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EU deforestation rule could cost India up to $1.3 billion in exports every year: GTRI


New Delhi: India’s exports worth about $1.3 billion each year could be affected as a result of the European Union’s Deforestation Regulation (EUDR) approved earlier this week, according to a report by economic think tank Global Trade Research Initiative ( GTRI) on Thursday.

The European Union has passed a deforestation law to ban the importation into the EU of coffee, timber, wooden items, chocolates, soybeans and other commodities linked to the destruction of the world’s forests.

The law requires companies exporting goods to the European Union to provide a due diligence statement and “verifiable” information proving that their goods were not grown on land deforested after 2020, or face hefty fines.

The new rules will apply to large companies in December 2024 and to smaller companies in June 2025.

The EU has come under intense criticism for its unilateral steps to solve the environmental problems facing the world. The EUDR is coming close to adopting the first-ever carbon tax that is expected to be challenged by most developing countries in multilateral fora such as the World Trade Organization (WTO).

According to GTRI, the main affected products and their export value to the EU in calendar year 2022 are coffee at $435.4 million, leather hides, skins, preparations $83.5 million, oil cake $174.5 million, paper, cardboard $250.2 million and wood furniture $334.6 million.

“For the products subject to the Carbon Border Adjustment Mechanism (CBAM) and EUDR, the EU’s share of India’s global exports is 23.6%. Most such exports will be adversely affected. The product list will be expanded soon,” the report said.

Ajay Srivastava, founder of GTRI, said the EU claims to want to reduce its contribution to global deforestation by promoting “deforestation-free” products, but this is seen as a misleading narrative.

“The EU itself has significantly increased its agricultural area by clearing old-growth forests, which now make up less than 0.7% of its total forest area, compared to the global average of 33%.

Many other countries, faced with the need to convert old-growth forests into arable land to feed growing populations, have a much higher share of old-growth forest. However, the EU wants to prevent others from following a similar path as they have done in the past,” Srivastava added.

To implement the regulation, the EU will classify countries as low, standard or high risk within 18 months. High-risk countries must meet more obligations and be monitored more. For example, EU customs checks 9% of companies or shipments from high-risk countries, 3% from standard-risk countries and 1% from low-risk countries.

Such arbitrary categorization of countries violates both national treatment and most favored national principles of the WTO and is likely to be challenged, Srivastava added.

The regulation prescribes four penalties for violations: fines of up to 4% of a company’s annual turnover in the EU, confiscation of products, confiscation of income from a transaction and exclusion from public procurement procedures

Countries most affected: Malaysia, Indonesia, Brazil, Argentina, Ecuador, Peru, Guatemala and Costa Rica. Colombia, Ivory Coast, India and Vietnam.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.