Are you ready for the EU's new Deforestation Regulation?

Businesses trading within the EU, or importing into or exporting from the EU, will need to comply with new requirements that apply to a wide range of products potentially linked to deforestation.

The EU Deforestation Regulation, or EUDR, is the EU's new regulatory regime intended to reduce Europe's impact on global deforestation.

The EUDR applies to seven commodities, those being timber, cattle, cocoa, coffee, palm oil, rubber and soya, as well as products derived from those commodities. The EUDR therefore captures many different goods, from chocolate and furniture to tyres and printed books.

Businesses will have to demonstrate that relevant products are deforestation-free, have been lawfully produced in compliance with local laws and are covered by a due diligence statement.

This note takes a look at how businesses can comply with EUDR, plus explores how the GB regulatory position compares.

What is EUDR?

EUDR came into force on 29 June 2023, with an extended phase-in period to give businesses and regulators time to get ready for the changes. The requirements apply from 30 December 2025 for large and medium companies and from 30 June 2026 for micro and small enterprises.

The new regime represents a significant departure from the European Timber Regulation (EUTR), which it will replace in time. EUDR reflects both an EU policy shift away from limiting anti-deforestation efforts to illegal logging, as well as growing concerns that the previous EUTR regime was failing to achieve its aims, for example due to the inconsistency of enforcement.

EUDR will impact a far greater number of products than the previous timber-focussed laws, will require more stringent supply chain due diligence, and will see those not in compliance facing considerably more robust penalties.

Central to EUDR is the premise that a relevant product can only be sold in the EU or exported from the EU if it meets three conditions, those being:

1. The product does not contribute to deforestation or forest degradation
2. The product has been produced in accordance with the source country's laws
3. The product is covered by a due diligence statement (more on that, below).

Deforestation-free and compliant with local laws

Relevant products will need to be "deforestation-free". This means, in general terms, that they cannot contain, be fed with or made using relevant commodities that were produced on land that has been converted from forest to agriculture since 31 December 2020 – even if that change of land use was legal. In the case of relevant products that contain or have been made using wood, then the wood must have been harvested from the forest without inducing forest degradation after 31 December 2020.

Ashley Borthwick comments that: 

"Careful consideration is required in order to determine whether a product is considered to be "deforestation-free" as defined in EUDR. The rules are not straightforward and may be difficult to apply in practice. There is, however, published guidance to assist".

Relevant products will also need to have been produced in accordance with the laws relevant to the country of production. This includes laws not exclusively linked to the use of the land, for example those relating to human rights, labour rights and the rights of indigenous peoples.

What are the sanctions for non-compliance?

The penalties for businesses that fall foul of the EUDR regime could be severe. In short:

• Products that do not comply with EUDR cannot be sold in the EU market.
• Financial punishments for non-compliance will be wide-ranging, including punitive fines of at least 4% of a company's EU turnover.

Relevant businesses will also have to annually publish reports relating to due diligence efforts, meaning increased public scrutiny and an increased risk of reputational damage.

Andrew Westbrook said: 

"Businesses should be under no illusion that they need to pay attention to this. The direction of travel here is clear – the EU is taking this seriously which is reflected in the potentially significant penalties for non-compliance."

Who does EUDR apply to?

EUDR places duties upon:

• 'Operators', meaning EU-based importers and exporters, and
• 'Traders', meaning EU-based distributors and retailers that make the products available on the EU market.

In general terms, Operators (and Traders who are not SMEs) will need to ensure that robust due diligence is carried out in relation to products they supply in accordance with the requirements of EUDR and produce a due diligence statement. Traders will also have duties relating to supply chain traceability. 

Non-EU businesses that export relevant goods to Europe will also need to comply, on the basis that EU importers may only purchase EUDR compliant products. EU customers will therefore be requesting significantly more information going forwards.

What is the EUDR due diligence statement?

Due diligence statements are the foundation of EUDR. Relevant products cannot be placed on the EU market or exported from the EU without a due diligence statement being submitted to the EU competent authority.

The statement includes declarations that the required due diligence has been carried out and that the risk of the product being non-compliant with EUDR is negligible at most.

Operators and Traders can mandate authorised representatives to submit the due diligence statements on their behalf, but the Operator or Trader will remain responsible for that product's compliance.

Where a product has already been the subject of a due diligence statement, an SME Operator or Trader can rely on that same statement, but the SME will remain responsible for that product's compliance.

What are the due diligence requirements under EUDR?

EUDR due diligence is a three-step process that involves (1) collecting detailed information, (2) carrying out a risk assessment, and (3) mitigating any risks.

1. First, the information. This needs to be comprehensive and cover the batch of products itself, the country of production and the precise, geolocated plots of land where the relevant commodities were produced. There needs to be verifiable information that conclusively shows that the products are deforestation-free and that the commodities were produced in accordance with local laws. This information needs to be kept for 5 years.
2. An annual risk assessment must then be carried out against a prescribed set of criteria, in order to determine the risk of the product not complying with EUDR. That criteria includes factors such as the reliability of available information, the complexity of the supply chain, the prevalence of deforestation in the region and the presence of indigenous peoples.

Risk should also be assessed against the three-tier country risk rating, with the EU to classify countries as either high, standard or low risk. A simplified due diligence process will be allowed for low risk countries, while high risk countries will demand more scrutiny.

3. Finally, mitigation measures must be adopted so as to ensure that any risk of non-compliance is no more than negligible. This will primarily involve gathering more information and potentially commissioning independent audits.

What about Great Britain?

In comparison to the EU, the position in Britain has remained unchanged. The GB approach under UKTR, the UK Timber Regulations, is essentially the same as the old EUTR regime in all but name; it targets the trade in illegal timber and derived products.

UKTR bans illegally harvested timber and derived products from the GB market and places due diligence, traceability and record keeping obligations on operators – those obligations, however, are not as onerous as those under the new EUDR.

There is also the UK FLEGT regime, under which products are considered legal without the need for UKTR-style due diligence if there is a FLEGT licence in place and the goods originate from a country which has signed a voluntary partnership agreement, or VPA, with the UK. Only Indonesia has such a VPA.

Is a GB version of EUDR coming?

In short, probably, but it is unlikely to be anytime soon and it is currently expected to be considerably more narrow in scope than its EU counterpart. The Environment Act 2021 paves the way for just such a regime, but we still await the secondary legislation that will fill out the details.

Proposals for a new UK Forest Risk Commodity Regulation (UKFRC) have been published, but failed to become law before the 2024 General Election. The UK's new government has not yet made it clear how it wants to proceed in this area.

Those proposals, however, did point to a much more limited regime than EUDR. The proposals, for example, excluded several commodities (timber, rubber, coffee), only applied to land subject to illegal deforestation and only required compliance with local deforestation laws.

If you would like to learn more about how to comply with deforestation regulations, please get in touch with Ashley Borthwick or Andrew Westbrook, who would be happy to assist you.