Editor's note: Sara Martinetto is an intern at T.M.C. Asser Institute. She has recently completed her LLM in Public International Law at the University of Amsterdam. She holds interests in Migration Law, Criminal Law, Human Rights and European Law, with a special focus on their transnational dimension.

Since the adoption by the UN Human Rights Council of Resolution 26/9 in 2014, an Open-ended Intergovernmental Working Group (WG) is working on a binding Treaty capable of holding transnational corporations accountable for human rights abuses. Elaborating on the proposal presented by Ecuador and South Africa, the WG has been holding periodical sessions. In much trepidation for what is supposed to be the start of substantive negotiations – scheduled for October 23-27, 2017 – it is worth summarising and highlighting the struggles this new instrument is likely to encounter, and investigating whether (and how) such an agreement could foster transnational corporations’ (TNCs) human rights compliance.

Shortcomings of instruments already in place.

In past decades, corporations have come to acknowledge the need to go beyond their mere economic dimension, in view of their increasing impact on society as a whole. From the 1970s, they started to create a “private self-regulatory system”, today known as Corporate Social Responsibility (CSR).[1] The expression indicates a body of voluntary measures, aiming at tailoring enterprises’ operations on perceived societal needs.

Undeniably, the adoption of such codes and standards has played a role in advancing compliance of TNCs with human rights. However, there is a stark difference between CSR and  “business and human rights” (BHR) instruments: the latter endeavour to provide a broader coverage – both ratione materiae and ratione personae – with regard to the self-regulation of human rights violations by TNCs, thereby referring to relevant international standards. As examples of this, it is worth recalling, among others, the UN Global Compact, the ILO Declaration of 1998, the OECD Guidelines, and, ultimately, the UN Guiding Principles on Business and Human Rights of 2011 (UNGP). The major downside of these sources is to be found in their soft-law nature: they create no true legal accountability, nor are they currently enforced by courts.

It is worth reminding that the 2014 Resolution does not constitute the first attempt to negotiate a binding instrument on the matter: the 2003 Norms on Transnational Corporations, drafted by the UN Sub-Commission on the Promotion and Protection of Human Rights, were ultimately not adopted. This failure was mainly attributable to the lack of consensus around several concepts, which are essentially still contested today. 

The decision to re-engage in such a project largely relies on a rekindled consensus, triggered by the adoption of the UNGP. In fact, the UNGP has formed unprecedented agreement on relevant issues: it shaped common standards to which relevant stakeholders can refer when corporate interests and human rights collide.

Do we need new commitments?

The decision to pursue a binding agreement has not yet resulted in the abandoning the UNGP. The Human Rights Council keeps fostering and monitoring the implementation of the Guiding Principles in national law. Albeit slowly, States are adopting national action plans and a variety of other instruments, which aim at operationalising the UNGP. The new Dutch Agreement on Sustainable Garment and Textile or the 2015 UK Modern Slavery Act are examples of this trend. Thus, the question would be… do we really need a new Treaty?

Certainly, the prospective instrument cannot constitute a mere repetition of its predecessors.[2] Thus, a successful drafting requires the identification of shortcomings of the previous legislation, to be developed and specified. Three main issues have been identified:[3] the question of monitoring mechanisms and remedies; the development of extraterritorial clauses establishing State responsibility for TNCs incorporated under their laws; the actual extent of the due diligence obligation designated by the UNGP (especially in Principles 15 and 17).

Moreover, delegates have to take into account the lack of consensus, which has immediately marred Resolution 26/9: notwithstanding the intense lobbying carried out by numerous NGOs, several States are opposing the formation of a new Treaty. In particular, the EU argues against its usefulness, deeming the implementation of the UNGP sufficient to tackle the problem, without undergoing further lengthy negotiations. This vision is endorsed by some scholars, who believe that the adoption of effective domestic measures, rather than an international Treaty, could better tackle the problem.[4]

Furthermore, there are still major disagreements on some basic concepts and theoretical foundations. Therefore, delegations will need to agree on a precise and coherent framework; to take a normative stance on some key issues; to identify the right level of abstraction, agreeing on the grade of depth, precision, and prescriptiveness these rules ought to have; and, probably, to limit the content and scope of the treaty, leaving aside aspects which would be better tackled on the national level.[5] Of course, this is easier said than done. From the reports of the first and second sessions of the WG, it appears clearly that, even when delegations agree on the desired result, discrepancies on the means still remain. 

