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Anti Deforestation Regulation guidance [ENG]

Anti Deforestation Regulation guidance: commentary on Regulation (EU) No. 2023/1115 of the European parliament and of the Council on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No. 995/2010 (‘EUDR’).

The Regulation entered into force on 29 June 2023 (‘date of entry into force‘) but, as usual, we will update this guide with future Commission implementing regulations, guidelines, etc.

 

The Anti Deforestation Regulation at a glance

The EUDR requires all operators importing, exporting and trading cattle, cocoa, coffee, oil palm, rubber, soya as well as wood and related products (e.g., meat, furniture, wood packaging, chocolate, etc.) into/from the EU to verify, with due diligence (“due diligence”), that these goods originate from regions where no deforestation or forest degradation has occurred after 31 December 2020 and that the rights of landowners, workers and local populations (including indigenous peoples) in the country of origin or production are guaranteed. To fulfil this duty, responsible operators must implement an appropriate risk management and compliance assurance system. Simplified burdens are foreseen for micro, small and medium-sized enterprises.

In the case of countries/regions or origin/provenance assessed as low-risk by the European Commission, ‘simplified’ due diligence is required, i.e., only data on the origin/processing of goods must be collected and the supply chain must be monitored (e.g., product traceability), without risk assessment.

If the outcome of the due diligence is positive, in the sense that the risk of deforestation, forest degradation and illegality is negligible, traders will have to notify a ‘due diligence statement’ to a centralised system; the statement, by the way, is required for the customs clearance of goods.

Lastly, operators must publicly report once a year on the due diligence process and its results.

 

5 tips to prepare for the Anti Deforestation Regulation

If you bring cattle, cocoa, coffee, oil palm, rubber, soya, wood and derived products to or from the EU market, you should consider preparing your organisation to comply with the new Anti Deforestation Regulation. In particular, you should:

  1. analyse the goods handled by your company and assess whether you may fall within the scope of the EUDR
  2. start setting up an internal due diligence system, providing human and financial resources
  3. establish internal protocols/procedures to
    • obtain a constant flow of data
    • record such data
    • analyse and evaluate such data
    • establish compliance and risk management plans where a non-negligible risk of non-compliance is detected
  4. adapt your corporate communication in line with the objectives of the Regulation; you might also consider advertising your compliance with the EUDR in advance, as a marketing lever for consumers
  5. discuss early implementation of the EUDR with your suppliers, working with them on possible solutions (e.g., start looking for alternative sourcing countries, if the current ones can be considered at high risk of deforestation or illegality).

 

Date of application and transitional period [Articles 37 e 38]

The most relevant provisions, including those on due diligence obligations, will be applicable 18 months after the entry into force of the Regulation (‘date of application‘, i.e., 30 December 2024). For micro and small enterprises, this period is 24 months (30 June 2025, ‘extended application date‘), unless they place on the market wood and wood products as listed in the Annex to Regulation (EU) No. 995/2010.

Furthermore, the aforementioned Regulation (EU) No. 995/2010 is repealed from the date of application of the Anti Deforestation Regulation, since it is, in fact, redundant.

Also regarding wood and wood-derived products, transitional measures have also been provided for, whereby the new obligations of the EUDR do not apply to products manufactured before the Regulation came into force (29 June 2023) and placed on the EU market by 31 December 2027.

In general, the EUDR does not apply to products manufactured before 29 June 2023.

 

Relevant commodities and products [Article 1]

The EUDR applies to the placing (i.e., first introduction) and making available (i.e., any act of supply) on the market of the European Union, as well as to exports from that market, of products listed in Annex I (“relevant products“), which contain, have been fed with or have been made using the following “relevant commodities“:

  • cattle, cocoa, coffee, oil palm, rubber, soya and wood.

In this article, we will refer collectively to the activities of placing and making available in and exporting from the EU as ‘marketing’.

Within 2 years after the entry into force of the Regulation, the European Commission (‘EC’) may adopt delegated acts to amend Annex I, to include or exclude certain products and to extend the scope of the Regulation to natural ecosystems other than forests.

