After approximately 20 years of negotiations, the EU and the Mercosur countries agreed on a joint trade agreement in 2019 – however, it has not yet been concluded. The objection of the countries blocking the agreement was that the Brazilian president at the time, Jair Bolsonaro, did not put a stop to the large-scale slash-and-burn clearances in the Amazon region. However, since the new head of government, Luiz Inácio “Lula” da Silva, took office, there has been growing confidence that the agreement will be concluded quickly.
But still, one key question remains with regard to the trade agreement with the Mercosur countries, that is, Argentina, Brazil, Paraguay, and Uruguay: Is trade possible without the risk of deforestation? Civil society and some EU member states, such as France and Austria, claim the clauses in the draft are not enough because they are not enforceable. They are calling for effective protection against deforestation and forest degradation that will endure even if agricultural land-use pressures increase – not least because of the export opportunities created by the agreement. Effective sanctions are a key element here, but they are difficult to implement because modifications to the current text version are challenging.
The new EU regulation for deforestation-free supply chains offers some leverage. It is planned to be adopted in spring 2023 and enter into force at the end of 2024. According to this regulation, certain products such as beef, soy, coffee, and palm oil may only be made available to the European market if they have been produced in a way that does not involve deforestation or forest damage. The deciding factor is that they cannot come from areas that have been deforested after the end of 2020. Future expansion of the product range and ecosystems to be protected is possible.
The regulation creates due diligence obligations. European companies will no longer buy raw materials or products if it cannot be ensured that they comply with the requirements of the regulation. Essentially, this comes very close to a sanction.
Unilateral EU regulations decrease the agreement’s appeal
However, to leave enforcing sustainability solely at the reference to the new regulation would ignore the potential of an interplay between agreement and regulation. In its 2022 Communication “The power of trade partnerships: together for green and just economic growth”, the Commission identifies effective sanctions as a last resort for enforcement, but it also highlights the importance of partnership cooperation and the linking of trade agreements with unilateral measures.
Such a cooperative approach is also warranted in light of the EU-Mercosur Agreement, as the regulation has raised serious concerns among producing countries. They have to exert considerable effort to stop deforestation by effectively enforcing their own laws. Apart from the fact that the EU is thus unilaterally defining requirements and specifications, future exports to the EU will require considerable investments in certification and logistics as a result of the new regulation. This poses major challenges for small and medium-sized enterprises in particular, but also for farmers in supplier countries. And last but not least, unilateral requirements can reduce the incentive for joining a trade agreement, at least with regard to the sustainability obligations contained therein.
Partnership roadmap for sustainability
This is where a cooperation for the implementation of the agreement and the regulation could play a role, linking targets, measures, and corresponding support with a concrete timetable within the framework of a roadmap. In the case of the EU-Mercosur Agreement, it could be adopted as an addendum that allows for a later expansion to include additional products from the outset, as is also possible under the regulation. This could be conceivable for sugar cane and maize, both of which are subject to a possible expansion of production that risks deforestation due to the greater European market access provided in the agreement.
Similar cooperation would be possible retroactively for trade agreements that have already entered into force and vice versa as an incentive for future agreements. They are future-oriented for trade agreements, unilateral measures, and as well their interlinkage. One reason is because they can significantly promote the establishment of new trade agreements and the implementation of existing ones. But also, because the need for a cooperative partnership accompanying unilateral measures will increase with the Timber Trade Regulation, which has been in place for some time, and the planned regulations on due diligence obligations for corporations.
Whether it is market access, trade diversification, or geo-strategy – the EU is seeking new trade relations, not least because of experiences following Russia’s attack on Ukraine. In doing so, it must not lose sight of its sustainability goals and must remain attractive to partners. The agreement with the Mercosur countries provides a good opportunity for this.
