The EUDR seeks to ensure that all products sold, exported, used, and consumed on the EU market are ‘deforestation-free’. Currently, the EUDR is targeting seven commodities, namely palm oil, soy, wood, cattle, cocoa, rubber, and coffee, along with specific derivatives like chocolate, leather, and furniture. The EUDR also advocates for more transparency and traceability in supply chains, enabling consumers to make informed choices about the products they purchase. Operators and traders are therefore required to implement a mandatory due diligence system to prevent products associated with deforestation or land degradation after 31 December 2020 from gaining access to the EU market. The extent of the required due diligence checks is to be determined by a benchmarking system operated by the European Commission. The system aims to evaluate countries, or specific regions within them, across three categories — high, standard, and low risk — to determine their risk level of deforestation and forest degradation. The European Commission will classify countries and parts thereof as low or high risk and publish this list. High-risk countries will undergo more thorough checks and monitoring, whereas low-risk countries will be subjected to a simplified due diligence system. Originally scheduled for implementation by December 2024, this classification has been postponed until further notice. Instead, every country will be designated as a standard risk to allow them more time to adjust to the anti-deforestation regulation.
The EU and ASEAN stand as the two most advanced regional organisations worldwide. From official dialogue partners since 1977, they upgraded their relationship to a Strategic Partnership in 2020, underscoring their shared commitment to cooperate in numerous key areas, such as trade, connectivity, climate, and security. In recent years, environmental and climate issues have gained prominence within both regions, leading to the establishment of the annual High-Level Dialogue on Environment and Climate Change in 2019. Recognizing their vulnerability to climate change, both the EU and ASEAN have actively promoted a multilateral, rules-based approach to tackle this global challenge. Together, they have developed joint strategies for climate action, disaster risk reduction, and the advancement of sustainable clean energy, such as the Smart Green ASEAN Cities Programme or the Just Energy Transition Partnerships with Viet Nam and Indonesia.
The EU’s Green Deal, with its deforestation legislation and stance on palm oil has become a focal point where Europe’s sustainability goals intersect with the developmental aspirations of ASEAN’s major regimes. This dynamic has sparked interregional political tensions, highlighting the need to recognize and tackle the inherent complexities in balancing environmental aspirations with socioeconomic realities. While ASEAN is open to environmental diplomacy, it grapples with limitations imposed by the region’s socio-economic development. This underscores the related challenges faced by ASEAN nations in aligning with the European Green Deal, especially in light of the EUDR. There is a pressing need for a nuanced and collaborative approach to achieve the envisaged sustainable outcomes that benefit both the environment and society.
The purpose of the EUDR
Deforestation, characterised by the conversion of forest land for agricultural purposes, whether driven by human activities or natural disasters, poses a critical threat to biodiversity and exacerbates global warming. It ranks as the second-largest contributor to anthropogenic greenhouse gas emissions globally. Recent years have witnessed a surge in deforestation rates, largely attributed to increased international demand for agricultural commodities. This expansion of agricultural land, fueled by population growth and rising food demand, remains the primary driver of deforestation. Paradoxically, countries witnessing declining rates of deforestation or expanding forest cover, notably in Europe and Asia (China, India), are among the largest consumers of commodities linked to tropical deforestation and forest degradation. The EU alone accounts for approximately 10% of global deforestation, ranking as one of the world’s top contributors in 2017, trailing just behind China and ahead of India, the USA, and Japan.
Climate issues and deforestation are pressing concerns among European citizens, evidenced by the Open Public Consultation on demand driven deforestation and forest degradation, initiated by the European Commission in 2020. This consultation garnered over 1.2 million responses, making it the second most popular in EU history. The overwhelming concern from European citizens underscores the urgency for EU action to address deforestation and forest degradation, particularly concerning the products consumed.
