for the potential FTAs with Indonesia, Malaysia, and the Philippines. The objective of the SIAs is to compile a solid analysis of the potential economic, social, human rights, and environmental impacts that the envisaged trade agreement might have – in the EU, in the partner country(s), and possibly in third countries. The SIA shall provide recommendations regarding how to avoid or minimize compromising and unintended negative effects. It may also highlight the positive effects the FTA may have and how to support them further. The findings of the SIA shall impact both the negotiations prior to an FTA as well as accompanying measures like technical assistance during the subsequent implementation of an FTA.

For this purpose, an SIA’s findings are meant to be based on continuous and wide-ranging consultations with relevant stakeholders inside and outside the EU. They should be evidence-based, independent, integrated, transparent, participatory, and proportionate. The methodology consists of an Economic Impact Assessment, a Social Impact Assessment, a Human Rights Impact Assessment, and an Environmental Impact Assessment. For each segment, a literature review will be conducted initially, followed by a comprehensive modelling scenario, and by case studies on select sectors and sub-sectors. Stakeholder engagement is given a high level of importance. Through online presence¹, stakeholder dialogues,² interviews, meetings, and local workshops,³ the perspectives of relevant stakeholders shall be gathered. The level of analysis and the work that has to be conducted to compile a comprehensive SIA is – no doubt – significant.⁴

Nevertheless, the SIAs receive continuous criticism, both from the EU and its partners. Some examples are:

1. Occasionally, reliable country data is scarce and hence the mapping of a country’s status quo is rather incomplete and based on assumptions.
2. If an SIA is conducted too early, the envisaged tariff liberalization might not be foreseeable, hence, the findings of the SIA are projections merely based on assumptions. If an SIA is conducted at a point FTA negotiations did progress sufficiently, the policy recommendations of the SIA may inform measures accompanying the implementation of an FTA. The findings then come too late to impact the course of negotiations.
3. The SIAs are designed to compare a hypothetical situation with an implemented FTA with the current status quo prior to FTA implementation. It is fair not to expect a significant impact of any FTA on GDP or many of the socio-economic indicators in a short run.  As a result, the SIAs tend to project insignificant changes in one direction or the other. This is usually good news for those in favour of trade liberalization since the SIA’s finding will likely be in favour of proceeding with the FTA. At the same time, this is bad news for those hoping that trade policy will address ‘non-trade issues’ like, for example, a concerning human rights situation or specific environmental problems. Grave issues of concern for sustainable development may – based on the current SIA methodology – remain somewhat unidentified.

A relatively simple measure to pro-actively address this criticism could be to conduct ‘sustainable development scoping missions prior to entering into trade negotiations. Such scoping mission could identify major developmental challenges of the countries involved based mainly on qualitative and less on quantitative analysis. The findings may then inform talks about trade and sustainable development in a broader sense. The mixed feelings regarding SIAs can be understood as a call on the development community to come up with ideas and suggestions on how to further improve the role trade policy can play for sustainable development.

References:

1) E.g.: www.eu-indonesia-sia.com, www.eu-philippines-sia.com, www.eu-malaysia-sia.com.
2) … in which the author regularly participates.
3) Next ones scheduled for September 2018 in Manila and Kuala Lumpur.
4) Compare the SIA Handbook: http://trade.ec.europa.eu/doclib/docs/2016/april/tradoc_154464.PDF.