Contemplating deforestation – the EU's proposal in favour of deforestation-free global supply chains

Philipp Reusch

The EU's proposal in favour of deforestation-free global supply chains

Background and goals

To achieve its strategy to make the EU economy more sustainable and climate neutral (Green Deal), and in response to the increasing loss and degradation of forests due to the expansion of agricultural land for the production of certain raw materials, the European Commission made a proposal in November 2021 for a regulation on the provision of certain raw materials and products whose production is generally based on deforestation and forest degradation. Unlike, for example, the regulation of due diligence obligations to respect human rights along the supply chain (we reported), the Commission has opted for a regulation that would develop its regulatory content directly in all member states and thus ensure maximum harmonisation. The aim of this regulation is to promote the consumption of and trade in certain raw materials and products that do not lead to deforestation and forest degradation, and in this way to contribute to the conservation of biodiversity.

Scope and core regulations

The draft regulation so far regulates six high-risk commodities that have been identified as significantly responsible for deforestation and degradation of existing virgin forests: coffee, cocoa, oil palm, soy, cattle and wood (so-called "relevant raw materials"). In addition, products that contain, are fed with, or are made from relevant raw materials (so-called "relevant products") are also covered. Examples include products such as furniture, leather or chocolate. Other commodities such as sugar, corn and rubber were not covered by the draft regulation despite comparable effects on global deforestation. With the entry into force of the regulation, the currently valid Regulation (EU) No. 995/2010 (European Timber Regulation - EUTR), which exclusively regulates the legality of timber and timber products, is to be repealed.

In essence, the proposed regulation prohibits trade in relevant raw materials and products if they are not deforestation-free, not extracted legally, and not accompanied by a so-called "due diligence declaration". In line with the requirements of the EUTR, market participants are obliged to implement a due diligence system (DDS) in order to reduce the risk associated with provision to a negligible degree. In this three-tier system, market participants must collect information on the deforestation-free nature and legality of raw materials along the supply chain, assess identified risks, and implement appropriate risk mitigation procedures as necessary. As a result of this DDS, operators must then declare to the competent authorities that the relevant raw materials and products have been obtained in accordance with the requirements of the Regulation. In parallel to the current requirements of the EUTR, traders of relevant raw materials and products are primarily subject to information and documentation requirements.

Newly envisaged is an information system set up by the Commission in the form of a register in which traders and market participants (together with their registration numbers) as well as their due diligence declarations are to be registered.

Practical Implications

The legislative process is currently in the stage of the first reading and consequently still at the beginning. It therefore remains to be seen when and, if necessary, with what amendments the draft will be adopted after further deliberation in the European Parliament. It is still conceivable, for example, that the scope of the regulation could be extended to include additional raw materials such as corn, sugar and rubber and their products.

What is certain, however, is that the regulation will come, as it is another crucial cornerstone in the EU's fight against illegally extracted raw materials and products manufactured based on environmental and human rights violations. Affected companies are therefore well advised to already allocate human and financial resources to the very time-consuming processes that will be required to implement the requirements of this new regulation. We will continue to report.

[March 2022]