Deforestation-free Regulation: ensuring you supply chain is compliant

The new Regulation repeals the EU Illegal Timber Regulation. It sets mandatory due diligence rules for operators which want to place certain commodities and products on the EU market. The aim of this Regulation is to ensure that only deforestation-free and legal products are be allowed on the EU market.

The Regulation only applies to commodities such as cattle, cocoa, coffee, oil palm, rubber, soya and wood (i.e. relevant commodities), as well as certain products containing, having been fed with or having been made using those commodities, such as beef, pulp, and paper (except if bamboo-based or recycled) (i.e. relevant products). Annex I of the Regulation contains Combined Nomenclature-based list of relevant commodities and  products that are covered by the Regulation.

Obligation for operators

The new rules require operators that place relevant commodities or products for the first time on the EU market to exercise due diligence in order to be able to ensure that:

• Those commodities and products have not been produced on land deforested or degraded after 31 December 2020, and
• They have been produced in accordance with the laws of the country of production

When operators do not meet either of the two requirements it is forbidden to place the products on the EU market.

The due diligence process consists of three steps which operators will need:

1. To ensure access to information such as the commodity, quantity, supplier and country of production, a key requirement is to obtain the geographic coordinates that link the product to the specific plots of land where the commodities they place on the market were produced.
2. To use the information on the plots of land used for producing the commodities to analyze and evaluate the risk in the supply chain.
3. To take adequate and proportionate mitigation measures.

The EC will use a benchmarking system to assess countries and their level of risk of deforestation and forest degradation driven by the commodities in the scope of the Regulation. It is mandatory to submit a due diligence statement in order to place relevant commodities or products on the EU market or export them from it.

The Regulation foresees an additional separate legal instrument that introduces mandatory due diligence on human rights and environmental impacts to companies’ own operations and value chains in general. Thus companies should be prepared for the report under the ESG sustainability principles as well.

Non-compliance

The competent authority of a Member State will perform checks to establish if commodities placed on, made available for or export from the EU market, are in accordance with the Regulation. The EC announced that each Member State will carry out checks on a yearly basis of at least 5% of the relevant operators, as well as 5% of the volume of each of the commodities and products placed, made available, or exported from each territory.

In case of non-compliance with the Regulations, operators will be required to take corrective actions. In addition, each Member State will lay down penalties for non-compliance which will include: fines proportional to the level of environmental damage and the value of the commodities, the confiscation of the commodities and products concerned, as well as revenues gained with them, and temporary exclusion from public procurement.

If you operate on the EU market with certain commodities and products as mentioned above, you will most likely be confronted with the new compliance rules. For this reason, make sure that you asses your supply chain timely in order to be compliant and to avoid penalties.