25 October 2024 – Erika Szyszczak is a Professor Emerita and a Fellow of the UKTPO. Will Disney is a sustainability researcher and independent consultant.
The European Union is using trade measures to achieve a host of policies – climate change, human rights, labour standards – but for one policy area the EU has been hit by a global backlash. Voices within and outside of the EU are calling for a delay, and a re-appraisal, of its ground-breaking anti-deforestation Regulation which came into force on 29 June 2023. The EU has been forced to consider delaying the implementation of the Regulation by 12 months (until 30 December 2025) for large operators and traders. It has also been delayed for micro and small enterprises: until 30 June 2026.
The Regulation aims to promote ‘deforestation-free’ products and reduce the EU’s impact on global deforestation and forest degradation, as part of the action plan embracing the European Green Deal, the EU Biodiversity Strategy for 2030 and the Farm to Fork Strategy. Firms trading in the EU have been preparing for the full implementation of the Regulation by exercising due diligence in their value chains. This has been done to ensure that any trading in cattle, cocoa, coffee, oil palm, rubber, soya and wood, as well as products derived from these commodities, does not result from any deforestation, forest degradation or breaches of local environmental and social laws that occurred from 31 December 2020. However, tracing supply chains in a global economy is difficult, and the Regulation is complex. The European Commission only published guidance on the Regulation on 2 October 2024. This guidance does not provide a steer on which non-EU countries may be seen as high risk, indicating where greater due diligence should be exercised. It only presented the methodology that will be used to benchmark countries and regions in terms of their deforestation risk. Thus, the Regulation will introduce new and onerous customs checks, creating new technical barriers to trade.
The responsibility to ensure compliance with the Regulation lies with the firm placing relevant products on the EU market or exporting such products from this market. Failure to comply will result in penalties: potential fines of up to 4% of the firm’s EU turnover, and confiscation or exclusion from public funding or contracts. Penalties for non-compliance will be set under national law. However, it is anticipated that breaches of the EUDR will lead to criminal penalties.
The Regulation has not garnered total support even within the EU. Requests to postpone the operation of the Regulation emerged from the United States, fearing shortages of sanitary products. The WTO Director General, Ngozi Okonjo-Iweala, called for a delay and reappraisal of the law, especially in light of developing countries seeing the Regulation as lacking an understanding of land use and the costs and expertise needed to map land use.
As such, the Regulation is viewed by some as being discriminatory and punitive towards the global south. Certainly, the Regulation creates new technical barriers to trade, with criticisms that its compliance requirements are “overburdensome and ill-defined.”
Musdalifah Machmud, the former Indonesian Deputy Minister at the Coordinating Ministry for the Economy (now Expert Staff for Connectivity, Service Development, and Natural Resources), sees the Regulation as taking a derogatory attitude towards attempts in the global south to counter de-forestation, and makes this appeal:
“… Indonesia’s efforts on deforestation, its environmental reforms and its certification systems must be recognised within the EUDR and by European stakeholders more broadly.
Indonesia’s deforestation rates are now at their lowest on record, and 90 per cent below their peak a decade ago. The tired narrative of Indonesia – and its commodity producers – as environmental vandals must be dispensed with.”
When the EU adopted the Regulation, it was motivated by environmental concerns. Yet, could it be seen as another example of geoeconomics where the EU is protecting its political and economic interests? Is the EU forging a new framework to control supply chains and define its responses to global threats in international trade? Is this another example of the EU extending its extra-territorial reach into the economies of third states?
Despite resistance from both the public and private spheres, there are also loud voices supporting the Regulation. A coalition of cocoa companies including Nestlé, Ferrero, Mondelēz, Mars, Tony’s Chocolonely and NGOs such as the Rainforest Alliance and Solidaridad, “strongly oppose” calls to reopen the substance of the EUDR.
Stakeholders argue that any renegotiation or further delays will hinder the ability of firms and suppliers to shape business activities to address and report on this complex issue.
Data from the World Benchmarking Alliance’s (WBA) Nature benchmark, an NGO that measures companies’ impact on nature and biodiversity topics, highlights only 7% of the companies currently publicly disclose where their suppliers are based. Beyond resistance from companies to report on this issue, this low figure can also be attributed to the lack of a globally recognised framework to disclose on the topic.
The EU has been criticised for its lack of support for affected stakeholders, particularly regarding the delay in the lack of clarification and guidance on the exact systems which should be implemented to satisfy the Regulation.
The EU must create roadmaps and provide more clarity around the expectations of firms headquartered in the EU, as well as explain the support they should provide to suppliers during the transition. For example, helping suppliers by covering the costs of obtaining certifications for globally recognised sustainability standards.
