The interaction between sustainable development agendas and international trade rules has gradually evolved from a peripheral and exceptional issue of border adjustment into a comprehensive institutional agenda encompassing climate, labor, human rights, and supply chain governance. This evolution not only reflects the structural shift in global governance priorities, but also reveals the functional differentiation and growing tensions among multilateral, regional, and unilateral levels of rule-making. Against the backdrop of stalled multilateral progress, increasingly stringent regional standards, and the accelerating extraterritorial expansion of unilateral measures, sustainable trade rules are extending their regulatory reach from state border measures deep into corporate conduct and global supply chains. The underlying institutional logic has shifted from serving as a supplementary correction to the liberalized trade order toward directly shaping production models, compliance systems, and data infrastructures. Clarifying the trajectory and institutional structure of sustainable trade rules is therefore essential not only for understanding the ongoing restructuring of the international economic and trade order, but also for assessing China’s potential pathways for participation in the formation of these rules. This article traces the evolution of international sustainable trade regimes along a historical timeline, analyzes the logic and hierarchical relationships underlying rule formation, and further examines the core contradictions and future directions emerging in the current phase of rule expansion.

I. The Evolution of Sustainable Trade Rules: From Environmental Side-Issue to Comprehensive Governance Framework

The formation of sustainable trade rules has emerged gradually through the interaction of the multilateral trading system, environmental governance regimes, and the global division of labor. Broadly speaking, this evolution can be divided into three stages. Overall, the trajectory reflects an expansion of issue boundaries from environmental protection to broader sustainable governance, a transformation of rule carriers from exceptional clauses to multi-layered institutional arrangements, and a shift in governance focus from state border measures to corporate supply chain compliance. At the same time, sustainable trade rules have developed into a complex institutional structure through the interaction of multilateral, regional, and unilateral levels, with the functions and relationships among these levels changing significantly over time.

(I) Early Stage: Environmental Issues as Exceptions and Peripheral Concerns in Trade Rules (1947–1994)

Under the early multilateral framework established by the General Agreement on Tariffs and Trade 1947 (GATT 1947), the primary focus of trade governance was market liberalization and non-discrimination. Environmental issues were long regarded as matters of domestic sovereignty and were only granted limited recognition through Article XX’s general exceptions clause.[1] At this stage, the institutional structure was characterized by a single multilateral framework, without any dedicated or permanent trade arrangements addressing sustainability issues.

As a result, the balance between environmental considerations and trade disciplines relied primarily on dispute settlement mechanisms, and the resulting practices exposed the limitations of the existing framework in handling trade–environment relations. The 1991 and 1994 United States—Restrictions on Imports of Tuna disputes[2][3] were among the most representative cases of this period. The central issue in both disputes concerned whether a country could restrict imports on the grounds that another country’s production and processing methods failed to comply with its domestic environmental standards. The GATT panels were unable to establish a stable interpretive framework for the application of environmental exceptions. They neither adopted a clear normative position on production and processing methods (PPMs) nor developed a coherent analytical framework balancing non-discrimination principles with environmental policy objectives. These cases demonstrated that, in the absence of dedicated rules, reliance solely on general exceptions was insufficient to address increasingly complex environmental governance demands.

Toward the later part of this stage, the relationship between trade and the environment began to shift from a peripheral concern to a formal agenda item. The adoption of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 established the principle of common but differentiated responsibilities and respective capabilities, while also explicitly providing that measures taken to combat climate change, including unilateral measures, should not constitute arbitrary or unjustifiable discrimination or disguised restrictions on international trade. This indicated that the climate regime had begun proactively addressing trade coordination issues. Institutionally, however, trade law and climate law still operated largely in parallel: trade law provided the boundaries of exceptions, while climate law articulated policy principles, without genuine integration between the two systems.

(II) Middle Stage: Institutional Embedding and Agenda Expansion of Environmental Issues (1995–2015)

Following the establishment of the World Trade Organization (WTO) in 1995, sustainable trade rules entered a stage of institutional embedding. Sustainable development was incorporated for the first time as a foundational objective of the multilateral trading system. The preamble to the Marrakesh Agreement Establishing the World Trade Organization, signed in 1994 and entering into force in 1995, explicitly identified sustainable development as one of the organization’s objectives and called for the optimal use of the world’s resources in accordance with environmental protection needs. Meanwhile, the General Agreement on Tariffs and Trade 1994 (GATT 1994), incorporated as part of Annex 1A of the Marrakesh Agreement, carried forward the text of GATT 1947 and continued to provide space for environmental measures through its general exceptions clause.[4]

In addition, the WTO established the Committee on Trade and Environment (CTE) from the outset as a standing body dedicated to trade–environment issues, tasked with examining matters such as trade provisions in multilateral environmental agreements, the impact of environmental measures on market access, and eco-labeling. Environmental concerns thereby evolved from exceptional issues into standing institutional topics.

