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Trade deals and the future of EU sustainability regulation
Explore how international trade agreements are shaping the way EU sustainability regulations are implemented and enforced, and what this means in practice for industrial actors operating in, or trading with, the EU.
Quick Summary
- The EU’s landmark trade deals with Mercosur and the United States are quietly undermining its own sustainability agenda, with deforestation rules delayed, carbon border measures softened, and corporate due diligence obligations weakened as direct concessions to trading partners.
- Both agreements reveal a troubling pattern: the EU trades away hard-won environmental regulations in exchange for market access and tariff relief, while receiving only vague, non-binding sustainability commitments in return.
- Companies operating in or trading with the EU should treat these shifts as early warning signals and strengthen their horizon-scanning now, since compliance expectations around the EUDR, CBAM, CSDDD, and CSRD are all in flux.
As globalization accelerates and countries seek ever-closer economic ties, trade agreements are proliferating across the globe. On the surface, this trend signals partnership, cooperation and political alignment between “like‑minded” allies. But there is a growing risk that these deals come at the expense of broader sustainability objectives.
Nowhere is this tension more visible than in the European Union.
After nearly 25 years of intermittent negotiations, the EU and Mercosur countries finally reached a political agreement on a new Partnership Agreement on 6 December 2024, which was formally signed on 17 January 2026. The deal aims to establish a free‑trade zone between the participating countries.
By contrast, the Framework Agreement on Reciprocal, Fair, and Balanced Trade with the United States (the EU–US Turnberry trade deal) is a political agreement concluded on 27 July 2025 between European Commission President Ursula von der Leyen and US President Donald Trump, which primarily aimed to avert an imminent escalation of tariffs and prevent a full‑scale trade war.
These contrasting trade approaches illustrate the broader strategic tensions shaping the EU’s external economic policy. To understand the stakes of these negotiations, it is essential to place them within the wider context of the EU’s own sustainability ambitions and regulatory commitments.
Background on key sustainability regulation
On paper, the EU has positioned itself as a global climate leader. It aims to become the first climate‑neutral continent by 2050 and has enshrined this goal in the European Climate Law. The law makes the target of a net domestic reduction of at least 55% in greenhouse gas emissions by 2030 (compared to 1990 levels) legally binding, and the EU has endorsed a net emissions reduction of around 90% by 2040 as an intermediate step under the European Green Deal. These headline goals are supported by a dense policy architecture, including:
- Biodiversity Strategy for 2030: Restoring ecosystems, protecting 30% of EU land and sea, and reducing chemical pesticide use.
- Complementary initiatives: The “Fit for 55” package, circular economy policies, and measures to combat deforestation and biodiversity loss.
However, in practice, implementation is repeatedly revised, postponed, or “simplified” in ways that dilute ambition. What is framed as a necessary response to administrative burden and competitiveness concerns for European industry is increasingly intertwined with a strategic trade agenda. Recent trade negotiations and agreements are either explicitly used to justify weaker timelines and obligations, or quietly relied upon to stall or soften sustainability measures. This raises uncomfortable questions about the internal coherence of the EU’s policy agenda.
A key distinction lies between high‑level political targets and binding obligations on economic actors. The European Climate Law sets overarching objectives for the Union and its Member States, but it does not impose direct, enforceable obligations on companies. This may partly explain why the targets themselves have not been substantially watered down: they are politically powerful, yet relatively “safe” from an enforcement perspective, as the burden is indirect for the private sector.
The picture is very different for the EU Deforestation Regulation (EUDR). The EUDR creates concrete, operational due diligence obligations for companies placing certain commodities and products on the EU market. Yet its rollout has been plagued by delays, often justified by the lack of readiness of the digital information system needed for due diligence submissions. As a result, core provisions that are essential to fighting deforestation and biodiversity loss – such as robust risk assessment and mitigation for imports from (standard or high‑risk) countries, and the submission of detailed due diligence statements including geolocation and sourcing data – are effectively on hold until December 2026 for large companies.
Trade agreements as a pressure point
These recent trade developments expose a deeper structural issue: trade and sustainability are no longer parallel agendas – they intersect and often collide. Trade partners have a responsibility to ensure that trade policy actively supports, rather than undermines, Sustainable Development Goals (SDGs), whether through sustainable supply chains, carbon border adjustment mechanisms, or robust trade and sustainable development (TSD) chapters. This is particularly urgent as the world grapples with the triple planetary crisis of climate change, biodiversity loss and pollution.
