The EU Anti-Deforestation Law significantly affects the Global South, particularly Brazilian exports to the European Union, and jeopardises the implementation of the Mercosur-EU Free Trade Agreement. Brazilian ministers have voiced their objections, labelling the law as unilateral and punitive, while denouncing its extraterritorial aspects. In response, the EU has extended its application date.

EU anti-deforestation law: what you need to know

The EU Anti-Deforestation Law is a regulation approved on December 6, 2022, set to come into effect by the end of December this year. It can hinder EU trade with the Global South and the signing of the Mercosur-European Union Free Trade Agreement, which has been under discussion for over two decades. The law, which bans the import of products linked to deforestation, is part of the EU’s Green Deal (aiming for climate neutrality by 2050) and seeks to protect global forests by ensuring that products sold in the European market do not contribute to forest destruction.

The EU legislation targets seven commodities: cocoa, coffee, soy, palm oil, wood, rubber, and cattle (and their derivatives, such as meat and leather). These products will be subject to strict checks to ensure their production has not caused harm to forests.

Historically, EU imports have been a significant driver of global deforestation. According to a KPMG Belgium study, between 1990 and 2008, around 36% of global deforestation linked to agricultural products and over 25% related to livestock production were attributed to EU imports. The law, according to the EU, is designed to tackle these impacts by regulating the European supply chain more sustainably and ensuring product traceability through technologies like satellite imagery and geolocation.

The forest products and their derivatives (such as cosmetics, furniture, chocolate, etc) will need to undergo a strict due diligence process and comply with new traceability requirements and environmental standards, in which companies must prove that their products were not produced in deforested areas after December 31, 2020.

This legislation affects products from countries such as Brazil (beef and soy), Argentina and Paraguay (soy and beef), Indonesia and Malaysia (palm oil), Peru (cocoa), West African countries (cocoa), Congo Basin countries (wood), among others.

Trade flow between Brazil and the EU

For Brazil, the EU is the second-largest destination for its exports after China, making up 16% of Brazil's total trade. However, when it comes to foreign investment, the EU takes the lead. With a stock of €263bn in direct investments, the EU accounts for 49.5% of all direct investment in Brazil.

Brazil's exports to the EU are heavily focused on raw materials and agricultural products. As the world's largest exporter of soybeans and coffee, these commodities represent Brazil's agricultural might, finding a substantial market within the EU. Brazilian beef and poultry also make their way across the Atlantic in significant quantities, alongside sugar and fruit, including oranges and orange juice. In the mineral sector, Brazil is a powerhouse, with iron ore and other minerals like bauxite and aluminium flowing into the EU for industrial use. Moreover, Brazil is a noteworthy player in the energy sector, with crude oil and its derivatives making this category number one of its exports to the EU.

On the other side, the EU's exports to Brazil primarily consist of high-value industrial goods, machinery and chemicals. Industrial and electrical machinery are crucial for supporting Brazil’s infrastructure and thriving manufacturing sectors. The automotive sector also sees a rich exchange, with vehicles and parts being major exports from European manufacturers to Brazil. The EU's robust pharmaceutical industry contributes significantly through the export of medicines, alongside fertilisers and chemicals crucial for Brazil's extensive agricultural activities. Additionally, transport equipment such as aircraft, ships and their related parts find a receptive market in Brazil's aviation and maritime industries.

Trade between these two players has kept its equilibrium over the years. In 2022, the trade in goods reached €88bn, with Brazil exporting approximately €46bn and the EU exporting around €42bn. While Brazil leverages its natural resources and energy to maintain a trade surplus at times, the EU counters with its high-value industrial and chemical products, keeping the trade balance relatively stable.

Impact caused by the anti-deforestation law on Brazilian exports

According to a study by the Brazilian Institute of Applied Economic Research (IPEA), the EU Anti-Deforestation Law (EUDR – European Union Deforestation Regulation) has significant implications for Brazilian exports, particularly in the soy and beef sectors, which are highly susceptible to the new environmental requirements. According to the study, the main effects include:

Export restrictions: The law prohibits the import in the EU of products linked to deforestation or forest degradation after 31 December 2020. This directly affects beef and soy exports from areas deforested after this date. As Brazil is a major exporter to the EU, particularly of agricultural products like soy and beef, the new certification and traceability requirements could restrict these products' access to the European market.

