EU delays Deforestation Act, easing pressure on Indian exports

The EU has delayed the implementation of its Deforestation Regulation, originally set for June 29, 2023. This regulation aims to reduce global deforestation by requiring products exported to the EU to be sustainably sourced, affecting commodities like coffee, wood, and leather. The extension provides temporary relief to countries like India, whose exports face significant risks under the new rules.

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The EU Deforestation Regulation (EUDR) took effect on June 29, 2023 with the aim to curb global deforestation and forest degradation by promoting the use of sustainably sourced goods. By reducing its environmental footprint, the regulation expected to lower greenhouse gas emissions and mitigate biodiversity loss. This initiative started out as a part of a broader EU action plan that began with the 2019 Commission Communication on protecting global forests, reinforced by the European Green Deal, the EU Biodiversity Strategy for 2030, and the Farm to Fork Strategy.

The EUDR required companies to ensure that products exported to the EU are sourced from land that hasn’t been deforested after December 31, 2020. It targeted commodities like cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derivatives, which are linked to deforestation. As a significant consumer of these commodities, the EU aims to lead global efforts in addressing deforestation. Under this regulation, businesses operating within or exporting to the EU must ensure that their products are not sourced from recently deforested areas or do not contribute to forest degradation.

This regulation affects several countries, including India’s exports of coffee, cocoa, soya, wood products, rubber, and leather goods. It imposes penalties of up to 4% of a company’s annual turnover in the EU, along with the seizure of non-compliant products and revenues. These stringent measures have led to significant pushback from impacted nations.

In response to strong opposition, the EU has now proposed a one-year extension, delaying the implementation of its Deforestation Regulation until December 2025. This extension offers relief to approximately $1.3 billion worth of Indian exports, including leather, coffee, and wooden furniture, which would otherwise be impacted by the regulation.

Large companies must now meet compliance by December 30, 2025, while small and micro-enterprises have until June 30, 2026. The decision, pending approval from the European Parliament and the Council, aims to give global suppliers more time to adapt to the regulation’s complex requirements.

Complying with the EUDR poses a major challenge for India, as a substantial portion of its exports to the EU are at risk. In FY24, India’s total exports to the EU amounted to US$ 75.9 billion. Key products that would be particularly affected by the regulation include coffee (US$ 435.4 million), leather hides and skins (US$ 83.5 million), oil cake (US$ 174.5 million), paper and paperboard (US$ 250.2 million), and wood furniture (US$ 334.6 million).