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Evaluating Paraguay’s Vulnerability to the EU Deforestation-Free Regulation
This paper examines Paraguay’s vulnerability to the European Union’s Regulation on Deforestation-Free Products. Drawing on trade data, customs firm-level data, and high-resolution geospatial analysis, it assesses exposure at the country, firm, and geographic levels. The results show that Paraguay’s direct export exposure to the European Union’s Regulation on Deforestation-Free Products is modest, but indirect exposure through Argentina’s soy value chain could affect up to 13 percent of Paraguay’s exports. Firm-level evidence indicates that soy and rubber exports are concentrated among a few large firms, whereas the emerging wood and forestry sector is fragmented across small and medium-sized enterprises with limited capacity to absorb compliance costs. Geospatial analysis suggests that only 0.4 to 2 percent of soybean areas may be at risk of noncompliance, concentrated in Itap？a, San Pedro, and Alto Paran？. Overall, Paraguay’s vulnerability stems primarily from indirect value-chain linkages, underscoring the need for targeted support and regional coordination within MERCOSUR to strengthen environmental governance.
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