EUROPEAN COMMISSION Brussels, 17.11.2021 COM(2021) 706 final 2021/0366(COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 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 and repealing Regulation (EU) No 995/2010 (Text with EEA relevance) {SEC(2021) 395 final} - {SEC(2021) 396 final} - {SWD(2021) 325 final} - {SWD(2021) 326 final} - {SWD(2021) 327 final} - {SWD(2021) 328 final} - {SWD(2021) 329 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal Deforestation and forest degradation are occurring at an alarming rate, aggravating climate change and the loss of biodiversity. The main driver of deforestation and forest degradation is the expansion of agricultural land to produce commodities such as cattle, wood, palm oil, soy, cocoa or coffee. A growing world population and increasing demand for agricultural products especially those of animal origin is expected to increase demand for agricultural land and put additional pressure on forests, while changing climate patterns will affect food production, necessitating a shift to a sustainable production that is not leading to further deforestation and forest degradation. The EU is a relevant consumer of commodities associated with deforestation and forest degradation and it lacks specific and effective rules to reduce its contribution to these phenomena. The objective of this initiative is therefore to curb deforestation and forest degradation that is provoked by EU consumption and production. This, in turn, is expected to reduce GHG emissions and global biodiversity loss. The initiative aims to minimise consumption of products coming from supply chains associated with deforestation or forest degradation – and increase EU demand for and trade in legal and ‘deforestation free’ commodities and products. •Consistency with existing policy provisions in the policy area The proposal was first announced in the 2019 Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forests (hereinafter “2019 Communication”), where the Commission committed to “assess additional demand side regulatory and non-regulatory measures to ensure a level playing field and a common understanding of deforestation free supply chains, in order to increase supply chain transparency and minimise the risk of deforestation and forest degradation associated with commodity imports in the EU”. This commitment was then confirmed in the European Green Deal, as well as the 2030 EU Biodiversity Strategy and the Farm to Fork Strategy, the latter two announcing a corresponding legislative proposal in 2021. The proposal is an integral part of and coherent with the overall objectives of the European Green Deal and all the initiatives developed thereunder. In particular, it is complementary with the other measures proposed in the 2019 Communication, notably: 1) work in partnership with producer countries, to address root causes of deforestation, and to promote sustainable forest management, and 2) international cooperation with major consumer countries, to minimise leakage and to promote the adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on the market. The Commission will therefore continue to work in partnership with producer countries, offering new types of support and incentives with regard to protecting forests, improving governance and land tenure, increasing law enforcement and promoting sustainable forest management, climate-resilient agriculture, sustainable intensification and diversification, agro-ecology and agroforestry. The existing EU legislative framework addresses deforestation only partially. The EU Forest Law Enforcement Governance and Trade (FLEGT) Action Plan dating from 2003 constitutes the key EU policy against illegal logging and associated trade. While the FLEGT Action Plan tackles illegal logging and associated trade, it does not address deforestation as such. A key element of the FLEGT Action Plan is a voluntary scheme to ensure that only legally harvested timber is imported into the EU from countries agreeing to take part in this scheme. The internal EU legal framework for this scheme is the Forest Law Enforcement, Governance and Trade Regulation (FLEGT Regulation), which establishes a licensing system that is the basis for FLEGT Voluntary Partnership Agreements. Another key element of the FLEGT Action Plan is the EU Timber Regulation (EUTR), which prohibits the placing of illegally harvested timber and timber products on the EU market and lays down obligations for operators placing timber on the market for the first time. Both the FLEGT Regulation and EUTR have undergone a Fitness Check, and the policy options presented in this Regulation are also drawing from the findings of the Fitness Check. Building upon the experience and lessons learned in the context of the FLEGT Action Plan and Regulation, the Commission will establish forest partnerships with relevant partner countries as appropriate. The Forest Partnerships’ main objective will be to protect, restore and/or ensure the sustainable use of forest in a comprehensive and integrated way to deliver on the European Green Deal priorities as well as EU’s development cooperation objectives like poverty alleviation, good governance, human rights. They will promote forest governance and policy reforms to pursue sustainable forest management and contribute to halting deforestation and forest degradation. •Consistency with other Union policies The 2019 Communication sets out the overall objective of protecting and improving the health of existing forests, in particular primary forests, and to increase sustainable, biodiverse forest coverage worldwide. In the context of the European Green Deal, both the EU Biodiversity Strategy for 2030 and the Farm to Fork Strategy characterise this legislative proposal and other measures to avoid or minimise the placing of products coming from supply chains associated with deforestation or forest degradation on the EU market, as important for the achievement of their objectives. Other relevant initiatives include, for instance, the Communication “A long-term Vision for the EU's Rural Areas”. The new EU Forest Strategy confirms that the measures already identified in the 2019 Communication set the basic framework for the EU’s global action, including the present legislative initiative, and will be properly and consistently taken into consideration when shaping domestic policies. This Regulation will be complementary with the legislative initiative on Sustainable Corporate Governance (SCG), which aims to improve the EU regulatory framework on company law and corporate governance. The SCG initiative is based on a horizontal approach addressing adverse human rights and environmental impacts acting upon the behaviour of companies in their own operations and in their value chains. While the SCG regime will address business operations and value chains in general, the deforestation approach is focusing on specific products and product supply chains. Therefore, while the overall objectives of the two initiatives may be shared and are mutually supportive, specific objectives are different. The SCG initiative’s due diligence obligation is planned to apply to a range of large EU companies across sectors (with a more targeted regime for certain medium-sized companies), and non-EU companies are planned to be covered as well. The legislative initiative on deforestation has a very specific objective to limit the placing of deforestation-linked products on the EU market and its requirements will, in some areas, be more specific compared to the general duties under the SCG initiative. It also includes a prohibition, which will apply to all operators placing the relevant products on the market, including EU and non-EU companies, irrespective of their legal form and size. Where the requirements of the SCG initiative go beyond the requirements of the deforestation regulation, they apply in conjunction. The present initiative will not specifically target the financial sector and investments. Existing initiatives in the area of sustainable finance, such as the implementation of the EU Taxonomy Regulation and the future Corporate Sustainability Reporting Directive, CSRD (current Non-Financial Reporting Directive, NFRD) are well suited to address the deforestation impacts of the finance and investment sectors, thereby complementing and supporting this legislative initiative on deforestation. The CSRD and taxonomy impose disclosure obligations also on non-financial undertakings: the CSRD foresees the publication of sectoral reporting standards by October 2023; under the EU Taxonomy Regulation, technical criteria have already been established under the delegated act for climate mitigation and adaptation for forestry, while the publication of criteria for agriculture has been delayed. Both economic activities can be covered under the delegated acts for the other four environmental objectives. This Regulation proposal is also expected to be applied together with the Renewable Energy Directive as regards some commodities used as biofuels or to produce biofuels, such as wood pellets or derivatives of soy and palm oil. The objectives of the two sets of EU rules are complementary, as they both address the overarching objectives of fighting climate change and biodiversity loss. This legislative initiative sets requirements for commodities and products linked to deforestation and forest degradation to be placed on the EU market, with the aim of curbing EU-driven deforestation. The Renewable Energy Directive sets, among others, sustainability criteria rules for biofuels, bioliquids and biomass to be considered sustainable and specifies targets for the EU to achieve a renewable energy target of at least 32% by 2030. As regards their practical interplay, commodities and products that fall within the scope of both acts will be subject to requirements for general market access and for being accounted for as renewable energy. These requirements are compatible and mutually reinforcing. In the specific case of certification systems for low Indirect Land Use Change (ILUC) according to Commission Regulation (EU) 2019/807 supplementing Directive (EU) 2018/2001, “as regards the determination of high indirect land-use change-risk feedstock for which a significant expansion of the production area into land with high carbon stock is observed and the certification of low indirect land use change-risk biofuels, bioliquids and biomass fuels”, these certification systems may also be used by operators and traders within their due diligence systems to obtain information as required by this Regulation to meet some of the traceability and information requirements set out in Article 9 of this Regulation. As with any other certification system, their use is without prejudice to the legal responsibility and obligations under this Regulation for operators and traders to exercise due diligence.