EUDR: Inside the guidance
Last week, the European Commission (EC) advised a delay by 12 months to the European Union Deforestation Regulation (EUDR). If approved by the European Parliament, it would mean that the legislation will now be applicable from 30 December 2025 for large companies, and 30 June 2026 for micro and small enterprises.
This comes after mounting pressure from industry to postpone the regulation, which imposes heavy compliance costs on businesses, which are required to implement traceability through often complex supply chains.
On the same day, the EC released a guidance document to aid compliance to the regulation. This document aimed to clarify some of the regulation’s main elements. We summarise the key points below.
What is a forest?
The definition of a forest used by the EUDR includes an area of trees that is more than 0.5 hectares in size, with a canopy cover of more than 10% and the trees reaching an average height of five metres or more, and (the regulation also applies when the trees are able to reach these conditions but have not yet done so). It excludes land that is already predominantly in use as agricultural or urban land.
What is an operator?
An operator in the context of the EUDR is a natural or legal person who places relevant products or commodities on the market, making them available on the market for the first time, in the course of a commercial activity. For products or commodities produced inside the EU, this can be the producer or manufacturer. For products or commodities produced outside the EU, this is the person importing into the EU, independently of who owns it.
Alternatively, an operator can be someone exporting relevant products or commodities from the EU.
One becomes an operator only if they are placing a commodity or product on the EU market, meaning they are making it available for the first time. On other occasions in which a relevant product or commodity is made available on the market, the person or company doing so is a trader. A trader is anyone other than the operator who make relevant commodities or products available on the market in the course of a commercial activity.
It is important to note that one is an operator both if they are placing a commodity or a product on the market. For example, someone importing cocoa beans into the EU would be an operator, but so would someone creating and selling chocolate bars, which contain cocoa.
What obligations does an operator have?
An operator must perform due diligence to ensure that they comply with the EUDR.
Undertaking due diligence requires the operator to collect information, documents and data from each supplier about the relevant commodities and products subject to the EUDR; verify and analyse the relevant information and on this basis carry out a risk assessment; and adopt risk mitigation measures if necessary. Products made with commodities sourced from more than one geolocation must be risk assessed for all geolocations.
Risk levels often depend on risks associated with the country or area the product is sourced from, risks pertaining to the product itself, the complexity of the supply chain, past activities of companies involved in the supply chain (if they’ve been associated in the past with deforestation), whether the product has been produced in accordance with local laws, levels of corruption or other factors in the local country which may put doubt on the reliability of compliance documents, and whether all such documents are available and verifiable immediately.
After a product has been assessed for risk, and the necessary risk mitigation efforts have been undertaken, a product may enter into a state of being ‘of negligible risk’ of being non-compliant, meaning that they show no cause for concern.
SMEs and non-SME operators sourcing from low-risk countries are not obligated to undertake all the risk-mitigation due diligence outlined in Articles 10 and 11 of the EUDR in order to categorise the product as of negligible risk, unless they find that there is any reason to think that the product could be non-compliant.
For a non-SME operator further down the supply chain, they merely must confirm that due diligence has been undertaken properly upstream, without necessarily having to check every due diligence document specifically.
Non-SME traders must clarify that due diligence was exercised upstream. SME traders do not need to undertake due diligence or ensure it was done upstream, but they do have an obligation to ensure traceability, collecting and keeping traceability information.
An operator must review their due diligence system at least once per year, in order to make sure those responsible for procedures are following them, these processes are effective, and the required outcomes are being achieved. Operators must update the due diligence system if they have become aware of anything that could influence its aims.
How does the EUDR’s due diligence obligations relate to the CSDDD’s?
Alongside the EUDR, the Corporate Sustainability Due Diligence Directive (CSDDD) was recently passed by Parliament. The CSDDD’s due diligence obligations are general and refer to very large companies, while the EUDR’s are more specific, referring to specific products and specific risks. If the two conflict, the EUDR takes precedence.
