Deforestation, the clearing of forests for agriculture, urbanization, and other purposes, is a pressing environmental issue with far-reaching consequences. It disrupts ecosystems, accelerates climate change, and contributes to biodiversity loss. In response to this pressing concern, the European Union (EU) has enacted the EU Deforestation Regulation (EUDR), a landmark piece of legislation aimed at combating deforestation by prohibiting the import into the EU of certain commodities that are linked to deforestation.
The EUDR applies to a wide range of operators and traders (including SME and non-SME). They are responsible for ensuring that the products they place on the EU market or export from the EU are not linked to deforestation.
Who is Impacted by the European Union Deforestation Regulator (EUDR)
1. Operator
Who is an operator?
a. A natural or legal person who places relevant products on the Union market or exports from the Union market during commercial activity. This definition also covers companies that transform one product (EUDR material) into another product, operators further down the supply chains, including:
Producers: Companies that grow, harvest, or extract the relevant commodities
Processors: Companies that transform the commodities into intermediate or final products, such as palm oil refineries or soy crushers.
Importers: Companies that bring the commodities into the EU from non-EU sources
Exporters: Companies that send the commodities from the EU to non-EU markets
Wholsalers: Companies that sell the commodities to other businesses, typically in large quantities
Distributors: Companies that sell the commodities to retailers
Retailers: Companies that sell the commodities to consumers
b. Operators placing on the market for the first time one of the products listed in (the EUDR products list) and which have not been subject to due diligence in a prior step of the supply chain (for example importers sourcing cocoa) are, regardless of their size, subject to the obligation of filing a due diligence statement.
2. Small & Medium-sized Enterprise (SME) & Non-SME traders placing on or exporting from the EU market
SME and Non-SME traders: means any person in the supply chain other than the operator who, in the course of a commercial activity, makes relevant products available on the market.
By Article 5(1) of the Regulation, the obligations of large traders are the same as those of large downstream operators: a) they need to file a due diligence statement; b) they need to check the due diligence previously carried out in the supply chain; c) they are liable in case of breach of the Regulation
How to categorize SME and Non-SME Trader
Understanding the classification criteria for SMEs and non-SME traders is crucial for compliance with the EUDR, given that the implementation timeline varies for each. Below is a chart provided by the European Commision to help categorize businesses based on their size:
Note: Calculated on 1 Financial year.
Due diligence procedure for Operator, SME, and Non-SME Trader
Operators and non-SME traders must conduct a three-step due diligence process before placing relevant products on the EU market or exporting them, and they will be held accountable for any breach. This process includes:
Collection of information, data and documents (Article 9)
Risk assessment measures (Article 10)
Risk mitigation measures (Article 11).
Special Considerations for SMEs
SME operators are not required to conduct due diligence for relevant products that have already been subject to due diligence and for which a due diligence statement has been submitted. Instead, SME operators can provide the competent authorities with the reference number of the existing due diligence statement. However, SME operators must conduct due diligence for any parts of relevant products that have not been subject to due diligence.
SME traders can only place relevant products on the EU market if they collect and maintain information about the products, including information about the suppliers and the reference numbers of any associated due diligence statements.
The EUDR is a complex piece of legislation with broad implications for operators and traders in a wide range of sectors, and it is important for all operators and traders to understand their obligations under the regulation. Failure to comply with the EUDR can result in significant penalties, including fines and the suspension of trade privileges. Operators should seek legal advice if they are unsure about their obligations under the EUDR.
To help businesses navigate the EUDR's complexities, Rockhill Asia will delve deeper into the details of the due diligence process and explore its broader implications in upcoming articles. Stay tuned for these insightful pieces to gain a comprehensive understanding of the EUDR and its impact on your business.
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