Deforestation: Essential steps for compliance by December 2024

Regulation 1115/2023 (EU) on deforestation and forest degradation (EUDR) has been in force since June 2023. Obligated companies must implement the EUDR by 30 December 2024 (small and ­medium-sized enterprises (SMEs) by 30 June 2025). After a first round of FAQs in June 2023, the European Commission published further FAQs in December 2023 and provided access to the Forest Observatory.

Non-EU companies wishing to import relevant products into the EU should be prepared for extensive requests for information from their European customers.

The EUDR applies to relevant raw materials, including cattle, cocoa, coffee, palm oil, rubber, soy, wood and the products listed in Annex I of the regulation. This essentially means that numerous key industries are affected by the regulation. The EUDR also covers cross-border transportation of relevant products between production sites in the EU and abroad.

Import/export and trade ban in the event of non-compliance

From 30 December 2024 (from 30 June 2025 for SMEs), companies may only place relevant products on the EU market, make them available on the EU market or export them from the EU market if these products meet the ­requirements of the EUDR. The EUDR distinguishes ­between companies that import, produce and export relevant products in the EU (operators) and companies that make these products available on the market, i.e., sell them (traders). The EU Commission has now clarified that (special) customs procedures other than “release for free circulation”, such as the customs warehousing, inward processing and temporary admission, are not subject to the EUDR. Re-imports are considered to be imports.

To be EUDR-compliant, products must be deforestation-free or degradation-free and produced in accordance with the relevant legislation of the country of production. In addition, a Due Diligence Statement (DDS) must have been submitted.

Due Diligence Statement and the information system

Companies, i.e., non-SME traders and operators, must submit a DDS to the information system provided by the European Commission. According to the European Commission, a DDS can be amended or deleted within 72 hours. However, a subsequent amendment or deletion is not possible if the DDS has been used in the meantime (e.g., by other participants in the downstream supply chain). It has also been clarified that frequently used data cannot yet be stored for future reference. The EU Commission has announced that it will complete the test phase for the information system by the end of January 2024. However, it is already clear that there will be different ­input screens for traders and operators. In the DDS, companies must provide the geolocation data of the land on which the relevant raw material was grown and harvested or, in the case of cattle, where the cattle were kept. With regard to complex production situations, the EU Commission has stated that all relevant plots of land must be indicated, even if this means that in individual cases (e.g., in the case of bulk soy from various sources) more than 100 plots of land must be indicated. In addition, the DDS must confirm compliance with the due diligence obligations in accordance with the EUDR. Evidence and information in this regard does not have to be submitted via the information system, but should be documented by companies in the event of an official inspection into compliance with due diligence obligations.

Comprehensive due diligence obligations

According to Article 8 of the EUDR, companies are obligated to collect comprehensive information, carry out a risk analysis, take risk mitigation measures and document all measures taken. The EU Commission clarifies that the due diligence obligations must be fulfilled regardless of the expected country-specific risk of deforestation.

As a first step, companies must collect information. This concerns the aforementioned geolocation data and ­general information about the raw materials and products, such as HS code, weight and dimensions, as well as the date/duration and scope of production. The EU Commission ­emphasizes that every relevant product entering the European market should be traced back to its origin and – in the case of bulk goods – must not be mixed with non-compliant products. The information collected must show that the products are free from any links to deforestation or, in the case of timber, also free from any links to degradation and have been produced in accordance with the relevant legislation of the country of origin.

The extent of deforestation and forest degradation on a plot of land can be determined by the Forest Observatory, which the European Commission made available in ­December 2023. The EU Commission emphasizes that the Forest Observatory is non-binding and non-exhaustive. The database, which consists of satellite images and other information, shows in particular whether deforestation has taken place in an area after 31 December 2020. The EU Commission has clarified that forest degradation means a structural change in the forest – usually a conversion to plantations. The Forest Observatory specifies different types of forest change, e.g., due to fire or disturbance. Due to the complexity of the information, companies should familiarize themselves with it at an early stage.

Although the list of relevant legislation of the country of production under Article 2 (40) EUDR is extensive and abstract, the EU Commission has not yet defined it comprehensively. Instead, the EU Commission has announced that detailed guidelines will be made available in due course. Furthermore, the EUDR only contains a “non-­exhaustive list of legal provisions”; however, all provisions should be assessed in relation to the production sector. According to the Commission, environmental protection refers to the “protection of forests, the reduction of greenhouse gas emissions or the protection of biodiversity”. The Commission emphasizes that in particular, for example, official records, court decisions, permits, contracts and ­official papers should be collected as evidence of compliance with the relevant legislation.

The EU Commission has made it clear that certification systems are useful to cover information needs – i.e., to ensure the chain of custody. However, they should only be seen as a supplement to compliance with the EUDR. ­Nevertheless, in order to enable a seamless transfer of ­information, the use of certificates is recommendable.

In a second step, the information collected must be subjected to a risk analysis to determine whether there is a risk that the EUDR has not been complied with. Operators and traders will only be EUDR compliant, if they can rule out a non-negligible risk. Similar to the German ­Supply Chain Due Diligence Act (LkSG), this means that relevant supplier information should be linked to risk ­indicators. Companies should consider using AI-based tools to assess relevant risk-related information.

In a third step, risk mitigation measures must be taken. This includes a risk management system with a respon­sible compliance officer – similar to what German companies already know as a human rights officer from the LkSG.

Your next steps

EU companies may be directly obligated under the EUDR. As suppliers of relevant raw materials and products, non-EU companies can be contractually obliged to provide and procure the necessary information. The consequences of the EUDR therefore extend far beyond the borders of the EU.

In order to prepare as effectively as possible for the ­requirements of the EUDR, companies should clarify whether the EUDR affects them. Companies should ­review the tariff numbers of their goods and compare them with Annex I of the EUDR to identify relevant pro­ducts. In case of doubt, companies should consider legal advice for the specific customs classification of their goods. An application for Binding Tariff Information (BTI) may be recommendable.

Regardless of whether companies are directly or indirectly affected by the EUDR as a non-EU company, it is advisable to create a risk analysis and risk management to organize the collection and analysis of information that will be needed along the supply chain in the future. Companies should combine supply chain due diligence expertise with foreign trade expertise. The complexity of this new supply chain due diligence regulation demonstrates the need for reviewing and amending internal risk management processes and monitoring current legislation projects.