The EU and UK Deforestation Dilemma

Last year, the European Union (EU) adopted the Deforestation Regulation (EUDR), a landmark legislative initiative designed to curb the import and sale of goods linked to deforestation. The EUDR targets soy, beef, palm oil, wood, cocoa, and coffee, as well as their derived products. Exporting countries will be categorised by deforestation risk levels, and businesses will be required to trace and document the geographical origin of their products.  

However, the EUDR has been criticised by various stakeholders, including countries such as Brazil and the United States, who argue that it may create illegal trade barriers and harm small farmers. 

The UK is also establishing due diligence requirements for 'forest-risk' commodities, but its regulation covers a more limited range of commodities and lacks the EUDR’s comprehensive enforcement mechanisms. The divergence between the UK and EU approaches could lead to increased administrative burdens for companies operating in both markets.

The EU Deforestation Regulation: Provisions, Expectations and Backlash 

The EU Deforestation Regulation (EUDR) entered into force in June 2023. The EUDR targets companies involved in the import and sale of goods linked to legal or illegal deforestation. The regulation explicitly covers soy, beef, palm oil, wood, cocoa and coffee. This group of commodities also includes all derived products, extending the coverage of the regulation significantly. The European Commission will classify exporting countries into three categories according to the level of deforestation risk: high, standard and low risk. 9% of goods originating from high-risk countries will be subject to inspections, 3% from standard, and 1% from low-risk.  

To ensure the land used to produce these commodities was not deforested after the so-called “cut-off date” of 31 December 2020, the EUDR requires companies to perform extensive retrospective due diligence. Companies must establish traceability systems mapping each product’s geographical origins and present documentation attesting to compliance. If companies fail to comply with the regulation, products could be forcibly removed from the EU market and the importer could be fined.  

At the time of publication, large and medium-sized enterprises have until December 2024 to comply with EUDR reporting requirements. Smaller enterprises have until June 2025. However, since the EUDR’s official passage into the law, the regulation has faced intense criticism from businesses, some member state governments and third countries. Pointing to the regulation’s significant regulatory burden and its potential negative impact on EU international competitiveness, several EU member state governments asked to delay the full implementation of the regulation. Countries such as Brazil, the US, China, Indonesia and Malaysia have publicly argued that the regulation creates illegal trade barriers, harms small farmers, and poses a risk to national security due to its geolocation requirements. Brazil’s hostility to the EUDR is one of the reasons the EU is struggling to finalise its free trade agreement with the Mercosur block. WTO chief Ngozi Okonjo-Iweala urged the EU to reconsider the EUDR’s overall impact.  

In response, the Commission has proposed delaying the EUDR’s implementation timeline by 12 months. The extension has been approved by the Council of the EU and if the amendment is also approved by the European Parliament, large and medium-sized businesses would need instead to comply by 30 December 2025 while micro- and small enterprises by 30 June 2026.  

There is limited time for the European Parliament to approve the extension before the end-of-year deadline. The timeline is further compressed by the fact that the new Commission will not officially take office until December at the earliest. To expedite the process and send the extension straight to a plenary vote (avoiding the need for committee hearings), the responsible Environment Committee within the European Parliament invoked the so-called ‘urgent procedure’. This procedure was used earlier this year to quickly adjust rules relating to the EU Common Agricultural Policy. There remains a risk that the extension is jeopardised by centre-right political groups attempting to use the reopening of the legislation as an excuse to water it down – something the S&D and Green groups have said they would oppose.  

While this debate plays out, the Commission will intensify dialogues with concerned states in an attempt to finalise the country benchmarking list by 30 June 2025. If the delay is not agreed upon, Commission officials have informally stated that the EU will consider all countries as "standard risk" from the end of December 

Even if the EUDR’s implementation is delayed, it is prudent for companies to plan on the basis of near-term implementation of the EUDR and prepare accordingly.  

Regulatory Divergence between the UK and the EU: Business Risks 

The UK 2021 Environment Act made provision for the government to establish a due diligence system for ‘forest-risk’ commodities through secondary legislation. Last December, following consultation with stakeholders, the previous government provided further detail on the regulation including businesses and commodities in scope as well as exemptions. The broader regulation of nature and biodiversity appears to be less of a priority for Defra under the Labour government. Instead, the department is focused on more politically salient issues, such as the regulation and improvement of the water sector in the UK. The government has yet to outline its position on this due diligence system or provide any indication of timing as to when secondary legislation may be introduced. Whilst the further direction and exact provisions of the UK regulation remain unclear, as things stand there are areas of divergence between the EU and UK approaches.

The table below shows key areas of divergence between the current UK and EU regulatory frameworks.  

A Potential Future Convergence of Deforestation Policies 

The differing timelines and regulatory designs of the EU Deforestation Regulation and the UK's proposed Forest-risk Commodities Regulation have created significant uncertainty for businesses. While both frameworks aim to tackle deforestation, the lack of clarity around implementation dates poses challenges for companies trying to ensure compliance. The potential 12-month delay in the EUDR and the absence of a clear timeline for the UK regulation make it difficult for businesses to plan effectively. The EU also plans to extend the affected commodities to other kinds of animal products, for instance, and cover other ecosystems like the savannah.  

Moreover, the divergence between the EU and UK regulations in terms of the commodities covered, business scope, and enforcement mechanisms adds complexity, potentially requiring duplicative compliance efforts, especially for companies operating in both markets. In particular, the less stringent aspects of the UK regulation pose several risks for companies. The reliance on local legal compliance under the UK's Schedule 17 could potentially incentivise deregulation within producer countries where legal deforestation still qualifies for UK market access. From a broader ESG perspective, the greater flexibility provided in the UK regulation naturally lends itself to a greater number of loopholes, leading to increased levels of supply chain risks for companies both in relation to their environmental and human rights footprint. These will ultimately need to be addressed in the longer term.  

Given these complexities, there is a strong case for regulatory convergence between the EU and UK. The new Labour government has already demonstrated via its Product Regulation and Metrology Bill that it is more willing to unilaterally align with the EU regulatory approaches when there is an obvious business benefit. Aligning these frameworks would reduce the administrative burden and help businesses streamline their operations while meeting environmental and human rights objectives uniformly. Convergence would not only alleviate duplicative costs and reporting requirements but also contribute to a more cohesive and effective approach to deforestation and sustainability. Businesses should also prepare for the potential short-term implementation of the EUDR, regardless of any delay, and continue to engage with regulators to ensure future legislation promotes harmonisation between both jurisdictions. 

This blog was written by Sam Lowe, Pierpaolo Proni and Alice Coffey. Sam Lowe is a partner and leads Flint’s work on UK and EU trade policy. Alice is a consultant based in London where she supports clients on sustainability, energy and ESG issues. Pierpaolo Proni is a consultant based in Brussels and works across a range of sectors, including sustainability, trade and energy. If you are interested in learning more about the potential implications of this, please get in touch.