The consequences of not implementing the policy could be substantial. Analysis from the NGO Global Witness suggests that even a 12-month delay could lead to 150,385 hectares of deforestation linked to EU trade, an area more than fourteen times the size of Paris. Therefore, EU regulators must act urgently if the EU is to avert CO2 emissions related to its market and trade and, ultimately, meet the bloc’s climate goals through the EU Green Deal.
Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or the UK Trade Policy Observatory.
Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.
Jessie Madrigal-Fletcher October 25th, 2024
Posted In: UK- EU
04 October 2024 – Peter Holmes is a Fellow of the UK Trade Policy Observatory and Emeritus Reader in Economics at the University of Sussex Business School.
The 2024 World Trade Organization (WTO) Public Forum was sure to be a fascinating occasion given the interest in the topic, inclusivity and green trade, and the stellar cast of speakers. But what of the future of the WTO itself? Many observers have come to feel that with the negotiating function and the Appellate Body (AB) both log-jammed, there wasn’t much for the WTO to do apart from hosting events like the Public Forum.
Despite the logjam in negotiations and the apparent death (certainly more than a very deep sleep) of the Appellate Body, the WTO is still delivering value to its members in its routine committee work. It continues to promote transparency etc, and Dispute Settlement Panels still operate, though more like the way they did in the GATT era. Among DS nerds there was sympathy for the idea put forward by Sunayana Sasmal and me[1] that concerns over judicial overreach could be assuaged if the AB (if there were one) could decline to rule if the law was genuinely unclear. But as several Indian experts told us, if there is no AB, it’s not an issue.
Meanwhile, I only found one panel focussing on how to restore negotiations: our very own CITP panel on “Responsible Consensus”, i.e. persuading countries not to use their power to block decisions. It didn’t generate a lot of optimism. India, as well as the US, attracted quite a lot of criticism for its vigorous use of its legal right to veto moves that could affect its interests – even where there was a big majority of supporters. India’s position was elegantly and forcefully explained and defended by Prof Abhijt Das, an old friend of Sussex. He argued that even where other states might want to agree amongst themselves, India had a right to object to Plurilateral deals which might affect them adversely even when no actual obligations were created for them. But, interestingly, despite the delight of seeing many old friends from Delhi, there was little open official Indian engagement. It was striking that the Indian Foreign Minister chose last week to visit Geneva, to consult with UN agencies, but he didn’t visit the WTO. And there was no visible official US profile. On the other hand, China’s CGTN was listed as a Forum sponsor and hosted a lecture by Jason Furman, former senior adviser to Barack Obama. On CGTN, the Chinese DDG Zhang Xiangchen stated how the public Forum, “is a platform for all to make their voices heard” and he “encourages more communication among stakeholders and calls on the active participation of developing countries for a balanced outcome.”
This echoed the message that WTO DG Dr Ngozi Okonjo-Iweala pushed in the sessions she spoke at. It was spelled out in the first ever WTO Secretariat Strategy document.
The WTO Secretariat as a body is seeking to do more than just service the wishes of the Member States. It is seeking to act as a facilitator, convenor and broker, in the absence of, and perhaps to recreate, the missing consensus. Inclusivity and sustainability were being pushed in sessions organised by the Secretariat. The message was that we cannot assume globalisation will benefit everyone without action being taken. This was the underlying theme: the Forum offered Public Diplomacy on behalf of the organisation. Was it just bland PR? One senior legal official told Sunayana and me that the WTO did seem to have found a way to create a new role and a new narrative for itself. The WTO had been very closely involved in the efforts to keep vaccine supply chains and some border crossings open during Covid, at the request of concerned parties and had brokered important agreements. It was “more important than ever”. The Secretariat is beginning to be more proactive and encouraging global dialogue.
Following these conversations, many of the observers we spoke to were somewhat sceptical, but not all. One of the UK’s leading trade specialists thought that this message of pro-active broader engagement was real and had been effective during the COVID period. Dr Ngozi has called for action on carbon pricing in an FT interview. If it could work, seeking to mobilise soft power rather than being the home of rulemaking and rule enforcement would be an excellent strategy. But there are pitfalls. Would it be too controversial in the face of division among members? Is there a risk that the Secretariat could be seen as overreaching its legitimacy in the same way as the Appellate Body? Can the WTO really survive without its key rulemaking and enforcing role? And what if Trump wins?
[1] https://blogs.sussex.ac.uk/uktpo/files/2024/02/Holmes_Sasmal_Not-Liquet-UKTPO-WP.pdf
Disclaimer:
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or the UK Trade Policy Observatory.
Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.
Jessie Madrigal-Fletcher October 4th, 2024
Posted In: UK - Non EU, UK- EU
Tags: WTO
