Overview of the Regulation

In December 2022, the European Union agreed on the implementation of the Regulation on banning products contributing to deforestation, both produced and consumed, in the EU. Companies and relevant industries importing and exporting the following seven (7) products, as well as products derived from them, to and from EU markets are expected to conduct strict due diligence once the law comes into force:

  • Palm oil
  • Cattle
  • Soy
  • Coffee
  • Cocoa
  • Timber
  • Rubber

Based on impact assessments, the above-mentioned commodities were chosen as they greatly contribute to agricultural expansion, the main driver of deforestation. The list of key products will be updated and reviewed regularly based on new data, such as changing deforestation patterns and consumer demands. Affected companies are given 18 months to comply after the implementation of the regulation, while micro and small and medium-sized enterprises (SMEs) are given a longer adaptation period and other specific provisions. This Regulation aims to curb deforestation by minimizing the consumption and production of products in the supply chain associated with deforestation and forest degradation. Additionally, this Regulation aims to contribute to the reduction of greenhouse gas emissions from the consumption and production of relevant commodities in the EU by at least 32 million metric tons per year and to contribute to the prevention of biodiversity loss.


Background of the Regulation

The proposed Regulation is part of the 2019 Commission Communication on Stepping up EU Action to Protect and Restore the World’s Forest, which is a set of action plans of the EU to tackle deforestation that is consistent with the European Green Deal, the EU Biodiversity Strategy for 2030 and the Farm to Fork Strategy. The Regulation to promote deforestation-free products was proposed on November 17, 2021, and a provisional political agreement was reached between the European Parliament and the Council in December 2022. This Regulation will repeal the EU Timber Regulation.


New Due Diligence Rules for Companies

The Regulation sets mandatory due diligence rules for relevant companies, commodities, and derived products to promote the consumption and production of deforestation-free products. The companies, operators, and traders are required to comply within 18 months of implementation of the Regulation and 24 months for SMEs established by December 31, 2020, except when SMEs export or import products covered in the Annex to Regulation (EU) No 995/2010 (wood, timber, and wood-derived products). The requirements are as follows:

  • Companies and relevant entities are required to prove that the products being exported or imported are deforestation-free, such that the products are produced on land that was not subject to deforestation after December 31, 2020.
  • Companies and relevant entities are required to prove that the products being exported or imported are legal, such that the products are compliant with all relevant applicable laws in force in the country of production.
  • Companies and relevant entities are required to collect precise geographical information (i.e., geographical coordinates or geo-location via latitude and longitude) of the agricultural land where the commodities were sourced and grown.
    • Using satellite imagery and position, the EU will confirm and check the compliance of the relevant commodities with the Regulation. The Union has developed its own satellite Positioning, Navigation, and Timing (PNT) technology (EGNOS/Galileo) and its own Earth observation and monitoring system (Copernicus), which can be both used as part of the compliance checks.
  • Companies and relevant entities must always provide a due diligence statement before the importation and exportation of the relevant commodities to and from the EU market.
  • In addition, companies and relevant entities must collect the following information:
    • Description, including the trade name and the type of relevant commodities and products, and, where applicable, the common name of the species and its full scientific name;
    • Quantity (expressed in net mass and volume, or number of units) of the relevant commodities and products;
    • Identification of the country of production;
    • Date or time range of production of the commodities and products
    • Name, email, and address of any business or person from whom they have been supplied with the relevant commodities or products; and
    • Name, email, and address of any business or person to whom the relevant commodities or products have been supplied.
  • Companies and relevant entities with a high level of deforestation and forest degradation risks should carry out risk assessments and mitigations and are not allowed to place the relevant commodities or products on the EU market unless the risk is demonstrated to be negligible.


Furthermore, SMEs are required to provide the following information:

  • The name, registered trade name or registered trademark, postal address, email, and, if available, a web address of the operators or the traders who have supplied the relevant commodities and products to them; and
  • The name, registered trade name or registered trademark, postal address, email, and, if available, a web address of the traders to whom they have supplied the relevant commodities and products.


All records and information are required to be kept in records for all companies and relevant entities for at least 5 years.


Penalties for Infringement of Regulation

Infringements of this Regulation are sentenced to the list of penalties to be established in the EU national legal systems. The list of penalties includes the following:

  • Fines proportionate to the environmental damage and the value of the relevant commodities and products involved
    • The maximum amount of such fines shall be at least 4% of the companies and relevant entities’ annual turnover in the EU.
  • Confiscation of the relevant commodities and products
  • Confiscation of revenues
  • Suspension or prohibition of relevant economic activities
  • Temporary exclusion from public procurement processes for violators


Benchmarking and Assessment of Countries

In addition to the above-mentioned due diligence requirements, the Commission will run a benchmarking system assessing countries’, or parts thereof, level of deforestation and forest degradation risk (i.e., high, standard, or low risk) while taking into consideration agricultural expansion for the production of the seven commodities and products derived from them. The benchmarking activity aims to incentivize countries to ensure and promote the protection of forests and biodiversity.

