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The European Union is known for demanding strict environmental standards from the countries with which it trades. In recent months, for example, news that the European Parliament has passed a law to limit imports of commodities linked to deforestation has had repercussions in Brazil.

Less well known, however, is the extensive internal debate that takes place before the EU makes decisions on trade policy. Opening up this black box reveals domestic groups in favor of and against stricter sustainability standards in trade agreements. Who are these groups? What explains their disagreement? And why, despite it, does the EU demand increasingly stringent environmental clauses in trade agreements?

In 2022, the European Commission published a document in which it proposed a more rigorous approach to promoting sustainable development through trade deals. Before the publication of the document, the Commission provided an opportunity for business groups and civil society to express themselves. While civil society was in favor of a more rigorous approach, business associations were divided.

Those that rejected or were hesitant about the proposal for stricter environmental clauses in EU trade agreements included the European Branded Clothing Alliance (EBCA), which represents multinational clothing producers. These companies have factories and suppliers in countries with relatively lax sustainability standards, including India, Bangladesh and Vietnam. The possibility of imposing sanctions for to environmental reasons could lead to unexpected increases in production costs for companies with supply chains in these countries. 

It is also important to note that EBCA member companies are leaders in voluntary environmental and social governance commitments. Nevertheless, their trade associations are opposed to stringent and legally binding sustainability clauses. The uncertainty generated by provisions that could lead to some kind of legal penalty causes business groups to oppose certain stringent public commitments on trade and sustainability.

Europe-wide multi-sector trade associations such as BusinessEurope have also opposed stricter EU environmental requirements due to the need to seek a lowest common denominator among their various members.

Most of the trade associations that have argued for stronger environmental commitments from EU partners in trade agreements represent food producers. They include the European Association of Sugar Manufacturers (CEFS), Agri-Food Cooperatives Spain and the International Confederation of European Beet Growers (CIBE).

The environmental requirements of EU producers are becoming more stringent, in particular under the European Green Deal. The producers mentioned above are mostly located in the EU itself and they end up transferring the costs of European regulatory requirements to the prices of their final products. Accordingly, they want similarly stringent regulations to apply to their international competitors, to “level the playing field.”

Trade associations that represent large multinationals may also decide to position themselves in favor of stricter environmental requirements because they have previously invested in environmental and social governance. Companies that have already invested in sustainable practices will have lower costs to adapt to stricter regulations compared to competitors at lower levels of sustainability. This is the case with the French Association of Private Enterprises (AFEP), which has supported stronger sustainability requirements in EU agreements.

Why, despite the aforementioned divisions, does the EU have ever stronger instruments to demand environmental commitments from its partners? One possibility is that the groups opposed to such demands do not have as much influence over the European decision-making process. However, there is ample evidence to suggest that this is not the case. EU trade policy is largely influenced by business interest groups, which may be for or against stricter sustainability practices.

The point is that even business groups that disagree with stricter environmental clauses in trade agreements seem to accept, albeit grudgingly, that they are likely to end up being implemented. Furthermore, they fear that tougher opposition to such commitments could lead to a backlash from the European public against negotiating trade deals.

The diversity of positions among EU business groups (but not polarization) and acceptance that these environmental clauses will get stronger over time to some extent facilitate decision making in trade policy. This is because the European Commission gains more autonomy to listen to representatives of civil society, who have been fighting for increasingly strict sustainability clauses in EU agreements.

In short, despite the EU’s stronger sustainability requirements, there are clear internal divisions between sectors, companies and trade associations with varying degrees of integration into global value chains. Counterintuitively, the strength of environmental requirements that are likely to apply to future EU trade agreements is partly explained not by unity and consensus in favor of strict requirements, but by the very division between major interest groups. These divisions are likely to intensify, according to some analysts. Possible consequences of this escalation will not be restricted to the EU and they will tend to affect its trading partners, including Brazil during the new Luiz Inácio Lula da Silva administration.