Brazil, Indonesia, Malaysia, and Thailand have something in common besides their natural beauty. The four countries have a major role in international agricultural trade. Indonesia and Malaysia rank first and second in palm oil production. Thailand is the second largest producer of natural rubber and Brazil—besides being the third largest food exporter—tops the list of major producers in several production chains.
Given the significance of agricultural and livestock exports for these countries’ economies, in September, the four filed a formal complaint with the World Trade Organization’s (WTO) Committee on Agriculture against the European Union Deforestation Regulation (EUDR), which came into force in June this year. The document—which was also signed by 13 other developing countries, including Argentina, Mexico, Nigeria, and Peru—communicates deep concern about the European regulation and states that the measure disregards local realities and abilities, national laws, as well as environmental efforts and commitments made by the countries in the relevant multilateral forums.
The EUDR is a measure that imposes a set of specific conditions for the entry of certain agricultural products into the European Union, including a ban on importing products originating in deforested areas after December 31, 2020, regardless of whether the deforestation was legal or illegal.
The letter signed by the 17 countries states the EU’s approach is inflexible and that the measure per se will not cause a positive impact on deforestation rates and could yield adverse effects, such as increasing poverty, which harms especially small producers. These concerns are not just those of these countries’ governments. They also resonate with the private sector. An instance of this is the manifesto signed by entities representing Argentinian, Brazilian, and Paraguayan soybean and corn producers, who met a few weeks ago in Brasilia and issued a document criticizing European legislation and calling for the exclusion of the mechanism used for classifying countries provided for in the norm.
The country benchmarking system proposed by the EUDR is one of the most criticized topics of the norm. The mechanism will classify countries according to the degree of risk (high, standard, or low) of their products. Among the criteria that will be used are the country’s deforestation rate and the expansion of agricultural areas rate. In other words, countries with high forest cover and ones with unopened arable land will be penalized.
The damage to the image of a country categorized as high-risk is enormous. Moreover, it will affect not only relations with the EU but with all markets to which the country exports.
One could ask whether the reaction of governments and the private sector in developing and food-producing countries is exaggerated, but the answer is no. There is no exaggeration. The measure is in itself discriminatory and merely punitive. If we take just the Mercosur countries, especially Brazil, the scenario becomes even more worrying, given the future (possible) free trade agreement (FTA) between the two blocs.
Mercosur and the European Union began negotiating a FTA in 1999, in which both sides would significantly reduce taxation on access their markets, thus easing trade between the countries. In 2019, the negotiations officially concluded, with only minor adjustments remaining for the text to be finalized. Four years later, the European Union’s anti-deforestation legislation came into force, although the agreement’s final text does not yet exist.
From a systemic point of view, it’s as if the game rules had changed after the match ended. Although the FTA eases bilateral access (to European and Mercosur markets), the EUDR holds the potential to block access for a significant share of the products that South American countries export to Europe. Regarding just Brazil, we’re talking about US$ 16 billion. This figure represents the sum of Brazilian exports to the EU of the products affected by the EUDR in 2022.
Given that the EUDR already provides for the affected products’ list to expand in the coming years, it is not feasible now to define the measure’s real impact on Brazilian exports. This is why it is crucial that this measure is considered in the FTA negotiations. They are different processes but are intrinsically connected.
If the FTA negotiations conclude without some instrument that ensures real access for Mercosur products to the European market—regardless of (current and future) internal EU legislation that affects bilateral trade—, it will be the famous case of “win, but do not take,” or worse still, just lose.
Sueme Mori is the Director of International Relations at the Brazilian Confederation of Agriculture and Livestock (CNA).
*Article originally published on Broadcast.