Disclaimer: We have made every effort to be as accurate as possible, but there are still a few unknowns and potential changes to regulations, especially in these early stages. Consequently, we might have misinterpreted some aspects. We will be grateful for any information where you might think we are not correct.
Obligation of operators and traders
First, who is operator? Operators are those who transform products (which has already been subjected to due diligence) into another product. So for example sawmill or pulp producer or also tableware producer (essentially everything that uses wood in wood industry; Note that similarly holds for cattle, cocoa, coffee, oil palm rubber and soya).
Traders are distinct from operators under the EUDR but have essentially the same obligations.
Obligations vary depending on whether the entity is an SME (Small and Medium-sized Enterprises) or not.
Small and medium-sized enterprises (SMEs) are defined by staff headcount and either turnover or balance sheet total. While each country has specific definitions, the EU recommendation is that SMEs should not exceed 250 employees, €50 million in turnover, or €43 million in balance sheet total.
Large operators (and traders) must submit Due Diligence Statement (DDS) in the EU Information System either with coordinates or upstream DDS in the supply chain. If they use upstream DDS, they are obliged to ensure due diligence was carried out and retain legal responsibility in the event of a breach.
SME operators (and traders) must do the same except
- They don’t need to exercise due diligence for products that were already subject to due diligence.
- They are not required to submit due diligence statement in the Information System.
- Conduct full due diligence if it hasn’t been done already (in contrast to previous two points).
- Provide DDS from previous steps to the next buyer in the chain.
Note that large operators (and traders) are also subject to do risk assessments and reports about EUDR compliance.
How do we see it in practice
DDS
To request DDS one will have to provide (there are a bit more details to this but we want to focus on these in this post):
- Coordinates (or upstream DDS)
- Products with amount
Note that DDS must be available before moved in our out of EU.
Forest owners
Forest owners will have to get DDS before sending anything. At the moment we see the following possible scenarios:
- Each country will provide DDS directly to forest owners (which they will in turn provide to traders/operators).
- Using EU Information System directly.
- System like ours will offer functionality where forest owners provide coordinates and amounts, and we, in turn, provide forest owners with DDS.
Traders
In Europe, wood handling primarily works in two ways:
- Sawmills (for example) buy directly from forest owners.
- Sawmills buy from traders who either buy from other traders or directly from forest owners.
Traders will need to obtain upstream DDS (ex from forest owners), use it on purchase documents (because of required documentation), and include it on sell transport papers like CMR or other sales documents. This is what the next trader in the chain or producer (e.g., sawmill) will use.
When for example a single piece of log will be added to truck from different forest land (ex: from storage/inventory) DDS of that log must be also included. During sorting (on storage), all upstream DDS must be included, but details of this are out of scope for this post and subject to next one in the future.
Sawmill, pulp or other producers
Sawmills must keep track of all upstream DDS and connect them to the sold timber.
For example, if a sawmill buys from a single forest owner with a specific DDS and produces a batch of timber from only that wood, it will use that forest owner’s DDS when selling the batch (for example to export out of EU).
We tried to be very specific in this example as you might have noticed and related everything to single forest owner. Realistically however following should be taken into account:
- If one cannot physically separate bought goods, all relevant DDS should be listed.
- If multiple batches of timber are created, all related DDS should be listed.
One can see that this could get quickly out of hand and ask if EU regulators fully considered these practical implications. However, not everything is lost, but details of this are out of scope for this post and are subject to next one in the future.
Final thought
At this point, we are still questioning whether the EU will postpone the EUDR, as discussed in our previous post, EUDR: Are We Ready or Facing Postponement? The intricate process of tracking and maintaining accurate DDS records can be daunting but we are confident in our ability to support our clients through these changes and to streamline the due diligence process. Our goal is to help our clients navigate these regulatory changes smoothly. Stay tuned for updates as we refine our offerings to ensure seamless compliance with the EUDR.
Sources:
- EU law in multiple languages: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115
- Small and medium-sized enterprises (SME): https://single-market-economy.ec.europa.eu/smes/sme-fundamentals/sme-definition_en