The European Union’s controversial benchmarking system, an integral part of its Deforestation Regulation (EUDR) aimed at curbing the import of commodities linked to deforestation, will be announced next month after almost two years of political wrangling.
Anthony Myers
As reported by cocoaradar.com previously, this classification will determine the level of scrutiny and due diligence companies require. For example, products from low-risk areas may undergo simplified checks, while those from high-risk regions will be subject to enhanced due diligence procedures.
It will divide countries into one of three tiers: 'low,' 'standard,' or 'high' risk, with escalating due diligence and compliance obligations aimed at minimizing the EU's contributions to global deforestation and forest degradation.
High risk countries
While there remains much uncertainty regarding the methodology the EU Commission will use to decide the rankings, a report by Sofia Sanchez Manzanaro from the Euractiv website claims Belarus, North Korea, Myanmar, and Russia will be blacklisted or classed as ‘high risk’.
Manzanaro said the document was discussed under tight secrecy in recent weeks during a meeting on 30 April and greenlighted by all member states on Monday.
Diplomatic pressure
The EU’s benchmarking proposal led to diplomatic pressure, especially among major exporters like Brazil, Malaysia, and Indonesia, which lobbied hard to stay off the list.
According to the latest news from Brussels, they are not on the list, but this is still unconfirmed until it is published on 30 June.
International reactions and concerns
The benchmarking system has elicited mixed reactions globally. Countries like Indonesia and Malaysia have expressed concerns, arguing that the system may act as a trade barrier and disproportionately affect smallholders. Indonesia’s Coordinating Minister of the Economy, Airlangga Hartarto, has urged the EU to reconsider the benchmarking approach, emphasizing the potential negative impact on its palm oil industry.
Similarly, the World Trade Organization’s Director-General, Ngozi Okonjo-Iweala, has called on the EU to review its ban on imports from deforested areas, highlighting the challenges faced by farmers in regions like Nigeria.
Malaysian palm oil industry
According to a report in the Straits Times newspaper, the threat of being blacklisted has been particularly frustrating for Malaysia, which has taken significant steps to improve the sustainability of its palm oil industry in recent years.
The latest data from Satelligence (which provides data for EUDR compliance purposes) also shows that Malaysian deforestation rates are stable compared with its competitors, and the risk of further deforestation is appreciably lower, according to the Malaysian Palm Oil Association.
Implications for businesses
Companies importing commodities into the EU will need to adjust their due diligence processes based on the risk classification of the source country:
• Low-Risk Countries: Simplified due diligence procedures, though basic information such as geolocation data must still be collected.
• Standard-Risk Countries: Full due diligence is required, including risk assessments and mitigation measures.
• High-Risk Countries: Enhanced scrutiny with mandatory risk mitigation steps, such as independent audits and satellite verification.
Additionally, the frequency of inspections by EU authorities will vary:
• 9% of operators/traders annually for high-risk countries.
• 3% for standard-risk countries.
• 1% for low-risk countries.
What's next from the European Commission?
As the EU moves forward with implementing the benchmarking system, the European Commission has pledged to maintain transparency and engage in dialogues with affected countries. The goal is to ensure that when the EUDR comes into force on 30 December 2025, it effectively combats global deforestation while considering the concerns of international trade partners.
Additional sources:
https://www.euractiv.com/section/agriculture-food/news/eu-to-blacklist-just-four-countries-under-deforestation-law/
https://www.ft.com/content/74d7fb09-64a8-4fac-9200-d0c20fe4f4d2?utm_source=chatgpt.com
Anthony Myers