An EU regulation overflowing to Serbian market
The European Union’s deforestation-free regulation (“Deforestation Regulation“) entered into force on 29 June 2023. This is the latest EU legislative intervention in trade in the attempt to combat deforestation and forest degradation globally. The Deforestation Regulation constitutes the newest addition to the legislative efforts within the EU to introduce environmental, social, and good governance (“ESG“) considerations in business operations. It will also produce effects beyond the EU borders, including on the Serbian market (we have covered previous examples of such overflowing effect here and here).
Because Serbia does not have any similar legislation in place, the introduction of ESG considerations in Serbian business life remains dependent on either private initiatives, voluntary commitments and market self-regulation, or overflowing effects from the EU (as we discussed here). The Deforestation Regulation will certainly affect non-EU markets and the Western Balkans specifically. In fact, an impact assessment accompanying the proposal leading to the Deforestation Regulation lists both Serbia and Bosnia and Herzegovina among the top 20 countries of origin of the imports targeted by the Regulation.
The Deforestation Regulation targets trade operations regarding specific products
The Regulation regulates the placing and making available on the EU market (in addition to the export from the EU) of certain products produced after 29 June 2023. The products are specifically listed in an annex, and they are generally defined as containing cattle, cocoa, coffee, oil palm, rubber, soya, and wood, or as products that have been fed with or made using these commodities.
The main obligations are imposed on operators, meaning the persons or entities who place products on the EU market or export them from the EU as part of their commercial activity, and traders, meaning suppliers anywhere in the supply chain. The Deforestation Regulation’s reach is quite extensive, covering entire supply chains before product’s placing on the EU market.
Although the Deforestation Regulation is already in force, its main obligations will apply starting from 30 December 2024, and from 30 June 2025 for operators that qualified as micro or small undertakings prior to 31 December 2020.
Once its main provisions become operational by the end of 2024, the Deforestation Regulation will repeal the 2010 regulation on the obligations of operators who place timber and timber products on the market.
Non-compliant products cannot circulate within the EU market, operators must conduct due diligence
The core rule of the Deforestation Regulation is that cattle, cocoa, coffee, oil palm, rubber, soya, and wood, as well as the products containing, having been fed with or made using these commodities, can be placed or made available on the EU market (or exported from the EU), only if the following three conditions are satisfied cumulatively:
- they are “deforestation-free”, meaning produced on land that has not been conversed from forest to agricultural purposes, or that wood has been harvested without inducing forest degradation, after 31 December 2020;
- they have been produced legally under local laws; and
- they are covered by a due diligence statement.
EU-based operators (operator is any person/entity who places relevant products on the EU market or exports from the EU in the course of a commercial activity) must exercise due diligence and compile a due diligence statement before placing products on the EU market or exporting them from EU, and from that point they assume responsibility for the product’s compliance with the core rule. Micro, small and medium enterprises are exempted from this duty in respect of parts or derivatives of products that have already been subject to due diligence.
Due diligence is complex and comprises the collection of and keeping information, data, and documentation on compliance of products with the core rule, carrying out a risk assessment, and adopting risk mitigation procedures and measures. A simplified due diligence, not involving full risk assessment and mitigation, is allowed for commodities and products from low-risk countries. The European Commission is supposed to decide whether individual countries classify as of high or low risk of incompliance with the deforestation-free requirement of the core rule, or should remain within the class of standard risk, until 30 December 2024.
Non-EU operators are not subject to direct obligations under the Deforestation Regulation. However they remain target of the due diligence duty of EU entities.
Non-micro, -small and -medium traders from the EU (i.e. any person/entity in the supply chain other than the operator who makes relevant products available on the EU market in the course of a commercial activity) have the same obligations as operators. Micro, small and medium enterprise traders only need to collect and keep specific information about the movement of the product in the supply chain.
National authorities will be in charge of enforcement of the Deforestation Regulation. National customs authorities will control the status of due diligence statements accompanying imported (and exported) products. Customs authorities will not allow release of a product for free circulation in the event the designated national authority determines that the product is non-compliant.
Complaints mechanism
The Deforestation Regulation establishes a complaints system, insofar as it allows anyone to submit “substantiated concerns” to designated national authorities about operators’ or traders’ incompliance with their obligations. Designated authorities can take interim measures to prevent the placing or making available on the EU market (or export from the EU market) of products in respect of which they conduct an investigation. The procedure should be relatively fast, and the authorities should reply to the complaint within 30 days (unless national law provides for a different timeframe).
The Deforestation Regulation affirms the right of anyone with a sufficient interest to access administrative and judicial proceedings regarding the legality of decisions, actions and omissions of the authorities in respect of the Regulation’s provisions.
Other ESG-related EU legislation overflowing to Serbia should be expected
The Deforestation Regulation forms part of broader efforts within the EU to introduce ESG considerations in the business world. The European Commission adopted a proposal for a directive on corporate sustainability due diligence in February 2022, aiming to set up a general due diligence duty for companies regarding human rights and environment across their value chains, within and outside the EU. The Council of the European Union adopted its position on 1 December 2022, and the European Parliament adopted its amendments to that proposal on 1 June 2023. Furthermore, in September 2022 the European Commission proposed a regulation banning products made with forced labour on the EU market. All these possible future EU laws will equally overflow to the Serbian economy, bringing new ESG-related requirements that Serbian manufacturers and exporters must meet.
