The strict regulations on trade in commodities and products that contribute to deforestation and forest degradation contained in European Regulation 2023/1115 (EUDR – European Regulation on Deforestation Free Products), will have a major impact on food and commodities businesses, and others, across supply chains. The EUDR regulation has already been in force since 29 June 2023 and its provisions are to be applied from 30 December 2024. However, the Council has recently agreed to the Commission’s proposal to postpone the application date of the Regulation by one year. Therefore, if agreed by the European Parliament, the obligations stemming from this Regulation will be binding from:
- 30 December 2025, for large operators and traders
- 30 June 2026, for micro and small enterprises
This would give legal certainty, predictability and sufficient time for a smooth and effective implementation of the rules, including fully establishing due diligence systems covering all relevant commodities and products.
The main objective of the EUDR is to minimize deforestation and increase legal compliance in producing countries.
The EUDR applies to a wide range of businesses, regardless of whether the commodities or products originate inside or outside the EU. The ‘relevant commodities’ identified by the European Commission as major drivers of deforestation include cocoa, coffee, wood, cattle, oil palm, rubber and soya, used in products such as chocolate, roasted coffee, paper and newspapers.
Businesses trading in these products will have to comply with new obligations, including due diligence statements. “EUDR represents a major change for many companies, who are often unaware that the new rules will apply to products containing the relevant commodities, regardless of whether they were produced inside or outside the EU,” says Daša Aradská, Senior Associate at Weinhold Legal.
Companies will only be able to trade in products that do not contribute to deforestation, have been produced in accordance with the legislation of the country of production and are accompanied by a due diligence statement. This document must contain specific information set in Annex II of the EUDR and be registered in the European Commission’s information system, which shall be available from mid-November 2024. However, this deadline may be delayed in view of the approval of the postponement of the entry into force of the EUDR Regulation.
Based on the European Commission’s risk analysis, countries will be categorized as high, standard and low risk. EU Member States will be obliged to carry out EUDR compliance checks on 1%, 3% or 9% of obliged entities depending on the risk level of the country.
Businesses that fail to comply may face severe sanctions, including fines, confiscation of products or temporary exclusion from public procurement.
What obligations are imposed by the EUDR?
Only relevant commodities and relevant products that (i) are deforestation-free; (ii) have been produced in accordance with the relevant legislation of the country of production; and (iii) are covered by a due diligence statement may be placed on, supplied to or exported from the EU market. Thus, for relevant products or commodities, the obliged entity must satisfy itself – and provide evidence – that:
- no deforestation has occurred in the production of the relevant commodities after 30 December 2020 and, in the case of wood, no forest degradation has occurred after the same date,
- the production of the relevant products has not infringed the legislation of the country of production,
- it has carried out ‘due diligence’,
- entered a due diligence statement in the European Commission’s information system.
What does it mean to perform due diligence?
Due diligence means collecting information, documents and data that demonstrate that the relevant products are in compliance with the EUDR and do not cause deforestation, have been produced in accordance with the relevant legislation of the country of production and are covered by a due diligence statement. This includes:
- a description of the product, including the trade name, the type of relevant products and, in the case of wood, the common and full scientific name; the product description shall include a list of the relevant commodities or relevant products contained in it or used to produce it;
- the quantity of the relevant products expressed in kilograms net weight and the relevant units according to the Harmonized System;
- the country of production, including specific parts thereof;
- the geolocation of the land, i.e. the coordinates of the land identifying its location where the commodities were produced, including the time of production. The definition of land is not necessarily linked to the land register. Information on land and its geolocation can be obtained in different ways and from different sources (including the use of third-party certification, but the responsibility in the due diligence system always lies with the operator);
- suppliers and buyers – their names, postal and email addresses;
- reasonably convincing and verifiable information that the relevant products do not cause deforestation, comply with the relevant legislation of the country of production, including any arrangement conferring the right to use the respective area for the purpose of production of the relevant commodity.
Obliged entities must verify and assess the information and documentation collected on the relevant products. On the basis of this information, they shall carry out a risk assessment to determine whether the products are at risk of not complying with the requirements of the Regulation. Relevant products may only be placed on the market or exported if no or only negligible risk has been identified. Where risks are identified, they should be reduced to a negligible level.
The Commission will be tasked with identifying the risk of each country according to the likelihood of the commodity causing deforestation and categorizing them into high, standard and low risk based on this analysis. The Commission should develop a risk assessment system and publish a list of countries according to their risk level by 30 December 2024.
What is a due diligence statement?
A due diligence statement contains the information set out in Annex II of the EUDR and is a statement by the obliged entity that it has carried out due diligence and that no risk or only negligible risk has been identified. It is submitted through the Commission’s information system, where it is assigned a reference number. This statement is thus electronically accessible and portable.
How will the due diligence statement be used?
The obliged entity will communicate the relevant information and the reference number of the due diligence statement to other operators and traders further down the supply chain. For those parts of the relevant product for which due diligence has already been carried out, other obliged entities will refer to the due diligence statements already submitted and include them in their due diligence statement, but in the case of large entities only after they are satisfied that due diligence in relation to the relevant products (e.g. cocoa butter) contained in or made from the relevant products (e.g. chocolate) has been carried out in accordance with the EUDR. So, for example, if Company A imports cocoa butter and proves that due diligence has been exercised in sourcing it, Company B, which produces chocolate from that butter and markets it in the EU, can refer to Company A’s statement. However, it must be sure that all requirements have been met and that the production process does not violate the EUDR. For those parts of the relevant product for which due diligence has not been carried out at earlier stages of the chain, the obliged entities must carry out due diligence (and provide a statement).
If an operator who places a commodity on the market or intends to export a commodity is unable to obtain the information required by the Regulation, it must not market or export the relevant products as this would constitute a breach of the EUDR and potentially lead to sanctions.
Obliged entities may authorize an authorized representative to submit a due diligence statement on their behalf in accordance with the EUDR. In such a case, the operator or trader remains responsible for the compliance of the relevant product with the EUDR; contractual delegation of responsibilities to other entities is not allowed under the EUDR.
What are the other obligations under the Regulation?
Obliged entities report annually and publicly as widely as possible, including via the internet, on their due diligence system, including the measures they have taken to comply with their obligations under the EUDR. They are also required to keep records of due diligence statements for five years from the date of submission, to document their risk mitigation procedures and measures, to review them at least annually, to update them if necessary and to make them available to competent authorities on request, to inform other operators and traders in the supply chain that due diligence has been carried out and that no or negligible risk has been identified, including the reference numbers of the due diligence statements.
The Commission submitted its proposal on postponing the application date of the EUDR Regulation in response to concerns raised by member states, third countries, traders and operators that there was a risk that they would not be able to fully comply with the rules by 31 December 2024 as originally stipulated by the Regulation. Now, the European Parliament has to take a decision on its position. If the amendment to the application date is approved, it has to be published in the Official Journal of the EU so that it can enter into force.
The EUDR Regulation represents a major challenge and a complex task for businesses. Hopefully, its implementation will contribute to the global environmental goals set out by the Commission in its Communication of 11 December 2019 entitled ‘A Green Deal for Europe’, which aims to transform the Union into a fair and prosperous society with a modern and competitive resource-efficient economy based on sustainable, rules-based free trade, with no greenhouse gas emissions in 2050, where economic growth is decoupled from resource use and no person or place is left behind.
If you have any questions about this issue or current legislation, we would be happy to provide further information. Please do not hesitate to contact us at Weinhold Legal.