On 9 June 2023, the European Union published Regulation (EU)
2023/1115 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 (the
“Deforestation Regulation” or the “EUDR”). The
EUDR entered into force on 29 June 2023, although the main
prohibitions and obligations will not apply until 30 December
2024.1
Pursuant to the EUDR, beginning 30 December 2024, relevant
products (derivatives of palm oil, soya, wood, cocoa, coffee,
cattle, and rubber, as listed in Annex I to the EUDR) may be placed
or made available on the EU market, or exported from the European
Union, only if they meet the following requirements:
(1) Deforestation-free: Relevant products must be traceable to
the plot of land where the relevant commodities were
produced/harvested, and such plot of land must not have been
subject to deforestation (or to forest degradation with respect to
wood) after 31 December 2020
(2) Legality: Production/harvesting of the relevant commodities
on the respective plot of land must be compliant with relevant
legislation of the country of production
(3) Due diligence statement (DDS): Each batch of relevant
products must be covered by a DDS, which must be submitted into the
Information System by an EU operator or trader upon conducting due
diligence, or upon ascertaining that due diligence was carried out
in accordance with EUDR in a prior step of the supply chain.
In order to meet these requirements, EU operators and traders
are required to obtain adequately conclusive and verifiable
information along the entire supply chain, starting from the
producers of the relevant commodities.
1. FREQUENTLY ASKED QUESTIONS ON THE DEFORESTATION
REGULATION
To clarify complex EUDR requirements, the European Commission
(“Commission”) published Frequently Asked
Questions (“FAQ”). The FAQ is a non-binding working
document drafted by the Commission to provide guidance to national
authorities and EU operators and traders for the implementation of
the EUDR. National authorities and economic operators may make use
of this guidance based on the text, context and purpose of the
EUDR, to achieve its uniform application across the European Union.
Among other things, the FAQ clarifies the following:
- Placement on the market during the transitional
period (FAQ 80): Obligations of EU operators/traders with
respect to: (1) products placed on the market before 30 December
2024 and (2) products produced from the commodities or products
placed on the EU market before 30 December 2024, will be limited to
gathering adequately conclusive and verifiable evidence to prove
that such relevant commodity, or relevant product, was placed on
the market before the entry into application of the Regulation.
Such products will be exempted from the full due diligence
requirements that are otherwise imposed on EU operators and traders
placing relevant products on the EU market as of 30 December
2024. - Granularity of traceability requirements (FAQ
2 and 4): The traceability requirements apply to each batch of
imported, exported, or traded relevant commodities, meaning that
the deforestation-free and legality requirements must be fulfilled
for each batch of commodities or products placed on the EU market.
In that context, mass balance chains of custody which allow for the
mixing—at any step of the supply chain—of
deforestation-free commodities with commodities of unknown origin
or non-deforestation-free commodities are not allowed, because they
do not guarantee that the commodities placed on the market or
exported are deforestation-free. - Traceability requirements for bulk products
(FAQ 3 and 21): For products traded in bulk, such as soy or palm
oil, the operator or a trader needs to ensure that all plots of
land involved in a shipment are identified, and that the
commodities are not mixed at any step of the process with
commodities of unknown origin, or from areas deforested or degraded
after the cut-off date of 31 December 2020. In that context,
traceability information can be added up along supply chains. For
instance, a large, bulk shipment of soy that has been sourced in
several hundred plots of land from several countries would need to
be associated with a due diligence statement, which includes all
relevant countries of production and geolocation information, for
every single plot of land in each country that contributed to the
shipment. - Recycled products (FAQ 33): Only relevant
products manufactured using 100% of the recycled inputs are
exempted from the EUDR. However, if the product contains even 1% of
non-recycled material, it is subject to the requirements of the
EUDR, and the non-recycled material will need to be traced back to
the plot of origin via geolocation. - Treatment of packaging (FAQ 32): Packaging
material is outside of the scope of EUDR unless it is placed or
made available on the EU market as a product in its own right. FAQ
clarifies that any material used exclusively as packaging material
to support, protect or carry another product placed on the market
is not a relevant product within the meaning of Annex I of the
Regulation, regardless of the HS code under which they fall. User
manuals accompanying shipments are included under this exemption,
unless they are purchased in their own right.
