Giving deforestation the ax – The proposed regulation on deforestation-free products

On September 13, 2022, the European Parliament voted to adopt a regulation on deforestation-free products (Proposal for a Regulation on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010). The new rules are to apply from the date of the entry into force which is expected before the end of the year with a transition period of 12 months and will make it obligatory for companies to verify (in “due diligence”) that goods sold in the EU have not been produced on deforested or degraded land.  Soon as the Regulation enters into force, non- or improper compliance can likely create costs and operational inefficiencies down the road, invoking national authorities’ attention and in the worst case national authorities’ penalties. The proposed regulation joins the ranks of the EU efforts towards more sustainable supply chains (i.e. the proposal for European supply chain directive), making corporate adaptations necessary for European businesses.

The requirements for products under the proposed regulation

The prohibition of non-deforestation-free products according to Article 3

In the proposed Regulation, the prohibition of non-deforestation-free products in Article 3 serves as a cornerstone of the new rules by clearly outlining that relevant commodities and products may be placed or made available or exported from the Union market (cf. Art. 1 (1)) only if they are (a) deforestation-free, (b) produced in accordance with the legislation of the producing country, and (c) accompanied by a due diligence declaration as laid down in Article 4(2) (and specified below). 

Relevant Commodities and Relevant Products under the proposed Regulation 

The proposed Regulation covers particularly forest- and climate-damaging commodity productions such as soy, wood, coffee, cocoa, beef and palm oil ("Relevant Commodities") as well as certain products for which the relevant commodities are frequently used ("Relevant Products", i.e. those listed in Annex I, that contain, have been fed with or have been made using Relevant Commodities). 
The Regulation encompasses all Relevant Commodities and Products placed on the Union market and exported therefrom that were produced after the date of the entry into force as foreseen in Article 36.

Definition of the term “deforestation-free”1  

According to the proposed Regulation (Article 2 (1)), “deforestation” means the conversion of forest to agricultural use, whether human induced or not. Besides and importantly, one of the main novelties of the proposed Regulation compared to the EU Timber Regulation is the establishment of a definition for the term "deforestation-free". The results of the preparatory impact assessment have shown that setting a common requirement for Relevant Commodities and Products regardless of their country of production should increase the effectiveness of the policy measures by closing loopholes related to legal deforestation and facilitating implementation through remote monitoring. Therefore, the definition “deforestations-free” (Article 2(8)) is timely linked to 

(a) all Relevant Commodities and products produced on land that has not been subject to deforestation after December 31, 2020.

(b) and that the wood has been harvested from the forest without inducing forest degradation after December 31, 2020. 

The proposed cut-off date minimizes disruption of supply chains and potential negative impacts in partner countries. The definition is also consistent with international commitments to halt deforestation as for example included in the Sustainable Development Goals (Goal 15.2).

What are the specific obligations for economic operators?

Due diligence statement, Article 8

Before placing the Relevant Commodities and products on the market, the operators (Article 4), persons authorized by them (Article 5), or certain traders (cf. Article 6(5)) must make a due diligence declaration to the authorities. By submitting their due diligence declaration, the economic operators take responsibility for ensuring that due diligence obligations have been fulfilled and that there is no or only a low risk that the commodities and products concerned are not deforestation-free or have not been produced in accordance with the laws of the country of production. The content of this declaration is regulated in Annex II of the Regulation. It includes:

  • Name and address of the operator and, for Relevant Commodities and products entering or leaving the Union market, the Economic Operators Registration and Identification number (EORI number) established in accordance with Article 9 of Regulation (EU) No 952/2013;

  • Harmonized System code (HS code), free text description and quantity of the Relevant Commodities or Product to be placed on the Union market by the operator;

  • Country of production and any land where production has taken place, including geolocation coordinates and latitude and longitude information. If a product commodities contains materials, ingredients or components produced on other land, the coordinates of geolocation for each of the respective land shall be provided;

  • The following statement: "By submitting this due diligence statement, the operator confirms that a due diligence assessment has been conducted in accordance with Regulation XXXX/XX and no or negligible risk has been identified. The operator hereby confirms that the commodities/product complies with the requirements set out in Article 3 of Regulation XXXX/XX."

