End-of-year EUDR developments

In the wake of the US election and COP29, 2024 is coming to a close amidst significant political turmoil. Further to these major global shifts, an important piece of legislation has also been in the spotlight: the EU Deforestation Regulation (EUDR), formally known as 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.

Concerns have been raised by EU Member States, non-EU countries, and various traders and operators about their ability to fully comply with the regulation by the original deadline of late 2024. As a result, amendments to the regulation were proposed and now the EUDR application is about to be postponed for a year.

In this article, Enhesa experts Marina Dorileo and Diletta Managò deliver an overview of the EUDR and the recent developments likely to impact businesses.

An overview of the EUDR

The European Union Deforestation Regulation (EUDR) aims to reduce the EU’s contribution to deforestation and forest degradation. To achieve this, it establishes rules for exporting, placing, and making certain commodities linked to deforestation and forest degradation available on the market. The impacted commodities are wood, rubber, palm oil, cocoa, coffee, soy, and cattle, as well as derived products (listed in Annex I of the Regulation) made from these commodities, such as wood pallets and packing cases (not exclusively used as packing material), transmission belts, pneumatic tires, and palm oil-based derivatives.

The EUDR sets common rules, including mandatory due diligence, for any company — whether based in the EU or abroad — that wishes to place these products on the EU market or export them out of the EU. Companies must demonstrate that their products don’t originate from recently deforested land and haven’t contributed to forest degradation.

Due diligence under the EUDR

Under the EUDR, companies are required to implement a due diligence system and issue a due diligence statement that verifies their imported goods are deforestation-free. This means the products mustn’t come from deforested land or have contributed to forest degradation anywhere in the world after 31 December 2020. The due diligence statement must be submitted through the European Information System, which is currently open for registration.

Furthermore, companies must trace each relevant commodity back to its plot of land before making it available, placing it on the market, or exporting it. The due diligence statement must include geolocation information and is mandatory for shipments of imports and exports, as well as for transactions within the EU market.

For commodities produced outside the EU, the operator placing the products on the EU market bears the main responsibility. This operator must ensure that the mapped and geolocated area corresponds accurately to the land where the commodities were produced.

Deforestation risk assessments

The EUDR also includes a benchmarking system to assess the risk of a product being linked to deforestation, categorizing products as high, standard, or low risk. This benchmarking system will be updated periodically to reflect changes in production patterns.

Obligations for operators and authorities will differ based on the risk level of the country or region of origin. Products sourced from low-risk areas will have simplified due diligence requirements, while those from high-risk areas will be subject to enhanced scrutiny.

The EUDR indicates that the European Commission (EC) may amend the list of products via a delegated act. The EUDR entered into force on 29 June 2023, with the aim for its main obligations to be applicable by 30 December 2024. However, this date is about to be postponed by one year.

Non-binding guidance from the European Commission

Before we delve into the details regarding the timeline extension, it’s essential to reference the guidance published by the European Commission (EC) on 13 November 2024, along with the updated Frequently Asked Questions (FAQs) concerning the implementation of the EUDR.

These documents aim to facilitate the harmonized implementation of the EUDR across all Member States. They provide clarity on specific sections of the EUDR legislative text and serve as reference material for companies that must adhere to the regulations.

Here are some key aspects of these documents that businesses must take into consideration…

Definitions related to market activities

The Guidance clarifies crucial definitions, including:

• Making available on the market: This occurs when a trader supplies relevant products within the Union market for distribution, consumption, or use as part of their commercial activity.
• Placing on the market: This refers to an operator making a relevant product (as listed in Annex I of the EUDR) available on the Union market for the first time, again as part of their commercial activity.
• Operator: The combined definitions of ‘operator’ and ‘in the course of a commercial activity’ encompass any individual or business that places a relevant product on the market, whether for distribution to commercial or non-commercial consumers or for processing — or use in their own business.

The Guidance specifies that the classification of ‘operators’ depends on the origin of the products (whether produced inside or outside the EU) and how they are placed on the EU market:

Products produced within the EU

In this case, the ‘operator’ is typically the distributor or user engaged in commercial activities, which may include the producer or manufacturer. If a company modifies a product in a way that results in a new harmonized system (HS) code in accordance with Annex I of the EUDR and then places it on the market or exports it, that company is also considered an operator further down the supply chain.

Products produced outside the EU

The ‘operator’ is generally the importer when the product is declared to be placed under the ‘release for free circulation’ customs procedure. Identification is made through specific customs documentation, such as data element 13 04 000 000 in the EU Customs Data Model (EUCDM) or the ‘Consignee’ listed in box 8 of the Single Administrative Document. If the importer isn’t based in the EU, the first entity to make the product available on the EU market takes on the operator responsibilities.

