The EU's new Deforestation Regulation requires companies trading in cattle, cocoa, coffee, oil palm, rubber, soya and wood, as well as products derived from these commodities, to conduct extensive diligence on the value chain to ensure the goods do not result from recent (post 31 December 2020) deforestation, forest degradation or breaches of local environmental and social laws. Companies should consider now the impact of the EUDR on their supply chain due diligence to prepare for the new obligations that apply from 30 December 2024.
On 29 June 2023, the European Union's new regulation to curb the EU market's impact on global deforestation and forest degradation (the "EU Deforestation Regulation" or "EUDR") came into force.1
Here are 10 key things that companies need to know:
1. A wide range of products are covered, from beef to books
The EUDR covers seven commodities (i.e., cattle, cocoa, coffee, oil palm, rubber, soya, and wood), as well as many derived products listed in the annex to the regulation (e.g., meat products, leather, chocolate, coffee, palm nuts, palm oil derivatives, glycerol, natural rubber products, soybeans, soy-bean flour and oil, fuel wood, wood products, pulp and paper, printed books). It is important to check carefully which products are covered, with reference to the product's tariff classification under the Combined Nomenclature.
The EUDR applies to goods produced on or after 29 June 2023 (except for timber and timber products, which are covered if produced before that date and placed on the EU market from 31 December 2027). However, it does not apply to goods produced entirely from material that has completed its lifecycle and would otherwise have been discarded as waste.2
2. EUDR non-compliance precludes access to (and exports from) the EU
From 30 December 2024 (or 30 June 2025 for micro or small businesses), it will be prohibited to place relevant products on the EU market, or export them from the EU, unless they are:
- 'deforestation-free';
- produced in accordance with the relevant legislation of the country of production; and
- covered by a due diligence statement indicating no more than a negligible risk of non-compliance.
3. EUDR also covers legal deforestation and forest degradation
'Deforestation-free' means that the relevant products contain, have been fed with or have been made using, relevant commodities that were produced on land that has not been converted from forest to agricultural use, whether human-induced or not, after 31 December 2020. Further, for products that contain or have been made using wood, it means they were harvested from forests without inducing forest degradation after 31 December 2020. 'Forest degradation' means the conversion of primary forests or naturally regenerating forests into plantation forests or into other wooded land.
Importantly, and unlike previous EU laws on illegal logging and related trade (such as the EU Timber Regulation), the EUDR targets deforestation that is legal in accordance with the laws of the country of production. The regulation cites a report by the Forest Policy Trade and Finance Initiative which estimates that between 2013 and 2019, around 30 % of deforestation destined to commercial agriculture in tropical countries was legal.
4. The area of production must comply with local social and environmental laws
The EUDR requires that products be produced in accordance with the relevant legislation of the country of production concerning the legal status of the area of production in terms of: land use rights; environmental protection; forest-related rules, including forest management and biodiversity conservation, where directly related to wood harvesting; third parties' rights; labour rights; human rights protected under international law; the principle of free, prior and informed consent (FPIC), including as set out in the UN Declaration on the Rights of Indigenous Peoples; and tax, anti-corruption, trade, and customs regulations.
5. Today's production shapes tomorrow's compliance
Even though the main obligations of the EUDR will only apply from 30 December 2024, these will impact the ability to market relevant products that are being produced today, or that are being fed with relevant products, or being made using other relevant commodities or relevant products. Operators must ensure that the items entering the EU market are not from land that has been deforested or subject to forest degradation since 31 December 2020. If such products do not comply with the EUDR, they cannot be placed on the EU market – meaning making them available for the first time on the EU market - from 30 December 2024.
6. Primary responsibility lies with the company placing the product on the EU market
As from 30 December 2024, a company that places relevant products on the EU market will need to first upload a due diligence statement to their competent national authority, through a dedicated information system to be established by the European Commission. By issuing such a statement, companies assume responsibility for the product's compliance with the EUDR. Similarly, the obligation to conduct due diligence under the EUDR applies to companies who place relevant products on the EU market or export such products from the EU market. Non-EU companies may increasingly be asked by their customers to provide necessary information to comply with their due diligence obligations under the EUDR.
7. Due Diligence must follow the prescribed method with transparency and information along the supply chain
The EUDR sets out how the due diligence should be conducted. It should involve:
- collecting detailed information that demonstrates the products comply with the EUDR;
- carrying out a risk assessment in relation to each product to ascertain the risk of non-compliance with the EUDR. This will reflect numerous factors including the risk category of the country of production ('high risk', 'standard risk', or 'low risk', to be set out by the European Commission); and
- mitigating risks by carrying out independent surveys/ audits, gathering additional documentation, or working with suppliers (particularly SMEs) through capacity building and investments.3
Due diligence statements will be accessible to authorities, traders, and to a more limited extent the general public. Companies who place relevant product on the market also have an obligation to communicate the reference numbers of due diligence statements down the supply chain all information necessary to demonstrate that due diligence was performed, and that no more than a negligible risk was identified.
8. Expect regular checks from national authorities
The EUDR will be enforced by competent authorities in the Member States. The EUDR lays down detailed rules on the obligations of competent national authorities to conduct checks (in principle without warning) on operators and traders established in their territory to ensure they comply with the EUDR. Where relevant products present high risk of non-compliance, the competent authority may require immediate remedial action (e.g., interim measures to prevent those products entering the market). Where relevant products are non-compliant, the competent authority will require the operator/trader to take corrective action (e.g., a correction of any formal non-compliance, or a ban on the item being sold in the EU or exported), within a specified and reasonable period of time.
9. Expect scrutiny by private parties
The EUDR allows for the possibility for private parties to submit substantiated concerns to operators and to competent authorities when they consider that one or more operators or traders are not complying with the EUDR. Such parties must also be entitled to use administrative or judicial procedures to review the legality of the decisions, acts or failure to act of the competent authorities under the EUDR.
10. Potential fines of up to 4% of the company's EU turnover, confiscation or exclusion from public funding or contracts
Penalties for non-compliance will be laid down under national law. In due course, the intention is for breaches of the EUDR to lead to criminal penalties,4 but under the EUDR itself, penalties may include:
- Fines proportionate to the environmental damage and value of the items (it will gradually increase with repeated infringements) with a maximum of at least 4% of EU turnover in the preceding year and may be increased to exceed the potential economic benefit;
- Confiscation of the covered products or confiscation of the revenues gained from the items;
- Temporary exclusion from public procurement processes and public funding; and
- For serious or repeated infringements, temporary prohibition from dealing in the EU in those items, or a prohibition from using the simplified due diligence process.
Aron Senoner (White & Case, Associate, Brussels) and Ruth Benbow (White & Case, Knowledge Manager, London) contributed to the development of this publication.
1 Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010, available here. See also our alert from 19 May 2023, available here.
2 An example could be timber material derived from the demolition of a building outside the EU.Careful review of the product scope based on the tariff classification in the EU's Combined Nomenclature is critical.
3 Risk mitigation measures are not required where there is no or only a negligible risk that the Relevant Products are non-compliant.
4 See our client alert on the European Commission's proposal to require Member States to use criminal law to sanctions non-compliance with environmental laws, available here.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2023 White & Case LLP
