The first of its kind, the EU's Deforestation-Free Products Regulation seeks to curtail global deforestation and forest degradation associated with EU consumption and production. The benefits of the Regulation are expected to extend to biodiversity, climate change and to the protection of indigenous peoples and local communities.
On 29 June 2023, the long-awaited EU Deforestation-Free Products Regulation ("EUDR") came into force 20 days after publication in the Official Journal of the European Union.
The EUDR is an ambitious legal framework, aimed at halting and reversing European-driven global deforestation, and encouraging deforestation-free supply chains and trade in deforestation-free commodities and products. To this end, the Regulation introduces extensive mandatory due diligence and reporting requirements for operators and traders before they can import or place certain specified commodities or their derived products onto the EU market, or to export them from the same.
Commodities covered by EUDR: palm oil, soya, wood, cocoa, coffee, cattle and rubber
Examples of derived products: chocolate, beef, leather, furniture, printed paper
The EUDR will send shockwaves beyond the EU's borders given the EU's share of the global trade in the commodities and products covered by the Regulation. Non-EU businesses should therefore also take note, particularly in view of the significant penalties that could be imposed for non-compliance (including a maximum fine of at least 4% of annual turnover in the EU).
In-scope businesses will have 18 months to implement the Regulation's requirements (i.e., from 30 December 2024). SMEs have a slightly longer lead-in time of 24 months (i.e., from 30 June 2025).
The onerous obligations placed on businesses in scope of the EUDR will require wholesale change in the way due diligence is conducted so that supply chains may be mapped all the way to the lowest tier. There is, therefore, no room for complacency.
Objectives of the EUDR
A significant global driver of deforestation is the deliberate conversion of forest into agricultural land. The UN Food and Agriculture Organisation estimates that between 1990 and 2020, there were around 420 million hectares of forest lost to land conversion, an area larger than all of the EU countries combined.
The overriding objectives of the EUDR are to curb EU-driven forest loss and land degradation and associated outcomes such as biodiversity loss and climate change, and to protect the rights of indigenous peoples and local communities (including their tenure rights). Achieving these objectives requires a shakeup of the status quo, something the Regulation seeks to do by ensuring that certain commodities and products placed on the EU market - or exported from there - are deforestation-free.
Key concepts within the EUDR
- Deforestation: the conversion of forest to agricultural use, whether human induced or not.
- Forest degradation: structural changes to forest cover through conversion of primary forests (or naturally regenerating forests) into plantations or other wooded lands or not planted forests.
- Deforestation-free: commodities and products (or their ingredients/derivatives) which have not been grown, harvested, obtained or raised on land subject to deforestation or degradation since 31 December 2020.
What's caught by the EUDR?
The EUDR covers seven commodities produced within and imported to the EU. These are: palm oil, soya, wood, cocoa, coffee, cattle and rubber ("relevant commodities"). Derived products and products made using these commodities such as chocolate, beef, leather, furniture, or printed paper, are also covered.
Products that are used or have reached the end of their lifecycle, and would otherwise be disposed of as waste, are excluded from the Regulation. This exclusion does not extend to by-products of manufacturing processes.
Legal requirements for EU businesses
Who is covered?
Businesses that first make available relevant commodities or products in the EU, or export them from the EU ("operators"), will be subject to strict due diligence and reporting requirements that must be completed before they do so. These requirements will also apply to other businesses that subsequently trade in the commodity or product within the EU ("traders"). The Regulation applies to all operators and traders, regardless of their size, though SMEs are subject to less onerous obligations. Note that "make available on the market" includes both direct and indirect (e.g., online) sales.
Due diligence
Businesses must gather prescribed information on the relevant commodities and products they market. Such information includes: the quantity(ies), the supplier(s), country(ies) of production (or parts thereof) and the exact geolocation coordinates of relevant plots of land where commodities have been sourced (including satellite imagery). Businesses must then verify the information and conduct thorough risk assessments to determine whether the relevant commodities and products are deforestation-free.
The Regulation prescribes a set of 14 criteria businesses must account for in their risk assessments, depending on the risk classification of the country of production. Factors that must be accounted for in any assessment include, for example: presence of forest land in the area of production; presence of indigenous peoples in the country of production and requirement for good-faith cooperation; corruption or human rights violations concerns; concerns regarding mixing of relevant products with unknown origins or circumvention of the Regulation; history of non-compliance of other operators or traders in the relevant supply chain; and substantiated concerns from interested parties.
Commission's benchmarking system
To aid the risk assessment requirement, the EU Commission will develop a three-tier benchmarking system to identify producer countries (or parts thereof) that it considers to be at high, standard or low risk of deforestation and forest degradation. This system is expected to be in place within the next 18 months; until then, all countries have been classified as de facto "standard risk".