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis EU competence to act in the area of deforestation and forest degradation stems from the articles of the Treaty on the Functioning of the European Union (TFEU) related to the protection of the environment According to Article 191 (1) TFEU “preserving, protecting, and improving the quality of the environment, protecting human health, prudent and rational utilisation of natural resources, promoting measures to deal with regional or worldwide environmental problems, and in particular combatting climate change” are defined as objectives of the Union policy on the environment. The adoption at Union level of measures aiming at combatting deforestation and forest degradation will contribute to reducing the emissions of greenhouse gas (GHG), increasing climate change resilience and reducing the human impact on biodiversity and thus will provide a significant contribution to each of the objectives of the environmental policy. Article 192 TFUE should thus be used a as a legal basis of the proposal. As many environmental issues, the consequences of deforestation in one area can have global impacts. It is thus appropriate that both domestic products and products released for free circulation or exported are covered by the proposal under the proposed legal basis. This will allow to comply with Article 191(2) TFEU which requires the Union policy on the environment to aim at a high level of protection and with Article 3(3) of the Treaty on European Union (TUE) according to which promoting a high level of protection and of improvement of the quality of the environment is defined as one of the objectives of the Union. Article 192 (1) TFEU states that “the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions, shall decide what action is to be taken by the Union in order to achieve the objectives referred to in Article 191”. •Subsidiarity (for non-exclusive competence) The main drivers of deforestation and forest degradation are linked to both the EU market and international trade. Action at EU level is required to address the EU consumption footprint and international trade issues in a coordinated and harmonised way while providing the legal certainty and clarity, necessary for the proper functioning of the EU market. In the absence of a harmonised approach, measures restricting internal trade would be taken by several Member States, hence disrupting the functioning of the internal market. This would have a serious impact on the functioning of the EU market, jeopardize the ability of European operators to source products/commodities in the scope of this Regulation as well as undermine the credibility of EU measures. Other Member States might decide not to adopt any measure limiting the potential impact of the measures undertaken by others on deforestation. The supply chains for the products covered by the initiative are international and very often global. The EU experience in dealing with complex supply-chain issues (e.g. stemming from the illegal logging related legislation) shows that it is instrumental to ensure a level playing field for operators in terms of requirements to be met before placing products (commodities and derived products) on the EU market for the first time. The absence of applicable rules at the European level puts responsible business operators that are ready to clean up their supply chains at a competitive disadvantage and rewards unsustainable behaviour. Therefore, while environment is a competence shared between the EU and the Member States, EU-wide measures are necessary to ensure a common understanding of deforestation and forest degradation-free supply chains, to increase the transparency of such supply chains as well as to allow, by the scale of the action, a significant impact on deforestation. In so far as the present initiative covers both goods released for free circulation or exported from the Union market, action at Union level would be more effective than action at national level as it would prevent possible adverse impact on the functioning of the internal market and on trade aspects. EU action can therefore complement and strengthen national efforts of Member States. Were the EU not to act, the problem of deforestation and forest degradation related to EU consumption would persist and further deteriorate. This could negatively affect the EU's efforts in the field of global biodiversity protection and climate change. •Proportionality With this legislative initiative the EU steps up its action against deforestation and forest degradation by establishing a regulatory framework which aims to be ambitious and implementable, and which incentivises the transition to sustainable supply chains in all producing countries, within or beyond the EU. This would make the EU a credible global standard-setter. The minimum monetised benefits clearly offset the costs. The initiative is also in line with the gravity and urgency of the problem it aims to tackle, as well as with the priorities of the European Green Deal. This legislative initiative aims at minimising the EU’s contribution to deforestation and forest degradation. This objective will be achieved by establishing a tiered, mandatory due diligence system, relying on a deforestation-free definition, combined with a benchmarking system. As analysed in the “Impact Assessment related to minimizing the risk of deforestation and forest degradation associated with products placed on the EU market” (hereinafter “Impact Assessment”), it is expected that these measures will be the most effective in curbing EU-driven deforestation and the most efficient among those screened in preparation of this initiative. The findings of the Impact Assessment, demonstrate that legally binding options (like deforestation-free requirement, mandatory due diligence, etc.) would be more effective than voluntary measures (like voluntary due diligence, voluntary labelling or voluntary private certification). These findings were corroborated by the outcome of the Open Public Consultation, where the overwhelming majority of stakeholders — businesses associations and NGOs — supported a mandatory due diligence regime. •Choice of the instrument The proposed instrument is a ‘Regulation’ because it is necessary to ensure the highest level of harmonization to avoid the coexistence of different standards between Member States, which would undermine the fundamental principle of free movement of goods. A Regulation will set direct requirements for all operators, thus providing the necessary legal certainty and enforcement possibility of a fully integrated market across the EU. A Regulation also ensures that the obligations are implemented at the same time and in the same way in all 27 Member States. The Regulation will also reduce uncertainties over timelines during the transposition process typically associated with a Directive in an area where time and legal certainty are critically important due to forecasted increases in market size and changes in market dynamics more generally. The instrument has also been designed as a future-proof dynamic system to be able to adapt to market developments and new data and scientific evidence. For this purpose, a number of empowerments are foreseen for the Commission, which will allow the development of implementing measures, among others to publish the result of the country benchmarking and to revise the commodities in scope of the Regulation. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation The present initiative builds on the findings of the Fitness Check of the EUTR and FLEGT Regulations, which has been carried out concomitantly to the Impact Assessment for this Regulation. With regard to the EUTR, the Fitness check has shown that the EUTR resulted in an improved situation in third countries, including in countries that have chosen not to engage in VPA processes. Main EU trade partners have taken steps to strengthen their forest governance systems and reduce illegal logging to meet the requirements of the EUTR. The EUTR – even if hampered by a number of weaknesses in its design and enforcement challenges – has shown some positive results in terms of both effectiveness and efficiency. Its worldwide coverage has provided the EU with a basis to work closely together with other consumer countries. Other consumer countries and trade partners worldwide have adopted legislative approaches similar to the EUTR In the broader deforestation context, this is particularly important to bear in mind, as it shows that the EU, even with a decreasing market share, can have an impact and lead the way globally.

Despite the challenges experienced in its implementation, the findings of the Fitness Check show that the approach adopted for the EUTR – due diligence – allows flexibility to respond to new and emerging challenges linked to illegal logging and illegal land use change. The general requirement (due diligence) placed on all EU based operators also allows the Regulation to be flexible to changes in trade patterns and changes in country risk profiles. The proposed option will integrate and improve upon the framework set up with the EUTR, which would therefore be repealed. The Due Diligence procedure set up under the EUTR will be adapted and improved in the present Regulation, through the introduction of new features such as the due diligence statement (Article 4), the geographic information requirement or geo-location, linking the commodities and products to the plot of land where they were produced (article 9), increased cooperation with customs (Articles 14 and 24), minimum inspection levels (article 14) as well as the country benchmarking (Articles 25-26). With regard to the FLEGT Regulation, the Fitness Check has confirmed the achievements of FLEGT Voluntary Partnership Agreements (VPAs) in terms of enhanced stakeholders’ participation and improved forest governance frameworks in partner countries and, at the same time, highlighted a number of its shortcomings. It has also pointed out that there is limited evidence that the VPAs overall have contributed to reducing illegal logging. While the EU system established under the Regulation would be an efficient tool to lower the compliance costs for EU operators, the main instrument for its operationalisation, i.e. the VPAs, has not delivered. One of the main problems as regards the FLEGT Regulation is the fact that the main EU trade partners have not shown interest to engage in VPA processes, resulting in only 3% of timber imports to the EU covered by an operational VPA system. Over 15 years after the FLEGT Action Plan set the basis for these processes in 2003, only one country of the 15 with which the EU has engaged in a VPA process, has an operating FLEGT licensing system in place and only one country from the top 10 EU timber trading partners is engaged in a VPA process. To respect bilateral commitments the European Union has entered into and to preserve the progress achieved with partner countries that have an operating system in place (FLEGT licensing stage), this Regulation includes a provision declaring wood covered by a FLEGT license to have fulfilled the legality requirement. Some VPA components might be integrated where feasible and agreed by the partners into specific cooperation programmes, like Forest Partnerships or others to further support forest governance. •Stakeholder consultations The Open Public Consultation (OPC) carried out by the Commission in 2020 received nearly 1.2 million responses. A majority of stakeholders agreed on the need for an EU-level intervention to reduce the EU’s contribution to global deforestation and forest degradation. Most stakeholders also agreed on setting out an EU deforestation-free definition as a requirement of the policy intervention. In terms of policy measures, the OPC showed strong support for legally binding options (deforestation-free requirement, mandatory due diligence, mandatory public certification, etc.) while soft, voluntary measures like voluntary due diligence, voluntary labelling or voluntary private certification were considered to lack in effectiveness. The overwhelming majority of stakeholders — businesses associations and NGOs — supported a mandatory due diligence regime, although the preferred details of this system vary from one respondent to another. The detailed conclusions from the stakeholder consultations, including the Feedback on the inception impact assessment, the findings of the OPC and the outcome of targeted stakeholder consultation, are included in Annex 2 of the Impact Assessment. In line with the announcement made in the 2019 Communication, the European Green Deal, the 2030 EU Biodiversity Strategy and the Farm to Fork Strategy, this initiative focuses on forests. The European Parliament and NGOs advocated for an inclusion of other ecosystems. Based on the experience with existing legislation, such an expansion of the scope was considered premature as the lack of practical experience would be detrimental to the effectiveness and enforceability of the policy