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

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Regu­la­ti­on – EUTR), which exclu­si­ve­ly regu­la­tes the lega­li­ty of tim­ber and tim­ber pro­ducts, is to be repealed.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.

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