The EUDR FAQ is expected to be updated by the end of March 2024
to address a multitude of questions from stakeholders. It is also
expected that the Commission will issue a general EUDR Guidance by
the end of May. This Guidance will cover 11 areas, including:
- clarifications on placing and making available on the EU
market; - legality;
- risk assessment;
- product scope; and
- the role of third-party verification schemes.
In the meantime, the Commission has provided a list of some (but
not yet all) Designated Competent
Authorities.
2. EUDR INFORMATION SYSTEM
In December 2023 and January 2024, the Commission revealed the
EUDR Information System Operator DDS Input Screen
2 and conducted pilot testing of the Information
System. This testing identified a number of major technical and
other issues, including the lack of mechanism to allow automation
of geolocation uploads.
3 In February 2024, the Commission published aWorking Document with
High Level Specification of EUDR Application Programming Interface
(API) for Operators, which describes functional aspects of the
API. Information System trainings are expected to begin in Q2-Q3
2024, and the system is expected to open for registration in
November 2024.
3. POSSIBLE DELAY IN THE CLASSIFICATION OF COUNTRIES INTO LOW
AND HIGH RISK
In March 2024, reports
4 emerged that the Commission intends to pause the
classification of countries (or parts thereof) into low, standard
or high risk of producing relevant commodities on land plots
deforested after 31 December 2020. The delay is said to be related
to criticism by many developing countries which “have
expressed concerns about the bad reputation associated with a
‘high risk’ label, fearing that it could lead companies to
cease operations in these regions or favour large producers over
small farmers, who may struggle to comply with the new
regulations.”
5 Apparently, companies importing the relevant
products into the European Union started to “scale
back”
6 purchases from smallholders in developing
countries, and “could pull out of ‘high-risk’ areas
because the burden of proving their products did not come from
deforested land was too high, while several have started to favour
supply deals with bigger producers that can afford to deploy
sophisticated geolocation technology.”
7 In this context, some view this delay as a relief
measure for producers in developing countries, giving them more
time to adapt to the EUDR.
8 The fact of the matter is that a possible delay
should not affect the steps that EU operators and traders need to
undertake, leading to the full-fledged application of the EUDR on
30 December 2024.
a. Risk classification and why it matters
Under the EUDR, the scope of due diligence by EU
operators/traders—and the intensity of EU Member States’
enforcement activities—depends on the risk level of the
country of origin of the relevant commodities (or a part of the
country). All countries are to be classified as “high
risk,” “low risk,” or “standard risk” of
producing relevant commodities on land plots deforested after 31
December 2020 (i.e., the risk that relevant products produced from
such commodities do not meet the requirement of being
deforestation-free). Keeping with paragraph 2 of Article 29 of the
EUDR, the Commission shall classify countries, or parts thereof,
that present a low or high risk by implementing acts to be adopted,
in accordance with the examination procedure. This classification
is to be carried out by 30 December 2024. Meanwhile, as of 29 June
2023, all countries have been assigned a default “standard
risk.”
b. Impact of a potential delay on the scope of due
diligence
The EUDR envisages that the scope of due diligence to be
conducted by EU operators and traders depends on the classification
of the countries (or parts thereof) of origin of the relevant
commodities. In particular, simplified due diligence option is
available to EU operators and traders with respect to the relevant
products made of relevant commodities produced/harvested in
countries (or parts thereof) classified as “low risk.” To
conduct simplified due diligence with respect to such products, EU
operators and traders would need to:
(1) collect (a) geolocation of the respective land plots, as
well as (b) adequately conclusive and verifiable information, that
(i) the relevant products are deforestation-free, and that (ii) the
relevant products/commodities have been produced in accordance with
the relevant legislation of the country of production, as well as
other information listed in Article 9;
(2) ascertain that all relevant products/commodities have been
produced in countries (or parts thereof) that were classified as
“low risk” (i.e., verify geolocation, check traceability
and uninterrupted chain of custody) (Article 13(1));
(3) collect and assess evidence demonstrating no or negligible
risk of circumvention and of mixing with products of unknown
origin, or originating in “high risk” or “standard
risk” countries (or parts thereof) (Article 13(1)).