measures hereby assessed. However the need and feasibility to expand its scope to cover also other ecosystems will be evaluated as part of an early review. •Collection and use of expertise To support the analysis of the different options, the Commission awarded a support contract to external experts, to carry out two studies “Impact assessment on demand side measures to address deforestation”, and “Support study for a Fitness Check of the EUTR and FLEGT Regulation”. These studies provided part of the analysis and data underlying the policy options presented in the Impact Assessment and, in turn, in the present Regulation. This initiative also builds on the findings of a third study focusing on “Certification and Verification Schemes in the Forest Sector and for Wood-based Products” which has been carried out concomitantly to the Impact Assessment. The Commission also availed itself of inputs provided during the meetings of the Commission Expert Group/Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR and the FLEGT Regulation. Since the launch of the roadmap for this legislative initiative in February 2020, the group has met nine times in different configurations — and included four specific workshops to gather inputs on policy options studied in the Impact Assessment. Alongside the above-mentioned support studies, Expert Group meetings, and stakeholder consultations, the Commission also paid close attention to the European Parliament resolution of 22 October 2020 with recommendations to the Commission on an EU legal framework to halt and reverse EU-driven global deforestation (2020/2006 (INL)), as well as the positions expressed by the Council of the EU, in particular the Council Conclusions on the 2019 Communication. •Impact assessment A total of 17 policy measures were considered in the initial viability screening carried out in the preparatory Impact Assessment. This initial list of potential measures covered a wide range of possible interventions, including both regulatory and non-regulatory instruments. The viability screening assessed each policy measure against a number of criteria such as the legal, technical, political feasibility and proportionality, their potential effectiveness and efficiency as well as feedback received from stakeholders, EU Member States and third countries. On the basis of the viability screening, five policy options were retained and studied in further detail: 1) An improved mandatory due diligence procedure; 2) a benchmarking system and a list of contravening operators combined with a tiered improved mandatory due diligence system; 3) a mandatory public certification combined with an improved due diligence requirement; 4) mandatory labelling combined with an improved due diligence requirement; 5) a deforestation-free requirement for placing on the EU market supported by benchmarking and country card systems. All policy options considered build on common elements: 1) A deforestation-free definition, based on the FAO definition, with which products need to comply; and an additional requirement for products to be legal according to the laws of the country of production; 2) A product scope, which is regularly reviewed and updated, focusing on commodities with the highest EU embodied deforestation (beef, palm oil, soy, wood, cocoa, and coffee) and related products; 3) A prohibition to place commodities and products on the EU market that are associated with deforestation and forest degradation and which have not been produced in compliance with applicable and relevant legislation of the producer countries. Options 2 to 4 are combined with a mandatory due diligence requirement as proposed under option 1. The preferred option was number 2. It combines a due diligence requirement with a country benchmarking system that will categorise countries taking into account deforestation and forest degradation linked to the relevant commodities alongside criteria related to the countries’ engagement in fighting deforestation and forest degradation. There will be three categories of countries — low, standard and high risk. The obligations for operators and Member States’ authorities will vary according to the level of risk that the country of production represents, with simplified due diligence duties for low risk and enhanced scrutiny for high risk countries. It is expected that the preferred option would prevent deforestation driven by EU consumption and production of the six commodities included in the scope, with projected benefits well above 71,920 hectares of forest less affected by EU-driven deforestation and forest degradation annually by 2030. This would also mean a reduction of at least 31.9 million metric tons of carbon emissions to the atmosphere every year due to EU consumption and production of the relevant commodities, which could be translated into economic savings of at least 3.2 billion EUR annually. In addition, this option is expected to decisively contribute to protecting biodiversity which is on its turn also strongly linked to preventing climate change. This option should also contribute to achieving the specific objectives of the EU intervention, namely creating a level playing field for companies operating in the EU market; minimising the consumption of products coming from supply chains associated with deforestation or forest degradation; and increasing EU demand for and trade in legal and ‘deforestation-free’ commodities and products. Smallholders producing the relevant commodities may face adaptation challenges. All these factors are expected to be mitigated by the proposed cut-off date of 2020, as most products currently in trade would be sourced from land put into production prior to 2020. •Regulatory fitness and simplification

This Regulation is expected to create a level playing field for companies operating in the EU market. Producers implementing more sustainable production and transparent supply chains are expected to gain share in the EU market and increase their competitiveness compared to producers causing deforestation independent of their size. The main driver for costs of due diligence obligations is the complexity of supply chains and the risks associated with the sourcing country, not the companies’ size. While implementing due diligence procedures (and, where required, shifting supply chains) may be more challenging for SMEs, the due diligence requirement combined with benchmarking would allow SME operators and traders to benefit from lower costs of the simplified due diligence by opting for products stemming from low-risk supply chains. The proposal includes an “Information and communication system” (Article 29) that would enable the electronic processing of information both among competent authorities and between those and the economic operators. This system will facilitate and streamline the duties of operators and the enforcement by competent authorities. •Fundamental rights The proposed policy option will require products to have been produced in compliance with the deforestation-free definition and with the laws of the country of production. This entails that labour, environmental and human rights laws applicable in the country of production (both national and international) will need to be taken into account when assessing the compliance of products with this initiative. This includes the rights of indigenous peoples, which is expected to contribute to protecting the rights of vulnerable local communities. At Union’s level, the proposal respects the Charter of Fundamental rights of the EU and in particular its Article 2 (right to life), Article 8 (protection of personal data), Article 16 (freedom to conduct a business), Article 17 (right to property) and Article 37 (environmental protection). In accordance with Article 52(1) of the Charter, any limitation on the exercise of the rights and freedom recognised by the Charter by this legislative proposal are provided by the law and respects the essence of those rights and freedoms. Subject to the principle of proportionality, limitation are made only if they are necessary and genuinely meet the objectives of general interest recognised by the Union or the need to protect the rights of freedoms of others. Ensuring a high level of environmental protection and the improvement of the quality of the environment constitutes, in particular, an objective of general interest recognised by the Charter which might justify limitations to other fundamental rights. 4.BUDGETARY IMPLICATIONS The legislative financial statement attached to this proposal sets out the implications for budgetary, human and administrative resources. A total budget of EUR 16,519,000 is foreseen for the setting up and implementation of the Regulation during the first five years of operation (provisionally foreseen from 2023 to 2027.) This includes a budget of EUR 6,650,000 under Heading 7 of the Multiannual Financial Framework (MFF) for human resources (five additional staff in DG ENV implementing the Regulation and international cooperation, two additional staff in DG INTPA for the related cooperation and development and 1 staff in DG TAXUD for implementing customs’ obligations) and other administrative expenses. It also includes a budget of EUR 9,869,000 under Heading 3 of the MFF. The latter is linked to support various implementation tasks related to the legislative provisions that will be carried out by Commission services from 2022 to 2027, including procurement and potential administrative arrangements. 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements Member States’ authorities (notably competent authorities as described in Chapter 3) are responsible for the enforcement of the present Regulation. For that purpose they shall draw up inspection plans based on a risk-based approach, taking into account the risk level assigned through the country benchmarking system. The reporting framework established in Article 20 builds on the experience of the EUTR and aims at strengthening the review of Member States’ monitoring activity, the content and the quality of checks as well as their follow up. The system should be reviewed after three years of full operation to identify any issues and potential improvements, and every five years thereafter. Article 32 specifically envisages that the first review should include an assessment of the need and feasibility of extending the scope of the Regulation to other ecosystems. In addition, at the latest two years after the entry into force the Commission will carry out a first review of Annex I, following indications provided by scientific evidence. •Detailed explanation of the specific provisions of the proposal · Article 1 : Subject matter and scope Article 1(1) lays out the scope of application rationae materiae of the Regulation by defining “relevant commodities” (i.e. cattle, cocoa, coffee, oil palm, soya and wood) and relevant products, (i.e. those listed in Annex I, that contain, have been fed with or have been made using relevant commodities), to which this Regulation will apply. It also clarifies that the Regulation will apply equally to the placing and making available on the Union market, as well as to the export from the Union. Paragraph 2 clarifies the application rationae temporis of this Regulation, establishing that it will not be applicable to relevant commodities and products placed on the Union market or exported therefrom that were produced before the date of the entry into force, as foreseen in Article 36. ·Article 2 : Definitions Article 2 establishes the definitions used throughout the rest of the operative part of the Regulation. These include definitions [paragraphs (1) to (8)] required to make operational the core objective of the instrument, e.g. deforestation, forest, plantations, deforestation-free and produced. The definitions rely to the extent possible in concepts developed at international level, in particular within Food and Agriculture Organization of the United Nations (FAO).

