Background on the EUDR

The origins of the EUDR can be traced back to the year 2013 when the EU established the EU Timber Regulation (EUTR). Initially, the EUTR was designed to address the complex challenges associated with illegal timber trade. However, over time, it became evident that the issue of deforestation extended far beyond the boundaries of the timber industry. This recognition led to the introduction of the EU Deforestation Regulation, which built upon the principles and practices established by the Forest Stewardship Council (FSC®) and the Programme for the Endorsement of Forest Certification (PEFC/PAFC). These certifications set demanding criteria, encompassing not only sustainable forestry practices but also community rights, worker safety, environmental protection, and biodiversity conservation. Furthermore, the regulation acknowledges the vital contributions of non-governmental organizations (NGOs), public procurement guides, and certified forest managers in guiding the way toward greater transparency and sustainability. The EUDR extends its focus to a wider array of commodities and products, now including cattle, cocoa, coffee, oil palm, rubber, soya, and wood, along with their derivatives.
 

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Goals of the EUDR

The EUDR is underpinned by three primary objectives. First and foremost, it aims to minimize the EU's contribution to global deforestation and forest degradation. Activities linked to deforestation account for a significant portion of greenhouse gas emissions and biodiversity loss. The EUDR seeks to reduce the risk of products associated with deforestation from reaching the EU market, thereby making a substantial contribution to environmental preservation. Secondly, the regulation strives to stimulate the demand for and trade in "deforestation-free" commodities and products within the EU. This shift in market dynamics towards sustainability is a cornerstone of the EUDR's goals. Lastly, the EUDR endeavors to position the EU as a global leader in the fight against deforestation, solidifying the EU's commitment to protecting the world's forests and the environment.
 

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Which commodities are included in the scope of the regulation?

One of the striking features of the EUDR is the significant broadening of its scope compared to its predecessor, the EUTR. The regulation now encompasses an expanded array of products and derived products:
 

• Cattle -> Leather, Meat

• Cocoa -> Cocoa butter, Chocolate

• Coffee -> Coffee, Coffee substitutes containing coffee

• Palm Oil -> Palm nuts, Palm oil derivatives, Glycerol 

• Rubber -> Pneumatic tyres and inner tubes, Apparel made with vulcanised rubber

• Soya -> Soy beans, Soy-bean flour and oil

• Wood -> Fuel wood, Furniture, Casks, Pulp and paper, Printed books

 

This extension is a recognition of the broad impact that various commodities have on deforestation. Moreover, certain derivatives like leather, chocolate, and furniture also fall under the regulation's purview. The EUDR imposes stringent criteria and requirements for these commodities and their derivatives, ensuring that products purchased, used, and consumed within the EU are sourced responsibly, without contributing to environmental destruction.

The regulation applies to goods produced on or after 29 June 2023 (except for timber and timber products, which are covered if produced before that date and placed on the EU market from 31 December 2027). However, recycled goods (produced entirely from material that would have been discarded as waste) are exempt from the strict regulations.
 

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How does the EU Deforestation Regulation Due Diligence Process Work?

At the heart of the EUDR's compliance mechanism is a rigorous due diligence process. Companies must implement this process to prevent products linked to deforestation from entering the EU market. For large companies this needs to be implemented from 30 December 2024 onward and Small and Medium-sized Enterprises (SMEs) are required to comply till 30 June 2025. The due diligence process consists of three fundamental steps:

1) Information Collection: Companies are tasked with collecting comprehensive information about commodities and products, including a detailed description, country of production, and geographical coordinates of where the commodities were grown. This information forms the foundation of transparency and traceability. Any commodity or product lacking these details is prohibited from placement on or export from the EU market.

2) Risk Assessment: The collected information is used to conduct a risk assessment, involving the verification of compliance and an evaluation of non-compliance risks. The process employs criteria defined by the regulation and determines the extent of risk. This risk assessment process is also documented in the due diligence statement.

3) Risk Mitigation: In cases where significant risks of non-compliance are identified during the risk assessment, companies are required to implement risk mitigation measures. These measures are carefully considered, taking into account criteria outlined by the EUDR. Furthermore, these risk mitigation efforts are also documented in the due diligence statement.

After fulfilling these due diligence, risk assessment, and risk mitigation obligations, companies must submit a statement to an Information System to confirm that they have successfully conducted due diligence and that the products they place on the market comply with the EUDR's rules.
 

How is the EUDR enforced

The enforcement of the EUDR is a pivotal aspect of its effectiveness. Enforcing authorities are tasked with closely monitoring the activities of companies falling under the regulation's scope, ensuring they are held accountable for noncompliance. Companies must submit a due diligence statement containing essential information for monitoring compliance, including geographical coordinates. This strict traceability allows enforcement authorities to verify the validity of sustainable sourcing. While the EUDR came into force in June 2023, companies are granted a grace period to adapt to the new rules and due diligence process. The standard deadline for compliance is set for December 30th, 2024. Micro and small enterprises (SMEs), recognizing their varying capacities and resources, are granted an extended grace period, with their compliance deadline extending until June 30th, 2025.
 

What are the consequences of non-compliance?

Generally the penalties for non-compliance may include:

• Fines in relation to the environmental damage or value of the items, gradually increasing with repeated infringements: The maximum fine is at least 4% of Union turnover in the prior year and can be increased to exceed the economic benefit

• Confiscation of the products or the revenues generated by the activity

• Temporary exclusion from public procurement processes and funding

• Temporary prohibition from selling respective products in the EU or requirement for a more detailed due diligence process

 

Outlook

In conclusion, the European Union Deforestation Regulation (EUDR) is a multifaceted initiative designed to combat deforestation and its profound consequences. By expanding its scope, promoting sustainability, and enforcing strict due diligence and compliance measures, the EUDR paves the way for a more sustainable and forest-friendly future. As it positions itself as a global leader in the fight against deforestation, the EU demonstrates its commitment to safeguarding the world's forests and the environment for generations to come.

Stay tuned for upcoming segments where we explore the impact of the EUDR on different industries and delve into the steps that operators and traders must navigate to meet its stringent requirements.