From Dialogo Chino

New European legislation to ban the import of commodities associated with deforestation and human rights violations entered into force at the end of June, and could significantly impact the agriculture-dependent countries of Mercosur, the trade bloc formed by Argentina, Brazil, Paraguay and Uruguay.

The regulation targets the production and supply chains of palm oil, soy, cattle, timber, cocoa, coffee and rubber, as well as derivatives such as furniture, chocolate and paper. These commodities account for most of the deforestation implicated in imports by the European Union (EU). Without these rules, the EU itself reports, these imports could cause the loss of more than 248,000 hectares of forest each year – an area almost the size of Luxembourg.

The European deforestation law applies to all countries with which the bloc has trade relations, but it could have a particular impact on those of Mercosur, which counts the EU as its largest trade and investment partner and the second largest in trade in goods, behind only China. In 2021, EU imports from the four Mercosur countries totalled 43 billion euros (US$48 billion), 20% of which were vegetable products such as soybeans and coffee.

Experts consulted by Diálogo Chino believe that these stricter trade regulations will help to clean up the Latin American supply chains that are most permeated by negative socio-environmental impacts. However, they caution that the law could create new problems, such as the migration of damage to biomes not covered by the law. Agribusiness sectors and Mercosur governments, meanwhile, have described the regulation as protectionist.

How the EU deforestation law works: targeting companies

Under the new legislation, companies exporting to the EU will need to provide “conclusive and verifiable” information that their commodities are deforestation-free and in compliance with local laws in exporter countries. This will require traceability of all their suppliers, with geolocation of each establishment through which the products have passed.

The law sends a “strong signal” that the South American market needs to act, says André Vasconcelos, global engagement lead at Trase, a supply chain monitoring platform: “Some companies already have their own verification processes, but this needs to gain scale and be more transparent.”

A recent analysis by Global Canopy, the organisation behind the Trase initiative, showed that the companies driving the most deforestation in tropical areas are unprepared to implement the new legislation, with more than three quarters of them lacking a commitment to traceability.

“This is an area where the EU can and should contribute with financial resources, so that there is an equal division of costs along the chains,” says Vasconcelos. Companies will have 18 months to adapt, dated from the law’s entry into force at the end of June, with smaller businesses given up to two years to prepare – a process in which, according to the law, the EU will provide technical assistance.

Luciana Téllez, a researcher with Human Rights Watch who has followed the new law’s development, points out that “its strongest aspect is to prohibit any kind of import linked to deforestation,” regardless of whether it is legal or illegal. This, she says, prevents a country from adjusting its norms to legalise more deforestation, as well as facilitating the law’s implementation.

The law will also help combat ongoing human rights violations linked to agricultural production in South America, Téllez says: “It provides greater support for Indigenous peoples seeking land rights and in holding companies that violate their rights accountable.” However, the researcher adds, there are still doubts about the regulations that will serve as the basis for monitoring these cases.

This risk level assessment creates an incentive for countries to adopt reforms and clean up their production chains

Luciana Téllez, Human Rights Watch

In parallel, the EU will carry out a risk assessment of exporting countries by 2025, considering data such as deforestation and agricultural expansion rates, production trends and human rights abuses, according to “scientific evidence and globally recognised sources,” the law’s text reads. From there, the bloc must list the degree of risk – low, standard or high – of each exporting nation. “This assessment creates an incentive for countries to adopt reforms and clean up their production chains, because in the future the Commission can revise and lower the risk rating,” Téllez says.

The degree of risk will impose more or less rigidity in surveillance, so some countries have already made it clear that they must react if they are considered high-risk. “The EU Commission will be under a lot of political pressure from its partners to downgrade the risks of the markets,” Téllez says.