A report by think tank Global Trade Research Initiative (GTRI), warns India to take measures like increasing awareness among exporters and proper implementation of track and trace systems to deal with compliance requirements of the European Union’s Deforestation Regulation (EUDR).
As per the think tank, the new regulation would hit India’s agri exports which is worth USD 1.3 billion to the EU starting December 2024.
“Indian exports may take a bigger hit than exports from other competing countries to the EU because of India’s higher deforestation rate,” the report said, adding India’s exports will also be affected by the complex compliance requirements of the EUDR and the EU’s Foreign Subsidies Regulation (FSR).
GTRI Co-founder Ajay Srivastava said, Even if the exporter is certain that a product is not grown on the deforested land, he/she still has to follow all elaborate compliance requirements. This is so different from quality standards where quality of the final product alone matters. The EU just wants to raise the cost of imports to help local producers through a complex compliance mechanism, he said.
The new regulation will largely impact, products including coffee, leather hides, skin, preparations, oil cake, paper, paperboard, and wood furniture.
The European Union Council adopted its Deforestation-Free Products Regulation, also known as EU Deforestation Regulation (EUDR) on May 16, 2023.
Under the EUDR, firms are required to ensure that the product exported to the EU has been grown on land which has not been deforested after December 31, 2020.
The regulation is not WTO (World Trade Organization) compatible and a non-tariff barrier. It will be applicable for large firms with effect from December 2024 and small firms from June 2025.
The regulation prescribes fines up to 4 per cent of a firm’s annual turnover in the EU, confiscation of product, confiscation of revenues gained from a transaction.
GTRI, citing a March 2023 report by ‘Utility Bidder’ said that India lost a significant amount of forest between 1990 and 2020, making it the second-worst country after Brazil in terms of forest loss during 2015-2020.
“India lost 384,000 ha of forests between 1990 and 2000, and 668,400 ha between 2015 and 2020. However, the India State of Forest Report 2021, released in January claimed a small increase in forest cover. But the positive picture is because the government doesn’t distinguish between natural forests and plantations when assessing forest cover. India is losing its natural forests and replacing them with plantations,” it said.
This will pose as a challenge for Indian exporters as they under the new regulation will have to prove that their export products come from land that has not been deforested after December 31, 2020, GTRI said. Adding to the difficulty is the fact that the EUDR will consider plantation land as deforested land, which would add to the difficulties for Indian exporters.
“The EUDR makes exports expensive due to the high compliance cost. Even exporters of high-quality products must invest in expensive due diligence. They need to prove the integrity of their supply chain through a detailed trace and track system from Indian farms to EU markets. This involves sharing farm and farmer data with the EU,” it said.
The compliance procedure includes collecting various information such as commodity details, quantity, farmer/supplier names, country of production, and addresses of the land plots where the commodities were produced.
It said that the Indian government should acknowledge that the EUDR is a reality and it should not expect any exemptions from the EU.
The report suggests, that the government should “join hands with other affected countries to raise the issue at the World Trade Organization (WTO). Raise awareness among exporters about the compliance requirements; and utilize the existing blockchain-enabled trace and track system implemented by APEDA for grape exports to the EU and extend its adoption to cover all relevant products.”
Agricultural & Processed Food Products Export Development Authority (APEDA) is an arm of the commerce ministry which deals with agri exports.
