Supplier Audit

▌ Definition

The EU Deforestation free Regulation (EUDR) is a key regulation developed by the European Union to address global deforestation and biodiversity loss. The bill will officially come into effect on June 29, 2023, aiming to regulate the supply chain and ensure that relevant goods entering the EU market do not involve deforestation or degradation. Its impact covers the whole world, imposing strict requirements on countries and enterprises exporting high-risk commodities such as timber, beef, soybeans, palm oil, cocoa, coffee, rubber, etc. to the European Union

Which products require EUDR certification

Cattle - live cattle, beef, and leather

Cocoa - cocoa beans, cocoa butter, cocoa powder, and chocolate products

Coffee - roasted, unbaked, and decaffeinated coffee, as well as substitutes containing any proportion of coffee

Palm oil - nuts, kernels, palm oil, glycerin, and palm oil derived fatty acids

Rubber - natural rubber, gum, and all vulcanized rubber products, whether hard or not, including tires and clothing

Soybeans - Soybeans, soybean oil, and residues, including soybean cakes

Wood - logs, processed wood, wooden furniture, paper, and packaging materials

▌ Time nodes

The original transition period was until December 30, 2024, but was later postponed to December 31, 2025 (for non small and medium-sized enterprises) due to a resolution of the European Parliament;

The grace period for small and medium-sized enterprises (established before December 30, 2020) has been extended to June 30, 2026.

▌ Responsible parties

All entities involved in the supply chain, including importers, processors, distributors, and exporters, are required to fulfill compliance obligations and ensure that the entire product lifecycle complies with EUDR requirements. For example, companies that purchase wood from overseas to produce furniture are jointly and severally liable by their downstream distributors and end consumers.

Failure to provide compliance with EUDR certification may result in the possibility of fines

The responsible party for EUDR regulations is the operators within the European Union, but as suppliers of EU operators, Chinese companies also need to cooperate in providing a series of certificates of no deforestation, so that related products can smoothly enter the EU market. Otherwise, the company will need to immediately rectify, recall/destroy/donate products, and may even face a 4% annual revenue penalty, no longer using simplified due diligence procedures, and a series of serious penalties such as being prohibited from entering the EU market.

This also means that companies need to invest a large amount of funds and manpower in supply chain traceability, data collection and organization, risk assessment and mitigation. If companies cannot adjust their production and business models in a timely manner, they may directly lose their market share in the EU market

What materials are required to apply for EUDR certification

Basic information of the enterprise: including the enterprise name, address, contact information, as well as organizational structure and information of the person in charge (name, position, and contact information of the person in charge).

Supply chain management system documents, such as quality manuals, procedural documents, work instructions, etc., are used to demonstrate that products comply with relevant regulatory requirements.

Procurement and supplier information: purchase contracts, invoices, transportation documents, etc., requiring detailed records of procurement sources, procurement quantities, procurement prices, etc; Supplier's name, address, contact information, qualification certificate and other information; If it involves wood and other related products, forest certification certificates such as FSC and PEFC are also required to prove that the raw materials come from legal and sustainable sources.

Risk assessment and management documents: Supply chain risk assessment records, including assessment methods, results, and risk assessment of non compliant products entering the supply chain; Management measures developed for risks, such as changing suppliers, adjusting procurement regions, and other related document records.

Due diligence documents: due diligence records, covering information collection, risk assessment, development and implementation of risk mitigation measures, etc; Due diligence report, detailing the due diligence process and results of the supply chain.

Other supporting documents: geographical location data of the product's production location, such as GPS coordinates (if available); Proof of production quantity and country of origin; Internal audit records, including audit date, auditors, audit results, etc.

certification process

Regulatory research: Clarify the scope of EUDR application and compliance requirements, and confirm whether the product is within regulatory scope.

Material preparation: Organize enterprise qualifications, supply chain information, due diligence reports, risk assessment reports, and compliance documents (such as land use certificates).

Choose a certification agency: Select a qualified third-party agency, communicate the certification process and material requirements.

Submission and initial review: Submit materials and cooperate with the institution to supplement and modify them.

On site verification: Institutions verify the actual compliance situation of production sites, supply chains, etc.

Evaluation and rectification: The institution issues an evaluation report, and the enterprise accepts re verification after rectification as required.

Certification and maintenance: After passing the audit, certification will be obtained, and regular self inspection and follow-up on regulatory changes will be required.