No Trade Deal Without Reform

When Amendment 36 was approved in the European Parliament on 6 October with 345 to 295 votes, stating that the “EU-Mercosur agreement cannot be ratified as it stands“, European farmers, NGOs and activists could finally breathe a sigh of relief.

The free trade agreement between the European Union and the four Mercosur countries (Brazil, Argentina, Paraguay, and Uruguay) under negotiation for two decades, has been blocked by the European Parliament in an attempt to stop deforestation in Brazil.

The free trade agreement is supposed to create the largest rules-based trading area in the world with a commitment of 780 million people to socially just standards in the economy, environment, and society.

Ratification of this bicontinental partnership would thus send a clear message to the leaders of this world who are trying to stave off free trade and build protectionist barriers. It would indicate a shift away from a trade order led by the United States and bind the Mercosur countries to higher environmental, consumer protection, and labor standards, while at the same time restricting other major powers with lower standards from increased trade with Mercosur countries.

This trade deal would have an impact on one quarter of global GDP. In 2018, goods worth €45 billion were exported to the Mercosur area. The main export products from the EU – namely, cars, machinery, chemicals, and pharmaceuticals – would benefit from tariffs cuts as would the service sector.

In particular, telecommunications, financial, business and transport services would likewise benefit as they will face lower barriers in Mercosur countries. The members of Mercosur would face tariff cuts as high as 93% and an eased access to the EU market for agricultural goods such as beef, poultry, sugar, and ethanol.

It is precisely these imported products that have led some European groups to vehemently oppose the agreement. European farmers fear double standards in production and fear for their sales in Europe if Mercosur countries were to flood the market with cheap agricultural products.

On the other hand, there are environmental activists who work for climate protection, biodiversity in the rainforest, and against the displacement of indigenous groups.

By ratifying the agreement, Brazil would recommit to the Paris Agreement. This means Brazil would agree to cut down their greenhouse emissions, to stop illegal deforestation, and to reforest 12 million hectares in the Amazon rainforest by 2030.

French Prime Minister Emmanuel Macron, among the most skeptical European leaders, made it clear that he would not sacrifice international environmental goals for the trade agreement. He also met with indigenous leaders to talk about the displacement of indigenous communities as a result of destroyed land and promised to work toward the conservation of the rainforest.

Brazilian President Jair Bolsonaro has recently come under fire for reversing policies that prevented deforestation and cutting budgets of agencies fighting the illegal burning of woodlands. Deforestation today is at its highest level since records began in 2004.

Earlier this year, in an ostensible attempt to combat deforestation, Bolsonaro deployed the Brazilian military to the Amazon rainforest. But for all that, numbers still soared, and the attempt proved ineffective. It was a halfhearted effort to appease the international community after pictures of the burning Amazon started circulating in the media and Bolsonaro saw the trade agreement with the EU at stake.

Since the agreement was not ratified, both sides must work closely together to find a solution as quickly as possible. Brazil must show that it takes environmental protection and mounting international concerns seriously. Bolsonaro needs to adopt rigorous agricultural policies and forestry laws to prevent small farmers from burning their fields for soy cultivation.

There must be strict regulation, and even stricter law enforcement by the state. Brazilian farmers need incentives to ranch more responsibly and efficiently and to get cattle from suppliers who do not operate on illegally cleared woodland.

At a transnational level, sanction measures must be agreed upon regarding the trade agreement. The Parliament’s decision has shown that no agreement can be reached without environmental guarantees. A solution must be found as quickly as possible through new negotiations.

In principle, the intention of the EU-Mercosur trade agreement is a good one, and it goes hand in hand with the Paris Agreement. It contains important guidelines, sets an example for the rest of the world, and signals that multilateral trade is favored over protectionism. However, the agreement lacks effective instruments to punish environmental protection violations, creating unease in various sectors and groups about the deforestation problem.

Precisely because trade with Mercosur is negotiated not only on a purely economic but also on a political basis, the agreement cannot be concluded without an agreement on sanctions. The EU cannot compromise environmental standards as the trade agreement commits to rules-based trade. Rules-based trade that allows for loopholes renders itself moot.