Would China adopt barriers to Brazilian agro-industry for climatic reasons? – 08/12/2021 – Tatiana Prazères

Could China, the destination of a third of Brazilian agri-food exports, impose trade barriers on it for climatic reasons?

The question is not unreasonable, although China’s sustainable development agenda also represents an opportunity for Brazilian agribusiness.

In July, Beijing launched the national carbon credit market, which will impose a cost on Chinese companies based on their emissions.

In the European Union, this same type of market has led, today, the bloc to want to set up an import tax for climatic reasons, theoretically extending to imports the costs which were beginning to fall on European products.

My guess? In the short term, China is unlikely to adopt this same route of trade restrictions for weather reasons. More importantly, the political calculation could change as China moves towards carbon neutrality.

The logic goes back to the Chinese attitude towards intellectual property. While the country basically copied, the knowledge protection program was not adequate. Now that he’s innovating, the conversation is different.

Equally important: before trade barriers, less obvious but powerful instruments, such as financing linked to sustainability objectives, will have an impact on Chinese imports of Brazilian agribusiness.

At present, however, Beijing has economic and political reasons to avoid trade barriers.

China is the world’s largest carbon emitter and also the world’s largest exporter of goods. With this double title, the country is rather afraid of becoming a target of trade barriers for climatic reasons. By adopting trade barriers, it would be particularly vulnerable to equivalent responses.

However, as the costs of the country’s climate transition weigh on Chinese companies, a new bill is being imposed on Beijing. If Chinese exports face barriers for environmental reasons, ditto.

When it comes to Brazilian agriculture specifically, the argument for food security in China works against the adoption of restrictions. Of the food it imports, 18% comes from Brazil.

It turns out that, of the universe of agricultural products exported to the Asian country, just soybeans and orange juice, there is a great dependence on the supply of Brazil in Chinese domestic consumption. And orange juice, let’s face it, doesn’t threaten anyone’s food security. Soy is a different story.

In cases where there is significant production in China and alternative supply markets, the food safety argument does not provide a sure protection against barriers.

China still has political reasons to resist these trade restrictions. The country values ​​non-interference in internal affairs, especially because it does not want external interference here. The logic of realpolitik would be, say, to treat Amazonia and Xinjiang as national problems.

While today’s barriers to Brazilian agriculture for climatic reasons seem unlikely, it’s not hard to remember how quickly Beijing’s calculation can change. The regulatory whirlwind that has just hit China’s tech and private education sectors serves as a reminder.

In a scenario of inadequate policies in Brazil and, in China, real climate efforts and protectionist tendencies, it is possible that Brazilian companies will face trade barriers for environmental reasons.

But the process would be subtle. Far from banning imports, the movement would start, for example, with non-mandatory climate certifications – and the bar could rise.

Even before trade barriers, reputational and financial incentives for importing companies, investors, banks and Chinese funds will have an impact on Brazilian agribusiness. China does not want to be seen, for example, as responsible for deforestation in the Amazon by meat imports.

Less obvious than trade barriers, these incentives can be just as powerful and, most importantly, will reach Brazilian agribusiness first.

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