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On the global stage, the connection between trade and the environment is becoming more and more prominent, but it is not insignificant. International law first addressed the environment through non-binding declarations and treaties that solely had implications for the signatory countries. Currently, there is debate over whether environmental concerns will likewise develop into a global norm that is universally acknowledged.

Environmental criteria may be used as an exemption to trade regulations under World Trade Organization (WTO) standards, provided that they do not include arbitrary or discriminatory measures. These exclusions, meanwhile, are not always obvious and could mask protectionist policies. This raises concerns, particularly in light of the numerous trade measures that the European Union is currently debating. Some of these initiatives include the recent prohibitions on goods derived from deforestation, carbon levies on imports, and anti-green washing practices.

In terms of environmental discussions, the WTO’s Committee on Trade and Environment (CTE) examines current issues pertaining to trade practices and environmental protection, particularly the relationship between trade regulations and environmental treaties. Trade restrictions imposed to safeguard the environment are not regarded as unfair discriminatory practices that hinder international trade. As environmental restrictions become a global trend for trade, the WTO’s Trade Policy Review Mechanism has evaluated over 12,274 environmental measures on this problem to date, and their number has been increasing in previous years. One glaring example is the recently enacted European Union (EU) Deforestation Regulation. The EU passed Resolution 2023/1115[3] in 2023, which established the Deforestation Regulation (EUDR), which forbids the import, export, and sale of goods derived from deforestation. In order to protect forests, biodiversity, and the environment from climate change, this law forbids the sale and import of agricultural goods made from cattle, coffee, palm oil, wood, rubber, soy, and cocoa that are the result of deforestation in Europe, unless a risk analysis has been completed. It is important to consider Brazil as an example in order to put this trade measure into context. Brazil sent the EU almost $50 billion worth of goods in 2022. Of these, 25 billion are products related to agriculture. Taking into account just the goods specified in the EUDR, Brazil sells more than $15 billion worth of agricultural products to the European Union (EU), which implies that the European standard might affect around 62% of Brazil’s agribusiness exports to the EU.

Only commodities that satisfy all three of the following requirements can be sold in Europe: they must be produced in compliance with national laws of the countries of origin; they must not have been subject to deforestation after December 31, 2020[5]; and they must be submitted to a due diligence mechanism.

In light of this due diligence, the resolution mandates that importers and dealers with headquarters in the EU provide the relevant public body with the following documents: (i) risk analysis; (ii) product information; and (iii) mitigation measures. The EU authorities are racing against time as this resolution is set to go into effect on December 30, 2024, and they still need to design all procedures and processes that operationalize these requirements and how they will be verified, particularly with regard to both foreign public and private documents.

In addition to this problem, the EUDR poses doubts about its “deforestation free” requirement. According to the EUDR, any territory put to agricultural use after December 31, 2020, qualifies as deforestation. This means that regardless of the legality of these conversions or the laws of the country of origin, the European Union will forbid the sale of items derived from cattle, coffee, palm oil, timber, rubber, soy, and cocoa that were produced in sections of forests converted after December 31st, 2020.

This might become problematic based on the applicable national law. Some legal systems allow for the legalization of deforestation. In contrast to illegal deforestation, which is a legally recognized environmental offense ,Returning to the Brazil example, the Forest Code (Federal Law 12,651/2012)[8] states that new forest areas cannot be turned into agricultural land unless: (i) the Environmental State Agency grants permission; and (ii) the farmer is already preserving its Permanent Preservation Areas (APP), such as riparian forests, and its Legal Reserve (RL), which is a percentage of native vegetation up to 20%, 35%, or 80% depending on the biome in which the farm is located. It is important to emphasize that APP and RL are legal administrative requirements placed on all rural properties across the nation; in other words, the owner is not paid for fulfilling these responsibilities. As a result, lawful deforestation is a legal exception rather than a general norm that may only be applicable to farmers who already maintain all legally required areas on their property.

Thus, from this angle, it is possible to recognize the EUDR as an imposition against national legal sovereignty, which is a basic tenet of international law, which could result in trade disputes.

In order to implement its own Deforestation legislation, the United Kingdom likewise recently modified Schedule 17 of the Environment Act 2021 legislation. The EUDR’s reasoning will be applied by the revised UK Environment Act (Forest Risk Free Commodities), which forbids companies from using illicit products made from forest risk commodities (such as soy, palm oil, cocoa, and cattle products other than diary), creates a system of due diligence, and calls for an annual report. Nevertheless, the UK regulation will consider the national laws of the countries of origin with respect to the legality of their forest products, unlike the EUDR (i.e., it acknowledges a distinction between illegal and legal deforestation). As a result, the UK rule appears to be more in line with other foundational elements of international law, such as the idea of sovereignty, reducing the likelihood of trade disputes.

It is evident that while environmental protection regulations are an exception to the rule in trade and the WTO (see, for example, GATT, article XX, (g)), the EUDR may eventually give rise to disputes because of claims that it is arbitrary and discriminatory, going against the most favored nation clause and/or differential national treatment, among other free trade principles. GATT provisions forbid a country from enacting trade barriers that favor domestic products and/or that advance the interests of one country’s products at the expense of other countries’ products.

Even if the risk analysis that operators are required to conduct in accordance with the EUDR may include objective evaluation criteria, these situations are not implausible. Subjective or arbitrary practices may plague the risk analysis mechanism if the EU and its member countries fail to specify these criteria clearly. The WTO forbids using this subjectivity in the operator’s evaluation to benefit third parties at the expense of others, as the institution’s case-law amply demonstrates.The EU’s unilateral imposition of global deforestation mitigation strategies—that is, disregarding national laws governing both legal and illegal deforestation—would be another source of contention. The EUDR’s extraterritorial applicability is motivated by geopolitics, or the desire of a nation to enforce its interests, no matter how varied. However, this goes against other countries’ core rights under international law on the management and use of their land and natural resources, or sovereignty.

We should anticipate a reassessment of WTO regulations and revised interpretations of trade exceptions related to the environment.

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Ghazala Siddique