Trade barriers<\/p>\n
On June 23, 2023, the EU issued the EU Deforestation Regulation (EUDR). The regulation will apply from January 2025, prohibiting imports of seven commodity groups (coffee, palm oil, wood, rubber, beef, cocoa, and beans) into the EU if their production causes deforestation.<\/p>\n
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Dr. Le Huy Huan, lecturer at National Economics University (NEU)<\/p>\n
To meet the EUDR criteria, I believe businesses exporting to major markets need to finalize their procedures and processes and prepare themselves as early as 2024. In particular, three of Vietnam\u2019s main export sectors fall within the seven commodity groups covered by the regulation and are affected. Based on discussions with and observations of associations and businesses in these sectors, I consider businesses to be approaching the new regulation with a fairly positive attitude. Alongside the challenges of meeting EU requirements, associations and businesses agree that the regulation also offers an opportunity to work with stakeholders to restructure their sectors toward transparency, responsibility, sustainability, and greater market competitiveness.<\/p>\n
Implementing these requirements is feasible and rests on certain existing foundations. Specifically, areas growing raw materials such as coffee were established and stabilized long before the December 31, 2020 cutoff date. Wood and rubber are two sectors that have participated in the VPA\/FLEGT Agreement with the EU, committing to ensuring that all wood products exported to the EU are legal and deforestation-free. In particular, Vietnam stopped harvesting timber from natural forests in 2014 and has had regulations on forest land conversion since 2017.<\/p>\n
However, businesses face several immediate difficulties, including: (1) difficulties tracing products back to their plantations because most products come from small, scattered, fragmented household farms covering less than 0.5 ha per household. In practice, with hundreds of thousands of smallholder households growing rubber and supplying wood to wood-processing factories, delineating boundaries between households remains very difficult, and approximately one-third of farming households do not have land use rights certificates for the plots they use; (2) supply chains in these sectors are all fairly long and complex, with numerous intermediaries, loose linkages, and many farming households producing on a small scale; and (3) the two challenges above create cost pressures. In practice, investment in technology to meet production standards for the European market is already costly, and additional spending to comply with these regulations will place a further cost burden on businesses.<\/p>\n
Vietnam stopped harvesting timber from natural forests in 2014 and has had regulations on forest land conversion since 2017<\/p>\n
As businesses have shared, the challenges are considerable, but Vietnamese businesses must still meet the criteria. Otherwise, they will be unable to export to the European market, effectively excluding themselves from global supply chains. This would not only disadvantage actors along commodity supply chains but also cause both businesses and their sectors to lose their competitive advantage in the market, as importers would choose other suppliers that meet these standards. In addition, the EUDR clearly states that countries or production regions supplying products to the EU will be classified as \u201chigh risk,\u201d \u201cstandard risk,\u201d or \u201clow risk\u201d based on criteria and evidence collected by the EU. If sectors and businesses fail to comply with and violate the regulations, Vietnam will be at a disadvantage if the EU uses the commodity with the highest deforestation risk as the basis for classifying the risk of a country or production region. Low-risk commodities originating in a region or country with a high-risk commodity also face the possibility of being considered high risk by the EU. In that case, EU scrutiny of products imported from Vietnam will become increasingly stringent. Compliance with the regulations not only meets current requirements but also lays the groundwork for meeting higher requirements relating to emissions reduction and social equity for coffee growers, as well as requirements from more countries in the future.<\/p>\n
Preparing an action plan<\/p>\n
To meet the EU\u2019s EUDR criteria, businesses need to satisfy conditions demonstrating that they do not contribute to deforestation risk. Specifically, businesses importing goods into the EU may place them on the market only if three conditions are met. First,<\/em> imported products must be legal. Legal here means that production, processing, transportation, and other activities taking place in the producing country meet all legal requirements in that country. Second,<\/em> production must not cause deforestation, with December 31, 2020 serving as the deforestation cutoff date.<\/p>\n Third,<\/em> businesses importing these commodities into the EU must collect supply chain information and use it to assess risks relating to compliance with the producing country\u2019s laws and to deforestation, then develop risk mitigation measures. Businesses must disclose supply chain information, risk assessments, and particularly risk mitigation measures in a Due Diligence Statement.<\/p>\n Therefore, Vietnamese businesses seeking to export to the European market must provide all the information above to their importing partners. Regarding the second condition, businesses must provide product traceability information down to the geographical location of the plot where the product was produced, together with evidence demonstrating that production did not cause deforestation on that land. Under Article 2 of the EUDR, the \u201cgeolocation\u201d of a cultivated plot is defined as follows: for plots smaller than 4 ha, point coordinates must be identified; for plots larger than 4 ha, the geographical coordinates of the points forming a polygon describing the plot\u2019s actual boundaries must be provided.<\/p>\n In response to these stringent criteria, Vietnam has developed a specific action plan framework to adapt to the EUDR. For example, the Ministry of Agriculture and Rural Development promptly developed an action plan framework for EUDR adaptation and issued Document No. 5179\/BNN-HTQT requesting that the People’s Committees of provinces and centrally governed cities cooperate and supplement their local activity plans to adapt to the EUDR. This represents an urgent, responsible, serious, and timely response from the ministry-level regulatory authority. Key areas include:<\/p>\n First<\/em>, closely monitor high-risk areas (cultivated areas interspersed with forests) for sectors affected by the EUDR, particularly coffee.<\/p>\n Second<\/em>, assign relevant specialized agencies to coordinate with the Ministry\u2019s units, industry associations, businesses, and international organizations to (i) develop and officially recognize a national database of natural forests and cultivated areas; (ii) review, standardize, share, update, and digitize cadastral map data for plantations and conduct supplementary surveys of plantations not yet included on cadastral maps; (iii) identify appropriate solutions for forest monitoring, protection, and restoration, establishing traceability systems, supporting livelihoods, sustainable production, and other areas; (iv) develop and implement supply chain traceability down to production areas, linked to the geolocation of each plantation, for sectors affected by the EUDR; (v) develop mechanisms and implement information sharing and feedback with businesses importing goods into the EU; (vi) support livelihood transitions and improvements for farmers, particularly ethnic minority people in areas interspersed with or adjacent to forests, to meet EUDR requirements; and (vii) disseminate EUDR requirements and technical guidance materials to regulatory agencies at all levels and actors in commodity value chains, among others.<\/p>\n Third<\/em>, establish or strengthen provincial public-private working groups; carry out public-private cooperation activities; implement activities and share provincial information and databases for sectors affected by the EUDR; coordinate with the joint working group and sector working groups at the central level; and develop programs and projects to attract public and private investment and international funding to implement the activities above.<\/p>\n Fourth<\/em>, allocate resources from local budgets to support the coffee, rubber, wood, and wood product value chains in adapting to the EUDR.<\/p>\n Dr. Le Huy Huan, lecturer at NEU <\/strong><\/p>\n