The country risk categorization will be made publicly available by the Commission and will update the list where necessary. Enhanced scrutiny will be induced with relevant commodities from countries with a high risk of deforestation and forest degradation.


ASEAN’s Stance on the Regulation

Governments of Indonesia and Malaysia’s Opposition

According to WWF, consumption of products, primarily soy, palm oil, and beef (followed by wood products, cocoa, and coffee), in the EU is linked to 16% of tropical deforestation sourced from international trade. Steps have been made to tackle this issue, which is why the Regulation to curb deforestation is soon to be ratified.

The EU Regulation on Deforestation-free products not only affects Member States of the EU but also international trading partners and operators globally, including the ASEAN Member States. As reported by the Observatory of Economic Complexity (OEC), in 2021, two of the world’s largest exporters of palm oil were Indonesia ($27.3B) and Malaysia ($15B), both of which are member states of the ASEAN region. The governments of both countries are currently against the Deforestation-free Products Regulation of the EU.

On January 9, 2023, President Joko Widodo and Prime Minister Anwar Ibrahim, leaders of Indonesia and Malaysia, respectively, had a bilateral meeting to discuss how to fight the “discrimination” against palm oil exportation to the EU and to strengthen the partnership of the two countries through the Council of Palm Oil Producing Countries. Both countries also threatened to stop exporting palm oil to the EU as a response to the Regulation. It was also mentioned that if the cost of compliance is too high, producers will opt to export to other countries instead. They believe that millions of smallholders and farmers may not be able to adhere to the stringent data requirements.

Various groups questioned the decision of the leaders in stopping palm oil exportations to the EU. Secretary General of SPKS (The Union of Palm Oil Smallholders) Manseutus Darto thinks that this threat is excessive and believes that opposition to the Regulation would not solve domestic and governance problems on palm oil exportations. Darto also believed that supporting the EU Regulation would help palm oil farmers to have access to EU markets. Currently, 78% of independent farmers are forced to sell their produce to middlemen at low prices. Darto sees the Regulation as an opportunity to end this practice and protect smallholders’ income and livelihoods.

Greenpeace Indonesia Forest Campaign Head Kiki Taufik expressed that President Widodo should further expound on what “discrimination” against palm oil means.

Indonesia and Malaysia currently have commitments in line with the EU Deforestation-free Commodities Regulation. For example, Indonesia has goals in place to convert its forests to carbon sinks by 2030. Kiki sees the EU Deforestation-free Commodities Regulation as an opportunity to help Indonesia achieve its goal and the Regulation should not be opposed by the government.

Kiki also pointed out that Indonesia is supposed to not find any difficulties complying with the EU Regulation since the majority of the palm oil plantations have been established before December 31, 2020. The EU Regulation only bans products that are from deforested areas after December 31, 2020.

Other Opinions on the EU Regulation

On the other hand, the Regional Community Forestry Training Centre for Asia and the Pacific (RECOFTC), an international organization advocating for the protection of forests in the Asia-Pacific region, states that plantations in many member states in the ASEAN region have histories of human rights abuse, such as land grabbing, dispossession, and violence. RECOFTC believes that the EU Regulation should also include clauses regarding the protection of the indigenous people and their rights. The legality of land is still the prerogative of the producer countries. Consequently, countries that lack laws and have a weak implementation of regulations may still consider land-grabbed areas legal, which could continue the suffering of the affected indigenous people.

RECOFTC also stated that based on recent surveys, less than 2% of smallholders from Indonesia possess plantation registration certificates. Thailand’s smallholders mostly grow rubber on public land, and  Thailand’s law states that they should have land certificates to attest their rights to land tenure. RECOFTC further explained that the issuance of land certificates by authorities is slow in the majority of Southeast Asia. Due to the lack of necessary paperwork, smallholders may struggle to meet the requirements for the new due diligence of the EU Deforestation-free Commodities Regulation. Although, this issue mainly depends on the governance of the respective governments of each country. Exporting countries should be prepared on addressing these issues to comply with the EU Regulation.

Smallholders also practice agroforestry, where they cultivate a variety of trees and crops to encourage multiple income streams and to increase carbon storage on the farmlands. According to RECOFTC, the smallholders are worried that agroforestry may be considered as non-compliant as this practice was not covered in the EU Deforestation-free Commodities Regulation.

Other green groups and organizations also pointed out that the EU Regulation did not include savannahs, wetlands, and other wooded ecosystems and focused only on forests. Agricultural activities may switch to these environments and new sanctions must be placed to protect these ecosystems.

Extensive planning and preparations are needed for both the EU and exporting countries to comply with the new EU Deforestation-free Commodities Regulation.