Between 1990 and 2020, 420 million hectares of forest were lost worldwide - an area larger than the EU. Deforestation is a major driver of climate change and biodiversity loss.
Tropical forests are being destroyed mainly for the expansion of agricultural land used for the production of commodities and raw materials such as palm oil, soy, coffee, cocoa, timber and rubber, and as grazing land for cattle and other livestock. The EU Deforestation Regulation aims to ensure that only products that are deforestation-free and in compliance with (country of origin) laws can be placed on the EU market, meaning that supply chains must be "deforestation-free." It applies to seven products - soy, cattle, palm oil, timber, cocoa, rubber and coffee - and certain products made from them, such as leather, chocolate and furniture, as well as feed made from soy meal for livestock.
How are Swiss companies affected by this?
In 2019, the Swiss Parliament had created the legal basis for the definition of requirements for the placing on the market of wood and wood products as well as other products with the new Articles 35e-35h in the Federal Law on Environmental Protection (SR 814.01). In this context, the Ordinance on the Placing on the Market of Timber and Wood Products (Timber Trade Ordinance; SR 814.021) has regulated the aforementioned due diligence against illegal logging and trade since 1.1.2022.
What is new in the EU, however, is that the regulation is no longer limited to illegal deforestation. It now targets any kind of deforestation, be it legal or illegal.
Swiss companies exporting products to the EU must therefore deal with the more extensive requirements and obligations of the EU Deforestation Regulation so that they can continue to participate in the European market.
Swiss companies may be affected in various ways:
Export of affected products: When Swiss companies export products to the EU (e.g. chocolate) that are within the scope of the EU Deforestation Regulation (EUDR), they must ensure that their products meet the requirements of the regulation. This may require additional compliance costs and adjustments in supply chains. For example, it must be proven (due diligence declaration) that they have not been grown on land where deforestation or forest degradation has occurred. Without prior submission of such a declaration, a raw material or product may not be imported or traded in the EU.
Risk of reputational damage: Swiss companies that are associated with deforestation or forest degradation could suffer damage to their reputation and brand image, which may have a negative impact on their business.
The most important indirect obligations
For Swiss companies that are affected by the EU Deforestation Regulation and want to continue exporting to the EU (e.g. chocolate), there are indirect obligations as the EU importer or trader will require a corresponding due diligence declaration from the Swiss company:
Due Diligence: companies must conduct due diligence on their supply chains to ensure that the products they export to the EU do not contribute to deforestation or forest degradation. This requires transparency on the origin of raw materials and a risk assessment, as the regulation has retroactive applicability, with a cut-off date of December 31, 2020, for determining deforestation or forest degradation. This requires traceability back to the property where the raw material was grown.
Risk management: if companies determine that their products pose a risk of deforestation or forest degradation, they must take action to minimize or eliminate that risk. This may include switching to more sustainable sourcing practices and using certification.
Potential sanctions
What follows in case of non-compliance? The regulation provides for various sanctions, how companies and distributors are punished in case of non-compliant behavior. In addition to fines of 4% of the annual EU-wide turnover, it is possible for the responsible supervisor to confiscate the products that are non-compliant. Furthermore, violations of the EUDR will lead to a temporary exclusion from public tenders and from access to public funds.
Next steps
Overall, Swiss companies exporting to the EU market must pay careful attention to the EU Deforestation Regulation and ensure they meet their indirect obligations to avoid any negative impact on their business.
The regulation will apply in the EU for non-SMEs from Dec. 30, 2024, and for SMEs from June 30, 2025.
