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Demystifying the EUDR Regulation: Understanding Its Impact on Commodities and Compliance Requirements

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Discover how the European Union Deforestation Regulation (EUDR) is reshaping the landscape for commodities and the compliance requirements that businesses need to navigate. This informative article breaks down the impact of EUDR on various commodities, addresses common questions, and provides valuable insights for business owners and stakeholders looking to understand and adapt to this new regulatory framework.

What is the EUDR Regulation?

The European Union Deforestation Regulation (EUDR) is a significant legislative initiative aimed at addressing the impact of deforestation and forest degradation on global supply chains. Next to CSRD and CBAM it is one of the key initiatives coming out of the EU's Green Deal.

The Regulation on deforestation-free products, effective as of 29 June 2023, aims to address the expansion of agricultural land linked to the production of commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and their derived products like leather, chocolate, tires, and furniture. The EU, as a major economy and consumer of these commodities, acknowledges its partial responsibility for deforestation and forest degradation and seeks to take a leading role in addressing this issue.

Under this Regulation, any operator or trader placing these commodities on the EU market or exporting from it must demonstrate that the products do not originate from recently deforested land or have contributed to forest degradation.

What is the problem and why is it a problem at EU level?

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Deforestation and forest degradation are rapidly worsening, contributing to climate change and the decline of biodiversity. The primary cause of these issues is the expansion of agricultural land for the production of commodities like cattle, wood, palm oil, soy, cocoa, and coffee.

As the global population continues to grow, the demand for agricultural land is expected to rise, further straining forests. Additionally, shifting climate patterns are projected to impact food production.

Biodiversity loss poses a significant threat to the sustainability of water cycles and food systems, which in turn jeopardizes food security and nutrition. Over 75% of global food crop varieties depend on animal pollination for reproduction. Additionally, genetic diversity and ecosystem services are vital inputs for various industrial sectors, especially for the production of medicines such as antimicrobials. This highlights the crucial role of biodiversity in supporting not only food production but also other essential aspects of human well-being and economic activities.

Overview of the EUDR

The EUDR aims to tackle the issue of deforestation and forest degradation by prohibiting the placing of products linked to deforestation on the EU market. It requires businesses to conduct due diligence to ensure that the products they place on the EU market are not associated with deforestation or forest degradation.

Objectives of the EUDR

The primary objective of the EUDR is to contribute to the global fight against deforestation and promote sustainable development. By regulating the import of certain commodities linked to deforestation, the EU aims to encourage responsible sourcing practices and support sustainable land use.

Scope of the EUDR

The EUDR applies to the following products:

  • cattle, cocoa, coffee, oil palm, rubber, soya, and wood.

It covers not only the direct import of these products but also their inclusion in other goods, such as processed food, animal feed, and biofuels.

Deforestation-free means that products are made in a way that doesn't harm the forests. It also means that any wood used in the products comes from the forest in a way that doesn't hurt the trees or the land.

Compliance Requirements under EUDR

Businesses operating within the EU market must adhere to specific compliance requirements outlined in the EUDR to ensure responsible sourcing and trade practices. Relevant commodities and relevant products shall not be placed or made available on the market or exported unless all the following conditions are fulfilled:

  • they are deforestation-free;
  • they have been produced in accordance with the relevant legislation of the country of production;
  • and they are covered by a due diligence statement.

Understanding due diligence requirements

Under the EUDR, businesses are required to exercise due diligence by implementing measures to identify, prevent, and mitigate the risks of placing products associated with deforestation on the EU market.

Documentation and traceability

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Compliance with the EUDR necessitates comprehensive documentation and traceability of supply chains to provide evidence of sustainable sourcing practices and the absence of deforestation. 

Operators must gather information, documents, and data to prove that relevant products comply with Article 3. This information must be collected, organized, and kept for five years from the date the products are placed on the market or exported. The required information includes:

  • Product Description: A detailed description of the relevant products, including their trade name and type. For products containing or made using wood, the common and full scientific names of the species must be included. The description should list all relevant commodities or products used.
  • Quantity: The amount of the relevant products, expressed in kilograms of net mass and, if applicable, in the supplementary unit defined in Annex I to Council Regulation (EEC) No 2658/87, along with the Harmonized System code.
  • Country of Production: The country, and relevant regions, where the products were produced.
  • Geolocation: The exact locations of all plots of land where the relevant commodities were produced, along with the production date or time range. If different plots were used, include the geolocation for each. Any deforestation or forest degradation on these plots disqualifies the products from being marketed or exported. For cattle products, include all establishments where the cattle were kept.
  • Supplier Information: The name, postal address, and email address of the business or person who supplied the relevant products.
  • Customer Information: The name, postal address, and email address of the business, operator, or trader to whom the products were supplied.
  • Deforestation-Free Evidence: Reliable and verifiable proof that the products are deforestation-free.
  • Legal Compliance Evidence: Reliable and verifiable proof that the commodities were produced in accordance with the relevant legislation of the country of production, including any rights to use the land for production purposes.

Risk Assessment

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Based on the information and documents mentioned above, companies must assess whether there is any risk that the products they want to sell or export do not meet the regulations. Companies can only sell or export the products if their assessment shows there is no risk, or only a very small risk, of non-compliance.

