This article briefly presents the legal issues faced by EUDR, such as the fact that EU environmental policy shall be based on the precautionary principle, the principle that preventive action should be taken, and the principle that environmental damage should be rectified at the source as a priority. It discusses who has the main role in protecting public order – the public authority or private individuals – and the double standard in EUDR. On one hand, according to EUDR, operators and traders need to maintain zero risk when they place goods on the market; on the other hand, the EU does not impose a similar zero-risk standard for states when they collect taxes on transactions involving products and commodities that may be linked to deforestation according to EUDR rules. Additionally, the probatio diabolica in EUDR in breaking the law and the principle of legal certainty are not enforced by EUDR. There is also concern that EUDR might reduce EU competitiveness, affect trade secrets, and, most importantly, that EUDR is destroying the unity of the single market by dividing EU countries into different categories.
1. INTRODUCTION
On 9.6.2023, REGULATION (EU) 2023/1115 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 31 May 2023 (EUDR) was published in the Official Journal of the European Union. It concerns the placing, making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repeals Regulation (EU) No 995/2010. This regulation is primarily aimed at combating deforestation and forest degradation.
According to Article 1, paragraph 1 of EUDR, this regulation lays down rules regarding the placing and making available on the EU market, as well as the export from the EU, of a category of products in order to reduce the EU’s contribution to global deforestation, greenhouse gas emissions, and global biodiversity loss.
Article 3 of EUDR states that “commodities and relevant products shall not be placed or made available on the market or exported, unless all the following conditions are fulfilled:
(a) they are deforestation-free;
(b) they have been produced in accordance with the relevant legislation of the country of production; and
(c) they are covered by a due diligence statement.”
It has to be appreciated that the EU desires to combat deforestation, illegal logging, and the trade in illegal wood, but this fight must be conducted according to the law.
According to the rules of EUDR, relevant commodities (cattle, cocoa, coffee, oil palm, rubber, soya and wood)[1] and relevant products (products that contain, have been fed with or have been made using relevant commodities)[2] shall not be placed on the market (shall not be first available of EU market, shall not enter EU market)[3] or shall not be supplied (delivered, distributed, consumed after the products had first entered EU market)[4] “unless all the following conditions are fulfilled:
(a) they are deforestation-free;
(b) they have been produced in accordance with the relevant legislation of the country of production; and
(c) they are covered by a due diligence statement”.[5]
“Deforestation free means:
(a) that the relevant products contain, have been fed with or have been made using, relevant commodities that were produced on land that has not been subject to deforestation after 31 December, 2020; and
(b) in the case of relevant products that contain or have been made using wood, that the wood has been harvested from the forest without inducing forest degradation after 31 December, 2020;”[6]
Article 2, paragraph (40) of EUDR defines “relevant legislation of the country of production” as “laws applicable in the country of production concerning the legal status of the area of production in terms of: land use rights, environmental protection, forest-related rules, including forest management and biodiversity conservation, where directly related to wood harvesting, third parties’ rights; labor rights; human rights protected under international law; the principle of free, prior and informed consent (FPIC), including as set out in the UN Declaration on the Rights of Indigenous Peoples; tax, anti-corruption, trade and customs regulations”.
“Operators shall exercise due diligence in accordance with Article 8 prior to placing relevant products on the market or exporting them in order to prove that the relevant products comply with Article 3”[7] and “traders that are not SMEs shall be subject to obligations and provisions in Articles 3, 4 and 6, Articles 8 to 13, Article 16(8) to (11) and Article 18 with regard to the relevant commodities and relevant products that they make available on the market”[8].
“The due diligence shall include:
(a) the collection of information, data and documents needed to fulfill the requirements set out in Article 9;
(b) risk assessment measures as referred to in Article 10; risk mitigation measures as referred to in Article 11”[9].
This means that for every sale or distribution of the relevant commodities and products, it is necessary to prove that the rules defined by Article 3 of EUDR, mentioned above, are respected in order to enter or circulate in the EU market. Those who import, export, or sell and distribute these products on the EU market have to verify if the above conditions are fulfilled.