Risk assessments must be documented and reviewed at least annually and made available to the competent authority on request.
Businesses can only place the relevant commodities and products on the market if, as a result of their due diligence, they conclude that there is no or only a negligible risk of deforestation, and that production was in compliance with the laws of the relevant country.
If businesses cannot demonstrate these requirements, they must take mitigative steps to achieve no or only a negligible risk (e.g., by obtaining additional information or carrying out independent audits or investing in the company's supplier to ensure compliance with the national laws of the producer country). Otherwise, they risk facing penalties for non-compliance.
Reporting
Businesses must then submit due diligence statements to the relevant competent authority. Among other things, the statement must include a declaration that the entity submitting it exercised due diligence and that no or only a negligible risk of deforestation was found. An electronic interface for submitting due diligence statements is currently in development.
Businesses that first make available relevant commodities or products must provide reference numbers of their due diligence statements to other businesses further down the supply chain for those commodities or products. This is so that SMEs can refer to the existing due diligence statement if one has already been submitted on the information system (see below), but only if the whole product is covered by the previous statement. Each entity trading the relevant commodity or product will remain responsible for compliance of the commodity or product.
By 30 December 2024, the European Commission must establish an online information system to facilitate the exchange of reference numbers, due diligence statements and key information between Member States for, among other things, enforcement purposes.
Due diligence systems and record keeping
Businesses are required to establish and maintain effective due diligence systems and processes, which they must review annually. Non-SME businesses must publicly report as widely as possible on their processes and how they have ensured compliance with their due diligence requirements.
Distinct obligations for SME traders
SME traders will not be required to submit due diligence statements, but they are required to gather and hold for five years certain limited information about the suppliers and recipients of the relevant commodities and products, including the previous due diligence statements on which they have relied.
Non-compliance
It is up to individual Member States to determine the penalties for non-compliance, but they must be effective, proportionate and dissuasive. Such penalties can include:
- Fines that are proportionate to the environmental damage and the value of the relevant commodities or products, but in any event a maximum of at least 4% of the business' annual EU turnover;
- Immediate corrective action, whether confiscation of the relevant products or confiscation of revenue from the transaction of the relevant products;
- Temporary exclusion (up to 12 months) from public procurement processes and from access to public funding; and
- Temporary prohibition from placing, making available or exporting relevant commodities or products from the EU market.
The EUDR also seeks to dissuade non-compliance by:
- Giving members of the public the opportunity to submit substantiated concerns to competent authorities regarding potential non-compliance with the Regulation; and
- Requiring the Commission to publish final judgments containing the details of entities found to have infringed the Regulation and the penalties imposed on them.
The EUDR in the global context
The EUDR sits in the wider context of human rights and environmental due diligence and supply chain laws being introduced around the world.
In Europe, for example, the French Corporate Duty of Vigilance Law was adopted in 2017 and, more recently, the German Supply Chain Due Diligence Act entered into force in 2023. Both of these require large companies to exercise human rights and environmental due diligence along their international supply chains, and to do so by taking a risk-based approach. The EU's Corporate Sustainability Due Diligence Directive (or CS3D), which introduces similar obligations at the EU-level, is expected to be approved in 2024. For more on CS3D, see our legal briefing here.
Spotlight on NGO deforestation due diligence claims
NGOs are moving in on businesses linked to deforestation and land degradation. For example, in March 2021, a coalition of NGOs, together with indigenous peoples from the Brazilian and Colombian Amazon, brought a claim against French supermarket chain, Casino, under the French Corporate Duty of Vigilance Law. The claimants allege that Casino failed to conduct human rights and environmental due diligence across their operations and supply chains by sourcing beef from suppliers responsible for at least 50,000 hectares of deforestation between 2008 and 2020, causing damage to ancestral lands and loss of livelihoods. The case is ongoing.
More recently, in May 2023, ClientEarth filed a complaint against US-based global food corporation, Cargill, for its alleged failure to adequately deal with its soy-driven contribution to deforestation and human rights violations in the Brazilian Amazon. ClientEarth's complaint has been submitted to the Organisation for Economic Cooperation and Development ("OECD") under its business conduct guidelines. See our recent blog here for a discussion of the OECD's revised guidelines.
In the UK, the government last year concluded a public consultation on the development of legislation to implement due diligence on forest commodities in UK supply chains. The government has expressed its intension to implement due diligence obligations for in-scope businesses under the Environment Act 2021 at the "earliest opportunity through secondary legislation". Note also that under the Financial Services and Markets Act 2023, the Treasury will review the adequacy of the UK financial regulatory framework for eliminating the financing of illegal deforestation and consider what changes to the framework may be necessary.
The US Congress is also deliberating the introduction of the US Forest Act, which places restrictions on certain commodities produced on illegally deforested land from accessing the US market.
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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.