Relevant products made of relevant commodities produced in
countries (or parts thereof) classified as “high risk” or
“standard risk” require a full-fledged due diligence,
encompassing, in addition to the above, risk
assessment, and, where applicable, risk mitigation.
Thus, delay in classification of the countries (or parts
thereof) into “high risk”, “low risk” and
“standard risk” categories will put all countries on
equal footing: all relevant products, irrespective of country of
origin, will need to undergo a full-fledged due diligence (as
products originating from a “standard risk” country)
prior to being placed on the EU market. Hence, a possible delay in
classification of countries will bring little relief to producers
in developing countries and their EU customers: even though the
delay appears to be aimed at ensuring inclusive transition to
sustainable, deforestation-free, and legal supply chains, it
remains the case that—starting 30 December 2024—it will
not be possible to place on the EU market (including via import)
relevant products made of relevant commodities produced/harvested
by producers that can’t provide geolocations of their land
plots, along with other necessary information down the supply
chain. Thus, companies importing relevant products to the European
Union will continue requesting the required data and information
from producers in developing countries, in order to conduct a
full-fledged due diligence with respect to all relevant products
supplied by each particular supplier, regardless of whether the
country of origin is of high risk or not.
c. Impact of the potential delay on the enforcement of
the EUDR
Intensity of EUDR enforcement activities depends on the
risk-based classification of the countries (or parts thereof). The
higher the level of risk, the higher a percentage of operators and
traders that the national competent authorities should check on an
annual basis.
Delay in the classification of the countries (or parts thereof)
into “high risk,” “low risk,” and
“standard risk” will result in one threshold
(“standard risk” country threshold) being applied to all
relevant products, regardless of the country of origin of the
relevant commodities. In such case, annual checks by the national
competent authorities will need to cover at least 3% of the
operators placing or making available on the market or exporting
relevant products. This percentage will need to be met separately
for each of the relevant commodities.
Against this background, a possible delay in the classification
of the countries (or parts thereof) into “high risk,”
“standard risk,” and “low risk” puts all EU
operators and traders on equal footing, in terms of the intensity
of checks to be performed by the national competent authorities.
Namely, the same 3% threshold will apply regardless of the country
of origin of the commodities/products that they place or make
available on the EU market. This translates into a certain relief
for producers from countries that are likely to be classified as
“high risk,” since only 3% of traders and operators
placing or making available on the market or exporting their
relevant products will be checked instead of 9% of operators and
quantities that the EUDR envisages for high-risk countries. At the
same time, however, the lack of classification of some countries as
“low risk” will subject relevant products originating in
those countries to a higher threshold of checks than they would
have otherwise enjoyed (1%).
On that basis—even assuming the European Union will indeed
confirm that it postpones the mandatory 30
December 2024 deadline to classify countries into “high”
and “low” risk categories—operators and traders
placing relevant product in the EU market, as well as their
suppliers, should continue preparing full steam for EUDR
implementation. Any delay in classification of the countries into
risk categories will not negate essential EUDR requirements that
will still have to be fulfilled.
Footnotes
1. See our previous Legal Update on the EUDR, as well as our webinar explaining key
aspects of the EUDR.
2. A screenshot of the EUDR Information System Operator
DDS Input Screen is available in the presentation on the Information
System.
3. Pilot testing feedback is available here.
4. See “EU delays stricter rules on imports from
deforested areas” published by Financial Times;
“Anti-deforestation
delays: EU backtracks on stricter import rules amid international
backlash” published by Food Ingredients First;
and “EU attempts to smooth
South American complaints over deforestation policy”
published by Reuters.
5. See “EU environment chief to address anti-deforestation
law concerns on South America tour” published by
EURACTIV.
6. See “Coffee firms turning away from Africa as EU
deforestation law looms” published by
Reuters.
7. See “EU delays stricter rules on imports from
deforested areas” published by Financial
Times.
8. See “Anti-deforestation
delays: EU backtracks on stricter import rules amid international
backlash” published by Food Ingredients
First.
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