Observatory on European Studies - The forthcoming EU Deforestation Regulation and its potential impacts on Brazil

2023-06-05

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Mariana Clara de Andrade *

Against the backdrop of the European Union‚Äôs initiatives to curb deforestation and the European Green Deal, the Council of the EU has recently adopted the proposal for a ‚ÄúRegulation on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation‚ÄĚ (hereinafter, ‚ÄúDeforestation Regulation‚ÄĚ or EUDR). The proposal will repeal the European Union Timber Regulation (Regulation (EU) No 995/2010), which determines obligations specifically for the trade in timber and timber products (hereinafter, ‚ÄúTimber Regulation‚ÄĚ or EUTR). The new Regulation will now be published in the EU Official Journal and become binding on all EU Member States 20 days thereafter.

The EUDR is much more ambitious (and complicated) than the EUTR. This contribution provides a brief overview of the EU Timber Regulation and its current operation, a summary of the main aspects of the Deforestation Regulation, and the possible impacts of the EUDR on Brazilian operators. The Deforestation Regulation is complex and technical; therefore, this contribution focuses on specific aspects that will more directly change the legal framework of import/export of commodities to the European Union.

 The current system: the EU Timber Regulation

The EUTR prohibits the ‚Äėplacing on the European market‚Äô of illegally harvested timber and timber products by European operators (‚Äėany natural or legal person that places timber or timber products on the market‚Äô, as per EUTR Article 2). The Regulation is closely intertwined with the EU initiative Forest Law Enforcement, Governance and Trade (FLEGT) and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). For the purposes of the EUTR, ‚Äėillegally harvested‚Äô means timber harvested in contravention of the applicable legislation in the country of harvest.

According to the Timber Regulation, operators must carry out a due diligence verification to ensure compliance with the prohibition to place illegally harvested timber on the European market, and must be able to identify the entire supply chain of the timber and timber products that it intends to trade. The fundamental core of the Regulation is thus contained in the obligation of due diligence by the operators, set forth under its Article 6. Member States and national competent authorities are responsible for implementing these obligations and communicating the progress to the European Commission.

The due diligence system comprises three main elements: access to information, risk assessment and risk mitigation. To implement the due diligence system, operators must collect all relevant information regarding timber and timber products, such as the name of tree species, country and region where the timber was harvested, concession of harvest, quantity and names of suppliers and traders in the supply chain. The operator must then perform a risk assessment to ascertain whether the timber was illegally harvested, according to ‚Äėrelevant risk assessment criteria‚Äô, including compliance with local legislation, the prevalence of illegal harvesting of specific tree species, the prevalence of illegal harvesting or practices in the country of harvest where the timber was harvested, the prevalence of armed conflict, sanctions imposed by the UN Security Council or the Council of the EU and the complexity of the supply chain.

Based on that information, the operator must consider whether the risk of illegally harvested timber is negligible or non-negligible and, in the latter case, must put in place mitigation measures (such as requiring additional documents and third-party verification) to ensure that the timber in question is not illegal. In this system, the EUTR determines a system of due diligence primarily based on evaluating whether timber and timber products have been harvested in compliance with the country of origin’s legislation.

The EUTR is supplemented by several other EU legal acts, among which Council Regulation (EC) No 2173/2005 on the establishment of a FLEGT licensing scheme and Regulation (EU) No 607/2012 specifically detailing rules concerning the due diligence system, as well as non-binding (but highly authoritative) guidance on specific topics, such as risk mitigation, due diligence, armed conflicts and sanctions.

The EU periodically considers how due diligence systems may be implemented in relation to certain countries, indicating procedures and conclusions applicable specifically to those jurisdictions. Currently, specific overviews and the so-called ‚ÄúExpert Group conclusions‚ÄĚ have been issued for Bosnia and Herzegovina, Brazil, Cameroon, China, C√īte d‚ÄôIvoire, Malaysia, Myanmar, Republic of the Congo. These conclusions are not binding in nature, but their content has highly authoritative value for the purposes of risk assessment by the competent authorities. For example, the 2020 Conclusions of the Competent Authorities for the implementation of the European Timber Regulation (EUTR) on the application of Articles 4(2) and 6 of the EUTR to timber imports from Myanmar determine that it is virtually impossible for operators to ‚Äėfully access all applicable legislation and other relevant documents and information ‚Ķ needed to carry out a full risk assessment or to effectively mitigate the non-negligible risk of acquiring illegally harvested timber‚Äô. If these conclusions are implemented as such by the national competent authorities, they entail a de facto ban on the import of timber from Myanmar, a ban that the relevant EU Regulations have not determined.

