The EU Deforestation-Free Regulation - Obligations, Checks and Sanctions

In force since June 2023, Regulation (EU) 2023/1115 on deforestation-free products, or Deforestation-Free Regulation (“EUDR”) has been introduced to combat the significant environmental and social challenges posed by deforestation.

The Regulation promotes deforestation-free supply chains. By regulating the import and export of specific products linked to deforestation, the Regulation seeks to mitigate biodiversity loss, climate change, and violations of human rights.

The Regulation applies to all?‘operators’ and ‘traders’ (as defined in the Regulation), regardless of size and has the potential to impact all buyers and sellers of?relevant commodities?and derived products as explained in part one of our guide to the EUDR.

Having entered into force in June 2023, the Regulation will take effect for large and medium-sized businesses at the end of 2024, with small businesses needing to comply by the end of 2025.

In part 2 of our EUDR Guide, Commercial Associate Ella Paskett looks at the obligations placed on operators and traders under the Regulation and the sanctions that can result from non-compliance. Obligations are detailed and specific to the size of the business, but if adhered to properly, provide an opportunity to gain strategic advantages.

Obligations

The EU Deforestation Regulation (EUDR) requires companies to meet certain obligations when placing commodities or products on the EU market or exporting them from it.

?Operators must:

1. Produce a due diligence statement to demonstrate that the relevant commodities are

• ‘deforestation-free’; and
• produced in accordance with local production country laws concerning the legal status of the area of production in terms of land use rights, environmental protection, third parties’ rights, labour rights, forest-related regulations, tax, anti-corruption, and relevant trade and customs regulations.

2. Keep information collected for at least 5 years.

SME Traders must:

1. collect and maintain:

• Information on buyers and suppliers
• Reference numbers of the due diligence statements associated with products

2. Keep information for at least 5 years

3. Provide information to competent authorities

?Non-SME Traders must:

1. Meet the obligations of Operators

Companies planning on trading relevant products on the EU market will be required to:

• Collect precise geographical information

-????????? (coordinates) on farmland where the commodities that they source have been grown, ?

-????????? supplier details, and

-????????? adequate/ verifiable information that the commodities are deforestation-free (Article 9).

• Confirm and verify that commodities are produced in line with the relevant legislation of the country of production (Article 9);
• Carry out risk assessments (Article 10);
• Mitigate risks
• Carry out audits/ independent surveys to make sure that there is no risk or only negligible risk that risk commodities are not compliant (Article 11); and
• Establish & maintain due diligence systems, reporting and record-keeping (Article 12)

The Due Diligence Statement

The due diligence statement is an essential part of the obligations of both traders and operators as defined in the Regulation and demonstrates that regulated commodities are both deforestation-free and produced in accordance with local production laws.

What to include in your Due Diligence Statement:

Operators and relevant traders should include the following in their due diligence statements:

• A description of the product
• The operator’s name, address, EORI number
• Harmonised System code, quantity
• The Country of production and the geolocation of all plots of land where the relevant commodities were produced, as well as a date or time range of production
• A signed statement confirming that due diligence was performed and no or negligible risk was found.

The signed statement must be submitted before the product is placed on the EU mark

Checks and Sanctions

The EUDR will be enforced by ‘Competent Authorities’ in the Member States. Competent Authorities, appointed by member states, will be permitted to?conduct checks?on operators and traders established in their territory to ensure they comply with the EUDR (Article 16).?

Importantly, “the competent authorities shall use a risk-based approach to identify the checks to be carried out. Risk criteria shall be identified based on an analysis of risks of non-compliance with this Regulation, taking into account in particular the relevant commodities and the complexity and the length of supply chains” (Article 16).

Checks for operators & non-SME traders and SME traders will be slightly different according to the regulation.

Checks on operators and non-SME traders

According to Article 18 of the Regulation, the checks on operators and non-SME traders can include:

• The examination of a company’s due diligence system and its implementation of it (including documents to prove compliance).
• On-the-ground investigations or use scientific analyses (e.g. DNA analysis or satellite images) carried out by competent authorities to gather more information.

Checks on SME traders

• Checks will normally only cover examination of documents, but could be extended to spot checks, including field audits.

Corrective Action

Article 24 of the Regulation states that Competent Authorities can require Operators to take ‘appropriate and proportionate’ corrective action to rectify any non-compliance. This corrective action will include at least one of the following:

The regulation also requires that the infringing company should also address the shortcomings in its due diligence system that allowed the non-compliance.

Penalties

Article 25 of the Regulation details a number of different penalties for operators and traders that fail to comply with their obligations.

• Fines for non-compliance will be up to 4% of a company’s EU turnover. The fines will be proportionate to the environmental damage and value of the items (if there is repeated infringement, these fines will gradually increase up to the 4% benchmark).
• A temporary prohibition from dealing in the EU in the relevant commodities (for serious or repeated infringements), or a prohibition from using the simplified due diligence process (available to commodities produced in ‘low risk’ areas).
• Temporary exclusion from public procurement processes and access to public funding (for a maximum of 12 months).
• Confiscation of the relevant commodities or of the revenue gained from them.

Obligations under the EUDR will vary depending on the size of your business. You should start by determining whether some or all of your products are captured by the scope of the Regulation. If so, you should gather data for products in scope & inform suppliers about upcoming requirements. Look out for part 3 of our Deforestation-Free Regulation guide which will provide further advice on how to best prepare for implementation.

Our expert Commercial Team is on hand to help you navigate upcoming regulations whether its establishing which of your products may be caught by the scope, understanding your obligations or implementing due diligence processes. Get in touch with us today. ?