The Deforestation Regulation is a pivotal component of a comprehensive EU strategy aimed at combating deforestation and forest degradation arising from agricultural expansion. Initially outlined in the 2019 European Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests, the strategy has been fully integrated into the 2020 European Green Deal. On 29 June 2023, the Regulation on deforestation-free products entered into force. The regulation plays a crucial role in the EU’s comprehensive strategy to tackle deforestation and forest degradation caused by agricultural expansion. First introduced in the 2019 European Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests, this strategy was fully incorporated into the 2020 European Green Deal. The Regulation on deforestation-free products officially came into effect on 29 June 2023. As a consequence, businesses — whether traders or operators — from the EU and partner countries will have until 30 December 2024 to prove that their products are ‘deforestation free’. Micro and small firms have been granted an extended adaptation period of 24 months, which will conclude on 30 June 2025. This implies that the productions must not originate from recently deforested land or have contributed to forest degradation. They should also comply with local laws and be accompanied by a due diligence statement indicating a negligible risk of non-compliance.
With the implementation of the EUDR and the broader Green Deal, the EU aims to assert itself as a global leader in fighting climate change, with an ambitious goal of becoming the first carbon-neutral continent by 2050. The EU estimates that the reduction in deforestation and forest degradation could lead to a decrease of at least 31.9 million metric tonnes of carbon emissions annually. However, while these climate regulations signify a significant step forward for environmental sustainability, they also have adverse socio-economic implications for its partners, particularly impacting the developmental opportunities of countries in Southeast Asia.
ASEAN’s socioeconomic imperatives and the deforestation law dilemma
- ASEAN’s vulnerabilities
Southeast Asia stands as one of the world’s most vulnerable regions to the effects of climate change, leaving hundreds of millions of people extremely exposed to its impacts. For two decades, the region has been experiencing more frequent and more severe rapid and slow-onset disasters, ranging from cyclones and tsunamis to floods, droughts, and rising sea levels. The 2020 Climate Risk Index, which scrutinises countries most affected by extreme weather occurrences, places four ASEAN nations — Myanmar, the Philippines, Vietnam, and Thailand — among the top ten most affected countries worldwide between 1999 and 2018. Climate change thus represents a significant risk to both social and economic development in the region. Higher temperatures, rising sea levels, variations in precipitation patterns and an increase in severe weather events are having profound implications. These hazards pose severe threats to human lives and infrastructure, affecting farmland and water access, leading to potential mass displacement, and causing considerable economic loss. In ASEAN member states, where over 60% of agricultural production depends on rainfall and/or irrigation systems, the changing precipitation patterns significantly increase the vulnerability of agriculture to crop failure, posing a severe threat to food security. Additionally, between 2008 and 2018, climate change resulted in agricultural production losses totaling 21 million USD due to extreme weather events.
However, the region’s rapid economic growth and poverty alleviation have come at the cost of extensive consumption of non-renewable, polluting energy sources and this trend shows no signs of slowing down. According to the International Energy Agency’s 2019 Outlook, the region’s overall energy demand is projected to surge by 60% by 2040. This surge is primarily fueled by industrialization, urban expansion, and expanding economies. Moreover, despite the significant reduction in poverty levels in Southeast Asia since 1990, growth and development remain uneven across the region, with persistent food and economic insecurities. From this perspective, the benefits of climate action must be balanced concerning the costs it could impose on economic and industrial growth, especially for the populations of the least developed nations in Southeast Asia, such as Cambodia or Myanmar. Through regional initiatives such as the ASEAN Socio-Cultural Community Blueprint 2025, ASEAN countries underscore the need for a sustainable approach, striving to harmonise socioeconomic and environmental development.
While the EU remains committed to its environmental agenda, ASEAN countries are pushing for a more holistic and sustainable approach. They emphasize the importance of addressing not just environmental concerns but also economic and socio-cultural aspects, underscoring the socio-economic challenges deeply rooted in the region. The EUDR is viewed as a significant concern for ASEAN countries, as compliance would necessitate restructuring their economies to adhere to these stringent regulations with potential social and political costs. This poses a dilemma as they endeavour to foster economic growth and grapple with a multitude of socio-economic issues within their territories.
