Why is EUDR compliance paramount for Latin American companies trading with Europe?
Written by
George Buliga
Published on
January 25, 2025
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To set the scene, free trade is one of the founding principles of the European Union. Starting with the 1990s decade, the European Union gradually opened up to world trade by signing or negotiating (Free) Trade Agreements with partners from all continents. However, the signature of these “free” trade agreements does not automatically waive exporters the compliance with European regulations. These European regulations are very complex, ranging from phytosanitary and technical requirements, to intellectual property and packaging. In 2023 and 2024, two additional requirements have been added for non-EU exporters to access the European market - banning products issued from deforestation and forced labour.
EUDR compliance is not optional for Latin American exporters—it is the gateway to maintaining access to the European market. With up to 22% of Latin American trade potentially affected, traceability and tailored solutions are the keys to success in this new regulatory landscape.
What is the EUDR (Regulation on Deforestation-free Products)?
The first of these regulations, the EUDR (or EU Regulation 1115/2023) is an actionable measure of the EU’s political support in the fight to counter climate change and strengthen biodiversity. According to the EUDR, coffee, cocoa, rubber, palm oil, soy, cattle and wood, as well as some derivative products, such as leather or printed paper are banned from the EU if they are produced through deforestation or forest degradation.
In EUDR’s acceptance, “forest” means a land spanning of more than 0,5 hectares with trees higher than 5 metres and a canopy cover of more than 10 %, or trees able to reach those thresholds, excluding land that is predominantly under agricultural or urban land use. “Deforestation” is the conversion of forest to agricultural use, whether human-induced or not. “Forest degradation” refers to structural changes to forest cover, taking the form of the conversion of either primary forests or naturally regenerating forests into plantation forests or into other wooded land, or conversion of primary forests into planted forests. It is important to note that the EUDR does not distinguish between “legal” and “illegal” deforestation, because in the end, the effects of both processes on climate and biodiversity are the same.
The main condition for large companies placing the products under the EUDR regulation on the EU market is to provide a due diligence statement and introduce it into the EU’s dedicated IT system. European clients should receive the registration number of the due diligence statement. Small and Medium-Sized-Enterprises (SMEs) are not obliged to conduct due diligence, nor to provide the due diligence statement when it was already done by an upstream company (usually the importer into the EU).
The EUDR will apply from 30 December 2025 for large companies, and from 30 June 2026 for SMEs.
Each EU country will designate its own control authorities to monitor and check the implementation of the EUDR. The annual checks must cover at least: 1% of operators whose products come from low-risk countries; 3% of operators whose products come from countries with standard risk; 9% of operators whose products are coming from high- risk countries or parts thereof, and 9% of the quantity of each product.
The sanctions will be a ban of the products issued from deforestation from the EU market and fines. Potential fines could go up to 4% of the company’s EU turnover and/or exclusion from public funding or contracts.
How to conduct the due diligence process and what is the due diligence statement?
The due diligence process should include information about the product, an annual risk assessment and, if necessary, risk mitigation measures taken to eliminate deforestation risk identified in the assessment.
The main development brought by the EUDR is that geolocation of all plots of land where the relevant commodities that the relevant product contains, or has been made of is required.
The risk assessment starts from a general country risk that will be established by the European Commission, previous deforestation reports in that respective region, value chain complexity, risk of mixing products to circumvent the EUDR Regulation, difficulties to connect the product to the plot of land from where it originates. A simplified due diligence can be done for products originating from third countries considered “low risk” by the European Commission. In this case, the companies should provide documentation that there is negligible risk of mixing their products with similar ones originating from countries with “high” or standard “risk”.
Mitigation measures could include extra data collection, audits, implementing controls and various procedures.
How will the EUDR impact Latin American exports to the EU?
The commodities under the scope of the EUDR are an important part of the Latin America-EU trade, and therefore the World Bank considers that up to 22% of the Latin American trade with the EU could be affected by the EUDR.
In principle, there is no obligation for Latin American companies under the EUDR, only EU companies (“operators”) selling the seven commodities mentioned above fall under the scope of the EUDR. However, to prove that the products they sell in Europe are not produced through deforestation or forest degradation, EU companies will have to request comprehensive data from their Latin American partners upstream in the value chain. Therefore, since Latin American companies are affected by its implementation, the EUDR can be considered an extraterritorial regulation.
Due to the heavy deforestation track record, it is quite probable for some Latin American countries to be on the “high risk” deforestation list to be published by the European Commission no later than June 30, 2025.
The listing of a country on the EU Commission’s risk list implies that risk mitigation will have to be implemented by the exporting companies from that respective country in order to comply with the EUDR. Therefore, the EUDR is not a label or certification that will help Latin American companies to sell more or price higher, but is a mandatory requirement for their presence on the European market.
Bottom-up traceability from plot level to exporter and regular audits will be the most suitable measures to ensure full compliance with the EUDR.
However, among the challenges to implement EUDR compliance in Latin America we can see land register problems in certain countries, difficult geolocation of the plots, unawareness about the identity of producers who often are individual farmers and not registered companies, numerous unknown intermediaries among the value chains, presence of indigenous population that does not want to interact with outsiders. Therefore, to be applicable, the proposed solutions should be tailored to Latin American realities.
The signature of the EU-MERCOSUR Agreement at the end of last year seems to offer an advantage to MERCOSUR (Argentina, Brazil, Bolivia, Paraguay and Uruguay) countries compared to those from the rest of Latin America on EUDR. Products from MERCOSUR countries will still have to comply with the EUDR, but the EU “recognises that the Agreement and actions taken to implement commitments thereunder shall be favorably considered, among other criteria, in the risk classification of countries”. This basically means that national deforestation mitigation measures and diplomatic efforts could improve country risk.
Also, “In case of a divergence between the documentation, licenses, information and data from certification schemes and traceability and monitoring systems officially recognized, registered or identified by Mercosur countries, and the information being used by the relevant authorities in the EU, the latter shall, upon request, promptly consider information and clarifications provided by Mercosur countries”. This text also seems to bring an advantage to MERCOSUR products, because the EU has no obligation to consider promptly information and clarifications provided by authorities from other Latin American countries in its decision to ban or accept a product under the EUDR. However, this text does not prejudge in any way the EU competent authorities final decision regarding the admission or refusal of the respective product.
TracKey will keep you posted about how these MERCOSUR Agreement measures will be applied.
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G.B. - Legal Expert in European Environmental and Energy Law
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