Trade and Investment

EU-Mercosur trade deal hits new snag over environmental demands

From leaders to activists, nobody is pleased as leaked side letter seeks extra commitments on 2019 deal
<p>Aerial view of illegal deforestation on a soybean farm in the Brazilian Amazon in July 2022. Environmentalists have said the EU-Mercosur trade agreement risks driving deforestation in the countries of the South American bloc (Image: Alamy)</p>

Aerial view of illegal deforestation on a soybean farm in the Brazilian Amazon in July 2022. Environmentalists have said the EU-Mercosur trade agreement risks driving deforestation in the countries of the South American bloc (Image: Alamy)

After more than two decades on the negotiating table, the trade deal between the European Union and South America’s Mercosur bloc now faces another obstacle: new environmental demands from the EU, with which the Brazilian government appears unwilling to abide, and which even environmentalists have denounced as “greenwash”.

The agreement between the EU and Mercosur – the trade bloc comprising Argentina, Brazil, Paraguay and Uruguay – would progressively reduce and eliminate tariffs between the two regions, which together are home to more than 710 million people and account for just under 18% of global gross domestic product.

Though an agreement between the blocs was reached in principle in 2019, it is yet to be finalised and ratified. By the following year, multiple European governments had expressed concerns over the deal, directing criticism at the environmental policies of Brazil’s then-president Jair Bolsonaro, and stalling progress until his administration committed to adopting policies to control deforestation. At the time, deforestation in the Brazilian Amazon was at its highest rate in a decade, while surging forest fires in the Amazon had garnered increasing international attention.

With the inauguration of Luiz Inácio Lula da Silva as Brazil’s new president early this year, and his pledges to reverse the environmental setbacks seen during the previous government, a new window of opportunity opened to resume talks between the two trade blocs.

Still, Europe has continued to push the South American bloc to commit to binding measures to tackle deforestation and, in a so-called side letter to the agreement, has proposed changes to the chapter that focus on trade and sustainable development.

This additional instrument – which was not officially announced but has circulated among Mercosur and EU members, and even leaked to environmentalists – reiterates the signatories’ requirement “to not lower their environmental or labour standards with the intention of attracting foreign trade or investment.”

The letter also demands further commitments to implementing their nationally determined contributions (NDCs) to the Paris Agreement on climate change, and agreements under the Convention on Biological Diversity, among other international treaties and protocols.

But the new document has been criticised by Brazilian lawmakers and the government. In a recent meeting in the country’s congress, foreign minister Mauro Vieira said that the text turned the voluntary commitments of the Paris Agreement into mandatory ones, and he suggested a risk of sanctions on Brazil in retaliation, if the country is unable to meet its targets. He said that he wants to avoid a situation in which “the environment is used as a pretext for protectionist measures,” and added that the Brazilian government is working on counter-proposals.

President Lula, for his part, has struck a similar tone. During his official visit to Spain in April, he said that the EU-Mercosur deal is “still impossible to be accepted,” although he expects to be able to strike a deal by the end of the year.

Elsewhere, civil society organisations that had been pushing for higher environmental and human rights standards in the EU-Mercosur agreement were frustrated with the content of the side letter. The proposed trade agreement has long been controversial among environmentalists, Indigenous activists and small farmers in both blocs, who have said it risks driving deforestation in Mercosur countries, creating unfair competition, and threats to traditional communities’ rights.

In a joint release with other organisations, Friends of the Earth Europe said the additional material in the side letter “does nothing” to safeguard the environment, climate or human rights, offering only “cosmetic, aspirational and unenforceable adjustments”. The organisation also criticised the proposed instrument for not addressing activities that drive greenhouse gas emissions, such as Brazilian agriculture, and said that the agreement continues to sideline Indigenous peoples and small-scale farmers.

In March, a group representing communities from Brazil, Paraguay and Argentina visited the European Parliament in Brussels to express their concerns over the agreement. Ana Paula Santos Souza, a family farmer and professor in the Brazilian Amazon state of Pará, who attended the meeting, described a lack of engagement with officials: “There was not a single moment when [negotiations over] these agreements listened to the people.”

Other experts considered the side letter to be weak in practical legal terms. “It is not particularly binding,” said Lia Valls Pereira, a professor at the State University of Rio de Janeiro, at a webinar on 18 May.

We did not see in the side letter any risk of sanctions being applied to Mercosur countries
Pedro da Motta Veiga, Centre for Studies in Integration and Development

“We did not see in the side letter any perspective or risk of sanctions being applied to the Mercosur countries,” added Pedro da Motta Veiga, another speaker and the director of the Centre for Studies in Integration and Development (CINDES), a thinktank focused on Brazil’s economic policies and sustainable development.

At the webinar, Maurizio Cellini, the head of the trade section of an EU delegation that visited Brasília on 14–20 May, explained that the additional instrument was “essentially interpretive” and it should be seen “as a proposal rather than a dictate”.

The delegation, composed of a group of lawmakers from the European Parliament, had flown to Brazil aiming to unlock the trade agreement. They spoke in congress and visited officials, including Marina Silva, the country’s environment minister.

José Manuel Fernandes, the Portuguese lawmaker leading the EU delegation, told Brazilian media that he considered the reactions to the side letter to be mostly positive, but said that the deal was facing a critical moment: “If it is not closed this year, it will hardly be closed anytime soon.”