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.
