EUTR Newsletter March 2022- May 2022

Illegal timber and armed conflicts

The practice of illegal logging is often based on or linked to a variety of different types of wrongdoings: from logging without or in excess of relevant permits and within protected areas to white-collar fraud (such as tax evasion, timber laundering and bribery) and human rights abuses of indigenous people and local communities. The possibility of these wrongdoings occuring forms a particular concern in conflict-affected and post-conflict countries, where weak institutions and weak environmental governance  let deforestation proliferate. For leaders and groups in control of forest-rich areas, forests have the potential to constitute an easy source to finance military operations through timber trade. In countries like Myanmar, home to some of the most valuable species of teak on Earth, the exploitation of forests provides funds for the military regime and thereby contributes to further erosion of the rule of law and to serious human rights violations in the country.

How does the EUTR deal with the prevalence of armed conflict?

The issue of timber being sourced in conflict-affected areas has been acknowledged in the EUTR. While the criteria guiding the due diligence process on timber legality that must be conducted by operators are not exhaustively listed, they must include an assessment of the prevalence of illegal harvesting or practices in the country of harvest, “including consideration of the prevalence of armed conflict” (Article 6(1)(b) of the EUTR).

The EUTR does not define “the prevalence of armed conflict”. The Commission recommends to use the definition of “conflict-affected and high-risk areas” set out in Regulation (EU) 2017/821 on conflict minerals, which reads: “Conflict-affected and high-risk areas' means areas in a state of armed conflict or fragile post-conflict as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread and systematic violations of international law, including human rights abuses”. Where timber is found to be harvested, processed or manufactured in such areas, this affects the legality of the timber and would likely lead to the impossibility to carry out an appropriate due diligence assessment, and thus, incompliance with Article 4(2) in accordance with Article 6(1) of the EUTR. This could also lead to a breach of Article 4(1) of the EUTR which prohibits placing on the EU market of illegally harvested timber or timber products.

In the process of identifying conflict-affected or high-risk areas, the Commission suggests referring to the Fragile States Index (FSI) – an annual report published by the US-based think tank Fund for Peace. It further instructs that all countries ranking above 110 in FSI should always be considered as countries with a prevalence of armed conflict, while countries below 110 in FSI should be assessed on a case-by-case basis. The FSI is not, however, an ultimate determinant, as it is revised once a year. The validity of the data must be always verified with the use of latest news and other resources, such as from foreign affairs offices and civil society organisations.

How does the EUTR deal with sanctions on timber imports or exports?

Carrying out an appropriate risk assessment must also include an assessment of any sanctions imposed by the Council of the European Union, either specific to timber imports or exports (Article 6(1)(b) of the EUTR), or other types of sanctions. In other words, if such sanctions are in force – which happens relatively often in case of armed conflicts or other wrongdoings at national level, this affects the legality of the import or export of timber. Imports into the EU of timber or timber products from a country that is subject to sanctions are likely to entail a breach of Article 4(1) of the EUTR, which prohibits placing on the EU market of illegally harvested timber or timber products.

According to the Commission, while sanctions may not specifically be aimed at “timber imports or exports” (as specified in the EUTR), shipments of timber and timber products may be linked to entities (i.a. logging, processing, or exporting companies) or individuals (i.a. beneficial owners of related companies, managers and employees, or contractors) that are themselves subject to sanctions. As an example, sanctions against Myanmar imposed by the Council of the EU do not expressly cover timber. However, the timber trade of this country is monopolised by a state-owned company – Myanmar Timber Enterprise, which is an entity subject to the Council’s restrictive measures. Consequently, imports of timber from Myanmar fall under the sanctions against Myanmar Timber Enterprise.

Currently, sanctions on timber imposed by the EU concern Belarus, Myanmar and Russia, and in case of sanctions imposed by the UN – North Korea. To learn more about the sanctions imposed on Belarus and Russia, see the section EU developments – EU and Member States above.

The case of Myanmar teak - does the EU ban serve its purpose?

On the 1^st of February, 2021, the Myanmar military led a coup against the government and seized power in the country. In response to the coup, in 21 June 2021, the Council of the EU has introduced a set of sanctions to curb the funding streams of the junta through revenues from i.a. the forestry sector. This decision confirmed the common position taken by the EU in 2020, when the EU Member States agreed that the risk that  timber from Myanmar had been illegally harvested was to be considered non-negligible and could not be mitigated.

As of now, the situation is clear: the Commission recently acknowledged that the sanctions imposed on the Myanmar Timber Enterprise and other individuals and entities following the military coup mean that it is de facto illegal to import timber or timber products into the EU originating from Myanmar after the 21^st of June, 2021. However, data shows that teak imports from Myanmar to the EU have been growing despite the sanctions. While a small number of competent authorities have undertaken enforcement actions to halt this trend (i.a. the Netherlands and Germany), some EU Member States have significantly increased their imports of Myanmar teak (Austria, Belgium, France, the Netherlands and Poland). As a result, in terms of quantity, there has been an almost uninterrupted flow of timber from Myanmar into the EU despite the Council’s sanctions and the ‘common position’ agreed by the Commission and EU Member States that should prevent such trade.

The new EU anti-deforestation law should help prohibit conflict timber from accessing the EU market

The Commission's current proposal for a regulation on deforestation-free products opens the door to strengthen the legal framework against illegal timber being placed on the EU market, including the volumes harvested in areas prone to conflicts and misgovernment. One of the many improvements this proposal intends to introduce, based on evidence of weaknesses in the implementation of the EUTR, is to clarify and reinforce the role of competent authorities. This is proposed to be done through i.a. assigning new and clearer responsibilities to national authorities  (such as requiring authorities to undertake higher numbers of obligatory checks and enforcement measures to be taken when non-compliance is identified), and granting them new operational powers (such as the right to perform unscheduled checks without notifying the operator).

These additional measures – if they are agreed upon by the European Parliament and Council in the EU law-making process – would strengthen the ability of competent authorities to reliably check companies trading in forest-risk commodities (including timber) and would subsequently increase the probability of effective prosecution of cases of illegal logging. Eventually, this would ensure better implementation and enforcement of the EU’s legal framework applicable to timber and other forest-risk commodities covered by the new law.

If you seek a more detailed analysis of the Commission’s Proposal, please see the following ClientEarth’s briefings:

- The proposed EU law on deforestation-free products: what does it include and what is left out?

- The proposed EU law on deforestation-free products: how does it compare to the EUTR framework?

- Getting to “deforestation-free”: clarifying the traceability requirements in the proposed EU deforestation regulation