Please refer to the EUTR for wood and wood products harvested before June 29, 2023. After June 29, 2023, please refer to the EUDR information below.
The European Union (EU) has revised its regulatory framework for timber supply chains as part of its efforts to act on deforestation linked to agricultural commodities. On May 31, 2023, the EU passed Regulation (EU) 2023/1115, otherwise known as the EU Regulation on Deforestation-free Products (EUDR). The scope of the EUDR includes wood and wood products covered under the EU Timber Regulation (EUTR), and six agricultural commodities, cattle, cocoa, coffee, oil palm, rubber and soy and covered derivatives, as defined under Annex I. Under the EUDR, all operators and traders that make available these commodities and/or covered derivatives on the EU market, or export such products from the EU, must prove that these products were not produced on recently deforested land or contributed to forest degradation.
The Regulation
The Regulation was signed on May 31, 2023, and entered into force on June 29, 2023. There is a preparation period of 18 months from June 29, 2023, for operators and traders to adapt to the rules established in the EUDR. Micro, small and medium-sized enterprises (SMEs) have a longer preparation period until June 30, 2025.
Relevant commodities and their covered derivatives must meet three conditions to be placed and/or made available on the EU market or exported:
- They are deforestation-free, with products produced on land that has not been subject to deforestation or degradation after December 31, 2020.
- They have been produced in accordance with the relevant legislation of the country of production.
- They are covered by a due diligence statement. Operators assume responsibility for the compliance of the commodity and/or covered derivative through the due diligence statement.
Wood and wood products covered by a valid FLEGT license are considered compliant with the legal production requirement but not the deforestation-free/degradation-free requirement.
Certification or other third-party verified schemes can be used in the risk assessment procedure, but they cannot substitute due diligence and do not constitute compliance with the Regulation (Article 10.1(n); Preamble (52)).
Due diligence
The Regulation requires operators and traders to establish and implement a three-step due diligence system to minimize the EU’s contribution to deforestation and forest degradation globally. The system must be reviewed at least once a year. The requirements are slightly different for SMEs versus other operators and traders, as described below:
Operators and Traders
- Information gathering: Operators and traders must collect data, documents, and information, including details on their suppliers and details on the operator and/or trader to whom they have supplied commodities, and/or their covered derivatives, descriptions and quantities of the product, the country of production, geolocation of all plots of land in which the product or commodity was produced or derived from, and adequately conclusive and verifiable information that the products are deforestation-free and produced in accordance with the legislation of the country of production. This information must be kept for five years from the date of export or placing on the market. a. Operators may refer to due diligence statements that have already been submitted for relevant commodities and/or their covered derivatives, but they are required to check that due diligence was carried out in accordance with the Regulation.
- Risk assessment: Operators and traders must verify and analyze the information collected during the first step. The risk assessment establishes whether there is a risk that the products intended for placement on the EU market or export are non-compliant. Several criteria must be considered in the risk assessment, including but not limited to the presence of forests and indigenous peoples, substantiated concerns, and prevalence of deforestation or forest degradation in the country of production. Operators must document and review the risk assessments at least annually and make them available to the competent authorities upon request.
- Risk mitigation: If the risk assessment determines that the commodities or covered derivatives potentially have a risk of being associated with the deforestation or degradation, operators must carry out risk mitigation procedures and measures to achieve no or negligible risk. Examples of risk mitigation include collecting additional information, conducting independent audits and surveys, and supporting compliance, especially for smallholders through capacity building and investments.
Operators must submit due diligence statements through the information system established by the European Commission.
SMEs
SME operators
SMEs are not required to exercise due diligence for commodities and their covered derivatives that have already been subject to due diligence and for which a due diligence statement has already been submitted. SMEs shall provide the competent authorities with the reference number of the due diligence statement upon request. Otherwise, the SME operator must conduct due diligence in accordance with the Regulation.
- Information gathering: SME operators must collect data, documents, and information, including details on their suppliers and details on the operator and/or trader to whom they have supplied commodities, and/or their covered derivatives, descriptions and quantities of the product, the country of production, geolocation of all plots of land in which the product or commodity was produced or derived from, and adequately conclusive and verifiable information that the products are deforestation-free and produced in accordance with the legislation of the country of production. This information must be kept for five years from the date of export or placing on the market.
- Risk assessment: SME operators must verify and analyze the information collected during the first step. The risk assessment establishes whether there is a risk that the products intended for placement on the EU market or export are non-compliant. Several criteria must be considered in the risk assessment, including but not limited to the presence of forests and indigenous peoples, substantiated concerns, and prevalence of deforestation or forest degradation in the country of production.
