Brazil

Trade Law and Climate Change

Introduction

Brazil is currently navigating a complex international trade environment shaped by evolving sustainability-related regulations across the world, set against the backdrop of increasing trade tensions. This has significant impacts on Brazil, as a large exporter of commodities with significant dependence on the primary sector, and home to the Amazon rainforest. Global regulatory developments – such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) and Regulation on Deforestation-free Products (EUDR), as well as the United States’ Section 301 investigation that includes environmental enforcement – introduce new compliance requirements that may affect key sectors of the Brazilian economy. These developments have prompted legal and diplomatic responses, including World Trade Organisation (WTO) consultations, and highlight the growing relevance of environmental considerations in trade policy discussions.

In this context, Brazil enacted Law No. 15.122/2025 – the Economic Reciprocity Law, establishing a legal framework to assess and respond to unilateral trade actions that may impact national competitiveness or exceed domestic regulatory standards. The law establishes countermeasures (such as restrictions on imports, suspension of trade concessions, and investments, intellectual property-related obligations, and other commitments under the country’s trade agreements) while maintaining commitment to dialogue and multilateral engagement. Although no countermeasures have been implemented to date, procedural steps have been initiated following recent US trade actions. As environmental and trade disciplines continue to intersect, the Brazilian government publicly states that it remains engaged in efforts to promote a multilateral rules-based trade environment while contributing constructively to the development of inclusive global governance frameworks.

How climate change is impacting trade law

Although these measures pursue legitimate objectives, they introduce new compliance requirements that impact market access and operational practices for exporting countries. The following section outlines the scope and implications of three key instruments: the EU’s Carbon Border Adjustment Mechanism (CBAM), the Regulation on Deforestation-free Products (EUDR), and the U.S. Section 301 investigation into Brazil’s environmental enforcement.ⁱ Subsequently, we briefly discuss the ongoing WTO dispute concerning climate-related measures, as well as potential actions under Brazil’s reciprocity law. 

Carbon Border Adjustment Mechanism

CBAM was introduced by the European Union to address carbon leakage by applying a carbon price to EU imports of selected carbon-intensive goods[1]. During its transitional phase (2023–2025), the EU CBAM covers cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. From 2026, the mechanism will be fully implemented with an expanded scope.

For Brazil, CBAM is particularly relevant in sectors such as iron and steel, aluminum, and cement, which represented 16% of the country’s total exports between 2018 and 2022. Although the EU accounted for 8.6% of those exports in 2022, it was Brazil’s third-largest destination. According to an impact assessment by the Global Policy Incubator for the Ministry of Development, Industry, Trade and Services (MDIC), Brazilian exports of CBAM-covered goods to the EU could decline between 14.8% and 24% by 2034, depending on the level of domestic carbon pricing adopted, when compared to a baseline scenario in 2026 (MDIC, 2025)[2]. However, the implementation of a compliance carbon market in Brazil (as set out in Law No. 15/042/2024) may ease this burden. As CBAM aims to equalize carbon prices across jurisdictions, Brazilian exports will only need to pay the difference between the price in Brazil’s emissions trading system and the price in the EU’s system. Regulation on Deforestation-free Products (EUDR)

The Regulation on Deforestation-free Products (EUDR)[3], adopted by the EU in 2023, requires that certain commodities placed on or exported from the EU market be verified as deforestation-free after December 2020. The regulation applies to cattle, soy, cocoa, coffee, palm oil, wood, rubber, and their derivatives. It will take effect on 30 December 2025 for large and medium-sized companies, and on 30 June 2026 for micro and small enterprises.[4]–[5]

The MDIC report referenced above indicates that EUDR affects products representing approximately 30% of Brazil’s global exports, with the EU accounting for 17% of that total[6]. According to a study by FGV Agro, the potential impact of the EUDR on Brazilian exports is estimated at US$10.6 billion per year, equivalent to approximately 11% of Brazil’s average annual agricultural exports worldwide between 2012 and 2022[7]. The EU also plans to implement a benchmarking system to assess country-level risk, which may negatively influence market access conditions. [8]

Section 301 Investigation

In July 2025, the Office of the United States Trade Representative (USTR) initiated a Section 301 investigation into Brazilian policies, including environmental enforcement practices. This aspect of the investigation focuses on whether insufficient enforcement of environmental laws—especially regarding illegal deforestation—may be creating trade distortions that affect U.S. producers of timber and agricultural goods. Depending on the findings, the U.S. may adopt unilateral trade measures under the Trade Act of 1974, including additional tariffs, import restrictions, suspension of trade concessions, or negotiated agreements. [9]