Full text of articles 9, 10 and 11 of EUDR is available here.
2. EU/STATES ROLE
a) Every doctor or firefighter who wants to save a human life takes action while the person is still alive. The same principle applies to forests and deforestation. The most crucial actions must be taken while the forest is alive, not after it has been destroyed. However, EUDR does not have significant measures to protect forests while the trees are still alive; the rules imposed by EUDR are applied after the forest is already gone. In this way, it seems strange that someone can claim they are saving a forest after it no longer exists.
Treaty on the Functioning of the European Union (TFEU) in the Title XX Environment Article 191, paragraph 2 says that EU policy on the environment: “It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay”[10].
In the main body of EUDR, there is no mention of the precautionary principle, nor is there any mention that environmental damage should be rectified at source as a priority. Therefore, EUDR is inconsistent with the principles established in the EU treaty and does not comply with the requirements of the EU treaty. And regarding preventive actions, article 24 paragraph 2 (b) is mentioning that “operator or trader” shall take actions to prevent “the relevant product from being placed or made available on the market or exported” and according to Article 31 paragraph 2, “competent authorities” have to take “interim measures under Article 23 to prevent the placing or making available on the market and export of relevant products under investigation”.
EUDR does not regulate preventive actions to protect forests before environmental damage occurs. Instead, it addresses preventive actions after damage has already been done to nature. Its focus is on preventing goods from illegal deforestation from entering or being made available on the market.
Moreover, EUDR does not prioritize rectifying environmental damage at its source as prescribed by the Treaty on the Functioning of the European Union (TFEU). When it comes to environmental issues, actions by public authorities are expected to be swift, robust, and focused on protecting nature. However, EUDR instead compels operators and traders to “keep for at least five years all documentation related to due diligence, such as all records, measures and procedures pursuant to Article 8. They shall make that documentation available to the competent authorities upon request”[11].
b) The EUDR represents a public recognition of the dissolution of states and the EU’s power over controlling and maintaining public order. The fight against illegal deforestation and illegal trade is a matter of public order, which is traditionally the responsibility of public authorities. Public authority, supported by the state and the EU, utilizes legal powers, employees, logistics, and instruments to maintain public order, backed by the enforcement capabilities necessary to protect it. While every individual and company must respect the law and refrain from actions that disturb public order, the primary responsibility for maintaining public order rests with the public authorities of the states and the EU. However, the EUDR seems to shift this responsibility to operators and traders who deal with relevant commodities and products. This divergence from traditional roles raises concerns about the enforcement and effectiveness of public order measures in EU in the context of environmental protection under the EUDR.
c) EUDR states that due diligence documents must be kept for 5 years. During this period, forests may be cut down, and wood and other relevant commodities and products may be imported, sold, or exported from the EU. States collect taxes on each transaction involving products related to forests, regardless of their legality. While states are aware of these transactions and receive revenue from them, they do not intervene or verify the legality of each transaction when they collect the money from the transactions. This approach contrasts with public declarations of fighting against deforestation. Instead, the primary action taken by states is to collect taxes on transactions, legal or not, and then conduct inspections over a 5-year period to determine if any illegal activities occurred.
If the state expects operators and traders to adhere to a zero-risk policy when placing or making available relevant commodities and products under EUDR, then EU states should similarly adopt a zero-risk policy when receiving money from transactions involving these commodities and products. This would entail rigorous checks on every transaction before taxes or revenue are collected. However, EUDR does not impose such a zero-risk requirement for EU states in this context.
There appears to be a double standard. On one hand, the EU imposes a requirement for companies to place goods on the market with zero risk related to deforestation under EUDR. On the other hand, the EU does not impose a similar zero-risk standard for EU states when they collect taxes on transactions involving products and commodities that may be linked to deforestation according to EUDR rules.
