The impending EU Deforestation Regulation (EUDR) is set to have a significant impact on the Cambodian and Southeast Asian rubber export industry when they come into effect.
As the European Union gears up to introduce stringent environmental and labour standards, rubber producers across Southeast Asia, including in Cambodia, are preparing for major shifts. Part of this will be for operators and traders to be able to comply by providing conclusive and verifiable information about their supply chains.
The new EU regulations aim to tackle deforestation and promote sustainable trade, and are expected to substantially alter the landscape of the regional rubber industry.
The mandatory regulations come into effect by December 2024 for larger companies and June 2025 for smaller suppliers.
Some experts, as reported by Nikkei Asia, suggest that Vietnam’s imports of Cambodian rubber, currently worth an estimated USD $1-1.5 billion, are expected to decline with the introduction of these new regulations and predict that these changes will have negative impacts on the Cambodian rubber exports as the compliance measures are enforces as key part of the EU’s comprehensive strategy to reduce deforestation.
EU Deforestation Regulation – Impacts To Cambodia’s Rubber Exports
According to the Nikkei Asia report, the EUDR will impact Cambodia’s 30,000 small farmers as well as major exporters in Thailand and Malaysia. The regulation could disproportionately harm small farmers, failing to address the root cause of deforestation linked to rubber production.
Geo-agronomist Jean-Christophe Diepart commented that there would be “profound implications” for Cambodian farmers due to the multitude of requirements, saying “There will be too many requirements, too much effort to monitor and trace the rubber they produce. This would leave only large corporations with the resources to comply.”
Phuc Xuan To, a senior policy analyst at Forest Trends, expressed that compliance issues would also affect Vietnam, a major importer of Cambodian rubber. Once mixed with local rubber in Vietnam, traceability becomes “almost impossible.”
As a result, Vietnamese traders with European connections might have to reduce imports from Cambodia to clean up their supply chains as Vietnamese traders will likely need to curtail their imports due to the EUDR’s due diligence requirements, which include a 14-criteria risk assessment.
Diepart also raised concerns about the accuracy of rubber plantation data within Cambodia, casting doubt on the reliability of government statistics and the practicality of establishing complete traceability in the value chain.
Understanding The EU Deforestation Regulation
The EUDR, adopted on June 29, 2023, is designed to stop the import of commodities associated with deforestation and forest degradation into the EU.
The regulation targets seven key commodities and extends to derived products like leather, chocolate, tyres, and furniture. The seven commodities are:
- Palm oil
The EU will ban imports of these commodities if they are linked to deforestation and companies will need to verify their products’ deforestation-free status before they can be imported into the EU market.
How The EUDR Regulation Caused Backlash From Southeast Asia
Malaysia and Indonesia are in discussions with the EU about these deforestation regulations due to concerns over their impact on the palm oil industry. However, Malaysia’s rubber exports, valued at USD $2 billion, also face risks.
Approximately 17% of Malaysia’s rubber exports head to the EU, making it their largest market after the United States. The Malaysian Rubber Board reported that 93% of rubber plantations are managed by smallholder farmers.
In March 2023, Malaysian rubber and palm oil farmers submitted a petition to the EU, criticising the EUDR as “unilateral and unrealistic” adding that they contend that the regulations will marginalise smallholders from the European market, potentially worsening rural poverty.
Critics of the EUDR say the policymakers have neglected the intricacies of smallholder cross-border trade in cash, which is prevalent in countries like Cambodia and Laos.
Another criticism of the EUDR is that it may be too late to undo the environmental damage caused by the rubber boom in Cambodia, which concluded over a decade ago. Deforestation in Cambodia is arguably currently driven by cashew and cassava production rather than rubber.
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