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On 17 November 2021, the European Commission released its proposal for a Regulation on deforestation-free products. It aims to prevent certain commodities and derived products from entering the European Union (EU) market if they are produced illegally or cause deforestation. The proposal will be discussed by the European Parliament and the Council throughout the course of 2022, before becoming a law. So what does the proposal include — and what are its weak and strong points?
Our new briefing shares our analysis and perspective.
The draft Regulation - in brief
The Regulation targets six commodities: coffee, cocoa, cattle, palm oil, soy and wood, as well as derived products such as leather, chocolate and furniture. It proposes that prior to placing any of these on the EU market, operators and traders must exercise due diligence by demonstrating that the commodities were not grown or raised on land that was deforested or degraded after 31 December 2020, and that they have been produced according to producer country laws.
Among other things, the due diligence process requires companies to declare to authorities the precise geo-location coordinates of where the product was produced. Companies must gather information, conduct a risk assessment, and undertake mitigation measures where necessary.
Producer countries or sub-national regions will be assigned a risk level according to a three-tiered risk rating system (low, medium and high). Products coming from high risk countries will require a higher degree of checks by Competent Authorities, and companies sourcing from high risk countries will have more steps to fulfil as part of due diligence. Countries will be given their risk rating through a separate implementing regulation, taking into account issues such as deforestation rates, commodity production trends, national legal frameworks in producer countries, and whether emissions related to Agriculture, Forestry and other Land Use (AFOLU) are included in the country’s Nationally Determined Contributions (NDC) to the Paris Climate Agreement. The risk rating will also consider whether the producer country and the EU have and are implementing an agreement which would help facilitate compliance with the Regulation on deforestation-free products. Such agreements would have to involve local communities, producer country NGOs, and smallholders.
Member States’ Competent Authorities would be accountable for carrying out checks to establish whether commodities comply with the Regulation, as well as the operators that place them on the EU market and the traders that subsequently buy and sell them. The Authorities will conduct more frequent checks on products coming from high risk countries and operators with a bad track record. At a minimum, each Authority must check at least five per cent of operators handling relevant commodities as well as five per cent of each of the relevant commodities. This increases to 15 per cent in high risk cases.
Penalties for infringements would include fines, confiscation of the commodity, confiscation of the revenue and/or exclusion from procurement contracts.
For our rapid assessment of the regulation in detail, read the briefing.
Categories: News, Briefing Notes, Sustainable Supply Chains