How will the European Union combat deforestation? | In Principle

The growing problem of global deforestation and degradation of forests, leading to a loss of biodiversity, has not escaped the attention of EU lawmakers. In 2021, the European Commission proposed a regulation combatting these negative developments. The proposal was adopted and is in force. Now there are many indications that the new rules will not apply until 12 months later than originally planned. However, it is not certain that the European Parliament will have time to delay the application of the new provisions.

The legislative process

Work on these new provisions began more than three years ago. On 17 November 2021, the Commission submitted its proposal for the EU Deforestation Regulation. A preliminary agreement between the Council and the Parliament on the wording of the regulation was reached on 6 December 2022. Subsequently, the proposal was adopted by the Parliament (23 April 2023) and approved by the Council (16 May 2023).

Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation—commonly known as the EUDR—raised a number of doubts and numerous protests from stakeholders covered by the new obligations. The resistance was so great that the Commission requested to delay entry into force of some provisions by as much as 12 months. Under that proposal, the new provisions would apply only from 30 December 2025, and for some entities from 30 June 2026.

But it remains to be seen whether this happens. The European Parliament did not merely accept the Commission’s proposal to revise the effective date of the EUDR. The Parliament also voted to tack on a number of other amendments, significantly reshaping the regulation. Among other things, a category of “no-risk countries” was added where the requirements on businesses would be greatly reduced. (As enacted, the EUDR recognises “standard-risk,” “low-risk” and “high-risk” countries.)

This approach by the European Parliament raises legitimate questions. Could it propose such amendments at all when the purpose of the Commission’s proposal was limited to postponing the date of the application of the provisions? Without delving into these issues in more detail, it should be noted that ultimately only the Court of Justice can set aside these amendments. Indeed, it cannot be excluded that the court will soon rule on this issue.

On the other hand, there is no doubt that the European Parliament’s amendments will have to be approved by the Council of the European Union, which also participates in the legislative process. This may affect the pace at which the work is carried out, and it is not certain that the proposed changes will be approved by the Council. Thus it is difficult to assess whether postponement of application of the EUDR provisions, as proposed by the Commission, can be achieved in time.

Significantly, the regulation repeals the existing Regulation (EU) 995/2010 of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market—significantly expanding the scope of obligations. While in principle the repealed provisions established requirements only for timber and timber product marketers and certain traders, the EUDR covers a much wider range of operators and products. Meanwhile, media reports indicate that relatively few companies are aware that the new provisions will soon affect them.

Which companies are affected by the EUDR?

The objectives of the EUDR are extremely ambitious, and the measures are a response by the EU member states to the growing problem of deforestation, degradation of forests, and loss of biodiversity—objectives repeated several times in the recitals to the regulation itself.

But ambitious objectives require intensive efforts. Hence the number of new obligations is considerable and the set of entities covered by them is broad. The regulation applies to products listed in Annex I containing the following commodities:

• Cattle
• Cocoa
• Coffee
• Oil palm
• Rubber
• Soya
• Wood.

At first glance, the regulation is clearly aimed at not just wood or wood-based products. The regulation is much broader, and comprehensive. Thus the new obligations cover a much larger number of entities than if only wood were involved.

Primarily, the regulation applies to “operators” and “traders” (i.e., in the Polish context, natural persons, legal persons, and organisational units without legal personality vested with legal capacity under Polish law) which, in the course of their commercial activities, place on the market or make available on the market the products indicated in Annex I. The provisions also cover exports of commodities and products. The drafters included important subjective exemptions for micro, small and medium-sized enterprises, but this does not mean that the EUDR does not cover this category of entities at all.

Primarily, the new obligations focus on due diligence, which will be evidenced by submission of an appropriate statement. To this end, the regulated entities will be required, among other things, to collect information on the origin of products, conduct risk assessments, and implement measures to reduce the risk of noncompliance. Importantly, the requirements under the EUDR apply regardless of the volume of goods placed on the market. But the new provisions do not apply to products that may contain the aforementioned commodities but are not listed in Annex I.

