In this article, Simon Edwards and Kasia Reda look at rules being imposed under the new EU deforestation regulation which are now set to apply from the end of 2025..
What is it?
With the aim of helping to tackle global deforestation, the EU has introduced the EU Deforestation-free Products Regulation 2023 (2023/1115) (EUDPR), which is set to restrict the sale of certain products in the EU unless they are "deforestation-free." The new rules imposed by the EUDPR mean that businesses wishing to import and place such products on the EU market will be subject to new mandatory supply chain due diligence and monitoring requirements.
When?
Originally set to apply from 30 December 2024 to applicable commodities and products produced on or after 29 June 2023, the European Parliament approved a proposal in November 2024 to delay the application of the EUDPR to 30 December 2025 for large companies, and 30 June 2026 for micro and small companies.
Will it affect your business?
The EUDPR applies to cattle, cocoa, coffee, oil palm, rubber, soya and wood, and to any products that contain, have been fed with, or have been made using, one of these seven commodities.
This understandably covers a very broad range of products including meat products, leather, chocolate, coffee, palm nuts, palm oil derivatives, glycerol, natural rubber products, soybeans, soy-bean flour and oil, fuel wood, wood products, pulp and paper, and printed books, so the EUDPR is likely to affect a large number of businesses, particularly those operating in the hospitality, food and beverage and retail sectors in the EU. Businesses will therefore need to carefully assess if products they currently supply are covered by referring to the list set out in Annex 1 of the EUDPR.
The EUDPR does not however apply to recycled relevant commodities or relevant products. This means it does not cover goods that are produced entirely from material that has completed its lifecycle and would otherwise have been discarded as waste.
What will compliance entail?
Businesses will not be permitted to place products on the EU market, or export them from the EU, unless those products are:
- "Deforestation free": this means that if the products contain, have been fed with, or have been made using, the relevant seven commodities, the commodities must have been produced on land that has not been subject to deforestation (whether legal or illegal in the country of production) after 31 December 2020. For relevant products containing or made using wood, this also means that the wood has been harvested from the forest without inducing forest degradation after 31 December 2020.
- Produced in accordance with the relevant legislation of the country of production
- Covered by due a diligence statement: the products must be covered by a due diligence statement confirming that the business has carried out due diligence in accordance with the EUPDR and that they have found "no or negligible risk" of non-compliance with the above two requirements. Businesses will need to establish due diligence systems for carrying out the required due diligence, keep them up to date, and review them and report on them annually, publicising the report as widely as possible. The detailed due diligence exercise will need to be composed of the following:
- Collection of information: gathering information to demonstrate that products comply. This includes information about the product, the commodity, the supplier and country of production (including geographic co-ordinates for strict traceability).
- Risk assessment measures: verifying and analysing the information to evaluate the risk of relevant products being non-compliant. The EUDPR sets out the criteria that the risk assessment should take into account.
- Risk mitigation measures: taking adequate and proportionate mitigation measures in the event that the risk assessment identifies more than a negligible risk of non-compliance with such measures ensuring that any identified risk becomes negligible.
The European Commission has published a detailed guidance note which sets out, alongside guidance on other aspects of the EUDPR, helpful information on what to look out for when carrying out the required due diligence exercise. The guidance note is available here.
How should you be preparing?
Although the delay in application of the EUDPR until the end of 2025 provides some leeway in ensuring your business is compliant on time, businesses should begin taking certain steps now to guarantee they are able to effectively meet the requirements when the deadline hits. We recommend starting now to:
- collect information (given that the rules also apply to products that have already or are currently being produced);
- map current supply chains; and
- conduct internal audits of existing due diligence processes to check if they require any changes.
What happens if your business is not compliant?
Penalties for non-compliance may vary between Member States, however they will include:
- A maximum fine of at least 4% of a business' total annual EU-wide turnover in the preceding financial year.
- Confiscation of the relevant products or revenues from the business.
- Temporary exclusion from public procurement processes and from access to public funding, for a maximum of 12 months.
- Temporary prohibition from placing or making available on the market or exporting relevant commodities and relevant products (if infringements are serious or repeated).
It should also be noted that individuals and private organisations will be able to submit complaints to the relevant authority if they consider that a business is in breach of the EUDPR.
What if your business supplies solely in the UK?
If your business only sells the above-mentioned affected products in the UK, and not in the EU (and does not export them from the EU), it will not fall within the scope of the EUDPR. However, you should keep in mind that the UK is currently developing its own similar deforestation regime. Although it is not clear exactly when this is expected to come into force, it would be practical to start taking the initial preparation steps set out above so that your business is not caught out when the UK rules do kick in.
Further amendments?
The EU Parliament has further proposed to create a new “no risk” country category (countries with stable or increasing forest area development on deforestation) in addition to the existing categories of "low", "standard" and "high" risk countries. This proposal has been strongly opposed by several EU member states who have argued that "no risk" countries would face less strict requirements which would severely impact traceability for products sourced from such countries. It is argued that this would effectively create a way to circumvent the traceability requirements and undermine the core due diligence obligations of the EUDPR. We will have to wait and see if this amendment makes it into the regulation. In the meantime, businesses should start doing what they can to anticipate and prepare for the EUDPR requirements.
