The EUDR: Can Trade Policy Save Forests?

In June 2023, the European Union enacted Regulation 2023/1115, commonly known as the EU Deforestation Regulation, or EUDR.¹ The regulation establishes a simple premise with enormous consequences: companies that want to sell certain commodities in the European Union must prove that those commodities were not produced on land that was deforested after December 31, 2020.

The regulation covers seven commodity categories: cattle, cocoa, coffee, palm oil, rubber, soy, and wood, along with a broad range of derived products including leather, chocolate, furniture, printed paper, tires, and glycerol.² It applies to any company placing these products on the EU market or exporting them from the EU, regardless of where the commodities were produced. The European Union is using access to its 450-million-consumer market, the largest single market in the world by purchasing power, as a lever to change land use practices in countries it does not govern and cannot regulate directly.

This is not a voluntary pledge. It is not a certification scheme. It is a legal requirement backed by penalties of up to four percent of a company’s annual EU-wide turnover.³ The regulation represents the most ambitious attempt in history to use trade policy as an environmental enforcement mechanism. Whether it will work is a question that depends on technology, geopolitics, economics, and the willingness of the EU to enforce its own law against politically powerful trading partners.

The problem the EUDR is trying to solve

Global deforestation continues at a rate that makes climate targets impossible and biodiversity commitments meaningless. Between 2001 and 2022, the world lost approximately 437 million hectares of tree cover, an area roughly the size of the European Union itself.⁴ While the rate of loss has slowed from its peak in the early 2000s, it remains far above the levels that would be consistent with the goals of the Paris Agreement or the Kunming-Montreal Global Biodiversity Framework.

Agriculture is the dominant driver of tropical deforestation. The conversion of forest to cropland and pasture accounts for approximately 80 percent of deforestation worldwide.⁵ The seven commodities covered by the EUDR are responsible for a disproportionate share of this conversion. Cattle ranching drives the majority of deforestation in the Brazilian Amazon and the Cerrado. Palm oil expansion is the primary cause of forest loss in Indonesia and Malaysia. Soy production, much of it for animal feed, has pushed the agricultural frontier deeper into the forests and savannas of South America. Cocoa farming has driven extensive deforestation in West Africa, particularly in Cote d’Ivoire and Ghana.

The European Union is a major consumer of all these commodities. The EU imports approximately 10 percent of global deforestation-linked trade, making it the second-largest driver of deforestation through its consumption patterns after China.⁶ The EUDR is, in effect, an acknowledgment that the EU’s consumption habits are contributing to forest destruction in other countries and that the EU has both the moral obligation and the economic leverage to change the terms of trade.

Previous efforts to address commodity-driven deforestation through voluntary mechanisms have failed. The New York Declaration on Forests, signed in 2014 by more than 200 governments, companies, and civil society organizations, included a commitment to halve deforestation by 2020 and eliminate it by 2030. By 2020, deforestation had not halved. It had increased.⁷ The Consumer Goods Forum, representing more than 400 of the world’s largest consumer goods companies, adopted a zero-deforestation target in 2010 with a 2020 deadline. The deadline passed without the target being met. A systematic review published in 2023 found that corporate zero-deforestation commitments had reduced deforestation by approximately 6 percent in targeted supply chains, a statistically significant but practically insufficient result.⁸

The EUDR is built on the premise that voluntary commitments do not work and that only mandatory, enforceable, trade-linked requirements will change the behavior of commodity producers and traders at the scale necessary to stop deforestation.

How the regulation works

The EUDR establishes a due diligence system with three core requirements. First, companies must collect information about the products they place on the EU market, including the geolocation coordinates of the plots of land where the commodities were produced.⁹ For cattle, this means the coordinates of the farms or ranches where the animals were raised. For palm oil, it means the coordinates of the plantations where the fruit was harvested. For soy, it means the coordinates of the fields where the crop was grown.

Second, companies must assess the risk that the products were produced on land that was deforested after December 31, 2020, or that they were produced in violation of the laws of the country of production.¹⁰ The deforestation-free requirement uses a clear, satellite-verifiable cutoff date. Land that was forest on December 31, 2020, must still be forest (or must have been converted before that date) for commodities produced on it to be eligible for the EU market. The legality requirement adds a second layer: even if no deforestation occurred, the production must have complied with local land use laws, labor laws, and environmental regulations.

