Who does the EUDR apply to?
The EUDR is very broad in its scope of affected commodities and derived products. As a result, companies across industries, sizes, and purposes will be affected by the regulation. Therefore, any business that imports, exports, or makes these specific commodities available on the EU market will be subject to the requirements of the EUDR.
However, the EUDR delineates the difference between ‘operators’ and ‘traders’, both of which are subject to the regulation. Operators are defined as entities that import, export, or place a relevant commodity or product on the European market for the first time. Traders are defined as entities that are involved in the movement and distribution of relevant commodities and products within the EU, without importing, exporting, or transforming them.
Though this distinction is clear within the EUDR, operators, and traders are equally responsible for completing the proper due diligence in relation to deforestation and applicable local legislations. Each business within a supply chain must ensure that its full and correct due diligence statement is submitted to the EU and that there are no gaps in documentation throughout the lifecycle of the commodity or product.
Though all businesses that use or sell relevant commodities or products are included within the scope of the EUDR, there are slightly different obligations based on company size. Under the EUDR, SMEs are broken up into three categories. Businesses must meet two of the three classifications to qualify as micro, small, or medium companies; otherwise, they are considered large companies.
Micro
- Balance sheet total under EUR 350,000
- Net turnover under EUR 700,00
- Average number of employees during the financial year is equal to or lower than 10
Small
- Balance sheet total under EUR 4,000,000
- Net turnover under EUR 8,000,000
- Average number of employees during the financial year is equal to or lower than 50
Medium
- Balance sheet under EUR 20,000,000
- Net turnover under EUR 40,000,000
- Average number of employees during the financial year is equal to or lower than 250
EUDR reporting requirements
Operators and non-SME traders are required to create a due diligence system to collect and submit information in the form of a due diligence statement about their relevant commodity or product, and subsequently take appropriate risk-mitigation actions, if necessary. SME traders are only required to collect and store certain information, including the name of the operators and traders who have supplied the relevant products and the reference numbers of the associated due diligence statements. SME traders should be prepared to present these if asked to by relevant authorities.
The due diligence statement should include details such as suppliers, country of production, evidence of legal acquisition, and the geographic coordinates where the original commodity was generated. Businesses should then map these details against a comprehensive risk assessment and take steps to ensure that the risk is no more than negligible.
If this information can’t be ascertained or verified, the business should not enter the product or commodity into the EU market. Failure to comply with the EUDR can result in penalties such as a fine of at least 4% of EU turnover from the preceding year, confiscation of products and associated revenues, and temporary exclusion from public procurement processes and funding. Furthermore, for repeat offenders, businesses may face a temporary ban within the EU from trading with those commodities or products or may be denied the use of the simplified due diligence process.
Compliance will be enforced by national authorities within Member States, who will assess any risks in accordance with the benchmarking system defined within the regulation. All companies should store due diligence information for five years.
When does the EUDR kick in?
The EUDR came into force on June 29, 2023, with a minimum 18-month grace period to allow operators and traders to adjust their business accordingly. Therefore, large operators and traders will be required to prove compliance with the EUDR starting on December 30, 2024, while SME operators and traders have until June 30, 2025.
Figure 2: EUDR timeline from initial pass to final deadline when the regulation takes full effect
Though technically, businesses aren’t required to prove compliance at this moment, their actions now will impact their compliance and therefore trading status from 2025 and beyond. Products and commodities that are traded on the EU market in 2025 will have had an acquisition, transformation, and import/export history that must be proved as soon as the EUDR requires reporting. Therefore, products and commodities produced in 2024 without compliance in mind may not be allowed on the shelves in 2025. If companies haven’t put the proper due diligence structures in place, they will struggle to maintain compliance in the new year.
Solutions such as Everstream Discover can help streamline your EUDR due diligence requirements by mapping your supply chain and highlighting emerging risks that could impact your company’s compliance status, such as environmental or human rights breaches. By automating your data collection, your company can make proactive, strategic decisions and simplify your due diligence statement process.
It’s not too late to prepare for the EUDR; in fact, now is the time to ensure that your due diligence system is set up properly and can stand up to inspections. The EU’s prioritization of green legislation follows public concern and pressure to ensure that companies are doing the utmost to protect the environment in their business practices.