The establishment of a deforestation-free definition is one of the major innovations of the proposed Regulation in relation to the EU Timber Regulation. The results of the Impact Assessment show that setting a common requirement for products and commodities, regardless of their country of production, is expected to increase the effectiveness of the policy intervention by preventing loopholes associated with legal deforestation and by facilitating implementation via remote monitoring. In addition, the deforestation-free definition is expected to prevent the creation of wrong incentives for partner countries, who might otherwise be tempted to lower environmental standards to facilitate the access of their products to the EU if only legality controls were established in the proposal. The definition of deforestation-free sets a cut-off date of 31 December 2020. This means that no commodities and products in the scope of the regulation would be allowed to enter or exit the EU market if they were produced on land subject to deforestation or forest degradation after that date. The proposed date minimises disruption of supply chains and potential negative impacts in partner countries. It corresponds to international commitments to halt deforestation as for example included in the Sustainable Development Goals (Goal 15.2.) The rest of the definitions [paragraphs (9) to (30)] refer to the duty holders and the activities regulated, such as operator, trader, placing on the market, making available on the market, etc. To the extent possible, they are based on concepts already existing in EU law in relevant internal market and customs legislation, and also addresses specific issues emerged in the implementation of the EUTR. The definitions have slightly been changed with regard to the Impact Assessment with the aim of increasing their legal precision and of accommodating the new developments in related EU legislation. ·Article 3: Prohibition Article 3 serves as a cornerstone of the Regulation by clearly outlining the prohibition of placing or making available on the Union market, or exporting from the Union market, the relevant commodities and products in scope that are not compliant with this Regulation, accompanied by the clarification that a due diligence statement is always necessary when carrying out such commercial activities. The reference to deforestation (a) and legality (b) is necessary to allow addressing comprehensively the main objectives of this Regulation. The prohibition in (c) complements the others by creating a general obligation to submit due diligence statements when placing relevant commodities and products on the market. This prohibition ensures that operators become aware of their duties to exercise due diligence and are discouraged from omitting due diligence procedures. Based on the experience of the EUTR, this requirement will facilitate enforcement and where necessary legal action to remedy or sanction such infringements. ·Article 4: obligations of operators Article 4 defines the obligations for operators under the Regulation. It describes the due diligence procedure and thus serves as the general rule on obligations of operators. Paragraph 1 places on operators the obligation to perform due diligence for all relevant commodities and products to ensure their compliance with the prohibition of Article 3(a) and (b) and to submit a due diligence statement prior to placing them on the Union market or exporting therefrom. The necessary information required by the due diligence statement is spelled out in Annex II. Paragraph 2 outlines the specific procedure that governs the submission of due diligence statements. After reaching the conclusion that the relevant commodity or product is compliant with the Regulation, the operator must submit a due diligence statement to the information system (see Article 31) before the commodity or product is placed on the market. For relevant commodities and products which are placed under release for free circulation or export, reference must be made in the customs declaration to the due diligence statement, which will allow the necessary close cooperation between customs authorities and competent authorities. According to paragraph 3, operators assume responsibility for the compliance of products by drawing up a due diligence statement. Paragraph 4 explicitly requires operators to refrain from placing on the market or to export without prior submission of a due diligence statement. Paragraph 5 establishes the same obligation where (1) relevant products or commodities do not fulfil the “deforestation-free” or “legality” requirements, or (2) where the due diligence has come to the conclusion that the risk of being non-compliant is not negligible or (3) where due diligence procedure has not been completed. Paragraph 6 obliges operators to take action and inform the competent authorities if new information becomes available after the due diligence procedure has been concluded and the statement submitted. ·Article 6: Obligations of traders For the purpose of this Regulation, like in the EUTR a trader can be defined as “any natural or legal person who, in the course of a commercial activity, makes available on the Union market relevant commodities and products” [Article 2(j)]. In general, traders are subjected to lighter obligations than operators since by the time a trader can dispose of relevant commodities or products, these have already been placed on the market. However, traders, especially large traders have a significant influence on supply chains and play an important role in ensuring that relevant commodities and products are deforestation-free. That is why this Article differentiates between obligation applicable to large traders that are not small and medium-sized enterprises (SMEs) and obligations applicable to traders which are SMEs. According to paragraphs 2 and 3, traders which are SMEs are required to collect a record of their suppliers and customers, keep that information for at least five years and make such information available to competent authorities upon request. This requirement is estimated to involve only negligible costs, as such information can be expected to be part of normal business operation. Traders which are SMEs are also expected to take action and inform the competent authorities if new information becomes available regarding the non-compliance of their commodities and products (paragraph 4) Conversely, large traders that are not SMEs are subject to the same obligations as operators (paragraph 5). Therefore, large traders have to submit a due diligence statement according to Article 4, thereby becoming liable for compliance of the relevant commodity or product with this Regulation. Moreover, they are subject to the same due diligence procedure than operators: in addition to the gathering of information, they have carry out risk assessment according to Article and, where necessary, risk mitigation according to Article 10. Traders that are SME are dispensed from these obligations. Likewise, large traders are subject to the same checks on operators as foreseen in Article 15, whereas traders that are SME are subject to checks referred to in Article 16. ·Article 8: Due diligence Article 8 outlines the due diligence procedure that constitutes the obligation of operators according to Article 4(1) and traders that are not SMEs according to Article 6(5). Any due diligence procedure should ensure that the risk of non-compliant relevant commodities or products being placed or exported from the EU market is negligible. To do so, operators and non SMEs traders shall gather all relevant information (as indicated in Article 9) – step one of due diligence process. On the basis of that information they shall identify and assess the risk of possible non-compliance of relevant commodities and products with the requirements of this Regulation [Article 10(1) to (4) and 10(6)] – step two of due diligence process. Where necessary, they shall adequately mitigate such risks to a negligible level [Article 10(5)] – step three of the due diligence process. Due diligence needs to be carried out prior to any placing of relevant commodities and products on the EU market or prior to exporting from the EU market. If the conclusion of the risk assessment is that the risk of non-compliant commodities or products entering the EU market is non-negligible, the operator needs to take risk mitigation measures that are adequate to lower the risk to a negligible level. If there is no access to the applicable legislation or other relevant information, the risk cannot be fully assessed and thus not mitigated to a negligible level. If the risk cannot be mitigated to a negligible level, the operator shall not place the relevant commodities or products on the EU market [Article 10(1)]. ·Article 9: Information requirement A major innovation compared to the EUTR, is the geographic information obligation contained in Article 9, which requires operators to collect the geographic coordinates (or geo-location via latitude and longitude) of all the plot(s) of land where the relevant commodities and products were produced. As deforestation is linked to land-use change, monitoring deforestation requires a precise link between the commodity or product placed on or exported from the EU market and the plot of land where it was grown or raised. Requiring the plot of land or farm where the commodity has been produced allows for the use of satellite images and positioning – widely available and free-to-use digital tools – to check whether a product or commodity is compliant or not. Geographic information on the plot of land and satellite monitoring is a field-tested combination that has proven in the past to be able to curb deforestation in a given area and is expected to boost the effectiveness of the policy intervention, while also making fraud in supply chains more complicated and easily detected. The Union has developed its own satellite Positioning, Navigation and Timing (PNT) technology (EGNOS/Galileo) and its own Earth observation and monitoring system (Copernicus). Both EGNOS/Galileo and Copernicus offer advanced services, which provide important economic benefits to public and private users. Therefore, satellite images and positioning stemming from the use of EGNOS/Galileo and Copernicus can be part of the information used for compliance checks. Geographic information linking products to the plot of land is already used by industry and certification organizations, as well as on relevant EU legislation. Directive (EU) 2018/2001 requires information on the “sourcing area” for problematic countries. A series of EU rules ensures the traceability of beef “from birth to death,” including via means such as ear tags, bovine passports and a computerised database.

