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ClientEarth Communications

15 March 2022

EUTR
EUTR Newsletter
Forests
Forests & trade

EUTR Newsletter December 2021- February 2022

This issue of the quarterly EUTR News provides an update on the operation and implementation of EU law to address illegal logging and the EU Timber Regulation (EUTR) in the period of December 2021 to February 2022. In line with our previous editions, this issue will include:

  1. Information on what both the European Commission and EU Member States are doing to ensure the proper application of the EUTR and updates on similar international legislation,
  2. Resources and publications concerning the EUTR and other issues related to timber trade
  3. A short analysis section where we in ClientEarth identify an important and topical EUTR-related issue and provide a brief legal analysis of it for your information. In this edition of the Newsletter, we focus on the traceability requirement set out in the EUTR and its comparison with the relevant provisions of the recent Proposal for a Regulation on forest-risk commodities.

If you have any updates to share that we could include in the next newsletter, any queries regarding the EUTR implementation or enforcement that you would like us to address in the next release, or if you would like to receive this newsletter by email, please contact us at:

forests-contact@clientearth.org

1. Recent developments – EU and Member States

Proposal for the EU Directive on Corporate Sustainability Due Diligence is published

On the 23d of February, 2022, the Commission has published a proposal for a directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937. The directive will oblige companies to conduct due diligence on actual and potential  adverse human rights impacts and adverse environmental impacts arising from their business conduct. The proposal is available under this link.

EU sanctions on timber from Belarus

On the 2nd of March, 2022, the Council of the EU has approved new sanctions against Belarus for its contribution in Russia's invasion of Ukraine, with the practical consequence of banning about 70 percent of all imports from that country, including timber imports. For more information, see the press release of the Council of the EU available under this link.

2. Publications and resources

Swiss Timber Regulation in force

On the 1st of January, 2022, the Timber Trade Ordinance (Holzhandelsverordnung – HHV) entered into force in Switzerland, which is the Swiss equivalent to the EUTR and aims at banning illegal timber from being placed on the Swiss market. Read more under this link.

New Mongabay articles about the Greater Mekong timber

On the 9th of December, 2021, Sheryl Lee Tian Tong published on Mongabay an article about the increase in illegal logging in the Greater Mekong region of South-east Asia, available under this link. On the 16th of December, 2021, a follow-up article from the same journalist was published – about the destination of timber harvested in this region (including Italy and Croatia), which is available under this link.

New Earthsight report on illegal timber from Russia

On the 23rd of February, 2022, Earthsight issued a new report: Taiga King 2, which reveals that EU and British companies have continued to buy timber linked to one of Russia's largest logging scandals. The report is available under this link.

Non-governmental organisations call for ban on Russian and Belarussian timber imports

On the 3rd of March, 2022, in reaction to the Russia’s invasion of Ukraine, over 120 human rights, environmental, and civil society groups published a letter calling on the EU to ban all timber coming from Russia and Belarus. The letter also addressed the international certification schemes (Forest Stewardship Council – FSC, Sustainable Biomass Programme – SBP and Programme for Enforsement of Forest Certification – PEFC) requesting them to terminate all forest management and chain of custody certificates for forest concessions and companies from both Russia and Belarus with immediate effect. According to the letter, in 2021 Russia exported timber and timber products worth nearly 14 billion USD, with a significant amount of it entering the EU. The letter is available under this link.

PEFC and FSC suspend certification of all timber from Russia and Belarus

On the 4th and 8th of March, 2022, respectively, PEFC and FSC issued statements in reaction to Russia’s invasion of Ukraine about imports of timber from Russia and Belarus. Both certification organisations announced that all timber originating from Russia and Belarus shall be categorised as ‘conflict timber’ (i.e. from a controversial source) and cannot be sold and promoted as PEFC- or FSC-certified. See the statements of PEFC under this link and of FSC under this link.

3. ClientEarth’s analysis: The traceability requirement set out in the EUTR. How does it correspond with the relevant provisions of the recent Proposal for a Regulation on deforestation-free products?

In this section of our Newsletter, we provide an analysis of an EUTR-related implementation issue in each edition. For this edition of our Newsletter, we consider the traceability requirement in the EUTR and compare it with the equivalent requirement in the Commission’s proposal for a Regulation on deforestation-free products.

This requirement obliges timber operators and traders to identify and store a set of information about the timber they circulate within the EU. The ability to trace timber products through the full supply chain to its point of harvest is a fundamental requirement to assess and ensure the legality of the supply. This necessity has been reflected in the Proposal for a Regulation on deforestation-free products (“Deforestation Proposal”), which requires operators to identify the geolocation coordinates of the land on which their commodity or product was produced, along with the date and time range of production. It also establishes certain requirements to ensure that the information assessed by operators about the supply chain can be considered reliable. But are the proposed provisions sufficient to halt the risk that timber and other forest-risk products of illegal or unknown origin will be excluded from the supply chains entering the EU?

Please note that the content of the following analysis represents the views of ClientEarth only. It does not reflect the views of the European Commission, nor any other official entity or organisation mentioned therein, and does not constitute legal advice.

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).

                                                                                    *

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?.

Picture credits to Alexander Schimmeck via Unslash