Leonardo Munhoz, Doctor of Juridical Science and Master of Laws in Environmental Law at Pace University School of Law, Master of Laws in Business and Contract Law at Escola de Direito de São Paulo da Fundação Getúlio Vargas, is a Researcher at Observatório de Bioeconomia da Fundação Getulio Vargas, São Paulo, Brasil.

The relationship between environment and trade is gradually gaining prominence on the international scene, but this relationship is not a trivial one. The environment was initially addressed in international law in non-binding declarations and treaties, producing effects for the signatory parties only. Today, it is discussed whether the environmental concern would also be evolving into a custom widely accepted by the international community.

The World Trade Organization (WTO) rules allow environmental requirements to be used as exceptions to trade rules if they do not consist of arbitrary and discriminatory measures. However, these exceptions are not always clear, and may camouflage protectionist measures. This raises questions, especially now with many trade initiatives under discussion in the European Union, such as the recent restrictions on products from deforestation, carbon taxes for imported products and anti-green washing methods.[1]

Regarding discussions on the environment, the WTO’s Committee on Trade and Environment (CTE) discusses current issues of environmental protection and trade practices, especially the connection of environmental treaties with trade rules, and restrictions on trade to protect the environment are not recognized as unjustified discriminatory practice to international trade. Up to date, the WTO’s Trade Policy Review Mechanism has assessed over 12,274 environmental measures on this issue and their number has been growing in past years as environmental restrictions become a global trend for trade.[2]

As a clear example, there is the new Deforestation Regulation from the European Union (EU). In 2023, the EU approved Resolution 2023/1115[3] banning the import, export and sale of products from deforestation—the Deforestation Regulation (EUDR). This regulation prohibits the sale and import of agricultural products from cattle, coffee, palm oil, wood, rubber, soy and cocoa produced from deforestation in Europe, after carrying out a risk analysis, with the objective of preserving forests, biodiversity, and combating climate change. To contextualize this trade measure, it is worth looking at the example of Brazil. In 2022, Brazil exported around 50 billion dollars to the EU. Of these, 25 billion correspond to agribusiness products. Considering only the products listed in the EUDR, the amount exported to the EU is equivalent to more than 15 billion dollars, that is, this means that the European norm has the potential to impact nearly 62% of agribusiness exports from Brazil to the European economic bloc.[4]

These commodities can only be placed on the European market if they cumulatively meet the following criteria: areas free of deforestation after December 31st, 2020[5]; produced in accordance with the national law of the countries of origin; subject to a due diligence system.[6]

With regard to this due diligence, the resolution requires traders and importers, based in the EU, to submit to the competent public authority: (i) risk analysis, (ii) product information and (iii) mitigation measures. However, this resolution is to be operational on December 30th, 2024 and European authorities still have to design all processes and proceedings operationalizing these requirements and how they will be verified, especially regarding both foreign public and private documents – thus, the EU authorities are fighting against the clock.

Additionally to this issue, the EUDR raises questions concerning its criterion of “deforestation free”. The concept of deforestation was defined in the EUDR as any areas that were converted into agricultural use after December 31st, 2020.[7] That means that the European Union will prohibit the sale of goods derived from cattle, coffee, palm oil, wood, rubber, soy and cocoa that were produced in areas of forests converted after December 31st, 2020, regardless of the legality of these conversions or the law of the country of origin.

Depending on the national law in hand, this could be an issue. In some countries’ legal system, deforestation can be legal. By contrast with illegal deforestation, which is an environmental crime established by law, legal deforestation concerns an authorized conversion of forests into agricultural areas by the national or state environmental authority.

Looking again at the Brazil example, according to its Forest Code (Federal Law 12,651/2012)[8], new areas of forests can be converted into agriculture only through (i) an authorization by the Environmental State Agency and (ii) if the farmer is already protecting its Permanent Preservation Areas (APP) (e.g., riparian forests) and its Legal Reserve (RL) (percentage of native vegetation up to 20%, 35% or 80% depending on the biome in which the farm is located). It must be stressed that both APP and RL are administrative burdens imposed by law on all rural proprieties in the country, in other words, the owner must bear these obligations without any financial compensation.[9] Therefore, legal deforestation is an exception created by the law – not a general rule – which may only apply if farmers are already preserving all legal mandatory areas within their farm.

Therefore, from this perspective, the EUDR could be acknowledged as an imposition against national legal sovereignty (i.e., fundamental principle of International Law), potentially leading to trade conflicts.