·Article 10: Risk assessment and mitigation Article 10 outlines the steps to be undertaken to assess and mitigate the risk that relevant commodities and products associated with the deforestation and forest degradation are placed on the market. As such, this Article describes in detail the criteria and the modalities to carry out risk assessment and risk mitigation – respectively step 2 and step 3 of due diligence procedure as introduced in Article 8. Paragraph 1 of Article 10 clarifies the purpose of risk assessment, that is to identify possible non-compliance of relevant commodities and products with this Regulation, and establishes the central obligation for operators not to place the relevant commodity or product on the market unless they cannot demonstrate that the risk of non-compliance is negligible. The notion of negligible risk is defined in Article 2(18) as when a full assessment of both the product-specific and the general information on compliance with Articles 3(a) and 3(b) by relevant commodities or products shows no cause for concern. While building on risk assessment criteria established in the EUTR, paragraph 2 further qualifies them and provides additional indications to the operators about the elements to be taken into account, reflecting the fact that this Regulation focuses on both legality and sustainability (i.e. deforestation-free). Beyond the risk level set by the country benchmarking system, the list includes information on the country/area of production, features of the relevant commodity and product and of the supply chain, as well as other relevant complementary information such as certification or other third-party verification tools, provided that they meet the information requirements set out in Article 9. ·Article 12: Simplified due diligence Article 12 describes the obligations stemming from sourcing relevant commodities and products from a country or parts thereof that has been assessed as low risk according to the country benchmarking outlined in Chapter 4. When the country of production or parts thereof is low-risk under the benchmarking, operators are still under the obligation foreseen in Article 9 – step 1 of due diligence procedure, i.e. to collect information, documents and data demonstrating that the relevant commodities and products are compliant with Article 3 of this Regulation. However they are dispensed from carrying out the second and third step of the due diligence process, i.e. the risk assessment and risk mitigation as described in Article 10. Therefore, in this case operators are in principle not required to demonstrate that the risk of non-compliance is negligible. However, should the operator be made aware, for example through the collection of information, of any information regarding specific risk of non-compliance, all obligations of Article 8, and therefore all the three steps of due diligence procedure, have to be fulfilled [Article 12(2)]. ·Article 14: obligations to perform checks Article 14 lays down the general obligations of competent authorities under the Regulation. Its paragraphs 1 and 2 establish the central obligation of competent authorities to carry out checks on operators and traders to assess their compliance with due diligence requirements, and also to establish whether the relevant commodities and products placed or made available on the Union market or exported from it are compliant with the Regulation. Paragraph 3 refers to the risk-based plan, a key tool that should guide the checks conducted by the competent authority. The plans for checks should include risk criteria to carry out risk analysis of the due diligence statements. The plans should be regularly reviewed in light of the results of its implementation. Those operators and traders showing a consistent track-record of compliance should be subject to a reduced frequency of checks. Paragraph 4 requires competent authorities to carry out the risk analysis of due diligence statements by electronic data processing techniques integrated in the information system set up in Article 31. Paragraph 5 sets out that the risk analysis should allow the competent authorities to identify the operators or traders, or relevant commodities and products, to be checked. Paragraph 6 requires competent authorities to take immediate action in case the risk analysis reveals that certain commodities and products present high risk of non-compliance. Such action may entail interim measures to suspend the placing or making available on the market of the commodities and products. In case of goods entering or leaving the Union market, and once the electronic interface set out in Article 26(1) is in place, the competent authorities can request customs authorities to suspend the release for free circulation or the export of the high risk goods. The temporary suspensions of high-risk commodities and products should allow competent authorities to perform the necessary checks on the compliance of the commodities and products. Paragraph 7 establishes an initial period of suspension of 3 working days, which can be extended if competent authorities require additional time. Paragraph 8 requires the competent authorities to exchange information and coordinate the development of the risk criteria included in the plans for checks. This should foster a uniform application of the Regulation and improve its effectiveness. Paragraph 9 establishes an important obligation for Member States to ensure effective checks through their competent authorities. The two parameters in use guarantee that a certain number of operators and traders is checked, whilst also requiring a certain percentage of the market value in each category of commodities and products. One dimensional approaches such as checking few operators and traders with a vast market share or checking larger numbers of small operators and traders with a negligible market share would not give this Regulation the necessary effectiveness and are therefore ruled out in paragraph 5. The percentages of coverage are necessary to enable a comprehensive control of the market that dissuades potential infringements. Paragraph 10 refers to the country benchmarking system and establishes the necessity of enhanced scrutiny (Article 20) carried out by the competent authorities with regard to commodities and products produced in high-risk countries or parts thereof. It thus connects the duties of the competent authorities with the three-tier system of benchmarking (as described in Article 27). Notwithstanding the importance of checks conducted in accordance with their risk-based plan, paragraph 11 clarifies that competent authorities shall also carry out checks outside the scope of such plans, when they come in possession of evidence or other relevant information, concerning potential non-compliance with this Regulation. ·Article 15: Checks on operators This Article lays down the obligation of competent authorities with regard to checks to be carried out on operators. It builds on Article 10(3) of the EUTR, though it provides additional clarity and guidance on specific criteria for checks to be conducted by Competent Authority to better analyse relevant documentation of due diligence system in use, and to better assess the risk of non-compliance. Clear standards for compliance checks for competent authorities are an essential element to ensure an effective and uniform application of this Regulation across the Union. Paragraph 2 distinguishes between mandatory and facultative measures. The mandatory measures referred to in letters (a) to (d) include checks on due diligence documentation and procedures that do not require technical analyses of products or other on-site activities by competent authorities. Facultative measures in letters (e) to (h) include on-site inspection and technical and scientific checks adequate to determine the exact place where the relevant commodity or product was produced and whether it was deforestation free. ·Article 19: Reporting

Article 19 outlines Member States’ reporting obligations regarding the implementation of the proposed Regulation. This Article builds on Article 20 of the EUTR (Reporting), as subsequently amended by Regulation 2019/1010, which aligned reporting obligations in environmental legislation. Therefore, Article 19 confirms that Member States shall report on the application of this Regulation on an annual basis (paragraph 1) and that the Commission services will make publicly available, on an annual basis, a Union-wide overview on the basis of the data submitted by the Member States (paragraph 3). Paragraph 2 further qualifies the information Member States are to provide so to strengthen reporting obligations and to enable the Commission to analyse more accurately the quality of Member States’ monitoring activity. This in line with the findings the European Court of Auditors Special Report 21/2021 which highlighted the shortcomings of the reporting system under the EUTR, and will allow the Commission to address effectively the Court’s recommendation to strengthen its review of Member State checks. ·Article 20: Enhanced scrutiny When relevant commodities and products are sourced from a country or parts thereof that has been assessed as high risk according to the country benchmarking system outlined in Chapter 5 they are subject to enhanced scrutiny by the relevant competent authorities. Unlike Article 12, Article 20 does not qualify a different set of due diligence obligations for operators or traders. Competent authorities shall ensure that the checks they carry out on an annual basis cover at least 15% of the operators, as well as 15% of the quantity of relevant commodities and products produced in high-risk countries or parts thereof. It should be highlighted that according to Article 27 at the entry into force of the Regulation, all countries will be assigned a standard level of risk. Therefore, the above obligations will arise for competent authorities as soon as a high-risk country or parts thereof will feature in the list to be published by the Commission according to Article 27(1), and as long as relevant commodities and products produced in a high risk country or parts thereof are placed or made available in their market. ·Article 22: Market surveillance measures Article 22 sets the obligation for competent authorities to act without delay once they have established that a relevant commodity or product is not compliant with this Regulation. In this case competent authorities shall require that the relevant operator or trader takes appropriate and proportionate corrective action to bring the non-compliance to an end. Paragraph 2 outlines the possible corrective measures the operator or trader can be required to undertake. This provision draws specifically from Article 16 of the Market Surveillance Regulation; according to Article 3 of this Regulation ‘recall’ means “any measure aimed at achieving the return of a product that has already been made available to the end user; whereas ‘withdrawal’ means “any measure aimed at preventing a product in the supply chain from being made available on the market”. ·Article 23: Penalties Article 23 establishes the obligation of Member States to lay down rules on penalties applicable to infringements of this Regulation. The existence and the application of effective proportionate and dissuasive penalties in the national systems is a critical element to element the effective and uniform implementation of this Regulation across the Union. Therefore, paragraph 2 provides the list of penalties to be established in national legal systems This list include fines, the confiscation of the relevant commodities and products as well as the confiscation of revenues, the suspension or prohibition of relevant economic activities and the exclusion from public procurement processes for the operators and traders that violate the Regulation. Member States legislation must provide for a variable amount of fines in dependence on the annual turnover of the operator or trader that violated the Regulation. This is especially relevant as a disincentive for large operators and traders that are not SMEs to violate the Regulation. It thus serves the purpose of establishing effective, proportionate and dissuasive penalties. ·Article 24: Controls Article 24 provides the rules for controls on relevant commodities and products placed under the customs procedure ‘release for free circulation’ or ‘export’. Paragraph 2 establishes that the competent authorities are responsible for verifying compliance with this Regulation, including for commodities or products entering or leaving the Union. It also clarifies the interaction with the provisions of Regulation (EU) 952/2013 and Regulation (EU) 2019/1020. Paragraph 3 identifies customs’ core role consisting in controlling the correct declaration of relevant commodities and products entering or leaving the Union market. The due diligence statement in relation to a relevant commodity or product entering or leaving the Union shall be registered in the Information System referred to in Article 31. According to paragraph 4, the said Information system will then assign a reference number to the due diligence statement, which shall be made available to customs when lodging the customs declaration for release for free circulation or export of that relevant commodity or product, except where the due diligence statement is lodged pursuant to Article 26(2). Paragraph 5 requires that when a customs declaration for release for free circulation or export of a relevant commodity or product entering or leaving the Union market is lodged, customs authorities shall verify the status of the due diligence statement related to that relevant commodity or product using the electronic interface referred to in Article 26(1). Paragraph 6 sets out that where the risk analysis carried out by competent authorities according to Article 14(4) establishes that a relevant commodity or product presents a high risk of non-compliance with the requirements of this Regulation, the status of the due diligence statement related to that relevant commodity or product is modified accordingly in the Information System. In such circumstances, customs authorities should suspend the release for free circulation or export of that relevant commodity or product. Paragraph 7 indicates the conditions under which customs authorities should allow a relevant commodity or product to be released for free circulation or exported. Paragraph 8 establishes the course of action in case the competent authorities conclude that a relevant commodity or product entering or leaving the Union market is not compliant with this Regulation. In that case competent authorities should change the status of the corresponding due diligence statement accordingly in the Information System and may also indicate in the Information System that they object to placing the relevant commodity or product under other customs procedures.

