The world’s third largest economic power, namely the European Union, hit the world again with the approval of the European Union Deforestation-free products Regulation (EUDR) on 6 December 2022. Through this Regulation (EUDR), the issue of the importance of addressing deforestation as the main cause of greenhouse gas emissions from the agriculture, forestry, and other land use sector or AFOLU has returned to the global stage.
The provisions in the EUDR will regulate and ensure that consumers in the European Union (EU) do not buy agricultural commodities related to global deforestation and forest degradation that enter the EU market. Some of the developing countries most affected by the enactment of the EUDR are countries with large tropical forests such as Brazil and Indonesia, which on November 29, 2022 submitted formal objections through the World Trade Organization (WTO) forum, before this regulation was issued. Through the WTO forum, the delegations of these two countries and a number of other developing countries stated that the EUDR is burdensome and expensive.
This short article examines the aims of the EU Deforestation-free products Regulation (EUDR) and their impact on deforestation rates in Indonesia and other tropical forest countries. In addition, it also intends to see the influence of previous EU policy such as the EU Directive on Renewable Energy which in practice has encouraged the expansion of monoculture agriculture, especially Indonesian oil palm plantations. This article will end with a conclusion and some recommendations.
The Aim of the Issuance of the EUDR
The aim of issuing the EU Deforestation-free products Regulation (EUDR) can be seen, among others, from the European Commission’s Press Release on December 6, 2022. The press release states that when the provisions in the EUDR come into effect, all related companies that wish to marketing their commodities to the EU market are subject to rigorous agricultural commodity due diligence. There are seven agricultural commodities regulated in the EUDR, namely: palm oil, livestock, soybeans, coffee, cocoa, wood, and rubber as well as their derivative products such as beef, furniture, or chocolate. These commodities were selected on the basis of the European Union’s overall assessment of these commodities, namely their role as the main driver of deforestation due to the expansion of agricultural land.[1]
The EUDR was issued because it considers the EU as the main economy and the largest consumer of these agricultural commodities. Through the issuance of regulation regarding this deforestation-free products, the EU hopes to stop significantly global deforestation and forest degradation originating from the EU consumption demand. So that in turn will reduce greenhouse gas emissions and loss of biodiversity. According to the EU’s own internal study, the rate of deforestation linked to the EU’s consumption of these agricultural commodities is expected to reach 300,000 – 600,000 hectares per year by 2030.[2]
If understood as a whole, the EUDR aims to prevent global deforestation and forest degradation, which are the commitments of many countries, including Indonesia. Prevention of global deforestation and forest degradation is a global agreement through the Paris Agreement on Climate Change in 2015, which has been signed by 197 countries and ratified by 195 countries until July 2021. Thus, producing a deforestation-free agricultural commodities regulation is of course not a trade barrier, but is an important step towards implementing the Paris Agreement on Climate Change.
This means that developing countries with extensive tropical forests such as Brazil and Indonesia, actually have to start improving forestry and commodity governance in their countries in order to positively welcome the European Union’s Deforestation-free products Regulation (EUDR). Not even swerve looking for agricultural markets that are not tight, such as China, Africa or India. Or even threaten to boycott exports of crude palm oil (CPO) to the EU market.
Overall, the EU is an important export market for Indonesia. Data from the Indonesia Central Agency of Statistics (BPS) for November 2022 shows that Indonesia’s non-oil and gas exports to the EU reached US$ 1.55 billion. This is equivalent to 6.74 percent of the total value of Indonesia’s non-oil and gas exports in November 2022.
Indonesia must improve the governance of agricultural commodities such as palm oil, timber, coffee, cocoa, and rubber as well as the accompanying deforestation. Forest and oil palm moratorium regulations that have been issued by the Government of Indonesia so far have not had a significant impact on the rate and level of Indonesia’s deforestation. Likewise, Brazil must also improve the management of soybean commodities, which are mostly grown in the Amazon forest. The high rates of deforestation in these two countries are most often mentioned in documents on deforestation published by the European Union.
