The new EU Deforestation Regulation – see the wood for the trees

The new EU Deforestation Regulation came into force in June 2023. It will apply from the end of 2024 and will no longer only relate to the timber trade.

The aim of the EU Deforestation Regulation is to reduce Europe's contribution to global deforestation and forest degradation, greenhouse gas emissions and loss of biodiversity. Now, also companies that for example place cocoa, coffee, rubber, soyabeans and oil palms on the market and especially their derivatives, such as palm oil, must adapt to the Regulation.

The EU Deforestation Regulation will apply in full on 30 December 2024

In Germany, there are currently approx. 27,000 companies that import wood or wood products. In a 2018 survey, the Thünen Institute found that only 42 % of these importers were aware of the existence of the European Timber Regulation (EUTR). The EUTR already sets out comprehensive compliance requirements for the supply of timber and timber products to the EU internal market. Many companies – especially those whose main business is not the provision of wood (e.g. because they only place cardboard packaging on the market) – have been surprised in the past by inspections that have been carried out by the Federal Office for Agriculture and Food (BLE).

This could threaten even more companies in the future. On 9 June 2023, the more stringent successor to the EUTR was published in the Official Journal of the European Union. It is called 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 (EU Deforestation Regulation) and will apply in full from 30 December 2024 onwards. 

The EU Deforestation Regulation replaces the EUTR. According to the new Regulation, certain commodities and products may now only be placed on the market if they originate from supply chains that are free from deforestation, are produced in accordance with the relevant legislation of the country of production and can provide a so-called "due diligence statement". Also with the EU Deforestation Regulation, there is a risk that many addressees will learn of the requirements far too late, especially as the new Regulation covers additional products (including tools, tool bodies, books, newspapers, pictures). 

No longer just wood: other commodities now included

The aim of the new Regulation is – as the name suggests – to curb global deforestation. The authors of the Regulation refer to figures provided by the Food and Agriculture Organization of the United Nations. According to these figures, between the years 1990 and 2020, approx. 420 million hectares of forest – an area larger than the EU – were lost worldwide. The EUTR, which is still in force, already aimed at combating illegal logging.

The new EU Deforestation Regulation now additionally takes into account the extraction of timber for the creation of agricultural land and, therefore, goes beyond the mere legal conformity of logging. The central criterion is that the supply chains are free from deforestation: according to the new Regulation, the supply chains will only be deemed free from deforestation if the products were produced on land that had not yet been deforested by the cut-off date of 31 December 2020 or – and even more extensively – that have not yet been degraded at the time of the cut-off date (forest degradation). The EU Deforestation Regulation, therefore, also now in its scope of application includes players trading in cattle, cocoa, coffee, oil palm (palm oil), rubber, soyabeans (so-called "relevant commodities") and the respective products (derivatives). 

EU Deforestation Regulation has expanded the circle of parties who are obligated by it

The EU Deforestation Regulation is aimed at companies that place the aforesaid commodities or products on the EU market (operators) or make them available on the Union market as part of a commercial activity (traders).

Even more urgently than under the EUTR, companies are now advised to check Annex I of the EU Deforestation Regulation for possible overlaps with their products. Even companies that only place wood-containing packaging and printed matter as their actual product on the EU market may be included. What is more: in future, many commercially available and widespread derivatives, such as palm oil, glycerine, stearic acid, chocolate, tyres and conveyor belts, which are listed in the Annex to the Regulation, will also be included – even though at first glance, they have nothing whatsoever to do with wood.

What are the duties of care?

In order to place the relevant commodities and products on the market, the EU Deforestation Regulation requires that these be free from deforestation, have been produced in accordance with the relevant legislation of the country of production and that a due diligence statement is available for them. In order to prove that the relevant products meet these requirements, operators and traders must fulfil a number of due diligence obligations. As under the EUTR, these are based on the triad of information gathering, risk assessment and risk minimisation. 

Accordingly, addressees under the EU Deforestation Regulation must first collect a wealth of information along the supply chain for their product to be imported. Among other things, the Regulation sets out: 

• the exact name of the product,
• the name and contact details of all companies, operators or traders who have supplied them with the relevant products, and
• adequate, conclusive and verifiable information that the relevant products are deforestation-free.

Based on this information, operators and traders can then carry out a risk assessment to determine whether there is a risk that the relevant products may not conform as required by the Regulation. If there is a non-negligible risk, this must be minimised as much as possible by obtaining further information or carrying out other measures (such as going through special certification procedures). The operator must provide a due diligence statement to the competent authority stating that it has complied with these due diligence requirements before placing the relevant products on the market. This way, the market participant assumes responsibility that the products conform with the Regulation. 

Higher sanctions will be imposed for violating the EU Deforestation Regulation

The EU Deforestation Regulation also pushes for the stricter implementation of its sanctions compared to the EUTR. Whilst the concrete design of the sanctioning system is left up to the member states – e.g., as the German legislator did with the EUTR with its German Timber Trade Security Act (HolzSiG). The Regulation, however, sets minimum fines. Therefore, the maximum amount of possible fines for legal entities is to be set at a minimum of 4 % of the annual aggregate turnover.

In addition, the competent authorities are empowered to force the withdrawal of a relevant product from the market and recall it immediately. In view of this initial situation, it is to be expected that German legislation will tighten the existing sanctions when implementing the Deforestation Regulation. 

EU Deforestation Regulation will create the necessary tightening of existing compliance systems 

The new EU Deforestation Regulation will lead to a tightening of existing compliance systems for companies that were already covered by the EUTR, and for many other companies it will mean implementing a corresponding system for the first time.

Once again, these developments show that deliberations regarding ESG issues are steadily being turned into legally binding regulations, especially with regard to environmental matters. Companies are generally advised to keep an eye on these developments in their area of business. Furthermore, the EU Deforestation Regulation shows (as did its predecessor, the EUTR) that companies should regularly check their supply chains for possible regulatory requirements, independently of their core business. 

This article was prepared with support from Mr Philipp Lührmann.