The European Union’s approval this week of new deforestation regulations poses a threat to Indian exports of items like coffee, leather, paper and wooden furniture, even as the government is grappling with the implications of the EU’s carbon border tax framework.
The new EU regulations will affect imports from produce grown on land where deforestation has taken place after December 2020 and will kick in for larger firms from December 2024, with smaller firms required to comply by June 2025.
Four levels of penalties have been planned for any violations of this norm, which include 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.
As per a research note by Global Trade Research Initiative (GTRI), the rule will affect 479 tariff lines in addition to the 777 lines covered by the carbon tax mechanism, and the two measures are expected to impact almost $10 billion of exports to Europe based on 2022 data.
“The European Union Council’s adoption of the EU Deforestation Regulation appears to use real issues of deforestation to promote its selfish interests by prioritising its own farm sector and making imports difficult,” said Ajay Srivastava, the think tank’s co-founder.
The EU accounts for almost 57% of India’s coffee exports, and 30%-40% of exports of leather, oil cake and wood furniture. Stressing that India will be one of the worst-affected countries from this regulation, Mr. Srivastava said that this system will be particularly difficult for smaller enterprises, as compliance costs and due diligence requirements may exclude them from global agricultural trade.
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