Marcus Walsh-Führing / Nov 2019
In the past few months, the EU-Mercosur trade deal has been under pressure from European Union (EU) leaders regarding the lack of environmental regulatory safeguards for the protection of the Amazon and, more recently, regarding economic and political instability in the Southern Cone region.
Across the Southern Cone, countries have been facing fiscal and monetary challenges resulting in political upheaval from civil society. Political analysts are worried that societal discontent will usher in left-leaning governments that promote economic protectionist policies. On October 28th, preliminary votes in the Argentinian presidential election indicated a win of the election for center-left candidate Alberto Fernández from the Peronist party. If history is any predictor of what is to come in Argentina, pro-free market policy makers should be worried.
The election results are a clear sign of a shift from a pro-business agenda to a government interventionist approach in the regulation of the domestic economy. What does this mean for the EU-Mercosur trade deal?
The policy platform from the Fernández government will create conflict between Brazil, Paraguay, and Uruguay that have opened their economies to the Mercosur project. For example, the Brazilian President Jair Bolsonaro could use the outcome of the election in Argentina to consolidate power in the trading bloc and push for greater trade in Brazilian goods (e.g. cars, machinery) and a lowering of EU agricultural tariffs. In doing so, the Brazilian government would sideline the demands from other countries and dictate terms to the remaining members in the trading bloc, thereby isolating Argentina. This would create obstacles for the ratification of the trade deal later next year.
Since the Bolsonaro administration has taken office, the Brazilian government has engaged in the promotion of trade relationships with the United States (US) that are hostile to economic and environmental obligations in the Mercosur trade deal. For example, Bolsonaro has begun conversations with US President Donald J. Trump to sign a bilateral trade deal that would undermine any advances regarding the environment as set forth in the Mercosur trade deal. The Trump administration has signaled and supported the Brazilian discourse in opening up protected areas of the Amazon to big business and stripping the regulatory autonomy off the Brazilian Ministry of the Environment. As a result, a trade deal with the US would provide economic incentives for the Brazilian government by providing access for US multinationals to the Brazilian economy, at the same time, prioritizing the demands of the farming sector which is an important ally in the deregulation of environmental policy in the Amazon.
Consequently, the EU is fighting an uphill battle in the development of an environmental agenda in the EU-Mercosur trade deal to create confidence in society and in the international marketplace.
How can the EU support economic growth and environmental protection simultaneously in the Amazon?
To stop the EU-Mercosur trade deal from unraveling, the EU must address the following:
To ratify a comprehensive trade deal, the EU Commission has to address the economic situation across the Southern Cone and strengthen the existing clauses regarding environmental obligations in the agreement. On the economic front, the EU needs to provide political and investment support to Argentinian business leaders and associations to offset the potential protectionist measures that will be enacted by the incoming government. This will provide an incentive for stakeholders in the Argentinian domestic economy to pressure the government to contribute to the legal review process. In doing so, Argentina’s role places a check on the Brazilian government that is trying to maintain its hegemony in the region.
To influence the environmental political discontent from EU officials, the EU Commission and Council have to create a coherent political message that ecological obligations are not based on an economic agenda. The decoupling of ecological obligations from economic growth allows for the creation of regulatory oversight to address the environmental impact of governments and businesses on the Amazon.
The EU-Mercosur trade agreement has the opportunity to create incentives for the implementation of sustainable practices from all stakeholders in the negotiation process. For example, in the sustainability chapter of the trade deal, which has implemented the Paris Agreement on climate change, clauses have been criticized as insufficient in the incentivization of sustainable practices. By strengthening the incentives, the EU would create a “carrot and stick” approach by offering rewards and punishments to force all stakeholders to uphold and change their behavior toward the environment.
Also, to address polluting practices by businesses in trade, the EU needs to incorporate clean supply chain initiatives and production certifications. This would limit non-certified goods consumed in the Mercosur trade bloc and place greater transparency on trade between stakeholders. In essence, these measures would provide an internal policing mechanism to ensure oversight.
Until the new Argentinian government takes office and implements its domestic economic agenda, demands from the EU for environmental reform are left in limbo. Only time will tell if the enforcement of environmental obligations will have been a missed opportunity for action in the development of environmental safeguards in trade.