- Risk mitigation: If the risk assessment determines that the commodities or covered derivatives potentially have a risk of being associated with the deforestation or degradation, operators must carry out risk mitigation procedures and measures to achieve no or negligible risk. Examples of risk mitigation include collecting additional information, conducting independent audits and surveys, and supporting compliance, especially for smallholders through capacity building and investments.
SME traders
SME traders do not need to carry out due diligence, but instead, must collect data, documents and information including the name and details of the operators or traders who have supplied the commodities and/or their covered derivatives to them, as well as the reference numbers of the due diligence statements associated with those products and the name and relevant details of the operators or traders to whom they have supplied the commodities and/or their covered derivatives. This information must be kept for at least five years from the date of making available on the market.
For more information about the due diligence process, see the European Commission’s Due Diligence webpage.
Country Benchmarking
The EUDR establishes a three-tiered system to assess the deforestation and forest degradation risk of countries or parts thereof. The assessment of risk is based on the rate of deforestation and forest degradation, rate of expansion of agriculture land for relevant commodities, and production trends of commodities and their covered derivatives.
Other information may be considered, including progress related to nationally determined contributions (NDCs) in the country of concern and/or implementation of agreements and other instruments between the concerned country and EU Member States on deforestation and forest degradation. When the EUDR was passed, the European Commission assigned a standard risk rating to all countries. The Commission is currently undertaking a risk assessment which will lead to a designation of low and high risk countries by December 30, 2024, based on the criteria laid out in Article 29. The Commission will notify countries that will be designated as high risk and will engage in dialogue with the objective of reducing their level of risk. The risk rating is subject to change over time.
- High risk: Countries, or parts thereof, that are determined to have a high risk of producing commodities and/or covered derivatives that do not comply with the Regulation’s deforestation-free requirement.
- Low risk: Refers to countries, or parts thereof, in which there is sufficient assurance that instances of producing commodities and/or covered derivatives that do not comply with the deforestation-free condition are exceptional.
- Standard risk: Countries, or parts thereof, that do not fall into the high-risk or low-risk categories.
Regardless of country risk ratings, all products to be placed and/or made available on the EU market or exported, must be accompanied with a due diligence statement including geolocation information. The percentage of checks undertaken by EU Member State competent authorities will depend on the country risk rating.
Substantiated Concerns
Natural or legal persons may submit substantiated concerns to competent authorities when they consider that one or more operators or traders are not complying with the Regulation. Competent authorities are mandated to assess the substantiated concerns and take necessary steps to determine potential non-compliance. Within 30 days of receiving the substantiated concern, competent authorities shall inform the person(s) who submitted the concern of the follow-up (Article 31). The public shall have access to administrative or judicial procedures to review the legality of decisions, acts, or failures to act of the competent authorities.
Following a substantiated concern, operators, traders and SME traders are obligated to inform the competent authorities of the Member States in which they placed the relevant product on the market, as well as traders to whom they supplied the product of a commodity and/or covered derivative, that the product in question placed on the market may be non-compliant. Operators, traders and SMEs are required to comply with information requests/checks (documents, etc.) from competent authorities.
Enforcement
Competent authorities designated by their respective Member State must regularly carry out checks on operators and traders to verify compliance with the EUDR within their territory. The competent authorities use a national risk criterion that considers several factors, including the commodities, complexity of supply chain, and assessed risk of the country of production (see Country Benchmarking above) to carry out the annual checks. The competent authorities will log information regarding the checks in the information system alongside the due diligence statements.
Penalties
Infringements of the Regulation by operators and traders are subject to penalties. Information on persons found to have infringed the Regulation will be published on the European Commission’s website. Member States are responsible for establishing rules on penalties applicable to infringements of the Regulation (Article 25(1)).
The following are applicable penalties for EUDR infringements:
- Fines proportionate to the environmental damage and the value of the relevant commodities and/or their covered derivatives concerned. For legal persons, the maximum amount of this fine shall be at least 4% of the operator’s or trader’s total annual EU turnover in the financial year preceding the fine decision;
- Confiscation of the commodity and/or its covered derivative from the operator and/or trader;
- Confiscation of revenues gained by the operator and/or trader from a transaction with the commodity and/or the covered derivative concerned;
- Temporary exclusion for a maximum period of 12 months from public procurement processes and from access to public funding, which includes tendering procedures, grants and concessions;
- Temporary prohibition from placing or making available on the market or exporting commodities and their covered derivatives in the event of a serious infringement and/or repeated infringements; and
- Prohibition from exercising simplified due diligence in the event of a serious infringement and/or repeated infringements.