Recent WTO consultations on trade and environmental matters

The increasing intersection between environmental concerns and international trade has led to greater scrutiny of measures that, while environmentally motivated, may raise questions regarding their alignment with WTO obligations, particularly under the General Agreement on Tariffs and Trade (GATT) framework. As such disputes become more frequent, it is essential to monitor the legal evolution of environmental principles and their potential recognition as binding elements within international law.[10]

In May 2025, Russia requested WTO consultations with the European Union and its member States regarding the CBAM and an alleged export subsidy under the EU’s Greenhouse Gas Emission Allowances Trading Scheme. Russia cited inconsistencies with GATT provisions, accession protocols, and subsidy rules[11]. The EU declined the request, stating that consultations would not lead to a mutually satisfactory outcome[12], Russia may now request the establishment of a panel.[13] No WTO disputes have yet been initiated against the EUDR.

On August 11, Brazil formally requested consultations at the WTO to challenge tariffs imposed by the US on Brazilian exports, including potential additional tariffs linked to the ongoing Section 301 investigation under the US Trade Act of 1974, which includes deforestation-related concerns. Brazil claims the measures violate WTO rules by discriminating against Brazilian products, exceeding agreed tariff limits, adopting unilateral actions without prior recourse to WTO procedures, and undermining expected trade benefits. [14]–[15]

While the consultation request marks the first step in the WTO dispute settlement process, the continued non-functioning of the Appellate Body since 2019 limits the enforceability of any panel ruling against the United States.

Possible retaliatory measures under Brazil’s Economic Reciprocity Law

In April 2025, Brazil enacted the Economic Reciprocity Law^[16], regulated in July^[17], establishing a legal framework to respond to unilateral trade measures that affect the country’s competitiveness. The law authorizes the Executive Branch, in coordination with the private sector, to adopt proportionate countermeasures—such as import restrictions, suspension of concessions, and limitations on intellectual property obligations—while prioritizing diplomatic engagement.

Countermeasures may be applied when foreign actions interfere with Brazil’s sovereignty, impose environmental standards beyond national regulations, or violate trade agreements. The law provides two procedural paths: a faster provisional route handled by a government committee focused on trade negotiations and a standard route involving several government bodies responsible for foreign trade decisions, and a public consultation to allow stakeholders to assess and mitigate potential risks and impacts.

Although Brazil has not yet implemented any countermeasures, news reports –  indicate that the Ministry of Foreign Affairs requested the Foreign Trade Chamber to initiate proceedings under the law, following the US imposition of 50% tariffs and a Section 301 investigation. If the standard procedure is followed, responsible agencies have 30 to 60 days to assess whether countermeasures are legally applicable, followed by a committee review within the same timeframe. If approved, a working group will draft a proposal for public consultation before the final decision. This emphasizes Brazil’s intention to assess available legal instruments while seeking a resolution through dialogue.

How trade law may help to address climate change

Environmental considerations are increasingly being integrated into international trade policy, with both the EU and the US implementing regulatory frameworks designed to promote sustainability across global supply chains. These measures seek to address climate change by introducing instruments aimed at reducing carbon emissions, combating deforestation, and ensuring compliance with environmental standards. 

Sustainable trade agreements

After being adopted by WTO members in 2022, the Agreement on Fisheries Subsidies entered into force in September 2025 described by the WTO as ‘the WTO’s first mulitlateral agreement with environmental sustainability at its core’. The Agreeement prohibits subsidies which fund illegal fishing and overifshing, taking a broad definition of ‘subsidy’ to include many different kinds of government support. Future treaties may aim to combat activities which contribute to climate change following a similar model, though trade agreements targeting, for example, fossil fuel subsidies may face more significant political barriers.

Climate change has also become an important factor in bilateral trade negotiations. The EU has been particularly active in this regard, including ‘Trade and Sustainable Development’ (TSD) chapters in recent agreements with many countries including Chile, the United Kingdom, and Japan. The proposed EU-Mercosur trade deal also includes a TSD chapter. At the core of this chapter, like many other TSD chapters, are provisions on environmental regulation in Article 2. Article 2(3) is a ‘non-regression’ commitment stating that parties “should not weaken the levels of protection afforded in domestic environmental or labour law with the intention of encouraging trade or investment”. Under Article 2(4), Brazil and Mercosur would also commit to not derogating from environmental laws in order to encourage trade. Article 2(6) states that parties cannot usse environmental laws to disguise trade restrictions. These provisions would be subject to a special dispute resolution mechanism outlined in Articles 15-17. On the whole, if the EU-Mercosur deal materialises, it would provide a trade-related impetus for Brazil maintaining environmental protection.