The 27 member states of the EU and the European Parliament must however formally adopt the EUDR they have agreed to. After it officially takes effect at the EU level, large companies from developing countries that wish to export the seven agricultural commodities and their derivative products have 18 months to comply. Meanwhile, small companies or farmer associations have a deadline of 24 months to abide with the EUDR provisions.
These rules do not only apply to companies but also to the competent authorities, aka the state. Countries that trade with the EU are obliged to monitor the compliance of their domestic companies with their existing national laws in producing deforestation-free agricultural commodities. Companies that market their agricultural commodities to EU countries must also show the coordinates of the locations of production of their commodities and the EU can carry out periodic monitoring of the process. In addition, the EU will provide assistance to developing countries to increase their capacity to produce deforestation-free agricultural commodities, including developing regulations that support preventing deforestation.
In general, there are two reference documents in the preparation of the EUDR. First, referring to the recent publication of the Food and Agriculture Organization of the United Nations (FAO) regarding the increasingly rampant deforestation of 420 million hectares globally that occurred in the 1990-2020 period.[3] According to FAO, the expansion of agricultural land allocated for oil palm plantations was the main cause of deforestation in Southeast Asia in the last three decades (1990-2020). In addition, the latest regulation also refers to the report of the Intergovernmental Panel on Climate Change (IPCC) formed by the United Nations (UN) stating greenhouse gas emissions during the 2007-2016 period from the agricultural, forestry, and other land use sectors or AFOLU accounted for 23 percent of total greenhouse gas emissions in that period.[4]
Most of the total greenhouse gas emissions according to reports on climate change submitted by the IPCC were contributed by the energy and transportation sectors from three regions namely the European Union, Japan, and the United States. However, due to the political and economic domination of these developed countries which are the main forces of monopoly capitalism (imperialism), the problem of deforestation and forest degradation in forest areas in developing countries is much more a topic of discussion than problems of energy, transportation, and militarism (war) as the main cause of greenhouse gas emissions. Especially in various major world forums such as the G-20 meeting, COP on Climate Change and COP on Biodiversity, Davos World Economic Forum, and others.
Its Implication to the Indonesia’s Deforestation
From the beginning, the Indonesian government has expressed objections to the EUDR before this regulation was approved, which was officially conveyed by the Indonesian delegation through the WTO forum on November 29, 2022. Even at the ASEAN-EU 45th Anniversary Summit on December 14, 2022, Indonesian President Joko Widodo again mentioned that this regulation could hinder trade between Indonesia and the European Union.
However, the Indonesian President’s response did not target the substance of this regulation which regulates the importance of jointly preventing deforestation and forest degradation. Because the EUDR only focus on regulating so that EU consumers do not consume commodities and agricultural products related to deforestation and forest degradation that enter the EU market, and do not regulate trade relations between countries at all, which are regulated in other regulations.[5]
According to the European Commission, the main driver of deforestation and forest degradation is the expansion of agricultural land, which is linked to the production and consumption of agricultural commodities they import from developing countries such as soybeans, livestock, oil palm, timber, cocoa, coffee, and rubber. As a major economy and consumer of commodities linked to deforestation and forest degradation, the EU is a contributor to this problem – and urges European citizens to take initiatives to solve it (European Commission, November 17, 2021).
Thus, the EUDR is a form of the EU’s responsibility to reduce global deforestation and forest degradation. Through this regulation on deforestation-free products, the EU is creating a new binding standard for agricultural trading commodities that wish to enter their market.
On the other hand, the EU’s regulation of deforestation-free products is actually an acknowledgment of the guilt of the EU for the occurrence of deforestation and forest degradation due to consumption by the EU. So once again, the regulation regarding the latest EU deforestation-free products has absolutely nothing to do with efforts to inhibit trade, as the governments of Brazil and Indonesia are worried.
This regulation will require companies to carry out strict due diligence, including showing the coordinates of the location or production land and a statement that their products have not contributed to deforestation and forest degradation anywhere after December 31, 2020. Of course, obligations like this can is a particular challenge for companies operating in countries known to have high problems of deforestation and forest degradation, and whose countries are weak when dealing with large companies such as Indonesia, Brazil and other developing countries.
