Editor’s note:
Wybe Th. Douma is senior researcher in EU law and international trade law at the
Asser Institute
Although the
placing of illegally harvested timber on the EU internal market is prohibited
already for over four years, the first court cases are appearing only now.
Judges in Sweden and The Netherlands have recently held that the due diligence
requirements of the EU Timber Regulation (EUTR) had not been met by two
importing companies. The companies should have ensured that the timber from Myanmar
and Cameroon was logged in compliance with the local legislation, should have
provided extensive evidence of this, especially where the countries in question
are prone to corruption and governance challenges, and should have adopted risk
mitigation measures. Moreover, another Dutch court recently ordered the Dutch
competent authorities to explain why they did not enforce the EUTR in cases
where due diligence requirements concerning timber imported from Brazil were
not met. In other EU member states, similar court decisions were adopted.[1]
The court
decisions show that the EUTR system, aimed at ‘doing business right’ in the
timber trade sector, is starting to take effect in practice. Could the ‘unilateral’
EUTR system form an example for other regimes that try to ensure that trade by
the EU with the rest of the world contributes to sustainable development and the
protection of human rights? And what role does the bilateral Voluntary
Partnership Agreement (VPA) on Forest Law Enforcement, Governance and Trade
(FLEGT) between the EU and Indonesia play in this respect?
The EU timber regime: FLEGT and
EUTR
In 2003, the EU
adopted the Forest Law Enforcement, Governance and
Trade (FLEGT) Action Plan.[2]
The Action Plan sets out a range of measures available to the EU and its member
states to tackle illegal logging. In 2005, the FLEGT Regulation was adopted.[3]
It formed the basis for a series of prolonged negotiations with major timber
producing countries of so-called Voluntary Partnerships Agreements (VPAs). These
bilateral agreements contain detailed rules on the regulation of logging, the
enforcement of legislation, the licensing of timber by the exporting VPA
country and the monitoring and verification of the functioning in practice of
the system. The loggers and other traders need to meet all applicable laws and
regulations of the VPA country that regulate origin and production process,
subsequent processing, transport, and trade activities, and the licensing
authorities are to verify that the timber has been legally produced in
accordance with the applicable legislation. If it can be ensured in this manner
that the law on paper is applied and enforced in practice throughout its
territory, the exporting country can issue FLEGT licences for shipments of timber
destined for the European Union. In their turn, the EU countries in principle will
accept the FLEGT licensed timber as proof of legality.
Although a functioning
VPA relationship thus opens the EU doors for timber from exporting countries, the
VPA with Indonesia (discussed below) is to date the only one
that started operating at the end of 2016. When it became clear that not all
major producing countries would be willing to conclude VPAs, and existing
instruments showed not to be very effective in tackling illegal logging and
trade (in other words, it was easy to keep putting illegally harvested timber
on the EU market, which did not make the conclusion of VPAs an urgent matter),
pressure grew to adopt stronger measures. This resulted in the adoption of the EU Timber Regulation (EUTR) on 20 October 2010.[4]
As of 3 March
2013, the EUTR prohibits the placing on the EU internal market of illegally
harvested timber and timber products. Whether the timber is legal depends on
whether it was harvested in accordance with the applicable legislation in the
country of harvest, even if it is not an EU country. Elements of the
legislation to be taken into account are the rights to harvest timber within
legally gazetted boundaries, due payments and duties, environmental and forest
legislation, legal rights of third parties concerning land use and land tenure,
and trade and customs formalities.
It is up to the
companies that place timber on the EU market to verify that the timber from
non-VPA countries is legal. They must implement what the EUTR describes as a
due diligence system. The system requires that the company collects verifiable
data on the origin of the timber, from the harvest to the moment it is placed
on the European market, so that it can be established that it was legally
harvested for the entire ‘chain of custody’.