Domestic climate ambition and trade

Beyond specific provisions in trade agreements, there is a complex relationship between national climate policy and trade. Green subsidies have become an important part of many countries’ climate policies but may be interpreted as unfair restrictions on trade depending on how they are targeted. This is particularly salient when coupled with rules of origin requirements, such as in the case of electric vehicle tax credits granted under the United States’ Inflation Reduction Act. The potential impacts of sustainability policy on global value chains, which in turn shapes global trade patterns, is even broader. New demand for materials and services used in green technology and decreasing demand for emissions-intensive products is altering key trade relationships, presenting both risks and opportunities to Brazil.

International coordiantion and trade-related mechanisms may help to manage this complexity. For example, nationally determined contributions (NDCs) under the Paris Agreement could be shaped with reference to trade profiles. There have even been suggestions that countries with carbon pricing mechanisms, and who are considering carbon border adjustment mechanisms, might form ‘carbon clubs’ which would set border carbon adjustments as a bloc.[18]

Conclusion

Environmental and sustainability considerations are increasingly shaping global trade discussions. In the absence of clear multilateral rules linking trade and environmental protection, concerns persist regarding the potential for unequal treatment and unintended trade distortions.

Recent measures related to emissions and deforestation have introduced new challenges for Brazilian exports. In response, Brazil adopted the Economic Reciprocity Law, establishing a legal framework to assess and address unilateral actions that exceed domestic standards and may affect trade dynamics.

As these issues gain prominence, trade tensions may become more frequent. It is therefore essential to monitor how environmental principles evolve within international law and how they interact with existing trade disciplines. Brazil’s approach reflects a broader effort to preserve competitiveness while remaining engaged in constructive dialogue.

Looking ahead, finding balance between legitimate outcomes-based environmental objectives and the principles of rules-based trade will be central to future negotiations.

[1] Cornago, Elisabetta; Berg, Aslak. Learning from CBAM’s Transitional Impacts on Trade. Centre for European Reform, 2024. Available at: https://www.cer.eu/publications/archive/policy-brief/2024/learning-cbams-transitional-impacts-trade

[2] Brazil. Ministry of Development, Industry, Commerce and Services (Ministério do Desenvolvimento, Indústria, Comércio e Serviços). Relatório de Avaliação de Impacto das Regulamentações de Sustentabilidade para o Brasil. Brasília: Camex, 2025. Available at: https://www.gov.br/mdic/pt-br/assuntos/camex/outros-documentos/outros-documentos/relatorio-de-avaliacao-de-impacto-das-regulamentacoes-de-sustentabilidade-para-o-brasil.pdf

[3] Cornago and Berg. Learning from CBAM’s Transitional Impacts on Trade, 2024.

[4] European Commission. Regulation on Deforestation-free Products. Brussels: European Commission, 2023. Available at: https://environment.ec.europa.eu/topics/forests/deforestation/regulation-deforestation-free-products_en#objectives

[5] In December 2024, the EU granted an additional 12-month phasing-in period, making the regulation applicable from 30 December 2025 for large and medium-sized companies, and from 30 June 2026 for micro and small enterprises. Exporters will be required to submit due diligence statements for their supply chain, including geolocation data of the plots where commodities were produced, to ensure compliance with deforestation-free criteria. European Commission. Regulation on Deforestation-free Products. Brussels: European Commission, 2023. Available at: https://circabc.europa.eu/ui/group/34861680-e799-4d7c-bbad-da83c45da458/library/e126f816-844b-41a9-89ef-cb2a33b6aa56/details

[6] Brazil. Ministry of Development, Industry, Commerce and Services. Relatório de Avaliação de Impacto das Regulamentações de Sustentabilidade para o Brasil. 2025.