The distribution of natural resources is highly unequal across regions of the world, creating strong economic incentives for over‑exploitation as global demand rises. Forest‑risk commodities are a prime example of this tension: they sit at the heart of global value chains while being deeply implicated in deforestation and ecosystem degradation. Without credible oversight, enforcement and due diligence obligations, trade can quickly become an accelerator of environmental harm rather than a vehicle for sustainable development.
The hidden cost of trade deals, therefore, is not only measured in tariff concessions or market access imbalances. It is also reflected in delayed regulations, weakened enforcement, and the quiet sidelining of environmental commitments.
The EU–Mercosur agreement has become a powerful illustration of this clash. Amid growing concerns about its potential to lock the EU into a climate‑damaging trade framework at a time when legal proceedings and public scrutiny over environmental impacts are still ongoing, the European Parliament has voted to refer the agreement to the Court of Justice of the European Union (CJEU). This referral should put the ratification process on hold until the Court delivers its opinion – a process that may take 2 years – and, crucially, it must be accompanied by a clear commitment not to provisionally apply the agreement in the meantime.
Case studies
1: EU-Mercosur Trade Deal
The renewed push for the EU–Mercosur trade deal occurred only months before the Commission published its EUDR country‑risk classification, which ranks countries worldwide according to their “deforestation risk”. Under the EUDR, both standard‑ and high‑risk countries are subject to thorough due diligence obligations once the regulation applies. However, only high‑risk countries face significantly tighter enforcement: a minimum of 9% of relevant operators and import volumes must be inspected, compared with just 3% for standard‑risk countries, resulting in increased surveillance and more frequent checks.
In this context, it is particularly alarming that most Mercosur countries have been labelled “standard‑risk”. Indeed, a recent UN report on global deforestation shows, for instance, that Brazil alone has lost around 132 million hectares of forest since 1990. Deforestation in the region is anything but a marginal concern: it has been extensively documented for decades, particularly in Brazil, where forest clearance peaked in 2019 under the previous administration.
This timing makes the EUDR risk classification appear politically convenient: it was issued just months after the EU decided to move towards concluding the agreement with Mercosur. It is therefore worth examining more closely what is at stake for both sides – and for the environment. The central concern is clear: expanded agricultural exports from Mercosur (beef, soy, bioethanol, etc.) risk driving further conversion of forests into pastureland and cropland, exacerbating deforestation and associated emissions.
Clear mutual benefits – on paper
For Mercosur countries, the agreement offers substantial new access to the EU market: the EU would eliminate tariffs on around 91% of imports, boosting exports – particularly in agriculture – while still applying caps to some sensitive products (for example, duty‑free beef imports would be limited to roughly 0.7% of Mercosur’s total output). Mercosur also stands to gain from increased EU investment, technology cooperation and a €1.8 billion Global Gateway package intended to support green and digital transitions.
EU exporters and consumers, in turn, would benefit from the phased removal of high Mercosur tariffs – currently up to 35% on cars and over 20% on machinery and many food products.
This is expected to significantly raise EU exports by 2040 and secure access to strategic raw materials; for instance, about 82% of the EU’s niobium imports already come from Mercosur countries. The agreement also protects more than 200 European Geographical Indications in Mercosur markets and promotes regulatory cooperation on food safety and animal welfare, reinforcing the EU’s narrative of high‑quality, “sustainable” agri‑food production.
In short, the deal promises sizable economic gains for both sides and frames them as compatible with sustainability. Whether that promise holds in practice will depend entirely on how strictly its environmental and social provisions are implemented – and enforced.
Are environmental safeguards in the agreement enough?
On the EU side, the agreement seeks to cushion sensitive sectors such as beef and poultry through tariff‑rate quotas (TRQs) and what the Commission presents as its “strongest‑ever” bilateral safeguard clauses, designed to curb import surges that could destabilize EU farmers.
On paper, the sustainability architecture also looks robust. A dedicated TSD chapter commits both parties to international labor and environmental standards, and includes a non‑regression clause (Chapter 18) prohibiting the lowering of such standards for trade advantage – in theory helping to prevent social and environmental dumping.
Crucially, the Paris Agreement is labelled an “essential element” of the deal. Each side must remain a party to the Agreement and is expected not to backslide on its climate pledges, such as long‑term climate‑neutrality objectives or commitments to halt illegal deforestation in Brazil’s Amazon. A “material violation” – for example, withdrawal or seriously failing to implement Nationally Determined Contributions (NDCs) – could trigger trade remedies, up to partial or full suspension of the agreement. Yet these sanctions would likely operate on a 2040-2050 horizon, raising questions about whether they are sufficiently stringent or timely given the urgency of forest loss and climate breakdown.
