The European Union has adopted a new regulation to curb the EU market's impact on global deforestation and forest degradation around the world, as well as protecting the rights of indigenous peoples.1 The EU Deforestation Regulation ("EUDR") mandates extensive due diligence on the value chain for all operators and traders dealing with certain products derived from cattle, cocoa, coffee, oil palm, rubber, soya and wood.
Targeted products must be deforestation-free
The EUDR requires seven commodities and certain specified products made from them2 to be "deforestation-free" in order to be sold on the EU market or exported from it. Relevant goods must also be covered by a due diligence statement and be produced in accordance with applicable local laws.3 The EUDR does not apply to goods made before the EUDR's entry into force (save for timber and timber products),4 or goods produced entirely from material that has completed its lifecycle and would otherwise have been discarded as waste.5
Operators and traders wanting to market such products in the EU (or export them from the EU) must conduct extensive diligence, down to the geolocation of all plots of land where the relevant commodities were produced, as well as the date or time range of production, or face dissuasive penalties.6
Under the EUDR, "deforestation-free" means that the good does not contain, has not been fed with or been made using, relevant commodities that were produced on land not subject to deforestation (i.e. the conversion of forest to agricultural use, whether human-induced or not) since 31 December 2020.7 Certain products containing or having been made from wood must not use forest degradation-inducing wood, i.e. wood collected in a manner causing structural changes to the cover of certain forest.
Three-step due diligence process
Before placing relevant products on the EU market or exporting them, operators and non-SME traders must submit a due diligence statement to their competent authority through a dedicated information system to be established by the European Commission.8 Importantly, such products may not be placed on the EU market if the due diligence exercise reveals non-negligible risks that the products are not compliant.
To ensure that items entering the EU market are not from land that has been deforested or subject to 'forest degradation' since 31 December 2020, operators and non-SME traders will need to:9
- Collect detailed information that demonstrates the products comply with the EUDR;
- Carry out a risk assessment in relation to each product to ascertain the risk of non-compliance with the EUDR; and
- Mitigate risks by carrying out independent surveys/audits, gathering additional documentation, or working with suppliers (particularly SMEs) through capacity building and investments.
The EUDR also requires operators to establish and maintain a 'due diligence system' of procedures and measures to ensure relevant products comply.10
Risk assessments including human rights
Risk assessments conducted by operators and traders must include a broad view of whether the good were produced in accordance with relevant local laws, with express support for the principle of free prior and informed consent of indigenous peoples.11
Operators and traders must consider 14 criteria when making their risk assessment. These include the Commission's risk classification of the country of production, the presence of forest land in the area of production, whether there has been good faith engagement with indigenous populations, any duly reasoned claims of ownership by indigenous peoples, concerns regarding corruption or human rights violations, the complexity of supply chains and the risk of mixing and circumvention.12
For these purposes, the Commission will separate countries (or regions) into three tiers, according to their risk, based on the latest scientific evidence and internationally recognised sources to address:
- Rate of deforestation and forest degradation;
- Rate of expansion of agriculture land for relevant items; and
- Production trends of the relevant items.13
Dawn raids and interim orders by competent authorities
The EUDR lays down detailed rules on the obligations of competent national authorities to conduct checks, which should in principle be without prior warning, on operators and traders established in their territory to ensure they comply with the EUDR.14 Checks should follow a risk-based approach, and involve drawing a national plan that identifies risk criteria, as well as specific operators and traders to be checked (which should cover minimum percentages of operators on the market15).
Where products present high risk of non-compliance, the competent authority may require immediate remedial action, including interim measures to prevent those products entering the market or informing customs authorities of the need to suspend the release of products for free circulation or export.16
Non-compliance will require corrective measures
If not compliant, the competent authority will require the operator/trader to take corrective action within a specified and reasonable period of time.17
The competent authorities will have the powers to order:18
- Correction of any formal non-compliance (for example, failure to maintain due diligence statements);
- A ban on the item being sold in the EU or exported;
- Immediate withdrawal or recall of the item; or
- Donation to charity or public interest purposes or disposal of the products if that is not possible.
Penalties for non-compliance
Penalties for non-compliance will be laid down under national law, but must be effective, proportionate and dissuasive. In due course, the intention is for the EUDR to be subject to criminal penalties,19 but under the EUDR itself, penalties may include:20
- Fines proportionate to the environmental damage and value of the items and will gradually increase with repeated infringements:
- The maximum fine will be at least 4% of Union turnover in the preceding year and may be increased to exceed the potential economic benefit;
- Confiscation of the 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.
Member states will also inform the Commission of final judgments against legal persons within 30 days. The Commission will publish the name, date and a summary of the activities that infringed the EUDR and the nature and amount of penalty imposed.21
Next steps
The EUDR will shortly be published in the EU Official Journal and will enter into force 20 days later. The main obligations will be applicable 18 months after the entry to force of the EUDR.22
Ruth Benbow (White & Case, Knowledge Manager, London) assisted with the preparation of this publication.
1 Council press release available here.
2 The full list is contained in Annex I of the Regulation. The list will be reviewed after two years, when additional items may be added.
3 Article 3 of the Regulation.
4 Article 37(3) of the Regulation. The regulation does apply to timber and timber products produced before the entry into force of the Regulation and placed on the market within four and a half years.
5 Annex I to the Regulation.
6 Article 8 of the Regulation.
7 Article 2(13) of the Regulation.
8 Article 4 of the Regulation; the information system will be established in accordance with Article 33 of the Regulation.
9 Article 8 of the Regulation.
10 Article 12 of the Regulation.
11 Article 2(40) of the Regulation.
12 Article 10 of the Regulation.
13 Article 29 of the Regulation.
14 Articles 16, 18 and 19 of the Regulation.
15 Article 16(8 – 10) of the Regulation.
16 Article 17 of the Regulation.
17 Article 24 of the Regulation.
18 Article 24(2) of the Regulation.
19 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.
20 Article 25(2) of the Regulation.
21 Article 25(3) of the Regulation.
22 Article 38 of the Regulation.
