On October 6, 2021, Senator Brian Schatz (D-HI) and Representatives Earl Blumenauer (D-OR) and Brian Fitzpatrick (R-PA) introduced the Fostering Overseas Rule of Law and Environmentally Sound Trade (“FOREST”) Act of 2021 to “deter commodity-driven illegal deforestation around the world.”

The FOREST Act aims to disincentive illegal deforestation by restricting certain commodities and derivative products originating from illegally deforested lands from accessing the U.S. market.  If the FOREST Act is passed by Congress, foreign producers of “covered commodities,” such as: palm oil, soy, cocoa, cattle, rubber, and wood pulp, as well as foreign companies that produce products that are wholly or partially derived from these commodities will be affected by the new legislation.

A similar deforestation proposal has been introduced in the United Kingdom, and another is expected to be published by the European Commission under a proposed Regulation on November17, 2021.  As some of the largest consumers of agricultural commodities, the introduction of deforestation legislation in the United States, the United Kingdom, and the European Union could be the start of a larger global effort to address one of the most environmentally harmful practices using trade measures.  Depending on their terms and how they are implemented, the FOREST Act and its counterparts in the EU and UK could have negative implications for foreign producers and primary exporting countries of the commodities, if passed into law in any of these three jurisdictions.

FOREST Act Legislative Framework

The current bill consists of four major parts:

1. “Risk-based Framework” to Ensure Transparent Supply Chains. Amends the Tariff Act of 1930 to include Section 527A, providing that–

• • Importation of any of the “covered commodities” or derivative products that is produced from land that “undergoes illegal deforestation” on or after the enactment date is prohibited;
  • Importers of any of the “covered commodities” or derivative products must file a declaration upon entry that they had exercised “reasonable care to assess and mitigate the risks” that the products did not originate from illegally deforested lands;
  • Importation of any of the “covered commodities” or derivative products produced in a country designated by an “action plan” is prohibited unless an importer files a declaration upon entry with “sufficient information” about the supply chain, and the steps taken to assess and mitigate risks of potential illegal deforestation in the supply chain.
  • The USTR would be responsible for developing action plans for countries “without adequate and effective protection against illegal deforestation caused by the production of commodities likely to enter the United States.” An action plan would be designed to assist the country to achieve certain goals, such as new laws to end illegal deforestation, enhancing enforcement capacity, monitoring and data sharing, transparency and accessibility to land-use, and traceability and data-sharing for commodity supply chains.  Furthermore, an action plan would also include certain benchmarks, such as “legislative, institutional, enforcement, or other actions” the USTR deems “necessary to demonstrate that the foreign country has achieved the goals” previously mentioned.

2. Financial and Technical Assistance. Establishes a fund in the US Treasury to provide, inter alia, “financial and technical assistance and other resources” to governments “that are working to complete the benchmarks in action plans.”
3. Criminal Liability to Prevent Corruption, Organized Crimes, and Human Rights Abuses. Amends 18 U.S.C. § 1956(e)(7)(B) to create criminal liability for the use of illegally derived funds to “knowingly to carry out, enable, or encourage illegal deforestation.”
4. Responsible Government Purchasing. Amends 41 U.S.C. Chapter 47 to allow reduction of a contractor’s bid price by 10% when comparing proposals that include “covered commodities,” if the bid meets certain reporting criteria.

Interagency Working Group and Advisory Committee

At least seven federal agencies would be responsible for the enforcement and/or administration of the FOREST Act: the US Trade Representative (“USTR”); Customs and Border Protection (“CBP”); the US Agency for International Development (“USAID”); and the Departments of Agriculture, State, Interior, and Justice.  The “interagency working group” is comprised of these seven agencies, as well as any additional federal agencies deemed appropriate by the USTR.  Out of the seven agencies, the bulk of the implementation responsibilities appear to be delegated to USTR and CBP.

In addition to the interagency working group, the USTR must establish an advisory committee to “provide advice and recommendations” to the USTR and other federal agencies in implementing the FOREST Act.  The advisory committee is comprised of 12 members, with 5 members from higher education or non-governmental organizations (“NGOs”) with expertise in deforestation, human rights or trade; 5 members from industry, and 2 members from labor organizations.

