If your company sells products that contain, have been fed with or have been made using cattle, cocoa, coffee, oil palm, rubber, soya or wood, then your company should most likely start preparing for compliance with the EU Deforestation Regulation[1]. The same applies if others in your company's supply chain produce or sell these commodities or related products.
The EU Deforestation Regulation is the first of its kind in the world. Its aim is to minimise the EU’s contribution to deforestation and forest degradation by ensuring that relevant commodities and derived products are only sold on or exported from the EU market if they are deforestation-free.
In simple terms:
- deforestation means the conversion of forest to agricultural use, whether human induced or not;
- forest degradation means various ways to alter natural forests and convert them in man-made forests;
- deforestation-free means that the relevant products contain, have been fed with or have been made using relevant commodities that were produced on land that has not been subject to deforestation after 31 December 2020. For products that contain or have been made using wood, deforestation-free means that the wood has been harvested from the forest without inducing forest degradation after 31 December 2020.
TIMELINE
The EU Deforestation Regulation entered into force on 29 June 2023.
It was originally scheduled to apply as of 30 December 2024. However, in response to concerns raised by interested stakeholders, the European Commission has put forward a proposal to postpone the date of its application by 12 months[2]. The proposal was agreed by the EU Parliament and Council[3].
The EU Deforestation Regulation will therefore be binding for large operators and traders from 30 December 2025, while micro and small companies must apply it from 30 June 2026.
APPLICABILITY TO OPERATORS AND TRADERS
The EU Deforestation Regulation applies primarily to:
- operators, i.e., any natural or legal person who, in the course of a commercial activity, places relevant products on the market or exports them; and
- traders, i.e., any person in the supply chain other than the operator who, in the course of a commercial activity, makes relevant products available on the market.
- Other key terms for understanding the concepts of operator and trader have the following meaning:
- placing on the market means the first making available of a relevant commodity or derived product on the EU market;
- making available on the market means any supply of a relevant product for distribution, consumption or use on the EU market in the course of a commercial activity, whether in return for payment or free of charge;
- in the course of a commercial activity means for the purpose of processing, for distribution to commercial or non-commercial consumers, or for use in the business of the operator or trader itself;
- export means the procedure laid down by applicable customs legislation.
The European Commission has already published guidance to help interested stakeholders understand and implement the key concepts of the EU Deforestation Regulation[4], including examples of when a natural or legal person can be considered an operator or a trader.
COMMODITIES AND PRODUCTS SUBJECT TO THE NEW RULES
With very few exceptions, in general, all relevant products that contain, have been fed with or have been made using relevant commodities produced or obtained after 29 June 2023 and that are placed on the EU market or exported from the EU customs territory are covered by the EU Deforestation Regulation:
- relevant commodities cover oil palm, soya, wood, cocoa, coffee, cattle and rubber;
- relevant products are those derived from the relevant commodities, such as meat of cattle, coffee substitutes containing coffee in any proportion, chocolate, furniture, printed paper, pneumatic tyres and personal care products containing palm oil derivates.
The list of relevant commodities and products is included in Annex I of the EU Deforestation Regulation, with the possibility for the European Commission to amend and/or extend the list, following an impact assessment.
There is no threshold in terms of quantity or value of the commodities and products to trigger the application of the EU Deforestation Regulation. This means that the new rules would generally apply regardless of the quantity or value of the relevant commodities and products, if the other conditions are met.
THE MAIN REQUIREMENTS IN A NUTSHELL
Operators will be required to carry out extensive due diligence before placing the relevant products on the market or exporting them. Following the results of the due diligence exercise, they will have to provide a due diligence statement to the competent authorities confirming that the relevant products do not circumvent the provisions of the EU Deforestation Regulation.
Operators must also provide other operators and traders further down the supply chain with all the information necessary to prove that due diligence has been carried out and that no or only a negligible risk has been found.
Traders, on the other hand, will have to make relevant products available on the market only if they are in possession of the information required to identify (i) the operators or the traders who have supplied them with, or to whom they have supplied the relevant products, and (ii) the due diligence statements associated with those products.
The due diligence requirements are demanding and include extensive monitoring and reporting obligations to prove compliance within the supply chains. This will require the collection and centralization of large volumes of data to reach compliance with the EU Deforestation Regulation.
The competent authorities, at their end, will have to carry out checks within their territory to establish whether the relevant products that the operator or trader (i) has placed/made available on the market/exported or (ii) intends to place/make available on the market/export comply with the regulation.
SANCTIONS FOR NON-COMPLIANCE
Penalties for non-compliance with the EU Deforestation Regulation will be laid down at national level and will include:
- fines proportionate to the environmental damage and the value of the relevant commodities or relevant products concerned, the maximum amount of such a fine being at least 4% of the perpetrator’s total annual turnover in the EU for the preceding financial year;
- confiscation of the concerned products and/or revenues;
- exclusion up to 12 months from public procurement procedures and from access to public funding;
- temporary prohibition from placing or making available on the market or exporting relevant commodities and products, in case of a serious infringement or of repeated infringements;
- prohibition from exercising the simplified due diligence provided by the EU Deforestation Regulation in case of a serious infringement or of repeated infringements.
It is also noteworthy that the European Commission, based on information notified by Member States, will publish on its website a list with final judgements against legal entities for infringements of the EU Deforestation Regulation, including the name of the perpetrator, the date of the final judgement, a summary of the activities for which the legal person has been found guilty and the imposed sanctions.
PREPARATION FOR IMPLEMENTATION
The extra time gained by the postponement of the EU Deforestation Regulation implementation date needs to be used carefully and wisely by stakeholders to ensure that they are ready for the new global interactions, by already putting in place data management systems and extensive due diligence procedures for the supply chains.
The interaction of the EU Deforestation Regulation with other recently adopted EU legislation, such as the CSRD (Directive 2022/2464 amending certain normative acts as regards corporate sustainability reporting) and the CSDDD (Directive 2024/1760 on corporate sustainability due diligence), should not be ignored, as they concern, to some extent, overlapping obligations.
Large companies directly and/or indirectly affected by the EU Deforestation Regulation and the CSDDD should especially work harder to address the due diligence regulations in an integrate and complementary manner. Although they have different scopes, the CSDDD provides a general framework (lex generalis), while the EU Deforestation Regulation provides a specific one (lex specialis). Consequently, an effective preparation for the EU Deforestation Regulation implementation will have to assess and address both normative acts to enhance the efforts of businesses to collect data and assess risks and mitigation measures in a coherent way.
CONCLUSION
The above-mentioned aspects are just some of the key issues to consider when analysing the applicability of the EU Deforestation Regulation. Many of the innovations will be followed by subsequent requirements. Therefore, given the impact and complexity of the upcoming due diligence requirements, a careful and thorough analysis is necessary to provide a good understanding of them.
[1] Regulation (EU) 2023/1115 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 (the “EU Deforestation Regulation”).
[2] https://ec.europa.eu/commission/presscorner/detail/en/ip_24_5009
[3] https://www.consilium.europa.eu/en/press/press-releases/2024/12/18/eu-deforestation-law-council-formally-adopts-its-one-year-postponement/
[4] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52024XC06789&qid=1731687748447
By Madalina Vasile, Head of the Environment Practice, and Camelia Stanciu, Senior Associate, Environment Practice, NNDKP