Upon notification of that status, customs authorities should not allow the release for free circulation or export of that relevant commodity or product and should include a notice in the customs data-processing system and, where possible, on any document accompanying the relevant commodity or product. Where the relevant commodity or product is subsequently declared for other customs procedures and provided that the competent authorities did not object to such placement, the notice shall be included in the customs declarations by the operators and registered, under the same conditions, in the customs data-processing system and, where possible, on the accompanying documents used in connection with any such procedures. According to paragraph 10, customs authorities may destroy or otherwise render inoperable a non-compliant relevant commodity or product upon the request of the competent authorities or where they deem it necessary and proportionate. The cost of such measure shall be borne by the holder of the relevant commodity or product. ·Article 25: Exchange of information and cooperation among authorities This Article sets out an obligation for competent authorities, customs authorities and the Commission to cooperate in implementing the Regulation (paragraph 1). Paragraphs 2 and 3 establish a link to the cooperation and exchange of information mechanisms under Regulation (EU) No 952/2013. ·Article 26: Electronic interfaces Paragraph 1 requires the Commission to set up an electronic interface to connect the EU Single Window Environment to the information system established under Article 31. Paragraph 2 establishes the basic functionality of such interface and paragraph 3 empowers the Commission to adopt implementing acts to define the detailed data and functioning of the interface. ·Article 27: Assessment of countries Article 27 introduces the country benchmarking system, which is a key feature of this Regulation. The objective of the benchmarking is to incentivise countries to ensure stronger forests protection and governance, to facilitate trade and to better calibrate enforcement efforts by helping competent authorities to focus resources where they are most needed, and to reduce companies’ compliance costs. Through the benchmarking system, the Commission will assess the risk that countries or parts thereof produce relevant commodities and products that are not deforestation-free. The benchmarking system will assign each country or parts thereof one of three possible levels of risk: low, standard and high risk. At the entry into force of the Regulation, all countries will be assigned a standard level of risk. The assessment will be based on the criteria outlined in paragraph 2. Paragraph 3 outlines the procedure to be followed by the Commission prior to changing the existing risk category for a country or parts thereof. This will include the invitation to the country to respond within adequate time and to provide information deemed useful, including on measures taken by the country to remedy the situation. The Commission would make the country risk categorisation publicly available by the adoption of Commission implementing acts and will update the list where necessary, when the emergence of new scientific evidence requires it. The obligations for operators and Member States competent authorities are differentiated according to the level of risk of the country of production or parts thereof, with simplified due diligence duties for operators sourcing from low risk countries or parts thereof (Article 12) and enhanced scrutiny for competent authorities operating checks on relevant commodities and products produced in high risk countries or parts thereof (Article 20). ·Article 29: Natural or legal persons’ substantiated concerns According to Article 15 and 16, a competent authority may carry out checks on operators and traders when it is in possession of relevant information, including on the basis of substantiated concerns provided by third parties. As per Article 2(21) ‘substantiated concern' means “well-founded claim based on objective and verifiable information regarding non-compliance with the present Regulation and which may require the intervention of competent authorities”. The substantiated concerns may refer to specific shipments, suppliers, operators, traders or any situation in specific countries of production that generate risks of relevant commodity or product being placed on the market and which, as a result, may require the intervention of competent authorities. Substantiated concerns were also part of the system established in the EUTR [(Article 10(2)]. Article 29 builds on that experiences and clarifies the obligations of Competent Authority to assess the substantiated concerns and take the necessary operational steps that may be required to detect breaches and to prevent the further placing and circulation on the internal market. Substantiated concerns are also relevant to operators and traders. Article 4(6) of this Regulation states the obligation for an operator who has been made aware, through a substantiated concern, of the non-compliance of the relevant commodity or product, to inform immediately the relevant competent authority of the country where the product has been placed on the market or exported from. The same obligation applies to traders, regardless of their size [Article 6 (4 and 5)]. Article 10(2)(i) also requires that the existence of a substantiated concern should be taken in to account as a risk assessment criteria. ·Article 31: “Register” Information system Article 31 requires the Commission to establish an information system, through which due diligence statements foreseen under Article 4(2) need to be made available to competent authorities. Paragraph 2 lays down the minimum required functions of the system, including inter alia its connection with customs via the EU Single Window Environment for Customs. Paragraph 3 confers upon the Commission the task to establish the rules on the functioning of the system via implementing act.

Paragraphs 4 and 5 concern access to the information system. As a central data base for the implementation of the Regulation, operators and traders as well as competent authorities shall have access, the details of which will depend on their obligations. A wider public shall also have access to the data, in an anonymised way. ·Article 32: Review Article 32 establishes the rules governing the revision of the Regulation. Paragraph 1 provides for a first review process taking place no later than two years after the entry into force that results in a report and potential legislative proposals to amend the Regulation. This first review will focus on the need for and feasibility of expanding the scope of the Regulation to other ecosystems beyond forests and further commodities. The general review foreseen in paragraph 2 will take place five years after the date foreseen in Article 32(2), i.e. 12 months from the entry into force. This provision also anticipates the content of this first general review, which will include an assessment of the opportunity to introduce further trade facilitation tools and the impact of the first years of application of this Regulation on farmers. Finally, paragraph 3 focuses on the review of relevant products listed in Annex 1. This review will take place two years from the entry into force of the Regulation and thereafter, at regular interval thereby allowing a progressive product scope. The amendment of the list of products included in Annex 1 will be carried out through delegated act (paragraph 4). ·Article 36: Entry into force and date of application This Regulation shall apply from the date of the entry into force. However, paragraph 2 establishes that Articles 3 to 12, 14 to 22, 24, 29 and 30 shall apply 12 months from the entry into force of this Regulation. Paragraph 3 however stipulates that these Articles shall apply 24 months from the entry into force of this Regulation for operators that are microenterprises established by December 31, 2020, except for products covered by the Annex to EU Regulation 995/2010 (EUTR). These delays in application create a transition period in which the obligations of operators and traders, as well as the obligations of competent authorities to conduct checks do not apply. Such a transition period, which is longer for microenterprises, will give operators and traders adequate time to adapt to their obligations under the Regulation. 2021/0366 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 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 and repealing Regulation (EU) No 995/2010 (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 192 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee, Having regard to the opinion of the Committee of the Regions, Acting in accordance with the ordinary legislative procedure,

Whereas: (1)Forests provide a broad variety of environmental, economic and social benefits, including timber and non-wood forest products and environmental services essential for humankind, as they harbour most of the Earth’s terrestrial biodiversity. They maintain ecosystem functions, help protect the climate system, provide clean air and play a vital role for the purification of waters and soils as well as for water retention. In addition, forests provide subsistence and income to about one third of the world’s population and their destruction has serious consequences for the livelihoods of the most vulnerable people, including indigenous peoples and local communities who heavily depend on forest ecosystems. Furthermore, deforestation and forest degradation reduce essential carbon sinks and increase the likelihood of new diseases spreading from animals to humans. (2)Deforestation and forest degradation are taking place at an alarming rate. The Food and Agriculture Organization of the United Nations estimates that 420 million hectares of forest – about 10% of the world’s remaining forests and an area larger than the European Union – have been lost worldwide between 1990 and 2020. Deforestation and forest degradation are, in turn, important drivers of global warming and biodiversity loss — the two most important environmental challenges of our time. Yet every year the world continues to lose 10 million hectares of forest. (3)Deforestation and forest degradation contribute to the global climate crisis in multiple ways. Most importantly, they increase greenhouse gas emissions through associated forest fires, permanently removing carbon sink capacities, decreasing climate change resilience of the affected area and substantially reducing its biodiversity. Deforestation alone accounts for 11 % of greenhouse gas emissions. (4)Climate breakdown induces the loss of biodiversity globally and biodiversity loss aggravates climate change, they are inextricably linked, as recent studies have confirmed. Biodiversity