Vietnam: The European Union Deforestation Regulation And Implications For Vietnam

What is the EUDR?

The EU's Deforestation Regulation (EUDR),¹ entered into force on 29 June 2023, addresses the deforestation and forest degradation linked to the expansion of agricultural land that is driven by livestock rearing and the production of commodities including cocoa, coffee, oil palm, rubber, soya and wood ('EUDR commodities') and of their derived products, such as leather, chocolate, tyres, or furniture ('EUDR products').²³ The EUDR requires companies trading in these products and their derived products to conduct extensive diligence on the value chain to ensure the goods do not result from deforestation, forest degradation or breaches of local environmental and social laws after 31 December 2020. Following the entry into force of the EUDR, EU operators and traders will have 18 months ('transitional period') to implement the new rules, i.e., until 30 December 2024 (or 30 June 2025 for micro and small enterprises).

After this transitional period, the EUDR commodities and their relevant products shall not be placed or made available on the market or exported unless all the following conditions are fulfilled:

• they are deforestation-free;
• they have been produced in accordance with the relevant legislation of the country of production and
• they are covered by a due diligence statement.⁴

One of the key characteristics of the EUDR is the traceability requirements, which require non-SME operators and traders to collect, among other information, the geographic coordinates of the plots of land where the commodities were produced or the livestock was kept. The geolocation coordinates need to be provided in the due diligence statements that operators are required to submit to the Information System ahead of the placing on the Union market or the export of the products.⁵

In addition to the deforestation-free requirement, the EUDR also requires that the area of production must comply with local social and environmental laws, including on land use rights; environmental protection; forest-related rules, including forest management and biodiversity conservation, where directly related to wood harvesting; third parties' rights; labour rights; human rights protected under international law; the principle of free, prior and informed consent (FPIC), including as set out in the UN Declaration on the Rights of Indigenous Peoples; and tax, anti-corruption, trade, and customs regulations.⁶

Vietnam's exposure to the EUDR

It is anticipated that Vietnam's cocoa, coffee, and rubbers will be highly exposed to the EUDR, as Vietnam currently export a significant proportion of these products to the EU markets. Coffee will be the most impacted, given more than 45% of all Vietnamese coffee production is destinated to the EU, followed by cocoa (34.3%) and rubber (14.6%). For wood and wooden products, Vietnam's current key markets are the United States, China, and Japan; therefore, the exposure of this industry to the EUDR is relatively lower than the three products mentioned above. However, as many countries are taking measures to mitigate climate change impact, they might adopt similar measures to that of the EUDR in the future.

Table 1. Vietnam's exports of EUDR Commodities and Products to the EU, 2021

Source: Author's calculation based on ITC Trademap data (2023).

What should businesses be mindful of?

Who is subject to the EUDR? The EUDR applies to operators and traders who place the EUDR products on the market or export them from the EU. Where an operator established outside the Union places relevant products on the EU market, the first operator established in the Union who makes such relevant products available on the EU market shall be deemed to be an operator within the meaning of the EUDR to assume the due diligence obligation.

Conduct Due Diligence: Operators and non-SME traders are obliged to conduct due diligence before placing relevant products on the EU market or exporting them, and they will be held accountable for any breach. Due diligence shall comprise a 3-step process:

• Collection of information, data and documents (Article 9)
• Risk assessment measures (Article 10)
• Risk mitigation measures (Article 11).

Simplified due diligence: The Simplified Due Diligence covers only the obligation of collecting information, data and documents under Article 9. Operators can adopt a Simplified Due Diligence for relevant commodities and relevant products produced in countries that the European Commission classified as low-risk.

Submission of Due Diligence Statement (DDS): The DDS must be submitted to the competent authorities (to be designated by each EU Member State and published by the European Commission) through the information system (to be established by the European Commission) before placing relevant products on the EU market or exporting.⁷

Establishment and maintenance of due diligence systems, reporting and record-keeping: Operators shall establish and keep up-to-date a framework of procedures and measures to ensure EUDR compliance of the relevant products they place on the EU market or export. Operators shall keep a record of the due diligence statements for five years from the date the statement is submitted or updated. ⁸ Non-MSME operators shall annually publish reports as widely as possible, including via the Internet, on their due diligence system.

SMEs' special considerations: SME operators shall not be required to exercise due diligence for relevant products contained in or made from relevant products for which a due diligence statement has already been submitted. In such cases, SME operators shall provide the competent authorities with the reference number of the due diligence statement upon request. For parts of relevant products that have not been subject to due diligence, the SME operators shall exercise due diligence.

SME traders shall make available relevant products on the EU market only if they collect and keep the information relating to the relevant products, including information about the suppliers of the products and the reference numbers of the due diligence statements associated with those products.

Consequences of non-compliance: As stated above, the EUDR prohibits placing products of unknown origin on the Union market without prior due diligence following the EUDR requirements. Penalties for non-compliance will be laid down under national law; however, the EUDR provides that penalties may include:

• Fines proportionate to the environmental damage and value of the items (to gradually increase with repeated infringements) with a maximum of at least 4% of EU turnover in the preceding year and may be increased to exceed the potential economic benefit;
• Confiscation of the covered products or confiscation of the revenues gained from the items;
• Temporary exclusion for a maximum period of 12 months from public procurement processes and public funding; and
• For serious or repeated infringements, temporary prohibition from dealing in the EU in those items, or a prohibition from using the simplified due diligence process.⁹

The EUDR does not apply directly to producers who do not place products on the Union market themselves. However, as the producers' trade partners in the EU are subject to the EUDR obligations, they might request information from the third-country producers to meet the EUDR obligations. The products will face more scrutiny in exporting to the EU if they are identified as originating from a country classified as high-risk under the EUDR.¹⁰ Products by third-country producers can be banned from entering the EU market if they are identified as linked to deforestation or any infringements with the relevant local legislation on social and environmental protection. Vietnam's Producers of the EUDR commodities or products may be directly or indirectly impacted by the EUDR, depending on the role they play in the cocoa supply chain. Given the transitional period, businesses should conduct the necessary checks and adjustments to ensure their readiness and compliance with the EUDR.

Footnotes

1. Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010

2. European Commission (2023). Deforestation-free products.

3. The full list of EUDR products is provided in Annex 1 of the EUDR. However, this list may be amended by the Commission by means of a Delegated Act.

4. Article 3 EUDR.

5. European Commission (2023). FAQ – EU deforestation Regulation.

6. Article 2.40 EUDR

7. Article 4.2 EUDR.

8. Article 4.3, EUDR; Article 12.3

9. Article 25 EUDR.

10. Article 16 & Article 29 EUDR.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.