During this stage, sustainability concerns became embedded in trade rules through multiple pathways.

First, specialized multilateral agreements expanded the scope of environmental disciplines. For example, the Agreement on Technical Barriers to Trade (TBT) recognized environmental protection as a legitimate objective; the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) addressed issues relating to food safety and animal and plant health; and the Agreement on Subsidies and Countervailing Measures (SCM) established a general framework governing subsidies, which later became relevant for fisheries subsidy negotiations and disputes over renewable energy support measures.

At the same time, the dispute settlement mechanism continued to shape norms through interpretation. WTO Appellate Body decisions[5] in disputes such as United States—Shrimp[6], EC—Asbestos[7], and Brazil—Retreaded Tyres[8] provided systematic interpretations of the chapeau requirements under Article XX, the necessity test, and the relationship between measures and policy objectives. These rulings helped develop an analytical framework for handling trade–environment disputes.

Second, regional trade agreements (RTAs) began systematically incorporating environmental chapters. The EU–Korea Free Trade Agreement introduced a dedicated Trade and Sustainable Development (TSD) chapter for the first time, establishing a model that the European Union would later standardize across bilateral agreements. Similarly, the United States–Peru Trade Promotion Agreement incorporated an environmental chapter and included a forestry governance annex, reflecting the U.S. approach of directly linking environmental obligations with trade commitments.

Third, the Doha Round negotiations[9] formally included issues such as environmental goods and services liberalization, fisheries subsidy disciplines, and the relationship between multilateral environmental agreements and WTO rules, demonstrating a substantial expansion in issue coverage. However, the Doha Round ultimately stalled and failed to produce binding outcomes on these matters. Against the backdrop of highly divergent member interests, the multilateral level faced structural constraints in generating unified rules on emerging sustainability issues.

Institutionally, this period produced a relatively stable dual-layer structure. The multilateral level functioned as the normative foundation, providing standards for legality review, defining the boundaries of exceptions, and establishing interpretive frameworks. The regional level, by contrast, assumed the role of rule expansion through sustainability chapters, cooperation mechanisms, and limited dispute procedures introducing more specific obligations. Compared with the earlier stage, this structure no longer relied solely on exceptional clauses to address individual disputes but instead developed specialized institutional interfaces around environmental and sustainability issues. Nevertheless, the overarching governance logic remained subordinate to the liberalized trade order itself: sustainability rules primarily served to supplement, modify, or qualify existing trade disciplines rather than forming a fully developed governance system directly regulating corporate conduct across multiple levels.

(III) Recent Stage: Formation of a Comprehensive Governance Framework and Transformation of Regulatory Logic (2015–Present)

The adoption of the Paris Agreement and the United Nations 2030 Agenda for Sustainable Development in 2015 fundamentally reshaped the overarching normative and policy environment within which sustainable trade rules operate. The former established global temperature goals and dynamic nationally determined contribution (NDC) mechanisms, while the latter expanded sustainability beyond traditional environmental issues into a broader agenda encompassing economic, social, and governance dimensions.

This integrated normative framework subsequently influenced trade governance, extending the focus of sustainable trade rules from environmental protection to climate change mitigation, biodiversity conservation, labor rights, and human rights protection. In some high-standard agreements and policy initiatives, additional issues such as gender equality and digital governance have also emerged. Unlike earlier stages, these topics have increasingly become interconnected within rule design itself, creating coupled normative structures linking climate goals with industrial policy, labor standards with market access, and human rights obligations with supply chain governance.

Against this backdrop, the multilateral, regional, and unilateral levels have displayed increasingly differentiated functions in rule-making, implementation mechanisms, and governance targets.

1. Multilateral Developments

The multilateral level continues to serve as the normative foundation, but the gap between its rule-making capacity and the governance demands of emerging sustainability issues has widened further. Existing agreements—including GATT 1994 Article XX, the TBT Agreement, the SPS Agreement, and the SCM Agreement—remain the basic framework for assessing the legality of environment- and sustainability-related trade measures.

Although the WTO Appellate Body has been unable to hear new appeals since December 2019, its past jurisprudence continues to serve as an important interpretive reference for members designing and evaluating such measures.

Despite institutional constraints, the multilateral level has achieved breakthroughs in limited areas. The Agreement on Fisheries Subsidies, adopted at the WTO’s Twelfth Ministerial Conference in 2022 and entering into force in September 2025, became the first multilateral WTO agreement centered explicitly on environmental sustainability. By prohibiting subsidies contributing to illegal, unreported, and unregulated (IUU) fishing, it established a new model for addressing resource sustainability within the multilateral trading system.

