How (not) to get the best out of a trade Sustainability Impact Assessment

by | Jan 23, 2025 | Human Rights Impact Assessment

Thailand and EFTA (European Free Trade Association) have just signed a Free Trade Agreement, which covers a wide range of areas: trade in goods and services as well as investment, intellectual property, competition and government procurement.

In this respect, the agreement with Thailand resembles EFTA’s other trade treaties. But in a welcome departure from previous practice, a Sustainability Impact Assessment  (SIA) was carried out parallel to the negotiations – a first for an EFTA trade agreement. The SIA is disappointing but all hope is not lost.

Why Carry out a Sustainability Impact Assessment?

SIAs are important decision-making tools. In the trade policy context, their purpose is to evaluate potential economic, environmental, and social impacts of the agreement, both positive and negative, and to shape the outcome of the negotiations accordingly.

It is well documented that some people win and some lose from economic changes including changes following new trade agreements. The gains from trade are unevenly distributed between countries, as well as between different groups, sectors or regions within a country. The impact of consumption of goods and services on the environment is inevitable. New market opportunities put pressure on natural resources. Trade and trade agreements can affect sustainable development in a number of ways, such as through their impact on jobs, public services, governance or gender equality.

Sustainability Impact Assessment methodology offers a structured framework for gathering and providing evidence-based insights to inform negotiators and stakeholders about the broader implications of proposed trade measures. SIAs can help identify potential risks, such as environmental degradation or social inequality, as well as opportunities, like economic diversification or improved labour conditions. Thus SIAs provide a basis for crafting a trade agreement in such a way as to minimize risks and increase positive opportunities. The 2018 EFTA-Indonesia Comprehensive Economic Partnership Agreement for instance, contains provisions designed to address a sustainability-related risk through promoting sustainable palm oil production: some tariff concessions only apply to palm oil produced in a way that respects strict sustainability standards.

SIAs serve as a tool for informed decision-making, consistently with human rights’ obligations to ensure public participation, transparency and accountability of economic decision-making. Under international human rights law, states must anticipate any risks that new laws or measures – including those related to trade – may present for vulnerable populations, health or social inequalities, so as to be able to avoid or reduce these or implement flanking measures to mitigate them. SIA methodology requires attention to human rights – a dimension that is often misunderstood. This goes beyond assessing the impact of the trade agreement on human rights. Rather, the human rights framework is uniquely suited to determine, objectively and transparently, which sectors, regions, groups or sustainability-related effects assessment should focus on, directing attention to those people, regions or policies that trade policy-makers often overlook.

Switzerland and EFTA’s first SIA

Switzerland is EFTA’s biggest economy. The Swiss government (the Federal Council) had long refused to commission SIAs for the trade agreements it is involved in. This drew criticism from various quarters, including international human rights bodies. The UN Committee on Economic, Social and Cultural Rights and the Committee on the Elimination of Discrimination against Women (CEDAW) have specifically recommended that Switzerland take into account its partners’ obligations when negotiating and concluding trade and investment agreements. They have encouraged Switzerland to systematically carry out impact assessments of its planned trade agreements, to determine possible impacts on human rights in Switzerland and in partner countries.

In 2022, to its credit, the Federal Council changed its position, paving the way for EFTA to commission the SIA of the trade agreement with Thailand, even as Swiss stakeholders differed about methodology and scope, such as whether SIAs should only undertake quantitative analysis and how regulatory impacts of a trade agreement should be considered.

Many a slip ‘twixt the ToR and the report

Hopes for this SIA were high. EFTA had drafted high quality terms of reference (ToR), which enabled analysis of quantitative and regulatory aspects of the planned trade agreement. The ToRs called for both qualitative and quantitative analysis, and mandated broad stakeholder consultations. The SIA was launched early enough in the negotiating process to make a difference; one of its explicit objectives was to inform the negotiation process. This contrasted with the environmental impact assessment of the EFTA-Mercosur trade agreement that Switzerland had commissioned in 2019, just before the end of those negotiations and much too late to have any impact.

This promising basis for EFTA’s first SIA made the disappointment of the actual result all the more acute. A first reading gives the impression that the report is a rough draft: typos abound, as do grammatical errors, incorrect references, apparently random presentation of stakeholder opinions and structural inconsistencies. This, added to the length (198 pages!) makes it hard to identify the substantive content and flow of analysis.

Methodological weaknesses

The SIA report contains a number of methodological and analytical weaknesses. The SIA’s most striking methodological shortcoming is its separation of its consideration of the economic impacts from the sustainability impacts. The focus of the economic impact analysis is far sharper than for the sustainability impacts which de facto relegates non-economic considerations to the background. EFTA’s social media communication reflects this imbalance, announcing that:

Key findings include:

“Expected growth in GDP, employment and consumer welfare in the EFTA States and Thailand,

Potential increase in foreign direct investment in both directions, promoting economic growth and innovation,

Social and environmental considerations: Global greenhouse gas emissions are not expected to increase, Global reduction of several major pollutants.”

