EU's Deforestation Rule Strikes India's $1.3 Billion Export Market

According to a report from the economic think tank GTRI, India's annual exports of coffee, leather, and paperboard to the European Union, valued at USD 1.3 billion, will be negatively affected by the recently implemented deforestation regulation by the EU.

On May 16, the European Union Council implemented the European Union Deforestation-Free Products Regulation (EU-DR), just three weeks after introducing the carbon border tax.

According to a report, the implementation of EU-DR will harm India's exports to the European Union, amounting to a value of $1.3 billion based on 2022 data. The main products affected and their corresponding export values to the EU include coffee ($435.4 million), leather hides, skin, preparations ($83.5 million), oil cake ($174.5 million), paper and paperboard ($250.2 million), and wood furniture ($334.6 million).

As per the Global Trade Research Initiative (GTRI), the EU-DR seems to give greater importance to safeguarding its agricultural industry and boosting exports, which indirectly hampers imports by using a green initiative as a trade barrier.

The EU-DR regulation encompasses various products such as cattle, buffalo, beef, processed meat, oil cake, soybeans, palm oil, cocoa beans, cocoa powder, chocolate, coffee, leather hides, paper, paperboard, wood, wooden articles, wood pulp, boards, and wooden furniture.

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The deforestation regulation will require companies exporting goods to the European Union. They will need to provide a "due diligence statement" and verifiable evidence demonstrating that their products were not grown on land that was deforested after 2020. The regulation will come into effect for larger firms in December 2024, while smaller firms will be required to comply from June 2025.

According to the information provided, the European Union's contribution to India's worldwide exports for goods subject to carbon tax and EU-DR amounts to 23.6 percent. This regulation presents difficulties for small and medium-sized businesses as they may be unable to participate in global agricultural trade due to high compliance expenses and the need for extensive diligence.

The EU's intention to decrease its impact on global deforestation by endorsing 'deforestation-free' products is viewed as a misleading narrative, according to the report.

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According to the report, implementing the regulation would promote the local production and export of specific agricultural commodities by imposing greater obstacles on imports.

According to the report, this law will have an impact on 479 tariff lines, in addition to the 777 lines already covered by the carbon tax mechanism. It is expected that these measures will affect nearly US$10 billion worth of exports to Europe, based on data from 2022.

The countries that would experience the most negative impacts are Malaysia, Indonesia, Brazil, Argentina, Ecuador, Peru, Guatemala, and Costa Rica. Additionally, Colombia, Côte d’Ivoire, India, and Vietnam would also be significantly affected.

-With inputs from Outlook Planet

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