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Understanding the European Union Deforestation Regulation (EUDR)

The European Union Deforestation Regulation (EUDR) is more than just a new compliance hurdle for importers and exporters of specific commodities - it's a game-changer that will ripple through the entire supply chain, including logistics service providers who may not yet realize how deeply this regulation could impact them. While the spotlight has largely been on industries directly handling goods like timber, palm oil, and soy, the logistics sector may also find itself on the front lines of compliance. But what exactly does this mean for companies involved in logistics and customs clearance?

CLECAT has been working tirelessly to raise awareness of the EU Deforestation Regulation (EUDR) among our members and their clients, the European exporters and importers. This is an important a piece of legislation in tackling global deforestation but many have not realised the scope of the Regulation. As the EUDR takes effect in only a couple of months, it’s no longer just about ensuring that products are deforestation-free: logistics companies must now be vigilant in verifying and documenting the origins of the goods they handle.

Overview of the EUDR

The EUDR, formally known as Regulation (EU) 2023/1115, adopted on 9th June 2023, sets out detailed rules designed to prevent the importation and exportation of specific products linked to deforestation and forest degradation. It builds upon earlier environmental regulations, such as the EU Timber Regulation (EUTR), but with expanded scope and more stringent compliance obligations to ensure that products associated with deforestation are not traded on the EU market. EUDR affects internal EU trade as well as export and import to and from outside the European Union and requires European companies to prove that certain products traded by them were not produced on land that was deforested after 31 December 2020 or was subject to forest degradation.

EU regulators adopted the EUDR Regulation in 2023 in an effort to halt commodity-linked deforestation which is so important for policies on climate change and biodiversity/nature loss. The Regulation will apply for most economic operators from 30th December 2024. Much of the practical implementation details, such as technical standards and specific guidelines for enforcement are still pending the adoption of secondary legislation in the form of implementing and delegated acts. These are expected to be published later in 2024. In the meantime, the European Commission has made available and regularly updates a comprehensive Frequently Asked Questions document as well as a dedicated EUDR website that addresses some of the concerns and questions surrounding the EUDR. 

Products Covered by the EUDR

The EUDR covers a wide range of commodities and products that are associated with deforestation, either directly or indirectly. The Regulation's extensive scope means it applies not only to raw materials but also to finished goods that may contain these materials. Below is a summary of key commodities and examples of products impacted:

• Wood and Timber Products: This includes raw timber as well as products derived from wood, such as furniture, paper, and cellulose. The construction industry, home goods retailers, and packaging companies must ensure their products are compliant.
• Soy: Commonly used in animal feed and processed food products, the inclusion of soy in the scope of the Regulation means that companies involved in the food supply chain, including those handling animal products will be subject to EUDR.
• Palm Oil: Found in a vast array of consumer goods from food to cosmetics and cleaning products, the Regulation affects manufacturers and suppliers across multiple sectors.
• Cattle (Beef and Leather): This covers both meat products and leather goods, impacting the fashion industry as well as food suppliers who must ensure their supply chains are deforestation-free.
• Coffee and Cocoa: These commodities, which are essential to everyday consumer goods like chocolate and coffee, are also regulated. Retailers and importers of these products must be particularly cautious.
• Rubber: Used in the manufacturing of tyres and various industrial products, rubber's inclusion means that the automotive and manufacturing sectors will need to reassess their sourcing practices.

This broad coverage indicates that the EUDR will not only affect primary product producers but also those involved in processing, manufacturing, and retailing products derived from these commodities. Everyday items such as chocolate, shoes, coffee, furniture, and even cosmetics might be subject to this legislation, thereby impacting a broad spectrum of businesses.

Implications for businesses involved in long supply chains

For all EUDR goods that are sold multiple times before reaching the final buyer, the EUDR introduces strict traceability requirements. Each actor in the supply chain must prove that the products they handle are deforestation-free. 

When a product, like coffee or timber, is produced, the importer or the first seller in the EU must provide proof that it's not linked to deforestation. As the product is sold and resold along the supply chain -passing through traders, processors, manufacturers, and distributors -each actor must keep this proof intact and pass it on to the next buyer.

