The new EUDR benchmarking system and its impact

On May 22, the European Commission published the long-awaited benchmarking system pursuant to Article 29 of Regulation (EU) 1115/2023 (“EUDR”) and the methodology on which it is based. Under the benchmarking system, producing countries are classified as low, normal, or high risk, depending on the level of risk associated with deforestation during the harvesting or production of raw materials covered by the EUDR. The Benchmarking System: According to Article 29 of the EUDR, the European Commission classifies all countries (or parts of countries) as high or low risk. All other countries are assigned a normal (standard) risk. According to Article 2, point 24 of the EUDR, the producing country always refers to the country where the raw material used in a relevant product was extracted or, in the case of cattle, raised. This means that the benchmarking system determines the risk of products based on the origin of the raw materials and not on the location of an immediate supplier. Article 29(3) of the EUDR sets out the criteria for risk classification within the benchmarking system. These criteria include the extent of deforestation and forest degradation, the extent of the expansion of agricultural land for relevant raw materials, and production trends for relevant raw materials and products. For this assessment, the European Commission relied on the dataset of the Food and Agriculture Organization of the United Nations – specifically, the Global Forest Resources Assessment (FAO FRA) dataset – as well as on food and agriculture statistics (FAOSTAT). Furthermore, the methodology published by the European Commission reveals that the Commission did not directly and conclusively consider property rights, human rights, and information on the rights of indigenous peoples, as provided for in Article 29(4) of the EUDR. Only in classifying high-risk countries did the European Commission consider measures "imposed by the UN Security Council or the Council of the European Union for the import or export of the relevant raw materials and products." The European Commission also emphasizes that, due to existing sanctions, "it is impossible to conduct due diligence along the value chains in these [high-risk] countries." In light of this statement, it no longer appears possible for goods containing wood from these countries to be imported in accordance with the EUDR. In any case, a rigorous case-by-case assessment would always be required if geolocation data indicates origin from a high-risk country. A first evaluation of the benchmarking system by the European Commission is planned for 2026. High-risk, standard-risk, and low-risk countries. As leaked from Brussels last week, only four countries will be classified as high-risk: Russia, Belarus, Myanmar, and North Korea. 140 countries will be classified as low-risk. This means that all other countries will remain standard-risk, including Brazil, Argentina, Belize, Colombia, Côte d'Ivoire, Ethiopia, Indonesia, Malaysia, Mexico, and Peru—important growing regions for the relevant raw materials cocoa, coffee, and timber. Unlike what was proposed in Article 29(1) and (2) of the EUDR, the European Commission has decided to classify only countries, and not regions or parts of countries. Consequences of the Classification: The classification brings some simplifications for low-risk countries and stricter rules for high-risk countries. Being classified as a low-risk country results in simplified due diligence requirements for market participants when placing on the market or exporting relevant products containing relevant raw materials produced in such a country (Article 13 EUDR). This means that while market participants must collect information demonstrating that the relevant products comply with Article 3, they are not required to carry out a risk assessment or to implement risk mitigation procedures and measures. Furthermore, they must assess the complexity of the supply chains in question, the risk of EUDR circumvention, and the risk of mixing compliant and non-compliant products. If a country is classified as a standard-risk country, this has no immediate impact on market participants. Market participants must fully comply with the due diligence requirements of Article 8 of the EUDR. Classification as a high-risk country also has no direct consequences, but it does have indirect effects. Firstly, market participants must expect that products containing relevant raw materials from high-risk countries will be subject to stricter scrutiny by the competent authorities. According to Article 16 of the EUDR, the competent authorities must carry out checks to determine whether market participants and traders are complying with the EUDR. For these checks, the authorities use a risk-based approach, defined by the risk classification: 1% for 'low risk', 3% for 'normal risk', and 9% for 'high risk'. This means that at least 9% of all market participants sourcing products from high-risk countries will be subject to conformity checks. Furthermore, according to Article 17(3) of the EUDR, authorities have the right to halt supply chains for up to 72 hours if they determine that a product poses a high risk of non-compliance.