Simplified Due Diligence for Low-Risk Countries
Risk-proportionate compliance: the benchmarking incentive
The EUDR does not apply the same level of due diligence burden to all supply chains. Countries are classified into three risk tiers (low, standard, and high risk), and operators sourcing from low-risk countries may apply a simplified due diligence procedure that reduces the depth of risk assessment required, providing a significant incentive for producer countries to demonstrate strong forest governance.
The Country Benchmarking System
Article 29 of the EUDR establishes a country benchmarking system under which the European Commission classifies countries, or parts of countries, into one of three risk categories based on their deforestation and forest governance performance:
| Category | Definition | Due Diligence Level | Competent Authority Check Rate |
|---|---|---|---|
| Low risk | Countries presenting a low risk that relevant commodities or products do not comply | Simplified due diligence | At least 1% of operators and products |
| Standard risk | Default classification for countries not designated high or low risk | Full due diligence | At least 3% of operators and products |
| High risk | Countries presenting high risk based on deforestation and governance indicators | Full due diligence with enhanced scrutiny | At least 9% of operators and products |
The default classification for any country not yet formally assessed by the Commission is standard risk. This means that full due diligence obligations apply from the outset for countries without a formal assessment, which covers the majority of producing countries during the regulation's early years.
What Simplified Due Diligence Means in Practice
Under Article 10 of the EUDR, operators sourcing from countries classified as low risk are not required to conduct a detailed risk assessment if they have collected the required information and that information does not indicate concerns. In practice, simplified due diligence means:
- The operator still collects all required information, including geolocation data for production plots.
- The operator still submits a due diligence statement through the EUDR IS before placing products on the market.
- The operator is not required to conduct the detailed multi-factor risk assessment that applies to standard and high-risk sources.
- Competent authorities focus less of their checking capacity on low-risk country products (at least 1% check rate vs. 3% for standard and 9% for high risk).
Simplified due diligence is like a fast lane, not a free pass
Think of the benchmarking system as airport security with different lanes. Passengers with trusted traveller status get an expedited check: they still go through security, still present their passport, but with reduced waiting and scrutiny. Similarly, operators sourcing from low-risk countries still collect information, still submit due diligence statements, and are still subject to competent authority checks. What changes is the depth of the risk assessment required and the frequency of enforcement attention. It is a fast lane, not a bypass.
How Are Countries Classified?
The Commission's benchmarking methodology considers a range of deforestation and governance indicators when classifying countries. Key factors include:
- Deforestation rates and trends: Countries with high rates of forest loss or accelerating deforestation face higher risk classification.
- Forest governance quality: Strength of institutions, enforcement capacity, and anti-corruption measures.
- Proportion of forests protected or sustainably managed: Countries with robust protected area systems and sustainable forest management programs demonstrate lower deforestation risk.
- Compliance with international environmental agreements: Engagement with the Paris Agreement, Convention on Biological Diversity, and related frameworks.
- Ongoing reform processes: Countries actively reforming land governance or forest law may receive credit for credible reform trajectories.
The Commission may update risk classifications as new information becomes available, including requests from third countries that believe they have been miscategorised. This creates a dynamic system where countries have an incentive to improve their forest governance in order to achieve or maintain a low-risk classification and thereby reduce compliance costs for their export sectors.
Sub-National Benchmarking
Article 29(3) of the EUDR allows for sub-national benchmarking: the classification of specific regions or provinces within a country at a different risk level than the country as a whole. This is particularly relevant for large, geographically diverse countries like Brazil, Indonesia, China, and Russia, where deforestation rates and forest governance capacity vary enormously between regions.
For example, a state in Brazil with low deforestation rates, strong environmental enforcement, and a high proportion of land under certified sustainable management could potentially receive a low-risk classification even if Brazil as a whole is classified as standard or high risk. This provides more precise risk calibration and avoids penalising compliant regions for the poor governance performance of other parts of the same country.
Low-risk classification in practice: a hypothetical New Zealand timber example
New Zealand has a well-established legal framework for forestry, strong land tenure systems, low deforestation rates for natural forests (its commercial timber comes almost entirely from planted forests of Pinus radiata), and robust environmental governance institutions. Under the EUDR benchmarking system, New Zealand would be a strong candidate for low-risk classification for wood products. A UK-based furniture company importing New Zealand timber would benefit from simplified due diligence: it still collects geolocation data and submits a due diligence statement, but it is not required to conduct the detailed risk assessment needed for timber from a standard-risk country. Its products would also face lower check rates from competent authorities, reducing the administrative burden of enforcement interactions.
High-Risk Countries: Enhanced Scrutiny
For products originating from countries classified as high risk, the EUDR triggers enhanced scrutiny at multiple levels:
- Operators must still complete full due diligence, including the detailed multi-factor risk assessment.
- Competent authorities must check at least 9% of operators and relevant products from high-risk countries, compared to 3% for standard risk and 1% for low risk.
- Enhanced checks may include physical inspection of products, documentary verification of geolocation data, and cross-referencing with satellite imagery.
- In practice, high-risk classification increases the administrative burden for operators in that supply chain and may deter some buyers from sourcing in high-risk regions.
The Benchmarking System as a Policy Tool
The country risk classification system is not merely an administrative mechanism: it is a deliberate policy tool designed to create market incentives for good forest governance. Countries and their commodity export sectors face a clear choice: invest in forest protection and governance improvement to achieve low-risk status (reducing compliance costs for exporters and making their products more competitive in the EU market), or face the higher compliance costs and scrutiny associated with standard or high-risk classification.
This market-based governance incentive is one of the EUDR's most innovative features. It extends the regulation's effective reach beyond the legal obligations of EU operators, creating pressure on producer country governments to adopt and enforce forest protection policies in order to protect their trading relationships with the EU.
Country risk classifications can change over time as the Commission updates its assessments. A country that begins as standard risk could be upgraded to low risk (reward for improved governance) or downgraded to high risk (response to accelerating deforestation). This creates a challenge for operators with established supply chains that were designed around a particular risk classification.
If a country is downgraded from low to standard risk, operators previously using simplified due diligence must upgrade to full due diligence. The Commission is expected to provide adequate notice before such changes take effect to allow operators to adapt their systems. Conversely, if a country is upgraded from standard to low risk, operators gain the benefit of simplified procedures, which may reduce their compliance costs significantly.
For operators, this means that due diligence systems must be designed to adapt to changing country classifications rather than being locked into assumptions about a particular country's risk status. Regular monitoring of Commission classification updates is an important part of maintaining an effective EUDR compliance program.
Key Takeaways
- 1The EUDR benchmarks countries into three risk tiers (low, standard, high) under Article 29; standard risk is the default for countries not yet formally classified
- 2Low-risk countries allow simplified due diligence: operators still collect information and submit due diligence statements but are not required to conduct the detailed multi-factor risk assessment
- 3Competent authorities check at least 1% of operators and products from low-risk countries, 3% from standard-risk, and 9% from high-risk countries, creating differentiated enforcement intensity
- 4Sub-national benchmarking under Article 29(3) allows regions or provinces to receive different classifications from the country as a whole, relevant for large, geographically diverse producing nations
- 5The benchmarking system functions as a market-based governance incentive: countries that improve forest governance can achieve low-risk status, reducing compliance costs for their export sectors and improving their competitiveness in the EU market