The EUDR, and collaborating for just trade policy
The European Union (EU) has been a leading proponent of using trade policy to pursue its environmental goals. The value of imports into the EU are second in value only to the United States, with substantial scrutiny of its responsibility for environmental impact across global value chains.
In response, the Bloc has introduced several stringent non-tariff measures mandating environmental protection – key being environmental technical barrier to trade (TBTs).
The latest major relevant regulation for TBTs – the European Union Deforestation Regulation (EUDR), holds promise of empowered due diligence in tackling deforestation but with severe challenges. The EUDR affects seven agricultural commodities (cattle, cocoa, coffee, oil palm, rubber, soya and wood). However, in response to significant concerns expressed by global stakeholders, the European Commission has proposed delaying the regulation, initially set to come into force on 30th December for 12 months. The proposal also includes a stronger cooperation framework.
The postponement reflects two critical issues in debates over environmental TBTs.
Environmental justice and differentiated responsibility
The first debate is a growing critical focus on the fairness of such regulations, given the burden they place on the economies of producing countries and the threat to their international competitiveness.
Wealthier consumer countries, including those within the EU, have historically contributed far more to climate change and environmental degradation than typical producer economies. Consequently, producers are increasingly questioning why they should bear the cost when other have derived economic benefits from polluting industry. While the EU is committed to the Common but Differentiated Responsibility (CBDR) principle within the United Nations Framework Convention on Climate Change (UNFCCC), its applicability to the international trade system is contested being arguably in contradiction with the World Trade Organisations’ Most Favoured Nation (MFN) principle of non-discrimination within the United Nations Framework Convention on Climate Change (UNFCCC), its applicability to the international trade system is contested being arguably in contradiction with the World Trade Organisations’ Most Favoured Nation (MFN) principle of non-discrimination.
In addition, countries including Brazil, Indonesia and Malaysia, have criticised the EU for unilaterally adopting regulation which has substantial impacts on non-members. Countries such as Papua New Guinea are creating national deforestation-free supply chains through a territorial approach, which penalises producers with a risk of not complying with the EUDR, even if they sell to non-European markets. This could divert trade and possibly carries the risk to exacerbate, rather than reduce, the pressure on deforestation.
Business influence in trade policy
The second debate is the evolving role of business in trade policy formulation, and the relative scarcity of knowledge around their perceptions of environmental TBTs.
Producer businesses have been some of the most vocal critics of the regulation in international fora, both via national government representatives and multistakeholder associations. Organisations like the Global Coffee Platform have highlighted the potential exclusion of smallholder producers resulting from the EUDR, given the challenges they have faced meeting the demands of private certification schemes.
Large consumer-oriented businesses, on the other hand, have been vocally supportive of EUDR. Ferrero, Mars Wrigley, Mondelēz International, Nestlé and Tony’s Chocolonely have signed a letter opposing re-opening the regulation, highlighting the cost to businesses that have already taken steps to comply with it, and the urgency of environmental protection.
The contrasting positions of these businesses towards the regulation reflects the complexity of how businesses perceive environmental policies. Perceptions can modify firms’ actions , yet often appear at odds with ‘objective’ features of the business like economic growth. Within the international trade literature, business’ perceptions have not been fully considered, even when they are key to the legitimacy and effectiveness of environmental trade measures.
How are business’ perceptions formed?
Businesses, and their representative organisations, are complex organisations with a range of stakeholders shaping their interests.
For some businesses, this may be relatively straightforward. For smallholder producers with limited capital to adapt their production practices, regulations like the EUDR represent a disruption in which they may lose out to larger producers. Producers that serve EU and non-EU markets risk losing out if they are expected to meet the new standards across all production, driving up costs and reducing competitiveness on their non-EU focussed exports.
For other businesses, the process of establishing their position involves wider range of considerations. Some consumer-facing businesses like Tony’s Chocolonely already sell their products at a premium, based partly on ethical standards. The cost implications of the new regulation will be less than for their competitors, given they likely already meet some of its requirements. More importantly, these businesses derive huge value from their ‘environmentally friendly’ image. Vocal support for regulation may be seen as necessary to demonstrate their values to their consumers.
Larger, less specialised consumer-facing businesses, like Mars, Mondelez and Nestle, face more complex decisions. Brands within their portfolios target mass-market EU consumers, who are highly price sensitive but also consider some ethical factors in their purchasing choices. Within these brands’ diverse supply chains, it is likely some producers will face disruption with costs passed on to them. Yet some, like Nestle, have a history of being publicly shamed for environmentally unsound practices, and may be keen to avoid taking a position that suggests a lack of standards.
Balancing these issues to agree a position on issues like the EUDR involves a process of internal debate. Motivated employees in consumer-facing business functions may cite ‘consumer attitudes’ on issues like climate change to push the business to support regulation like the EUDR. Other functions, like finance or supply chain, may be more reluctant.
Well-intentioned trade policies like the EUDR can be disruptive for some of the most vulnerable producers, as well as raising questions of sovereignty given their impact on countries that did not agree to them. Businesses will act to shape this regulation in their own interest, but increasingly, this involves considering consumer attitudes. But this relationship is not one-directional.
Given that some businesses have supported EUDR may be reflective of deepening consumer attitudes favouring environmentalism. And while the current delay to the EUDR has received a mixed response globally, businesses could play a critical role in better strategizing in support of small-scale farmers in producer countries and address the threat to its successful implementation.
This blog includes insights from work conducted by members of the Centre for Inclusive Trade Policy (CITP), supported by the ESRC [grant number ES/W002434/1] on “Environmental Trade protection and Business perceptions”. It has benefitted from interviews done with various businesses in the UK and EU by Amrita Saha, Bernardo Arce Fernandez (for his MA dissertation at IDS), and Tom Richardson.