EUDR Compliance Understanding your Company's Position in Wood & Forestry

We’ve recently released an updated and comprehensive playbook on the EUDR (EU Deforestation Regulation (EUDR) Playbook: Transitioning to Deforestation-Free Supply Chains). But while the playbook covers the regulation in general, we will publish a series of blogs diving into how different industries are affected by the EUDR, starting with the wood and forestry sectors. 

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The regulation covers different commodities, but for companies in the wood and forestry industries, these are the ones particularly relevant: Wood and Timber (used in furniture, flooring, etc.) and Pulp and Paper (essential for paper products, packaging materials, etc.). Understanding their role under the EUDR is vital for ensuring compliance and sustainability in these sectors.

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Due Diligence Requirements

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The EUDR requires companies to submit due diligence statements electronically to a deforestation registry set up by the European Commission. These statements will be reviewed by both the Commission and national authorities. To help businesses comply, an online Registry System has been created to assist operators and traders in preparing their due diligence statements.

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What must be included in a due diligence statement? 

• Information about the operator and the relevant products.

• The country of production and the geolocalization of all plots of land where the raw materials were sourced.
• Reference numbers of existing due diligence statements (if applicable) to avoid duplication and improve efficiency. For example, if a product’s geolocation details are already included in an upstream due diligence statement, companies can reference that statement instead of submitting the same information again.

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Using Existing Due Diligence Statements: Non-SMEs that sell or export products made from other regulated products (such as newspapers) can refer to existing due diligence statements that have already been submitted. However, they must first confirm that the original process was conducted properly.

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Covering Multiple Shipments in One Statement: To simplify compliance, one due diligence statement can cover multiple shipments or batches. However, the company must confirm that it was conducted for all the included products and that there is no risk of non-compliance.

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Understanding Your Company's Role in the Supply Chain

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The EUDR classifies businesses as either operators or traders based on their role in the supply chain:

• Operators: Entities that place relevant products on the EU market for the first time, such as importers, manufacturers, and primary processors. They bear the highest due diligence responsibilities, including data collection and risk assessment.
• Traders: Entities that buy and sell EUDR-covered products but do not place them on the market for the first time. While they have lower compliance requirements, they must ensure they source from EUDR-compliant suppliers.

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Compliance Scenarios

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Scenario 1: Domestic Timber Supply Chain:  

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• A forest owner (SME upstream operator) in the EU signs a contract with a large timber company to sell standing trees. 

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• Under this contract, the forest owner is responsible for placing wood in the rough (HS 4403) on the EU market for the first time by transferring the ownership of this product to the timber company after the harvest. In this way, the forest owner authorizes the large timber company to submit the required due diligence statement  in the EU’s Information System on their behalf. Even though the large timber company handles this, the forest owner must ensure that the harvested logs comply with the EUDR before the statement is submitted.

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• The large timber company cuts down the trees and transports some of the logs to its own paper and pulp factory, where they are processed into paper products (HS 48). Some of the paper is exported outside the EU, while the rest is sold within the EU to a distribution company. Since the large timber company is introducing paper products to the market and exporting them, it must submit due diligence statements. Because the logs were already checked for compliance, the large timber company can reference the earlier due diligence statements.

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• The distribution company buys the paper from the large timber company and sells it within the EU. Since the paper has already been placed on the EU market, the distribution company is considered a non-SME trader rather than a first-time operator. Obligations for non-SME traders are the same as for non-SME operators, so it still has to submit a due diligence statement, confirming that due diligence was carried out earlier. To do this, the distribution company can refer to the existing due diligence statements from the large timber company but must first verify that all upstream compliance checks were properly conducted.

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Scenario 2: Sawmill Processing and Furniture Production: 

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• The large timber company from the first scenario also sells some of the logs (HS 4403) to a small sawmill (SME downstream operator), which transforms them into sawn wood (HS 4407). 

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• The sawmill is placing a new relevant product on the EU market, but it doesn’t need to do due diligence for the sawn wood because it is made entirely from logs that have already been checked for compliance earlier in the supply chain. The sawmill must keep a record of the due diligence reference numbers from the large timber company.

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• The sawn wood produced by the sawmill is sold to furniture companies in the EU. One of these companies is a large furniture company, and the other is a small furniture company. Both are turning the sawn wood (which has already been checked for due diligence) into furniture (HS 9403 30). They are placing the furniture on the EU market for the first time, which makes them downstream operators, but they have different obligations due to their size. However, the two furniture companies have different obligations based on their size:
  
  • The large furniture company (non-SME downstream operator) must submit a due diligence statement for the furniture it places on the EU market. It can refer to the due diligence statement already submitted by the large timber company, but it must first confirm that it was properly conducted. 
  • The small furniture company (SME downstream operator) is not required to do due diligence or submit a new statement, but it must keep a record of the reference number from the previous due diligence statement.

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If either furniture company uses sawn wood that hasn't been checked for compliance, they must carry out full due diligence and include this information in their due diligence statement.

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Scenario 3: Newsprint Paper Supply Chain: 

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• A large EU timber company/paper manufacturer (non-SME upstream operator) produces newsprint paper (HS 4801) from wood (HS 4403) sourced from its own forests. 

