Unilateral Green Rules and Voluntary Standards: A Balancing Act for Brazil

In the latest episode of the Foreign Press Podcast, the Association of Foreign Press Correspondents (AFPC-USA), delves into the complex interplay between unilateral green rules and voluntary standards, specifically focusing on Brazil's approach to balancing these elements in its trade and sustainability goals.

A new study investigates how Brazil, the largest country in Latin America, can navigate the challenges posed by unilateral green rules in international trade and whether these measures are more effective than voluntary sustainability standards in combating climate change.

Journalist Patrícia Vasconcellos, a White House correspondent for the Brazilian network SBT, speaks with Rodrigo Fagundes Cezar, a professor at Fundação Getulio Vargas School of International Relations and leader of FGV’s International Trade & Sustainability research group. He is affiliated with the Hinrich Foundation, a Singapore-based think tank that promotes sustainable trade practices. Here, Fagundes Cezar shares insights from the research, discussing the implications of the European Union's renewable energy and deforestation regulations on Brazil's trade practices and the broader impact on global sustainability efforts.

This episode of the Foreign Press Podcast was produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this episode. 

Patrícia Vasconcellos: Hello! Welcome to the Foreign Press Podcast. I’m Patrícia Vasconcellos. This podcast is an educational program by the Association of Foreign Press Correspondents in the USA (AFPC-USA). This episode is produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this podcast. 

On today’s program: “Unilateral Green Rules and Voluntary Standards: A Balancing Act for Brazil.”  A recent study conducted by three researchers from the  University of Bath, England and Fundação Getulio Vargas in Brazil with the Hinrich Foundation analyzed how the largest country in Latin America can achieve its goals in trade. In a scenario where unilateral green rules prevail, what is the best approach to tackle climate change? Limiting warming to 1.5 Celsius requires global greenhouse gas emissions to peak by 2025 at the latest and be reduced by 43% until 2030. Trade plays an important role in achieving this goal. The point for discussion here that we foreign journalists will learn and understand in this podcast is whether unilateral green rules can actually work in an efficient way in comparison to voluntary standards defined by each country.

To help us better understand these questions in a practical way. I talked today with one of the researchers, Rodrigo Fagundes Cezar. He is a professor at Fundação Getulio Vargas School of International Relations in Sao Paulo, Brazil. Rodrigo, welcome to the Foreign Press Podcast. 

Rodrigo Fagundes Cezar: Thank you so much, Patricia. Thanks for having me. It's a huge pleasure for me to be here with you. 

Rodrigo Fagundes Cezar

PV: Rodrigo Fagundes Cezar is the leader of FGV’s research group, International Trade & Sustainability. He holds a summa cum laude PhD in International Relations from the Geneva Graduate Institute and has appeared in multiple high ranking academic journals and diffused his research via newspapers op-eds in Brazil and internationally. Rodrigo Fagundes Cezar [says that he] is interested in the politics of trade and sustainability and in the political impact of firms in trade. Rodrigo previously worked at the United Nations Development Program in Brasilia. So once again, welcome. 

In your research, you start, you and your colleagues, researchers mentioning two goals defined by the European Union, topics that were discussed last year during COP 28 in Dubai during the trade day. Shall we start… Could you help us understand why it is important to analyze those unilateral green rules, the voluntary sustainability standards that countries like Brazil must have in order to achieve goals set by others? This is the main point of this research, right?

RFC: Yes, that is right, Patricia. So basically, let me give you a little bit of context. So, COP 28 basically recognized trade, international trade as being crucial to achieving the climate goals that we need to achieve in order to basically not suffer from the impact of climate change all that much. So basically, trade has always been relevant, but trade is becoming even more relevant for us to be able to achieve climate goals. How so? Well, basically imagine that you have a country that is extremely clean. However, it trades with countries that are not clean at all. So, in a way, it doesn't really matter if you're all that clean if you're trading with someone or with another country that is not all that clean. This may lead to something that we sometimes call as trade diversion. Imagine that the European Union is super clean and starts really requiring imports to be clean as well. 