Ultimately, if not solved, these disagreements could lead to two possible outcomes: either negotiations will bog down, or meaningful instances and the identification of precise obligations will be sacrificed on the altar of compromise. In the next sections, I will review what I consider the burning issues and choices ahead for the negotiators.

Would there be a catalogue of rights?

There are two contrasting views on this issue. On one side, the inclusive approach – i.e., the decision to protect all human rights, without further specification – has the undoubted perk of averting the possibility of undue prioritization of social and political rights over social and economic rights. On the other, it is a risky tactic, since quantity might prevail over quality: the category of rights covered will be inflated, thereby potentially resulting in an overall lower standard of protection.

Moreover, including a catalogue inside the Treaty could have two main advantages: with regard to TNCs, it could provide better guidance on the actual obligations they are supposed to implement;  more generally, it could be a way of developing the interpretation of certain rights, which still rely on quite vague concepts (e.g. standard of living, the concept of ‘living wages’, etc.).[6]

Which enterprises?

Drawing on the text of the Resolution, some have argued that the new Treaty will focus merely on TNCs, narrowing the scope of UNGP. Some delegations (in particular, the EU), have strongly criticised this stand, submitting that even local companies and State-owned companies can violate human rights. Thus, a restricted scope would ultimately result in discrimination not only between different companies, but between victims, who will have different access to remedies depending on the perpetrator.

Ultimately, this issue boils down to the need to adopt a definition of TNC susceptible to include all the actors of the supply chain.[7] Nonetheless, it is still unclear whether the proposed instrument will include such a definition. Instead, some delegations have proposed to include all enterprises within the scope of the Treaty, but to provide for more specific norms for TNCs.

Imposition of direct obligations upon TNCs

This question essentially depends on whether TNCs are to be considered as subjects of international law. The complex and lengthy literature on this matter falls outside the scope of this post.[8] However, this much debated issue cannot be easily dismissed, since its answer establishes the existence of international legal personality and, ultimately, of responsibility of TNCs.

The growing consensus on the legal personality of corporations under international law is mainly based on an application, by analogy, of the reasoning of the ICJ in Reparations of Injuries. The argument is further supported by the existence, in international law, of rights enjoyed by corporations, especially in the context of Investor-State Dispute Settlement (ISDS). Logically, an entity provided with legal rights should be also capable of being bound by legal obligations.

Furthermore, it is believed that UNGP already attached legal personality to TNCs. However, the Human Rights Council has clarified that the second pillar of the Principles, i.e., the responsibility of TNCs to respect human rights, does not per se entail a legal obligation, but more of a moral and social responsibility. 

The inclusion of direct obligations on TNCs to respect (or even protect) human rights has the purpose to avert the so-called “race to the bottom”, namely, a situation in which the State is too weak to uphold human rights in its territory and finds itself incapable of resisting to the pressure of TNCs, fearing a negative impact on their economy.[9]

Nonetheless, the idea remains quite controversial, especially because there is no general rule in international law providing for responsibility of TNCs. Therefore, a Treaty would need to set up an all-comprehensive construction which would deal both with primary and secondary rules.[10]

Thus, it might be considered more appropriate to maintain the regulatory focus on States. Indeed, there is an inherent value in keeping them at the centre of the system: since the States which are major supporters of the Treaty also have a poor human rights record, one wonders whether the focus on TNCs will lead to a blame game between different subjects.[11] However, this does not mean that a satisfactory result cannot be achieved by mean of indirect obligations on TNCs, which would result in a direct responsibility of States. This could be put into practice by providing for precise due diligence obligations to be implemented, probably, with the help of extraterritorial clauses.