helps mitigate climate change. Insects, birds and mammals act as pollinators, seed dispersers and can help store carbon more efficiently, directly or indirectly. Forests also ensure a continuous replenishment of water resources and prevention of droughts and their deleterious effects to local communities, including indigenous peoples. Drastically reducing deforestation and forest degradation and systemically restoring forests and other ecosystems is the single largest nature-based opportunity for climate mitigation. (5)Biodiversity is essential for the resilience of ecosystems and their services both on local and global level. Over half of the global gross domestic product depends on nature and the services it provides. Three major economic sectors – construction, agriculture, food and drink – all highly depend on nature. Biodiversity loss threatens sustainable water cycles and our food systems, putting our food security and nutrition at risk. More than 75% of global food crop types rely on animal pollination. Further, several industrial sectors rely on genetic diversity and ecosystem services as critical inputs for production, notably for medicines. (6)Climate change, biodiversity loss and deforestation are concerns of the highest global importance, affecting the survival of humanity and sustained living conditions on Earth. The acceleration of climate change, biodiversity loss and environmental degradation, paired with tangible examples of their devastating effects on nature, human living conditions and local economies, have led to the recognition of the green transition as the defining objective of our time and a matter of intergenerational equity. (7)Union consumption is a considerable driver of deforestation and forest degradation on a global scale. The initiative’s Impact Assessment estimated that without an appropriate regulatory intervention EU consumption and production of the six commodities included in the scope (wood, cattle, soy, palm oil, cocoa and coffee) will rise to approximately 248,000 hectares of deforestation annually by 2030. (8)As regards the situation of forests within the EU, the State of Europe’s Forests 2020 report states that, between 1990 and 2020, the area of forests in Europe has increased by 9%, carbon stored in the biomass has grown by 50% and wood supply has risen by 40%. However, less than 5% of European forest areas are considered undisturbed, or natural, according to the European Environment Agency’s State of the Environment 2020 report. (9)In 2019, the Commission adopted several initiatives to address the global environmental crises, including specific actions on deforestation. In its Communication ‘Stepping up EU Action to Protect and Restore the World’s Forests’, the Commission identified as a priority the reduction of the Union consumption footprint on land and encourage the consumption of products from deforestation-free supply chains in the Union. In its Communication of 11 December 2019 entitled ‘The European Green Deal’, the Commission set out a new growth strategy that aims to transform the Union into a fair and prosperous society, with a modern, resource-efficient and competitive economy, where there are no net emissions of greenhouse gases in 2050, where economic growth is decoupled from resource use and no person or place are left behind. It aims to protect, conserve and enhance the Union's natural capital, and protect the health and well-being of citizens and future generations from environment-related risks and impacts. Furthermore, the European Green Deal aims to provide citizens and future generations with, among others, fresh air, clean water, healthy soil and biodiversity. To that end, the EU Biodiversity Strategy for 2030, the Farm to Fork Strategy, the EU Forest Strategy, the EU Zero pollution action plan and other relevant strategies developed under the European Green Deal, further highlight the importance of action on forest protection and resilience. In particular, the EU Biodiversity Strategy aims to protect nature and reverse the degradation of ecosystems. Finally, the EU Bioeconomy Strategy enhances the protection of the environment and ecosystems while addressing the growing demand for food, feed, energy, materials and products by seeking new ways to produce and consume. (10)Member States have repeatedly expressed their concern about persistent deforestation. They emphasised that since current policies and action at global level on conservation, restoration and sustainable management of forests do not suffice to halt deforestation and forest degradation, enhanced Union action is needed in order to contribute more effectively to the achievement of the Sustainable Development Goals (SDGs), under the 2030 Agenda for Sustainable Development, which was adopted by all United Nations Member States in 2015. The Council specifically supported the Commission announcement in the Communication ‘Stepping up EU Action to Protect and Restore the World’s Forests’ that it would assess additional regulatory and non-regulatory measures and that it would present respective proposals. (11)The European Parliament highlighted that ongoing destruction of the world’s forests is linked, to a large extent, to the expansion of agricultural production — in particular by converting forests to agricultural land dedicated to producing a number of high-demand products and commodities. The Parliament adopted on 22 October 2020 a resolution in accordance with Article 225 of the Treaty on the Functioning of the European Union (TFEU) requesting the Commission to submit, on the basis of Article 192(1) TFEU, a proposal for an “EU legal framework to halt and reverse EU-driven global deforestation”. (12)Combatting deforestation and forest degradation constitutes an important part of the package of measures needed to reduce greenhouse gas emissions and to comply with the Union's commitment under the European Green Deal as well as with the 2015 Paris Agreement on Climate Change, and with the legally binding commitment under the EU Climate Law to reach climate neutrality by 2050 and reduce greenhouse gas emissions by at least 55 % below 1990 levels by 2030. (13)Agricultural expansion drives almost 90% of global deforestation, with more than half of forest loss due to conversion of forest into cropland, whereas livestock grazing is responsible for almost 40 percent of forest loss. (14)The Union imported and consumed one third of the globally traded agricultural products associated with deforestation between 1990 and 2008. Over that period, Union consumption was responsible for 10% of worldwide deforestation associated with the production of goods or services. Even if the relative share of EU consumption is decreasing, EU consumption is a disproportionally large driver of deforestation. The Union should therefore take action to minimise global deforestation and forest degradation driven by its consumption of certain commodities and products and thereby seek to reduce its contribution to greenhouse gas emissions and global biodiversity loss as well as promote sustainable production and consumption patterns in the Union and globally. To have the greatest impact, Union policy should aim at influencing the global market, not only supply chains to the Union. Partnerships and efficient international cooperation with producer and consumer countries are fundamental in that respect. (15)Halting deforestation and forest degradation is an essential part of the SDGs. This Regulation should contribute in particular to meeting the goals regarding life on land (SDG 15), climate action (SDG 13), responsible consumption and production (SDG 12), zero hunger (SDG 2) and good health and well-being (SDG 3). The relevant target 15.2 to halt deforestation by 2020 has not been met, underlining the urgency of ambitious and effective action. (16)This Regulation should also respond to the New York Declaration on Forests, a non-legally binding political declaration that endorses a global timeline to cut natural forest loss in half by 2020, and strive to end it by 2030. The Declaration was endorsed by dozens of governments, many of the world’s biggest companies, and influential civil society and indigenous organisations. It also called on the private sector to meet the goal of eliminating deforestation from the production of agricultural commodities such as palm oil, soy, paper and beef products by no later than 2020, a goal that was not achieved. The Regulation should in addition contribute to the United Nations Strategic Plan for Forests, 2017-2030, whose Global Forest Goal 1 is to reverse the loss of forest cover worldwide through sustainable forest management, including protection, restoration, afforestation and reforestation, and increase efforts to prevent forest degradation and enhance the contribution of forests to climate change. (17)This Regulation should also respond to the 2021 Glasgow Leaders’ Declaration on Forests and Land Use that recognises that “to meet our land use, climate, biodiversity and Sustainable Development Goals, both globally and nationally, will require transformative further action in the interconnected areas of sustainable production and consumption; infrastructure development; trade, finance and investment; and support for smallholders, Indigenous Peoples, and local communities”. The signatories also stressed in that Declaration that they will strengthen their shared efforts to facilitate trade and development policies, internationally and domestically, that promotes sustainable development and sustainable commodity production and consumption, that work to countries’ mutual benefit, and that do not drive deforestation and land degradation. (18)As a member of World Trade Organisation (WTO), the Union is committed to promoting a universal, rule-based, open, transparent, predictable, inclusive, non-discriminatory and equitable multilateral trading system under the WTO, as well as an open, sustainable, and assertive trade policy. The scope of this Regulation will therefore include both commodities and products produced within the Union and commodities and products imported to the Union. (19)This Regulation also follows the Commission’s Communication on “An Open, Sustainable and Assertive Trade Policy”which stated that with new internal and external challenges and more particularly a new, more sustainable growth model as defined by the European Green Deal and the European Digital Strategy, the EU needs a new trade policy strategy –one that will support achieving its domestic and external policy objectives and promote greater sustainability in line with its commitment of fully implementing the UN Sustainable Development Goals. Trade policy must play its full role in the recovery from the COVID-19 pandemic and in the green and digital transformations of the economy and towards building a more resilient Europe in the world.

