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Giving relief to exporters of certain products, the European Commission on October 2 proposed to extend the implementation of its deforestation regulation by one year.
The EUDR, formally known as Regulation (EU) 2023/1115, sets out detailed rules designed to prevent the importation and exportation of specific products linked to deforestation and forest degradation.
It was adopted on May 16, 2023.
EUDR requires European companies to prove that certain products traded by them were not produced on land that was deforested after 31 December 2020 or was subject to forest degradation.
The EUDR covers a wide range of commodities and products that are associated with deforestation, either directly or indirectly.
The Regulation's extensive scope means it applies not only to raw materials but also to finished goods that may contain these materials. Below is a summary of key commodities and examples of products impacted:
Wood and Timber Products: This includes raw timber as well as products derived from wood, such as furniture, paper, and cellulose.
Soy: Commonly used in animal feed and processed food products.
Palm Oil: Found in a vast array of consumer goods from food to cosmetics and cleaning products.
Cattle (Beef and Leather): This covers both meat products and leather goods, impacting the fashion industry as well as food suppliers who must ensure their supply chains are deforestation-free.
Coffee and Cocoa: These commodities, which are essential to everyday consumer goods like chocolate and coffee, are also regulated.
Rubber: Used in the manufacturing of tyres and various industrial products, rubber's inclusion means that the automotive and manufacturing sectors will need to reassess their sourcing practices.
The Regulation will apply to most economic operators from 30th December 2024.
It provides for stringent compliance obligations to ensure that products associated with deforestation are not traded on the EU market.
If they fail to comply, it will result in financial penalties and restrict access to the EU market.
EUDR’s Country Benchmarking system will determine the deforestation and degradation risk of each nation.
Countries will be categorised on a 3-tier system, from low-risk to high-risk.
High-risk nations will face a higher level of scrutiny by the EU than low-risk nations.
The regulation on seven commodities and their derivatives will complicate Indian exports, such as meat products, leather, chocolate, coffee, palm oil derivatives, rubber products, soybeans, wood products, and many more to the EU market.
As per a research note by the Global Trade Research Initiative (GTRI), the rule will affect 479 tariff lines in addition to the 777 lines covered by the carbon tax mechanism, and the two measures are expected to impact almost $10 billion of exports to Europe based on 2022 data.
The implementation of a new EU regulation has raised concerns for various industries in India, including coffee, rubber, leather, and paper. These industries are major players in the EU market, and the regulation requires them to follow strict standards for deforestation-free production.
India exports 57% of coffee, worth over $600 million annually. Indian coffee production is 70 percent robusta beans and 30 percent arabica beans.
India is also the world’s fifth-largest natural rubber producer, and the EU receives approximately 25% of its total natural rubber and rubber products exports, worth around $800 million annually.
India is a major exporter of finished leather products, with the EU accounting for 30-40% of its exports, worth roughly $1.5 billion annually.
Tracing deforestation-free sources within complex supply chains is a hurdle these industries must overcome to ensure compliance with the new regulation.
Indonesia and India have criticised the EUDR's 'benchmarking system' by which regions are classified as high-risk, medium-risk, and low-risk for deforestation.
There is also confusion concerning the process of classifying such regions. India thinks that the rationality and conditions for such benchmarking are not pro-trade.
The majority of other countries criticized the one-size-fits-all approach with no effective compliance support systems. Limited time for compliance was established as one of the significant issues along with a cost that appears too high, particularly for small producers.
India pointed out that the law imposed steep compliance costs on low-income farmers and MSMEs which lack compliance mechanisms.
The regulation might violate the principles of the most-favoured-nation (MFN) and national treatment, which prevent countries from using domestic taxes and regulations to undermine tariff concessions.
The EUDR is a complex set of rules that will have far-reaching implications for India’s trade practices. As a result, Indian businesses must adapt to new regulations and find innovative ways to comply with them.
To comply with regulations, businesses must implement advanced data management and information-sharing systems to track commodities in great detail.
However, this could pose a significant hurdle for small and medium-sized enterprises (SMEs), as the costs associated with such requirements could limit their access to the highly profitable EU market. SMEs may need to consider alternative solutions to ensure they can compete on a fair and level playing field.
EIA tools such as TRST01Chain, can demonstrate their commitment to sustainability and create a positive impact on the environment.
Effective product traceability is vital for businesses which aim to demonstrate their commitment to sustainable practices. By leveraging traceability technologies, Indian exporters can improve their market positioning and potentially command better pricing.
The implementation of the European Union’s Regulatory Framework for Medical Devices (EUDR) has the potential to significantly impact existing trade patterns. The ambiguity surrounding its implementation may create confusion and uncertainty, leading to disruptions in the global medical device market. In this regard, India could collaborate with other affected countries to challenge the EUDR at the WTO.
Important articles for reference
Sources:
https://www.wri.org/news/statement-eu-deforestation-regulation-should-not-be-delayed
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PRACTICE QUESTION Q.Consider the following statements about the “European Union Deforestation Regulation (EUDR)” recently seen in the news:
How many of the above statements is/are correct? A.Only one B.Only two C. All Three D.None Answer: B Explanation: Statement 1 is correct: The EUDR, formally known as Regulation (EU) 2023/1115, sets out detailed rules designed to prevent the importation and exportation of specific products linked to deforestation and forest degradation. It was adopted on 9th June 2023. EUDR requires European companies to prove that certain products traded by them were not produced on land that was deforested after 31 December 2020 or was subject to forest degradation. Statement 2 is incorrect: The EUDR covers a wide range of commodities and products that are associated with deforestation, either directly or indirectly. The Regulation's extensive scope means it applies not only to raw materials but also to finished goods that may contain these materials. Statement 3 is correct: It provides for stringent compliance obligations to ensure that products associated with deforestation are not traded on the EU market. If they fail to comply, it will result in financial penalties and restrict access to the EU market. |
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