Between a rock and a hard place: the EU’s conundrum on the Deforestation Regulation

For the past five years, the Commission has demonstrated strong leadership in tackling the EU’s deforestation footprint. Most notably, it broke new ground with the introduction of the EU Regulation on Deforestation-free Products (EUDR), a flagship initiative aimed at eliminating deforestation from the supply chains of certain commodities and derived products sold in Europe, such as beef, coffee, cocoa, and palm oil. Under the regulation, which is set to apply as of 30 December 2024 (30 June 2025 for small and micro-enterprises) after a transitional period, any operator or trader placing these goods on the EU market, or exporting from it, must prove that they do not originate from recently deforested land nor contributed to forest degradation.

The road since the adoption of the EUDR has been turbulent. From the outset, the groundbreaking legislation has faced fierce criticism from several EU trading partners, especially developing countries and least developed countries (LDCs), which consider the regulation to be discriminatory and punitive, labelling it an act of “regulatory imperialism”. More recently, “global north” voices, including a bipartisan group of U.S. Senators, have also joined the chorus, calling for a delay and revision of what they deem a "fundamentally unfair" regulation. Moreover, the EUDR, which just last year was adopted with a strong majority in the European Parliament, is now encountering fresh opposition from several EU Member States. Concerns arose amidst farmers' protests earlier this year, highlighting the political sensitivity of the issue. As the European elections approach, the stakes for Brussels are high, and divisions within the EU are becoming more pronounced over time.

Unpacking Member States’ concerns

The issue gained momentum when Austria’s Agriculture Minister placed the issue on the agenda of the Agriculture and Fisheries Council meeting on 26th March 2024. In a note supported by Finland, Italy, Poland, Slovakia, Slovenia, and Sweden, the Austrian delegation called for a back scaling and delay of the regulation arguing that the EUDR, as it stands, would harm sustainable and small-scale agricultural practices within the EU. The group of agricultural ministers called “for a targeted and immediate revision of the EUDR”, which should include the extension of the transitional period, a reduction of the administrative burden, the introduction of a de minimis threshold, and a general exemption for producers in low-risk areas. The proposal reportedly found substantial backing, with agriculture ministers from 20 of the EU's 27 member countriestogether with the EU Agriculture Commissioner Janusz Wojciechowski expressing support for the EUDR delay. At the same time, EU Environment Commissioner Sinkevičius, in charge of the file, remains a staunch supporter of the regulation, denying any need for postponement.

More recently, Germany together with other eight Member States (Bulgaria, Estonia, Ireland, Luxembourg, the Netherlands, Slovenia, Spain and Hungary) urged the Commission to finalise the  implementation details and create the necessary basis for its application. In particular, the ministerial letter points out to technical issues related to the EUDR digital information system and delays with the country benchmarking – that is, the system that will assign countries, or regions, a level of deforestation risk (low, standard, or high) – which the co-signatories consider as prerequisites for the EUDR’s adequate implementation. Thus, if the Commission does not publish the country benchmarking in due time, "the German government is in favour of extending the transition phase".

Meanwhile, NGOs, both within and outside the EU, continue to express their unwavering support for the regulation and urge the Commission to move forward with the implementation as scheduled and to avoid any setbacks at this critical stage. Interestingly, they underscore the EUDR’s potential to drive anti-deforestation efforts worldwide and the positive developments that took place ever since its adoption.

Postponing the rules: a double-edged sword

Thus far, no decision has been taken and the Commission has ruled out delaying the regulation. However, increasing pressure from Member States and agrifood stakeholders is a cause for concern, especially given that EU leaders did not hesitate to backtrack on several environmental measures in response to farmers’ protests earlier this year. Following the same approach with the EUDR would raise several challenges.