Third, companies must mitigate any identified risks and must not place products on the EU market unless the risk assessment concludes that there is “no or only negligible risk” that the products are associated with deforestation or illegality.¹⁰ If a company cannot demonstrate compliance, the products cannot be sold in the EU.

The geolocation requirement is the regulation’s technical backbone. It creates a paper trail, or more precisely a digital trail, that links every shipment of covered commodities to a specific piece of land. Combined with satellite monitoring data, this geolocation information allows enforcement authorities to verify whether the land in question was forested on the cutoff date and whether it has since been cleared. The European Commission is developing an information system that will integrate company-submitted geolocation data with satellite imagery to automate parts of this verification process.¹¹

The regulation also establishes a country benchmarking system that classifies producing countries as high, standard, or low risk based on their rates of deforestation, the robustness of their forest governance, and the reliability of their monitoring systems.¹² Companies importing from high-risk countries face enhanced due diligence requirements, including larger sample sizes for geolocation verification and more frequent audits. Companies importing from low-risk countries benefit from simplified procedures. The benchmarking system is intended to create an incentive for producing countries to strengthen their own forest governance: a country that reduces deforestation and improves monitoring can earn a lower risk classification, which reduces the compliance burden on companies sourcing from that country.

The delays

The EUDR was originally scheduled to take effect on December 30, 2024, for large companies and June 30, 2025, for small and medium enterprises. In October 2024, the European Commission proposed a 12-month delay, pushing the application date to December 30, 2025. The European Parliament and Council approved the delay in December 2024.¹³

The reasons for the delay were multiple and revealing. Many companies reported that they were not ready to comply, citing the complexity of tracing commodities to specific plots of land in supply chains that often involve dozens of intermediaries between the producer and the EU market.¹⁴ Producing countries, including Brazil, Indonesia, Malaysia, and several African nations, complained that the regulation was unilateral, that the benchmarking system was opaque, and that the geolocation requirements were burdensome for smallholder farmers who lack the technology to provide precise coordinates for their plots.¹⁵

The United States government, under the Biden administration, expressed concerns about the regulation’s impact on American agricultural exports, particularly soy and wood products.¹⁶ The criticism intensified under subsequent administrations, with some officials characterizing the EUDR as a unilateral trade barrier disguised as environmental policy.

The delay was not a retreat. The European Commission maintained that the regulation would take effect and that the delay was intended to allow for better preparation, not to weaken the requirements. But the delay exposed the central tension in the EUDR’s design: the regulation depends on the EU’s market power to compel compliance, but that market power is effective only if the EU demonstrates that it will actually enforce the regulation, including against politically important trading partners.

Further delays beyond December 2025 remain possible. Some member states and industry groups have pushed for additional extensions, arguing that the information systems, benchmarking procedures, and enforcement mechanisms are still not ready for full implementation. Each delay erodes the regulation’s credibility and gives producers and traders more time to develop workarounds or to shift deforestation-linked production to non-EU markets.

The smallholder problem

Perhaps the most serious challenge facing the EUDR is its impact on smallholder farmers, who produce a significant share of the commodities covered by the regulation but who are least equipped to meet its due diligence requirements.

An estimated 60 to 80 percent of cocoa is produced by smallholders in West Africa, many of whom farm plots of fewer than five hectares.¹⁷ These farmers typically do not have GPS devices, satellite imagery access, or the technical capacity to generate the geolocation data that the EUDR requires. They sell their cocoa to local traders who aggregate the product of hundreds or thousands of smallholders before selling it to international commodity companies. The traceability chain from individual smallholder to EU market entry point can involve five or more intermediaries, each of which adds a layer of complexity to the due diligence process.

The risk is that compliance costs will fall disproportionately on smallholders, either directly (through requirements to adopt new technologies and documentation practices) or indirectly (through exclusion from EU-facing supply chains in favor of larger, more easily traceable producers). If international commodity companies find it easier and cheaper to source from large plantations that can readily demonstrate compliance than from fragmented smallholder supply chains that cannot, the EUDR could inadvertently harm the very communities it is intended to benefit.