  • Country Risk: Evaluate the risk level of the production country or region.
  • Forest Presence: Check if forests are present in the production area.
  • Indigenous Peoples: Note the presence and involvement of indigenous peoples.
  • Consultation with Indigenous Peoples: Ensure good faith consultation and cooperation.
  • Indigenous Claims: Consider any valid claims by indigenous peoples regarding land use or ownership.
  • Deforestation Prevalence: Assess the rate of deforestation or forest degradation in the production area.
  • Information Reliability: Verify the reliability and validity of collected information.
  • Country Concerns: Consider issues like corruption, document falsification, law enforcement, human rights violations, armed conflict, or sanctions.
  • Supply Chain Complexity: Assess difficulties in tracing products back to their origin.
  • Regulation Circumvention Risk: Be aware of potential attempts to bypass regulations.
  • Expert Group Conclusions: Take into account expert group findings.
  • Non-Compliance History: Look at previous compliance issues in the supply chain.
  • Risk Indicators: Consider any signs that products might not comply with regulations.
  • Supplementary Compliance Information: Use additional info from certification or third-party schemes if it meets regulatory standards.

Risk mitigation

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1. Risk Assessment and Mitigation: 

  • Before selling or exporting products, companies must ensure there's no risk or only a very small risk of non-compliance by using risk mitigation measures

These measures can include:

  • Asking for more information or documents
  • Conducting independent surveys or audits
  • Taking other information-related actions

Measures may also involve helping suppliers, especially smallholders, to comply through training and investment.

2. Risk Management Policies: 

  • Companies should have proper policies, controls, and procedures to handle non-compliance risks.

 These should include:

  • Best practices for risk management, record-keeping, internal control, and appointing a compliance officer for larger operators
  • An independent audit function to check these policies and controls for larger operators

3. Documentation and Review:

  • Companies must document and review their risk mitigation decisions at least once a year and provide this information to authorities upon request. They should be able to explain how these decisions were made.

Penalties for non-compliance

Penalties for non-compliance will be effective, fair, and deterrent. They include fines based on the environmental damage and the value of the products, ensuring those responsible lose any economic benefits, with higher fines for repeat offenses.

Fines for companies can be up to 4% of their total annual turnover.

Penalties also include confiscating the non-compliant products and any related revenues, excluding offenders from public contracts and funding for up to 12 months, banning them from selling or exporting relevant products temporarily, and restricting the use of simplified due diligence for serious or repeated violations.

The role of the The EU single customs window

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The Single Window will improve cooperation and coordination between different authorities and support automatic checks of non-customs formalities for goods entering or leaving the EU. This will be done through a digital solution that allows electronic data exchange between authorities, enabling businesses to complete border formalities in one place within a Member State, thus reducing duplication, time, and costs.

The European Commission proposal reveals that the Single Window concept encompasses multiple platforms operating at various levels. So it is, in fact, not single. The single customs window aims to make information exchange between customs and partner authorities simpler, resulting in significant efficiency gains and time savings for clearing goods. Economic operators will benefit from automated exchanges between authorities and won't need to present physical documents for customs clearance. Customs authorities will be able to verify documents automatically, reducing the time and effort required for document checks. With the automated system available 24/7, standard cases can be cleared even outside of working hours. This single portal will also simplify regulatory requirements and eliminate the need to submit the same information to multiple authorities for the same shipments.

The Deforestation Due Diligence Statement Registry is a website that helps companies to make sure they are not contributing to the cutting down of trees. It will start in November 2024 and everyone can use it in December 2024.

Using the Registry, companies can precisely identify the origins of products and materials by mapping specific areas or providing individual or bulk coordinates. To simplify the process for companies dealing with products from multiple locations, the system offers options for uploading, copying, or reusing location information. Bulk coordinates can be entered in a file using the GeoJSON standard format.

When creating a Due Diligence Statement, the operator selects the product type and specifies characteristics such as quantity and volume. Furthermore, downstream supply chain operators (such as EU traders) can reference previously created Statements, streamlining the due diligence process.

Navigating EUDR for Business Owners

Navigating the EUDR requires proactive measures and strategic approaches to ensure compliance and uphold sustainable trade practices.

  • To ensure compliance, business owners should:
  • Understand the EUDR requirements.
  • Develop processes to meet compliance standards.
  • Use technology for transparency and traceability.
  • Collaborate with supply chain partners.

Common Questions about EUDR

Addressing common questions about the EUDR can provide clarity and guidance for businesses navigating its requirements.

Which companies are affected and from when?

Non-SME market participants and traders have until December 30, 2024, to review their global supply chains and implement the due diligence requirements mandated by the EUDR. SME market participants have an extended deadline until June 30, 2025.

How does EUDR define deforestation?

The EUDR defines deforestation as the conversion of forested areas to non-forested land, typically due to human activities such as agriculture, mining, or infrastructure development.

Are there any exemptions under EUDR?

Small and medium-sized enterprises (SMEs) are required to comply with the regulation by June 30, 2025. Furthermore, it is anticipated that more commodities will be included in the regulation in the future.

How will the EU check the validity of a no-deforestation claim?

EU countries have to make sure that things they sell or send to other countries are from areas where trees are not being cut down too much. They also have to check that these things are made in the right way, following the law. They do this by checking if the statements are true and if the people making or selling the things are following the rules.

Embracing sustainability as a competitive advantage

Embracing sustainability as a competitive advantage can position businesses as leaders in responsible sourcing and trade practices, appealing to conscientious consumers and investors.

In conclusion, the EUDR represents a pivotal development in the global effort to combat deforestation and achieve sustainable development goals. Business owners and stakeholders must proactively engage with the regulation, understand its implications, and adapt their practices to ensure compliance and contribute to sustainable and ethical trade practices. By embracing the principles of the EUDR, businesses can not only meet regulatory requirements but also demonstrate their commitment to environmental stewardship and responsible global trade.

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