Highlights
 

• EC publishes 11 commodities’ scenarios including rubber
   
• Non-SME operators, dealers tasked with due diligence onus
   
• German Rubber Association criticism fails to make impact
   

The European Commission has now issued a note detailing how obligations under the European Union Deforestation Regulation (EUDR) apply to various operators and traders over placing their commodities in the EU market.

It details how EUDR obligations are applicable depending on the company type (operator/trader), size (non-SME/SME) and position in the supply chain (first placing/downstream) within the EU, in 11 supply chain scenarios relating to different commodities including rubber.

Scenario 8 from the European Commission's publication highlights the obligations of an EU-based company importing natural rubber directly into the European Union. Achieving compliance necessitates due diligence and collaboration in the supply chain to promote sustainable and deforestation-free rubber production practices.

EU companies source rubber from outside Europe

EU-based companies source natural rubber directly from producers located outside the EU. Under the EUDR, these companies are classified as 'operators' and are responsible for ensuring that the imported rubber is both deforestation-free and compliant with the legal standards of the production country. The operator must conduct thorough due diligence, which includes information collection, risk assessment, and risk mitigation.

Under Scenario 8, a tire manufacturer (non-SME operator) importing natural vulcanised rubber and placing a relevant product on the European Union market for the first time must exercise due diligence for the vulcanised rubber. The tire manufacturer must ensure that the product is deforestation-free and legal and must submit a due diligence statement in the Information System of EUDR prior to the import.

If the tire manufacturer resorts to multiple shipments of vulcanized rubber from the same country/region, he needs to submit only a single due diligence statement for up to one year, so long as due diligence has been carried out for all relevant products intended to be placed on the market.

Interestingly, the tire manufacturer who places his product (tire) made with the same rubber, on the EU market, has to submit a new due diligence statement for the new tire in the Information System. The EC document says the tire manufacturer can refer to the due diligence statements that it has already submitted by referring to the relevant reference number.

Tire dealer should ensure that due diligence is exercised upstream

More curiously, the tire dealer (non-SME trader) who buys the same tire from the tire manufacturer and sells it in the EU market must also submit another due diligence statement in the Information System. He can refer to the due diligence statement filed by the manufacturer during this time by including the relevant reference numbers. However, the tire dealer must ensure that the due diligence was exercised upstream in accordance with the EUDR (Art.4(9). The tire dealer has the responsibility for the compliance of the relevant products.

If the dealer makes tires in batches from the same suppliers over a period of time, he can submit a due diligence statement covering multiple batches for up to one year. However, he has to ensure that due diligence has been ascertained for all relevant products made available in the market.

However, deep down the supply chain, the garages that buy the same tires from the tire dealers and sell to customers are exempted from filing due diligence statements. These garages are classified as SMEs (Small and Medium Enterprises). However, these garages must keep a record of information, including details of their suppliers and any operators, traders they supply to, and the due diligence statement reference numbers. The EC states that the SME traders do not retain responsibility for relevant products that they make available on the market.

wdk calls it a bureaucratic monster, but falls to reverse

It is to be noted that the German Rubber Industry Association (wdk) recently came out against the EUDR stipulation, saying that the European reporting obligations mean an immense effort for companies, without any added value.

Michael Klein, President of wdk, called for the Omnibus initiative to be extended to the EUDR. The "first-touch principle" must be established here, according to which it is sufficient for the first player in the European supply chain to meet the legal reporting and due diligence obligations. The fact that the EU imposes the same obligations on all companies in the subsequent supply chain within the EU is absurd and creates a bureaucratic monster.

Klein criticized the "misplaced suspicion of the legislator", which is reflected in a reverse burden of proof: "In the case of European supply chain regulation and the regulation on deforestation-free products, companies must collect evidence that they are behaving in accordance with the law. They are thus practically under general suspicion. This also urgently needs to change. We need not only a more business-friendly policy in Europe, but also a more business-friendly perspective."

However, the latest step of the European Commission means that the wdk appeal has fallen on deaf ears.

Smallholders at the core make it complex

Experts point out that the natural rubber supply chain is complex, with a significant portion of production stemming from smallholder farmers. It is being pointed out that this fragmentation poses challenges in traceability and compliance, as small-scale producers may lack the resources to provide detailed information required under the EUDR.

Recognizing these challenges, various industry stakeholders are collaborating to develop support mechanisms for smallholders. Initiatives include capacity-building programs, the development of digital traceability tools, and efforts to streamline documentation processes. These measures aim to ensure that the EUDR's implementation does not disproportionately impact small-scale producers and that the transition to deforestation-free supply chains is both effective and inclusive.

The European Commission says in its new note that the rules mentioned in the scenarios (including Scenario 8), while being applied to supply chain-specific scenarios and individual products, generally apply equally for all relevant products including rubber.

“This (new) document is intended to be read alongside the third iteration of the FAQs and the guidance document, which give additional detail on obligations, as well as the Regulation itself. This document is not legally binding; its sole purpose is to provide information on certain aspects of the EUDR. It does not replace, add to or amend the provisions of the EUDR, which establishes the legal obligations,” the EC says.