'India should prepare its exporters to deal with compliance norms of EU's deforestation regulation': Report

India should take measures such as 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 it would hit agri exports, a report said on Tuesday.

This regulation will hit India's agricultural exports worth $1.3 billion to the EU starting December 2024, think tank Global Trade Research Initiative (GTRI) said.

“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).

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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, GTRI Co-founder Ajay Srivastava said.

He said 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 added.

The key products which would be affected due to this regulation include coffee, leather hides, skin, preparations, oil cake, paper, paperboard, and wood furniture.

The European Union Deforestation-Free Products Regulation, also known as EU Deforestation Regulation (EUDR) was adopted by the European Union Council, on May 16, 2023.

The regulation requires firms 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,” the report said.

The new rules will apply to 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.

Citing a March 2023 report by 'Utility Bidder', GTRI 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.

Due to this situation, Indian exporters will face challenges as they must prove that their export products come from land that has not been deforested after December 31, 2020, it said adding 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 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,” the report suggested.

Agricultural & Processed Food Products Export Development Authority (APEDA) is an arm of the commerce ministry which deals with agri exports.