 

Relevant operators [Articles 2 and 7]

The Anti Deforestation Regulation applies to two categories of entities:

  • EU-based operators [Article 2(15)]: any natural or legal person who, in the course of a commercial activity, places relevant products on the market or exports them;
  • EU-based trader [Article 2(17)]: any natural or legal person other than the operator who, in the course of a commercial activity, makes relevant products available on the market.

Where a natural or legal person is established in a third country, the obligations set out in the EUDR apply to the EU importer.

Compliant products [Article 3]

According to the Anti Deforestation Regulation, only relevant products that are ‘deforestation-free’, ‘illegality-free’ and covered by a due diligence statement may be marketed, aonce the latter has been notified to the information system [Articles 4(2) and 33]. Products that do not comply with the EUDR, or for which the risk assessment of deforestation, forest degradation or illegality cannot be conducted or concluded (e.g., because there is no information on the local legislation of the country of production), must not be marketed [Article 4(4)].

Deforestation-free

The concept of ‘deforestation-free’ actually covers two different phenomena:

  • deforestation, i.e., the conversion, even if not induced by human activities, of forests (of all types, natural or even planted) to agricultural use
  • forest degradation, which occurs when essentially natural forests are intensively exploited for timber harvesting to such an extent that human activities are clearly tangible. Note that the conversion of ‘naturally regenerated forest’ (forests with a mix of naturally regenerated native tree species and planted trees, where naturally regenerated trees are predominant) to ‘planted forest’ (where planted trees are predominant) is not considered forest degradation, provided that the forest is not ‘intensively managed’.

Deforestation and forest degradation are only relevant for the EUDR if these phenomena have started to occur after the cut-off date, i.e., 31 December 2020.

Illegality-free

‘Illegality-free’ [Article 2(40)] means compliance with all relevant legislation of the country of production of the relevant commodities, taking into account all applicable rules, from property rights to the protection of the environment and workers’ rights. Among other things, the regulation explicitly refers to the free, prior and informed consent of indigenous peoples.
Timber products covered by a valid FLEGT licence [Council Regulation (EC) No. 2173/2005] are considered to comply with the legality requirements [Article 10(3)].

Benchmarking system [Article 27]

Based on a transparent assessment, the European Commission will classify countries or their regions into low, standard, or high risk of deforestation or forest degradation (benchmarking system) within six months of the entry into force of the EUDR (note that the benchmarking system does not cover the risk of illicit activities). On the date of entry into force of the regulation, all countries will automatically be classified as standard risk.

One of the most interesting aspects is the EC’s cooperation with third countries not only when communicating the benchmark assigned to them, but also on a regular basis to help them achieve better results in combating deforestation and forest degradation.

As explained below, operators will benefit from reduced obligations when the relevant commodities concerned are produced in low-risk countries/regions (i.e., ‘simplified due diligence’), whereas more frequent and strengthened controls by national competent authorities will be in place in the case of high-risk countries/regions.

Due diligence [Article 8]

Operators must implement a due diligence process to prove that the products concerned are (i) ‘deforestation-free’ and (ii) ‘illegality-free’. This process comprises:

  1. gathering relevant information on production countries/regions
  2. carrying out a risk assessment regarding the deforestation, forest degradation and illict activities
  3. if the risk is significant, when possible, mitigation measures must be taken to reduce the risk to a negligible level
  4. where the risk of non-compliance is non-existent or negligible (either originally, or as a result of mitigation measures), issuing the due diligence statement.

Operators must retain all due diligence documentation for at least five years.

In addition, operators must confirm to their customers that they have fulfilled their due diligence obligations and provide them with the reference number of the due diligence statement, once notified to the information system.

Simplified due diligence [Article 12]

If the countries of production are among those classified by the EC as low risk, operators are only required to perform a ‘simplified due diligence’.

‘Simplified due diligence’ means that operators are still required to gather information on the Countries/region of production, but do not have to carry out the risk assessment and put in place risk mitigation measures, provided that they can demostrate that there is only a negligible risk of circumvention or mixing with products of unknown origin or originating in high or standard risk countries/regions. In other words, the due diligence statement may be based simply on the fact that the country of production is classified as low-risk and that the supply chain was actually controlled.

Gathering information [Article 9]

Operators must collect evidence (i.e., adequate and verifiable information) that leads to the conclusion that the relevant products concerned comply with the requirements of the Anti Deforestation Regulation (i.e., ‘deforestation-free’ and ‘illegality-free’).