The European Commission has acknowledged this risk and has committed to providing financial and technical assistance to smallholder producers in developing countries.¹⁸ Several member states have pledged bilateral support. But the scale of the challenge, tens of millions of smallholder farmers across dozens of countries, dwarfs the resources that have been allocated to address it.

There is also a deeper structural concern. Many smallholder cocoa farmers in West Africa are already living in extreme poverty, earning well below the living income threshold for their regions.¹⁹ If the EUDR raises compliance costs without raising the prices that smallholders receive for their commodities, it will squeeze margins that are already at or below subsistence level. The regulation’s environmental objectives and its social justice implications are, in this context, potentially in tension.

The leakage question

Even if the EUDR succeeds in reducing deforestation in supply chains linked to the EU market, it may simply redirect deforestation-linked production to markets that do not impose similar requirements. This phenomenon, known as carbon or deforestation leakage, is a well-documented risk in any unilateral environmental regulation.

China is the world’s largest importer of soy, palm oil, and wood products.²⁰ It has no equivalent to the EUDR. If EU-facing producers in Brazil clean up their supply chains to comply with the regulation while non-EU-facing producers continue to clear forest for commodity production, the net effect on deforestation could be minimal. The deforestation would not stop. It would move from one part of the supply chain to another.

The EUDR’s designers are aware of this risk. The regulation’s preamble acknowledges the importance of international cooperation and the need to encourage other major consumer markets to adopt similar measures.²¹ The EU has engaged in diplomatic outreach to countries including the United Kingdom, Japan, South Korea, and Australia, urging them to develop compatible regulatory frameworks. The United Kingdom has enacted its own due diligence law under the Environment Act 2021, though it is narrower in scope than the EUDR, covering only “forest risk commodities” used in commercial activities above a threshold size and lacking the specific geolocation requirements of the EU regulation.²²

The broader question is whether the EUDR will trigger a regulatory cascade, in which the EU’s first-mover status prompts other major markets to adopt similar requirements, creating a global standard that closes the leakage pathways. This has happened in other areas of EU regulation. The EU’s chemicals regulation (REACH) effectively became a global standard because the cost of maintaining separate EU-compliant and non-EU-compliant product lines was prohibitive for most chemical manufacturers. The EU’s General Data Protection Regulation (GDPR) similarly influenced data protection laws worldwide.

Whether the same dynamic will apply to deforestation is uncertain. The political economy of forest-risk commodities is different from the political economy of chemicals or data. Deforestation-linked commodities are produced primarily in developing countries with limited diplomatic leverage but strong economic dependence on commodity exports. The pressure to resist the EUDR, or to find ways around it, may be greater than the pressure to comply.

The parallel with carbon border adjustments

The EUDR is not the EU’s only experiment with using trade policy to advance environmental objectives. The Carbon Border Adjustment Mechanism (CBAM), which began its transitional phase in October 2023 and will become fully operational by 2026, imposes a carbon price on certain imports to the EU based on the carbon emissions embedded in their production.²³ The CBAM covers steel, aluminum, cement, fertilizers, electricity, and hydrogen.

The logic of the CBAM is analogous to the logic of the EUDR. Both regulations use access to the EU market as a lever to change production practices in exporting countries. Both are designed to prevent “leakage,” the risk that strict domestic environmental standards will simply shift polluting or deforestation-linked production to jurisdictions with weaker standards. Both face opposition from trading partners who characterize them as protectionist measures in environmental clothing.

The combined effect of the EUDR and the CBAM represents a fundamental shift in the EU’s approach to international environmental policy. For decades, the EU relied primarily on multilateral negotiations, international agreements, and voluntary commitments to advance its environmental agenda. The Paris Agreement, the Convention on Biological Diversity, and the various iterations of the UN Framework Convention on Climate Change were the preferred instruments. The EUDR and the CBAM represent a recognition that multilateral processes move too slowly, that voluntary commitments are not enforced, and that the EU’s most effective tool for changing global behavior is not its diplomatic influence but its market.