Beyond climate, the parties reiterate commitments to combat illegal logging, protect biodiversity (including through CITES) and uphold core labor rights. The precautionary principle is explicitly safeguarded, preserving the EU’s right to maintain strict health and environmental standards even where they restrict trade.
In response to deforestation concerns, the agreement contains a Forestry Annex under which both sides pledge to take measures to prevent further deforestation and to “strive” to increase forest cover by 2030, in line with their domestic climate strategies. There is a binding commitment to combat illegal logging and halt illegal deforestation.
However, when it comes to corporate accountability along value chains, these provisions remain largely political. They rely heavily on pledges, cooperation and future action plans rather than hard, directly enforceable obligations on companies. In a context where forest ecosystems are approaching tipping points, such soft commitments risk coming too late to prevent irreversible damage.
The weak link: from trade pledges to real‑world enforcement
Some modeling exercises suggest that the agreement’s direct environmental effects on the EU might be modest – for example, EU beef production is projected to decline by only around 1% under the agreed quotas. Yet this narrow perspective ignores the broader risks of land‑use change and embedded emissions if agricultural expansion in Mercosur accelerates to serve export demand.
In principle, the EU’s own legislation – notably the EUDR – should act as the ultimate backstop, translating high‑level sustainability promises into operational constraints on what can enter the EU market. In practice, however, this safeguard is already being weakened: implementation delays, opaque timelines and the politically convenient classification of key supplier countries as “standard‑risk” all dilute the regulation’s reach.
The EU–Mercosur agreement itself reinforces this ambiguity. A clause in the TSD Annex (Article 56a) states that the EU will “favorably consider” a Mercosur country’s compliance with the FTA’s sustainability provisions when assessing its risk level under the EUDR. Rather than a hard enforcement mechanism, this reads as a political incentive: the better a partner performs on paper under the FTA, the more leniently it may be treated under the deforestation rules. This approach echoes the earlier concern about risk classifications that underplay real deforestation dynamics.
At this stage, the EU faces a clear choice. It can continue to merely encourage compliance with anti‑deforestation standards, or it can use its market power to uphold a genuine zero‑tolerance approach to deforestation and ecosystem conversion.
2: US-EU Trade Framework Agreement
In August 2025, the EU signed a landmark Framework Agreement on Reciprocal, Fair, and Balanced Trade with the United States (EU-US Turnberry trade deal). While the deal was celebrated as a diplomatic breakthrough aimed at resolving trade imbalances and unlocking transatlantic economic potential, it also marked a turning point in the EU’s environmental posture. Beneath the surface of tariff reductions and investment pledges lies a deeper compromise: the quiet dilution of the EU’s sustainability agenda in favor of trade continuity.
Beyond the preferential tariffs negotiated in the agreement, the EU made a far‑reaching financial commitment: pledging to spend around $750 billion on US energy imports and $40 billion on American technology. In practice, this channels a substantial share of EU purchasing power toward US industries. The rationale was clear – bolstering Europe’s energy security and technological resilience after years of dependence on unreliable suppliers. Yet it also means that European funds will disproportionately support US producers rather than strengthening domestic capacity or diversifying suppliers in strategic sectors.
Committing to large volumes of US LNG and oil was initially framed as a pragmatic solution to the EU’s energy shock. But the evolving geopolitical landscape – including rising global tensions, disrupted trade flows, and the recent surge in energy prices – has reopened a broader strategic debate. The European Union has a historic opportunity, under the European Green Deal, to move decisively away from fossil‑fuel geopolitics by:
- cutting dependence on fossil‑fuel imports;
- scaling up solar and wind deployment;
- electrifying major sectors of the economy; and
- building genuine long‑term energy autonomy.
These steps are not only climate‑aligned – they were geopolitically transformative, positioning the EU to preserve itself from external shocks. Instead, by locking in extensive reliance on US fossil‑energy supplies, the agreement risks delaying parts of that strategic shift.
In this sense, the trade deal extends beyond market access: it underscores the intersection of climate policy, energy security, and geopolitical agency. This will be important to remember once the EU Parliament decides whether to vote on and endorse the deal through the adoption of the related tariff legislation.
