Update: EU Regulation on Deforestation-free Products

The Deforestation Regulation has been published in the Official Journal of the European Union and will enter into force on June 29, 2023

Why should I read this?

The Deforestation Regulation has been formally adopted on May 31, 2023 and published in the Official Journal of the European Union on June 9, 2023. It will enter into force on June 29, 2023.

In order to fight climate change and biodiversity loss, the Regulation imposes extensive due diligence obligations on both operators and traders. Non-compliance with those obligations will be subject to severe sanctions, including:

• fines proportionate to the environmental damage and the value of the relevant products (In order to make sure that the fines will be effective and dissuasive, the Member States are not allowed to define a maximum fine below 4 % of the suppliers total annual turnover);
• confiscation of the relevant products and obtained revenues;
• temporary exclusion from public procurement processes and from access to public funding;
• temporary prohibition of commercial activities on the European market regarding the relevant products.

Companies that fall within the scope of the Regulation are therefore well advised to carefully review their due diligence system and make sure that it meets the requirements stipulated by the Regulation.

What should I do?

The Regulation stipulates that certain products must be deforestation-free in order to be placed on or exported from the European market. It applies to any product that contains, has been fed with or has been made using soya, wood, rubber, charcoal, cattle, cocoa, coffee or palm-oil. If your commercial activity concerns any of those products, you should establish and update your internal policies and procedures in order to be able to document compliance with the requirements of the Regulation sooner rather than later.

What obligations do I have under the Regulation?

The specific obligations imposed by the Regulation depend on the size of the company, as there are lower obligations for SME’s.

Under the Regulation, operators and non-SME traders are only allowed to place relevant products on the European market or export them if they provide a due diligence statement confirming that their products are deforestation-free and have been produced in accordance with the relevant legislation of the country of production.

Furthermore, they are obliged to implement and regularly review and update an effective due diligence system containing the following elements:

• collection of information, which requires the operators and traders to gather the relevant information indicating that their products are deforestation-free and produced in accordance with the relevant legislation.
• risk assessment, which requires the operators and traders to verify and analyse the collected information and, on that basis, to identify any risk that the products might be non-compliant.
• risk mitigation, which requires operators and traders to mitigate any detected risk by measures such as carrying out independent surveys or audits or gathering additional information, ensuring that there is no or only a negligent risk of non-compliance.

Simplified due diligence requirements apply to products that have been produced in areas, which have been classified by the Commission as “low risk” areas. In that case, the operators and traders are exempt from the elements of risk assessment and risk mitigation, unless they obtain or are made aware of new information indicating a risk of non-compliance of the relevant product.

Non-SME operators and non-SME traders have to publicly report on their due diligence system on an annual basis.

SME traders are only required to collect and keep information regarding the identity of their supplier or clients and the reference numbers of the due diligence statements associated to their relevant product.

If any operator or trader obtains or is made aware of new information indicating that a relevant product that they have already exported or placed on the European market is at risk of not complying with the Regulation, they are obliged to immediately inform the competent authorities as well as the traders within the EU to whom they supplied the concerned product.

How much time do I have to comply with those obligations?

In general, the obligations come into effect on December 30, 2024.

For operators that are micro- or small undertakings and have been established prior to December 31, 2024 the obligations will only come into effect on June 30, 2025. However, products of wood are exempted from this special provision.

What else do I need to know about the Deforestation Regulation?

The Regulation will be subject to an ongoing review by the European Commission.

In particular, the Commission will decide on an amendment or extension of the scope of the Regulation with regard to the protected ecosystems and the list of covered products (especially with regard to biofuels) by June 30, 2025. Within the same period of time, they will also decide on specific obligations for financial institutions in order to prevent financial flows that contribute to deforestation and forest degradation.

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For more information about the Deforestation Regulation contact:

Sarah Monnerville Smith , Dominique Strieder, LL.M. (Georgetown) , Christopher Shelton or Dr. Sina Wegener

Further reading on the Deforestation Regulation

EU Regulation on Deforestation-free Products