Depending on the
circumstances in the country, or even in the specific region of the country
where the timber originates, a risk inventory, analysis and assessment must
also be made. Where necessary, risk mitigation measures must be taken - except
where the risk identified in the course of the risk assessment procedures is
negligible. There is not a single accepted system for
risk assessment. Rather, the level of risk can only be assessed on a
case-by-case basis, as it depends on a number of factors. As a general rule,
the operator has to address the questions regarding the prevalence of illegal
harvesting of specific tree species, the prevalence of illegal harvesting
practices in the place of harvest, and the complexity of the supply chains.[5]
Furthermore, specific information related to the timber or timber product
itself needs to be used, notably a description, the country of harvest (and,
where applicable, the sub-national region and concession), the supplier and
trader, and documentation showing compliance with applicable legislation.[6]Although
the EUTR covers all companies that put timber on the EU market for the first
time, whether they are Transnational Companies (TNCs) or Small and Medium Sized
Enterprises (SMEs), the scope of the EUTR is limited in other ways. Only
certain types of timber and timber products are covered, while too many products
made out of timber (including books, seats, clothes hangers, tools and musical
instruments) are exempted from the regulation.[7]
The EU’s timber
regime is an example of how the Union is creating regulatory mechanisms that
foster CSR initiatives by making these legally binding. This is in line with
the Lisbon Treaty’s provisions that demand that EU external trade policy takes
fundamental rights and environmental protection issues on board. The dual system
of due diligence on the one hand and VPAs on the other certainly can improve
timber governance in producing countries, and thus contribute to the
sustainable development of third countries—and of the EU itself.[8]
Swedish case: teak from Myanmar
On 5 October
2016, the administrative court of Jönköping confirmed that a timber importer called
Almträ Nordic did not comply with the due diligence requirements of the EUTR
when it imported teak from Myanmar.[9]
What makes this case particularly interesting is the fact that the importer possessed
a so-called ‘Green folder’ demonstrating that its purchase complied with
Myanmar’s forest laws. Such folders are compiled by the Myanmar Forest Products
Merchants’ Federation (MFPMF). They include permits issued by the state-owned
company Myanmar Timber Enterprise (MTE), the sole official seller of forestry
products from this country, and other official documents. Despite those papers,
the Swedish Forest Agency (Skogsstyrelsen)
was not convinced that the timber was legally harvested in the sense of the
EUTR. While forest areas where the timber had been logged were identified,
documentation clearly tracing the timber supply chain from MTE back to the
forest of harvest was lacking in the ‘Green Folder’.
The Swedish
agency was quite right not to trust the situation and demand for additional
evidence. Several reports have shown that Myanmar exports huge quantities of
illegally harvested timber, presumably with the help of employees of MTE.[10]
The distrust is also in line with the Commission’s Guidance Document for the
EUTR, which
explains, inter alia, that
shortcomings in governance can undermine the reliability of documents proving
compliance with applicable legislation. It is therefore necessary to take into
account the degree of corruption prevalent in a specific country, precisely the
kind of circumstances relevant in Myanmar. No appeal was brought against the
Swedish court ruling. The company in question announced that it would stop importing
wood directly from Myanmar.
Meanwhile, the
Swedish Forest Agency has now also banned another importer from importing teak
from Myanmar due to the lack of improvement of its due diligence system. That
importer even hired Bureau Veritas to visit MTE in order to clarify the origin
of the teak, but still was not able to demonstrate that it was legally
harvested because the visit did not bring forward any new information about the
production process.[11]
The Agency thus interprets the due diligence rules of the EUTR in a manner
which raises the hurdles high for companies that import timber from countries
with high degrees of corruption. This is in line with the EUTR’s unequivocal prohibition to place illegally harvested timber on the EU market,
and the way in which the due diligence rules are formulated. Following these Swedish
developments, in Denmark authorities released injunctions against all Danish
operators to stop placing Myanmar teak on the country’s market.[12]
The Myanmar Ministry
of Natural Resources and Environmental Conservation (MONREC) reacted to these
developments with a statement, acknowledging that their current systems may be
complex for external parties and may present challenges for operators to
demonstrate the chain of custody required for due diligence under the EUTR.
They stated that they are committed to streamlining their systems, and have
been working on developing a comprehensive Timber Legality Assurance System
(MTLAS) that will meet international best practice standards.[13]
Furthermore, in August 2016 the Myanmar government imposed a nationwide
temporary logging moratorium that lasted till the end of March 2017.[14]
Dutch cases: timber from
Cameroon and Brazil
According to the Dutch
competent authorities (NVWA),[15]
a timber importer did not comply with the EUTR rules when introducing a shipment
of Azobé timber from Cameroon on the Dutch market. They therefore adopted a
measure whereby the operator would forfeit € 1,800 for each cubic meter of wood
and / or timber products from Cameroon placed on the European market up to a
maximum of € 90,000. The Authority reasoned that because of the high level of
corruption in Cameroon, there is a high chance that the wood was not legally harvested,
and the company should have exercised more caution.
The importer
appealed against the penalty decision, but the appeal was rejected in a ruling of 24 May 2017.[16]
According to the District Court in Noord-Holland, the importer collected
insufficient verifiable information. It did not identify the origin of the shipment
of timber, and the risk inventory did not meet the requirements of the EUTR.
Moreover, none of the risk-limiting measures required by the situation in Cameroon
was taken. The Court therefore agrees with the NVWA that the due diligence requirements
of the EUTR have not been fully complied with. Because of this infringement, the
competent authority was allowed to sanction the company.