- Implications of the EUDR for Indonesia and Malaysia
ASEAN countries, particularly Indonesia and Malaysia, have voiced concern and expressed reservations regarding the EUDR. These two countries are the world’s largest producers of palm oil, accounting for 85% of global production, with Indonesia leading the rankings, followed closely by Malaysia. Additionally, they are significant suppliers of rubber and timber. The implementation of the EUDR, especially regarding palm oil, is expected to have significant impacts on both economies, as well as political and societal costs.
At the national level, the EUDR will affect approximately 5.9 billion USD worth of Indonesian exports, accounting for 40% of Indonesia’s total exports to the EU and 2.9% of its overall exports. According to ASEAN economist Enver, the EUDR’s impact on the overall Indonesian economy is deemed relatively small and manageable. Meanwhile, in Malaysia, palm oil exports to the EU constitute 9,4% of the country’s total palm oil exports, making Europe its third-largest market after India and China.
However, the real concern lies with smallholders, who are significant stakeholders in the production value chain. According to the Council of Palm Oil Producing Countries (CPOPC), smallholders account for about 41% and 27% of total oil palm planted areas in Indonesia and Malaysia, respectively, and contribute to about 35%-40% of the global production of palm oil. They are essentially small-scale farmers growing oil palm as their primary source of income, often using family labour to cultivate the land. The palm oil industry plays a key role in transforming the livelihood of rural communities, alleviating poverty by providing employment opportunities and generating income as well as enhancing socio-economic development. It also contributes greatly to ensuring food security. The lives of these farmers are expected to be profoundly impacted as they may lack the resources and technical capacity necessary to comply with the strict regulatory requirements regarding geolocations and traceability. Following the proposed due diligence system, the EUDR mandates that plantation operators produce detailed year-of-planting records as well as satellite imagery showing that the cultivated areas remain free from deforestation activities. The EUDR could potentially exclude millions of smallholders and farmers from the market while favouring large corporations or multinationals that have the means and experience to implement monitoring and tracking systems and comply with sustainability requirements. While the EU has failed to regard smallholders as an essential stakeholder and partner, this scenario raises concerns about the system’s long-term sustainability. It has the potential to create segregated supply chains and raise livelihood concerns, as it could exacerbate inequalities and further concentrate power and wealth in the hands of a few, rather than fostering equitable and inclusive development in these countries. It could also breed significant anti-EU sentiments.
The EUDR, an impending deal-breaker?
- An intricate dialogue
In January 2023 the governments of Indonesia and Malaysia pledged to set their traditional rivalry aside and agreed to collaborate more closely by strengthening their cooperation through the Council of Palm Oil Producing Countries (CPOPC) in response to what they perceive as ‘discriminatory’ European Union trade policies. They intensified their criticisms against these policies, particularly regarding palm oil, which are viewed as “protectionist measures disguised as environmental sustainability efforts”. Malaysia’s Deputy Prime Minister Fadillah Yusof characterised the EU’s deforestation regulation as a “punitive and unfair treatment towards us and to smallholders in particular”, while the Indonesian Coordinating Minister for Economic Affairs, Airlangga Hartarto, described the EU rules as “regulatory imperialism”. While Indonesia and Malaysia underpin the EU’s climate goals, they regret that Brussels is imposing its measures instead of forging an internationally negotiated deal. In their domestic markets, the Indonesian and Malaysian governments have been advancing forest protection and sustainable palm oil industries. Their current mandatory self-policing regulations support their respective sustainable economic, social, and environmental objectives while aligning with the unique socio-economic realities of the Southeast Asian region. Indonesia has seen deforestation fall by 64 per cent