THE NEW REQUIREMENTS “DEFORESTATION-FREE”

Combating climate change, protecting of biodiversity and compliance 

To combat climate change and the biodiversity loss, the European Union (EU) Regulation2023/1115 prohibits placing on the EU market, making available on the EU and the export from the EU a list of products associated with deforestation and forest degradation. Traceability and transparency are at the heart of the proposed scheme, to make sustainable supply chains the new standard.

I.  Products concerned

This Regulation applies to:

•  “Relevant commodities”: cattle, cocoa, coffee, oil palm, rubber, soya and wood.

• “Relevant products” that contain, have been fed with or have been made using relevant commodities. This includes notably derived products such as leather, cocoa fat, soya and industrial fatty alcohols.

The Regulation may be extended by the European Commission to other commodities according to the following timeline:

• No later than 30 June 2025: possible extension of the scope of the Regulation to other natural ecosystems, other commodities (maize and biofuels) and to the financial institutions (in preventing financial flows that contribute directly or indirectly to deforestation and forest degradation).

While this Regulation impacts several economic sectors linked to relevant commodities associated with deforestation, it also has an indirect impact on several sectors, such as:

- Alcohol sector: wood for aging casks and barrels, flavourings and cocoa- and coffee-based alcoholates used in spirits.

- Biofuel sector: palm oil and soya are used in the production of biofuel.

- Cosmetic and pharmaceutical industry: for palm oil and soya used in a wide range of products (creams, lotions and medicines).

- Textile industry: for the use of products derived from soya (such as vegetable leather), rubber (for footwear) or bovine leather.

II. Operators and traders concerned

This Regulation applies to:

• “Operators” means any natural or legal person who, in the course of a commercial activity, place products in question on the market for the first time or export them.

• “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.

The concept of making available on the market is wide as it covers any supply of a relevant product for distribution, consumption or use on the EU market in the course of a commercial activity, whether in return for payment or free of charge.

III. Compliance obligations of the relevant products

To comply with this Regulation, the relevant products placed on the EU market, made available on the EU market or exported from the EU must meet the following three conditions:

1. Be “deforestation-free”

The relevant products that contain relevant commodities must be produced on land that has not been subject to deforestation after 31 December, 2020, or have been fed with or have been made using from such commodities.

In the case of relevant products that contain or have been made using wood, “deforestation-free” products are defined as those whose the wood has been harvested from the forest without inducing forest degradation after 31 December, 2020.

2. Be produced in accordance with the relevant legislation of the country of production

• This concept refers to the laws applicable in the country of production, including the legal status of the production area, i.e.:

• Land use rights

• Environmental protection

• Forest-related rules, including forest management and biodiversity conservation, where directly related to wood harvesting

• Third-party rights

• Labour rights

• Human rights protected by the international law

• The principle of free, prior and informed consent of indigenous peoples

• Tax, anti-corruption, trade and customs regulations

 3. Be subject to a due diligence statement

Before any products are placed on the EU market, made available on the EU market or exported from the EU, operators and traders must put in place a “due diligence system” to ensure that the products covered by the EU Regulation are “deforestation-free” and comply with the relevant legislation of the country of production.

The due diligence system is based on three types of measures: collection of information, risk assessment measures and risk mitigation measures.

If the products concerned are compliant at the end of these stages, operators1 and traders2 must submit due diligence statements (“DDS”) into the TRACES NT information system, which will centralise all the statements.

Operators and traders have the option of appointing an “authorised representative” to file the due diligence statements on their behalf.

Once the due diligence statement has been submitted, it will be given a reference number to be entered on the customs declaration for the products concerned.

Operators and traders will have to review their due diligence system at least once a year.

The European Commission will have to draw up a list of countries and regions according to three risk categories: low, standard and high. This list must be published by 30 December 2024 at the latest.

IV. Obligations to carry out checks

The checks will be carried out by the competent authorities of each EU Member State. The annual checks must cover at least:

• 1 % of the operators placing or making available on the market or exporting relevant products that contain or have been made using relevant commodities produced in a country or parts thereof classified as low risk

• 3% of the operators placing or making available on the market or exporting relevant products that contain or have been made using relevant commodities produced in a country of production or parts thereof classified as standard risk

• 9 % of the operators placing or making available on the market or exporting relevant products that contain or have been made using relevant commodities as well as 9 % of the quantity of each of the relevant products that contain or have been made using relevant commodities produced in a country or parts thereof classified as high risk

The issue is therefore far from theoretical. It is very likely that imports will form the basis of the checks authorities' database, through simple sorting and searches based on nomenclature codes and countries of origin. Operators, especially those who buy or sell large quantities of the relevant commodities and products, must ensure that they are organised and ready to comply with these new regulations from 30 December 2024.

V. Dissuasive penalties

The Regulation provides several types of penalties:

• Immediate provisional measures: seizure of products, suspension of their placing on the EU market or export from the EU.

• Corrective measures in the event of non-compliance: preventing the relevant commodities and products from being placed or made available on the market or exported, immediate withdrawal or recall of the relevant commodities and products

• Fine of up to 4% of annual turnover throughout the EU

• Confiscation of products and income earned by the operator and trader

• Temporary ban on placing on the EU market or making available or exporting the relevant commodities and products in the event of serious and repeated infringements. 

VI. Entry into force and date of application

The Regulation entered into force on 29 June 2023. However, the main obligations for operators and traders mentioned in this article will apply from 30 December 2024 (from 30 June 2025 for micro and small enterprises).

Responding to calls by operators and traders, the EU Commission has published a proposal the 2 October 2024 (COM(2024) 452 final) for amending this Regulation as regards provisions relating to the date of application.

Subject to the approval of the European Parliament and the Council, this Regulation would enter into force on 30 December 2025 for large companies and 30 June 2026 for micro- and small enterprises. This delay of 12 months aims to provide additional time needed for operators, traders and competent authorities to prepare for compliance with deforestation-free obligations. The next steps need to be followed closely.

VII. Conclusion

Operators and traders will need to rapidly integrate a due diligence system into their internal processes to ensure that the relevant commodities and products they place on the EU market or export from the EU comply with the requirements of the “Zero Deforestation” Regulation and with the relevant legislation of the country of production.

Our customs experts/specialists are available to help you set up your TRACES NT registration and the required due diligence system by assisting you establish internal processes, standardise and secure the measures for collecting information and carrying out the appropriate checks.

Where will they be stored in your information system? What will be the trigger in your system and/or process for starting the required formalities on relevant commodities and products? Furthermore, how will you identify in your Master Data the relevant commodities and products that will require your attention? These are all questions that need to be answered, and we can help you put them into practice. Contact us to find out how we can work together.  

[1] Micro and small enterprises operators are not required to exercise due diligence for products that have already been subject to this procedure and for which a due diligence statement has already been submitted. In this case, they simply must provide, on request, the reference number of the due diligence statement. However, for parts of products not covered by due diligence, they must exercise it in accordance with the rules in force.

[2] Micro and small enterprises traders will benefit from simplified due diligence obligations. To make available on the market the relevant products, they will only need to collect the contact details (name, company name, address, email address, etc.) of the suppliers of these products and the reference numbers of the due diligence statements, as well as the contact details of the operators or traders to whom they have supplied these products. This information must be kept for at least 5 years.