EUDR: The European Commission responds to pressure from industry stakeholders
In a Press Release on 2 October 20241, the European Commission (the Commission) announced the publication of additional guidance documents and a stronger international cooperation framework to support global stakeholders, Member States and third countries in their preparations for the implementation of the European Union Deforestation Regulation (EUDR). With less than 3 months to go before the original 30 December 2024 implementation date and in light of widespread calls for delay or revision of the Regulation, the Commission also proposed to postpone by 12 months the application of the EUDR, subject to approval from the European Parliament and the Council. According to a statement issued by the Commission on 16 October 2024, delaying implementation will “give legal certainty, predictability and sufficient time for a smooth and effective implementation of the rules, including fully establishing due diligence systems covering all relevant commodities and products.”
Background – about the EUDR
The EUDR prohibits the placing on the internal market, or export from the EU, of seven forest risk commodities (cocoa, coffee, palm oil, soy, rubber, timber and cattle) and products derived from them (e.g. chocolate and paper) (together, the EUDR Commodities), unless it can be shown that:
- they were not produced on land deforested after 31 December 2020 (the Deforestation Requirement).
- they were produced in compliance with all relevant applicable laws in force in the country of production, including social and environmental laws, human rights and rights of indigenous people (the Legal Requirement).
‘Operators’ and ‘traders’ who make available EUDR Commodities on the EU market or export them from the EU must also submit a due diligence statement addressing three main components:
- Traceability: This requires provision of the geolocation coordinates of the farm or plantation where the EUDR Commodities are produced, along with data relating to Deforestation and Legal Requirements.
- Risk assessment: Companies must verify and analyse the gathered information to evaluate the risk that the EUDR Products are non-compliant. Only EUDR Commodities with no or ‘negligible’ risk of non-compliance can be placed on the EU market or exported.
- Mitigation measures: Companies must adopt adequate risk mitigation measures to achieve no or only a negligible risk of non-compliance.
The Commission will benchmark countries as low, standard or high risk. EUDR Commodities from low-risk countries will require only a simplified due diligence check, whilst those from high-risk countries will face higher levels of scrutiny.
Whilst the EUDR came into force on 29 June 2023, a transitional period was built in before implementation to allow operators and traders to prepare for the additional administrative and logistical burden. The transitional period is due to come to an end on 30 December 2024 (30 June 2025 for SMEs).
Pressure from industry stakeholders
Industry stakeholders have been increasingly vocal in calling for a delay to the implementation of the EUDR, as many anticipate it will be challenging and costly to meet its requirements, particularly for businesses with extensive supply chains. Amongst the voices calling for delays are origin countries (such as Indonesia, Malaysia, Brazil) as well as EU Member States (Austria, Portugal and Germany) and trade organisations such as the European Coffee Federation and the European Cocoa Association.
Those concerned have highlighted potential problems surrounding implementation, including limited guidance from the European Commission and fears that producers in non-EU markets will be excluded from the EU, resulting in market disruption.
Until the Commission finalises benchmarking, all countries will be risk rated as standard. This imposes an additional burden on countries which expect ultimately to be rated low risk. There are also political concerns that producing countries expecting to be rated as high risk may use the World Trade Organisation in their fight against the application of the EUDR.
Recent Developments
Proposed Delay in Implementation
On 2 October 2024 the Commission proposed a 12 month delay to the implementation of the EUDR. This would extend the transitional period until 30 December 2025, while SMEs would have until 30 June 2026 to meet the new requirements. The Commission has highlighted that the extension proposal “in no way puts into question the objectives or substance of the law“. However, it has faced criticism from some organisations2. The general consensus is that the proposal is likely to be approved, although the timing is very tight. On 16 October 2024, the European Council approved the proposed delay. The European Parliament is set to vote on the issue in mid-November 2024.
New Guidance
The Commission has published draft guidance to allay some of the concerns raised (the Guidance). This Guidance is designed to clarify key elements of the Regulation, offering detailed instructions on compliance and best practices. These include:
- New definitions: The Guidance provides clarification on the meaning of certain key terms such as ‘placing/making available on the market’, ‘operator’, ‘negligible risk’ and ‘complexity of supply chain’.
- Legal Requirement: The Guidance stresses the importance of awareness of and adherence to the legislation of the country of production. It also explains how to evidence compliance with the Legal Requirement.
- Scope: The Guidance aims to clear up previous confusion regarding ‘packing / packaging materials’. It confirms that if packagin3 is placed on the market or exported as a product in its own right, rather than as packing for another product, it is covered by the EUDR. The Guidance also explicitly exempts waste and recovered products from the scope of the EUDR.
- Geolocation: Further detail is provided as to how geolocation data should be collected and verified. No mass balance chains of custody are allowed.
- Certification and third party schemes: The Guidance points out that although stakeholders may make use of certification or third party verified schemes as part of their risk assessment procedure, the operator or trader remains liable if it fails to comply with EUDR requirements.
Benchmarking country risk:
On 2 October 2024, the Commission also published general principles on the benchmarking methodology that would be used to assess country risk4. The indication was that “a large majority of countries worldwide will be classified as low risk.” This appears to be intended to reassure countries concerned at the extent of due diligence which may be required as a result of the risk level at which they are assessed.
Updates to FAQs
The European Commission has belatedly published an updated FAQ document5 which incorporates more than 40 additional answers, including an expanded section on penalties faced by those falling foul of the EUDR.
The FAQs explain that the EU Information System, which will be used to submit due diligence statements, will be ready to start accepting registrations in November 2024 and fully operational in December 2024.
HFW Comment
Given the significant impact which the EUDR is set to have on global supply chains, the Commission’s proposed delay to implementation and the provision of Guidance and new FAQs will be welcome news for many of those concerned with EUDR Commodities. However, this does not mean that those affected by the EUDR can breathe easily; unless and until the delay is approved by the European Parliament, the 30 December 2024 deadline remains in place. Even if the delay is approved, a great deal of preparatory work lies ahead and a delayed starting date may mean more stringent audit and enforcement. Commentators are also waiting to see whether the Commission will extend the list of EUDR Commodities to include other products linked to possible forest degradation, such as maize and sugar cane.
For information on how the EUDR will impact Asia Pacific companies, please check out the Commodities bulletin June 2024 – HFW.
Nadja Popovic, Trainee Solicitor, assisted in the preparation of this briefing.
Footnotes
- EU Deforestation Regulation implementation
- Member States agree to 12 months more deforestation | WWF
- HS Code 4819 covers: ‘Cartons, boxes, cases, bags and other packing containers, of paper, paperboard, cellulose wadding or webs of cellulose fibres; box files, letter trays, and similar articles, of paper or paperboard of a kind used in offices, shops or the like’.
- Annex to strat framework.pdf
- Originally due to be published in February 2024 : EUDR-FAQ-October-24.pdf