3. PROBATIO DIABOLICA AND LEGAL CERTAINTY
Everyone can agree that forests need to be protected, and therefore all goods coming from forests that are placed on the market need to be subjected to thorough checks. However, EUDR takes these checks to a different level.
Traders that are not SMEs, based on Article 5 of EUDR, are required to exercise due diligence regarding relevant products supplied by each supplier. This due diligence includes information, data, and documents mentioned in Articles 9, 10, and 11 of EUDR.
After operators have checked the goods according to Articles 8, 9, 10, and 11 of EUDR, and relevant products and commodities are placed on the market, traders intending to pass on, sell, or distribute these items must once again collect information, data, and documents as mentioned in Articles 9, 10, and 11 of EUDR. If a trader sells the goods to another trader, the second trader must also verify the information, data, and documents as specified by Articles 9, 10, and 11 of EUDR.
The requirement that traders, after placing relevant products and commodities on the market, continue to collect information, data, and documents as specified in Articles 9, 10, and 11 of EUDR can be seen as a probatio diabolica.
At some point along the distribution channel, state authorities must intervene and verify whether relevant products and commodities have been legally or illegally placed on the EU market. It is not feasible for entire industries such as cattle, cocoa, coffee, oil palm, rubber, soy, and wood, which employ millions of people, to remain uncertain for several years.
EUDR is introducing significant uncertainty into the market due to the excessive bureaucracy it imposes on relevant commodities and products. This bureaucracy and uncertainty are contrary to the principle of legal certainty.
“The principle of legal certainty requires that legal rules be clear and precise and aims to ensure that situations and legal relationships governed by EU law remain foreseeable”[12]. Principle of legal certainty “it is the root and foundation of two other principles of EU law which are its corollaries: the principle of legitimate expectations and the principle of the authority of res judicata”[13] and EUDR is not compatible with principle of legal certainty.
4. EU COMPETITIVENESS
Article 173, paragraph 1, of the TFEU states that “The Union and the Member States shall ensure that the conditions necessary for the competitiveness of the Union’s industry exist.”
The EU must ensure competitiveness, but the burdensome bureaucracy introduced by the new regulation, such as EUDR, is affecting competitiveness by slowing down production and increasing the cost of finished products. This bureaucratic burden is having a direct negative effect on competitiveness. EUDR does not make companies more competitive; rather, it has the opposite effect.
5. TRADE SECRET
By requiring the communication of operational data to other private companies, trade secrecy is significantly compromised. While public authorities have the right to obtain data from operating companies on how forest exploitation is conducted, this requirement undermines the confidentiality that businesses rely on to protect their competitive advantage and intellectual property.
If a company publicly shares its geolocation and supplier data, it exposes itself to the risk that other companies may use this information.
Forcing companies to share geolocation and supplier information could lead to situations where more powerful companies easily obtain the contact details of suppliers and forest locations by purchasing products from these companies. This could enable larger companies to eliminate or bypass their competitors who source from the same forests and suppliers. As a result, EUDR may disrupt the distribution chain in this manner.
6. INTERNAL MARKET
According to article 29 of EUDR, EU member states will be ”classified into one of the following risk categories:
(a) ‘high risk’ refers to countries or parts thereof, for which the assessment referred to in paragraph 3 results in the identification of a high risk of producing in such countries or in parts thereof, relevant commodities for which the relevant products do not comply with Article 3, point (a);
(b) ‘low risk’ refers to countries or parts thereof, for which the assessment referred to in paragraph 3 concludes that there is sufficient assurance that instances of producing in such countries or in parts thereof, relevant commodities for which the relevant products do not comply with Article 3, point (a), are exceptional;
(c) ‘standard risk’ refers to countries or parts thereof which do not fall in either the category ‘high risk’ or the category ‘low risk’
The EUDR, by dividing EU countries into risk zones and implementing collective sanctions, segregates and splits the internal market and affect the free movement of goods. This approach potentially transforms the internal market into three distinct markets: one comprised of countries with high-risk classifications, another with low-risk classifications, and a third with standard risk classifications. This segmentation could have a negative impact on the unity and coherence of the truly internal market in the EU.
