Time is running out for Hungarian companies subject to the EU Regulation put in place to curb deforestation. Although the European Parliament decided to postpone the introduction of EUDR obligations by a year compared to the original plans, meaning compliance is only required starting from 2026, many parties did not use the extra time wisely and have not yet started preparations.
The legislation that entered into force on 29 June 2023 with the aim of curbing the global deforestation and forest degradation resulting from EU consumption and production is directly applicable and compulsory in all European Union Member States, thus also Hungary. In absence of suitable intervention, the rate of destruction has been estimated by the impact assessment prepared in the regulatory process to result in the deforestation of 248,000 hectares of forests annually by 2030.
The EUDR (EU Deforestation Regulation) not only imposes new tasks for the customs authorities and the competent control authorities of the given countries, it also sets forth serious requirements for those operators trading with certain goods and products affected by deforestation.
Decreasing the global ecological footprint of EU consumption
On the one hand, the EUDR is an important element of the European Union’s environmental protection, climate protection, biodiversity, and other strategies, and, on the other, it is an initiative aimed at reducing the global ecological footprint of consumption in the EU. The EU contributes to the destruction of the world’s forests both as a substantial consumer and by way of the economic activities of the companies registered in its Member States. Examples include the import, consumption, and marketing of products and goods where production leads to the reduction of forested areas.
What do soya, palm oil, and chocolate have in common?
THE EUDR exactly specifies the goods and products that may be placed on the market only if their production did not result in any deforestation. Relevant goods are cattle, cocoa, coffee, oil palm, rubber, soya, and wood. Additionally, relevant products shall also include the beef, cattle hide, chocolate, vulcanised and unvulcanised rubber, wood charcoal, and paper prepared by way of their processing, as well as important raw materials such as high purity glycerol and any animals fed with soya (the actual list is significantly longer). The list was determined by the baseline impact assessment for the legislative process, which found that the production of these goods and the derived products are primarily responsible for deforestation.
Requirements for traders
The scope of the EUDR extends to the above goods and products produced after 29 January 2023. Starting from 2026, they may only be placed on the market and sold in the EU or exported from the EU subject to strict conditions.
One condition is that they may only originate from land where no deforestation was carried out after 31 December 2020. The Regulation also requires that it be possible to trace and check “freedom from deforestation” starting from the geographical location of production through the subsequent stations of the supply chain.
An important requirement is that the production of the goods and products in question take place in line with the applicable laws of the country of origin. Such relevant legislation includes land use rights, human rights, labour rights, tax laws, anti-corruption, trade and customs regulations, and local environmental protection and forest management requirements.
Finally, it is worth mentioning that operators and traders are required to submit to the customs authority a due diligence statement for the relevant goods and products placed on the market. In the interest of compliance with the principle of due diligence, the companies affected have to set up a complex procedure.
Violations may lead to confiscation
Parties that fail to comply with the EUDR’s requirements may face serious consequences: the competent authorities may apply a number of different sanctions for violations. They may prevent the placing on the market of the goods and products in question or, in more serious cases, confiscate both these and the revenue obtained from the transaction. Another option is to recall or donate those to charity, or dispose of them in accordance with EU waste management laws.
Violators may also expect to receive fines. The principle of the penalties applied is to ensure that they always exceed the economic benefit obtained. The baseline of the penalty is at least 4% of the company’s annual sales revenue achieved in the EU and is to be increased until it actually exceeds the potential economic gain.