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• The paper manufacturer is placing this product on the EU market and it must ensure that the paper products comply with the EU’s deforestation-free and legal requirements. It is also responsible for submitting due diligence statements for the paper. Since the paper comes from its own forests, the manufacturer can use a single due diligence statement for up to one year, as long as the due diligence has been conducted on all products before submitting the statement.

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• The paper manufacturer sells some of the paper to a large publisher (non-SME downstream operator), who uses it to print newspapers (ex HS 4902). The publisher must submit a due diligence statement for the newspapers before placing them on the market. The publisher can refer to the due diligence statements already submitted by the paper manufacturer, but must confirm that it was carried out properly. Like the paper manufacturer, the publisher can use a single due diligence statement to cover multiple batches of newspapers for up to a year.
• The publisher sells the newspapers to two retailers: 
• The non-SME retailer is required to submit a due diligence statement for the newspapers, referring to the due diligence statements from the publisher, and confirming that it was carried out in accordance with the regulations. It is responsible for ensuring compliance and can submit a single due diligence statement for multiple batches of newspapers for up to a year.

• The SME retailer is not required to do due diligence or submit a statement, but it must keep a record of its suppliers and the reference numbers of the due diligence statements.

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• The paper manufacturer also sells some paper to a small publisher (SME downstream operator) who uses it to print newspapers. Since the newspaper is made entirely from paper that has already been checked for due diligence, the small publisher is not required to do due diligence or submit a new due diligence statement. However, it must keep a record of the reference numbers of the existing due diligence statements.

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Scenario 4: Newspaper (produced with imported paper) Supply Chain: 

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• An SME publisher (SME upstream operator) imports paper (HS 4801) from a third country to the EU. 

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• Since it is placing the paper on the Union market for the first time, the publisher must exercise due diligence to ensure the paper is deforestation-free and legal. It must also submit a due diligence statement before placing the paper on the market. If the paper is imported in multiple batches from the same geolocations, these can be covered by a single due diligence statement for up to one year.

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The SME publisher uses the paper to print newspapers (HS 4902) in-house and then places the newspapers on the market (so it’s also a SME downstream operator). Since the paper used to produce the newspapers has already been subjected to due diligence and is covered by an existing due diligence statement, the publisher does not need to exercise due diligence or submit a new due diligence statement. However, it must keep a record of the due diligence reference numbers for the paper.

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• A large distributor purchases the newspapers and makes them available on the EU market. As the distributor is a non-SME trader, it must submit a due diligence statement for the newspapers. Since the paper has already been subject to due diligence, the distributor can refer to the due diligence statements submitted by the publisher, but it must confirm that due diligence was exercised in accordance with the EUDR. The distributor retains responsibility for ensuring the compliance of the newspapers and it may submit a single due diligence statement to cover multiple batches of newspapers for up to one year, provided due diligence has been confirmed for all relevant products intended to be placed on the market.

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Leveraging Technology for Compliance

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To navigate EUDR compliance efficiently, businesses must adopt digital solutions that streamline data collection, verification, and reporting. In response to this push, Finboot and OpenAtlas have announced a partnership to launch an innovative integrated solution for EUDR compliance. This partnership leverages  MARCO Track & Trace, a no-code/low-code blockchain solution, and OpenAtlas’ VANTAGE-X remote sensing technology.

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Geolocalization and satellite monitoring solutions (like OpenAtlas VANTAGE-X) provide verifiable data on commodity origins, helping businesses track crops and confirm deforestation-free sourcing. Meanwhile, MARCO Track & Trace secures and verifies this data, creating an immutable chain of custody that meets regulatory requirements with confidence. 

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MARCO Track & Trace for compliance:

• Certification Status: MARCO Track & Trace allows companies to verify the certification status of suppliers at the point of transaction, ensuring they source from EUDR-compliant sources.
• Verified Claims: The platform generates verified and traceable claims regarding products traded between companies and their trading partners.
• Data Sharing: It facilitates the passing of relevant data about raw materials, including geolocation of origin, time of harvest, species, product groups, and other essential data points.

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Also, by integrating data and insights across various regulatory frameworks, the platform enhances interoperability and optimizes data utilization across all operations. This empowers clients to seamlessly navigate complex compliance landscapes, from EUDR, to CBAM, to ESPR.

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Conclusion

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While the EUDR’s full implementation may seem distant, the complexity of these new requirements demands immediate action. Many companies are finding that preparation takes longer than anticipated, with numerous challenges arising during the implementation process.

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By understanding your company’s position in the supply chain and leveraging the right technological tools, you can not only ensure compliance but also contribute to a more responsible wood and forestry industry.

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If you have any questions, don’t hesitate to reach out to our team. We would be happy to schedule a meeting and address any queries you may have.

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EXTRA RESOURCE

Finboot guides you every step of the way to ensure EUDR compliance; based on our EUDR experience, we’ve prepared a checklist of key actions you should already be taking. Have you checked all the boxes? Download our EUDR Playbook to gain key insights.

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