Climate change poses significant challenges for international trade, but it can also be an opportunity to foster sustainable economic growth and greater cooperation among countries.” Richard S. J. Tol (2013)
In 2021, the European Union (EU) was Mercosur’s (the Southern Common Market) second most important trading partner after China, meaning 16 out of every 100 goods traded in the Latin American bloc originated from Europe. Specifically, out of every 100 products exported from the EU to Mercosur, 28 a”re machinery and appliances, 26 are chemical and pharmaceutical products, and 10 are transport equipment. On the other hand, Mercosur ranks 11th as a trading partner of the EU. Mercosur’s biggest exports to the EU were mineral products (22.3 percent of total exports), plant products such as soy and coffee (20.7 percent), and food, beverages, and tobacco (19.1 percent).
The Mercosur-EU Association Agreement (AA) aims to strengthen economic ties and foster cooperation between the parties, gradually reducing and eliminating tariffs between the two blocs. The agreement involves the integration of a market of 800 million people with over 100 billion dollars of bilateral trade in goods and services. However, the negotiation is still ongoing, and ratification remains highly controversial, mainly because of the potential adverse effects it could have on deforestation.
The AA contains a chapter on trade and sustainable development that includes provisions explicitly dedicated to sustainable forestry, commits to promoting the trade of products from sustainably managed forests, cooperation in forest conservation, and stipulates the creation of a subcommittee for cooperation and resolving any disagreement. However, there is a new regulation known as the European Green Deal, which includes new conditions. Among the most relevant is the prohibition of purchasing products from deforested areas.
Delving deeper into this comprehensive new strategy adopted by the European Commission in December 2019 and implemented in 2020. Its main goal is to transform the EU’s economy into a sustainable, climate-neutral model by 2050. The Pact focuses on key areas to address the challenges of climate change and promote the transition to a green economy. These include achieving climate neutrality (i.e., reducing its GHG emissions to net zero), circular economy, agriculture and biodiversity, sustainable finance, sustainable mobility, energy efficiency, and clean and renewable energy. Although it is an ambitious roadmap to confront the growing challenges of climate change and drive a more sustainable economy, it implies profound transformations in social and economic aspects centered on improving the quality of life of European citizens.
In March of this year, the EU presented a letter parallel to the AA given respecting its internal formal institutionality resulting from the Green Deal, which has yet to be officially announced. What does the letter demand? It requires Mercosur not to reduce environmental standards to attract trade or foreign investment. It also requests new commitments to implement the Nationally Determined Contributions (NDC) to the Paris Agreement on climate change and other international treaties and protocols. That is, it makes the voluntary commitments of the Paris Agreement mandatory and suggests sanctions in case of non-compliance.
Given the current international context, one has to ask whether the AA could still be touted as a space for promoting free international trade considering the impositions presented by the European bloc, and specifically, whether the discourse of a negative environmental impact as a result of the AA is an excuse or a genuine limitation. In response to this latter question, studies have emerged examining the effects of the AA on climate change. Among these, two stand out: the environmental impact study conducted by the London School of Economics (LSE) titled SIA in support of the association agreement negotiations between the European Union and Mercosur and the Impact Assessment of the EU-Mercosur Free Trade Agreement on Climate Change report, known as the “Ambec Report”, requested by the French government due to increasing concern about the environmental implications of the free trade agreement.
What do the reports tell us about the environmental impact of the AA? Broadly speaking, both studies highlight the concerns and opportunities related to the environmental policies of the blocs. The two reports emphasize that Mercosur countries are lagging in terms of ecological regulation compared to the EU. On the one hand, the studies highlight that the loss of forests and trees is a long-standing concern, especially in Brazil and Paraguay. However, the LSE report considers beef and soy production causal, while the Ambec Report does not. Regarding GHG contribution, the Mercosur bloc countries contribute 3.5 percent to global emissions, while the EU contributes 9.5 percent. So, should either party impose an approach to environmental care?
Both reports highlight as a potential benefit the increase in trade of environmental goods and services, the transfer of green technology, and greater international cooperation in green R&D. The effects of the chapter on trade and sustainable development will depend on the approach of the trading partners up to its application. In summary, they posit that trade liberalization can reduce greenhouse gas emissions by encouraging access to cleaner and more efficient technologies, emphasizing the importance of promoting trade in green goods and cooperating in adopting stricter environmental policies. However, they specify that balancing liberalization with robust environmental policies is imperative to avoid potential negative externalities.
In conclusion, market openness and removing trade barriers foster competitiveness and innovation, which can lead to greater adoption of clean and sustainable technologies. The free trade resulting from the AA could allow the parties to specialize in what they produce most efficiently, promoting economic efficiency and reducing pressure on natural resources. Moreover, trade between these blocs with different productive capacities can generate mutual benefits and foster more sustainable and environmentally friendly practices. In summary, the Mercosur-EU AA could be a win-win for both regions. With its abundant natural resources and growth opportunities, Latin America could expand its access to EU markets and diversify its exports. On the other hand, the EU could access agricultural products and raw materials, fostering greater competition and dynamism in its economy.
Both regions should adopt a cooperative stance where regulations and standards are not imposed. The AA between Mercosur and the European Union presents a unique opportunity to promote a sustainable economy through free trade and the abolition of tariffs and could be a tool to face environmental challenges and achieve a more sustainable and prosperous future for future generations. The agreement must be based on robust environmental policies and practical cooperation to ensure sustainable and environmentally respectful development, where competitiveness is promoted.
* Lucia Fernanda García Encinas is an economist who graduated from the Universidad Mayor de San Simón. She is interested in research and has been a research assistant at the IESE and SDSN Bolivia. She believes the solution to climate change is promoting the free market. She is currently an Intern at Fundación Internacional Bases.
Source: We Are Innovation
