The EU legislature recently passed sweeping new regulations that may require businesses to protect against and stop human rights violations and protect the environment in their supply stores.
These are commendable goals. They have been a long time coming. However, there are real dangers of well-intentioned policies putting the poorest nations in a “green press” without cautious style and more strategic support for businesses and providers in the developing world.
The new EU green trade measures, which are penalizing poorer producers exporting into the bloc, are all intended to address a climate crisis that they did n’t cause, are raising the current concerns of many different types of developing nations.
Without a more concentrated support, the EU runs the risk of undermining its existing collaborations with developing countries to advance global growth and trade objectives.
The world’s 45 least developed countries may only account for 1 % of global merchandise trade but they are home to a quarter of the world’s population, some of them the world’s poorest people.
They have limited domestic markets and, because of historical trade ( including colonial ) relations, typically rely on EU markets and supply chains for around 15 %- 20 % of their exports.
Without additional support, the new alternative trade measures’ combined effects could cause more business obstacles that may reduce extreme poverty. The resultant revenue declines limit attempts by the poorest nations to adapt to climate change as well as development goals.
Ironic because these nations now foot the bill for the climate crisis and have the lowest pollution.
A’ natural squash’ for the poorest nations
My research suggests that the combined effects of the current and anticipated measures could result in a “green press,” leading to hundreds of millions of dollars in additional compliance costs. For instance, the new EU deforestation regulations alone could reduce some of the poorest nations ‘ exports by 10 % and lower an individual nation’s GDP by 1 %.
In Ethiopia, where coworkers and I have modelled the financial data for upcoming research, there could be up to a US$ 1.13 billion decline in GDP periodically. This is because producers who are unable to support them are excluded, and exports will be lowered as a result of rising compliance costs.
And this figure does n’t factor in all the likely knock on effects on consumption, investment, tax revenues, wages, employment and government expenditure. A similar position is occurring in other less developed nations that export products into the EU.
A few adjustments have been made to the European Green Deal, a set of laws intended to make the Union carbon neutral by 2050.
For instance, the forest regulation had intended to first categorize nations as having a large, reduced, or standard risk of their exports being connected to deforestation. However, the regulation will use a normal risk to all nations starting in December 2024, which is good news for exporters who originate from nations like Brazil that could have been high risk.
Perhaps a standard risk classification also calls for the complete traceability of items and their supply chains. Additionally, 3 % of operators and traders will still be subject to checks ( compared to 9 % if the nations were given a high risk ) level. Companies does require longer to adjust.
According to reports, EU coffee importers are already cutting back on their production because they fear growers wo n’t be able to comply. Business is now reversing its focus to less developed and less expensive nations where deforestation is viewed as less risky and have existing systems in place to monitor the effects of products on the environment.
The European Parliament will vote on the due diligence order for business sustainability, which may become effective starting in 2025. The order imposes a variety of compliance costs, which are more readily absorbed by larger businesses from a developing country standpoint.
As one major African fruit products exporter, Blue Skies, told me, the barrage of new audit and compliance measures will mean duplicated paperwork, travel and consultancy fees, adding £1 million ( US$ 1.25 million ) in annual costs, just to maintain access to its existing markets.
From 2026, the EU’s coal border adjustment mechanism may involve importers of specific emissions- intense goods like cement, iron and steel, aluminium, and fertilisers, to pay for the carbon embodied in these goods.
The EU has responded to questions about how complicated the investigating needs are. Once companies are required to report the pollutants embodied in imported goods, we can anticipate raising more problems.
Of course, rich countries had immediately electrify trade and production. This is not a defense for addressing climate change. Instead, it is a call for politicians to really consider how to ensure that new clean business opportunities arise in accordance with the UN’s global commitment to double the poorest nations ‘ share of global exports ( a goal that has not been met since its target season of 2020 ).
What could this glance like? For a start, the EU may develop more coordinated aid packages that take into account country-specific circumstances and manufacturing systems. Listening to places that have asked for more time to react, like Ethiopia, would be a good place to start. In addition, revision needs to be increased support for business support.
New alternative trade initiatives may support development objectives. In this way, we can prevent the natural squash and prevent harming the poorest nations.
Jodie Keane is Senior Research Fellow, International Economic Development Group, ODI
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