In a joint call to the EU Commission last week, a raft of EU organizations outlined how they are actively engaging in preparations for the implementation of the EU Deforestation Regulation (EUDR) within their member companies and throughout their respective supply chains but are constrained by legal uncertainty and a lack of additional guidance.
Speaking to this publication today, Nathalie Lecocq, FEDIOL director general, highlighted ongoing challenges for industry in comprehending, interpreting, and implementing the regulation that came into effect last June. “While the Commission does offer FAQs, the pace of clarification doesn't align with our pressing needs. With less than eight months remaining until the EUDR comes into application, significant legal uncertainties persist.”
Additional FAQs were supposed to be forthcoming by the end of March while further guidance from the Commission on the regulation is scheduled for publication sometime in Q2 2024.
Legal compliance is a complex issue, particularly concerning the collection of geolocation data from all contributing plots as mandated by EU regulations, she explained. While definitions may seem straightforward, practical implementation often reveals complications, she stressed.
Another concern relates to interpretation. "Sometimes, within the FAQs, we've observed the Commission interpreting certain points more restrictively than what the regulation explicitly requires or states. For instance, this includes aspects like the definition of a plot or the necessity not only to collect geolocation data but also to prove its accuracy. These nuances, which often go beyond mere nuances, appear unnecessarily restrictive to us. It's counterproductive to impose stricter interpretations than what the regulation stipulates.
“In the forthcoming guidance from the Commission, we hope to see these concerns addressed in a constructive manner. Rather than adding further complexity or burdensomeness, the focus should be on making the regulation workable. There's no need to introduce additional prescriptive or restrictive provisions in its implementation.”
Information system functionality
Some companies within FEDIOL member organizations have tested the Commission's information system, known as the register, and found it non-operational and lacking automation or usability, she continued.
The information system aims to facilitate the submission and processing of due diligence statements for relevant operators, traders, competent authorities and customs to ensure a smooth transition at the end of 2024, when the EUDR rules enter into application.
Many questions remain unanswered, and the Commission's timeline for system readiness and training raises doubts about its effectiveness, said Lecocq. “This lack of confidence has prompted our call for direct involvement of companies in the system's development, ensuring a better understanding of business needs.”
Without a functional information system, the entire regulatory framework is at risk of failure, she warned.
Agriculture ministers from 20 EU countries backed Austria's call for a delay in the implementation date for the EUDR citing an excessive administration burden on the EU's agricultural sector arising from the regulation.
Benchmarking delay
Another concern is the possible delay in the classification of the countries (or parts thereof) into ‘high risk,’ ‘standard risk,’ and ‘low risk’ in terms of the intensity of checks to be performed by the national competent authorities, meaning all countries are likely to be considered as 'medium risk' when checks begin on January 1, 2025. The lack of classification of some countries as ‘low risk’ will subject relevant products originating in those countries to a higher threshold of checks than they would have otherwise enjoyed.
“I'm not particularly concerned about the high-risk category because, in terms of preparation, there's no difference between high-risk and standard. However, it's the low-risk countries that will face the impact now,” said Lecocq.
There's still a lack of clarity regarding how data sensitivity will be handled, particularly in terms of data collection, she added. While it's clear that geolocation data must be provided in the information system, questions remain about who will have access to this information. This uncertainty extends not only to the information system itself but also more broadly, argued Lecocq.
“For instance, it's essential to clarify whether farmers' consent is required for downstream players to access their coordinates. This has implications for the level of commitment from farmers and their willingness to provide such information. Addressing these questions is crucial for establishing a comprehensive system.”
FEDIOL has consistently provided input to the Commission throughout the process: “The more we delve into practical implementations, the more questions arise. These inquiries vary from commodity-specific to more general concerns. It's crucial to keep providing input, but we do hope that the [next set of] FAQs [from the Commission] will offer more specific responses to the questions we've submitted.”
Non-compliance risk
She also mentioned the complexity presented by Article 2 (40) of the EUDR in terms of identifying the suitable evidence to demonstrate compliance with the laws applicable in the production country regarding the legal status of the production area; this covers land use rights, environmental protection, forest-related regulations, third-party rights, labor rights, human rights protected under international law, the principle of free, prior, and informed consent (FPIC) outlined in the UN Declaration on the Rights of Indigenous Peoples, as well as tax, anti-corruption, trade, and customs regulations.
“It's essential to have clear guidance on the types of evidence that can be used beyond simply listing the relevant legislation. This aspect is not minor because meeting legal requirements is a fundamental obligation. Without clear guidance and appropriate evidence, compliance becomes uncertain, leading to potential non-compliance issues.”
In summary, the EU organizations are calling for the Commission to:
- Address legal uncertainty and lack of clarity promptly: While we acknowledge the Commission's efforts to provide clarity through FAQs and upcoming guidance documents, many questions remain unanswered. The current pace of addressing these concerns is too slow, generating additional red tape and operational challenges, and exposing operators to compliance risks. We urge the Commission to actively engage all stakeholders along the value chains to ensure practical guidance.
- Expedite the operationalization of the Information System: The pilot test revealed fundamental flaws and gaps in the system, posing significant obstacles to compliance. The current timeline for training and system registration is insufficient. We urge the Commission to allow adequate time for companies to integrate their data management systems and organize necessary training. Additionally, we recommend a second round of testing involving companies under the EUDR scope.
- Avoid unnecessary 'gold plating' of the regulation: While guidance should align with the regulation's provisions, it should not impose additional restrictions beyond what is necessary for compliance.
- Establish necessary connections with existing traceability and CAP-related systems: Data collected under the CAP should be utilized for EUDR compliance to avoid duplicating traceability burdens.
- Provide clarity on the timeline of the country benchmarking system: Uncertainty regarding country classifications impedes planning and increases operational uncertainty for operators.
- Harmonize enforcement approaches: The lack of clarity on enforcement provisions may lead to varying interpretations and approaches across EU member countries, adding to legal uncertainty and costs for supply chain actors.
- Ensure data protection: Concerns regarding data protection need to be addressed to alleviate stakeholder apprehension.
- Address commodity-specific issues: Tailored approaches for different commodities can help alleviate unnecessary burdens.
- Incorporate transitional arrangements into the information system: Functionality for creating transitional due diligence statements should be added to accommodate commodities already in the market before the regulation's entry into application.
Will the EUDR meet its aims?
Asked whether the EUDR will ultimately be transformative for landscapes globally, Lecocq said it was important to revisit the objectives of the regulation when addressing that question. “It primarily aims to address the EU's deforestation footprint. Essentially, it seeks to ensure that products sourced do not contain embedded deforestation. I have little doubt that this objective will be achieved in one way or another. However, I have more serious doubts about whether the regulation will effectively address deforestation in general. The regulation will likely decrease our sourcing capabilities, imposing a bureaucratic burden disproportionate to the risk of deforestation. I don't foresee it setting a precedent for others due to its overly prescriptive and disproportionate nature, leaving operators uncertain about its legal implications.”