For non-EU companies, the European Union’s Deforestation Regulation (EUDR) presents several challenges. If a business wants to continue to trade in this market, it must ensure complete compliance with all aspects of the EUDR.
This article will help non-EU companies understand the scope and obligations of EUDR compliance, allowing them to maintain their presence in the EU market.
The EUDR’s Impact on Global Trade
The European Union Deforestation Regulation aims to reduce the EU’s impact on global deforestation by promoting the consumption of ‘deforestation-free’ products.
Alongside helping to lessen the deforestation and forest degradation caused by EU trade, this initiative will also reduce carbon emissions produced by EU consumption. The European Council aims to reduce emissions by at least 32 million metric tonnes a year.
Affected Commodities and Products
The EUDR outlines the specific and derived products that fall under its scope in Annex 1. The table of goods uses the Combined Nomenclature outlined in Article 1 to specify the exact products involved.
In order to comply with the regulation, businesses should check the Harmonised System (HS) codes for products they want to put on the EU market against Annex 1.
Geographical Scope
The EUDR regulation encompasses any company that wants access to the EU market. Whether located in the EU or not, companies that want to trade on the EU market must follow its rules and ensure that their products are deforestation-free.
The expansive geographical scope of the EUDR is one of the main reasons that it has had such a wide influence on the structure of the global supply chain.
Potential Market Access Implications
The EUDR regulation is already operational, having entered into force on June 29th, 2023.
However, businesses are still only in the implementation phase, with the actual cut-off point of application being December 30th, 2025. From this date, companies must be able to prove that their products have been deforestation-free since December 31st, 2020.
Key Compliance Challenges for Non-EU Companies
For non-EU companies, the EU Deforestation Regulation presents several challenges to meeting compliance obligations. Here are some of the most prominent obstacles that companies may come across on the journey to compliance.
Data Collection and Verification
To comply with the EUDR, companies must prove that the geolocation of all plots of land where the relevant commodities were produced is free from deforestation (Art. 9). This means that organisations must pinpoint the exact geolocation (latitude and longitude) of the land and collect satellite imagery to demonstrate that the land has not changed from a forest to an agricultural space.
For both EU and non-EU businesses alike, gathering accurate geolocation data that spans several years is a sizeable challenge.
To this end, the European Commission states that collecting the geolocation data of a land is legally permitted—even if the company does not own the deed to the land. The responsibility to do so falls on Operators, who must verify that all suppliers meet the requirements of the EUDR.
Risk Assessment Methodologies
Article 10 of the EUDR outlines the various considerations that businesses should make when following the leading risk assessment and management methodologies.
First of all, the EU Deforestation Regulation outlines that Operators are responsible for any products they put on the market. If a supplier is in breach of the EUDR, the Operator will be held accountable, as it is their responsibility to conduct the due diligence necessary to ensure this does not occur.
Here are a few aspects that businesses should be aware of during the risk assessment process:
- Land use evaluation: Businesses must inspect their production location and process to ensure it is deforestation-free and without evidence of previous deforestation.
- Socio-political factors: 2c of Article 10 outlines the presence of indigenous people in an area of production as a factor that businesses must be aware of. Where possible, companies must consult and cooperate in good faith with indigenous people.
- Political corruption: If a company has concerns about the level of corruption or prevalence of false documentation or data falsification, it must cease working with suppliers.
- Documentation review: Businesses must review risk assessment documents at least on an annual basis and make them widely available for related authorities upon request.
Companies that fail to conduct effective risk assessment processes and adapt their supply chain accordingly could face persecution under the EUDR. The potential repercussions of non-compliance include fines of up to 4% of annual turnover and even exclusion from the EU market.
Source: Consequences of Non-Compliance with the EUDR.
Adapting to New Reporting Requirements
An important part of the EUDR, outlined in Article 12, is the need for the creation and maintenance of due diligence systems. Reporting and record keeping are vital for businesses that aim to operate in the EU market, as they allow companies to demonstrate their adherence to the EUDR.
The risk assessments that businesses conduct will form a core segment of the due diligence process. Businesses must outline the information gathered and any evidence used to assess risk. For example, businesses must include the precise geolocation data they used to assess potential deforestation risks, allowing relevant authorities to verify the information.
Operators will need to renew their due diligence systems at least once a year. However, if any developments occur in relation to suppliers that could impact their due diligence, the documentation must reflect those changes. Organisations will need to keep five years of records and make them readily available.
