EU’s New Deforestation Regulation: showcasing recent insights

EU’s New Deforestation Regulation: Mandatory Due Diligence for Commodities to Prevent Forest Degradation and Legal Violations

1. Introduction to the EUDR and its Framework

European Union Regulation 2023/1115 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010 (EUDR) came into effect on June 29, 2023, and marked a significant step in mitigating the EU market’s contribution to global deforestation and forest degradation. Repealing the EU Timber Regulation (EUTR), the EUDR introduces stringent requirements that reshape the regulatory landscape for commodities linked to deforestation.

While the EUTR will continue to apply to timber products produced before the EUDR’s enforcement date until December 31, 2027, the EUDR governs all other products from its implementation.

The original application date for the EUDR was slated for December 30, 2024, but a subsequent amendment extended the timeline. The new compliance deadlines are December 30, 2025, for large and medium enterprises, and June 30, 2026, for micro and small enterprises. This phased implementation grants businesses time to align their operations with the EUDR’s comprehensive due diligence requirements.

2. Key Obligations and Compliance Areas Under the EUDR

Broad Scope of Covered Products
The EUDR applies to seven primary commodities: cattle, cocoa, coffee, palm oil, rubber, soya, and wood. It also extends to a wide range of derived products listed in the regulation’s annex, such as leather, chocolate, natural rubber goods, pulp, paper, and printed books.

• • Compliance hinges on ensuring that products produced on or after June 29, 2023, are “deforestation-free” and adhere to the EUDR’s strict environmental and social standards.

3. Market Access Linked to Compliance
Starting December 30, 2025, goods covered by the EUDR cannot enter the EU market or be exported without fulfilling the following conditions:

• • Products must be deforestation-free.
  • They must comply with the laws of the production country.
  • A due diligence statement must accompany the goods, affirming minimal risk of non-compliance.

4. Addressing Legal and Illegal Deforestation
The EUDR sets a higher standard by targeting both legal and illegal deforestation.

• • “Deforestation-free” requires that commodities originate from land that has not been converted from forests to agricultural use post-December 31, 2020.
  • Forest degradation, defined as converting primary or regenerating forests into plantations, is also prohibited.

5. Compliance with Local Laws
Production areas must meet local environmental, land use, and social laws, including those protecting labour rights, biodiversity, and indigenous communities’ free, prior, and informed consent (FPIC).

6. Pre-emptive Compliance for Future Obligations
Even though enforcement begins in 2025 and 2026, companies must ensure that production activities initiated today align with EUDR standards. Non-compliance will bar products from entering the EU market.

7. Corporate Responsibility in Supply Chains
The onus of compliance lies with companies introducing products onto the EU market.

• • Firms must upload a due diligence statement to the European Commission’s dedicated system.
  • Non-EU businesses are increasingly required to provide compliance data to support their EU-based customers.

8. Due Diligence Requirements
The EUDR mandates a structured due diligence process that includes:

• • Collecting detailed documentation to demonstrate compliance.
  • Conducting risk assessments, factoring in the country of production’s risk classification.
  • Implementing risk mitigation measures such as audits or capacity-building programmes.

9. Rigorous Inspections by Authorities
National authorities will conduct both random and targeted inspections, with high-risk products subjected to heightened scrutiny. Non-compliance may result in corrective actions, including bans on marketing or exporting products within the EU.

10. Private Sector Accountability
The EUDR empowers third parties to report non-compliance concerns. Operators and traders may face administrative or judicial reviews if violations are substantiated.

11. Significant Penalties for Violations
Non-compliance can result in severe penalties, including:

• Fines of up to 4% of annual EU turnover, with higher penalties for repeated offences.
• Confiscation of products or revenues.
• Exclusion from public contracts or funding.
• In severe cases, bans on marketing or exporting products within the EU.

Common Misconceptions About the EU Deforestation Regulation (EUDR)

Farmers and Tree Harvesting – Contrary to misconceptions, farmers are generally not restricted from cutting and selling trees on their property under the EUDR. Agricultural land is typically outside the regulation’s scope. For areas classified as forest on a farm, harvesting is permissible if the forest remains undisturbed and regrowth is allowed. Farmers face no obligations under the EUDR unless they directly place regulated products on the EU market. The regulation supports sustainable forestry practices, emphasizing responsible land use rather than imposing unnecessary limitations.

Traceability of Commodities – The EUDR does not mandate tracking every individual commodity to its precise origin. Recognizing the complexity of supply chains, the regulation allows for aggregated traceability, where all sourcing areas are collectively reported. This method ensures compliance while accommodating the realities of blending commodities from multiple plots. However, it prohibits the inclusion of non-compliant products or those of unknown origin, maintaining robust standards without overburdening businesses.

Administrative Burden – The EUDR minimizes administrative complexity by providing an efficient online due diligence system. Operators can submit information once and reuse it, with a centralized Information System designed to streamline compliance. Integration with existing company systems further reduces manual input, making the regulation’s requirements more manageable and less time-consuming.

Agroforestry and Sustainable Farming – Environmentally friendly agroforestry and farming practices are compatible with the EUDR and, in fact, encouraged. The regulation classifies agroforestry systems and agricultural plantations, such as palm oil, as “agricultural use,” which falls outside its definition of forests. This flexibility ensures that sustainable agricultural methods are not penalized but promoted under the EUDR framework.

Impact on Supply Chains and Pricing – While there are concerns about supply bottlenecks and rising costs, the EUDR includes measures to mitigate these risks. Transition periods provide businesses, particularly SMEs, with time to adapt. Traceability requirements could streamline supply chains by reducing intermediaries, and geolocation technology is affordable and requires only a one-time setup. Compliance with the EUDR may also position products favourably in a growing market for sustainably sourced goods.

Support for SMEs – The EUDR incorporates provisions to reduce burdens on small and medium enterprises (SMEs). SMEs are exempt from annual reporting and face simplified risk mitigation requirements. Downstream SME traders are not required to duplicate due diligence for products that have already been vetted further up the supply chain. These measures aim to ensure that compliance does not disproportionately impact smaller businesses.

Impact on Smallholders in Developing Countries – Smallholders outside the EU bear no direct legal obligations under the EUDR, as compliance responsibilities lie with operators placing products on the EU market. Smallholders only need to provide geolocation data for their products, which is easily obtained using widely available technology. This requirement could enhance the market position of smallholders and contribute to fairer pricing and better business opportunities, especially with appropriate support measures in place.

Risk Classification System – The EUDR’s risk classification system is based on objective, transparent criteria and applies equally to EU and non-EU countries. High-risk regions may face additional inspections, but there is no outright ban on their products. Instead, the system encourages collaboration with the European Commission to address deforestation’s root causes and reduce risks over time.

Conclusions

The EUDR takes a balanced approach to combating deforestation while fostering sustainable practices. By integrating flexibility for agricultural practices, minimizing administrative burdens, and supporting SMEs and smallholders, the regulation seeks to achieve its environmental objectives without stifling economic activity. Its emphasis on transparency and fair treatment ensures that stakeholders across the supply chain can adapt effectively, making the EUDR a cornerstone in advancing sustainable trade practices globally.

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