EU deforestation rules risk ‘catastrophic’ impact on global trade, says ITC chief

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EU rules to curb deforestation could have a “catastrophic” effect on global trade if the bloc does not help small producers and developing countries adapt, the head of the Multilateral Center for International Trade said.

Pamela Coke-Hamilton, executive director of the International Trade Council, a joint body of the United Nations and the World Trade Organization, told the FT that banning deforestation-related goods from entering the EU would benefit big companies because they could trace where their products were grown. ground and risk “cutting off” smaller suppliers.

“What the biggest producers might do is, without traceability to these small farmers, just cut off their supply,” she said.

Major coffee suppliers to the EU, such as Brazil and Honduras, and countries such as Indonesia and Malaysia, major exporters of palm oil and rubber, are among those most affected by the regulation.

Coca-Cola Hamilton warned that exporters in these countries may try to circumvent regulations by exporting goods to countries with less stringent import rules, disrupting trade flows.

She added that the law’s impact on global trade could be “catastrophic or good”, depending on the extent of the EU’s influence on developing countries.

The legislation, which will come into effect late next year, is the first in the world to ban the import of products linked to deforestation, including cattle, cocoa, coffee, palm oil, soybeans, timber and rubber.

It’s part of an ambitious environmental agenda set out in 2019 by European Commission President Ursula von der Leyen, which sets the bloc’s goal of achieving net-zero greenhouse gas emissions by 2050.

Ministers in Indonesia and Malaysia, concerned about their palm oil industries, have urged the European Union to relax new rules.

Coca-Cola Hamilton said there could be a “vicious circle” if small producers were unable to meet requirements for goods covered by the law for export. “Once you lose market share, you lose income, then you increase poverty, and then you increase deforestation, because the root of deforestation is poverty.

“We (risk) falling into the trap of reinforcing the things we’re trying to change,” she added. ITC provides technical support on trade matters to smaller countries.

The law will benchmark countries according to whether they are at low risk, “standard” or high risk of deforestation or degradation. More shipments from high-risk areas will be inspected by customs officers.

The 27 EU member states will be responsible for inspecting and rejecting shipments from areas that have been deforested or damaged since 2020.

The Food and Agriculture Organization of the United Nations estimates that between 1990 and 2020, the world lost 420 million hectares of forest, an area larger than that of the European Union. The world continues to lose 10 million hectares of forest land each year, the commission said.

The law stipulates that “when procuring products, reasonable measures shall be taken to ensure that producers, especially small farmers, are paid a fair price, thereby obtaining a living income and effectively addressing the poverty that is the root cause of deforestation”.

The committee has held meetings with national stakeholders, including at the WTO in June.

Coca-Cola Hamilton said she supported the intent of the bill given the severity of the climate crisis. But despite the leniency for small producers, the information requirements and the obligation to use geolocation technology still impose too much of a burden.

“Many (small farmers) are struggling with the cost of living crisis and climate change in the post-pandemic world. They’re just caught in a vortex of survival,” she added.

The commission said the regulation “applies to goods, not countries, and is neither punitive nor protectionist, but creates a level playing field. It will be implemented in a fair manner and will not constitute Arbitrary or unreasonable discrimination by producers does not constitute a disguised restriction on trade.”

It added that the law should be “fully compliant” with WTO rules and “is expected to increase market opportunities for sustainable producers, regardless of their size”.

Brussels has until June 2028 to review the law and its impact, especially on small farmers and indigenous communities.