How does a complex supply chain increase risk?
The ‘complexity of the relevant supply chain’ is listed as a risk factor by the EUDR. This is because the complexity of a given supply chain may make it harder to trace products back to their origin, meaning the risk will be that they are non-compliant will be higher.
Unidentified steps in the supply chain may lead to the conclusion that the level of risk is non-negligible.
In order to ascertain the complexity level of the supply chain, operators and traders should ask themselves whether there were several processors and/or steps before the product was placed on, made available on or exported from the union market; whether the product contains relevant commodities sourced from several countries and/or plots of production; and whether the product is highly processed or contains multiple other relevant products.
Which commodities are relevant to the EUDR?
The EUDR covers seven commodities: cocoa, coffee, palm oil, soy, rubber, wood and beef.
If a relevant commodity or product is placed on the market during the transitional period between the coming into force of the regulation (29 June 2023) and its entry into application (now recommended to be 30 December 2025), the obligations of the regulation do not apply. This includes products placed or made available on the market after coming into application that are made entirely from commodities or products placed on the market during the transitional period.
Small or micro operators have six more months to comply than large businesses. This means that if a medium or large company places a product on the market, after the regulation has come into application for them, made entirely of products or commodities the small or micro-enterprise has placed on the market during its own transition period, the medium or large company is still exempt. Of course, the company will need to prove that this is the case.
Waste materials are not covered by the EUDR. However, by-products of the production process, such as empty fruit branches and palm shell kernels, are, as are those waste products covered by annex 1 of the EUDR, including cocoa shells, husks, skins and other cocoa waste.
When should relevant commodities enter the EU market?
Relevant commodities should not be placed on or made available on the market until it is ascertained that they are deforestation free, are covered by a due diligence statement, and are produced in accordance with the relevant laws of the country they were produced in.
The relevant laws are those covering the legal status of the area of production, and particularly those aimed at halting deforestation. Examples given by the guidance include land rights (including indigenous land rights), labour rights, and environmental protection. Compliance with such laws must be proved via documentation as part of due diligence. If this documentation is from countries generally considered to have high levels of corruption, further verification may be needed.
How do certifications and third-party verification schemes relate to the EUDR?
In some cases, certification and third-party verification schemes will aim to provide assurance to consumers that certain commodities meet certain standards (such as being deforestation-free).
The EUDR acknowledges the usefulness of such schemes in providing important information that may lead to compliance. However, they do not constitute a substitution for due diligence by the operator themselves.
If operators are to use such schemes at all to help them be compliant, they must first ensure that the schemes are in alignment with the requirements of the EUDR, particularly in regards to the definition of deforestation-free, geolocation requirements and legality of production. Operators should also assess the credibility and transparency of such schemes.
What is ‘agricultural use’?
The EUDR prohibits the relevant commodities to be placed on or made available in the EU market if its production can be linked to deforestation taking place after 31 December 2020. Deforestation is the conversion of forest to land for agricultural use, either human-induced or not.
From the perspective of the EUDR, converting forest for other purposes than agricultural use does not fall under the definition of ‘deforestation.’ Other purposes could include forest fire prevention, management of invasive alien species, urban infrastructure such as roads, electricity lines, settlements or cities, or renewable energy deployment.
In order to be for ‘agricultural use’, the land must be, for example, used for agricultural plantations, the rearing of livestock, or set aside for agricultural purposes (or land under temporary fallow). Set aside land is still considered under ‘agricultural use’ for ten years, although can be extended if it can be demonstrated that agricultural production cannot be resumed for specified reasons such as flood damage or lack of water, or the unavailability of inputs.
Agricultural use includes land under permanent crops or permanent meadows and pastures, temporary crops or temporary meadows and pastures, and farm buildings and farmyards. Agroforestry systems are also considered under agricultural use, and are therefore, for the purposes of the regulation, not forests.