The United Kingdom also recently amended Schedule 17 of its Environment Act 2021[10] regulation in order to enact its own version of the Deforestation Regulation.[11] The amended UK Environment Act (Forest Risk Free Commodities) will apply the same rationale as the EUDR – it prohibits businesses to use illegal products from forest risk commodities (i.e., soy, palm oil, cocoa, cattle products excluding diary), establishes a due diligence system and requires an annual report.[12]

But, in contrast with the EUDR, the UK regulation will take into account the national laws of the origin countries regarding the legality of their forest products (i.e., it acknoweldges a distinction between illegal and legal deforestation).[13] Hence, the UK regulation seems more aligned with other pillars of International Law including the principle of sovereignty, minimizing the possibility of trade disputes.

As seen, although environmental protection restrictions are an exception in trade and in the WTO (i.e., GATT, article XX, (g)), the EUDR may eventually generate disputes for being allegedly arbitrary and discriminatory, violating principles of free trade such as the most favored nation clause and/or differential national treatment. GATT clauses prohibit a nation from creating trade restrictions that favor products in the domestic market and/or that benefit the products of one country to the detriment of others.

These events are not unlikely, even though the risk analysis to be carried out by operators under the EUDR may contain objective evaluation criteria. If these criteria are not well defined by the EU and member countries, the risk analysis mechanism may suffer from subjective or arbitrary practices. This subjectivity of the operator’s assessment can be used to benefit third parties to the detriment of others, which is prohibited by WTO rules and extensively demonstrated in the institution’s case-law.

Another point of conflict would be the unilateral imposition of the EU regarding how to address the fight against deforestation in the world (i.e., not taking into account national laws of legal and illegal deforestation). The extraterritorial application of the EUDR has a geopolitical nature, that is, when a country wishes to impose its interests, however diverse they may be. However, this violates the sovereignty of other nations with regard to the management and use of their territory and natural resources (i.e., sovereignty), which are basic prerogatives in International Law.

Bearing these issues in mind, we can expect a review of WTO rules and new interpretations for environmental exceptions in trade.

[1] See MUNHOZ, L; Socio-Economic Considerations of Living Modified Organisms and Impacts on Trade – Evolution of Environmental Disputes at the World Trade Organization. Elisabeth Haub School of Law, Pace University (2023). Available at: https://digitalcommons.pace.edu/lawdissertations/34/

[2] Available at: https://edb.wto.org/tpr

[3] Available at: https://eur-lex.europa.eu/eli/reg/2023/1115

[4] See MUNHOZ, L.; VARGAS, D.; VALENTE, F.; (2023). COMÉRCIO INTERNACIONAL E MEIO AMBIENTE – EVOLUÇÃO DOS PRINCÍPIOS AMBIENTAIS NAS DISPUTAS COMERCIAIS. Observatório de Conhecimento e Inovação em Bioeconomia, Fundação Getúlio Vargas –

FGV-EESP, São Paulo, SP, Brasil. Available at: https://agro.fgv.br/sites/default/files/2023-09/eesp_relatorio_ambientais_eng-ap1.pdf

[5] EU Resolution 2023/1115, article 2(13) ‘deforestation-free’ means: (a) that the relevant products contain, have been fed with or have been made using, relevant commodities that were produced on land that has not been subject to deforestation after 31 December, 2020;

[6] Article 8. 2. The due diligence shall include: (a) the collection of information, data and documents needed to fulfil the requirements set out in Article 9; (b) risk assessment measures as referred to in Article 10; (c) risk mitigation measures as referred to in Article 11.

[7] EU Resolution 2023/1115, article 2(13) ‘deforestation-free’ means: (a) that the relevant products contain, have been fed with or have been made using, relevant commodities that were produced on land that has not been subject to deforestation after 31 December, 2020;

[8] Lei No. 12.651, de 25 de Maio de 2012, Diário Oficial da União [D.O.U.] de 28.05.2012 (Braz.).

[9] MUNHOZ, L. The Brazilian Environmental Regulatory Framework and the Paris Agreement: Challenges for the Forest Code as a Tool to Tackle Climate Change. University of Hawaii Law Review, Volume 44/ Number 1, Winter 2022

[10] Available https://www.legislation.gov.uk/ukpga/2021/30/schedule/17

[11] See https://www.gov.uk/government/news/supermarket-essentials-will-no-longer-be-linked-to-illegal-deforestation

[12] See https://questions-statements.parliament.uk/written-statements/detail/2023-12-12/hcws117

[13] UK Environment Act, Schedule 17, article 2.3: “In this Schedule “local law”, in relation to a forest risk commodity, means any law having effect in the country or territory where the source organism was grown, raised or cultivated.” Available at: https://www.legislation.gov.uk/ukpga/2021/30/schedule/17