Due diligence obligations

There are mainly two dimensions of due diligence which are relevant in this context. On the one hand, a due diligence obligation stemming from international law would provide ground for States’ responsibility for its breach, in case of a violation perpetrated by TNCs incorporated under their domestic law; on the other hand, due diligence might be required from TNCs for acts of other entities which are part of their supply chain.

At the outset, it is important to stress that State responsibility will be broader or narrower, depending on the degree of due diligence a State is asked to exercise. Since there is no general obligation of due diligence in international law,[12] the Treaty would have to provide for it: this will allow to cover the conduct of private entities, whose acts cannot be traced back to the State by means of a rule of attribution or by using the framework of complicity. Thus, most likely, these new obligations would serve the purpose of clarifying the level of control a State must exercise on the conduct of private actors in any given moment.

Without denying the need for new rules on the matter, it would be hard to conceive that a single instrument could carry out such a task with the sufficient degree of precision effectiveness requires. A decision will have to be taken on what a State could reasonably be expected to exercise control over, presumably drawing from the landmark case Velásquez Rodríguez (Inter-American Court of Human Rights), and on the obligation posed by art. 2(1) International Covenant on Civil and Political Rights (ICCPR). Of course, this does not take away States’ international obligation to provide remedies for violations perpetrated by private actors on their territory. This issue will be further discussed below.

As far as the second dimension is concerned, UNGP already provided for a due diligence obligation for TNCs. However, for it to become prescriptive and operational, the extent of this duty would need to be further clarified. Corporations have already a wide set of responsibilities under national laws as domestic legal systems provide for different legal obligations (from tax to labour, from environment to anti-discrimination). Responsibility for a breach of those obligations is reflected in different types of liability. However, defining the scope of responsibility of TNCs has become increasingly difficult also in domestic law. This is largely due to the maze of different subsidiaries, suppliers, and (sometimes even illegal) subcontractors a parent company might have.[13]

In order to appraise that, one should take a step back to consider the much-debated question of the corporate veil, i.e. the obstacles created for accountability by the doctrine of separate personality, and the distinction between different legal entities. This veil exists even between a company and its shareholders, as clearly affirmed by the ICJ in Barcelona Traction, and even more so between different companies. However, the ICJ in the very same judgement (§38-39) has held that the veil can be lifted in some circumstances, such as when the privilege given by the doctrine of separate personality has been abused. This reasoning has slowly been expanded in order to create direct liability of the parent company in case of breach of due diligence with regard to other legal persons belonging to its supply chain.[14] In this way, it will be possible to avoid the problem of undercapitalisation of subsidiaries or suppliers, which are often unable to pay compensation when a case is decided against them.

Up until now, the notion of due diligence has been accompanied by very vague concepts, as, for example, the one of sphere of influence.[15] This notion reflects the idea that the more the company is powerful and influential, the stronger responsibility it has vis-à-vis human rights, because it will be able to leverage the entity in its supply chain committing the abuse.[16] The envisaged Treaty will need to provide legal certainty on how this concept will be operationalized, and how far this due diligence obligation extends. While it is feasible to conceive of a due diligence obligation of the parent company toward its subsidiaries, it becomes harder and harder the more the network of contractors and subcontractors expands.

Extraterritoriality

Were the delegates to agree upon the actual scale of the due diligence obligation required, the putative ruling against the parent company for a breach of due diligence could have some extraterritorial effects against the subsidiaries. Extraterritorial clauses would entail the direct jurisdiction of foreign States on companies incorporated in another State, provided that there is a link between the two actors.[17] The possibility of including such extraterritorial clauses in the Treaty would be revolutionary, since it would challenge one of the core principles of human rights jurisdiction, i.e. territoriality. Moreover, such a provision could be subject to criticism, because of its possible impact on the sovereignty of the host State.

It is probably right that extraterritorial clauses will have a greater deterrent effect on TNCs. However, clarifying the link between the forum State and the State of incorporation, or between the two companies, will be essential in practice. Particularly, while in the case of subsidiaries thresholds and standards can be borrowed from other fields of law (e.g. competition law, consumer law), an effective control test might need to be developed in order to capture the required link between a company and another contractor.[18]  Although the Maastricht Principles on Extraterritorial Obligations might provide guidance, they seem overly vague for this purpose.