Imported products

The designation of ‘operator’ does not depend on changes in ownership or contractual terms. For domestic products, the operator is typically the owner at the point of sale, although specific contractual arrangements may influence this.

Products exported from the EU

In this scenario, the ‘operator’ is usually the exporter listed in the customs declaration for the export procedure, specifically identified as the ‘exporter’ in data element 13 01 000 000 of the EUCDM or as the ‘Consignor/Exporter’ in box 2 of the Single Administrative Document.

Due diligence and the definition of ‘negligible risk’

Under the EUDR, operators are required to conduct thorough risk assessments and identify suitable risk categories and mitigation measures based on collected data. These risk assessments must be tailored to individual products and take into account a variety of factors, such as:

• The product’s origin
• Potential risks
• The complexity of the supply chain
• Any indications that a company within the supply chain is engaged in illegal activities, deforestation, or forest degradation
• Any verifiable documents provided by the supplier that demonstrate compliance with applicable legislation

The term ‘negligible risk’ under the EUDR refers to a situation where the relevant commodities or products don’t raise any concerns regarding whether they’re deforestation-free or produced legally according to the relevant legislation in the country of production. That is, following a comprehensive assessment of both product-specific and general information — and, if necessary, after implementing appropriate mitigation measures.

Factoring in the complexity of the supply chain

The EUDR explicitly identifies ‘complexity of the relevant supply chain’ as a critical criterion for risk assessment and mitigation in the due diligence process.

To evaluate the complexity of the supply chain, operators and traders can utilize a non-exhaustive list of questions (detailed under Section 5 of the EC guidance) pertaining to relevant products that will be placed on, made available in, or exported from the European Union market. This list includes considerations such as:

• Are there multiple processors and/or steps in the supply chain before the relevant product reaches the Union market?
• Do the relevant products contain commodities sourced from multiple plots and/or countries of production?
• Is the relevant product highly processed, potentially incorporating multiple other relevant products?

Relevant legislation of the country of production

Determining whether a specific commodity or product has been produced in accordance with the applicable legislation of its country of origin depends on the laws of the country where the commodity was grown, harvested, obtained, or, in the case of livestock, raised on relevant land or in designated facilities. This consideration also extends to the commodities contained within finished products.

The Guidance clarifies that the EUDR adopts a flexible approach by outlining several areas of law without citing specific statutes. It acknowledges that legal frameworks vary by country and may change over time.

To be deemed relevant under the EUDR, laws must specifically impact or influence the legal status of the production area.

Legislation is also considered relevant if it addresses issues related to the prevention of deforestation and forest degradation. The Guidance provides non-exhaustive examples of issues covered by the EUDR, such as laws regarding land use rights, legislation on land transfers — particularly concerning forests — and laws governing land lease transactions.

Packaging regulated under the EUDR

The following types of packaging and packaging materials are subject to the EUDR:

• Packing materials that are marketed as products in their own right
• Containers that confer essential characteristics to a product, such as decorative gift boxes

However, packing materials that are presented with goods inside and are used solely to support, protect, or carry another product, as well as user manuals accompanying shipments (unless they’re marketed as independent products), are not subject to the EUDR.

The EUDR doesn’t apply to waste and recovered products

The EUDR exempts operators and traders who handle used products that have reached the end of their lifecycle and would otherwise be classified as waste. This exemption includes goods that are entirely made from recycled materials. However, it doesn’t apply to by-products from manufacturing processes that involve non-waste materials or certain specified waste products listed in Annex I of the EUDR.

Operators must establish and maintain due diligence systems

The EUDR mandates that operators maintain a due diligence system to document, analyze, verify, and report procedures that ensure product compliance with regulatory requirements. This system must undergo an annual review, during which operators should assess whether processes are being followed correctly and update the system if new information impacts its objectives. All updates must be recorded and retained for a period of five years.

The review can be conducted internally (but independently) or by an external organization. It should identify any weaknesses, establish deadlines to address them, and confirm that effective procedures for data collection, risk assessment, and compliance actions are in place. Best practices include documenting each step and outcome of the review process to demonstrate the system’s effectiveness.

The role of certifications and third-party verification schemes

Certification and third-party verification schemes can support operators’ risk assessments under the EUDR by providing evidence that relevant commodities meet legal and deforestation-free standards. These schemes, which operate independently from production or supply chain actors, typically include standards, compliance checks, and chain-of-custody certifications to ensure that products contain certified materials from verified sources.