The guiding principle of the EUDR is set forth in Art. 3, under which relevant commodities and relevant products shall not be placed or made available on the market or exported, unless all the following conditions are fulfilled:

• They are deforestation-free
• They have been produced in accordance with the relevant legislation of the country of production
• They are covered by a due diligence statement.

If at least one of the conditions is not met, the products covered by the regulation cannot be the subject of trade.

In principle, the requirements under the EUDR are directly binding on Polish companies. This means there is not much time left to prepare for the new obligations.

What penalties do companies face, and for what infringements?

The issue of penalties is addressed in Art. 25 EUDR. It should be noted that although the regulation is directly applicable, the details concerning how the sanctions for violation of the regulation are imposed are generally left up to each member state.

Pursuant to Art. 25(1), “Member States shall lay down rules on penalties applicable to infringements of this Regulation by operators and traders and shall take all measures necessary to ensure that they are implemented. Member States shall notify the Commission of those rules and of those measures and shall notify it, without delay, of any subsequent amendments affecting them.”

This does not mean that Poland will have full discretion in establishing the sanctions. Under Art. 25(2), “The penalties provided for in paragraph 1 shall be effective, proportionate and dissuasive.” This is a clause often used in EU environmental laws.

Importantly, however, a catalogue of penalties is also indicated, which includes:

• Fines (for legal persons, the maximum must be at least 4% of the total annual turnover in the previous financial year, but shall be increased where necessary to exceed the potential economic benefit gained)
• Confiscation of products
• Confiscation of revenues
• Temporary exclusion, for a maximum of 12 months, from public procurement processes and from access to public funding, including tendering procedures, grants and concessions
• Temporary prohibition from placing or making available on the market or exporting relevant commodities and relevant products
• Prohibition from exercising the simplified due diligence set out in Art. 13 EUDR.

Art. 25(3) also involves sanctions. Under this provision, the Commission will publish information on final judgments against legal persons for infringement of the regulation, including:

• The name of the legal person
• The date of the final judgment
• A summary of the activities for which the legal person was found to have infringed the EUDR
• The nature and, where financial, the amount of the penalty imposed.

While the penalties foreseen by the EUDR are severe, the sanctions provisions do not apply directly. In practice, this means that for them to be effective in Poland, the Polish parliament must take action, which so far has not happened. Thus we still do not know exactly what the extent of Polish companies’ liability for violating the EUDR will be.

Concluding remarks

On one hand, there is no doubt that the new provisions will introduce a number of previously unknown obligations. They can be particularly burdensome for SMEs. At this point, it is also difficult to predict the practice of the administrative bodies that will enforce these provisions. In turn, some of the EUDR provisions, e.g. concerning sanctions, require implementation into the Polish legal system, which has not yet occurred.

Also, one may get the impression that the legislative process did not adequately involve the entities that will be the most affected by the new provisions, first and foremost the companies handling products from Annex I. The state of knowledge of the new obligations seems extremely low, and thus there is a considerable risk that many companies will not be prepared for timely implementation. With so many unknowns, it is hardly surprising that there is resistance to the EUDR.

The approach of the European Parliament, in submitting amendments extending beyond the Commission’s narrow proposal, should also be condemned, as it may paralyse the legislative process. Indeed, whether these amendments are admissible at all is doubtful. Thus it is unclear whether application of the new provisions will be deferred. This situation undercuts the principle of legal certainty, and for this reason alone deserves criticism.

On the other hand, the new provisions were enacted and have been in force since mid-2023. It should also be remembered that because the new law was adopted in the form of an EU regulation, most of the provisions will apply to businesses directly, and therefore will not change as a result of implementation by the national legislatures. Additionally, the objective of the new provisions—to combat deforestation and loss of biodiversity—remains vital. In light of this objective, adoption and enforcement of the new regulation seems absolutely necessary.

Karol Maćkowiak, Environment practice, Wardyński & Partners