Well, if another country does not want to meet that goal, they may instead export, for instance, to China, to certain areas that may have lower standards. So, in a way, if we want to tackle climate objectives, we have to do it in an integrated manner and trade is crucial for that. So why is it that unilateral measures are so relevant? Well, I believe that most of the individuals that are listening to this podcast right now may remember that the discussions about trade and environment, they once took place at the WTO at the World Trade Organization. 

However, the discussions at that level failed miserably. Why did they fail miserably? Because basically the developing countries, including Brazil itself, were extremely fearful that connecting trade to sustainability could be a form of disguised protectionism. How so? Well, perhaps the European Union is requiring higher standards in terms of sustainability, not because they really want to be clean, but perhaps because they want to protect their own producers that have a cleaner production internally, so it is very much afraid of that, the discussions that failed at the WTO level. 

Then after that, there was the bilateral level. What does that mean? The WTO is multilateral. Many different countries come together to discuss. Then the bilateral level is the level of making trade agreements, negotiating the trade agreements directly with your partner. And then the European Union started trying to diffuse its own ideas about the linkage between trade and sustainability via these bilateral trade agreements, and they did so with certain success. However, that approach bilaterally has been criticized by lack of effectiveness. The approach was considered voluntary. The approach was considered non-binding, and the approach was considered ultimately unable to really drive sustainability. So where does unilateral trade policy come [from]? Well, unilateral trade policies, they have one big added value. This is an added value to those that actually propose it, which is it does not require, it does not require agreement by different countries. 

It has to be agreed [on] internally [by] the European Union. And then [you get] import restrictions, meaning that if you want to export to the European Union, fine, but then you have to meet certain standards. So, because the European Union is such a huge trade actor, they can afford to do so, and they can afford to do so because many people want to export to them, and they attract imports from many different countries. They export from many different countries. So, when lateral trade policies have this added value of not requiring so much compromise at the international level, then that's why they are actually relevant. And then as we discussed a little bit further, I can tell you a little bit more as to what are the problems associated with that.

PV: So, you just gave us a clear definition of a concept that is very much clear in your research. And we, foreign journalists, believe that we must clearly understand what it is about in order to develop our stories regarding this topic, which is the unilateral green growth that you just explained, for example, how the European Union developed those unilateral green rules. But to put things clear for us and our audience, could you describe what [are the] voluntary standards and how this applies to a huge country like Brazil, for example? 

RFC:  Yes, sure. So basically, these voluntary rules, when we're talking about the European Union, for instance, and how it trades with Brazil, basically what this means is that it imposes, not necessarily imposes, but it promotes certain cooperation, certain cooperation clauses between the countries that are negotiating. So, if you have a trade agreement with Brazil, there is a clause in the trade agreement that may say the parties shall promote cooperation in order to tackle climate related challenges. So that is fine. That is promotional, that is voluntary. That is a technical cooperation. Another way in which this could be done, for instance, is by means of actual voluntary sustainability standards, which is, for instance, when you take a coffee and you see that there is a fair trade labeled coffee, there is a voluntary sustainability standard there, there's a form of governance, of global governance that does not actually impose binding requirements on the parties that take it. 

Basically, if you want to get the label, it means that you want to abide by those rules voluntarily. And what is your incentive to do so? Well, your incentive to do so is to be able to enter into a select club of either firms or countries or individuals that actually can say that they are sustainable because they get that label. So, it becomes a sustainability claim, but it's not binding. You decide if you want to get the label. If you don't want to get the label anymore, you may simply decide not to get it anymore. By the same token, if you have a cooperation clause in trade agreements, you are committing to try to strive to promote climate goals, but not necessarily that is binding. That is an attempt to simply try to cooperate around climate goals. That is completely different when you're talking about binding sustainability standards, which if you don't do, you are actually breaking the clauses of a contract and you can be subject to dispute settlement and you can get some sort of punishment for not doing so. 

