Mercosur
deal risks weakening EU anti-deforestation rules
A legal
fight looms as EU and Mercosur countries don’t see eye to eye on a key clause
of their fresh trade deal.
December 20,
2024 7:50 pm CET
By Louise
Guillot and Camille Gijs
New European
Union rules to fight global deforestation haven’t even come into force yet, and
already Latin American countries of the Mercosur bloc could have snatched a way
around them.
That's
thanks to a legal provision in the new EU-Mercosur trade deal signed in early
December.
Mercosur
countries, which include Brazil, Argentina, Uruguay and Paraguay, came out of
the arduous trade negotiations claiming they had obtained a way to shield
themselves from the EU's upcoming stringent environmental measures.
The key,
they argue, is a “rebalancing
mechanism,” a first in EU trade agreements, that allows both parties to seek
compensation or adjustments in the form of tariffs or quotas if they consider
the other party has introduced a measure that “nullifies or substantially
impairs” the benefits under the deal.
Mercosur
countries see the EU Deforestation Regulation (EUDR) as such a measure.
The EUDR,
due to come into force on Dec. 30 2025, requires companies to track and trace
their shipments of coffee, cocoa, palm oil, soy, rubber, beef and timber to
show they didn’t come from deforested areas — or risk hefty fines if they can’t
comply. The goal is to end the EU's contribution to global deforestation.
But if the
Mercosur countries are successful in challenging the law, it could
significantly undermine this goal. South American countries are major producers
of commodities such as soy and beef that are covered by the EUDR, and the
region is a global hotspot for deforestation.
Uruguay
believes the rebalancing mechanism “will allow Mercosur to counteract the
effects that unilateral EU measures (such as the Green Deal) have or could have
on exports from Mercosur countries,” the country’s government said in its
analysis of the deal.
This
“constitutes a protection tool for Mercosur countries against the application
of environmental measures by the EU, which may distort bi-regional trade
flows,” Uruguay argued, adding that “this undoubtedly gives Mercosur a new
advantage over its competitors.”
“This is
very important because developing countries are used to this kind of unbalance
in trade negotiations. So they need to find new ways to make sure that the
access they are granted remains effective,” a Mercosur diplomat, granted
anonymity to discuss negotiating dynamics like other officials cited in this
story.
Devil’s in
the details
But the
European Commission strongly rejects claims the Mercosur trade deal would
weaken the anti-deforestation rules.
“There's
nothing that the agreement does in order to derogate or to change for example
the EUDR. That has to be very clear. We navigate within the legal possibility
that the EUDR allows,” said a senior Commission official, granted anonymity as
they are not permitted to speak on the record.
Mercosur
countries “will of course be subject to exactly the same legal obligations as
all other countries,” the official added, pointing out that the requirements
under the EUDR fall on European importers, not countries themselves.
A party
cannot seek compensation for “measures that are already in place, that have
already been agreed, or measures which are foreseeable. So this does not impact
the right to regulate,” said a second senior EU official.
But green
groups are not so confident. A preliminary legal analysis of the trade deal by
Greenpeace EU suggests that the Mercosur countries indeed got what they wanted,
and that the trade deal will “consider trade interests before enacting
environmental measures.”
The message
behind the introduction of the rebalancing mechanism is that “environmental
protection has a cost for society, but business is not required to pay for it,”
the NGO said in its analysis.
It warned
that it risks undermining through a backdoor a flagship element of the European
Green Deal and set a dangerous precedent. Other countries with which the EU is
in trade talks, such as Indonesia, have slammed the anti-deforestation rules
for years, claiming it is green protectionism.
By agreeing
to this mechanism, “the Commission has shot itself and member states in the
foot when it comes to implementing the EUDR,” said Michael Rice, a value chain
and trade lawyer with the environmental legal charity ClientEarth. “The
Commission has potentially made every member state vulnerable to trade disputes
from Mercosur countries when they comply with their obligations to apply the
EUDR to products from Mercosur countries,” he added.
Who's right?
The question
of who’s right in their interpretations of the impacts of the Mercosur deal on
the EUDR is set to give trade wonks a headache.
“The
document was drafted in such a way that both sides can claim victory,” said
Geraldo Vidigal, a Brazilian professor in international trade law at the
University of Amsterdam.
But it’s not
only the rebalancing mechanism that risks weakening the EU Deforestation
Regulation, according to ClientEarth’s Rice. It’s also the annex to the
Mercosur agreement’s trade and sustainability chapter.
Some of the
clauses, in particular articles 55 and 56, in this annex “would force EU Member
States and the Commission to act inconsistently with their obligations under
the EUDR” and “allow Mercosur countries to influence how the EUDR is
implemented and enforced,” Rice said.
This could
increase the “political and diplomatic pressure from Mercosur countries” and
“risks jeopardising the careful and fair application of the EUDR,” he warned.
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