A focus on EUDR: Breaking down the FAQs

The EU Deforestation Regulation (EUDR) was adopted on the 16th of May, 2023. By the 30th of June there were enough questions to fill an eighteen page FAQ pdf, and we suspect there are many more that didn’t make it in. This document answers a lot of questions about EUDR across many topics, including traceability, scope, due diligence, supporting implementation, plus a lot more. 

First off, let’s make sure we are on the same page on some of the key terms mentioned throughout the document:

• An Operator – Companies that place products on the EU market, but also those that export from the EU market.
• A Trader – Any entity in the supply chain other than the operator who, in the course of a commercial activity, makes timber and other forestry products available in the EU market.
• A Producer – A farmer, large forest owner, processor, or smallholder who produces commodities,  
• Annex 1 – The regulation text is organised by chapters, articles, and annexes. Annex 1 can be found towards the end of the document after chapter 9, and contains a list of relevant products and commodities referred to often when describing what is covered by the EUDR.
• The Information System – The “IT” system which will contain the due diligence statements submitted by the operators and traders to comply with the regulatory requirements. It will be operational by the time EUDR comes into force, and then continuously improved upon.
• SME – Small and medium-sized enterprises are determined by staff headcount, turnover, or balance sheet total. See the table below for figures. Anything bigger than a SME is classified as a business.

In this blog post, we have focused on the areas we have heard from our network that there was still a lot of uncertainty around. Starting with:

Geolocation Traceability:

• Geographic coordinates will be needed in order to prove that no deforestation was committed on the specific location of that commodity.
• The coordinates provided will have to be submitted into the Information System within the due diligence statement.
• This must happen before any products are placed on the EU market, or exported from it.
• It’s important to note that if a plot of land is over 4 hectares and has been used to farm a product other than cattle, then the geolocation provided will use polygons.
• These responsibilities lie with both operators and traders.

If a product has been traded in bulk then all the plots of land involved must be identified and the commodities should not be mixed with other products that are of unknown or deforested/degraded origin. (Here deforested/ degraded refers to an area that has continued to suffer from deforestation or degradation after the 31/12/2020 cut off date.) 

This includes products on mass balance chains of custody. If a product cannot guarantee to be deforestation free then it is prohibited. Operators and traders are required to follow the EUDR whatever the quantity of the product or commodity they are working with. 

If part of a shipment is non-compliant with the regulation, then that part must be separated from the rest. If this cannot be done, then the whole shipment will be deemed non-compliant.

It is important to clarify that this requirement doesn’t apply to producers.The subject of obligation is on an operator who places products on the EU market, therefore it is those operators who need to guarantee that the area was effectively mapped and that the geolocation corresponds to the plot of land where the products came from.

Operators and traders must also ensure that the geolocation information is precise and truthful, as any incorrect data would be a breach of the regulation. If operators and traders are not given the information needed for regulation by upstream suppliers then they won’t be able to import into or export out of the EU.

You can read more about geolocation in our blog post here.

Scope:

If a product has a chance of containing relevant commodities listed in the EUDR, but is not listed in Annex 1, then the regulation doesn’t apply to these products and they are fine to be imported or exported by the Operator and/or Trader. There are a lot of these instances, for example soap is not listed in Annex 1, but has a chance to contain a forest-risk commodity.

The list of relevant products and commodities can be found here.

Subject of Obligations:

Operators further down the supply chain are those who transform a product listed in Annex 1 into another product. For example, ‘Cocoa beans, whole, raw’ transformed into ‘Chocolate’.

If a company produces a product listed in Annex 1 with commodities that are already imported and verified then the regulation will still apply to both imports and exports. Operators involved with these new products will have to include the reference number of the original product’s due diligence statement in their export declaration.

If a product enters the market and the information has not been properly disclosed/incorrect information is provided by the operator, then not just the operator but also each actor of the supply chain involved in the trade shipment (including the farmers/foresters) will be held liable for breach of regulation. 

That being said, it is still unclear if mistakes are made to the due diligence statement further down the line if the liability for breach of regulation still falls on each actor of the supply chain, including those that were involved before the mistakes were made. 

We expect the FAQ document to be added to in the coming months where hopefully specifications like this are clarified. 

Due diligence:

As mentioned previously, all operators regardless of size (and traders who are not SMEs*) will have to maintain a due diligence system which consists of three main steps:

• Step one, they have to collect the information needed, such as the name of a commodity or product which is intended to be imported or exported. This includes geographical coordinates mentioned above.
• Step two, companies need to check this information against the risk assessment pillar of their due diligence system to verify and evaluate the risk of non-compliance. The information gathered will need to be checked against the risk assessment criteria (read more about risk assessments in article 10 of the regulation).
• And step three, they will need to take measures against any risk of non-compliance found, and document what these measures are.

*A SME who acts as a trader is only required to record the name of their Suppliers and Buyers, along with the reference numbers of the due diligence statements associated with the product they are trading. Therefore, they are not required to have the full operable due diligence system. However, this is not the case for when a SME acts as an operator as they are subject to the same requirements as any other operator.

If an operator re-imports a product that was previously exported from the EU and places it under the customs procedure ‘release for free circulation’ then the same obligations will apply as the product would be placed for the first time on the market. Due diligence statements that already exist can help the operator to exercise due diligence.

Supply chain members can use various certification schemes to help with their risk assessment. Although we must note that there is no certification that covers all the traceability or transparency requirements, such as geolocation or DNA testing, so it’s best to consider that additional verification measures will be needed. Read more about the differences between certification and verification here.

Benchmarking and partnerships:

A benchmarking system operated by commission will classify countries, or parts of, in three categories – high, standard, or low risk – according to the level of risk of producing non-deforestation free commodities within that country. The method to benchmark a country is still being developed, and will be presented in future meetings of the Multi-Stakeholders Deforestation Platform, a platform launched to help protect and restore the world’s forests.

The commission, who is developing the benchmarking methodology, will engage with all countries that are or risk to be classified as high risk, with the aim to reduce their level of risk. If a country has been designated ‘low risk’, then the operators from this country will only have to complete the first step of the due diligence process – providing supply chain information such as geo-location information for forest/ farm plots. This is known as ‘simplified due diligence’. Drastic changes of supply chains are not warranted or expected with the introduction of the benchmarking methodology, as the only difference in shipments will be that those from high-risk countries will be subject to enhanced scrutiny from the authorities.

With much to unpack and comprehend about EUDR it is important to continue to share resources with each other and make it as easy as possible to comply with the regulation and fight against deforestation.

If you’re looking for a community of industry professionals that are happy to share resources and answer questions, consider joining the Global Timber Traceability Group here as a great way to keep up to date with industry news and knowledge.

For any more information we may share in the future, follow us on socials and keep an eye out. We’re on LinkedIn, Facebook, and Twitter.

And if you’re looking for more to read on EUDR, check out our blog series here.