PV: For me, I understand that those are the two main factors that we must pay attention to in this research, the unilateral green rules, and how does this apply to actors around the world and voluntary standards and how this apply to Brazil. And talking about two goals established by the European Union that you mentioned in your research with your colleagues: the renewable energy directive that says that by 2030, 42.5% of the energy consumed within the European Union must be renewable, and [that] the EU deforestation free regulation [must craft] rules in a broader plan of actions to tackle deforestation. What are the main points analyzed in your research to understand how Brazil with unilateral green actions in a voluntary standard can meet goals to tackle climate change? 

RFC: So, the interesting aspect that made us really focus on this specific topic in our research is actually the fact that the EU Renewable Energy Directive, which is also known as the biofuel law, actually has a mix of elements of binding requirements and voluntary requirements, and that is extremely interesting. Why is that extremely interesting? So, it is a law, so for you to export to the European Union and have a sustainability claim for you to export, for instance, ethanol to the European Union, and for that ethanol to be considered sustainable in European markets, it has to comply with the EU biofuels regulation that is not optional. 

That is not necessarily something that you can simply advertise out of the blue. You have to comply with those regulations they are binding. So that is very interesting in one way because the EU biofuel regulation has a bunch of requirements associated with land use, with traceability of emissions and with greenhouse emissions that are required for each to claim that your sugar production, that your biofuel production, that your ethanol production is actually sustainable. 

But that is the binding part of this law. But what is the voluntary part of it that makes it so interesting but at the same time, very, very nuanced and very, in a way, complicated? If you don't break it down, if you want to get a green lane, in other words, quick access to the European market, you may simply get a certification. For instance, in Brazil, the certification that you may get is often the Bunsucro certification, which is a certification that tries to analyze and ensure that the sugar supply chain is green. So Bunsucro is accredited by the European Union’s biofuel law to help the EU monitor the commitments under that binding regulation. But Bunsucro itself is a voluntary standard. 

PV: So just for us to explain to our audience about Bunsucro, which is a global nonprofit, multi stakeholder governance group promoting sustainable sugar cane, right? 

RFC: That is right, Patrícia. So basically, Bunsucro is not a governmental institution. It is a private law institution that basically is a voluntary standard. You may simply abide to the requirements of Bunsucro if you want to prove that your production is green to claim that your production is green. It is pretty much the equivalent of the Fair trade label but you don't see it so much because we don't see the actual many elements related to sustainable sugar as we see in coffee production, for instance. But it’s the same thing as a Fair trade label. It is a label that is voluntary. However, in the context of the EU biofuel laws, if you get the Bunsucro certification, you are also compliant with a binding regulation. So, in a way, what is so interesting about the biofuel laws is that it integrates public and private governance of trade and sustainability, and it integrates binding and non-binding elements of trade and sustainability governance. So that's what's so interesting about it. 

PV: So, you investigated, you spoke about the green lane for biofuels. You mentioned ethanol for example, and you also investigated whether those trade policies and voluntary sustainability standards can or cannot complement each other to actually promote green energy transition and whether this can have negative impacts. What did you find about the other side, potential negative impacts? 

RFC: Well, so first of all, what is the rationale behind linking voluntary and binding sustainability standards? Well, as it gets more binding, as requirements—trade and sustainability requirements—become more legally rigorous, it is also more difficult to monitor them because it's no longer voluntary. It's no longer [a] self-assessment. Someone has to assess whether the laws are being met because it's binding. It's no longer a decision that lies only in the person that [is in charge of] the production. So that is difficult, and especially when you are importing sugar that is produced in another country. So, the connection with Bunsucro and other voluntary sustainability standards is because these organizations already have a long history of monitoring sustainability commitments abroad in many different countries. So, the European Union simply tries to do something that would make it easier for them and more efficient for them to monitor their commitments under the biofuel laws. They included voluntary commitment standards because these guys have a lot of knowledge in terms of how to actually monitor these commitments abroad. 