Role of Agencies

With respect to the importation of products that are “covered commodities” or derivative products, the USTR, with input from the other agencies, is tasked with determining which commodities to place on the “covered commodities” list.  USTR must also review the list annually to ensure that “the scope of the lists is sufficient to increasingly deter illegal deforestation and to ensure that no material amount of a commodity produced from illegally deforested land enters the United States.”  In updating the “covered commodities” list, the USTR must consult with the State Department and USAID and “solicit relevant information” from the interagency working group, advisory committee, other federal, state, and local agencies, and the public.

Additionally, as mentioned above, the USTR must design “action plans” to assist countries with inadequate deforestation protections to achieve specific goals in reducing illegal deforestation.  In developing an action plan, the USTR must seek input from the importing country and seek consultation from the State Department and USAID.  Similar to the process for updating the list of “covered commodities,” the USTR must also “solicit relevant information” from the interagency working group, the advisory committee, relevant Congressional committees, and other Federal, state, and local agencies.  Further, the USTR is required to also seek information from “civil society, indigenous peoples, and local communities” in the countries of origins and the public.  Once a draft action plan has been completed, the USTR must release a draft of the plan for public review and comment prior to finalization.

As mentioned above, once an action plan is implemented, a foreign producer importing from countries with action plans will be required to adhere to additional due diligence requirements upon entry.  However, if the country is deemed to have “not substantially complied with the benchmarks in the action plan” after one year of institution, the FOREST Act authorizes the President to “take appropriate action with respect to the country.”

In implementing the due diligence requirements of the FOREST Act, CBP must publish guidance on what it considers to be “reasonable care” and “sufficient information” for the entry declarations of covered commodities or covered commodities imported from countries that are assigned action plans.  As a result, an importer’s due diligence burden will rely on how CBP defines these two concepts.  In addition, the Animal and Plant Health Inspection Service (“APHIS”) is tasked with conducting random audits of importer due diligence declarations “to ensure such importers are retaining supporting documentation demonstrating reasonable care was exercised as required” by the FOREST Act.  Furthermore, the FOREST Act also designates the CBP to create processes for accepting information regarding any potential violations of the FOREST Act by outside sources.

Finally, CBP, with input from other federal agencies, must submit a report to Congress with respect to the progress of enforcement measures within 2 years after the FOREST Act is enacted.  This report generally tracks the audits and investigations conducted to determine the number of violations and the effectiveness of the enforcement mechanisms.

Potential Implications

For foreign companies and countries involved in the production of any of the “covered commodities” and its derivatives, the effects of the FOREST Act could be significant for not only its US business activities, but for its activities in other markets as well.  Should this legislation be enacted, the ability for a firm to track each and every stage of its supply chain would be critical in ensuring compliance.  Businesses would need to have a clear and concise grasp of every supplier and subcontractor in their supply chains to ensure that no stage in the production of the “covered commodities” or derivative products thereof took place on illegally deforested land.  As the current bill is broadly written, a company might be shut out of the US market if any of its production was on illegally deforested land.  Depending on the final text of the bill and how it is implemented and enforced, this could be especially important for companies producing the “covered commodities” in Brazil and Indonesia where the bulk of the world’s deforestation occurs.

This is also true for foreign companies located in other countries for which the USTR institutes an action plan.  For these companies to import into the US, they would need to conduct their due diligence and be able to demonstrate that appropriate measures were taken to ensure its commodities were not produced on illegally deforested land.  Foreign companies would potentially be subject to criminal liability for violations, as the legislation extends US extraterritorial reach to foreign companies that knowingly use funds from unlawful activity for illegal deforestation.

Though it is unclear whether there will be sufficient Republican support to pass the FOREST Act, there are clear steps being considered in the U.S., as well as the EU and UK, to use trade mechanisms to address climate change.  Additionally, other countries have signaled their willingness to tackle deforestation.  At the 2021 UN Climate Change Conference (“COP26”) held in Glasgow, more than 120 countries, including the United States, pledged to curb and reverse deforestation by 2030 through the Glasgow Leaders’ Declaration on Forests and Land Use, with 12 governments and private companies pledging a total of approximately $19 billion to address deforestation.

Whether governments will reach these goals by 2030 remains to be seen.  (Indonesia is already signaling its opposition, despite signing the declaration.)  However, we foresee more countries considering robust anti-deforestation measures in the future.  Consequently, companies involved in the production of “covered commodities” and/or their derivatives, or companies that use such commodities or derivatives as inputs in their products, should closely monitor the FOREST Act and similar legislation in other jurisdictions, carefully review their supply chains.  They may also want to consider, as appropriate, adopting additional supply chain due diligence measures or even vetting alternative supply chain options, depending on the circumstance.