EUDR – What Is the Deforestation Regulation About?
At the end of December, the EUDR regulation on deforestation will come into force. Initially, it will apply only to large and medium-sized enterprises, but over time its scope will also cover smaller companies. What changes should businesses prepare for? What does the deforestation regulation change?
EUDR – What Is It and What Is Its Purpose?
Regulation (EU) 2023/1115 of the European Parliament and of the Council 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 is part of the European Union’s strategy aimed at reducing greenhouse gas emissions and protecting biodiversity. Environmentalists argue that human activities focused on the large-scale extraction of raw materials such as timber, cocoa, palm oil, and coffee significantly contribute to environmental degradation.
EUDR Regulation – Where Did It Come From?
The EUDR regulation was published on June 23, 2023. Through these regulations, the European Union seeks to limit the impact of member states on deforestation. Once the new rules come into force, every entity placing specific goods on the EU market or exporting them from the EU will have to prove that the goods do not originate from land that has recently been deforested and that their production did not contribute to forest degradation.
The main objectives of the EUDR include:
- minimizing the EU’s impact on deforestation and forest degradation worldwide, thereby contributing to reducing global deforestation,
- reducing the EU’s contribution to greenhouse gas emissions and global biodiversity loss.
EUDR – The Anti-Deforestation Regulation in Practice
The new EU regulations apply only to specific categories of goods listed in Annex I. Although the catalog may appear relatively narrow, consisting of only seven categories, each category contains numerous subcategories.
For example, the category of timber includes firewood, charcoal, railway sleepers, veneer sheets, and fiberboard. Rubber includes not only natural rubber, but also pneumatic tires, conveyor belts, and profiles.
In practice, this means that the EUDR will affect many sectors of the market, and numerous businesses will need to adapt to the new regulations. Collectively, all of the listed goods are referred to as “relevant commodities and products.” There is a general prohibition on placing them on the market or exporting them unless the company can demonstrate all of the following conditions simultaneously:
- the goods or products are deforestation-free,
- they were produced in accordance with the applicable laws of the country of production,
- a due diligence statement has been submitted for them.
- These extensive restrictions mean that businesses trading in sensitive goods must take on additional responsibilities.
An additional complication is that the catalog of relevant commodities and products may change in the future. This could require companies to adapt their business models to new requirements.
EUDR Regulation – Who Does It Apply To and What Obligations Does It Impose?
The anti-deforestation regulation introduces two categories of entities: operators and traders. In both cases, the status may apply to natural persons, legal entities, or organizational units. The condition is that, within the scope of their commercial activities, they place, export, or make relevant products available on the market.
An operator may be, for example, a manufacturer, importer, or exporter. A trader is any other entity within the supply chain.
The obligations arising from the EUDR can be divided into three main groups:
Documentation Obligations
The first group of obligations concerns collecting evidence (e.g., documents) confirming that products are deforestation-free and produced in compliance with local regulations.
Compliance Obligations
An important obligation for businesses is exercising due diligence to ensure compliance with EUDR provisions. To achieve this, companies must develop procedures allowing them to verify the origin of goods so that submitted statements are truthful. Due diligence statements must be retained for five years. In certain cases, simplified due diligence may apply.
Risk Management
Risk management procedures under the EUDR are aimed at minimizing the risk of legal violations through the creation of internal control processes.
One may ask what information businesses subject to the EUDR must collect. The answer can be found in Article 9 of the regulation, according to which the following documents and evidence must be retained for five years from the date the relevant products are placed on the market or exported:
- a description, including the trade name and type of relevant products,
- the quantity of the relevant products,
- the country of production,
- the geolocation of all plots of land where the relevant commodities contained in the product were produced or from which they were made,
- the name, postal address, and email address of every business or person from whom the products were supplied,
- the name, postal address, and email address of every business, operator, or trader to whom the products were supplied,
- conclusive and verifiable information demonstrating that the products are deforestation-free,
- conclusive and verifiable information demonstrating that the commodities were produced in accordance with applicable local laws.
What Are the Consequences of Non-Compliance with the EUDR?
Violating the provisions of the anti-deforestation regulation carries the risk of severe sanctions referred to in Article 25 of the EUDR. In particular, the competent authority has the right to impose fines amounting to at least 4% of the total annual EU-wide turnover achieved by the operator or trader in the financial year preceding the penalty decision.
Additionally, authorities may impose measures such as:
- confiscation of the relevant products,
- confiscation of revenues gained from transactions involving the relevant products,
- temporary exclusion for up to 12 months from public procurement procedures and access to public funding, including tenders, grants, and concessions,
- prohibition on using simplified due diligence procedures.
Will the EUDR Help Reduce Deforestation?
It is still too early to assess the effects of the EUDR coming into force, but it can already be said that the effectiveness of the regulation will largely depend on how efficiently the new rules are enforced. Businesses trading in relevant commodities should expect random documentation inspections. Over time, generally accepted formal standards demonstrating compliance with the regulation will likely emerge.
It is also worth mentioning that the regulation provides for the possibility of submitting so-called “substantiated concerns” by other market participants. Such concerns effectively oblige the competent authority to conduct an inspection.
Assuming that member states genuinely monitor companies’ activities for compliance with anti-deforestation regulations, it can be expected that these measures will help reduce environmental degradation and excessive exploitation of natural resources in favor of renewable energy sources.
If you are already wondering how your company can begin its green transformation, contact us. At REO.pl, we plan green revolutions for businesses and help protect our planet!