So, in a way, you can think that that's very good because it's going to bridge a capacity gap that this state may not have. For instance, and just to set an example, in Brazil, only 3 percent of deforestation alerts, in other words, suspicions of deforestation, are actually met with enforcement by the authorities, the environmental authorities of Brazil, which we know in Brazil as IBAMA (Brazilian Institute of Environment and Renewable Natural Resources). So, there's a huge capacity gap in terms of [what] the public government, the actual government should impose and to enforce this loss, the sustainability loss, so the monitoring of private sustainability standards could help with that. 

However, we need to do that in a very precise [way], we have to think about that in a very careful way because sustainability standards, they also have negative externalities. For instance, voluntary standards, they have a cost, and usually it is much easier for the biggest players to bear those costs because it's a fixed cost, meaning that if you are bigger and if you have more money comparatively to small producers, the cost that you have to pay to get certified and to claim that you are green is smaller. So, we can think right away that it's easier for big players such as Cargill, such as [unintelligible], to get certified as opposed to smaller holders.

What is the problem here is that perhaps, those small holders that cannot get certified, and therefore they cannot claim that they are sustainable because they cannot get the Bunsucro certification, they're also not going to be able to export to the European Union. So in a way, the negative externality here is the fear that if you connect those two requirements, a biofuel law with a voluntary certification, you are actually going to exclude the small holders from being able to export to the European Union.

So, to cut things short, basically what we found is that there is some motive to be concerned about that. Basically, if we see, for instance, the volume of land concentration, in other words, the percentage of small holders as opposed to the total number of properties in a city in Brazil, those cities that are certified by Bunsucro that export to the European Union, they have a trend toward greater land concentration.

PV: So, is land concentration in Brazil a problem in this matter of private sugar certification? 

Hinrich Foundation

RFC: It could be, could certainly be. The thing is that we have to be very careful whether to assess if that's necessarily a good or bad thing, because of course, if you're talking about land concentration, it sounds very bad, of course, and it is in many regards. But in a way, what we do here is to raise a yellow flag saying that, well, there is something that happens with the municipalities that get certified that does not happen with those that are not certified. So, what could be a negative externality there if you have a greater land concentration? It may simply be that the biggest players, they're kind of getting these small players to go away, even if they don't want to. Perhaps it is possible that the biggest players, they are simply not giving breathing space for smaller players and these small players, they have to eventually sell their land to the biggest players at a lower price because they have no choice. 

That is the possibility of a negative externality, however it may be, and that's something that is the next step of our research: to actually go to the field and talk to the small holders. It may be that the small holders wanted to sell their land anyway, and the increased demand from [the] biggest players allowed them to sell their land at a favorable price. Okay, so the idea here is to show that this negative externality may exist and that there is something indeed that happens with Brazilian municipalities that get the Bunsucro certification that exports to the European Union that does not happen with other municipalities, and this is potentially a negative externality. Now, to ensure that this is indeed the case, what we're going to do in our next steps is to actually go on and talk to these smallholders to ask them, “Do you feel that this is detrimental to your income or not?”

PV: And at the end of this research in which you explore the socioeconomics, spillovers of private sugar certification that complements an EU unilateral trade policy, you already spoke about this, but what have you found about the socioeconomic spillovers? 

RFC: So, our research is actually, we have research on this topic. Our findings are mainly on three fronts, exports, land concentration, and gender inclusivity. These three fronts that are ever, they're under constant development, meaning that the results that we have so far are going to be even more, we are going to explore them even further in upcoming research. But what we have so far are three findings. First, this connection between private and binding trade and sustainability requirements, which is precisely what the work that we're talking about deals with. It has heterogeneous effects. What does that mean? It helps increase, on average, the exports. Some people might say that this is not a form of disguised protection because it actually increases exports to the European Union. 

