Washington, DC, 16 September, 2024 – Amidst global controversy and growing pushback from countries like Brazil, Indonesia, and India, a new report sheds light on the European Union’s (EU) landmark Deforestation Regulation (EUDR) and its alignment with World Trade Organization (WTO) obligations. The report by Forest Trends concludes that the EUDR, along with similar legislation such as the proposed US FOREST Act, is compatible with WTO trade rules and that their measures are justified in addressing deforestation.
Context and Global Implications
- In recent years, concerns have escalated over global deforestation and the role of consumer countries in driving forest loss through their demand for “forest risk commodities” such as beef, soy, palm oil, and timber. In response, several countries, including those in Europe, North America, and Asia, have introduced regulatory frameworks to break the link between consumption and deforestation.
- The EU has taken a leading role in this effort. Initially implemented in 2013, the EU Timber Regulation (EUTR) aimed to prevent the sale of illegally sourced timber within the EU market. This approach has now been expanded through the EUDR to include a broader range of commodities, requiring that products must not be sourced from deforested areas after 2020. Similarly, the proposed US FOREST Act seeks to impose similar regulations on specified forest-risk commodities.
- As the EUDR is set to take effect on December 30, 2024, there is growing pushback against the law, which countries including Indonesia, Malaysia, and Brazil say puts up a trade barrier against agriculture-dependent developing countries. The WTO chief is reportedly urging the EU to reassess the EUDR. Brazil, Indonesia, and India have called for a debate at the WTO.
Key Findings of the Report
- Compatibility with WTO Rules: The report finds that the EUDR and the proposed US FOREST Act are designed to address deforestation associated with the production of commodities. The regulations aim to curb deforestation, both legal and illegal, and fit within the latitude provided by WTO trade rules for governments to impose trade-related environmental measures.
- “Like Products” Distinction: According to the report, products free of deforestation and those produced through deforestation are not considered “like products” under WTO terminology. Therefore, distinguishing between them in trade regulations is permissible.
- Grounds for GATT Exceptions: Even if a WTO dispute panel were to consider deforested and non-deforested products as “like,” the regulations could still be justified under GATT Article XX(g), which allows for measures related to the conservation of natural resources, provided they are applied in conjunction with domestic restrictions.
- Concerns of Exporting Countries: The report acknowledges the concerns of countries such as Brazil, Colombia, and India, which argue that the EUDR imposes non-tariff barriers on their exports. However, it asserts that the WTO has historically permitted trade-related environmental measures, as seen in existing regulations in the EU, US, and other regions, which have never been challenged at the WTO.
- Implementation Support: The report suggests that to mitigate trade disruptions and strengthen their position in any potential WTO disputes, the EU and US should offer comprehensive assistance to exporting countries in meeting the new regulations. This approach would not only issue concerns over livelihood and business impacts, but also support global efforts to tackle illegality and deforestation.
Calls for Capacity-Building and Reassessment
The WTO’s call for the EU to reconsider its approach reflects concerns that the new regulation could generate higher costs or barriers to trade, particularly for small businesses and producers in exporting countries. Nevertheless, the report concludes that the EUDR’s primary objective of conserving natural resources aligns with international trade rules, provided it is implemented alongside efforts to support affected countries.
In light of these findings, the report emphasizes the importance of ongoing support for a transition to a deforestation-free future and dialogue between the EU, WTO, and exporting countries to ensure that efforts to combat deforestation are balanced with fair trade practices.
Download the report, “Is the EU Deforestation Regulation compatible with WTO obligations?”
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Forest Trends works to conserve forests and other ecosystems through the creation and wide adoption of a broad range of environmental finance, markets, and other payment and incentive mechanisms.
Forest Trends’ Forest Policy, Trade, and Finance Initiative aims to promote policies which harness the power of market incentives for the legal, sustainable, and equitable trade in timber and other commodities harvested from forest landscapes.