After difficult negotiations, EU Institutions reach an agreement
A legislative initiative with significant implications
On 17 November 2021, the European Commission (Commission) published its Proposal for a Regulation 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 (Deforestation-free Products Regulation), as well as a number of accompanying documents.[1] The proposed Deforestation-free Products Regulation aims at minimising the EU’s contribution to deforestation and forest degradation worldwide and at reducing the related greenhouse gas (GHG) emissions and biodiversity loss.
In recent months, the EU co-legislators, the European Parliament, and the Council of the EU (Council), gathering the 27 EU Member States, have defined their respective positions regarding the Commission’s Proposal. In September, the European Parliament, the Council, and the Commission started the inter-institutional trilogue negotiations to agree on a common text for the Regulation. However, rumours indicated that negotiations were proving difficult, with positions diverging on key issues. Agreement was finally reached on 5 December 2022.
Key elements of the European Commission’s Proposal
In simple terms, the new rules will prohibit the placing on the EU market of certain commodities and products, including palm oil, that are associated with deforestation or forest degradation. Operators placing on the market commodities and products covered by the Regulation will need to comply with the due diligence obligations set by the Regulation to ensure that their products are not associated with deforestation or forest degradation.
More specifically, commodities and products covered by the Regulation shall soon need to be accompanied by a due diligence statement, containing detailed information on the goods and the economic operator, including the geographic coordinates or “geolocation” of the land where the commodities were produced, or other traceability requirements yet to be specified. Additionally, countries would be classified as low, medium, or high-risk with respect to deforestation and forest degradation. This classification would have an impact on the associated due diligence obligations, with products originating from a country or region classified as a high-risk being subject to higher scrutiny.
The Commission’s Proposal originally foresaw that the rules would cover six commodities ostensibly linked to deforestation and forest degradation, namely cattle, cocoa, coffee, palm oil, soya, and wood and certain products that contain, have been fed with, or have been made using the covered commodities, to which the Regulation would apply.The Regulation shall prohibit the placing on the EU market of such commodities and their export from the EU market, “unless they are deforestation-free and have been produced in accordance with the relevant legislation of the country of production”.
The European Parliament and the Council of the EU had proposed a number of amendments to the Commission’s Proposals and, as indicated, trilogue negotiations reportedly proved complex.
The key controversial issues during the trilogue negotiations
After the European Parliament and the Council of the EU had defined their respective positions, inter-institutional trilogue negotiations began in September 2022 and a second round was held on 9 November 2022. A third round took place on 5 December 2022, when EU institutions finally reached a provisional agreement. During the trilogue negotiations, considerable discrepancies between the three EU Institutions could be observed in relation to key issues and the Commission’s Proposal was ultimately amended in some key respects.
One of the controversial issues concerned the key definitions for “deforestation” and “forest degradation”. The European Commission had proposed to define ‘deforestation’ as “The conversion of forest to agricultural use, whether human-induced or not” and ‘forest degradation’ as “Harvesting operations that are not sustainable and cause a reduction or loss of the biological or economic productivity and complexity of forest ecosystems, resulting in the long-term reduction of the overall supply of benefits from forest, which includes wood, biodiversity and other products or services”.
With respect to ‘deforestation’, the European Parliament had suggested to expand the definition to also cover ‘plantation forest’ and, regarding ‘forest degradation’, the Council had suggested to limit the definition to the conversion of primary forests into plantation forests, instead of the broad definition proposed by the Commission.
At the end, the three EU Institutions agreed to set a definition for ‘deforestation’ based on the definition used by the Food and Agriculture Organization (FAO) of the United Nations and, regarding the definition of ‘forest degradation’, the EU Institutions agreed on “an innovative concept for the definition of ‘forest degradation’ meaning the structural changes to forest cover, taking the form of the conversion of naturally regenerating forests and primary forests into plantation forests and other wooded land and the conversion of primary forests into planted forests”.
The specific scope of the products to be covered by the Regulation was another key issue during the trilogue negotiations. In this context, the European Parliament had been pursuing an extension of the list, so as to also include pig meat, sheep, goat, poultry, maize, rubber, palm oil derivatives, as well as charcoal and printed paper products. Early reports had indicated that two of these products, notably rubber and maize, could have been part of a compromise agreement among EU Institutions. However, under the compromise reached by the Council and the European Parliament, only rubber was added to the list.