At the same time, plurilateral initiatives[10] concerning environmental goods agreements, fossil fuel subsidy reform, and plastic pollution prevention, although not yet producing universally binding rules, have contributed to agenda coordination, knowledge exchange, and normative experimentation within the multilateral framework.

However, the prolonged stagnation of the Doha Round, the paralysis of the Appellate Body, and the inefficiencies of consensus-based decision-making amid increasingly divergent member interests have limited the multilateral level’s ability to provide timely and binding responses to emerging sustainability issues. This rule-making gap has, in turn, indirectly accelerated rule expansion at the regional and unilateral levels.

2. Regional and Bilateral Developments

The regional level has become the primary arena for the expansion of sustainable trade rules, with significant strengthening evident in issue coverage, standard intensity, and enforcement mechanisms.

In terms of issue coverage, regional agreement models have diverged notably. Agreements led by the United States, represented by the United States–Mexico–Canada Agreement (USMCA), incorporate environmental chapters addressing multilateral environmental agreement obligations, biodiversity protection, marine litter management, and sustainable fisheries governance. Their design emphasizes enforceability and clearly specified behavioral obligations. Labor chapters rely on the application of core International Labour Organization conventions and strengthen implementation through facility-specific rapid response mechanisms, which have already been invoked multiple times against specific facilities in Mexico, directly affecting the import treatment of related products.

By contrast, agreements led by the European Union, such as the EU–Vietnam Free Trade Agreement and the EU–New Zealand Free Trade Agreement, place the implementation of the Paris Agreement, core labor standards, and responsible business conduct at the center of their Trade and Sustainable Development chapters. Their obligations are more systemic and principle-based, relying on indirect constraints through interactions with generalized preference schemes and market access arrangements.

The enforcement mechanisms within EU TSD chapters have progressively strengthened over time. The EU–Korea Free Trade Agreement, representing an earlier generation of TSD chapters, primarily relied on domestic advisory groups, government consultations, and panels of experts. In 2021, the European Commission confirmed, based on an expert panel report, that Korea had violated its labor commitments. The EU–New Zealand Free Trade Agreement further strengthened enforceability by integrating core labor standards and Paris Agreement obligations into a more robust compliance framework and preserving the possibility of trade sanctions as a last resort in cases of serious violations.

Among broader regional agreements, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) occupies an intermediate position between the U.S. and EU models, retaining separate environmental and labor chapters while adopting more balanced approaches regarding obligation strength and scope. The Regional Comprehensive Economic Partnership (RCEP), by contrast, adopts a relatively restrained approach toward sustainability issues and does not include standalone environmental or labor chapters, reflecting differing development stages and regulatory preferences among its members.

These developments demonstrate that sustainability provisions in regional agreements are increasingly intertwined with domestic regulatory and administrative enforcement systems. Their practical effects extend beyond traditional inter-state dispute settlement procedures and operate instead through market access conditions, administrative enforcement, and corporate compliance obligations.

3. Unilateral Developments

The unilateral level currently represents the fastest-expanding component of the rule structure. Its defining characteristic is the extension of governance targets from border measures deep into supply chains, accompanied by a shift in regulatory focus from states to corporations.

For example, the European Union’s Carbon Border Adjustment Mechanism (CBAM) extends domestic carbon constraints into overseas production processes by requiring importers to establish embedded emissions accounting and reporting capacities. The Regulation on Prohibiting Products Made with Forced Labour on the Union Market aims to prohibit all products involving forced labor from entering, circulating within, or being exported from the EU market. Its regulatory scope covers all industries and supply chains, imposing significantly higher compliance requirements on firms exporting to or integrated with EU-linked supply chains.

Similarly, the Corporate Sustainability Due Diligence Directive (CSDDD) requires covered companies to identify, prevent, and address human rights and environmental impacts throughout their own operations and global value chains. The EU Deforestation Regulation (EUDR) requires specified commodities entering the EU market to be accompanied by due diligence statements demonstrating that they were not produced on land deforested after 31 December 2020.

These unilateral measures generate extraterritorial effects through two mechanisms: cost transmission and standards diffusion. Cost transmission occurs when foreign producers must modify production methods, invest in compliance management, and absorb additional costs in order to maintain access to target markets. Standards diffusion arises when third-country governments and firms adjust domestic policies or industry standards to align with major export market requirements. The United Kingdom’s confirmation that it will implement its own CBAM beginning in 2027 further indicates that such measures may promote convergence among major jurisdictions.