The report dedicates a large number of pages to recommending environmental, labour and human rights provisions to be included in the FTA’s “trade and sustainable development” (TSD) Chapter. This is surprising as the recommendations are not based on analysis of the actual sustainability impacts of the agreement itself, and the jury is still out as to the actual impacts of TSD Chapters. This section makes for uncomfortable reading as there appears to be a white saviour colouring to the message that comes through: EFTA can help Thailand. Leaving aside the neo-colonial overtones of this, the message surprises as Thailand does better on many sustainability indicators than EFTA countries, as Figure 1 indicates.

Figure 1: Comparison of Switzerland and Thailand on sustainability-related indicators.

Thailand and Switzerland compared on sustainability indicators
A Good Life for All Within Planetary Boundaries

Source: A Good Life for All Within Planetary Boundaries

A third methodological shortcoming of this report is its failure to indicate what its sustainability focus is. Established methodologies specify that a SIA must select the key sustainability issues that will be assessed in detail and explain why a focus should be put on those selected. This SIA appears to have skipped this important methodological step (referred to as “Screening”), leaving the reader guessing what impacts the assessment was seeking to consider. The human rights-related impacts indicated at different points of the report include employment, gender equality, working conditions, labour standards, welfare effects, consumer rights, international human rights commitments, vulnerable groups, corporate social responsibility and inclusive economic development. Social aspects are sometimes defined as “consumers, welfare, handicrafts” and sometimes as “working conditions, child labour, gender equality and migrant rights.” None of these are developed in any detail.

An unhelpful level of generality

This lack of clear framing perhaps explains why so much of the SIA report remains at an unhelpful level of generality. Several sections refer to general theories or expectations about the impacts of a type of trade measure (e.g. “removal or modification of [non-tariff barriers] NTMs could boost Thai exports of this wide range of products”), but without discussing how a change to a specific NTM (the report refers to over 1381 NTMs in Thailand), could affect a specific sustainability outcome. In some instances such as the “case study” on pharmaceuticals, whole sections summarize a selection of theoretical perspectives on an issue yet fail to link these to the actual situation in any of the five States parties to the agreement.

The SIA positively presents highly-contested sustainability issues – such as deregulating cross-border data flows – yet without accompanying analysis the validity of such statements for this trade agreement cannot be gauged. The report also affirms that biodiversity or human rights impacts cannot be modelled, when in fact there are tried and tested ways of doing so.

Lack of conclusions

The report’s fragmented structure and lack of conclusions make it difficult for the reader to disentangle the various points presented and discern the possible positive and negative impacts of this agreement on sustainable development. Confusingly, it appears to contradict itself on several points. Take for example its assertion that the agreement can expand world market demand for vegetable oils and thus “improve the social and economic status of smallholders,” that comes after an affirmation that the FTA poses risks for vulnerable groups such as smallholders who struggle to transition to meet environmental, social and governance (ESG) standards amid financial constraints.” The fact that the report contains no actionable recommendations, beyond those in the section on the TSD Chapter adds to the inconclusive impression it leaves.

How to explain the disappointing result?

It may be too Machiavellian to imagine that some EFTA country officials wanted to show, with this SIA, that such exercises do not yield useful results, and therefore were therefore pleased to publish a report that is unclear and inconclusive. So why was this SIA report published despite its many shortcomings?

Could it be that the whole exercise was simply whitewash, permitting EFTA States to say that a sustainability assessment had been done, so as to forestall environmental, human rights or social critiques of the agreement? If this is the case, the SIA’s actual content and quality is understandably irrelevant. A number of industry communiqués about the EFTA-Thailand trade agreement do indeed refer to the SIA – but not to its content.

Another hypothesis is that uncomprehending readers dared not speak up and admit they were unable to understand the report, reassuring themselves perhaps that “the subject is highly technical”, “my English isn’t strong enough to follow all the details” or “after all, if noone else has spoken up, there are must surely be something of use in the report.”

Or perhaps the SIA served to reaffirm EFTA countries’ negotiating mandate for the agreement with Thailand? Many parts of the SIA report do read as if they are negotiating positions. The affirmation on page 43 that “policymakers in EFTA countries and Thailand should target barriers that currently increase trade costs for service providers, hinder opportunities from digital transition, and erode competitiveness” is but one of many examples.

More realistically though, the explanation may lie in the fact that SIAs are complex exercises and as this one is a first for EFTA, one should not hold it to as high a standard as would normally be expected.

