Trade Disruption Looms: EU Deforestation Regulation Sparks Concern among US Paper Makers
The European Union’s (EU) Deforestation Regulation, set to take effect later this year, has raised concerns among US paper makers, who warn that it may disrupt $3.5 billion worth of trade and increase prices for essential hygiene products.
The Impact of the Regulation
The regulation requires paper companies to trace the origin of the wood used in their products, a feat deemed impossible by the American Forest and Paper Association (AFPA). Pulp supply chains are diffuse, and it can take up to two years to transform logs into fiber. This would result in significant costs for US producers and, subsequently, inflationary pressures in the EU.
The Economic Impact
The US paper industry is a significant exporter of "fluff pulp," an absorbent material used to produce diapers, sanitary pads, and other personal care products. American suppliers meet approximately 60% of the EU’s demand, making any interruption to the supply chain a major concern.
Industry Reaction
Mark Pitts, executive director at the AFPA, expressed concerns about the regulation, stating, "The EUDR as is currently written will raise the costs significantly for US producers, and it will translate into inflationary pressures in the EU." Pitts also called for the implementation deadline to be delayed, suggesting that the industry should be categorized as a low risk to global deforestation.
Government Support
The US government has also requested a postponement of the regulation, citing "critical challenges" to domestic producers. A letter to the EU highlighted the difficulties posed by the regulation, which is scheduled to take effect at the end of the year.
The EU’s Goals
The EU aims to reduce its role in global deforestation, which accounts for approximately 10% of the world’s losses of biodiversity. The regulation seeks to achieve this by requiring companies to document the origin of commodities, such as timber, beef, coffee, and cocoa. If companies fail to comply, the EU will impose penalties.
Company Positions
Procter & Gamble (P&G), the maker of Pampers diapers, and Kimberly-Clark, the manufacturer of Huggies diapers, are among the largest suppliers of hygiene products in Europe. P&G stated that it complies with applicable laws and regulations and will do so with the EU Deforestation Regulation. The company also expects its suppliers to adhere to its sourcing guidelines. Kimberly-Clark declined to comment on the matter.
Supply Chain Concerns
The regulation has already begun to affect supply chain contracts, with several US paper makers experiencing issues. The AFPA’s Pitts warned that the regulation is already jeopardizing contracts for the fall, making it difficult for companies to maintain stable supplies.
Conclusion
The EU’s Deforestation Regulation has sparked concerns among US paper makers, who fear that the measure may disrupt trade and increase prices for essential hygiene products. While the regulation aims to address global deforestation, it remains unclear whether it will achieve its goals while causing significant economic disruption.
FAQs
Q: What is the EU Deforestation Regulation?
A: The EU Deforestation Regulation requires companies to trace the origin of wood and other commodities to prevent deforestation.
Q: What is the impact on the US paper industry?
A: The regulation may disrupt $3.5 billion worth of trade and increase prices for US paper products.
Q: What are the US paper industry’s concerns?
A: The industry believes that the regulation is unfeasible, given the diffuse nature of pulp supply chains, and will result in significant costs and inflationary pressures in the EU.
Q: What is the US government’s stance?
A: The US government has requested a postponement of the regulation, citing "critical challenges" to domestic producers.
Q: What are the EU’s goals for the regulation?
A: The EU aims to reduce its role in global deforestation, which accounts for approximately 10% of the world’s losses of biodiversity.
Author: fortune.com
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