Compliance and certifications: A significant portion of Brazilian exports already adheres to voluntary sustainability standards, with certifications ensuring products are deforestation-free. However, critical regions such as the Cerrado (the Brazilian Savana) and the Amazon, which still face deforestation, may be affected. For instance, around 7% of beef exports from the Amazon to the EU may be affected, while in Cerrado, this figure could be around 3%.

Compliance costs: The law imposes strict due diligence requirements, requiring exporters to provide information on product origins and ensure they are not linked to deforestation. This implies additional costs to ensure traceability and compliance with EU standards, which may affect the competitiveness of Brazilian products.

Market diversification: If exports to the EU are hindered, there is potential to redirect these products to other markets, such as China and Hong Kong, which are currently the largest importers of products from these regions.

Brazil reacts to the EU anti-deforestation Law

Brazil has strongly opposed the EU Anti-Deforestation Law, calling for its suspension. The Brazilian government argues that the legislation is “punitive” and disregards Brazil's national laws to combat deforestation and the improvements made by the present government, such as the 30.6% reduction from August 2023 to July 2024, besides the Brazilian commitment to zero deforestation by 2030.

As one of the largest suppliers of targeted products such as beef, soy, wood, and coffee, Brazil fears the law will create additional trade barriers, significantly affecting its exports to the EU. The Brazilian government has also pointed out that the law increases production and export costs, especially for small producers.

Moreover, considering the backlash from French farmers against the EU-Mercosur Trade Agreement – fuelled by fears of losing competitiveness and voiced by French President Emmanuel Macron, among others – Brazilian authorities and farmers perceive the EU Anti-Deforestation Law as yet another non-tariff barrier designed to protect EU farmers, particularly the French.

Two Brazilian ministers have taken action, writing a letter to European authorities. In the letter, signed by Mauro Vieira, Minister of Foreign Affairs, and Carlos Henrique Baqueta Fávaro, Minister of Agriculture and Livestock, the ministers made the following requests:

Postpone the implementation of the Anti-Deforestation Law (EUDR): Brazil requests that the EU delay the law's implementation, scheduled for the end of 2024, and calls for an urgent reassessment of the legislation’s approach due to its potential negative impact on trade relations between Brazil and the EU.

Revise the Law's unilateral approach: The ministers argue that the EUDR is a unilateral and punitive instrument that disregards Brazilian national laws on deforestation. They highlight that the law has extraterritorial aspects that conflict with the principle of sovereignty, in addition to increasing production and export costs, especially for small producers.

Seek collaborative solutions: The ministers expressed Brazil's willingness to continue exploring ways to strengthen Brazil-EU cooperation on forest preservation, both bilaterally and in appropriate regional and international forums. They urged the EU to partner in addressing common challenges based on dialogue, cooperation, and mutual respect, avoiding the imposition of trade barriers.

German Chancellor Olaf Scholz reinforces Brazil's position

Europeans are not united on this matter. Germans and their Chancellor Olaf Scholz have called for the EU Anti-Deforestation Law’s application to be postponed. He voiced this position during a conference in Berlin, stating that he had already presented his arguments to European Commission President Ursula von der Leyen. Scholz’s concern is that the legislation imposes impractical requirements and heavy bureaucratic burdens on German and European companies, who fear that the traceability and compliance requirements imposed by the new law will hinder trade and raise costs. Scholz is aware that one of the main causes of his government’s unpopularity is inflation, especially the rising cost of food.

The Chancellor believes the practical implementation of the law will be challenging, particularly due to the complexity of global supply chains. Proving that commodities and their derivatives were not produced on deforested land after December 2020 presents significant logistical and technological challenges, such as collecting geolocation data and satellite imagery. Furthermore, companies must invest in new control systems, which increases costs and bureaucracy to comply with the law, according to the Chancellor.

The law’s implementation delayed

Under pressure from the German Chancellor, Brazilian and even American farmers' lobbies, and some European deputies, the EU has announced a 12-month delay for the application of its deforestation law. This decision has sparked outrage among environmentalists but brought relief to affected businesses.

The EU Anti-Deforestation Regulation (EUDR) introduces considerable additional barriers to exports from the Global South to the EU. It may also complicate the implementation of the Mercosur-European Union Free Trade Agreement, which is in its final stages of negotiation and could potentially be signed at the G20 summit in Rio de Janeiro on 18-19 November. Alongside the EUDR concerns, France- to protect its farmers- has expressed strong opposition to this agreement, making it unclear whether it will be signed on this occasion.

Ricardo Martins is based in Utrecht, the Netherlands, and has a PhD in Sociology specialising in European politics, geopolitics and international relations.