The EU’s new Deforestation Regulation aims to tackle global deforestation by prohibiting certain products produced on deforested land from being placed on the EU market. To ensure compliance, economic operators will have to carry out strict due diligence on products they introduce to the EU market. Our Planning & Environment team reviews what this entails.

The EU recognises deforestation and forest degradation as being drivers of global warming and biodiversity loss. ‘Deforestation’ is the conversion of forest to agricultural use. ‘Forest degradation’ is the conversion of natural forestry into plantation forests or into other wooded land or planted forests. It considers these to be the two most important environmental challenges of our time. Under the Paris Agreement and the European Green Deal, the EU committed to slowing the rate of global deforestation. It has identified the EU’s consumption of coffee, cocoa, soya, cattle, oil palm, rubber, and wood (Relevant Commodities) as being a major contributor to the high rate of deforestation.

To achieve its goal, the EU passed the Deforestation Regulation (the Regulation)[1] into law in May 2023. This aims to ensure that the EU only consumes Relevant Commodities and their derivatives which are sustainably sourced by prohibiting the import and export of Relevant Commodities and their derivatives produced from deforested land or degraded forest.

Repeal of EU Timber Regulation

The Regulation entered into force on 29 June 2023. It repeals the EU’s Timber Regulation[2] from 30 December 2024. The Timber Regulation was aimed at tackling illegal logging and associated trade but did not tackle deforestation directly. However, the Timber Regulation will continue to apply until 31 December 2027 to any timber and timber products produced before 29 June 2023 and placed on the EU market from 30 December 2024. For more information on the Timber Regulation, see our recent article.

The Regulation goes much further than the Timber Regulation by expanding the scope of commodities it applies to and prohibiting goods and commodities sourced from deforested lands or degraded forests. For products to be placed on the EU market, third country producers must have complied with their local laws. This will be ensured by requiring EU operators and suppliers to adhere to a strict due diligence process (DD).

Scope

The Regulation applies to Relevant Commodities in their raw state and to certain products listed in Annex I of the Regulation. Annex I products are any products that “contain, have been fed with or have been made using” Relevant Commodities (Relevant Products) and which are produced from deforested land or degraded forest.

The Regulation applies to a broad range of products which includes meat, leather, chocolate, tyres and furniture, plus many more. Broadly speaking, the prohibition applies to such products which have been made using Relevant Commodities produced on land subject to deforestation or forest degradation after 31 December 2020. The Regulation applies to two categories of persons: operators and traders. An operator is someone that places Relevant Commodities or Relevant Products on the EU market, or exports them in the course of commercial activity. A trader is anyone in the supply chain other than an operator who makes Relevant Commodities or Relevant Products available on the EU market.

Requirements

From 30 December 2024, to import and export Relevant Commodities and Relevant Products, operators and traders will have to ensure that the Relevant Commodities and Relevant Products:

• Are ‘deforestation free’
• Have been produced in accordance with relevant legislation of the country of production such as, amongst other prescribed legislation, environmental protection, land use rights, and labour rights
• Are covered by a valid DD statement

The Regulation includes a template DD statement which must be completed by operators and traders. This is to verify that they have carried out the required DD into the source of their products before placing them on the market. The operator must submit the DD statement to the relevant national authority in any State where the goods are made available. If products cannot be verified as being deforestation free, then they cannot be placed on the market or exported.

In carrying out DD, an operator or trader must collect information, documents and data which demonstrate that the Relevant Commodities or Relevant Products are deforestation free and that the third country producers are compliant with their local laws. This includes, amongst other requirements:

• Details of the country of production
• The geolocation of all plots of land from which the Relevant Commodities were produced
• Date and time of production of the Relevant Commodities, and
• Contact information of the producer of the Relevant Commodities

Following the collection of this information, a risk assessment must be carried out to assess whether the Relevant Commodities or Relevant Products are deforestation free. Operators cannot place non-negligible risk commodities or products on the market. In addition, there are record-keeping requirements for operators and traders.

There is however a scale of compliance requirements depending on the size of the trader. Traders that are SMEs will be permitted to rely on due diligence that has been carried out further up the supply chain by larger operators. This means that SMEs may be able to verify its products as being deforestation free if its products are produced from goods which have already been verified by larger operators as being deforestation free. On the other hand, the DD carried out by these larger operators will be subject to greater scrutiny to ensure that DD is robust.

Enforcement

In the event a national authority deems there to be non-compliance, it may take action like:

• Directing that a product be suspended or withdrawn from the market,
• Ordering an operator or trader to rectify any non-compliance,
• Donating products to charitable or other public interest causes, and
• Disposing of products in accordance with waste legislation

The Regulation requires Member States to establish penalties for non-compliance. These must include:

• Fines proportionate to the environmental damage and the value of the Relevant Products or Relevant Commodities concerned
• Confiscation of Relevant Commodities and Relevant Products concerned
• Confiscation of revenues gained from the trade of Relevant Commodities and Relevant Products concerned,
• Temporary exclusion from public procurement processes and from access to public funding, tenders, etc and
• Temporary prohibition from placing Relevant Commodities and Relevant Products on the market

Authorities may also recover the costs of its investigations and prosecutions from any offending parties.

Conclusion

Companies in the supply chain for commodities and products subject to the Deforestation Regulation should be aware of the significant changes to law which will replace the current EU Timber Regulation.

The range of commodities and products is more extensive and applies to certain commodities and derived products produced at deforested locations. In addition to certain timber related products, it now encompasses products like tyres, chocolate and coffee.

Producers must comply with a range of prescriptive legislation when producing the relevant commodities such as labour rights. Such compliance must be identified and managed through stringent due diligence processes. Evidence of compliance will need to be documented in a specific statement and supported by a detailed and robust risk assessment. Without the due diligence statement, the relevant good does not have the passport it requires to be placed on the EU market.

Operators and traders that breach the requirements could be subject to a significant range of penalties including confiscation of revenues gained from the trade of Relevant Commodities and Relevant Products concerned. Operators and traders of the Relevant Commodities and the wide range of Relevant Products should therefore make themselves familiar with the Regulation to ensure they are compliant.

For more information contact a member of our Planning & Environment Team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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[1] Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 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

[2] Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market