EU’s Deforestation Act: Impact on Indian Exports

The European Union has recently enacted European Union Deforestation-Free Products Regulation (EUDR) which requires EU-based companies to ensure that their imports and exports are free from deforestation & biodiversity loss and prevent human rights exploitation embedded in the global supply chains. After fossil fuels, deforestation is the second-largest producer of the greenhouse effect and the rise in global warming.

At present, the law applies to a few products but would gradually increase its scope. The onus is on companies registered in the EU to ensure that the wood, palm oil, soy, coffee, cocoa, rubber, and cattle they import or export have not been produced on land that was deforested after December 31, 2020. Although the law does not directly affect Indian exports since India hardly export any of the above items produced on plantation cleared after 2020. However, the compliance cost of exporters will increase due to certification. The law largely applies to countries like Brazil, Indonesia, Malaysia and certain African nations like Ivory Coast, which are aggressively engaged in converting virgin forests into plantations.

The regulation covers about 479 items exported by India such as meat, leather hide, wood furniture, paper and coffee, and is set to affect exports worth an estimated annual $1.3 billion to begin with.

India is a major supplier of products like coffee, rubber etc. to EU nations. Over 50% of Indian coffee is destined for the EU as well as 25% of our rubber products. In addition, there may be a small quantity of forest honey. The exporters will have to certify that these products have not been produced on land cleared after 2021 and that there is no exploitation of labour or indigenous people like those in scheduled tribes.

The regulation also requires companies to ensure that these products comply with the domestic laws of India. These include laws on land use rights; labour rights; human rights protected under international law; Rights of Indigenous Peoples; and anti-corruption laws. Industrial agriculture has been linked to a number of human exploitation and abuse such as child labour laws, minimum wages, forced eviction and displacement etc. 

In fact, with proper compliance, India may be more competitive in products like coffee, rubber products, leather etc. which are linked with deforestation & child labour (as young as six years) in Vietnam, Malaysia and Brazil respectively. Even European countries will have to comply with this law, an example being Sweden’s timber plantations on land belonging to the Sami tribe. 

The European Commission will use risk benchmarking to announce countries which are high, medium or low risk. No doubt, high-risk countries will face greater scrutiny and importers will be asked to conduct stringent due diligence when sourcing products. Companies will get 18 months to make changes complying with the regulation.

Other countries are also enacting similar legislation. The UK recently approved a similar regulation, and the US introduced a similar bill in Congress. In March, the Chinese government announced an initiative with Brazil’s largest beef lobby for deforestation-free beef exports. The aim is to move towards sustainable production of agricultural products.

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The author is Suhayl Abidi, Research Advisor, GOG-AMA Centre for International Trade & Consultant, Centre for VUCA Studies, Amity University.