Sustainability and ecological awareness are two terms that are in vogue in different sectors and across the world. In the European Union, sustainability is increasingly seen as essential to understand the development of the relationship between trade and the environment in the coming years.

In an interview with FGV News, Rodrigo Fagundes Cezar – the coordinator of the Trade and Sustainable Development Research Group, certified by FGV, based at the School of International Relations (FGV RI) and involving researchers from the United Kingdom, Australia and Switzerland – highlights the relevance of international environmental agreements, European Union policies’ growing strictness and how trade agreements can benefit from these practices. “The demand for broad and stringent sustainability standards in EU trade agreements reflects a series of interests among civil society and economic groups, and this demand has been growing stronger in recent years,” he says.

How important are environmental commitments in trade agreements?

International agreements to support sustainable development are often anchored in promotional instruments. In other words, they encourage certain actions and processes or generate a guide to best practices to be implemented by countries. These commitments are often not mandatory and even commitments that are considered mandatory suffer from not having credible monitoring and response instruments in case the signatory countries do not comply with them.

In turn, trade agreements have increasingly rigorous instruments to defend the environment and workers’ rights, for example. These agreements are also developing more credible mechanisms for encouraging compliance with their provisions and for punishing non-compliance. On the one hand, this movement may generate more tangible commitments in favor of sustainable development. On the other hand, they may bring pose certain political dilemmas that are not trivial.

What is new and different about the way the EU is now promoting environmental standards in its trade agreements?

The European Union traditionally carries with it the rhetoric of a bloc that promotes sustainable development through international trade. Until recently, however, these environmental standards in EU agreements were almost exclusively focused on international technical cooperation, despite being legally binding. In other words, compliance with these standards was theoretically mandatory but in practice there was no way of imposing penalties on commercial partners that did not respect them.

The new development now is that EU bodies are interested in making these clauses more stringent. This could even lead to trade sanctions in the event of non-compliance. This move by the EU, formalized through a document dated June 2022, is unprecedented and it will have major impacts on its trading partners, including Brazil and Mercosur.

Who is interested in seeing even stricter environmental standards in EU trade agreements?

First, NGOs, trade unions and consumer protection associations use the argument that the sustainability standards of European trade agreements have not had the desired effects and so they need to be even stronger. These groups cite recent experience to justify this position, such as the agreement between the EU and South Korea.

Second, given the anti-globalization movement that has taken hold in Europe, imposing stricter sustainability commitments in trade agreements is one way to appease those who are against trade liberalization. In addition, fears that the anti-globalization movement could lead to a deadlock in EU trade talks also help minimize opposition to stronger sustainability commitments.

Third, European productive groups, such as farmers, are increasingly subject to stronger regulations by the European Union and they want these same stricter environmental regulations to apply to their trading partners in order to level the playing field.

Is there anyone who doesn’t want these commitments to get stronger? And why is it important to understand this domestic political process in the EU?

For many companies, stringent sustainable development commitments can generate high adjustment costs. This does not mean that these companies have no commitment to sustainable development, just that they prefer voluntary and flexible commitments. For example, trade association BusinessEurope has consistently taken a stand against sustainable development commitments in trade agreements that could lead to sanctions.

How might stronger commitments in EU trade agreements affect Brazil?

Following the release of a document by the European Commission in June 2022 indicating the possibility of changing the sustainable development commitments in EU trade agreements, the European Parliament may demand that the trade and sustainable development chapter of the EU-Mercosur agreement be renegotiated. On the one hand, this could further delay the agreement as a whole. On the other hand, it is possible and indeed likely that more credible incentives will be generated for the Brazilian public sector to support stricter laws to protect the environment, although the content and format of these initiatives are hard to specify at this time.

What are the trends for sustainable development commitments in trade agreements?

There are three clear trends in relation to sustainability commitments in trade agreements: (1) broader commitments; (2) more legally binding commitments; and (3) monitoring mechanisms that can lead to trade sanctions. Accordingly, these agreements tend to refer to an increasing number of international commitments such as international climate conventions. They tend to use increasingly stringent language, demanding and not just encouraging compliance with agreed-upon provisions. Finally, in an increasing number of agreements, in order to qualify for lower tariffs, parties must comply with sustainable development provisions.

Read this related article published in FGV News, called “Who in the EU demands strict environmental agreements?”