This shift has consequences. It positions the EU as a unilateral regulatory actor in domains where multilateral cooperation has been the norm. It creates friction with trading partners who view these measures as infringements on their sovereignty. And it raises questions about legitimacy: by what authority does the EU impose its environmental standards on producers in Brazil, Indonesia, or Ghana?

The EU’s answer is that it is regulating its own market, not the production practices of other countries. Companies remain free to produce commodities on deforested land. They simply cannot sell those commodities in the EU. The distinction is legally valid but practically thin. For producers who depend on EU market access, the regulation functions as a binding constraint on their land use decisions, regardless of the legal framing.

What the regulation does not cover

The EUDR covers seven commodity categories. It does not cover all drivers of deforestation. Mining, infrastructure development, urbanization, and the extraction of non-covered commodities (including cotton, maize, and rice) all contribute to forest loss but fall outside the regulation’s scope.²⁴ The regulation addresses deforestation but not forest degradation, the reduction of forest quality through selective logging, fire, or other disturbances that do not meet the technical definition of deforestation. A forest that is heavily logged, burned, or degraded but that retains enough canopy cover to avoid being classified as “deforested” under the regulation’s satellite-based verification system is not captured by the EUDR.

The regulation also does not address the conversion of other natural ecosystems. The Brazilian Cerrado, a vast tropical savanna that contains approximately 5 percent of the world’s biodiversity and stores significant quantities of carbon, is being converted to soy and cattle production at an accelerating rate.²⁵ Because the Cerrado is classified as savanna rather than forest under most definitions, its conversion may not trigger the EUDR’s due diligence requirements. The same is true for peatlands in Southeast Asia, grasslands in South America, and wetlands in Central Africa, all of which are under pressure from agricultural expansion but are not classified as forest.

The European Commission has committed to reviewing the regulation’s scope within two years of its entry into force, with a view to potentially expanding it to cover other ecosystems and other commodities.²⁶ Whether this expansion occurs will depend on the political dynamics within the EU at the time of the review, including the strength of the agricultural lobby, the state of EU-trade partner relations, and the perceived effectiveness of the regulation in its initial implementation.

The question of enforcement

The most important variable in the EUDR’s success or failure is enforcement. The regulation is only as effective as the EU’s willingness to inspect shipments, verify geolocation data, audit company due diligence systems, and impose penalties on companies that fail to comply.

Enforcement responsibility falls primarily on the national competent authorities of the 27 EU member states.²⁷ The regulation requires member states to inspect a minimum percentage of operators and traders (9 percent for high-risk country products, 3 percent for standard-risk, 1 percent for low-risk) and to impose penalties that are “effective, proportionate, and dissuasive.”³ But the regulation does not standardize enforcement procedures across member states, creating the risk that companies will route non-compliant products through member states with weaker enforcement capacity or less political will to penalize violations.

This enforcement challenge is compounded by the complexity of global commodity supply chains. A single shipment of palm oil may contain product from dozens of plantations across multiple districts, aggregated by multiple traders before reaching the port of export. Verifying that every contributing plot was deforestation-free requires a level of supply chain transparency that does not currently exist for most commodities. The regulation assumes that the due diligence requirements will create this transparency. Whether they will do so at the speed and scale necessary to make enforcement practical remains to be seen.

The EUDR is an experiment. It is an experiment in whether the world’s largest consumer market can use its purchasing power to change how land is used on the other side of the planet. It is an experiment in whether trade policy can succeed where voluntary commitments, multilateral negotiations, and moral appeals have not. It is an experiment in whether satellite technology and geolocation data can make supply chains transparent enough to verify compliance at scale.

The forests cannot wait for the results. Approximately 10 million hectares of tropical forest are cleared every year.²⁸ Every year of delay, every year of incomplete enforcement, every year of leakage to non-regulated markets represents forest that will not return. The EUDR is the most ambitious attempt yet to break the link between consumption and deforestation. Its success or failure will determine whether trade policy becomes a lasting tool in the conservation arsenal or whether it joins the long list of well-intentioned mechanisms that were not enough.