The forthcoming system: the EU Deforestation Regulation

The newly adopted Deforestation Regulation follows the structure set in place by the Timber Regulation; however, the EUDR is much more wide-ranging in scope. The EUDR seeks to regulate the ‚Äėplacing and making available on the Union market‚Äô, as well as the export from the Union, of products that contain, have been fed with or have been made using relevant commodities, namely cattle, cocoa, coffee, oil palm, rubber, soya and wood. The Deforestation Regulation, therefore, does not impact only the trade on timber, but any other good that ‚Äėcontains, has been fed with or has been made using‚Äô the listed commodities. It aims to minimise the EU‚Äôs contribution to deforestation, its contribution to greenhouse gas emissions and global biodiversity loss.

To that end, the prohibition imposed by the proposed Regulation‚Äôs Article 3 is comprehensive, imposing a full-scale ban on all relevant commodities and relevant products unless three cumulative conditions are fulfilled: (a) they must be deforestation-free; (b) they must have been produced in accordance with the relevant legislation of the country of production; and (c) they are covered by a due diligence statement. Operators must exercise a due diligence procedure to ensure that the products subject to this Regulation comply with this prohibition. The Regulation also clarifies that ‚Äė‚Äúdeforestation‚ÄĚ means the conversion of forest to agricultural use, whether human-induced or not‚Äô.

Like the Timber Regulation, the EUDR determines that the due diligence system must encompass the collection of information, risk assessment measures and, depending on the outcome of the risk assessment, risk mitigation measures. Unlike the Timber regulation, the Deforestation regulation lists the ‚Äėrelevant legislation of the country of production‚Äô as only one of the three criteria to be taken into account in the operator‚Äôs assessment. The requirement that the products are deforestation-free, therefore, is a significant innovation.

The risk assessment to be performed by the operators is detailed under proposed Article 10, and must consider several criteria. In particular, and notably, the Regulation proposes to establish a system of assignment of risk to the relevant country of production or parts thereof, potentially intending to establish a ‚Äúblacklist‚ÄĚ of countries according to which the risk of import of the goods subject to the EUDR may entail stricter requirements. Indeed, proposed Article 13 foresees the possibility of a system of ‚Äúsimplified due diligence‚ÄĚ for countries ‚Äúclassified as low risk‚ÄĚ. Proposed Article 29, which is set to determine a ‚ÄúCountry benchmarking system‚ÄĚ, divides third countries, as well as EU Member States, into three categories: ‚Äėhigh risk‚Äô (high risk of producing in such countries relevant commodities for which the relevant products do not comply with Article 3), ‚Äėlow risk‚Äô (where there is sufficient assurance that instances of producing in such countries relevant commodities non-compliant with Article 3 are exceptional) and ‚Äėstandard risk‚Äô (countries which do not fall in either the category ‚Äėhigh risk‚Äô or the category ‚Äėlow risk). This classification shall be based ‚Äėprimarily‚Äô on three criteria: rate of deforestation and forest degradation, rate of expansion of agriculture land for relevant commodities and production trends of relevant commodities and of relevant products.

Other criteria include the presence of forests in the country of production; the presence of indigenous peoples in the country of production and the consultation and cooperation in good faith with such indigenous peoples; the prevalence of deforestation or forest degradation in the country of production; concerns in relation to the country of production and origin, such as level of corruption, prevalence of document and data falsification, lack of law enforcement, violations of international human rights, armed conflict or presence of sanctions imposed by the UN Security Council or the European Union; and the complexity of the relevant supply chain and the stage of processing of the relevant products, in particular difficulties in connecting relevant products to the plot of land where the relevant commodities were produced. Finally, an interesting innovation of the EUDR is that it gives virtually binding force to the conclusions of the meetings of the Commission expert groups, an instrument that, under the EUTR, had an authoritative but not binding character.

