Trade integration and climate regulation in Latin America : regulatory profiles and provisions in trade agreements

Abstract

This paper maps the climate regulatory fragmentation of 25 Latin American and Caribbean countries in international trade, combining climate measures notified to the World Trade Organization (WTO) through the Environmental Database (EDB) with climate provisions in trade agreements from the Trade and Environment Database (TREND) covering the period 2009 to 2021. A cluster analysis identifies four trade-climate insertion profiles: agro-forestry, agroindustrial, minerals, and fossil fuels. The countries whose exports are most sensitive to trading partners’ climate regulation are those that have incorporated the fewest climate commitments in their agreements, suggesting an asymmetry that conditions the prospects for South American regulatory convergence. Panel models with country fixed effects and a Mundlak decomposition show that the accumulation of trade agreements is positively associated with climate notification, but this association operates through the technical regulations channel (TBT), consistent with institutional diffusion through agreement networks, while the agricultural channel shows no association with trade integration and responds to external regulatory pressure. Countries integrated into value chains with regulated partners, particularly through Central America Free Trade Agreement-Dominican Republic (CAFTA-DR) and United States-Mexico-Canada Agreement (USMCA), adapt through the bilateral route, while Mercosur members operate through reactive adaptation independently of their agreements. The between-cluster share of variance in climate depth rose from 6% in 2009 to 60% in 2021, documenting a transition from relative homogeneity to mutually distant regulatory blocs structured along productive insertion, with implications for the debate on whether South American integration can build a coordinated climate agenda or each country will negotiate bilaterally with the European Union and the United States.