In May 2023, the European Union (EU) adopted 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 (the Regulation). The Regulation was officially published on 9 June 2023 and will enter into force on 29 June 2023.
In essence, to fight climate change and biodiversity loss, the Regulation obliges companies to ensure that products sold in and exported from the EU have not led to deforestation and forestation degradation.
Covered products: The Regulation targets seven forest-risk commodities (relevant commodities) – cattle, cocoa, coffee, palm oil, rubber, soya and wood – as well as ‘relevant products’, which are products that contain, have been fed with or have been made using the relevant commodities.
Requirements to access or exit the EU market: Relevant commodities and products may enter the EU market, or be exported from the EU, only if they meet three cumulative requirements:
- They are deforestation-free.
- They have been produced with the relevant legislation of the country of production.
- They are covered by a due diligence statement.
Obligations on businesses: The framework lays down mandatory due diligence rules, as well as data collection and reporting obligations, on all operators and traders who make available on or export from the EU market the covered commodities and their derived products. The extent of the due diligence obligations will depend on the risk level of the country or region of production, based on a country benchmarking system to be developed by the European Commission.
Penalties: In case of non-compliance, operators and traders will be subject to penalties set by EU member states that could include fines of up to 4% of their annual EU-wide turnover; confiscation of the relevant products concerned or the revenues gained from the transaction; temporary exclusion from public procurement processes and from the EU market in the event of serious infringement; and prohibition from exercising the simplified due diligence.
The Regulation aims to incentivise the transition to sustainable supply chains in all producing countries of deforestation-related products, within or beyond the EU, in particular by encouraging sustainable behaviour from exporting businesses. In this regard, the Regulation intends to achieve a cascade effect from rural producers all the way up to national governments by encouraging companies to relocate their operations away from high-risk producers to other low-risk commodity-producing producers .
For more details, please see our client alert.