Should the risk assessment carried out according to the criteria in question lead to the conclusion that there is a non-negligible risk that the relevant products are non-compliant, the operator must adopt risk mitigation measures, similar to those set forth by the EUTR and described in the previous section. If the risk mitigation measures reveal to be insufficient to lower the risk of deforestation to negligible, or infeasible, the operator may not place the relevant good in the European market.

It is clear that the risk assessment that operators must carry out is far from simple. The wide-ranging scope of application of the Deforestation Regulation (applicable to several commodities, as well as products ‚Äėthat contain, have been fed with or have been made using‚Äô said commodities) will require that operators determine not only whether a specific good has been produced in a deforestation-free zone, but also that all the items it contains or, in the case of livestock, have been fed with, are also deforestation-free. Moreover, the same conclusion on a product coming from a given country may not be applicable to another product of the same origin: it is possible that coffee beans are generally produced in a deforestation-free manner in a given territory, whereas soybeans from the same country are not.

The impact of the EUDR for Brazilian operators

Much has been said about the potential impact that the Deforestation Regulation will on exports from Brazil to the European Union. The Latin American country is an important exporter of all listed commodities, and its cattle is largely fed with soybeans (thereby doubling the incidence of application of the Regulation with respect to livestock). The connection between Brazil’s agribusiness and the deforestation of areas such as the Amazon and the Cerrado has been widely reported (for example, here and here).

In 2020, based on scientific material produced by academics and official sources, the EU Competent Authorities adopted conclusions on the application of the EUTR due diligence system to Brazil and determined several risk factors in the harvesting of timber in several regions of Brazil. As mentioned, the current Timber Regulation does not confer binding value to these Conclusions; the situation will change with the entry into force of the Deforestation Regulation. Furthermore, and significantly, the Conclusions on Brazil apply only with respect to timber, whereas the Deforestation Regulation is much broader than that.

During the EUDR discussions and drafting phase, EU bodies carried out studies on deforestation in Brazil. These studies highlighted the increase in forest fires and deforestation in recent years and their connection to, inter alia, soybean and coffee plantations and cattle ranching (e.g. here). The EU Impact Assessment (Commission Working Document on the Impact Assessment (Part 2) carried out in connection with the preparation for the EUDR Proposal contained a specific case study on the impact of a deforestation regulation on beef from Brazil, noting, among other elements, the complexity of Brazil’s beef supply chains, lack of a national traceability system and restricted public access to information and the links between the country’s production of cattle and deforestation. These represent significant risk factors listed among the EUDR risk assessment criteria.

It is hence not without reason that concerns have been raised concerning the impact of the new legislation on the export of commodities from Brazil to the European Union. In light of the current scenario, there seems to be a significant chance that Brazil is classified as a high-risk country in the benchmarking system proposed by the EUDR.

In its Legislative Financial Statement, the Commission‚Äôs proposal notes the potential financial impact of the proposed Regulation. Moreover, it highlights that ‚ÄėThe political visibility and sensitiveness of the Regulation will increase in comparison with the previous situation covering only wood, as it will affect sectors that are essential for the economies of particular countries (e.g. cocoa in Ivory Coast and Ghana; palm oil in Indonesia and Malaysia; soy and cattle in Brazil and Argentina) requiring intensified bilateral engagement including at expert level‚Äô. Therefore, also in line with EUDR‚Äôs proposed Article 30, which determines the obligation to engage and cooperate with third countries (‚Äėin particular those classified as high risk in accordance‚Äô), the Commission is expected to engage and promote bilateral and multilateral talks to address the political and economic impacts of the new Regulation. In any case, it seems safe to say that the transition will not be without hurdles for the economic operators involved in the supply chain of the listed goods.

* Mariana Clara de Andrade 

Mariana de Andrade is a post-doctoral researcher at the University of Milano-Biccoca. She holds a PhD in international law from the same university. She also practices as a consultant at Studio Legal Padovan (Milan, Italy), focusing on international sanctions and export control. The views expressed in the contribution are exclusively those of the author.