The challenge lies in ensuring that the documentation remains accurate and complete throughout the entire chain. If any link in the chain fails to provide proper documentation, the entire shipment could be considered non-compliant, meaning it cannot be sold in the EU. This traceability requirement means that every business in the supply chain must be vigilant, ensuring that they not only maintain but also verify the integrity of the documentation they receive and pass on.

Purchases for personal use and e-Commerce 

The EUDR defines an "operator" as any natural or legal person who, in the course of a commercial activity, places relevant products on the EU market or exports them from the EU. This means that the Regulation is primarily targeted at businesses or entities that are involved in the trade, import, or export of goods as part of their commercial operations. So, the responsibility for ensuring that the products comply with the EUDR falls on the operators - those businesses or entities placing the goods on the EU market. This includes online retailers, importers, and other commercial entities. These operators must ensure that the products they sell, or import comply with the EUDR. 

Individuals, purchasing goods for personal use, like a book, are not subject to the EUDR's requirements regarding due diligence, traceability, or documentation. The products they purchase should already meet EUDR standards if they are being sold or imported by compliant operators.

Impact on Logistics and Customs Professionals 

The EUDR places significant responsibilities on logistics service providers, freight forwarders, and customs agents. While the regulation primarily targets companies placing goods on the EU market, the complexity of supply chains means that logistics professionals will play a critical role in ensuring compliance.  

Companies involved in the transport and clearance of goods covered by the EUDR will need to familiarise themselves with the due diligence statements required by importers and exporters. This includes verifying that shipments are accompanied by the necessary documentation proving that the production of the goods has not contributed to deforestation. Customs agents must be prepared to check for compliance with EUDR documentation at import or export. Inadequate documentation or suspicion of deforestation-linked products could result in delays, fines,  confiscation or return of goods.

This means that any delay in registration, error in the IT systems, or any lack of clarity in the implementation can and will result in immediate blockages. Due to the scope of the Regulation, this can bring the entire European supply chain to a stand.

Logistics providers may need to assist clients in ensuring transparency across the supply chain. This could involve implementing or enhancing tracking systems to provide clear records of product origins and movement.

According to the European Commission’s guidance on EUDR implementation, deforestation-free and legal commodities must be kept separate from non-compliant goods during trading and shipping. Consequently, transport companies may need to establish their own due diligence systems to check the labelling and documentation of cargo before loading it onto their vessels. This precautionary measure can help avoid situations where non-compliant goods are only detected upon arrival at the EU border, potentially leading to significant delays in offloading, lack of warehouse capacity, financial penalties, or even the confiscation or return of the goods.

The Role of Customs Authorities

When goods covered by the EUDR are imported into or exported from the EU, customs officials are responsible for checking that these goods comply with the EUDR’s requirements. The EUDR relies on customs authorities to verify compliance at the point of import or export, making customs a critical checkpoint for preventing deforestation-linked products from being traded on the EU market. If the documentation is incomplete, inaccurate, or if there are reasons to believe the products might be linked to deforestation, customs can hold, or even refuse entry or export of the shipment. Customs authorities are also empowered to take enforcement actions, such as imposing fines, confiscating goods, or conducting inspections, to ensure compliance with the EUDR.

Timeline for Compliance

The EUDR will begin to apply to large and medium-sized businesses on 30th December 2024 and will apply to small and micro-enterprises (SMEs) from 30th June 2025. This staggered approach provides smaller businesses more time to adapt to the new requirements but underscores the urgency for larger companies to begin preparations immediately. Further SME Facilitation within the EUDR the Regulation may allow for simplified due diligence processes for SMEs, particularly for those operating in lower-risk supply chains. This could mean fewer documentation requirements or reduced scrutiny compared to larger companies. However, SMEs will still need to ensure that their products are deforestation-free and compliant with the regulation.

Meanwhile, CLECAT and other stakeholders, have asked for a delay of the date of application as with no transitional period, de minimis, testing environment or major simplification provided so far by the European Commission for implementation, the December implementation deadline is an increasingly looming pressure. 

Conclusion

Overall, the EUDR represents a significant regulatory shift with far-reaching implications for a wide range of industries. CLECAT encourages its members, logistics and customs professionals, as well as traders to take proactive steps to understand the requirements, prepare their operations, and support their clients and suppliers in achieving compliance. By staying informed and ready, European Economic Operators can help ensure that their operations and those of their clients run smoothly under the new regulatory landscape.