Effective Strategies for EUDR Implementation With Prewave
While EUDR requirements are extensive, non-EU businesses can leverage the remaining integration period to enhance their processes and effectively prepare for the regulation.
Prewave offers a comprehensive solution for non-EU companies looking to comply with the EUDR. With extensive risk assessment, mitigation, documentation, and monitoring tools, Prewave provides companies with end-to-end supply chain visibility.
Here’s how your business can best prepare for EUDR implementation.
Streamlined Data Integration
One of the most complex aspects of managing a global supply chain is aggregating data from suppliers. Regulations like the EUDR require businesses to have full visibility over their suppliers’ operations, making a streamlined flow of data vital.
The EUDR requires a precise understanding of supplier connections, including origin locations and years of documentation. Without transparency, creating a reliable stream of data can become a challenge.
Prewave streamlines the collection and integration of supplier data, making accurate and complete information readily available. Prewave’s approach to data acquisition, management, and processing helps save time while decreasing the risk of errors.
Origin Information Tracing
Non-EU businesses must be able to trace the origins of their commodities back to their exact production location. Maintaining an extensive range of geolocation data for each supplier—from Tier 1 to Tier-N—is vital. Advanced visibility and monitoring tools, alongside innovative technologies like blockchain, can help in creating immutable records for origins tracking.
Prewave offers a high degree of traceability, allowing businesses to meticulously trace the origins of its products. By using Prewave’s tools, companies are able to locate their product origins and use satellite imagery to verify that they have not contributed to deforestation in the area.
Alongside meeting regulatory compliance obligations, Prewave’s origin tracking will help companies gain further visibility into their supply chain.
Advanced Risk Assessment
Article 10 of the European Union’s Deforestation Regulation outlines the extensive number of risk assessment criteria and steps needed to comply—including evaluating the socio-cultural impact of land usage and measuring the environmental risk.
Non-EU companies must develop and deploy advanced risk assessment technology to streamline this process—which will also help you create a more resilient and compliant supply chain.
Prewave aims to simplify risk assessment and management by providing an all-in-one system for supplier monitoring and visibility. In accordance with specifications set out by the EUDR, Prewave uses satellite imagery and AI-driven analysis to assess deforestation risk. Using this technology, Prewave can verify compliance with local legislation, providing thorough due diligence for your business.
Proactive Risk Mitigation
Once your business has outlined the risk profile of each supplier, you can take steps to mitigate any potential issues in your supply chain. Certain suppliers may lack the necessary due diligence for you to guarantee their land is deforestation-free. Others may have uncertain relationships with indigenous communities in their area.
Regardless of the risk, taking proactive steps to mitigate them will help streamline future compliance with the regulation. Preventative steps today will make compliance down the line an easier and more effective process.
Beyond just identifying risks in the assessment process, Prewave also offers strategies for addressing risk.
Businesses can leverage Prewave to better understand the risk profile of connected suppliers. Prewave takes into account factors like the political conditions of the supplier’s country, their labour considerations—and more.
Based on a supplier’s risk score, Prewave will suggest steps that your business can take to reduce risk in your supply chain. This approach will allow you to mitigate potential compliance issues proactively.
Automated Due Diligence Statements
Creating and making due diligence statements available is another important part of EUDR compliance. Especially for non-EU businesses that are not familiar with the exact due diligence documents required by the EUDR, this can become a point of contention.
While manually creating due diligence statements can result in effective final reports, this approach leaves a lot up to chance. Small mistakes can have significant repercussions for your business. Equally, a manual approach is much more time-consuming than an automated due diglience solution.
Prewave automates the creation of due diligence statements, significantly reducing the administrative burden for your company.
Towards Effective EUDR Compliance
While the EUDR is extensive, it is not insurmountable. With timely preparation, non-EU businesses will be able to ensure compliance with EUDR requirements. Organisations must improve data management and collection processes, conduct extensive risk assessments, and adopt the new reporting frameworks required.
By leveraging tools like Prewave, businesses can streamline the process of regulatory compliance while gaining complete visibility into their supply chain. Stay one step ahead of evolving regulatory compliance by booking a free demo today.
Get started with your compliance journey by assessing your current operations and integrating any necessary changes outlined by the European Union Deforestation Regulation.
As one of many sustainability-first regulatory frameworks published over the past few years, the EUDR represents another step towards a more sustainable future. For companies that wish to continue operating in environmentally conscious areas like the EU, understanding the importance and requirements of regulations like the EUDR is vital.