The information basically concerns the type and quantity of product (with a list of raw materials used to produce it), the country/region of production and the identification of suppliers and customers. The most important information is probably the geolocation of the plots of land where the commodities that the relevant product contains, or has been made using, were produced (or the establishments where the cattle were reared), which is a key element of the whole traceability system. In this respect, an important tool is provided by the Union’s space programme (EGNOS/Galileo and Copernicus).

All information and data must be kept for at least 5 years after marketing.

Risk assessment [Article 10]

Once all relevant information has been gathered, the operator must assess the risk of deforestation and violation of relevant legislation in the countries/regions where the relevant commodities/products were grown/produced.

Operators must not only assess their own supply chains, but also consider the risk of compliant products being mixed with non-compliant products or products of unknown/uncertain origin. In general, the assessment should be conducted with an integral approach, considering the natural, social, commercial and political aspects of the regions involved, as well as historical data on deforestation, forest degradation, violation of relevant local legislation, etc. [see the “risk assessment criteria,” Article 10(2)].

Only when operators conclude that the risk of non-compliance is non-existent or negligible [i.e., when there is no reasonable cause for concern – Article 2(26)] may they proceed to market the relevant products concerned.

Copy-paste risk assessments are not tolerated. Rather, the EUDR requires that operators must always be able to demonstrate how they analysed the information and why they determined a certain degree of risk (thus the process must be documented). Operators must review their risk assessments at least once a year and must notify competent authorities of any new information indicating that products already on the market are non-compliant.

Third-party certification schemes can be used in the risk assessment process but cannot replace it (within five years after entry into force, the EC may propose to recognise certain certification schemes).

The result of this risk assessment, when unfavourable, determines, the need to carry out mitigation measures whenever possible (or, if not, the waiver of marketing); when favourable, it allows the issue of the “due diligence statement.”

Risk  mitigation [Article 11]

If the risk of non-compliance with the EUDR is ‘non-negligible’, operators who are nevertheless interested in marketing the affected products must implement measures that reduce the risk to a negligible level. This could mean gathering additional information or conducting independent investigations or audits at production sites and supporting local suppliers, especially smallholders, through investments. The mitigation measures implemented must be documented and reviewed at least annually.

Due diligence statement [Article 4(2) (4) and Annex II]

Where the risk of non-compliance is negligible (also as a result of the mitigation measures put in place), the operator may issue the “due diligence statement” to confirm his risk assessment. The mandatory information is provided in Annex II of the EUDR.

Once finalised, the document must be submitted to the information system [Article 33] before the relevant product concerned is marketed and must be kept for at least 5 years [Article 4(3)]. In addition, the reference number of the due diligence statement must be made available to the customs authorities prior to the release of the product in question for free circulation in the EU or its export from the common market [Article 26(4)].

Interestingly, it is possible [Article 6] to appoint an authorised representative to take care of the drafting and digital transmission of the due diligence statement. An operator that is a natural person or a micro-enterprise may ask the next operator or trader down the supply chain that is not a natural person or a micro-enterprise to act as its authorised representative.

 

Simplifications for small and medium-sized enterprises [Articles 4(8) and 5]

With the aim of not increasing the burden on SMEs, the Anti Deforestation Regulation stipulates that SMEs operators (as defined in Directive 2013/34/EU) are not required to perform due diligence on products (or parts thereof) that are already covered by a due diligence statement notified to the information system by their suppliers (on non-covered parts, however, due diligence must always be carried out). This is however a considerable simplification, considering that other operators not qualifying as SMEs must always perform their own due diligence (obviously also taking advantage of the due diligence of their suppliers) and issue the relevant statement. In any event, all operators bear full responsibility for the compliance of the marketed products, which means that the reference to a previous due diligence declaration would not be valid as an exemption from liability.

Another simplification concerns SME traders, who are only required to keep records of suppliers and customers and due diligence statements related to the traded products for at least five years. In contrast, traders who do not qualify as SMEs are treated equally to all other operators.

In any case, operators and traders, regardless of whether they are SMEs or not, are always obliged to inform the competent authority if they become aware of a case of non-compliance and to offer the authority their assistance.