[7]  Munhoz, Leonardo; Vargas, Daniel; Valente, Fernanda. Environmental Measures and International Trade: Evolution of Environmental Principles in Trade Disputes. São Paulo: Observatório de Conhecimento e Inovação em Bioeconomia, Fundação Getulio Vargas (FGV-EESP), 2023. Available at: eesp_relatorio_ambientais_eng-ap1.pdf

[8] Murakami Lima, Rayssa Yuki; Azevedo-Ramos, Claudia; Fagundes Cezar, Rodrigo. Expected Effects on Brazil from the EU Regulation on Deforestation-free Products: Lessons from the Timber Sector. Rio de Janeiro: CEBRI – Brazilian Center for International Relations, 2025. Available at: https://cebri.org/revista/en/artigo/197/expected-effects-on-brazil-from-the-eu-regulation-on-deforestation-free-products

[9] Office of the United States Trade Representative (USTR). USTR Announces Initiation of Section 301 Investigation of Brazil’s Unfair Trading Practices. Washington, D.C.: USTR, 2025. Available at: https://ustr.gov/about/policy-offices/press-office/press-releases/2025/july/ustr-announces-initiation-section-301-investigation-brazils-unfair-trading-practices

[10] Munhoz, Vargas, and Valente, Environmental Measures and International Trade: Evolution of Environmental Principles in Trade Disputes, 2023.

[11] In detail, Russia claimed that the CBAM Package appears to be inconsistent with: (i) Articles I:1, II:1(a), II:1(b), III:1, III:2, III:4, X:3(a), and XI:1 of the GATT 1994; (ii) Paragraph 2, second sentence, of Bulgaria’s Protocol of Accession and General Council Decision of 2 October 1996, in conjunction with paragraphs 25 and 92 of the Working Party Report on Bulgaria’s accession to the WTO; (iii) Paragraph 2, second sentence, of Latvia’s Protocol of Accession and General Council Decision of 14 October 1998, in conjunction with paragraphs 40 and 131 of the Working Party Report on Latvia’s accession to the WTO; (iv) Paragraph 2, second sentence, of Estonia’s Protocol of Accession and General Council Decision of 21 May 1999, in conjunction with paragraphs 41 and 141 of the Working Party Report on Estonia’s accession to the WTO; (v) Paragraph 2, second sentence, of Croatia’s Protocol of Accession and General Council Decision of 17 July 2000, in conjunction with paragraphs 47 and 225 of Working Party Report on Croatia’s accession to the WTO; (vi) Paragraph 2, second sentence, of Lithuania’s Protocol of Accession and General Council Decision of 8 December 2000, in conjunction with paragraphs 42 and 189 of the Working Party Report on Lithuania’s accession to the WTO; (vii) Articles 1.2, 1.3 and 3.2 of the Import Licensing Agreement. In addition, the Russian Federation claimed that the alleged subsidy appears to be inconsistent with: (i) Articles 1.1(a)(1)(i), 1.1(a)(1)(ii), 1.1(a)(1)(iii), and 3.1(a) on their own and read together with Annexes I(a), I(f), I(g), and I(1) of the SCM Agreement; and (ii) Articles VI and XVI of the GATT 1994.

[12] World Trade Organization (WTO). Brazil – Certain Measures Concerning Taxation and Charges (DS639). Geneva: WTO, 2025. Available at: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds639_e.htm

[13]  World Trade Organization (WTO). Understanding the WTO Dispute Settlement Rules: DSU Overview. Geneva: WTO, 2025. Available at: https://www.wto.org/english/tratop_e/dispu_e/dsu_e.htm

[14] World Trade Organization (WTO). Committee on Agriculture – Notification – Brazil. Geneva: WTO, 2023. Available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=Q:/G/L/1579.pdf&Open=True

[15] Keskin, Goktug. Trade Wars and the WTO: Navigating Trump’s 2025 Tariffs. London: Atlas Institute for International Affairs, 2025. Available at: https://atlasinstitute.org/trade-wars-and-the-wto-navigating-trumps-2025-tariffs/.

[16] Brazil. Federal Law No. 15,122/2025. Available at: https://www.in.gov.br/en/web/dou/-/lei-n-15.122-de-11-de-abril-de-2025-623734149.

[17] Brazil. Decree No. 12,551/2025. Available at: https://www.planalto.gov.br/ccivil_03/_ato2023-2026/2025/decreto/D12551.htm.

[18] Bethan Adams, Kaya Axelsson and Adam Parr, ‘The Carbon Club Revisited: Harnessing enterprise and trade to decarbonise the global economy’ (2022).