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EU deforestation product ban: a new compliance burden for developing countries

The European Commission today adopted a draft regulation preventing certain commodities and products from being placed or made available on the EU market if they have caused or contributed to deforestation or forest degradation.

The deforestation targeted can be legal or illegal. The measures would be enacted retroactively as from 31 December 2020.

The proposal states that, in order to be placed on the EU market, these commodities and products must also have been produced in accordance with the laws of the country of production and be covered by a due diligence statement completed by the operator in the EU.

In a nod towards ensuring WTO compliance, the regulation’s scope includes both commodities and products produced in the EU and those imported, meaning that, in the Commission’s view, there is no discrimination.

“The proposed deforestation rules protect the environment, not our market,” tweeted the Director-General of DG Trade Sabine Weyand. “These measures will be @wto compatible and affect both imports and local EU products.”

The question remains open whether the issue could be seen as a potential open door for import discrimination based on “processes and production methods” or PPMs – that leave no trace in the final product.

The WTO’s jurisprudence tends to be sceptical on PPMs – even if it is not clear cut on this matter. This means that the new EU measures could still be open to litigation in Geneva.

The products in the scope include certain products derived from cattle such as beef and leather, cocoa, coffee, palm oil, soy, and wood, and products in which they are found such as chocolate and furniture. These were chosen following a Commission-led impact assessment which showed that these commodities had the greatest impact on deforestation.

According to the Commissioner for the Environment Virginijus Sinkevičius who is leading on the file, this scope could be expanded in the future to include, for example, rubber.

Benchmarking

The regulation establishes a three-tier system for the assessment of countries, namely low risk, high risk, and standard risk. This benchmarking also applies to EU countries.

The Commission will identify whether countries or regions of countries present a low or high risk on the basis of information provided by the country concerned, with “standard risk” being the default.

Criteria for this benchmarking will include the rate of deforestation and forest degradation, the rate of expansion of agriculture land for relevant commodities, production trends of relevant commodities and products, whether the nationally determined contributions to the UN Framework Convention on Climate Change covers emissions and removals from agriculture, forestry and land use, any relevant bilateral agreements between the country concerned and the EU, and whether the country concerned has laws in place to tackle deforestation.

No countries are listed by name in the regulation, either as being low or high risk, and the Commission was keen to stress today that there will be no ban on any country or products.

Rather, products from countries listed as high-risk will undergo “enhanced scrutiny”, meaning that each EU member state shall increase the level of checks on operators trading with these areas.

The regulation also states that the Commission shall engage with producer countries “to develop partnerships and cooperation to jointly address deforestation and forest degradation…Such agreements and their effective implementation will be taken into account as part of the benchmarking”.

Operators’ obligations

The proposed regulation puts the responsibility on operators to ensure that the relevant commodities and products they are placing on the market meet the requirements of this Regulation.

They must do this by undertaking specific due diligence, risk assessment, and risk mitigation measures.

Operators can undertake a simplified risk assessment procedure if they can ascertain that all relevant commodities or products have been produced in countries that were identified as low risk.

The information on due diligence to be collected by the operator includes the quantity of the product, the country of production and the geo-localisation coordinates of all plots of land where the relevant commodities and products were produced, as well as the date or time range of production.

It must also include “adequate and verifiable information that the relevant commodities and products are deforestation-free” and that the production has been “conducted in accordance with relevant legislation of the country of production”.

Operators must review their due diligence system at least once a year.

When operators are satisfied that their product complies with the regulation’s requirements, they must submit a digital due diligence statement to the national competent authorities that confirms that “due diligence was carried out and no or only negligible risk was found”. The company will not have to wait for approval before placing the items on the market.

Operators may not place relevant commodities and products on the EU market nor export them without prior submission of a due diligence statement.

If operators receive “new information” that their product is not in conformity with the regulation’s requirements, they must “immediately inform the competent national authorities of the member states in which they placed the relevant commodity or product on the market”.

Penalties will be decided by each member state separately, with the regulation stipulating that as a minimum these should include fines “proportionate to the environmental damage and the value of the relevant commodities or products concerned”, confiscation of the relevant commodities and products, confiscation of revenues gained by the operator and/or trader from a transaction with the relevant commodities and products concerned, and temporary exclusion from public procurement processes.

New burdens on poor countries

The proposal has already been criticised for placing significant burdens on developing countries.

“The due diligence requirements introduce significant compliance costs that could benefit large volume producers from countries with quality satellite coverage,” said Emily Rees, the founder of Trade Strategies consultancy and a senior fellow at The European Centre for International Political Economy.

“The proposal risks deviating trade at the expense of small farmers in low-income countries,” she said.

The proposal will now be debated and amended by the European Parliament and EU member states, with adoption expected in 2023.

One Comment

  1. GOOD IDEA!
    Unsurprisingly, with a lot of red tape, self-defined standards and implementation risks all along the value chain. (E.g. the EU does not own the Amazone, nor can it proscribe child labour outside Europe.)
    Moreover, DG Trade Sabine Weyand’s claim that this is “@wto compatible and affects both imports and local EU products” comes a bit too early. “National Treatment” is not the only WTO obligation!
    A better alternative to this too simple shift of the burden of proof (and a terrible border measure challenge for customs) would seem to be a retailer’s traceability obligation showing best endeavour to ensure sustainable forestry.

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