between the periods 2015-2017 and 2020-2022 while Malaysian deforestation has fallen by 57 percent. Jakarta has taken significant steps to establish domestically recognized palm oil sustainability standards, exemplified by initiatives like the Indonesia Sustainable Palm Oil (ISPO) or the Roundtable on Sustainable Palm Oil (RSPO) certification scheme. Moreover, Jakarta has introduced programs like the Musim Mas’ Smallholders Training Program to aid small-scale farmers in securing financing, rejuvenating ageing palm trees, and effectively managing their plantations to meet certification standards. In Malaysia, initiatives aimed at enhancing the sustainability of the industry, such as the establishment of the Malaysia Sustainable Palm Oil (MSPO) certification scheme, apply to all stakeholders in the palm oil sector since January 2020. These efforts have notably contributed to a reduction in deforestation but have not yet been fully acknowledged and integrated into the EU’s policies. Progress was made during the second Ad Hoc JFT, where focus was placed on analysing gaps in the Indonesian Sustainable Palm Oil (ISPO) and Malaysian Sustainable Palm Oil (MSPO) certifications to ensure compliance with the EUDR. Joint assessments by EU-funded studies compared ISPO and MSPO with EUDR standards, leading to agreements between the EU, Indonesia, and Malaysia to finalise these assessments and collaborate on addressing identified gaps.
Jakarta and Kuala Lumpur have each filed dispute complaints against the EU regarding palm oil and oil palm crop-based biofuels measures at the World Trade Organization over the years. Indicating a setback for their efforts, the latest development in March 2024 saw the organisation reject Malaysia’s claims. Moreover, the two countries have expressed concerns regarding the EUDR and, as a result, have delayed or stalled discussions on various other issues. Malaysia even considered halting its palm oil exports to the EU while exploring the possibility of doubling its palm oil exports to China. Also smallholders have expressed their discontent, for instance with several Indonesian ones staging protests outside the headquarters of the European Union Delegation in Jakarta in March 2023. Similarly, Malaysian smallholder associations travelled to Brussels to advocate for changes to the EUDR.
- The Ad Hoc Joint Task Force: A path to collaboration
To engage in discussions with the EU regarding the challenges posed by the EUDR, senior government officials from Indonesia and Malaysia conducted a Joint Mission to Brussels in May 2023. This was followed by a visit from the European Commission to Indonesia and Malaysia in late June 2023. Subsequently, the three parties agreed to establish an Ad Hoc Joint Task Force on EUDR, comprising representatives from the governments and relevant stakeholders from both countries, including commodities associations, smallholders, workers associations, and civil society organisations. The establishment of the Ad Hoc JTF on EUDR is perceived by both ASEAN countries as a sign of the EU’s increased flexibility. Regarding palm oil, the Secretariat of the CPOPC facilitates and coordinates with the respective officials in Indonesia and Malaysia, along with the Directorate-General for the Environment of the European Commission (DG ENV), to ensure the progress and advancement of the Joint Task Force. The task force is aimed at addressing concerns raised by Indonesia and Malaysia regarding the implementation of the regulation and identifying practical solutions and approaches relevant to its implementation. The overarching objective is to bridge the gap between environmental goals and socioeconomic realities and to find “win-win solutions” for implementing the EU anti-deforestation regulation, while preventing disruptions. This separate consultative mechanism serves as a platform for dialogue and workstreams led by the respective governments to foster mutual understanding regarding the regulation’s implementation, including benchmarking.
The first JTF meeting took place in early August 2023 in Jakarta, Indonesia, when all parties set a deadline for the task force to complete its work by the end of 2024. They discussed the risk classification system and agreed on the Terms of Reference on issues such as the inclusivity of smallholders in the supply chain, relevant national sustainability certification schemes, traceability from producer to end-consumer, scientific data on deforestation and forest degradation, and protection of data.