Therefore, developing countries and companies from developing countries that still want to market their agricultural commodities to the EU market from now on must start improving their forest governance and take more serious steps to reduce deforestation and forest degradation , including the Government of Indonesia. There is still time for the Government of Indonesia to improve forest governance so that it is able to produce deforestation-free agricultural commodities.
Through the EUDR, the world’s third largest economic bloc will apply strict agricultural commodity entry standards, namely deforestation-free through a traceability process and coordinate data regarding production locations that can be monitored, if they want to enter the EU market. If there are companies from developing countries who are determined to export non-deforestation-free agricultural commodities and are later able to trace that their export agricultural commodities are not deforestation-free, these companies will receive a fine of 4 (four) percent of their annual income.
Previous Experience with EU Directive on Renewable Energy
The European Union has previously regulated similar regulations regarding renewable energy since 2009 which is part of the European Green Deal. Through the 2009 EU Directive on Renewable Energy, the EU has made a target of using biofuels as much as 10 percent by 2020. The revision of this regulation in July 2021 states that the target mix of the EU’s renewable fuels are 32 percent of all EU energy consumption by 2030. The EU’s Renewable Energy Regulation which will be revised again in 2023, has drawn a lot of criticism since their enactment.
Analysis of the United Kingdom Renewable Fuels Agency cited in the 2009 Christian Aid report on bio-energy states that there are around 10.8 million hectares of arable but unused land in the EU itself, in order to achieve the target of 10 percent bio-energy demand. Nonetheless, the EU has determined that in order to achieve this target they divide it into two categories: between 22-54 percent of the target will be met from imports and the remaining 37 percent will be obtained from transferring production to lands outside the EU. This would mean 5 to 10 million hectares of land-use change outside the EU, depending on the target level—a significant increase in terms of land use for biofuel purposes.[6]
Thus, it is clear that the origins of the expansion of oil palm plantations in Indonesia and the promotion of increased use of bio-energy and the rapid rate of deforestation in Indonesia also stem from efforts to meet the target of consumption of bio-energy in European countries. Because as it is known, Indonesia exports an average of around 70 percent of the entire CPO production it produces. This is frankly recognized in the newly enacted EUDR, in which the EU states that they have contributed greatly to global deforestation and forest degradation due to the expansion of agricultural land in developing countries’ lands, especially Brazil for soybeans and sugar cane plantations and Indonesia for oil palm plantations.
Conclusion
It will be interesting to see whether the EUDR will be complied with by large agribusiness companies and agricultural commodity traders in developing countries. Or they will move their trading location to another place without having to think about the stringent requirements for deforestation-free agricultural commodity standards set by the European Union. However, this second step also carries a high risk, namely allowing deforestation and forest degradation to continue, which will increase the risk of expanding greenhouse gas emissions and harming the wider community. The gigantic flood that submerged half of Pakistan in August 2022 and killed more than 1,000 people and harmed around 33 million Pakistanis, is enough to be a warning to all of us about the importance of tackling climate change and reducing greenhouse gas emissions.
The EU Deforestation-free products Regulation (EUDR) is a historical step forward in preventing deforestation and forest degradation. Therefore, the EU’s action by issuing binding regulation regarding deforestation-free products should be appreciated. Indonesia does not need to view this latest regulation as discriminatory and hindering trade, but as a commitment by the EU to help Indonesia maintain and protect Indonesia’s tropical forests. Thus, the EUDR can contribute to helping Indonesia reduce the rate of deforestation and forest degradation in an effort to achieve the target of reducing greenhouse gas emissions (Nationally Determined Contributions), as Indonesia’s commitment to the 2015 Paris Agreement on Climate Change.
