EUTR Newsletter December 2021- February 2022

The current rules on timber traceability in the EUTR

Timber traceability refers to the ability to track a particular supply of timber back to its place of harvest, including identification of the processors and intermediaries throughout the supply chain. According to the Commission’s guidance on the EUTR: Failure to obtain the necessary information at any point in the supply chain can increase the possibility of illegally harvested timber entering the supply chain (p. 5).

The current traceability rules applicable to timber and timber products entering the EU market are set out in Article 6(1) of the EUTR (regarding operators) and Article 5 of the EUTR (regarding traders).  Operators who place timber on the EU market for the first time are bound by a due diligence obligation, which requires them to collect a set of information about the harvesting of the timber and further supply chain steps to ensure the legality of the products in question. This includes details of the product (such as the trade name and type of product; the common or full scientific name of tree species; quantity of supply), information about country or sub-national region of harvest, documents or other information indicating compliance with the applicable legislation and identification of the last supplier and the direct purchaser. Under the current EUTR, the obligations of traders are limited to identifying the name of their supplier, and – where applicable – the traders to whom they have themselves supplied the timber or timber products.

What are the main shortcomings of the current traceability requirement in the EUTR?

The traceability requirement set out in the EUTR falls short in a number of ways. Firstly, the obligation is limited to identification of the direct suppliers and buyers of the timber. This means that full – and thus effective – traceability cannot take place without a lengthy, piece-by-piece tracking activity by enforcement authorities to identify processors and intermediaries between the point of harvest and the last supplier or purchaser. Considering the complexity of many timber supply chains entering the EU and the risks concerning illegal practices that can occur at multiple stages of the supply chain, ineffective traceability requirements form a significant obstacle to detecting illegal timber and preventing it from being placed on the EU market. Risks relating to illegalities throughout the supply chain would be better identified in the due diligence process if operators were required to collect details about the intermediary actors.

Secondly, the obligation of identifying the origin of the timber is limited to operators who first place timber on the EU market. Currently, the only obligation the regulation imposes on traders, who further commercialise timber within the EU after it has first been placed on the EU market, is to keep records of purchases and sales for a five-year period and make the information available to competent authorities if they so request. Combined with a relatively low number of checks performed on traders by Competent Authorities, this significantly limits the effectiveness of the due diligence processes carried out by operators and may even facilitate circulation of illegal timber in the EU. The Commission acknowledged this issue during its Fitness Check of the EU’s illegal logging rules in 2021 when it noted “known issues like operators continuing to trade in non-negligible risk timber by becoming a trader rather than an operator”.

What traceability requirements are included in the Commission’s Deforestation Proposal?

The Deforestation Proposal partially addresses the traceability gap currently existing under the EUTR by setting out an obligation on operators and large traders to detail – besides the identity of the direct suppliers and buyers – geo-localisation coordinates, latitude and longitude of all plots of land from where the commodities or products (including wood) were produced, as well as the date or time range of production (Article 9(1)(d) of the Deforestation Proposal). This addition will facilitate an increase in the use of available satellite imagery tools to check the land-use history of the relevant area for evidence of deforestation.

The Deforestation Proposal also includes important checks on the reliability of the supply chain information that EU operators receive from their suppliers: the information should be “adequate and verifiable” (Article 9(1)(g) and (h) of the Deforestation Proposal). All this data has to be kept by operators for at least 5 years and made available to the competent authorities upon request (Articles 9(1) and 9(2) of the Deforestation Proposal). The Deforestation Proposal provides a possibility for further strengthening obligations in this regard by granting the Commission the right to supplement the scope of required information through delegated acts (Article 9(3) of the Deforestation Proposal).

The Deforestation Proposal strengthens the due diligence mechanism by requiring full traceability of the covered commodities (including wood) to the plot of land where the commodity was grown, harvested, raised, fed from or obtained on – a fundamental requirement for even basic supply chain due diligence, and clear requirements for operators to demonstrate that their products meet the Regulation’s requirements before placing them on or exporting them from the EU market.

Importantly, the Deforestation Proposal also extends the scope of entities subject to these rules to large traders, whose operations may have significant impact on the legal and deforestation-free supply chains entering the EU.

The Deforestation Proposal also includes some important improvements that clarify the risk assessment criteria which operators (and large traders) must consider. Some of these are specifically relevant to ensuring reliable product traceability, such as the source, reliability and validity of the information obtained, the complexity of the relevant supply chain and difficulties connecting the relevant products and commodities to the plot of land where they were produced, and the risk of mixing of products of unknown origin or from areas where deforestation is occurring (Articles 10(2)(d), (f) and (g)).

However, the same shortcoming that operators are not required to identify the intermediary actors in their supply chain – their indirect suppliers – returns again in the Deforestation Proposal, as operators (and large traders) are only required to identify their direct supplier (Article 9(1)(e) of the Deforestation Proposal).

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The Deforestation Proposal includes some important improvements to the supply chain traceability requirements established under the EUTR, but the final Regulation is yet to be adopted. It is no secret that many industry associations are opposed to robust mandatory supply chain traceability obligations, despite traceability being essential for an effective supply chain due diligence process. This is why ClientEarth is actively involved in advocacy efforts to make the Regulation as strong as possible. If you seek a more detailed analysis of our positions regarding the Deforestation Proposal, please see our briefings on the Deforestation Proposal on the subjects of What is in the Commission’s proposal and what is left out? and How the Deforestation Proposal compars to the EUTR?.