EU deforestation regulation to significantly affect imports and exports

The new regulation aims to mitigate the effects of global deforestation and forest degradation caused by the expansion of agricultural land. It imposes a wide range of obligations on companies placing selected commodities or products on the EU market or exporting them from the EU, with implications for the entire supply chain.

What commodities and products are affected?

The regulation mainly applies to seven commodities that according to the EU are usually farmed or grown at the expense of forests: cattle, cocoa, coffee, oil palm, rubber, soy, and wood. It will also affect products containing, fed on or produced from these raw materials. In practice, this means that the regulation also applies to chocolate, coffee, tyres, rubber products, and clothing (e.g. rods, tubes, but also gloves), furniture, charcoal, packing cases, crates, boxes and similar wooden packaging, barrels, as well as glycerol or palmitic acid used in the manufacture of cosmetic products. This will affect companies in most industries, from the food and the automotive to the clothing industry.

Companies that place these relevant commodities or products on the EU market (e.g. import them from third countries or produce them in the EU and then sell them) or export them from the EU will have to comply with the below obligations. Many of them also apply to distributors and other traders.

What obligations does the regulation introduce and what information will need to be collected?

First, companies are called upon to exercise due diligence before importing or exporting relevant commodities or products. This includes the obligation to (i) collect sufficient information and documents proving that the relevant products did not cause deforestation and were produced in accordance with the legislation of the country of production; and (ii) take measures to assess and mitigate risks.

Companies must collect and maintain, among other things, the following information and evidence:

• detailed descriptions of the products, including from which relevant commodities or products they were produced
• the geolocation of all land where each commodity was produced (this applies to all commodities the final product contains or was made using)
• the date and time range of production
• conclusive and verifiable information that the commodities were produced in accordance with the legislation of the country of production and that their production does not cause deforestation

the name, address, and email of the entity that supplied the products.


Risk assessment and mitigation

Companies then must analyse the collected information and assess whether there is a risk that the products are non-compliant. The regulation sets out many criteria to be considered during risk assessment. If there is more than a negligible risk, companies must take measures to mitigate it (e.g., by carrying out an independent survey or audit, requiring additional information or documents). At the same time, policies, controls, and procedures must be put in place to effectively manage the identified risks (e.g. model risk management practices, internal controls, appointment of a compliance officer for non-SME entities). Large companies must annually review the due diligence system in place and report information on the relevant products and countries of production, the conclusions of the risk assessment, and the measures taken to mitigate any risks.

Before placing the products on the market or exporting them, compliance with the due diligence requirements shall be demonstrated by submitting a due diligence statement (containing most of the information) through the EU's information system. Failure to comply with this obligation means that the relevant products cannot be placed on the EU market or exported from the EU.

Sanctions

Companies failing to comply with these obligations will not be allowed to import or export the relevant commodities or products to or from the EU market. Non-compliance with the regulation is also punishable by a fine of at least 4% of the annual EU turnover, confiscation of the products, confiscation of the revenues from trading in the products, temporary exclusion from public procurement, and temporary prohibition from placing relevant commodities and products on the EU market or exporting them from the EU market.

The regulation is in force and will be applicable from 30 December 2024. Companies therefore have only a few months to adapt to the new requirements.

We will discuss the impact of this regulation at the breakfast discussion How will the deforestation regulation affect global supply chains? Join our experts on Tuesday, 22 October at 9 a.m.