The EU Deforestation Regulation (EU-DR), adopted by the EU Council earlier this month, covers about 479 items exported by India such as meat, leather hide, wood furniture, paper and coffee, and is set to affect exports worth an estimated annual $1.3 billion to begin with, according to a report by a Delhi-based research body.

“The introduction of the EU-DR appears to be driven by a desire to bolster local production and exports while reducing imports. The regulation’s compliance costs and discriminatory nature are concerns, as they may disadvantage smaller firms,” said Ajay Srivastava, Co-founder, Global Trade Research Initiative (GTRI).

Under the EU-DR, Indian exporters to the EU must ensure that the identified products have been grown on the land which has not been deforested after December 31, 2020. 

Penalties for non-compliance include 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 and exclusion from public procurement processes, the report explained. India needs to watch out for more items being added to the list.

As a preventive measure, the report proposed that the blockchain-enabled trace and track system being implemented by APEDA for grape exports to the EU and other regions needs to be adopted for all covered products. Exporters also need to be made aware of the compliance requirement, it said.

Further, India and other affected countries could consider taking up the issue at the WTO as it violates MFN and national treatment principles, it said.

The new rules will apply to large firms from December 2024 and small firms by June 2025.

‘Deceptive narrative’

Combining the products covered under the EU’s Carbon Border Adjustment Mechanism, under which carbon taxes will be imposed on seven items including steel and aluminium from 2026, with the EU-DR, the EU’s share in India’s global exports is 23.6 per cent. The two measures together are likely to adversely affect exports worth $9.5 billion from India, the report said.

Srivastava said that the EU’s efforts at promoting “deforestation-free” products, appeared to be a deceptive narrative as the bloc extensively expanded agricultural land by cutting down primary forests, which now account for less than 0.7 per cent of its total forest area, compared to the global average of 33 per cent. “Many other countries, facing the need to convert primary forests into cultivable land to feed growing populations, have a much larger share of primary forest. The EU, however, aims to prevent others from following a similar path while having already done so in the past,” he said.

Apart from India, countries such as Malaysia, Indonesia, Brazil, Argentina, Ecuador, Peru, Guatemala, Costa Rica. Colombia, Cote d’Ivoire, and Vietnam are also to be adversely affected, the report noted.