What does the EUDR intend to do?
The new rules aim to:
- prevent products that Europeans buy, use, and consume from contributing to global deforestation.
- reduce by at least 32 million tonnes a year the carbon emissions caused by the consumption and production of relevant commodities in the EU.
- tackle deforestation that is caused by agricultural expansion, which takes place to produce the commodities that fall under the scope of the regulation.
What is the scope of application?
To understand how the EUDR is applied, it is crucial to define the objective and subjective scopes of application.
Objective Scope
The EUDR applies to an extensive list of products (‘relevant products’) that are made using commodities associated with deforestation (‘relevant commodities’): cattle, cocoa, coffee, palm oil, rubber, soya, and wood. This covers everything from beef and leather to furniture, wood- and paper products, soya flour and soya oil, chocolate, coffee, palm oil and derivatives, and rubber products such as tyres.
Subjective Scope
Companies that are active as an ‘operator’ or ‘trader’ will have to fulfil the EUDR obligations.
- An ‘operator’ is a company that, in the course of its commercial activity, places relevant products on the market or exports them.
- A ‘trader’ is a company that trades goods that have already been placed on the EU market, therefore not products that are place on the market for the first time, and that is not a small or medium-sized enterprise (SME).
What are the obligations?
The EUDR is based on the fundamental principle that it is prohibited to place, sell, or export ‘relevant commodities’ and ‘relevant products’ on the market unless they meet three conditions:
- They do not contribute to deforestation or forest degradation.
- They are produced in accordance with the relevant legislation of the country of production, including laws on environment, land use, forest governance, labour, tax, and human rights.
- They are covered by a due diligence statement.
The due diligence statement is essential for operators and traders to fulfil their obligations. The EUDR therefore also regulates how the due diligence must be carried out, which should lead to a due diligence statement.
- First, the regulation requires the collection of detailed information on the products, the country of production, and even the specific plots of land where the relevant goods are produced. This also includes conclusive and verifiable information indicating that the products are deforestation-free and that the goods are produced in accordance with local legislation.
- Second, based on this information, a risk assessment will be carried out according to a set of criteria: the risk level that the European Commission has assigned to each country (or parts of it), the presence of forests, the prevalence of deforestation or forest degradation in the country (or parts of it), the reliability of the information, the complexity of the supply chain, or the presence of indigenous peoples. This assessment must be carried out at least once a year.
- Third, risk-mitigating measures must be taken to collect additional information, to conduct independent surveys or audits, and/or to adopt other measures in order to be able to support suppliers.
The requirements are simplified if all goods and products come from a low-risk country.
Moreover, it is important to note that the EUDR requires that companies report publicly about their due diligence process every year and store all documentation relating to the due diligence for at least five years.
What about SMEs?
Operators or traders that are SMEs do not have to conduct a due diligence process if that process has already been carried out for products that are placed on the market. In such scenario, the SMEs must obtain and disclose the reference numbers of the due diligence statements. If no due diligence process on their products has been carried out yet, then the SMEs must do that themselves.
What is the European information system?
Companies that fall under the scope of application of the regulation will have to submit their due diligence statements through a European information system. This system will generate a reference number for every filing. This number must therefore be disclosed to (for example) the customs authorities by way of a customs declaration or to SMEs that purchase the products concerned.
This information system is currently at its test phase and should be operational at the end of 2024.
What are the sanctions?
National laws will impose sanctions for non-compliance. The intention is that EUDR violations be punishable by criminal law, but under the EUDR itself, sanctions can consist of:
- fines that are proportionate to the environmental harm and the value of the goods (which will increase incrementally for repeated violations) with a maximum of at least 4% of the turnover for the preceding year and can be increased to a figure that exceeds the value of the potential economic advantage;
- confiscation of the products in question or seizure of the income generated from them;
- temporary exclusion from public tenders and governmental financing; and
- for serious or repeated violations, temporary ban from trading the products in the EU or prohibition from using the simplified due diligence process.
Start preparing now!
Customs authorities in all EU Member States remind all companies that they must satisfy the far-reaching requirements of the EUDR. All companies that fall under the scope of application of the EUDR (and these are businesses from a wide range of sectors) must start preparing themselves now for the EUDR’s impact in terms of how they manage and check their supply chains.
Compliance with the regulation will be strictly monitored, and companies will need large volumes of information (about products and suppliers) to comply with the regulation.
Bearing this in mind, companies must immediately set their priorities: gain insight into the obligations imposed by the EUDR and implement an information collection process with clearly defined roles and responsibilities.
To ensure that your company is fully prepared to face whatever the future brings, you can always call on us and seek our advice.