First, postponing the rules at this stage would open the door to a complex renegotiation process after the European elections, which could ultimately undermine the EUDR’s goals and create further uncertainty. Considerable resources - albeit not enough, as we recently argued in this policy brief - have already been mobilised to prepare for the rules, including investments from businesses, producer countries, and the EU itself. Just last December, the Commission, the Netherlands, Germany, and France launched a widely applauded Team Europe Initiative Deforestation-free Value Chains with a package of €70 million in new funding. Moreover, halting the regulation now, and reopening discussions regarding its application date and the contours of the rules, could slow down the necessary investments and push businesses to seek alternative (and more predictable) markets with lower environmental standards, countering the EU’s anti-deforestation efforts.

Second, scaling back the regulation would raise concerns of policy coherence as the EUDR’s text foresees the potential expansion of regulation’s scope (see EUDR article 34), with the first review currently underway. Most importantly, it would call into question the EU’s credibility as a reliable trading partner and a climate champion. Since the Regulation was first proposed at the end of 2021, the Commission has been ardently advocating for the EUDR as a key tool to halt global deforestation. It has embarked on a journey to raise awareness and disseminate information regarding the rules through a number of initiatives to address producing countries’ concerns, which have long been critical of the regulation. Backtracking at this juncture due to a lack of domestic support would suggest that the EU has tried to push partners towards commitments it cannot uphold itself.

Navigating implementation challenges

Continuing with business as usual does not seem to be an option either, given the persistent concerns voiced by all involved actors. Motivations may vary, and some criticism may indeed be politically motivated, aiming to appeal to national constituencies. However, they all share a common thread: they highlight lingering uncertainties regarding the application of the rules.

Top concerns include the regulation’s traceability requirements and questions of data governance across the supply chain, administrative burden and high compliance costs, as well as the role of measures like voluntary and mandatory certification schemes in facilitating EUDR compliance. The Commission's much-awaited implementation guidelines, initially due this spring, are now expected to come out in June 2024.

In the meantime, smallholder farmers and small producers stand to lose the most amid this uncertainty, given that, as highlighted in a recent Europe Jacques Delors’ policy brief, there is a real risk that they could be cut off from trade with the EU or pushed out of supply chains by larger producers, who can more easily prove compliance with the EUDR. Thus, it is crucial that technical and financial assistance matches the size, scale, and speed needed to promote smallholder inclusion in global value chains.

To make matters worse, the Commission has recently admitted that the country benchmarking may not be ready by December, as originally planned. According to several media outlets, the Commission is instead considering delaying the classification system during the first year of the regulation’s implementation. Many have opposed to this option, with Germany's Federal Environment Ministry warning that “without the country benchmarking, essential simplifications for low-risk countries do not apply”. In fact, a delay in the country’s classification would, at least in theory, put all companies on equal footing when it comes to the required due diligence and intensity of checks by the national competent authorities, offering little relief to smaller producers. On top of that, EU industries point out to multiple technical shortcomings in the EUDR's digital platform for due diligence statements, deeming it unfit for purpose.

Conclusion

All things considered, the Commission finds itself between a rock and a hard place, caught between the need to stick to its environmental commitments while grappling with the regulation’s shortcomings. Walking this tightrope requires strong leadership to uphold the EUDR’s framework in a difficult political climate, along with the courage to recognise and respond to legitimate concerns about its implementation. Doing so will also require a significant boost in the technical and financial resources allocated to the EUDR to ensure adequate, smooth, and fair implementation of the rules.

With the European election around the corner, this issue will fall into the next Commission which will be faced with the ultimate question of whether it can clear up the hurdles and finalise implementation details by 30 December. Also, whether doing so at the end of the transitional period will allow stakeholders sufficient time to prepare. In weighing its options, the Commission must carefully consider the implications of a delayed implementation, which might trigger a complex renegotiation process after the elections. With roughly six months left until the EUDR’s is set to apply, several issues remain unresolved. Therefore, all efforts should be directed towards providing clarity and reassurance to affected actors, as well as supporting those who stand to lose the most from a messy implementation process: smallholder farmers and small-scale producers.

Ultimately, as the Commission navigates these complexities, it must not lose sight of the urgency underlying the regulation. Deforestation remains a critical issue with far-reaching environmental and climate consequences. The EU's role as a major consumer market calls for decisive action to combat deforestation and mitigate its adverse effects.