(20)This Regulation should be complementary to other measures proposed in the Commission Communication ‘Stepping up EU Action to Protect and Restore the World’s Forests’, in particular: 1) working in partnership with producer countries, to support them in addressing root causes of deforestation, such as weak governance, ineffective law enforcement and corruption, and 2) strengthen international cooperation, with major consumer countries, to promote the adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on their markets. (21)The Commission should continue to work in partnership with producer countries, and more generally in cooperation with international organisations and bodies, and should be reinforcing its support and incentives with regard to protecting forests and transition to deforestation-free production, acknowledging the role of indigenous people, improving governance and land tenure, increasing law enforcement and promoting sustainable forest management, climate-resilient agriculture, sustainable intensification and diversification, agro-ecology and agroforestry. In doing so it should acknowledge the role of indigenous people in protecting forests. Building upon the experience and lessons learned in the context of the already existing initiatives, the Union and the Member States should work in partnership with producer countries, upon their request, to exploit the multi-functionalities of forest, support them in the transition to sustainable forest management, and address global challenges while meeting local needs and paying attention to the challenges faced by smallholders in line with the Communication to Stepping up Action to Protect and Restore the World’s Forests. The partnership approach should help producer countries in protecting, restoring and sustainably using forest, hence contributing to the objective of this Regulation to reduce deforestation and forest degradation. (22)Another important action announced in the Communication is the establishment of the EU Observatory on deforestation, forest degradation, changes in the world’s forest cover and associated drivers (“EU Observatory”) launched by the Commission in order to better monitor changes in the world’s forest cover and related drivers. Moreover, building on already existing monitoring tools, including Copernicus products, the EU Observatory will facilitate access to information on supply chains for public entities, consumers and business, providing easy-to-understand data and information linking deforestation, forest degradation, and changes in the world’s forest cover to EU demand/trade for commodities and products. The EU Observatory will thus directly support the implementation of this Regulation by providing scientific evidence in regard to global deforestation and forest degradation and related trade. The EU Observatory will cooperate closely with relevant international organisations, research institutes, and third countries. (23)The existing EU legislative framework focuses on tackling illegal logging and associated trade and does not address deforestation directly. It consists of Regulation (EU) No 995/2010 of the European Parliament and of the Council, laying down the obligations of operators who place timber and timber products on the market, and Council Regulation (EC) No 2173/2005, on the establishment of a Forest Law Enforcement, Governance and Trade licensing scheme for imports of timber into the European Community. Both Regulations were evaluated in a Fitness Check which determined that, while the legislation has had a positive impact on forest governance, the objectives of the two Regulations – namely to curb illegal logging and related trade, and to reduce the consumption of illegally harvested timber in the EU – have not been met and it was concluded that focusing solely on legality of timber was not sufficient to meet the set objectives. (24)Available reports confirm that a sizable part of ongoing deforestation is legal according to the laws of the country of production. A recent report estimates that between 2013 and 2019, around 30% of deforestation destined to commercial agriculture in tropical countries was legal. Available data tend to focus on countries with weak governance — the global share of deforestation that is illegal might be lower, but already provide clear data signalling that leaving out deforestation that is legal in the country of production undermines the effectiveness of policy measures. (25)The impact assessment of possible policy measures to address Union-driven deforestation and forest degradation, Council conclusions and the 2020 resolution of the European Parliament clearly identify the need to establish deforestation and forest degradation as the guiding criteria for future Union measures. Therefore, the new Union legal framework should address both legality and whether the production of relevant commodities and products is deforestation-free. (26)The definition of “deforestation-free” should be sufficiently broad to cover both deforestation and forest degradation, it should provide legal clarity, and it should be measurable based on quantitative, objective and internationally recognised data. (27)The Regulation should cover those commodities whose Union consumption is the most relevant in terms of driving global deforestation and forest degradation and for which a Union policy intervention could bring highest benefits per unit value of trade. An extensive review of scientific literature, namely of primary sources estimating the impact of EU consumption on global deforestation and linking that footprint to specific commodities, was carried out as a part of the study supporting the Impact Assessment and cross-checked via extensive consultation with stakeholders. That process delivered a first list of eight commodities. Wood was directly included in the scope as it was already covered by the EUTR. The list of the commodities was then further reduced via an efficiency analysis in the Impact Assessment. This efficiency analysis compared the hectares of deforestation linked to EU consumption, as estimated in a recent research paper, for each of those commodities with their average value of EU imports. According to the research paper used for the efficiency analysis, six commodities represent the largest share of EU-driven deforestation among the total of eight commodities analysed in that research paper: palm oil (33,95%), soy (32,83%), wood (8,62%), cocoa (7,54%), coffee (7,01%) and beef (5,01%). (28)Bearing in mind that the use of recycled relevant commodities and products should be encouraged, and that including such commodities and products in the scope of this Regulation would place a disproportionate burden on operators, used commodities and products that have completed their lifecycle, and would otherwise be disposed of as waste, should be excluded from the scope of this Regulation. (29)Obligations concerning relevant commodities and products should be laid down by this Regulation in order to effectively combat deforestation, forest degradation, and to promote deforestation-free supply chains. (30)Many international organisations and bodies (e.g. Food and Agriculture Organization of the United Nations, the Intergovernmental Panel on Climate Change, United Nations Environment Programme, the Paris Agreement, International Union for the Conservation of Nature, Convention on Biological Diversity) have developed work in the field of deforestation and forest degradation and the definitions in this Regulation build on this work. (31)A cut-off date should be set to provide a basis for the evaluation of whether concerned land has been subject to deforestation or forest degradation, meaning that no commodities and products in the scope of this Regulation would be allowed to enter the Union market or be exported if they were produced on land subject to deforestation or forest degradation after that date. It should allow for the appropriate verification and monitoring, correspond to existing international commitments, such as the SDGs and the New York Declaration on Forests, thus minimising sudden disruption to supply chains while removing any incentive to accelerate activities leading to deforestation and forest degradation in view of the entry into force of this Regulation. (32)To strengthen the Union’s contribution to halting deforestation and forest degradation, and to ensure that commodities and products from supply chains related to deforestation and forest degradation are not placed on the Union market, relevant commodities and products should not be placed or made available on the Union market, nor exported from the Union market unless they are deforestation-free and have been produced in accordance with the relevant legislation of the country of production. To confirm that this is the case, they should always be accompanied by a due diligence statement. (33)On the basis of a systemic approach, operators should take the appropriate steps in order to ascertain that the relevant commodities and products that they intend to place on the Union market comply with the deforestation-free and legality requirements of this Regulation. To that end, operators should establish and implement due diligence procedures. The due diligence procedure required by this Regulation should include three elements: information requirements, risk assessment and risk mitigation measures. The due diligence procedures should be designed to provide access to information about the sources and suppliers of the commodities and products being placed on the Union market, including information demonstrating that the absence of deforestation and forest degradation and legality requirements are fulfilled, inter alia by identifying the country and area of production, including geo-location coordinates of relevant plots of land. These geo-location coordinates that rely on timing, positioning and/or Earth observation could make use of space data and services delivered under the Union’s Space programme (EGNOS/Galileo and Copernicus). On the basis of this information, operators should carry out a risk assessment. Where a risk is identified, operators should mitigate such risk to achieve no or negligible risk. Only after completing the required steps of the due diligence procedure and concluding that no or negligible risk exists that the relevant commodity or product is not compliant with this Regulation, should the operator be allowed to place the relevant commodity or product on the Union market or to export it. (34)Operators should formally assume responsibility for the compliance of the relevant commodities or products that they intend to place on the Union market or to export by making available due diligence statements. A template for such statements should be provided by this Regulation. This is expected to facilitate enforcement of this Regulation through competent authorities and courts as well as increase compliance by operators. (35)In order to recognise good practice, certification or other third party verified schemes could be used in the risk assessment procedure, however, they should not substitute the operator’s responsibility as regards due diligence. (36)Traders should be responsible for collecting and keeping information ensuring the transparency of the supply chain of relevant commodities and products which they make available on the market. Large traders that are not small and medium-sized enterprises (SMEs) have a significant influence on supply chains and play an important role in ensuring that they are deforestation-free and should therefore have the same obligations as operators. (37)In order to foster transparency and facilitate enforcement, operators which are not SMEs should, on an annual basis, publicly report on their due diligence system, including on the steps taken to implement their obligations. (38)Other EU legislative instruments that set out due diligence requirements in the value chain with regard to adverse human rights or environmental impacts should apply in so far as there are no specific provisions with the same objective, nature and effect in this Regulation which may be adapted in the light of future legislative amendments. The existence of this Regulation should not exclude the application of other EU legislative instruments that lay down requirements regarding value chain due diligence. Where such other EU legislative instruments provide for more specific provisions or add requirements to the provisions laid down in this Regulation, such provisions should be applied in conjunction with those of this Regulation. Furthermore, where this Regulation contains more specific provisions, they should not be interpreted in a way that undermines the effective application of other EU legislative instruments on due diligence or the achievement of their general aim. (39)Operators falling within the scope of other EU legislative instruments that set out due diligence requirements in the value chain with regard to adverse human rights or environmental impacts should be in a position to fulfil the reporting obligations under this Regulation by including the required information when reporting under the other EU legislative instrument.

(40)Responsibility for enforcing this Regulation should lie with the Member States, and their competent authorities should be required to ensure that this Regulation is fully complied with. A uniform enforcement of this Regulation as regards relevant commodities and products entering or leaving the Union market can only be achieved through systematic exchange of information and cooperation amongst competent authorities, customs authorities and the Commission. (41)The effective and efficient implementation and enforcement of this Regulation are essential to achieving its goals. To this end, the Commission should set up and manage an information system to support the operators and the competent authorities in presenting and accessing the necessary information on relevant commodities and products placed on the market. The operators should submit the due diligence statements to the information system. The information system should be accessible to competent authorities and customs authorities to facilitate fulfilling their obligations under this Regulation. The information system should also be accessible for a wider public, with the anonymised data provided in an open and machine-readable format in line with the Union’s Open Data Policy. (42)For the relevant commodities entering or leaving the Union market, competent authorities are tasked with the verification of the compliance of relevant commodities and products with the obligations under this Regulation, whereas the role of customs is to ensure that the referenc