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INTERVIEW – EU green trade agenda needs ongoing dialogue with developing countries

Borderlex caught up with ECDPM’s Alfonso Medinilla in Brussels to discuss the EU’s new unilateral green trade agenda, how it is perceived in Africa and other developing countries – and what the EU could do to help them implement Brussels’s many new rules. The conversation covers the carbon border adjustment mechanism, the deforestation-free products legislation as well as Brussels’ new critical minerals partnerships.

Alfonso Medinilla leads the climate action and green transition team at the European Centre for Development Policy Management. ECDPM is a foreign and development policy think tank focusing on Europe’s role in relation to developing countries and economies.

Some developing countries are criticising the EU for its unilateral environmental trade measures. They say they represent disguised protectionism and, in the case of the deforestation regulation, fail to take into account local circumstances.  Many governments also believe the EU should have consulted more with trade partners before introducing these measures.

Last September, seventeen countries from the Americas, Asia and Africa wrote to EU leaders to say that the deforestation legislation “disregards local circumstances and capabilities, national legislations, and certification mechanisms of developing producer countries, their efforts to fight deforestation, and multilateral commitments, including the principle of common but differentiated responsibilities”.

Q: Should the EU rethink its approach to green unilateral trade measures?

Medinilla: While these European measures address real climate concerns, they are also blunt force instruments.

Despite the transition periods and review processes set out in the legislation, there has been limited scope for dialogue with third countries. As a consequence, these laws are not always able to respond to their real-time concerns.

The carbon border measure CBAM, for example, comes on the back of the EU’s internal Emissions Trading System reform. It is meant to protect Europe’s decarbonising industries from carbon leakage to other major industrial centres in the world.

What the effect of these measures is on developing economies seems somewhat of an afterthought for the EU institutions.

Engaging with third countries, particularly those from the Global South, is important because they might be heavily impacted by these measures, even though they are not necessarily the main targets.

Q: What concretely should the EU do to mitigate developing country concerns over CBAM?

The optics of CBAM are rather negative, and there is a lot of anger on the part of many developing economies. The EU should respond with a high degree of pragmatism and flexibility.

CBAM should include a mechanism for ongoing dialogue between the EU institutions and third countries. Most EU legislation includes a midterm assessment which is carried out after a few years. But this review may come too late when the damage is already done.

This would enable the EU to react quickly when the data shows that its legislation could have unintended repercussions in another country.

This should involve Brussels talking not only with India, China, and the United States, but also with countries such as Mozambique and South Africa, both of which could be heavily impacted by the EU’s carbon border adjustment mechanism.

The EU should take the opportunity of the CBAM’s transition period to increase engagement with these economies. This could result in new flanking measures to ease some of the compliance costs for developing countries, for example.

The bloc could also introduce accompanying measures for countries that neighbour the EU to help them decarbonise existing industries and boost investment in low carbon industrial products.

A good example is North Africa, where there is significant potential for low carbon industries to emerge.

This is not straightforward. But if there is no low-carbon production and infrastructure being built in North Africa within the coming decade, it will result in a loss in credibility for the EU.

The carbon border legislation does not provide for resources from CBAM to be reinvested into developing economies or least-developed countries. But the EU needs to demonstrate that it is not being greedy and is willing to work with smaller economies.

There is also space for the EU to proactively engage on carbon pricing. This could involve looking at how countries with different carbon prices could be excluded from CBAM, and how that can be translated to economies that do not have pricing.

Q:  What could the EU do better in managing developing country relationships over its deforestation regulation?

The threat of unchecked deforestation is quite significant, but I can understand why some developing countries perceive these new rules as unfair.

The cost of compliance for larger producers is not huge, but it will be very challenging for smallholder farmers.

There is a risk that importers will shift to exporters that more easily comply, which could lead to costs and losses being concentrated among the most vulnerable.

Much will depend on whether sufficient resources can be mobilised by the EU to reduce the cost of compliance and make the scheme successful and transformative for all producers.

There is space for more accompanying measures in this legislation, such as a standardised system to make sure that potential costs for smallholders are minimised.

Q: The EU is currently securing critical raw materials partnerships with third countries. How do you see such partnerships evolving in the future, and what would you like to happen?

The EU’s CRM partnerships are part of a political process to establish new relationships with critical minerals exporters. This is the start of a strategic approach which is linked to the EU’s interest in securing its green energy transition. But the way it’s being done is still in its infancy.

The political level is focused on mutual benefits. Producer countries want to know what the EU is offering in return, because they want to move up the value chain and beyond processing, where there is more value to be gained.  But the EU wants to do the same. This could lead to tensions.

The EU should be more attentive to the objectives of mineral exporting countries and move fast in investing in processing, industrial capacity, and infrastructure, as others are also doing.

It should also prioritise green industries in its direct neighbourhood, and specifically North Africa.

‘Nearshoring’ via North Africa would ensure geographical proximity and allow for a stronger basis and market for clean industries.

This is a pragmatic way of thinking about it.

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