WHAT IS NEW IN THE LATEST TEXT OF THE EU-MERCOSUR AGREEMENT

The Commission has reached a revised EU-Mercosur Agreement in December 2024, which presents some changes regarding the previous 2019 Agreement.

The Paris Agreement on Climate Change is now included. It will allow the suspension of the agreement if a country leaves the Paris Agreement and also if it stops being a party “in good faith”.

But what are the obligations of developing countries, like those in the Mercosur, under the Paris Agreement?

• Adaptation planning: developing countries must engage in adaptation planning processes and implement actions to build resilience to climate change. This includes: assessing climate change impacts and vulnerability; formulating prioritized actions; monitoring, evaluating, and learning from adaptation plans and actions.
• Developing countries must also prepare, communicate, and maintain Nationally Determined Contributions (NDCs), which are their post-2020 climate actions. NDCs include actions to reduce greenhouse gas emissions and build resilience to climate change. 
• Developing countries must regularly report on their emissions and progress in implementing their NDCs. 

None of these obligations comprises any specific or quantified targets. In addition to that, the Paris Agreement does not provide for any sanctions in case of non-respect. There are no GHG reduction commitments to respect, or any other quantified commitments.

Therefore, if Mercosur countries do not walk out of the Paris Agreement or stop preparing NDCs, there are no foreseeable consequences of its inclusion in the EU-Mercosur Agreement. 

A new Annex to the Trade and Sustainable Development (TSD) Chapter has been negotiated, which will have the same legally binding nature as the TSD Chapter itself. A key feature of the Annex are new commitments on deforestation: “Each Party reaffirms its relevant international commitments and shall implement measures, in accordance with its national laws and regulations, to prevent further deforestation and enhance efforts to stabilize or increase forest cover from 2030”. But the Annex also states: “They further acknowledge that their policies must take into account the social and economic challenges of developing countries and their contribution to global food security”. “They also stress the need for enhanced support and investment to achieve these objectives, including through financial resources, technology transfer, capacity-building, and other mechanisms foreseen in this Agreement”.

From the above text it is far from clear whether, if a party like Brazil does not achieve stopping deforestation from 2030, whilst having implemented measures to that effect, that party infringes the Agreement. Moreover, could not that party claim that she did not receive enhanced support from the EU, including financial support, to reach those objectives?

The precise nature of the commitment to stop deforestation from 2030, whether it is actually effective, is far from clear. In addition, a reference is added to the EU regulation on deforestation (EUDR), undelining that “the EU recognises that this Agreement and actions taken to implement commitments thereunder shall be favourably considered, among other criteria, in the risk classification of countries“. This point must not justify lowering the EUDR risk category of Brazil or other Mercosur countries because of the Agreement, neither biais in the fact basis assessment expected by the European Commission when classifying risks . 

On the Tariff liberalisation schedule there are a few changes on trade concessions and safeguards for cars, but what strikes the most are the additional concessions on agriculture to the benefit of Paraguay: an additional quota of 1500 tonnes of pork, and an additional quota of 50 000 tonnes of biodiesel.

On export duties for raw materials and on Government procurement there are a few changes and concessions.

But there is a new and potentially more significant rebalancing mechanism in the Agreement. If a party considers that a measure of the other party nullifies or substantially impairs its benefits under the agreement, it can ask a panel to rule on this question. The rebalancing mechanism concerns trade effects of measures that the complainant could not have expected when the deal was closed. This new rebalancing mechanism could for instance concern the application of the Carbon Border Adjustment Mechanism (CBAM) by the EU. As the CBAM taxes would only be applied from 2026, it looks likely that the Mercosur countries could bring the EU to a bilateral dispute panel with a view to withdrawing concessions under the EU-Mercosur Agreement, or asking for compensation, in the event the CBAM taxes their exports.

To summarize, the 2024 modifications to the EU-Mercosur Agreement seems to trade mostly declaratory commitments from Mercosur on climate change and deforestation, for the possibility for Mercosur to seek rebalancing concessions if the EU applies new measures with trade effects like the CBAM; and adds some concessions on agriculture (pork, biodiesel) in favour of Mercosur.

The EU seems to have paid a price to conclude the deal, as it was visibly the most adamant and demanding party in the negotiations.