EUDR compliance simplification overview
- EUDR simplification reduces compliance burden but avoids major regulatory overhaul
- Downstream actors now only retain direct partner data
- Passive model risks loopholes if upstream actors withhold due diligence references
- Smaller business segments can qualify as micro operators reducing reporting requirements
- Changes ease industry burden but raise uncertainty over enforcement and effectiveness
The recent simplification review on the European Union Deforestation Regulation (EUDR), the EU’s landmark deforestation law, did not go as far as some feared.
While some commodities, such as leather, were excluded from its scope, others were added, most notably instant coffee. Furthermore, the review stopped short of introducing a ‘negligible risk’ category, which many agricultural ministers had called for.
However, one area that the simplification review changed substantially was compliance. This is one of the most crucial aspects of the EUDR and its regulatory burden was eased significantly.
A ‘passive’ approach for the first downstream actor
Key links in the supply chain – notably, where EUDR-relevant commodities meet the EU market – are where the measures will have the most impact.
Downstream actors – those interacting with EUDR-relevant commodities after they’ve been placed on the EU market – now only need to keep information on direct business partners.
Only if a downstream actor’s direct supplier is an upstream actor must it include its partner’s due diligence statement reference numbers as part of this information. In other words, it must only include these numbers when it is the first downstream actor.
The regulation now takes a ‘passive’ approach to this, meaning that these downstream actors are not required to investigate whether their business partner is, in fact, an upstream actor. If they do not receive reference numbers from their business partner, they do not need to investigate and can assume that this partner is not an upstream actor.
This makes compliance easier for the downstream actor in question, but it also creates potential for upstream actors to withhold necessary reference numbers and avoid compliance burdens.
“The passive approach for downstream actors does reduce verification and could create vulnerability: if initial due diligence is fraudulent, or reference numbers don’t get passed along, downstream actors won’t catch it,” says Bo Li, research associate with the Forest Governance and Policy team at the organisation World Resources Institute (WRI).
The regulation does stress that, if this downstream actor discovers evidence of non-compliance, they are obliged to flag it. But this is a reactive obligation; if there’s nothing explicitly pointing to non-compliance, it is possible for upstream actors to avoid detection.
“The Commission needs to provide clearer guidance on when downstream operators should question the absence of reference numbers – particularly for products that obviously contain EUDR commodities,” says WRI’s Li.
To prevent this from becoming a loophole, she says, member states themselves must invest in enforcement infrastructure.
Can parts of larger companies be classified as smaller operators?
Under the simplification, a segment of a larger company can be classified as a ‘micro or small primary operator’ if this segment is engaged in activities related to EUDR-relevant commodities and fulfils the size requirements for one. Small or micro operators must only submit a one-time declaration, rather than a fully-fledged due diligence statement.
Under these new rules, a segment of a larger company will not be subject to the same due diligence requirements as a larger company would, indeed as its parent company would if the company as a whole was assessed.
“A large food multinational might have a small cocoa-farming subsidiary. Under these rules, the company can look at just that farming unit in isolation, rather than the whole group, and if that unit is small enough by employee numbers and revenue, it qualifies for the light-touch regime,” says a spokesperson for traceability technology company Koltiva.
This essentially means that larger companies can use smaller business segments to import EUDR-relevant commodities into the EU, and be treated as a small or micro primary operator, legally speaking.
“Larger companies specifically lobbied for clarity on exactly how to use this provision, which suggests they see it as a useful avenue,” says the Koltiva spokesperson.
Micro and small primary operators are also, by definition, from low-risk countries, according to the EUDR benchmarking system, meaning that this will only apply to those companies operating in low-risk countries.
“Because the country they operate in has already been vetted, they are not expected to do their own risk checks on top of that, unless something comes to their attention suggesting a problem”, the Koltiva spokesperson continues.
“In practice, this means a small coffee farmer in, say, a low-risk country files one declaration and is essentially done. The risk assessment that a large importer would have to do simply doesn’t apply to them.”
What does this mean for industry?
The compliance burden is one of the main reasons that the EUDR has proved, and continues to prove, controversial.
Industry lack of readiness has been a key source of contention and the cause of at least one delay.
A lighter compliance burden means that smaller operators will be subjected to fewer checks and lower costs.
However, how this will impact the effectiveness of the regulation remains to be seen.