However, there is a nuance in here, meaning that the positive results are centered on the cities that are the most productive cities, which are also the ones that have the largest players, Cargill, [unintelligible], and those guys. If you take the municipalities that traditionally export less to the European Union, when they get the certification to comply with the biofuel laws from the European Union, they export even less. They either stop exporting to the European Union at all and export to other countries, or they sell their production to traders so that those traders can export to the European Union. That is the first finding. 

The second finding, which we explore in further depth in the report by the Hinrich Foundation, is that municipalities in Brazil that have units that are certified and that comply with the unilateral trade measure from the European Union on biofuel regulations, they tend to be more concentrated in terms of land ownership, meaning that the proportion of the smaller and medium landowners in those cities is lower than compared with the cities that do not have the certificate. 

Third finding: We found that these specific requirements on trade and sustainability do not have a direct impact in terms of reducing the gender gap in rural Brazil. What does that mean in Brazil, in rural areas in general? And also in Brazil, male ownership is dominant. It's very rare for you to find females that own a farm, and we expect that first, that if Bonsucro helps empower smaller farms and small holders, which have more women [as the] head of those farms, that perhaps the connection between Bonsucro and the unilateral trade policies in the European Union could help mitigate the gender gap in rural Brazil. But that's not the case at first as we found it. So basically, what we take from all that, the results of these unilateral trade policies, they're mixed and they require fine tuning in order to assure that they generate positive externalities, that they deliver results not only in terms of environmental protection, but also in terms of socioeconomic justice. 

PV: Well, you gave us a lot of ideas and explanations that could lead to interesting stories for us foreign journalists regarding this research specifically. But is there any specific aspect or detail regarding this research, or from your knowledge, regarding another topic in climate change that it would suggest for our audience? I'm talking about colleagues, foreign journalists, working for major media outlets abroad. That could be an idea of approach or regarding your research, what you would consider an important view or detail that we must pay attention [to]. 

RFC: Well, thank you so much Patrícia for that question because that's really something that I think is very worth being discussed. So, what is it about these unilateral trade policies, and usually we know about EUDR, which is the EU deforestation [regulation] directive that may lead to some concern? Well, these policies are unilateral, and by definition they are. They lack legitimacy in a way. Why do they lack legitimacy? Because unilateral trade policies, they are decided by the constituents, by the voters of the country that they were enacted [by], meaning that the European Union launches unilateral trade policy. That unilateral trade policy responds primarily to the objectives of the European voters, the European constituents, meaning that it does not give so much attention to what developing countries want from that same policy. Okay, so what is the problem here? The problem here is that if we have negative externalities associated with these unilateral trade policies, developing countries are going to be annoyed with it. 

They're going to think that it does not work. They're going to consider that this is green imperialism. They're going to consider that this is trying to strike them of their right to social development, and what is the problem associated with that? It may be that this lack of legitimacy down the road is going to then generate a backlash against the sustainability policies in the moment when we need it the most, in the moment when we really need to mitigate emissions and to tackle climate change. So, in a way, we have to really pay attention, and I invite the audience to pay attention to that, which is what could be the negative effect of this down the road, what could be done to mitigate these negative effects down the road, especially in terms of the political feasibility of trade and sustainability solutions to the climate and to the climate challenges. 

PV: Rodrigo Fagundes Cezar, thank you so much for being part of our Foreign Press Podcast.

RFC: Thank you. It’s a huge pleasure.

PV: I spoke today with Rodrigo Fagundes Cezar. He’s a professor at Fundação Getulio Vargas School of International Relations in Sao Paulo, Brazil. This episode is produced in partnership with the Hinrich Foundation. AFPC-USA is solely responsible for the content of this podcast.