Nevertheless, the experience of implementing the 2009 EU Directive on Renewable Energy towards the expansion of oil palm plantations in Indonesia and other countries should become a common lesson. The 2009 European Union Renewable Energy Regulation and its revision in 2021 have in fact made deforestation even more rampant in Indonesia, as it has become one of the drivers for the expansion of oil palm plantations for the EU’s biodiesel needs.
Recommendations
For independent smallholders in developing countries, there must be protection and direct market incentives in the form of financial support, market access, prices, and technology transfer to help them meet due diligence standards. In addition, clarity is needed regarding the definition of independent smallholders, as well as technical guidelines for fulfilling the information required in due diligence. Adequate deadlines are required to ensure the readiness and capacity of independent smallholders to meet the due diligence requirements prior to enactment of the regulation. [7]
In the EUDR, independent smallholder groups wishing to export their products to the EU market have 24 months to comply with this regulation. This means that the Government of Indonesia has around 24 months, to prepare Indonesian independent smallholders so that they have the capacity to comply with the EUDR provisions. For the palm oil commodity as an example, actually Indonesian companies and independent smallholders are familiar with due diligence through the Indonesian Sustainable Palm Oil (ISPO) and the Roundtable on Sustainable Palm Oil (RSPO). So that the Government of Indonesia does not need to worry about trade barriers due to the issuance of this deforestation-free product regulation.
The second recommendation relates to the role of financial institutions in agribusiness and food funding. The EUDR must also apply to financial institutions in the EU that finance companies producing export commodities to the EU. In the Indonesian oil palm plantation sector, for instance, the role of EU financial institutions is crucial in driving the expansionary growth of this sector.
Without regulation of the operations of financial institutions in the EU, the EUDR will not be able to address the problem of deforestation. The provisions regarding the role of these EU financial institutions have not yet been regulated in the EUDR. There is therefore a need for equal due diligence obligations for financial institutions funding EU-based agribusiness and food enterprises.[8]
The third recommendation relates to the indigenous peoples and local communities who have an important role in protecting the land they own and/or manage. Because uncertainty over land tenure due to government policies is the main cause of deforestation and forest degradation. National laws are not always sufficient to guarantee that commodities entering the EU market are produced in accordance with the rights of the indigenous peoples and local communities. Therefore, EU regulations must include explicit reference to the international law and standards on tenure rights and free, prior and informed consent (FPIC) – in line with United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), Convention on Biological Diversity (CBD) and ILO Convention 169 and Voluntary Guidelines on Tenure.[9]
The last two recommendations, namely the provisions on EU-based financial institutions that fund agribusiness and food companies and respect for land rights of the indigenous peoples and small farmers are important for the effectiveness of the EUDR. The provisions regarding these two matters are still very weak in the EUDR. This suggests that the European Union Deforestation-free products Regulation (EUDR) is unlikely to be able to effectively reduce deforestation and forest degradation.
***
[1] See the press release of the European Commission, “Green Deal: EU agrees law to fight global deforestation and forest degradation driven by EU production and consumption.” Brussels, European Commission, December 6, 2022.
[2] See the European Commission, “Commision Staff Working Document Impact Assessment: minimising the risk of deforestation and forest degradation associated with products placed on the EU market-part 1.” Brussels, European Commission, November 17, 2021, p. 21.
[3] See FAO, Global Forest Resources Assessment 2020. Rome: FAO, 2020.
[4] See IPCC, Climate Change and Land, 2019: 10.
[5] See the European Commission, “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Stepping up EU Action to Protect and Restore the World’s Forests,” Brussels, July 23, 2019.
[6] Eliot Whittington, “Growing Pains: The Possibilities and Problems of Biofuels.” Christian Aid report, August 2009: 26.
[7] See “Sikap Bersama CSO Indonesia mengenai Proposal Regulasi Uji Tuntas Uni Eropa.” Jakarta: no date.
[8] See “Sikap Bersama CSO Agar Uni Eropa Tegas Mengenai Produk Bebas Deforestasi.” October 18, 2022.
[9] See Fair Trade Advocacy Office, “Recommendations for a small-holder inclusive EU Regulation on deforestation-free products.”
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