Regulatory alignment and environmental concessions
Efforts toward regulatory alignment are often framed as mutually beneficial, helping reduce barriers and smooth the flow of transatlantic trade. Yet in agreement, it was the European Union that made the most significant concessions – particularly in the fields of sustainability, digital policy, and product regulation – in order to address long‑standing US concerns. Several flagship initiatives are now subject to review or reinterpretation, a sensitive compromise for the EU given its ambition to lead globally on climate and technology governance.
Environmental standards: A one-sided flexibility
The United States secured considerable relief from a series of new EU sustainable regulations it considered potential obstacles to trade. Most notably, the EU agreed to revisit its implementation of the EUDR and the Carbon Border Adjustment Mechanism (CBAM).
Under the deal, Brussels formally recognizes US commodity production as posing “negligible” deforestation risk. This promises a lighter compliance burden for US exporters of timber, soy, beef, and other agricultural goods – potentially including simplified due diligence requirements or even exemptions under the EUDR. The EU also signaled a willingness to adjust or refine the law’s risk‑classification system for countries, which could lead to a more favorable treatment for the United States.
CBAM was another focus of US concerns. In response, the European Commission committed to granting additional flexibilities for US small and medium‑sized enterprises – going beyond the de minimis exemption already foreseen.
Complementarily, Brussels promised to ensure that the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) do not impose disproportionate obligations on American companies operating in the EU market.
Shifting the trajectory of EU environmental policy
The influence of the transatlantic deal on EU regulatory debates is already evident. Key elements of the CSDDD – such as the blanket civil liability provision and the ambitious climate‑transition plan requirement – were among the most contentious for the US and have now been removed through the recent Omnibus adoption. The timing of these changes suggests that the negotiations significantly informed the EU’s shift in sustainability policy.
Limited US environmental commitments
By contrast, the United States made only limited commitments on environmental protection. They agreed to cooperate on certain EU priorities, including non‑binding pledges to uphold internationally recognized labour rights and to combat forced labour in supply chains. These align with EU values but do not impose meaningful constraints on US domestic policy nor risk conflicts with existing trade alliances. They serve largely as a minimal ethical framework rather than a substantive advance in sustainability provisions.
Ultimately, the most consequential US commitment may be what it chose not to do: oppose the EU’s broader climate‑trade agenda. In practice, this means refraining from challenging measures like CBAM at the World Trade Organization. For the EU, securing American non‑interference – rather than proactive support – comes at a high price, particularly when weighed against the regulatory flexibility it offered across ambitious sustainability initiatives.
Finally, the Agreement does not include a formal TSD chapter. Instead, sustainability and labor considerations are dispersed throughout the text. Four of the agreement’s 19 key provisions address issues traditionally covered under a TSD chapter. Yet their function is notably different from what TSD mechanisms usually aim to achieve. Rather than promoting higher environmental or labor standards, these provisions primarily serve to guarantee that forthcoming EU environmental and labor regulations will not place US exporters at a disadvantage – an approach that runs counter to the typical purpose of TSD chapters.
The significant anticipated impacts of both trade agreements highlight the growing need for companies to closely monitor early signals of regulatory easing. To remain resilient and strategically positioned, they should proactively strengthen their horizon‑scanning capabilities and anticipate potential shifts in compliance expectations.
How can companies anticipate deregulation trends and strengthen horizon scanning?
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Understand the signals
- Monitor trade negotiation language
Look for terms such as “flexibility,” “administrative burden reduction,” or “mutual recognition”. These often indicate potential future softening or dilution of regulatory requirements.
- Track stakeholder lobbying
Identify positions taken by industry groups, trading partners, and sector coalitions — especially when they advocate for exemptions, delayed implementation, or reduced reporting obligations.
- Integrate horizon scanning into ESG planning
Use forward‑looking analysis to assess how emerging trade deals could shift compliance expectations (e.g., EUDR timelines, CBAM implementation, sustainability reporting burdens).
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Strengthen strategic positioning
- Advocate for strong sustainability clauses
Engage to promote ambitious environmental and social commitments within trade agreements.
- Maintain alignment with global standards
Continue aligning corporate commitments with frameworks such as the Science‑Based Targets initiative (SBTi) and ISSB Standards. This helps preserve credibility — and long‑term financial performance — even if regulatory frameworks weaken.
- Enhance transparency and stakeholder engagement
Encourage more open negotiation processes with structured input from civil society, businesses, and ESG experts.