- EU Parliament developments this week make EUDR revisions look inevitable;
- EU manufacturers are pushing positions that may look unpalatable to exporters;
- The options for the Commission are few, but there are some paths forward
In the past 24 hours some new developments indicate the likelihood of larger changes to the EUDR. The simple version is that the European parliament moved to water down new rules on green reporting (a more detailed explanation is at the link). This was primarily driven by the EPP (European People’s Party) – the key party behind the EUDR delay push.
At the same time EU manufacturers continue to state they are seeking wholesale changes to the EUDR.
One example is Europe’s tyre manufacturers getting on the front foot this week:
“ETRMA advocates for a fundamental change [to the EUDR] where due diligence obligations would be fulfilled by the initial marketer of a product, with that compliance remaining valid for its entire commercial lifespan.”
So, what are the options? Let’s clarify the rubber position first, which is a common proposal among numerous EU groups.
In rubber supply chains, this proposal would likely mean that the marketer of rubber sheets (i.e. the importer) would have to undertake the due diligence on the imported input.
Once it crosses the border, traders and downstream operators can effectively wash their hands of any due diligence responsibilities. Is this problematic? Yes and no.
In many ways this is the simplest and most straightforward simplification: isolate the simplest inputs for due diligence requirements, e.g. rubber sheets, cacao beans, soybeans, beef, coffee beans, crude palm.
The perverse outcome, however, would be that the increase in compliance costs at the importing end add an additional cost burden on EU-based manufacturers. And this would favor foreign manufacturers of products (in this instance tyres).
The EU’s solution to this problem is to make both foreign and domestic manufacturers of those products subject to due diligence requirements. In other words, the EU would want to make (for example) a Chinese tyre manufacturer subject to the same raw material due diligence requirements as European ones.
But the EU can’t tell the Chinese government to impose this rule. The only way it can do it is by introducing downstream traceability.
If the EU is asking a Chinese tyre manufacturer to ensure its products are deforestation-free, it must require manufacturers in France to do exactly the same thing.
Why? Because the rule needs to stay WTO consistent – everyone needs to be treated the same.
If EU manufacturers want only ‘first marketer’ due diligence, it will need to be for a limited range of commodity-end products, e.g. rubber sheets, raw cacao, etc.
The European timber sector is also pushing for a ‘negligible risk’ category for some countries, where there are reduced compliance requirements. But for a ‘zero’ risk rating, the assessment process will need to be more complicated, closer to other import processes.
Think of risk assessments for food safety and animal or plant health. It can’t just be a ‘tick the box’ approach based on rough numbers.
These demands place the redraft in a bind. So, what are the options?
Option One: Radical Simplification
First, they could completely simplify the product scope, reducing it effectively to basic commodities. Soybeans. Whole carcasses. Rough wood. CPO. Rubber sheets. Coffee beans. Cacao beans. Who would this annoy? Everyone.
Producers, exporters and their importing counterparts (think developing countries in particular) would be extremely annoyed at remaining compliance costs. Manufacturers (think tyres again) would be irritated that non-EU manufacturers won’t have the same requirements.
Option Two: The ‘Negligible Risk’ Category
Second, they could introduce the ‘negligible risk’ category. Again, this would probably annoy everyone. Why? Because introducing it properly will require an even larger bureaucratic monster than the one that’s already in place. Or it would need to put everyone as ‘negligible’.
Option Three: The ‘First Marketer’ Approach
Third, they could push for the ETRMA’s ‘first marketer’ option. This would immediately trigger a howl of opposition from literally all of the EU’s trading partners. An EU tyre importer would need to undertake due diligence, but not a European tyre manufacturer that is only buying rubber sheets that have already been subjected to due diligence.
Option Four: Learning from EUTR
Fourth, none of the above. So, what are the alternative options? An ‘endorsement’ of standards for different commodities as deforestation free would be ideal. This would allow national standards (e.g. ISPO) to be recognised. The problem is that not all commodities and countries have national standards for commodities in place that can be endorsed. As much as it pains me to say it, the option everyone is forgetting is in plain sight: EUTR or the EU Timber Regulation.
Sure, it’s not an assurance of deforestation-free. And it has been ritually criticised by NGOs as being inadequate. But what EUTR required for timber products was the upholding of existing national laws for import into the EU.
It isn’t perfect. But it did require European companies to ensure that those laws were being applied to the products that they imported. This was a much better application of risk assessment and mitigation.
This was also one half of the EUDR as written: legal harvesting requirements. Does this prevent the importation of products that are produced on deforested land? No, it does not. Does it reduce the risk that they are? Yes. Could a deforestation risk element be added? Yes, by using a similar model.
In these instances, have companies assess the risk of the products being produced on deforested land, and allow them to use the tools at their disposal to assess that risk, from supply chain audits to certification systems.
Don’t Reinvent the Wheel
This underlines two principles: don’t reinvent the wheel; don’t make the perfect the enemy of the good. Perfect geolocation systems at literally the molecular level under the current system are a nice idea but basically impossible.
As we’ve said many times before, the harvesting part is simple. Tracking it through a supply chain is virtually impossible.
There will be plenty more to say on EUDR revisions over the next months.
Our advice? Consider the delay a foregone conclusion. Start thinking about what the EUDR should look like from here.