EU member states can expect negotiations to start on the final law prohibiting the imports of goods produced on deforested or degraded land.
On August 13, 2022, the EU parliament agreed to the proposal for a regulation on deforestation-free products. Passed with 453 votes against 57 (123 abstentions), the proposal would pave the way for EU lawmakers to negotiate with member states as to the form of the final legislation.
鈥淲e are serious about fighting climate change and biodiversity loss. Acknowledging that the EU is responsible for around 10% of global deforestation, we have no choice but to ramp up our efforts to halt global deforestation. If we get the balance right between ambition, applicability and WTO compatibility, this new tool has the potential to pave the way to deforestation-free supply chains,鈥� said rapporteur Christophe Hansen of Luxemburg from EPP, a center-right group in the EU Parliament, as quoted from European Parliament official website.
Initially drafted as part of the European Green Deal in 2021, the proposal aims to make it mandatory for companies to exercise due diligence by verifying that their products are not sourced from deforested or degraded land.
The proposal covers cattle, cocoa, coffee, palm oil and soybean, and includes any goods that contain or have been fed with or made using these products, such as chocolate or soap. Wood, leather, furniture items, as well as charcoal and printed paper products could also be affected in the final legislation. The proposal sets December 31, 2019, as the cut-off date for affected products.
No country or commodity will be banned from selling products made after the aforementioned date. However, companies will have to conduct due diligence to manage risks in the supply chain. The commission will then be able to use the information to classify countries into low, standard or high-risk categories.
How the proposal affects Indonesia-German trade
The proposal could potentially add to the requirements already posed by the German Supply Chain Due Diligence Act. Slated to come into force in 2023, the German Federal Office for Economic Affairs and Export Control (BAFA) recently issued its first guidelines for in-scope companies that have been eagerly awaiting guidance from the relevant authority (available in German ).
In Indonesia, the pulp and paper industry, furniture manufacturers, and the palm oil industry, are the sectors most likely to be affected by the proposal, though the country seems to have improved significantly in its enforcement of Law No. 32/2009 on Protection and Management of the Environment, as amended by Law No. 11/2020, as well as Law No. 41/1999 on Forestry, as amended by Law No. 2004 and Law No. 11/2020.
The proposal must still go through an approval process from the Council of the European Union as well as the national parliaments of the 27 countries in the bloc. Member states must then transpose the agreed terms into national law by 2026. What form the final legislation will take remains to be seen. In this regard, European and Indonesian companies may look forward to the upcoming EU-ASEAN summit planned to be held this December in Brussels, where both blocs will discuss potential expansions in trade and infrastructure assistance and where supply chain management will be one of the key topics.