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II. Contemporary Contradictions and Future Prospects

The central issues in the evolution of sustainable trade rules have shifted from the earlier normative debate over whether environmental objectives should be incorporated into trade rules toward institutional conflicts concerning who formulates rules, who bears compliance costs, and who controls implementation timelines.

Current rule expansion has exposed three parallel pressures. First, compatibility between unilateral sustainability legislation and WTO multilateral disciplines remains subject to unstable interpretation. Second, legislative ambition often exceeds the implementation capacity of enterprises, member states, and third countries. Third, compliance requirements—such as carbon accounting, supply chain traceability, third-party certification, and data reporting—are increasingly transmitting institutional costs upstream to suppliers and developing economies.

For instance, Russia has initiated WTO consultations regarding the EU’s CBAM. Meanwhile, due to delays in EU IT system development, insufficient enforcement preparedness among member states, and widespread protests over corporate compliance burdens, the EU has twice postponed the application timeline of the EUDR.[11] CBAM itself also underwent simplification revisions in 2025, introducing technical adjustments such as exemptions for small-volume imports. In the coming years, sustainable trade rules are likely to continue oscillating between regulatory tightening and implementation recalibration.

Against this background, China’s sustainable trade strategy can no longer remain limited to passively responding to external regulatory developments. Instead, it must increasingly rely on domestic institutional capacity-building to support meaningful participation in international rule-making.

In response to insufficient multilateral rule supply, strengthened sustainability clauses in regional agreements, and the extension of unilateral compliance requirements into supply chains, China should enhance the foundational capabilities of enterprises in adapting to international green and low-carbon standards, supply chain due diligence obligations, and sustainable trade compliance systems, particularly in key products, industries, and export markets.

The Opinions on Expanding Green Trade issued by China’s Ministry of Commerce in 2025 already provide a relatively comprehensive policy framework for green trade development, including strengthening green and low-carbon capabilities of foreign trade enterprises, establishing public service platforms for green trade, accelerating the construction of national carbon footprint factor databases, expanding green electricity certificate trading, improving statistical monitoring systems, and promoting international exchanges and standards mutual recognition.

In this context, China should accelerate the development of carbon footprint accounting systems for traded products, supply chain traceability mechanisms, green certification systems, green electricity trading platforms, and supporting data infrastructures. Transforming standards, methodologies, and platforms into operational compliance tools would help reduce cross-market compliance costs while also supporting international standards alignment and regulatory coordination.

At the same time, China should convert domestic institutional capacity into external rule-making influence by advancing free trade agreement upgrades, standards mutual recognition, conformity assessment cooperation, and bilateral and multilateral economic cooperation frameworks, thereby increasing the visibility and influence of Chinese approaches within the evolving landscape of sustainable trade governance.

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Footnotes

[1] Article XX(b) permits measures necessary to protect human, animal, or plant life or health, while Article XX(g) permits measures relating to the conservation of exhaustible natural resources, provided such measures do not constitute arbitrary or unjustifiable discrimination or disguised restrictions on international trade.

[2] United States—Restrictions on Imports of Tuna (1991): a dispute initiated by Mexico concerning U.S. import restrictions on tuna products associated with dolphin mortality during fishing operations.

[3] United States—Restrictions on Imports of Tuna (1994): a dispute initiated by the European Economic Community and the Netherlands concerning U.S. restrictions on tuna products imported through intermediary countries.

[4] WTO members may invoke exceptions under GATT 1994 Article XX(b) or XX(g) for environmental measures, subject to the chapeau requirements prohibiting arbitrary discrimination and disguised trade restrictions.

[5] The Appellate Body was established under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes.

[6] United States—Import Prohibition of Certain Shrimp and Shrimp Products (1998).

[7] European Communities—Measures Affecting Asbestos and Asbestos-Containing Products (2001).

[8] Brazil—Measures Affecting Imports of Retreaded Tyres (2007).

[9] The Doha Development Agenda (DDA) was launched at the WTO Fourth Ministerial Conference in Doha, Qatar, in November 2001.

[10] “Plurilateral initiatives” refer to negotiations or cooperative arrangements among subsets of WTO members on specific issues.

[11] The EUDR application timeline was revised twice, in December 2024 and December 2025. Current implementation dates are 30 December 2026 for large and medium-sized operators and 30 June 2027 for micro and small enterprises.

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Authors

Fan Xinyu
Research Fellow, International Institute of Green Finance (IIGF), Central University of Finance and Economics

Liu Huixin
Executive Director, Climate Finance Research Center, International Institute of Green Finance (IIGF), Central University of Finance and Economics