The due diligence declaration shall be submitted by economic operators to the competent authorities in an information system or register explicitly provided for in the proposed Regulation. The Commission shall establish a register containing the due diligence declarations of operators. Direct access to this register shall be given to customs authorities, competent authorities, operators and traders in accordance with their respective obligations. Publicly, the data shall be made available only in anonymized form (Article 31).

Scope of the duty of due diligence (Articles 8 - 12)

Article 8 outlines the due diligence mechanism that constitutes the obligation of operators according to Article 4(1) and traders that are not SMEs according to Article 6(5). To ensure compliance with the requirements for placing Relevant Commodities and Products on the market, the proposed Regulation provides the following due diligence requirements for economic operators:

  • (a) the collection of information and documentation, Article 9

  • (b) Risk assessment measures, Article 10

  • (c) Measures for risk reduction, Article 10

The obligation in detail:

Collection of information on Relevant Commodities and Products (Article 9):
Market participants must collect the following information on Relevant Commodities and products:

  • (a) description of Relevant Commodities and Products;

  • (b) quantity of the Relevant Commodities and Products;

  • (c) identification of the country of production;

  • (d) geo-localisation coordinates, latitude and time or time range of production;

  • (e) contact details of suppliers

  • (f) contact details of buyers 

  • (g) adequate and verifiable information that the Relevant Commodities and products are deforestation-free;

  • (h) adequate and verifiable information that the production has been conducted in accordance with relevant legislation of the country of production, including any arrangement conferring the right to use the respective area for the purposes of the production of the Relevant Commodity.

The list of this information can be extended by delegated acts according to Article 9 (3) of the Regulation.

Risk assessment and mitigation (Article 10)

On the basis of the aforementioned data, market participants shall carry out a risk assessment using specific criteria as set out in Article 10 (2) of the Regulation to establish whether there is a risk that the Relevant Commodities and Products intended to be placed on or exported from the Union market are non-compliant with the requirements of the Regulation. These criteria include, among others, the inclusion of a country benchmark from a three-tier system to be adopted by the Commission by means of implementing acts (Article 27). If the operators cannot demonstrate that the risk of non-compliance is negligible, they shall not place the Relevant Commodity or Product on the Union market nor export it.

Based on the risk analysis, market participants must further establish procedures and systems designed to mitigate the risks identified and to ensure conformity with the requirements of the Regulation (Article 10 (4), (6)). The risk assessments are to be reviewed annually (Article 10 (7)). The Commission may, by means of delegated acts, adopt supplements relating to the criteria of risk assessment as well as risk mitigation measures (Article 10 (8)).

According to Article 12 (1), risk assessment and minimization measures are not required for Relevant Commodities and Products where operators can ascertain they originate from low-risk countries. The risk categories are to be determined by means of a benchmarking system based on certain assessment criteria set out in the Regulation, such as a country's deforestation rate (cf. Articles 27 and 28).The benchmarking system is to be introduced by the Commission by means of implementing acts. However, if the operator obtains or is made aware of any information that would point to a risk that the relevant commodities and products may not fulfil the requirements of this Regulation, all obligations of Article 9 and 10 have to be fulfilled according to Article 12 (2)

Maintenance of due diligence systems and record keeping
 The due diligence obligations must be revised annually to ensure that they are up to date. If necessary they shall be adapted to and accounting for new developments which may influence the exercise of due diligence. The corresponding records must be kept for five years. Market participants that are not SMEs must publish an annual report on their due diligence regulations. This can also be done as part of the management report (Article 11(1)).

Differentiated requirements for operators and traders

The abovementioned obligations under the proposed Regulation for deforestation-free products apply to all operators (Article 4), i.e. 
any natural or legal person who, in the course of a commercial activity, places Relevant Commodities and products on the Union market or exports them from the Union market (Article 2 (12)). 

Trader, i.e. any natural or legal person in the supply chain other than the operator who, in the course of a commercial activity, makes available on the Union market Relevant Commodities and Products (Article 2 (13)), are subject to the same obligations as operators, unless they are small and medium-sized enterprises (“SMEs”) (Article 6(5)). 

