On 16 May, the Council of the European Union adopted the EU Deforestation Regulation (EUDR), which will come into force throughout Europe 20 days after its publication. This will be followed by a transition period of 18 months (micro-enterprises have 24 months). In all likelihood, the requirements will therefore come into force from December 2024.
Background
The EU is a major consumer and trader of raw materials and products that contribute significantly to deforestation. The new rules aim to ensure that European consumption and trade in these raw materials and products does not contribute to deforestation and further degradation of forest ecosystems. At the same time, the new rules aim to avoid duplication of obligations and reduce the administrative burden for companies and authorities.
Binding duties of care
The Regulation establishes mandatory due diligence obligations for all operators (producers, manufacturers and processors) and traders who place, make available or export the following commodities and derived products on the EU market: Palm oil, cattle, timber, coffee, cocoa, rubber and soy. The commitments also apply to a number of derived products. These include, for example, products made from pulp and paper.
Companies placing the relevant goods and products on the market must introduce and implement due diligence schemes to prevent products linked to deforestation from entering the EU market. This includes requiring operators to trace the raw materials of the goods they sell back to the plot where they were produced
Companies must make a declaration in a European information system confirming that they have successfully fulfilled their due diligence obligations and that the products they place on the market comply with EU rules. This declaration must also provide essential information for monitoring, such as the geographical coordinates of the farm or plantation where the raw materials were grown.
Market participants will be monitored by enforcement authorities and held accountable if they do not comply with the requirements of the regulation. Small market participants have the option of relying on larger market participants to prepare due diligence declarations.
Deadline
The regulation sets 31.12.2020 as the deadline for demonstrating freedom from deforestation. This means that only timber and timber products produced on land that has not been affected by deforestation or forest degradation after 31 December 2020 may be placed on the EU market or exported from the EU.
Packaging industry strongly affected
By including products made of pulp and paper, the new regulation has a major impact on large parts of the packaging industry.
- The EUDR affects all producers and many processors of products made from fresh wood fibre.
- Included are all products made of pulp and paper of the
- Chapter 47 (Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard),
- Chapter 48 (Paper and paperboard; articles of paper pulp, of paper or of paperboard) and
- Chapter 49 (Books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans).
The customs tariff numbers are decisive for the assignment. Accordingly, the HS code 4819 and its sub-category 48192000 would be relevant; here, for example, folding boxes are explicitly mentioned.
- In the case of wood products, we believe that the wording of the regulation indicates that they are not covered by the regulation if they are used as packaging or to secure loads.
- The original wording: “Includes wooden packing cases, boxes, crates, drums and similar packagings; wooden cable reels; wooden pallets, box pallets and other load boards; wooden pallet collars (excluding packagings used solely as a packing material to support, protect or carry another product placed on the market)”.
Excluded from the regulation are products
- on the basis of bamboo and
- recycled products (waste in the sense of Directive 2008/98/EC), so 100% waste fibre cardboard and paper would not be affected, but the normal 10% fresh fibre content in paperboard would be.
The due diligence obligations in detail and in practice
The raw materials concerned and products made from them may only be placed on the internal market, made available or exported from the internal market if the following conditions are met:
- they are deforestation-free (Deadline 31.12.2020)
- they have been produced in accordance with the relevant legislation of the country of production
- no human rights or rights of indigenous peoples were violated
- they are covered by a due diligence declaration.
If one of the four requirements is not met, these products may not be placed on the EU market.
As part of their due diligence, market participants must go through three steps:
- In the first stage, they must ensure access to information on, among other things, the goods, the quantity, the supplier, the country of production, etc.
- An important prerequisite for this step is to obtain the geographic coordinates of the land on which the commodities, or the commodities contained in the goods they market, were produced. Since deforestation is associated with land use change, the use of geolocation coordinates is the easiest and most cost-effective way to check for deforestation. It is expected that the combination of geolocation and remote monitoring using satellite imagery will increase the effectiveness of the regulation.
- In the second stage, companies need to use the information on land used for commodity production to analyse and assess the risk in the supply chain.
- In the third stage, companies must take appropriate and proportionate remedial action.
As mentioned above, small market participants, i.e. SMEs with up to 250 employees, have the possibility to refer to the declaration of larger market participants if they are part of the upstream chain and have already submitted a due diligence declaration for the sourced product.
Human rights
The new EUDR also takes into account the protection of human rights in the context of deforestation. To this end, a reference to the principle of free, prior and informed consent of indigenous people was added. Accordingly, areas that also serve the needs of indigenous people are affected.
Control of the products
- The regulation introduces a benchmarking system that assigns a level of risk (low, normal or high) to specific countries inside and outside the EU in terms of deforestation and forest degradation.
- The risk category then determines the scope of specific obligations for inspections and controls by operators and Member State authorities. The directive thus allows for increased monitoring for high risk countries and simplified due diligence for low risk countries.
- Competent authorities must inspect 9 per cent of operators and traders trading in products from high-risk countries, 3 per cent of operators from standard-risk countries and 1 per cent of operators from low-risk countries and verify that they actually comply with the obligations set out in the EUDR.
- In addition, competent authorities must inspect 9 per cent of relevant goods and products brought into, made available in, or exported from their market by high-risk countries.
Sanctions
The Regulation contains provisions on sanctions to be reviewed by Member States for effectiveness, proportionality and deterrence.
- Thus, fines should be proportionate to the environmental damage and the value of the goods or products concerned, but at least 4 per cent of the operators’ annual turnover in the EU.
In addition, violations of the EUDR should include temporary exclusion from public procurement and access to public funds.
Ready for EUDR
You want to know what your company needs to do to be ready for the reporting requirements of the EU Deforestation Regulation? B+P Consultants helps you to check your data situation and to take the steps to be fit-for-compliance in 18 months. Our approach to EUDR readiness.