Thus, the Treaty will probably need to phrase the extraterritoriality question as a conflict of jurisdictions. An international binding instrument governing the relationship between different jurisdictions on the matter would ensure cooperation between States, while limiting the above-mentioned possible disruptive effect of extraterritorial clauses. This would obviously have a direct impact on the issue of access to remedies 

Remedies

During the negotiations, some have advanced the idea of a new international body to monitor compliance. Yet, the enforcement of the prospective instrument will most likely rely on domestic courts. The current hurdles to access to justice for victims of human rights violations are largely related to jurisdictional issues, lack of recognition of foreign judgements, and extensive use of the principle of forum non conveniens. Therefore, obligations dealing with procedural matters regarding remedies are of the upmost importance to a successful Treaty.

One might discuss whether to criminalise certain conducts: perpetration of certain human rights abuses is deemed to be criminal in nature, and, hence, linked to the remedies attached to criminal liability. However, the interplay between corporations and criminal law is still uncertain even in some domestic jurisdictions.

Conclusion

In conclusion, there are a number of key issues which will define the impact of the future Treaty and be at the heart of the upcoming negotiations.

First, who is primarily responsible for the human rights violations of a TNC broadly speaking (including subsidiaries and subcontractors)? The home State, the TNC, or both? The answer provided will most likely condition the practical bite of the Treaty and the ease or difficulty to enforce the obligations it will set out.

Second, the definition of core concepts, such as ‘due diligence’ and ‘sphere of influence’, is an important semantic battleground. They will define the scope of the responsibility of TNCs and States and the extent to which they are deemed responsible for activities occurring outside of their immediate (contractual or territorial) surroundings.

Finally, the capacity of victims to access remedies will be crucial to the practical effect of the new Treaty. This could entail the recognition of the extraterritorial nature of due diligence obligations and the potential responsibility of States vis-à-vis third country nationals.

^[1] B. Sheehy, Understanding CSR: an empirical study of private regulation, in Monash University Law Review, 2012, 105

^[2] K. Mohamadieh, Approaching States’ Obligations Under a Prospective Legally Binding Instrument on TNCs and Other Business Enterprises In Regard to Human Rights, in South Centre Policy Brief, October 2016, 1

^[3] O. De Schutter, Towards a legally binding instrument on business and human rights, in CRIDHO Working Paper 2015/2 2015, 17

^[4] S. Mc Brearty, The Proposed Business and Human Rights Treaty: Four Challenges and an Opportunity, in Harvard International Law Journal, 2016, 12

^[5] K. Mohamadieh, Ibid., 3

^[6] S. Mc Brearty, Ibid., 13

^[7]  K. Mohamadieh, Ibid., 2

[8] See also N. Gal-Or et al., Responsibilities of the Non-State Actor in Armed Conflict and the Market Place, Brill Nijhoff, The Hague, 2015; M. Karavias, Corporate Obligations under international law, Oxford monographs in international law, Oxford, 2013.

^[9] L. Mc Connell, Assessing The Feasibility Of A Business And Human Rights Treaty, in International and Comparative Law Quarterly, 2017, 162

^[10] L. Mc Connell, Ibid., 151

^[11] S. Mc Brearty, Ibid., 14

[12] R. P. Barnidge, The Due Diligence Principle Under International Law, in International Community Law Review, 2006, 92

^[13] O. De Schutter, Ibid., 20

^[14] O. De Schutter, Ibid., 19

[15] The concept was first used in the 2003 Draft Norms and it is still used in current negotiations

^[16] O. De Schutter, Ibid., 21

^[17]  K. Mohamadieh, Ibid., 4

^[18]  K. Mohamadieh, Ibid.

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.

[1] In Germany for instance, an administrative court dismissed an action against the confiscation of shipments of wenge wood imported into Germany from the Democratic Republic of Congo. The court agreed with the findings of the German competent authority (the German Federal Agency for Agriculture and Food, BLE) that the falsified supporting documents justified the confiscation. See Briefing Note for the Competent Authorities implementing the EU Timber Regulation, April – May 2017, p. 1.  