Traders, especially large traders have a significant influence on supply chains and play an important role in ensuring that Relevant Commodities and Products are deforestation-free. That is why the Regulation differentiates between obligations applicable to large traders  and less stringent obligations applicable to traders which are SMEs: According to Article 6(2) and (3), traders which are SMEs are required to collect a record of their suppliers and customers, keep that information for at least five years and make such information available to competent authorities upon request. This requirement is estimated to involve only negligible costs, as such information can be expected to be part of normal business operation. Traders which are SMEs are also expected to take action and inform the competent authorities if new information becomes available regarding the non-compliance of their commodities and products (para. 4).

Consequences of non-compliance

Member States are required to lay down rules on penalties applicable to infringements of the Regulation (Art. 23). Article 23(2) provides for a list of penalties to be established in national legal systems, including fines, the confiscation of the Relevant Commodities and Products as well as the confiscation of revenues, the suspension or prohibition of relevant economic activities and the exclusion from public procurement processes for the operators and traders that violate the Regulation. Member States’ legislation must provide for a variable amount of fines in dependence on the annual turnover of the operator or trader that violated the Regulation. 
Market surveillance measures in Article 22(2) also provide for corrective measures – such as a recall obligation – to which the economic operator may be obliged.

Private persons shall also be able to report justified concerns regarding compliance with the provisions of this Regulation to the competent market surveillance authority at any time (Articles 29-30). The decisions of the authorities on such notifications shall be subject to judicial review. This is of particular relevance since a competent authority may carry out checks on operators and traders when it is in possession of relevant information, including on the basis of substantiated concerns provided by third parties (cf. Articles 15 and 16).

Practical implications

Operators face new and increasingly stringent due diligence requirements in their supply chain. 

  • The Regulation sets common rules for companies – from the EU or from abroad – placing the products covered by the scope on the EU market. It provides for long adaptation periods for enterprises, and specifically micro-enterprises, to be able to adapt to the changes required.

  • With regard to third country producers outside the EU, the Regulation aims to measure domestic and imported commodities by the same standards. There will be no ban of individual countries or any commodities. Sustainable producers will continue to be able to sell their goods to the EU.   The new Regulation is supposed to be implemented hand in hand with other measures including support to producing countries. The Commission is proposing Forest Partnerships to help partner countries improve forest governance and create socio-economic opportunities for the populations through sustainable value chains.

  • This development sets incentives for businesses to inspect and monitor their supply chain with yet another sustainable aim in mind. However, this will require to not only widen the in-house monitor systems, but potentially make incisive changes in the existing supply chain or the manufacturing of goods. The European Commission expects the demand for ‘deforestation-free' products to grow in the EU – thereby boosting sustainable businesses and business models across the world.

Next steps

After the adoption of the Proposal the Parliament is now to start negotiations on the final law with EU member States.  The Proposed Regulation subject to the ordinary legislative procedure must be approved by the European Parliament and by the Council of the European Union. The so-called trilogue discussions (a negotiation meeting between the Council, the Parliament’s rapporteur and the Environment Commissioner) are ongoing with a view to agreeing on the final text of the Regulation. At the end of September 2022, the first trilogue revealed significant differences between the positions of the individual EU institutions on the issues of the scope, the definition of deforestation, whether financial institutions should be included, rules on geolocation, and how tough penalties should be. These disagreements mean that it is still uncertain if, when and how the proposal will actually pass through the legislative process this year.

The authors would like to thank legal research assistant Pauline Lehmann for her active and valuable contribution to this article.

1 Article 2 contains the definitions that apply in the rest of the enacting terms. These include definitions [Nos. 1-8] necessary to implement the core objective of the instrument, such as the terms deforestation, forest, plantations, non-deforestation and production. The remaining definitions [points 9 to 30] refer to obligated parties and regulated activities such as operators, traders, placing on the market, making available on the market, etc. They are based as far as possible on terms already included in EU law in the relevant internal market and customs legislation, and also take into account the specific problems encountered in the implementation of the Timber Regulation. The definitions have been slightly modified in the light of the impact assessment to increase their legal precision and to take into account new developments in the relevant EU legislation.


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