Economic operators dealing with covered products will soon be subject to important due diligence obligations, namely: 1) Information requirements, including, inter alia, documents and data demonstrating that the relevant commodities and products are not linked with deforestation and forest degradation; 2) A risk assessment, which is to include, inter alia, an assessment of the prevalence of deforestation or forest degradation in the country, region, and area of production of the relevant commodity or product; and 3) Risk mitigation measures, referring to procedures and measures that are adequate to reach no or only a negligible risk with respect to deforestation or forest degradation. The Council and the European Parliament agreed “on stringent due diligence obligations for operators, which will be required to trace the product they are selling back to the plot of land where it was produced”. Importantly, the applicable due diligence obligations will depend on the risk of deforestation and forest degradation associated to a country or region. Three risk categories are foreseen, while the related criteria are not yet provided under the Regulation: 1) Low-risk; 2) Standard-risk; 3) High-risk:
- Low-risk countries or regions: Operators would only need to comply with the information requirements;
- Standard-risk countries or regions: Operators would also need to comply with risk assessment and risk mitigation requirements; and
- High-risk countries or regions: Operators would have to comply with all the above requirements and also be subject to enhanced scrutiny (i.e., increased rates of control set to at least 15%of the operators placing, making available on, or exporting from, the EU each of the relevant commodities, and at least 15% of the quantity of each of the relevant commodities placed, or made available on, or exported from, the EU).
The specific criteria corresponding to the risk levels and the actual determination are not part of the Regulation, but will be elaborated at a later stage by the Commission and made available in a future Implementing Act. The categorisation will become an important, and potentially divisive, factor, perhaps even a potentially discriminatory one, depending on its application and on the criteria used to ‘label’ countries under the three categories of risk, with significant implications for businesses and traders. It is more than unfortunate that these details will be set at a later stage and without the necessary participatory processes and impact assessments.
Extending the scope to human rights violations
The EU Institutions also discussed the possibility of introducing references to international conventions on human rights. The Council suggested an amendment that would have added several references to the United Nations Declaration on the Right of Indigenous People with the objective of taking into account the interests of, and consequences for, indigenous people, local communities and small producers. During the trilogue negotiations, the EU Institutions ultimately agreed to takeinto account“human rights aspects linked to deforestation, including the right to free, prior and informed consent by indigenous peoples”.
A clear impact on palm oil
After the trilogue negotiations, it is now confirmed that the Regulation will apply to palm oil and its derived products. As the specific text agreed by the EU Institutions has not yet been made publicly available, it is still unclear whether or not palm oil derivates will also be covered, which is something that the European Parliament had proposed. The specific commodities and products covered by the Regulation are to be listed in a dedicated Annex.
Even more concerning is the fact that the key rules, namely the risk criteria and the country classification, were not discussed by the EU co-legislators and will be defined and adopted separately by the Commission. In this context, Malaysia and other palm oil producing countries should call on the Commission to publish the rules and the criteria to be used for the risk classification in due time and based on transparent, science-based, and objective criteria, with datasets gathered and verified with respect to all covered commodities.
The risk criteria and the classification should also recognise Malaysia’s efforts and commitments towards maintaining its forests, wetlands, and peatlands, towards the protection of the environment, and the sustainable production of palm oil and all other commodities, whether or not they fall within the scope of the Regulation.
Malaysia should continue engaging with the EU regarding the new Regulation and future implementing rules, both bilaterally and at the WTO and in its own name and as part of the Council of Palm Oil Producing Countries (CPOPC).
Malaysia should underline that, under its Malaysian Sustainable
Palm Oil (MSPO) certification scheme, mandatory rules already confirm
compliance with a number of social and environmental standards and that, therefore,
businesses should be able to rely on the MSPO scheme to demonstrate compliance
with the new due diligence obligations set by the Regulation.
Prepared by MPOC Brussels Office
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[1] Draft Proposal for a Regulation 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, available at https://ec.europa.eu/environment/system/files/2021–11/COM_2021_706_1_EN_ACT_part1_v6.pdf (accessed 29 November 2022).