Moreover “national rules requiring the indication of the origin of the product on the product or its labeling constitute a measure of equivalent effect contrary to Article 34 TFEU”[14]. EU Court “has ruled that national rules on the mandatory indication of origin may encourage consumers to buy national products to the detriment of equivalent products originating in other Member States. Such rules, according to the Court, have the effect of making the marketing in a Member State of similar goods produced in other Member States more difficult, and slow down economic interpenetration in the European Union by handicapping the sale of goods produced as the result of a division of labor between Member States”[15].
If national rules requiring product origin are prohibited because they might encourage consumers to favor products from specific EU countries, thereby potentially hindering economic integration within the EU, then it follows that EU rules requiring product origin (EU country) would similarly be prohibited. EUDR’s implementation of different rules for the same product depending on its EU country of origin could exacerbate these issues by introducing inconsistency and potentially disrupting the internal market.
EUDR has the capability to categorize all EU states collectively as a region with low, standard, or high risk. However, by assigning different statuses to individual EU countries, it effectively divides the single market. Furthermore, EUDR introduces a risk of exclusion for companies that comply with the law but operate from EU member states classified as high risk. These innocent companies may unfairly bear a stigma simply because they are located in an EU country deemed high risk under EUDR.
7. CONCLUSION
In conclusion, EUDR should be replaced with a new regulation that aligns with Article 191, paragraph 2 of the Treaty on the Functioning of the European Union (TFEU), which states:
“Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay.”
[1] Relevant commodities are defined in Article 2 paragraph 1 of EUDR, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
[2] Relevant products are defined in Article 2 paragraph 2 of EUDR, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
[3] placing on the market means the first making available of a relevant commodity or relevant product on the Union market, according to Article 2 paragraph (16) of EUDR,
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
[4] Article 2 paragraph (18) of EUDR
[5] Article 3 of EUDR
[6] Article 2 paragraph (13) of EUDR
[7] Article 4 paragraph 1 of EUDR
[8] Article 5 paragraph 1 of EUDR
[9] Article 8 paragraph 2 of EUDR
[10] Article 191 paragraph 2 of Consolidated version of the Treaty on the Functioning of the European Union, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E%2FTXT
[11] Article 12 paragraph 5 of EUDR is referring to operators, and traders that are not SMEs shall be subject to obligations and provisions of article 12 based on article 5 paragraph 1
[12] OPINION OF ADVOCATE GENERAL SHARPSTON delivered on 12 September 2019 (1) Cases C‑542/18 RX-II and C‑543/18 RX-II Erik Simpson v Council of the European Union and HG v European Commission, paragraph 90, https://curia.europa.eu/juris/document/document.jsf;jsessionid=072707408F7412F66645676D47CA309F?text=&docid=217681&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2791152#Footnote63
[13] OPINION OF ADVOCATE GENERAL SHARPSTON delivered on 12 September 2019 (1) Cases C‑542/18 RX-II and C‑543/18 RX-II Erik Simpson v Council of the European Union and HG v European Commission, paragraph 90, https://curia.europa.eu/juris/document/document.jsf;jsessionid=072707408F7412F66645676D47CA309F?text=&docid=217681&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=2791152#Footnote63
[14] COMMISSION NOTICE Guide on Articles 34-36 of the Treaty on the Functioning of the European Union (TFEU) (Text with EEA relevance) (2021/C 100/03), Official Journal of the European Union, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC0323(03)&from=EN#ntc2-C_2021100RO.01003801-E0002
[15] COMMISSION NOTICE Guide on Articles 34-36 of the Treaty on the Functioning of the European Union (TFEU) (Text with EEA relevance) (2021/C 100/03), Official Journal of the European Union, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021XC0323(03)&from=EN#ntc146-C_2021100EN.01003801-E0146