 

Management system and reporting obligation [Articles 11(2) and 12]

Operators must ensure that all their duties can be fulfilled systematically. To that end, they must:

  • organise a due diligence system, to be reviewed at least annually [Article 12]
    • in addition, non-SME operators must provide, also on the web, an annual public report on this due diligence system (public reporting obligation)
  • organise a risk management and compliance system with monitoring and intervention procedures to effectively mitigate and manage risks of non-compliance [Article 11(2)]
    • in addition, non-SMEs must appoint a compliance officer at management level and implement an independent audit function on this risk and compliance system.

 

Record keeping and annual reviews

Operators must record the following information/data for at least 5 years:

  • due diligence related documentation
  • due diligence system updates
  • all information collected for risk assessment
  • due diligence statements submitted to the information system
  • data on suppliers and customers and reference numbers of due diligence statements associated with traded goods (for SME traders).

Operators must update and review at least once a year

  • their risk assessment on each products
  • their risk mitigation measures
  • their due diligence system.

 

Operators’ duties in case of non-compliance

When an operator becomes aware (including through “substantiated concerns”) that a marketed product is non-compliant, he must immediately

  • inform the competent authority of the country where the product was marketed (as well as the traders to whom he has supplied the product concerned) [Article 4(5)];
  • withdraw/recall the product and take any other corrective action (either spontaneously or at the request of the competent authority) [Article 24].

 

Authority Controls [Articles 14-16]

Controls are carried out by the authorities of the Member States. Special provisions are made for customs, which are called upon to control products entering or leaving the EU market [Article 26]. Controls are generally document-based but, where appropriate, may include laboratory analyses, on-the-spot inspections, etc. [Article 18(2)]. For SME traders, controls are simplified.

There are two main types of controls: those triggered by specific information on non-compliance and those based on annual national control plans. In the latter case, the priority and frequency of controls will be based on risk assessment of the relevant commodities and products, the complexity and length of supply chains, and the risk of circumventing the regulation or mixing low-risk commodities or products with higher-risk ones.

The EC’s benchmarking system is also relevant. In fact, competent authorities must ensure that checks carried out on an annual basis cover at least 9% of operators marketing relevant products that contain or were manufactured using relevant commodities originating/produced in a high-risk region and 9% of each of these products. If the production region is classified as standard risk, on the other hand, controls may be limited to 3% of operators, and if it is low risk only 1% (without a minimum quantity of product).

Interim Measures [Articles 17 and 23]

When the enforcement authority finds products with a high risk of non-compliance, it must take immediate provisional measures, such as suspending the marketing of those products (if necessary, in cooperation with customs) or seizing them. Provisional measures automatically cease after 3 working days (or 72 hours for perishable products) from the moment the risk was registered in the information system, unless the authority expressly requests an extension and justifies the need for it.

If non-compliance is established, the authority must require the operator or trader to take all appropriate and proportionate corrective measures to end the non-compliance, including withdrawal or recall of the products concerned [Article 24]. In case of inaction or persistent non-compliance, the authority may act directly.

 

Penalties [Article 25]

Penalties will be determined by national laws on the basis of the principles set out in the Anti Deforestation Regulation. Fines, for example, must be proportionate to the annual EU turnover of operators (the maximum amount of these penalties must be at least 4 % of the turnover) and commensurate with the environmental damage and the value of the products involved, so as to be truly effective and dissuasive.

Furthermore, Member States must provide for the confiscation of non-compliant products and related revenues, as well as temporary exclusion from access to public funding, contracts, grants and concessions.

 

Substantiated concern [Article 31] and access to justice [Article 32]

Any person (natural or legal) has the right to submit to the competent authorities ‘substantiated concerns‘ about non-compliant products they become aware of.

The term ‘substantiated concerns’ means that the information provided by the interested party must be objective and verifiable, to the extent that it requires the intervention of the competent authority [Article 2(31)]. If the information is brought to the attention of operators (the rule also applies to SME traders), they must inform the competent authority. Within 30 days of receiving a substantiated concern, the authority must inform the person who filed the concern of its decision and the reasons for it.

Access to justice is, of course, granted to anyone who has a sufficient interest in a decision or the absence of a decision by the competent authority, including the person who made a substantiated concern.