While these schemes can offer valuable information, they are voluntary and not mandatory under the EUDR. The EUDR does not require operators to use these schemes, nor does it obligate producers or countries to adopt them. Additionally, certification does not exempt operators from their obligation to conduct due diligence.

Introduction of the Information System

Another development in November was the opportunity for operators to register in the Information System.

This system is part of the Deforestation Due Diligence Statement Registry — an online tool that helps companies create and submit due diligence statements for their supply chains. These statements confirm that products don’t contribute to deforestation, ensuring compliance with the EUDR.

The registration process is outlined in the user manual, and the system will be open for submitting due diligence statements before the EUDR officially takes effect. Pilot testing of the system began in January 2024.

Postponement of the EUDR application

On 3 October 2024, the European Commission proposed a regulation to amend the EUDR and postpone its application date by one year.

As a result, companies will need to comply with the EUDR’s obligations starting on 30 December 2025, instead of the previously established date of 30 December 2024. For operators classified as micro or small enterprises, the EUDR will take effect on 30 June 2026, rather than the originally scheduled date of 30 June 2025.

The proposal also postpones the repeal of Regulation (EU) No 995/2010 of 20 October 2020 laying down the obligations of operators who place timber and timber products on the market. This repeal will take effect on 30 December 2025, instead of 30 December 2024, and the regulation will continue to apply until 31 December 2028 (rather than 31 December 2027) for timber and timber products produced before 29 June 2023 and placed on the market after 30 December 2025.

According to the European Commission, this postponement is intended to provide third countries, EU Member States, operators, and traders additional time to adequately prepare for their due diligence obligations.

“No risk” classification proposed

On 14 November 2024, the European Parliament voted in favor of the postponement while also adopting other proposed amendments. This included the creation of a new category for countries classified as “no risk” for deforestation, alongside the existing categories of “low,” “standard,” and “high” risk. Countries deemed “no risk” would face significantly less stringent requirements due to their stable or increasing forest areas.

Results of proposed changes

On 3 December, the European Council and Parliament reached a provisional agreement extending the date of application of the EUDR for one year. They also agreed to drop the no risk classification inclusion, therefore no changes in the substance of the regulation has been implemented.

The goal of providing this extra year is to provide legal certainty and enough time for the effective implementation of the rules, including fully establishing due diligence systems that cover all relevant commodities and products.

At the time of publication (December 2024), the agreement is pending confirmation by both institutions and formal adoption, which is expected before the end of 2024.

Overcoming challenges of the EUDR: Preparation is key

Although the potential postponement of the EUDR may provide companies with a temporary reprieve from immediate compliance deadlines, the essence of the regulation — and its eventual implementation — is unavoidable. Organizations should view this delay not as a reason to pause but as an opportunity to proactively address the considerable challenges of compliance.

The EUDR establishes a rigorous framework to ensure that products entering the EU market are free from deforestation and forest degradation. Complying with these requirements involves overcoming several critical hurdles:

1. Supply chain complexity

Many companies have supply chains that span continents and encompass multiple tiers of suppliers. Mapping these intricate networks to ensure traceability is a significant challenge.

2. Diverse countries of production

Raw materials often come from regions with varying levels of regulatory enforcement, environmental risk, and documentation standards, complicating compliance efforts.

3. Country-specific regulatory differences

Different national standards and regulations create harmonization challenges, requiring companies to develop robust and adaptable compliance frameworks.

4. Supplier engagement and cooperation

Successfully meeting EUDR requirements relies heavily on collaboration throughout the supply chain. Gaining supplier buy-in, providing training, and setting clear expectations are essential yet resource-intensive processes.

5. Gathering and verifying information

The regulation mandates proof of compliance through detailed documentation and geolocation data, necessitating investments in data collection, technology, and third-party audits.

These challenges highlight the importance of early preparation. Companies that take proactive steps now to enhance supply chain transparency, build strong supplier relationships, and implement effective data verification systems will be better positioned to meet EUDR requirements when enforcement begins.

While the delay in the application of the EUDR may temporarily relieve some pressure, it doesn’t lessen the urgency of aligning with its principles. As the global market increasingly emphasizes sustainable practices, compliance with regulations like the EUDR will become a critical competitive differentiator. Companies that seize this opportunity to prepare will not only avoid potential penalties but also enhance their reputation and market position as leaders in sustainability.

What else is influencing the EU sustainability landscape?

The EUDR is just one of several major regulations currently shaking up the sustainability landscape across the EU. Check out these additional articles and resources to learn more about the other areas that businesses need to stay on top of to remain relevant and competitive in the EU…