In a more recent ruling of 4 July 2017, the Amsterdam District Court found that
the competent authorities failed to enforce the EUTR without a proper reason in
a number of cases where companies had imported timber from Brazil, without
abiding by the EUTR due diligence requirements.[17]
Greenpeace Netherlands had requested the Dutch competent authority to inspect a
number of companies that were importing timber from the Brazilian Amazon
region, and to prosecute those noncompliant with the EUTR. Upon this request, inspections
were carried out showing that several Dutch companies were indeed not complying
with the EU due diligence system. The request to prosecute these companies was
rejected, however. Instead,
merely written warnings were issued to them. The authorities refused to sanction
the companies notably because the rules were still rather new. They found it
reasonable to give them the chance to bring their business operations in line
with the new legal regime. A guidance document on the enforcement policy under nature
protection legislation also prescribed warnings to first offenders.[18]
Greenpeace successfully
appealed this decision. The Amsterdam Court notably found the Dutch enforcement
policy to be unreasonable where it classified violations of articles 4(2) and
(3) and 5 EUTR as minor issues, resulting in warnings only for first time
offenders. Furthermore, the Court recalled that the EUTR was adopted on 20
October 2010 and entered into force on 3 March 2013, allowing market
participants a considerable amount of time to prepare for meeting the
Regulation’s requirements. Finally, the Court set out that when companies
violate the law, the law ought to be enforced. Authorities can decide not to do
so only in special circumstances. In view of the lack of such circumstances,
the decision not to prosecute companies violating the EUTR was deemed insufficiently
motivated and was therefore quashed. The authorities were ordered to take a new
decision within six weeks, in which they are to demonstrate all the facts on
the basis of which they decide to enforce the law or not to and, if so, in
which manner they plan to take enforcement action.
VPAs - the bilateral approach
As indicated
above, the 2005 FLEGT Regulation aimed at concluding so-called Voluntary
Partnership Agreements (VPAs) with countries that export considerable amounts
of timber to the EU. In spite of their name, the VPAs place a legally binding
obligation on partners to implement a licensing scheme for timber within the
schedule stipulated in each VPA, and ensure that sufficient enforcement
activities take place.
The VPA with Indonesia entered
into force on 1 May 2014. Over 80 pages long, it sets out detailed requirements
that are to be met before FLEGT licenses can be issued by Indonesian authorities,
a definition of legally-produced timber (i.e.
timber harvested and produced in accordance with the legislation as set out in
Annex II to the VPA), rules on control of the supply chain, verifications
procedures, and rules on independent monitoring. The entry into force did not
mean that Indonesia could start issuing FLEGT licenses. The FLEGT licensing
scheme started operating on 15 November 2016 after an evaluation of the compliance
of the Indonesian Timber Legality Assurance System (TLAS) with the criteria set out in the
VPA.[19] From that
moment on, EU importers from Indonesia no longer needed to apply the EUTR due
diligence system, because the EUTR exempts timber originating from partner
countries listed in Annex I FLEGT Regulation.[20]
This timber shall be considered to have been legally harvested. Indonesia
profited from its new status by issuing 11817 licenses for shipments to the EU
worth a total value of US$ 409 million in the period 15 November 2016 – start
of April 2017.[21]
The VPA contains
an obligation to periodically have an independent third party evaluate whether
the TLAS is functioning as described (Article 15 sub (a) and Annex VI). The
evaluation is to include visits to forest harvesting areas, offices, forest
checking stations and export points, as well as sampling and spot check methods
to evaluate the work of the forest regulatory agencies in Indonesia.
Evaluations are to take place at least once every year and are to be released
to the public. In this manner, it is to be ensured that the exporting country
continues to meet the requirements of the VPA and keeps the right to issue
FLEGT licences.
Five other
countries have already signed a VPA with the EU and are currently developing
the systems needed to control, verify and license legal timber. These countries
are Cameroon, the Central African Republic, Ghana, Liberia, and the Republic of
the Congo. Negotiations with nine more countries are ongoing.
Concluding remarks
Until recently,
it seemed that the competent authorities in EU Member States were not very willing
to start enforcing the EUTR. In the Netherlands, the Greenpeace case highlights
the reluctance to fully apply the law even when traders are found not to be in
compliance with the due diligence system. The court decisions from Sweden and
the Netherlands show that the situation is slowly changing. These cases could
help companies, competent authorities and the judiciary in other countries better
understand the manner in which the EUTR can be applied and enforced in
practice. What is more, they support the instrumental role that NGOs play in
ensuring that the EU member states enforce the requirements of the due
diligence system as laid down in the EUTR.
They also
highlight that any company that places timber on the EU market for the first
time falls under the scope of the EUTR, be it a TNC or a local SME. The cases contribute
to the creation of a body of jurisprudence able to clarify the details of the
due diligence obligation for importers. While operationalisation of due
diligence could take place by reference to several instruments such as the OECD
Guidelines or specific tools devised by auditors, the system lacks a
centralised authority determining under which circumstances companies procedure
suffice, and which specific actions are required. The Guidance Document does
bring about more clarity on practical aspects of the due diligence system. The
manner in which due diligence is interpreted in the context of the EUTR could also
spill over to other regimes where due diligence obligations are imposed on EU
importers, such as the Conflict Minerals Regulation.
At the same time,
with the very first VPA starting to operate, timber exports from Indonesia no
longer fall under the EUTR’s due diligence system. The VPA system could expand
in the future if the handful of other VPA countries manage to set up an
effective control, verification and licensing system for legal timber. Those
that started issuing FLEGT-licences will need to manage to upkeep this system.
Future developments will tell us which of the two mechanisms - i.e. relying on
EU importers or on exporting countries’ administrative authorities - are more
effective in ensuring that only sustainably harvested wood reaches the EU
market.