Environmental Protection or Domestic Protectionism? The EU Deforestation-Free Regulation and its Shift from Exporter to Importer of Foreign Capital

The principle of environmental integration is part of the European Union’s (EU) Sustainable Development Strategy, which defines the bloc’s long-term vision for environmental protection. The development of comprehensive sustainability and environmental protection policies in the EU involves bilateral and regional agreements on investment and trade. Therefore, the negotiations on foreign investments within (intra-EU) and outside the EU (extra-EU) are defined by the evolving jurisprudence of the Court of Justice of the European Union (CJEU), in particular the Achmea, Micula and Komstroy cases, Opinions 1/17 and 1/20. The EU investment and trade landscape is gradually becoming a repository of foreign investments, especially from emerging countries, such as Brazil, China and India. As a consequence, the EU adopts investment regulations instead of bilateral agreements of foreign investment protection, distancing itself from the traditional model of investor-State arbitration dispute settlements. The EU’s adoption of mega agreements, particularly, the Canadian-EU agreement (CETA), establishes an elevated protection for the EU market. Although the European trend seems to aim at centralizing environmental and investment protection together, the treatment for investment reflects its repositioning as a recipient of foreign capital, changing its historical characteristic of capital exporter. When analyzing the EU’s provisions on investment, there are new measures to block trade and investment liberalization using the strategy of environmental protection, as seen in the EU 2023/1115 Deforestation-Free Regulation, as well as the continuous opposition to the Mercosur-EU agreement by some EU Members, and the regulation 2024/1252 for critical minerals for energy transition. This Chapter concludes that the EU uses the principle of integration and environmental protection to oppose bilateral and regional agreements, securing trade protectionism. This behavior is justified on the grounds that the Union becomes a capital importer and the sustainable measures are effective in hampering foreign capital and goods.