Amid the efforts to address the new coronavirus pandemic, the European Union (EU) has moved forward in structuring a set of incentives and obligations to protect the natural resources, gathered in the so-called European Green Deal. The Deal, which has been under discussion by the European Commission and Parliament, has gained strength with the Recovery Fund's approval. Also, the European Commission has approved a new implementation schedule, putting forward not only the actions referred to the natural resources, but also business taxation improvement, digital services, and trade policy review.
The Green Deal is the result of the Paris Agreement, ratified in 2016 by the European Union, and the European Climate Law, which established the climate neutrality of CO2 emissions by 2050 and by 2030, the reduction of 50 to 55% of the emissions compared to 1990. In order to meet these goals, a variety of policies of the Green Deal will be launched in a short period of time - between 2020 and 2021.
The Deal has environmental ambitions that go beyond the European boundaries: its goal is to protect the European population against foreign products that can be hazardous to the environment and the health. It is also a geostrategic deal while restating the European leadership in the forefront of environmental protection. By exerting a kind of "environmental pre-sanction", the EU aims to impose the adoption of policies and plans compatibles with those of the Union as a prerequisite for trade relations between the EU and third parties. The Green Deal will have a direct impact on the Brazilian economy, given that, in 2018, EU countries responded for 66% of the foreign direct investments in Brazil. In addition, the Union is Brazil's second-largest trade partner.
According to the World Resources Institute (WRI/CAIT), Brazil is among the ten largest CO2 emitters, while the agricultural sector (which includes land-use change and deforestation) the main contributor to CO2 emissions. In this context, Brazil will undoubtedly be pressed to adopt clear actions to reduce CO2 emissions or it will be banned from trading with the EU market. In order to keep its international relevance beyond the agricultural sector, Brazil's energy-intensive industries - such as cement and steel - will need to increase the use of renewable sources, aiming for a progressive transition to a cleaner energy matrix.
To better understand the scope of the Deal, it is part of the European Green Deal, the establishment of sectoral policies, which will focus from agricultural products to electronic devices. For example, the Farm to Fork Program aims to strengthen the sustainability requirements of agribusiness products to ensure a neutral or a positive environmental impact regarding the natural resources (soil, water, air, fauna, and animal well-being). The Program objectives contrast with a new study from Minas Gerais Federal University (UFMG, in Portuguese) published in Science magazine: according to it, circa 20% of soy and meat exportations from Brazil to the European Union, comes from deforestation areas. Yet, the Carbon Border Adjustment Mechanism - CBAM, for instance, establishes that manufactured products from outside the EU will need to pay a "carbon taxation," when entering the Union, in case their production process didn't adopt measures to reduce CO2 emissions nor the acquisition of carbon credits. The purpose is to avoid the so-called "carbon leakage", preventing unfair competition. In this regard, a variety of productive sectors have supported the mechanism, such as the European Steel Tube Association - ESTA.
Despite not be possible to predict the impacts of the European Green Deal yet in the foreign trade - also if disputes will come up in light of existing international Treats and Agreements - it is increasingly clear that the Union will maintain its "green" protagonism, requiring the adoption of environmental standards in bilateral and multilateral trade agreements. In fact, the European Commission's Communication to the Parliament is clear when stating that many international partners don't share the same ambition as the EU and that climate change issues require a global response. For this reason, the Communication states that the European Union will take the chance to reshape the foreign trade system in order to advance the topics addressed by the Green Deal - notably through the World Trade Organization (WTO), bilateral agreements (EU-Mercosur) and multilateral forums (G7, G20).
In regard to the EU-MERCOSUR trade agreement, concluded in 2019 and which ratification faces resistance, the environmental issue will play a relevant role for this definition - although it isn't the single factor to determine the Agreement ratification. When and if ratified, the EU-MERCOSUR Agreement will encompass 25% of the global trade and approximately 1 billion people, becoming the world's biggest trade deal. The concerns regarding environmental issues do also encompasses private investors, as evidenced recently when private investment funds' managers requested to the Brazilian Government clarifications on its environmental policy to protect forest resources and, specifically, the Amazon region.
Regarding the adoption of more strict social and environmental standards, the assumption of voluntary commitments by corporate groups is also noted - like Apple, which announced the goal of CO2 emissions neutrality up to 2030. Sustainability policies linked to significant investments in increasing the usage of recycled materials and renewable energy, waste reduction, and better management of its supply chain and suppliers. The same is noticed in a variety of productive sectors, concerned with maintaining access to increasingly demanding consumers and the need to reduce its climate and environmental footprint.
Regardless of the outcome of the EU-MERCOSUR agreement, the European Green Deal, through its policies defined unilaterally, will impact sensitively Brazilian productive sectors exportations to the Union and European multinational companies operating in Brazil, which will need to adapt to the headquarters' directives.
At the same time that seems inevitable that the Green Deal's aspects will be submitted to WTO assessment, it is undoubted that, progressively, productive chains will need to adapt to ensure that meets the highest sustainability standards and environmental rules to access the European market, comprising a variety of goods - such as animal protein, grains, ores in general, pulp and paper, and electronic devices. The adoption of good practices, such as those set in the Green Deal, will be decisive and mandatory to keep companies and Countries linked in multilateral and bilateral economic cooperations.
Evidently, the compliance with the Green Deal standards and rules is an additional challenge to conclude the EU-MERCOSUR Agreement. Nevertheless, opportunities also emerge in the Brazilian Government and private sector to strengthen the sustainability agenda and increase investments in research and development to cope with environmental pressing issues and access to finite natural resources. Finally, the compliance with the Green Deal's rules and the development of a "geocompliance" of the productive chain will ensure a crucial economic partnership to Brazil in the long term - despite the problematic diplomatic relationship that the country currently has with the Union.
AUTHORS
Lucas Mastellaro Baruzzi, Master in Public Policy (King's College London), Master of Science in Laws (University of São Paulo), lawyer (Pontifical Catholic University of São Paulo), and social scientist (University of São Paulo). Partner of public policy and government affairs at Barros Filho & Almeida Prado Law firm.
Jeferson Manhaes, Master in International Affairs (Sorbonne), attending Master in Eco-innovation (Paris-Saclay). Expert in the intersection of innovation and sustainability and its impacts on policy. With long international experience supporting the co-creation of solutions which impacts technology and environment.
Thiago Munhoz Agostinho, lawyer (Pontifical Catholic University of São Paulo), and expert in Tax Law (University of São Paulo). Practicing lawyer in the regulatory and corporate fields, with broad experience supporting Italian companies in the Brazilian context. Partner at Buccioli Braz Oliveira Law firm.