EU Confirms No Delay in EUDRS Implementation; Impact on Industries
During the World Trade Organization (WTO) Committee on Agriculture meeting held on the 25th and 26th, the European Union (EU), disregarding the strong protests from major agricultural exporting economies such as Brazil, India, Indonesia, and the United States, announced that it would not postpone the implementation of the controversial European Union Deforestation Regulation (EUDR).
In response to questions from some trading partners (Australia, Brazil, Canada, Ecuador, India, Indonesia, New Zealand, Paraguay, and the United States), the EU stated that the EUDR will come into effect on December 30, 2024.
"Any delay would require legislative amendments," the EU representative said at the meeting, adding that this would not achieve "our goal of providing legal predictability to all parties as soon as possible."
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Previously, Brazil and others had consistently called on the EU to postpone the implementation of the EUDR. If it takes effect, the regulation will require that various agricultural products sold on the EU market must be "deforestation-free products," meaning that these products must not be the result of recent (after December 31, 2020) deforestation, forest degradation, or violations of local environmental and social laws.
This move has caused unease among many exporters, as the EU's forest resource assessment report covers not only seven commodities, including cocoa and rubber, but also a wide range of derivative products, such as meat products, chocolate, pulp, and paper.
It is expected that as the EU implements the EUDR aimed at reducing global deforestation, companies containing raw materials such as rubber, palm oil, and cocoa or livestock products like beef may face business risks. The EU's regulations will involve all investors and companies doing business with the EU.
EU: Will not postpone the implementation of the EUDR
By implementing the EUDR, the EU aims to stop 10% of deforestation annually and reduce carbon dioxide emissions by at least 32 million tons.
A Geneva trade official told reporters that the EU emphasized: "We are focusing on ensuring that all elements needed for the timely implementation of the regulation are ready, including providing guidance for economic operators and EU member states, as well as information technology systems."
The EU stated that the EUDR aims to address climate change and biodiversity loss, particularly tackling deforestation related to EU consumption, and insists that "this is not a trade ban."The European Union (EU) also stated that all goods, whether imported into the EU or exported from the EU, need to be tracked through geolocation. The EU insists that the EU Due Diligence Regulation (EUDR) is in line with its commitments to the World Trade Organization (WTO) and other trade agreements.
The EU explained that the regulation is based on evidence from the European Commission's impact assessment, and is committed to minimizing trade disruption while pursuing environmental objectives.
Specifically, both public and private certification systems can serve as risk reduction tools, provided that these systems can provide the information required by the EU Anti-Dumping Regulation, particularly through geolocation traceability. However, companies still have the responsibility to conduct due diligence and be accountable for any violations of the regulation.
Regarding the assessment method, the EU said that it is currently developing an assessment method in accordance with Article 29 of the EU Anti-Dumping Regulation, with two main objectives: to improve enforcement by focusing resources on high-risk areas (meaning more inspections of these areas), and to provide targeted support to commodities and regions identified as high risk.
The EU said it will introduce this method to EU member states at the appropriate time. The system will classify countries based on a three-tier risk assessment method. Operators and traders will be responsible for ensuring that their goods do not deforest and meet the requirements of the EU Forest Resources Register.
At the meeting, Paraguay expressed concern about the timetable, noting that there are only three months left before the EUDR takes effect, and the method is "still being developed," which seems inconsistent with the EU's commitment to "180 months of predictability."
Indonesia suggested involving third-party institutions from affected export economies to ensure accountability and fairness in the implementation of the EU Export Tax Regulation. In addition, Indonesia also asked the EU to provide a clear timetable for when the method will be submitted.
At a meeting in May this year, Indonesia had already emphasized the confusion of the EU's idea. Indonesia said at the time: "Indonesia is an archipelagic country with more than 17,000 islands. If each identification is based on the region, then when a region is mistakenly labeled as high risk, will other goods in that region also be considered high risk? If it is based on the commodity, then does a specific commodity label for a region also apply to that specific commodity in other regions?"
The United States urged the EU to "postpone the implementation of the regulation and the subsequent enforcement of penalties" until substantive challenges are addressed.
Is it an Earth-friendly policy or a trade earthquake?The European Union's move has caused unease among many exporters. At previous WTO meetings, members have raised the question of whether this is an earth-friendly policy or a trade earthquake. The reason is that the EU's forest resource assessment report covers areas directly involving the following seven commodities: beef, cocoa, coffee, oil palm, rubber, soybeans, and timber, as well as a wide range of derivative products such as meat products, chocolate, pulp and paper, furniture, and tires, etc.
Jefferies analyst Luke Sussams believes in a report that companies with insufficient policies to address deforestation and biodiversity risks will be caught up in the increasing due diligence requirements brought about by the EU Deforestation Regulation (EUDR).
The report analyzes that companies that may be affected include the world's three largest manufacturers of automotive shock absorbers and batteries, DN Automotive Corp, Hankook Tire, Kuala Lumpur Klang Group, Nexen Tire Corp, raw material supplier Darling Ingredients, and one of the world's largest sustainable palm oil certified producers, SD Guthrie Berhad.
In the future, after the formal implementation of the EUDR, in simple terms, the aforementioned companies involved in the products will need to trace the raw materials used in their products entering the EU back to their place of origin. Those that do not trace may be subject to heavy fines.
However, this regulation has already had an impact. Due to concerns about future coffee supply shortages, the price of coffee futures for delivery in September in New York earlier this month and for delivery in December soared, resulting in the largest price difference since trading began in January 2022.
Furthermore, according to the EUDR, all timber and its products entering the EU market, such as softwood, hardwood timber, and panels, must be accompanied by detailed documentation and geographical information to prove that their raw materials come from forests that have not been deforested. In addition, the products must also comply with the legal requirements of the supplying country in terms of land use, environmental protection, and other aspects.
The industry is concerned that the EUDR will disrupt the existing supply chain system. Organizations such as the European Timber Trade Federation have already warned exporters in advance, emphasizing the importance of collecting necessary information to avoid missing the EU market. Currently, trade organizations from major timber-exporting countries such as the United States and Canada are negotiating with the EU to seek solutions to mitigate the impact on exporters.
However, several Canadian producers have indicated that, considering the adverse effects of the EUDR, they will consider market diversification strategies and look to other markets such as the Middle East, North Africa, and Asia.