[2] COM(2003)251 final of 21.3.2003.

[3] Council Regulation (EC) No. 2173/2005 of 20 December 2005 on the establishment of a FLEGT licensing scheme for imports of timber into the European Community, OJ L 347/1.

[4] Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market, OJ L 295/23.

[5] Article 6(1)(b) EUTR and explanations in the Guidance Document (p. 4, 5).

[6] Article 6(1)(a) EUTR and

[7] See Charles Drew and Tim Barker, Analysis of potential European Union Timber Regulation product scope changed, WWF 2016, who demonstrate that by value, 67% of products that contain or may contain wood do not fall under the scope of the EUTR, and 20% by volume.

[8] See for more information on these issues also Wybe Th. Douma, The promotion of sustainable development through EU trade instruments, European Business Law Review (EBLR) 2017, nr. 2, pp. 197-216 and Wybe Th. Douma and Steffen van der Velde, Protection of fundamental rights in third countries through EU external trade policy: The cases of conflict minerals and timber, in: V. Lazic a.o. (eds), ‘Fundamental Rights in International and European Law’, The Hague, pp. 101-122

[9] Förvaltningsrätten Jönköping (Administrative court Jönköping) 5 October 2016, case nr. 2095-16, Almträ Nordic AB v Skogsstyrelsen.

[10] See for instance Environmental Investigation Agency, Overdue diligence. Teak exports from Myanmar in breach of European Union rules, October 2016.

[11] Skogsaktuellt, Biltemas logistikföretag förbjuds att sälja teak från Burma, Skogsaktuellt.se, 22 March 2017. It can be noted that the Guidance Document explains that the higher the risk of corruption in a specific case, the more it is necessary to get additional evidence to mitigate the risk of illegal timber entering the EU market, and mentions third-party-verified schemes as a means of obtaining such additional evidence (p. 7).

[12] Mizzima, Denmark sanctions entire Myanmar teak industry, 16 March 2017.

[13] Ministry of Natural Resources and Environmental Conservation (MONREC), Statement of Progress in Timber Legalitv Assurance in Mvanmar, 16 March 2017.

[14] Jacob Goldberg, With logging ban lifted, Myanmar timber policy falls flat, Coconuts Yangon, 28 April 2017.

[15] The Netherlands Food and Consumer Product Safety Authority (Nederlandse Voedsel- en Warenautoriteit, NVWA).

[16] B.V. X v de staatssecretaris van Economische Zaken, Rechtbank Noord-Holland 24-05-2017, AWB - 16 5358, ECLI:NL:RBNHO:2017:4474.

[17] Stichting Greenpeace Nederland v de staatssecretaris van Economische Zaken, Rechtbank Amsterdam 4-7-2017, AMS 15/5067, ECLI:NL:RBAMS:2017:4926.

[18] NVWA, Specific Intervention Policy Nature Protection Legislation (Specifiek interventiebeleid natuurwetgeving), IB02-SPEC08 natuur, version 2.1 of 16-07-2015.

[19] Decision No 1/2016 of the Joint Implementation Committee set up by the Voluntary Partnership Agreement between the European Union, of the one part, and the Republic of Indonesia, of the other part of 15 September 2016 concerning the start date of the Forest Law Enforcement Governance and Trade (FLEGT) licensing scheme [2016/1797], OJ 22.10.2016, L 274, p. 62.

[20] Indonesia was placed on the Annexes to the FLEGT Regulation, indicating that certain timber and timber products from the country would be able to be placed on the EU internal market on the basis of Indonesian licenses. See Commission delegated regulation (EU) 2016/1387 of 9 June 2016 amending Annexes I and III to Council Regulation (EC) No 2173/2005 following a Voluntary Partnership Agreement with Indonesia for a FLEGT licensing scheme for imports of timber into the European Union, OJ EU of 18.8.2016, L 223, p. 1.

[21] ClientEarth, EUTR News – March to May 2017, Newsletter, 19 June 2017.