EU Deforestation-free Regulation (EUDR): Is due diligence mandatory for SME-traders?

The quick answer is NO.

A detailed definition and explanation of who SME-traders are can be found at the end of this post.

Under the EUDR, only operators and non-SMEs are obliged to exercise due diligence in relation to the relevant commodities and products they make available on the market (Article 5(1), Article 8(1)).

SME traders shall not make relevant products available on the market unless they are in possession of the information required under Article 5(3) as follows.

Article 5(3): Obligations of traders

SME traders shall collect and keep the following information relating to the relevant products they intend to make available on the market:

(a) the name, registered trade name or registered trade mark, the postal address, the email address and, if available, a web address of the operators or the traders who have supplied the relevant products to them, as well as the reference numbers of the due diligence statements associated to those products;

(b) the name, registered trade name or registered trade mark, the postal address, the email address and, if available, a web address of the operators or the traders to whom they have supplied the relevant products.

It should be noted that depending on the nature of their business activities, companies may be classified as SME traders for one product and as operators for another product. Or, for the same product made up of different components, companies may be subject to different obligations depending on where and how the components were sourced.

For example, your company is a wholesaler of kitchen tables in Germany. To produce the table, you buy a ready-made surface from a company in Italy and import the legs of the table directly from China. Since you do not further process or make any changes to the table’s surface (no transformation occurs), under EUDR, you are classified as a trader for this part of the table.

You are classified as an operator for the imported table legs. According to Article 7 of the EUDR, you are the first company to place the table legs on the market and the products have not been subject to due diligence. Therefore, you are an operator in this case and the obligations of operators apply to you. Operators, whether they are SMEs or non-SMEs, must perform due diligence.

Article 7: Placing on the market by operators established in third countries.

Where a natural or legal person established outside the Union places relevant products on the market, the first natural or legal person established in the Union who makes such relevant products available on the market shall be deemed to be an operator within the meaning of this Regulation.

Who is SME-trader?

According to Article 2(17) of the EUDR, ‘trader’ is defined as any person in the supply chain other than the operator who, in the course of a commercial activity, makes relevant products available on the market,

‘Operator’ is defined as any natural or legal person who, in the course of a commercial activity, places relevant products on the market or exports them (Article 2(15) EUDR);

Article 2(30) of the EUDR defines ‘micro, small and medium-sized enterprises’ or ‘SMEs’ as micro, small and medium-sized undertakings as defined in Article 3 of Directive 2013/34/EU.

Let’s look at the definitions in Article 3 of Directive 2013/34/EU.

1. Micro-undertakings are undertakings which on their balance sheet dates do not exceed the limits of at least two of the three following criteria:

(a) balance sheet total: EUR 350 000;

(b) net turnover: EUR 700 000;

(c) average number of employees during the financial year: 10.

2. Small undertakings shall be undertakings which on their balance sheet dates do not exceed the limits of at least two of the three following criteria:

(a) balance sheet total: EUR 4 000 000;

(b) net turnover: EUR 8 000 000;

(c) average number of employees during the financial year: 50.

Member States may define thresholds exceeding the thresholds in points (a) and (b) of the first subparagraph. However, the thresholds shall not exceed EUR 6 000 000 for the balance sheet total and EUR 12 000 000 for the net turnover.

3. Medium-sized undertakings shall be undertakings which are not micro-undertakings or small undertakings and which on their balance sheet dates do not exceed the limits of at least two of the three following criteria:

(a) balance sheet total: EUR 20 000 000;

(b) net turnover: EUR 40 000 000;

(c) average number of employees during the financial year: 250.

For more information on the classification of undertakings and groups, click here.

In summary, SME traders are traders who meet the balance sheet, net turnover and/or number of employees thresholds set out in either point 1, 2 or 3 above and who make relevant products available on the market in the course of a commercial activity.

To distinguish between a trader and an operator, an operator is the person who first places (introduces) the relevant products on the market or exports the products outside the EU market. Then, along the supply chain until the products reach the customers, whenever there is a trade where there is a change of ownership and no transformation of the products, the person or company is called a trader.