The European Union is consistent in carrying out SIAs of the trade agreements it negotiates – having to date conducted more than thirty. Even those who welcome this agree that the process is a difficult one and that the results are often disappointing. The SIA of the EFTA-Thailand agreement acknowledges the shortcomings of the EU’s practice, but then, rather than taking those critiques as a basis for learning and finding a way around the challenges, it replicates the very approach that has disappointed in the past.

What prospects for future trade SIAs?

Other approaches do exist and useful new methodologies are emerging. In all likelihood EFTA will commission SIAs of future trade agreements, and the practice continues in other trade fora. In the spirit of contributing to SIA practice, this section touches on two key points: the need to adopt a clear and narrow focus and the value of integrating different methodologies and experiences.

Narrower, sharper focus

Sustainability Impact Assessments would yield a clearer picture of sustainability concerns and opportunities if they narrow in on a few aspects to consider in detail. These aspects could either be a proposed trade measure (e.g. liberalizing data flows or reducing tariffs for some goods), a specific group (e.g. livelihoods of smallholder farmers in the palm oil sector, or migrant workers’ rights), a geographical region or a sector (e.g. fisheries). Doing so would be one focuses the analysis and enables better understanding of the trade-related sustainability impacts that can be expected following conclusion of a new trade agreement. It also sets a clear basis for future monitoring. Table 1 sets out some examples of what this might have looked like for the EFTA-Thailand (with the proviso that the points to focus on would have to be determined by strict application of accepted SIA methodology, which is not the case here.) SIA methodology ensures an objective and transparent choice of focus for in-depth assessment – forestalling critiques that the focus has been driven by the desire to show the agreement in a more – or less – positive light.

A downside to this approach is that it will yield insights into only a select few sustainability aspects. However sharp and convincing analysis of fewer aspects yields more insights than general consideration of a wide range of impacts. And overall, with an increasing number of SIAs, a body of knowledge about possible impacts of specific measures or in specific sectors will emerge, even if impacts will differ depending on the countries involved.

Table 1 – Illustrative approach to SIA framing

Sector / MeasureTrade-related Concern / HypothesisGroup / RegionIndicator (Structural, Process or Outcome)
Vegetable oilNew export opportunities lead to increased production, in turns leads to deforestationSouthern ThailandNumber of Hectares dedicated to oil palm cultivation  
Vegetable oilInability to take advantage of new export opportunities Increased trade puts pressure on domestic prices, lowering smallscale producers’ incomes Increased income inequalityInformal workers / Smallscale producers in [name]  Thai provinceProportion of Informal Employment by sex (SDG 8.3.1) (O) Proportion of Informal Employment in the province (could be estimate( (O) Poverty levels amongst these informal workers (O) Assistance provided to enable them to benefit / guard them from harms due to new trade under the FTA (P)    
FisheriesIncreased competition from trade puts pressure on prices, leading to exploitation of workers / modern slaveryMigrant workers in Thailand or on board Thai fishing vessels  Numbers of migrant workers in fisheries in Thailand (O) Numbers (estimates) of illegal workers in fisheries sector (O) Perpetrators of forced labour are held to account (P) International labour rights treaties are ratified (S) Victims of labour rights violations have somewhere to seek advice, refuge or redress (P)

Other methodologies

Other impact assessments of trade agreements beyond the EU’s are often overlooked even though they offer useful insights. Human Rights Impact Assessment (HRIA) is one approach that is easily transposable for SIAs; in essence HRIAs focus on the same concerns as SIAs do, namely economic, social, environmental and human rights impacts of a planned agreement. The HRIA of the African Continental Trade Agreement (AfCFTA) is an interesting example. It studies a few topics in depth, follows a clear methodology and was carried out in parallel to the negotiations. A good number of its recommendations (such as tariff reduction exemptions on some agricultural goods to protect the right to food) were included in the AfCFTA. Other recommendations, such as those in favour of information cross-border traders, have since been acted on by governmental bodies. In addition to actionable recommendations, the report set out clear indicators for ongoing monitoring. Importantly the HRIA was revisited after five years, providing useful insights into the impact that a impact assessment can have.

Quantitative and qualitative methodologies are both relevant for SIAs. Tried and tested quantitative methodologies exist to assess possible environmental and social impacts of a trade agreement. These include modelling for biodiversity impacts, gender equality, employment and other impacts. Methodologies for relevant quantitative and qualitative approaches include the following:

Human Rights Economics

Human rights economics is torn on the question of sustainability impact assessments. It recognizes how valuable they can be, if done properly. At the same time it recognizes fundamental inconsistencies between trade liberalization and human rights (the term here being used interchangeably with sustainability or wellbeing, meaning meeting people’s economic needs in a way that is inclusive and transparent, within planetary boundaries). All new trade agreements explicitly or implicitly call for increased consumption, something that is fundamentally incompatible with the need for reducing pressure on planetary boundaries and better distributing existing resources that is at the heart of human rights economics.

This question will be the subject of other articles. Watch this space!

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