A study conducted by BCG consultancy highlights key regulations and their impacts, while Brazil is progressing with pro-environment legislation.
The Institute of Applied Economic Research (Ipea) revealed in early February that a Mercosul agreement with the European Union might boost the Brazilian GDP by 0.46% from 2024 to 2040, equivalent to US$9.3 billion. Brazil stands to gain more than the EU and other Mercosul countries. Mercosul currently consists of Brazil, Argentina, Paraguay, and Uruguay, with Venezuela suspended and Bolivia in the approval process.
However, the agreement faces challenges, particularly in terms of protectionism related to new environmental standards. French farmers protested at the end of January, citing the tightening of environmental legislation as a factor increasing production costs and harming local agro industry competitiveness. The EU-Mercosul agreement exacerbates these concerns.
Whether or not a trade agreement is reached, regulatory changes impact not only European nations but also anyone exporting to the EU. The introduction of the Carbon Border Adjustment Mechanism (CBAM) in 2026 will impose a customs carbon tax on products with high greenhouse gas emissions, affecting agricultural commodities and carbon-intensive industrial products.
BCG consultancy's analysis indicates that the EU's new environmental regulations could significantly transform global trade, particularly impacting export sectors in emerging markets like Brazil. In 2023, the EU was Brazil's second-largest export destination, comprising 13.6% of total exports.
Arthur Ramos, executive director at BCG, notes that Brazil's clean energy matrix could favor its industry, especially steelmaking. However, concerns arise over potential bans on commodities from deforestation-prone areas, which could significantly impact Brazil's crucial role in global trade.
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