EUROPEAN UNION DEFORESTATION REGULATION (EU-DR) –
ECONOMY
News: EU norm threatens coffee, leather export
What is the news?
●
The European Union’s
approval of new deforestation regulations poses a threat to Indian exports of
items like coffee, leather, paper and wooden furniture, even as the government
grapples with the implications of the EU’s carbon border tax.
Key takeaways:
●
The Global Trade Research Initiative (GTRI) said that the EU-DR appears
to prioritize protecting its own agricultural sector and promoting exports,
making imports more difficult as it is a trade barrier disguised as a green
measure.
●
The exporters now have to
ensure that these products have been grown on land, which has not been
deforested after December 31, 2020.
●
The introduction of the
regulation would encourage local production and export of selected agricultural
commodities by making imports more challenging.
Key details of the regulation:
Applicability:
●
The new EU regulations
will affect imports from produce grown on land where deforestation has taken
place after December 2020.
Coverage:
●
The regulation covers
cattle, buffalo, the meat of bovine animals, preparations, Oil cake, soya beans,
palm oil, cocoa bean, powder, chocolate, coffee, leather hide, skin, paper,
paperboard, wood, wood articles, wood pulp, boards and wood furniture.
Compliance:
●
New regulations will kick
in for larger companies from December 2024,
with smaller businesses required to comply by June 2025.
Penalties:
●
Four levels of penalties
have been planned for any violations of this norm:
○ Monetary
fines up to 4% of a firm’s annual turnover in the EU,
○ Confiscation
of products,
○ Confiscation
of revenues gained from a transaction and
○ Exclusion
from public procurement processes.
Impact of the regulation on India:
1. Impact on exports:
●
EU-DR will adversely
affect India's exports to the EU of the value of US 1.3 billion (2022 data).
●
The significant products
affected and their export value to the EU are Coffee (USD 435.4 million),
Leather hides, skin, preparations (USD 83.5 million), Oil cake (USD 174.5
million), Paper, paperboard (USD 250.2 million) and Wood furniture (USD 334.6
million).
●
For the products covered
under the carbon tax and EU-DR, the EU's share in India's global exports is
23.6 per cent.
2. Affect small firms:
●
The regulation poses
challenges for small and medium-sized enterprises, as compliance costs and due
diligence requirements may exclude them from global agricultural trade.
Carbon Border Adjustment Mechanism (CBAM):
Part of Fit for 55:
●
CBAM is part of the “Fit for 55 in 2030 package", which
is the EU’s plan to reduce greenhouse
gas emissions by at least 55% by 2030 compared to 1990 levels in line with
the European Climate Law.
Purpose:
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To reduce carbon
emissions from imported goods and prevent competitive disadvantage against
countries with weaker environmental regulations.
Objectives:
●
Reduce carbon emissions
from imported goods
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Promote a level playing
field between the EU and its trading partners
●
Protect EU companies that
have invested in green technologies.
Implementation:
●
The CBAM will be
implemented by requiring importers to declare the quantity of goods imported
into the EU and their embedded Greenhouse Gas (GHG) emissions on an annual
basis.
●
To offset these
emissions, importers will need to surrender a corresponding number of CBAM
certificates.