Economy
EU deforestation law may hit Indian exports worth $1.3 billion
Summary
Under the European Union Deforestation Regulation (EUDR), items such as coffee, wood articles, chocolates and soy will be allowed into the 27 member-states only if an exporter is able to prove that the shipments are not causing deforestation or forest degradation—a major cause of global warming.New Delhi: India is discussing with the EU a law that aims to tighten the rules governing the imports of a wide range of consumer goods that are most commonly associated with deforestation, two government officials aware of the development said.
Under the European Union Deforestation Regulation (EUDR), items such as coffee, wood articles, chocolates and soy will be allowed into the 27 member-states only if an exporter is able to prove that the shipments are not causing deforestation or forest degradation—a major cause of global warming.
In addition, the companies may also have to verify that these products comply with relevant legislation of the producing country, “including on human rights and that the rights of the affected indigenous people have been respected," according to the website of the European Parliament.
As a leading consumer of such articles, the EU has taken the stand that its huge consumer economy must not contribute to climate change.
But developing nations say that unilateral moves to resolve global environmental concerns are unfair.
The law, which is set to come into force as early as December 2024 for large firms and June 2025 for smaller firms, could hit Indian exports worth $1.3 billion every year.
“Deforestation issue is still under debate and discussion. It has not been implemented yet. We are in touch with the EU in this regard, and we will try to safeguard our interest. We are not yet negotiating but discussions to safeguard exporters‘ interests have begun," an official said.
The products covered by the law are: cattle, cocoa, coffee, palm-oil, soya and wood, including products that contain, have been fed with or been made using these commodities (such as leather, chocolate and furniture).
During the negotiations, lawmakers added rubber, charcoal, printed paper products and a number of palm oil derivatives to the list.
As per a research report by GTRI, the significant products from the EU list, along with their export value to the EU in calendar year 2022 are: coffee at $435.4 million, leather hides, skin preparations ($83.5 mn), oil cake ($174.5 mn), paper, paperboard ($250.2 mn), and wood furniture ($334.6 mn).
New Delhi’s bigger worry is that products covered under the Carbon Border Adjustment Mechanism—the so-called carbon tax—and the deforestation law may expand going forward, piling on the compliance burden on Indian firms.
Ajay Srivastava, founder, Global Trade Research Initiative (GTRI), said India may bring up the law at the World Trade Organization as it violates its Most-Favoured-Nation treatment and national treatment principles.
Within 18 months, the EU will classify countries as low-, standard-, or high-risk. High-risk countries must meet more obligations and subject themselves to more checks.
For instance, EU Customs will check 9% of firms or consignments from high-risk countries, 3% from standard-risk countries, and 1% from low-risk countries, Srivastava added.
“Indian firms must use this time to prepare for compliance. They must ensure that their products have been grown on land which has not been deforested after December 31, 2020," Srivastava added.
“Fortunately, India has a functioning trace-and-track system being implemented by the Agricultural and Processed Food Products Export Development Authority for grape exports to the EU and other regions. It needs to be adopted for coffee, oil cake and similar other products covered under EUDR.
Overall EUDR will increase compliance cost and make it difficult for small exporters to export to the EU," Srivastava added.
Queries sent to the commerce ministry and EU remained unanswered till press time.
As per EUDR, exporters must also conduct due diligence on the product and this will include collecting the information on the produce and land, using this information to analyze risks in the supply chain, carry out risk mitigation and submit a due diligence statement to EU based importers before exporting to the EU. The information to be collected must include details of commodity, quantity, supplier, country of production, and address of plots of land where commodities were produced.
Notably, the regulation prescribes four penalties for violations: fines up to 4% of a firm’s annual turnover in the EU, confiscation of product, confiscation of revenues gained from a transaction and exclusion from public procurement processes. Experts said that countries which would be most adversely affected-Malaysia, Indonesia, Brazil, Argentina, Ecuador, Peru, Guatemala, and Costa Rica. Colombia, Côte d’Ivoire, India, and Vietnam.
