The EU Deforestation Regulation (EUDR) and the need for extensive due diligence
To protect the impact of the EU market on worldwide deforestation and forest degradation, the European Union approved a new legislation on 19 April 2023.
Known as the EU Deforestation Regulation (“EUDR”), it requires operators and traders dealing in certain goods and their derivatives from seven specific commodities (cattle, cocoa, coffee, palm oil, rubber, soy, and wood) to do extensive due diligence throughout the supply chain before placing them in the EU market.
The main objective of this regulation is to reduce the European Union’s contribution to global deforestation and forest degradation.
420 million hectares of forest lost in three decade
The rate of deforestation and forest degradation is accelerating. According to the United Nations Food and Agriculture Organization (FAO), the world lost 420 million hectares of forest between 1990 and 2020. Global warming and a loss of biodiversity are the two most pressing environmental challenges, both of which worsen in the face of deforestation and forest degradation.
The continual destruction, degradation, and conversion of forests and natural ecosystems, as well as human rights violations, are closely tied to the expansion of agricultural activities. This expansion often involves converting forests into agricultural land to meet the growing demand for various high-value commodities and products.
Recognizing the urgency of the situation, the European Union has been actively addressing the issue of deforestation through potential regulatory measures, the latest one is the EUDR.
The enactment of this new regulation poses challenges for countries involved in the production of regulated commodities, with Indonesia being particularly affected as a significant palm oil producer. These intricate regulations compel both small and large-scale palm oil producers to guarantee that their harvested palm is not sourced from converted lands.
However, amidst the challenge, this situation also presents an opportunity. It serves as a pivotal moment for the government to enhance the management of palm oil production, thereby making it more sustainable and in turn enhancing the competitive value of its palm oil in the international market.
The requirement of extensive due diligence
With a risk-based approach, Article 4 (1) of the EU Deforestation Regulation requires operators and traders to conduct due diligence on the covered goods and their derivatives before introducing them to the EU market. The purpose of this due diligence is to ensure that these products, as well as their derivatives, meet the criteria of being “deforestation-free.”
The definition of “deforestation-free” is provided in Article 2 (13) of the regulation. According to this definition, relevant products must consist of or be derived from commodities that were produced on land free from deforestation after 31 December 2020.
One example of the implementation of this regulation is that for products containing or made of wood, the wood must be taken from the forest without causing deforestation.
Furthermore, Article 8 outlines the specific requirements for conducting due diligence, which are:
- Collect comprehensive information that serves as evidence of the product’s compliance with the regulation.
- Perform a thorough risk assessment for each product to determine the likelihood of non-compliance.
- If any risks are identified, appropriate measures must be taken to mitigate them.
The regulation also includes corrective measures, as well as effective and proportionate penalties imposed on non-compliance.
These regulations apply extensively to both large and minor businesses that engage in export and import activities in the EU. Large companies have 18 months to adapt to the rule, while small businesses have 24 months to adapt to this rule since it is enacted
Implementing comprehensive due diligence throughout the supply chain is not a simple task for a business. Certain skills, time, and regulatory knowledge are required. Working with an independent third party with a solid reputation for undertaking due diligence is therefore the best option.
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