The second meeting, originally planned for November 2023, took place in early February 2024 in Putrajaya, Malaysia. Dato’ Zailani Bin Haji Hashim, Ministry of Plantation and Commodities of Malaysia, highlighted the challenges of aligning the EUDR with national laws and systems, particularly for smallholders. Meanwhile, Indonesia’s Ministry for Economic Affairs, Musdhalifah Machmud, emphasised the country’s commitment to sustainability principles, asking the EU to recognize their efforts and consider regulations based on principles like Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC). This concept, established by the United Nations Framework Convention on Climate Change (UNFCCC), recognises the different capabilities and differing responsibilities of nations in addressing climate change. Indonesia and Malaysia have both requested targeted support and delays in implementing the EUDR. Astrid Schomaker, Director for Green Diplomacy and Multilateralism in the European Commission’s DG ENV, reiterated the EU’s commitment to collaboration, acknowledging the efforts of Malaysia and Indonesia to enhance traceability and certification systems in line with EUDR requirements. The meeting also explored practical solutions through five workstreams aimed at addressing the specific challenges related to smallholder inclusion in the supply chain, relevant certification schemes such as the ISPO and the MSPO, traceability systems including Malaysia’s Sawit Intelligent Management System (SIMS) and Indonesia’s National Dashboard for Commodities, deforestation and forest degradation related scientific data, and protection of privacy data. As a result, dedicated teams and timelines were established for each workstream, fostering ongoing collaboration between Indonesia, Malaysia, and the EU to better prepare for the implementation of the EUDR.
These meetings represent a positive development, demonstrating the commitment of all parties involved to bridge the gap between environmental goals and socio-economic realities. They underscore a collective effort to foster cooperation and find practical solutions amid the complexities of regulating deforestation across various commodity sectors. A third meeting is scheduled to take place in September 2024 in Brussels, Belgium. The three parties have also tentatively agreed to take stock of the work of the task force at the ministerial level in April 2024.
Implications and Future Directions
The Deforestation Regulation, a key component of the Green Deal, underscores the EU’s leadership in the global climate battle. Its ambitious nature reflects the EU’s commitment and push towards others for more urgent action to fulfil their Paris obligations. However, the Paris Climate Agreement is founded on the principle of common but differentiated responsibilities. While Indonesia, Malaysia, and ASEAN countries underpin the EU’s climate objectives and recognise the need for action against global warming and biodiversity loss, they still prefer to pursue climate action through their own policies rather than having Brussels impose measures on them. As upper-middle-income countries, Indonesia and Malaysia must be equipped to address and balance their environmental and socio-economic challenges differently from EU countries. To achieve sustainable outcomes that benefit both the environment and society, the EU and ASEAN should adopt a mutually enhanced nuanced and collaborative approach. This approach must acknowledge and tackle the complexities of balancing environmental goals with socioeconomic realities, while maintaining a steady pace on fulfilling their climate commitments.
The EU should enhance its efforts to foster active, inclusive, and transparent dialogues with Malaysia and Indonesia. This includes improving communication and information sharing regarding due diligence, as well as offering clear and comprehensive guidelines to external partners and businesses regarding the requirements and implementation of the EUDR. The establishment of the Ad Hoc JTF marks a positive step in this direction. Moreover, the EU, along with Malaysia and Indonesia, could benefit from more comprehensive dialogues involving various stakeholders from track 1, track 1.5, and track 2 levels. The Ad-Hoc JFT, involving a wide range of stakeholders, as well as the planned ministerial-level meeting in April 2024 to review the progress achieved by the task force, are promising developments. Adopting a diplomatic approach will be crucial in understanding each other’s concerns and identifying sustainable long-term solutions.
