Deforestation and forest degradation are increasing at an alarming rate, exacerbating climate change and biodiversity loss. The increasing use of agricultural land to produce commodities (such as wood, beef, palm oil, soy, cocoa, and coffee) is one of the primary causes of deforestation and forest degradation. As a result, the European Commission has proposed a Regulation to minimise EU-driven deforestation and forest degradation. The scope of this proposal lays down mandatory due diligence parameters for these commodities. This is part of a wider plan of action as outlined in the Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests (2019).

Scope

The proposed due diligence obligations will extend to imports of wood, beef, palm oil, soy, cocoa, and coffee commodities.

Points to note

  • Due diligence: the onus will rest with EU importers to comply with the due diligence regulations to evaluate the risk of forest degradation and deforestation linked with the relevant commodity
  • Benchmark system: The Commission would place producer countries into three risk categories. Lowered due diligence duties will be in place for products originating from low-risk sources and heightened scrutiny for high-risk areas.
  • The role of Member States: A new digital register will centralise information regarding these commodities. The proposal lists penalties for companies infringing the rules.

Due diligence process for companies

Under the proposal, Companies will be required to: evaluate the risk of forest degradation and deforestation linked with the relevant commodity that they are importing and must show that they are taking “adequate and proportionate mitigation measures, such as using satellite monitoring tools, field audits, capacity building of suppliers or isotope testing” to determine the product’s place of origin, where a relevant risk has been recognised. As part of this process, EU importers will be required to collect the geographic coordinates of the land from which the commodities they bring into the market were produced. This strict traceability is meant to ensure that only deforestation-free products enter the EU market – and that enforcement authorities in Member States have the necessary means to control that this is the case.

Member states will have access to this information and will retain the power to carry out inspections of imports. They will also respond to “substantiated concerns” which may go as far as to suspend products from the EU market if they have “non-negligible deforestation risks”. A new digital system (‘the Register’) will be used by authorities of Member states to centralise information relevant to the different commodities, such as geographic coordinates and country of production, for the purpose of increasing the effectiveness of policy intervention. This data will be anonymised and made available to the wider public to foster transparency.

EU importers in breach of these rules may be subject to fine, confiscation of products and revenues, and other penalties

Benchmark system

The benchmark system would place producer countries into three risk categories – low, medium, and high – dependent on the rate of degradation and deforestation. This categorisation will consider national efforts to curb these environmental impacts, labour regulations and human rights laws. Under the proposal, protected commodities produced on deforested land after 2020 will be prohibited in the EU. Obligations for operators and authorities will vary according to the level of risk of the country or region of production. Simplified due diligence duties will be in place for products originating from low-risk sources and heightened scrutiny for high-risk areas.

Enforcement

EU Member states will be responsible for enforcement of the. The proposal sets minimum inspection levels, dissuasive sanctions, mandatory exchange of information between customs and other authorities, and places an obligation on enforcing authorities to respond to substantiated concerns raised by civil society.

With regards to enforcement mechanisms the proposal sets out a list of penalties for companies infringing the rules. These penalties range from confiscation of commodities, to market suspension and fines. The Commission says, “Member states’ legislation must provide for a variable amount of fines in dependence on the annual turnover of the operator or trader that violated the regulation”.

Next steps – Implementation mechanisms

Now that the Commission has put forward its proposal, European Parliament and EU Member States will have to formally adopt the Regulation by way of the EU’s ordinary legislative procedure. Once the Regulation enters into force it will set out direct requirements for all operators. The Regulation will not have to rely on implementing legislation, of EU Member States, for its obligations to apply.

As currently proposed, the Regulation will apply from the date of its entry into force. The Regulation will allow for a 12-month grace period for larger companies to comply with the substantive requirements, and a 24-month grace period for microenterprises. Documentation accompanying the proposal suggests that the Commission hopes that the Proposed Regulation can be adopted by 2023.

 

Silke Goldberg
Silke Goldberg
Partner, London
+44 20 7466 2612
Jannis Bille
Jannis Bille
Associate, London
+44 20 7466 6314