Experts from the Forest Governance and Policy team have highlighted how a proposed ‘no-risk’ category in the European Unition Deforestation Regulation (EUDR) could weaken the initiative and undermine its key purpose.
In a WRI Insights piece, Olivia Campbell, Tina Schneider and Bo Li, alongside Sonja Zantow, EU Engagement Coordinator at WRI Europe, note how a proposed no-risk category would create laundering loopholes and add uncertainty for businesses.
What is the proposed ‘no-risk’ category?
Ahead of the European Commission’s publication of its simplification review of the EUDR this month, various interest groups are ramping up pressure on the Commission to reopen or weaken key provisions. Many are focused on the idea of introducing a no-risk category to the law’s country benchmarking system.
The EUDR’s country benchmarking system currently classifies countries as low, standard or high risk of deforestation to help guide due diligence requirements. Under a no-risk category, companies sourcing products from countries classified as having stable or increasing forest cover would be exempt from submitting due diligence statements that prove their products did not contribute to deforestation.
According to the team’s analysis, the proposal would weaken the EUDR in three key ways:
1) The creation of laundering loopholes
Commodities are often traded, processed and re-exported across complex, multi-country supply chains. Without a requirement to trace products back to their origin, a no-risk category creates a loophole for deforestation laundering. For those profiting from deforestation-linked production, a no-risk exemption could be a free pass to sell to the EU market without having to show where their products actually came from.
The proposed category could also cause unintentional laundering, owing to the complexity of the global trade system.
2) Potential disputes at the WTO
A no-risk category based on country classifications rather than objective sector-wide criteria, such as plot-level data, can trigger WTO disputes and undermine the EU’s credibility in defending the regulation internationally. Allowing no-risk exemptions to some countries but not others risks violating the WTO’s principle of non-discrimination.
If legal challenges to the EUDR at the WTO are successful, it would have considerable impact on the EU's credibility as a trade partner and global leader in environmental governance.
3) Additional uncertainty and complexity
Introducing a no-risk category would not simplify the regulation; it would undermine it. A new category would create uncertainty for the country benchmarking system and due diligence exemptions granted for countries with so-called negligible risk of deforestation. Instead of reducing burdens, it would create regulatory complexity and weaken the existing monitoring and enforcement mechanisms.
Read the full analysis in the WRI Insights article.