Additionally, in its approach the EU should not lose track of the socio-economic realities of its trading partners Indonesia and Malaysia and help them adopt feasible, nuanced and targeted approaches. While the EU recognizes the significance of smallholders, as evidenced by Astrid Ladefoged’s acknowledgment of their “very valid concerns” regarding their inclusion in the supply chain, these sentiments must be translated into concrete actions. To uphold the overarching UN SDG principle of “leave no one behind” and mitigate the risk of further exclusion of smallholders from the EU market, the European Commission should explore ways to implement the Regulation in a manner that enhances the inclusivity of smallholders. This could involve exploring alternative options and more tailored solutions for smaller producers, such as extending deadlines, establishing better information-sharing platforms, and providing targeted assistance to the two ASEAN countries in their process of implementing the rules. Furthermore, the EU could consider and implement solutions proposed or already deployed by the two ASEAN countries. For instance, Indonesia wants to establish a “clearing house” for palm oil producers, providing a centralised platform where all necessary information for compliance with EU regulations can be entered and transmitted to European customs authorities. This digital infrastructure enhances transparency and assists smallholders in meeting due diligence requirements. The EU could also work towards recognizing other local certification schemes like the Indonesia Sustainable Palm Oil (ISPO) or the Malaysian Sustainable Palm Oil (MSPO) certification scheme.
On their side, Jakarta and Kuala Lumpur should consider the broader and long-term advantages of the EU Deforestation Regulation (EUDR). Both governments should view the EU regulation as closely aligned with their own policies aimed at halting deforestation in the future, rather than as inherently discriminatory, as some activists suggest. Rather than a barrier, the EUDR could present an opportunity for palm oil-producing countries like Indonesia and Malaysia to enhance the sustainability of their palm oil industry. It also offers a chance to receive additional support from the EU to tackle sustainability issues and to accelerate their transition to greener, net-zero economies. Frans Timmermans, former Vice-President of the European Commission and champion of the EU Green Deal, has expressed the EU’s willingness to “empower stakeholders” and potentially provide aid through capacity-building projects.
Moreover, the Indonesian palm oil farmers’ association, SPKS, has emphasised that the EU regulation could benefit smallholders instead of harming them. Despite the expected increase in production costs due to the EU regulation, small producers would gain greater access to the sustainable market. This would enhance smallholders’ income and effectively address poverty, a key driver of the deforestation act. Additionally, since the EU has banned only commodities originating from lands deforested after 2020, compliance should not pose a significant challenge for producers. The majority of plantations were established before 2020, aligning with the no-deforestation rule followed by both ASEAN governments.
Finally, the EU could play a pivotal role in encouraging and supporting Indonesia and Malaysia to effectively address the persistent issues of illegal deforestation, land conflicts, and labour abuses that have long been associated with palm oil production.
The imperative of a balanced sustainable approach
While the European Deforestation Regulation (EUDR) represents a positive step in combating biodiversity loss and carbon emissions, it will be essential to also recognize its limitations. Crafted without prior consultation of EU partners, it fails to consider the socio-economic realities of trading partners and may fall short of providing a sustainable solution to deforestation. Particularly for ASEAN nations like Malaysia and Indonesia, the world’s largest palm oil producers, the EUDR could exacerbate inequalities and disrupt the already precarious livelihoods of their smallholder populations, posing significant socio-economic challenges. To safeguard bilateral and regional cooperation between the EU and ASEAN members, Brussels, Jakarta, and Kuala Lumpur will need to adopt a nuanced and collaborative approach. This approach should consider the challenges faced by smallholders and developing nations and provide the necessary support mechanisms that would allow them to meet the requirements and objectives of the EUDR without jeopardising their economic welfare. While initiatives like the Ad Hoc Joint Task Force show promise, tangible actions must follow. By addressing specific challenges unique to each commodity and drawing insights from ground-level experiences, the EUDR can drive meaningful impact. Overall, this challenge presents an opportunity for Brussels and ASEAN members to strengthen their relationship by establishing improved dialogue platforms and promoting transparency. Given the vulnerability of both continents to climate change, adopting a sustainable approach will be essential, addressing the climate emergency while recognising the diverse socio-economic realities of each region.
Author : Gabrielle Godard, EIAS Junior Researcher
Photo Credits: Unsplash