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Report from
Europe
Intense negotiations underway on EU "deforestationfree"
law
Intense negotiations continue within the European Council
and European Parliament towards agreement of a final text
of the law "on the making available on the Union market
as well as export from the Union of certain commodities
and products associated with deforestation and forest
degradation".
If jointly approved by the Council and Parliament, the new
law will replace the existing EU Timber Regulation
(EUTR) and extend due diligence obligations to a wider
range of "forest risk" commodities. As currently drafted, it
would prohibit placing of products on the EU market that
contribute either to "deforestation" or to "forest
degradation", alongside illegally harvested products.
On 17 March the European Council of Environment
Ministers exchanged views on the legislative proposal.
The meeting included clarifications and justifications for
the regulation from the European Commission (EC)
followed by a short statement by each Member State in
turn. The EC identified aspects of the regulatory proposal
setting it apart from the existing EUTR and from
equivalent legislative initiatives in the US and UK. If
passed by the EU the law will:
Build on FAO definitions of deforestation and
degradation.
Include a prohibition on products derived from
any deforestation or forest degradation,
irrespective of whether legal or illegal according
to national laws in the country of harvest.
Require operators to file each year a due
diligence statement to be uploaded into an EU
digital database to allow better targeting of
enforcement actions.
Require that the source of all regulated products -
excluding only those from countries deemed by
the EC to be "low risk" ¨C be traced to the
"geolocation", defined as the specific plot of land
where harvesting took place.
Set out procedures for benchmarking of countries
as "high risk", "standard risk" and "low risk" by
the EC for which different due diligence
obligations would apply and which thereby
"provide an incentive for countries to step up
their protection of forest".
Establish minimum requirements for enforcement
actions by EU Member States to better ensure
uniform implementation across the EU and a
level playing field for operators.
In the same way as EU Agricultural Ministers speaking at
their earlier Council meeting in February (see ITTO
Tropical Timber Market Report, Volume 26 Number 4,
16-28 February 2022), Environment Ministers expressed a
wide range of views on the legislation.
The most supportive statements came from the German
and Dutch Environment Ministers. Germany said the
proposed regulation would pay for itself in the long term
and be an important improvement over the EUTR and that
it contained appropriate measures to reduce the burden on
SMEs.
The Netherlands Environment Minister expressed his "full
support for the proposal" and said that it is "vital to the
green deal" (the EU objective to cut greenhouse gas
emissions by at least 55% by 2030). The Netherlands also
called for "other ecosystems to be introduced as soon as
possible" and that it is "key that forest degradation remains
part of the proposal". Netherlands said there should be
deeper engagement with major producer countries to
"avoid negative impacts such as discrimination against
smallholders and rising costs".
Ministers raising the most substantive concerns about the
draft legislation came from the Nordic countries and Baltic
States. Sweden said that the administrative burden and
costs of the new legislation would be significantly higher
than was the case for EUTR. Sweden believes the
legislation does not sufficiently reflect varying national
forestry conditions both within and beyond EU and that
definitions relating to degradation and sustainable forest
management are unclear and likely to conflict with
national forest policies. Sweden recommended that these
definitions either be removed or deleted and called for
more steps to ensure full compliance with WTO
obligations.
Finland emphasised that deforestation is a global problem
and the EU should focus on promoting a multilateral
response. Also that due diligence must be justified in
relation to impact and proportionality and that the
geolocation requirements be examined more closely from
the perspective of practicality.
According to Finland, the degradation definition created
"many difficult questions", particularly for countries with
a large remaining forest area where legitimate changes of
land use may be associated with some minor losses to
forests at specific locations.
Estonia noted that the new law will have a significant
impact on EU businesses, particularly SMEs, and
regulatory authorities. According to Estonia, discussions
in various EU working groups on the regulation had been
too rapid leaving insufficient time for proper consideration
to be given to the full implications of the new law. Estonia
called for more wide ranging input from experts from the
individual commodity sectors and in trade law. Estonia
noted that sourcing of wood from illegal sources has
remained a problem despite EUTR, and that bringing cases
to court has been challenging. Estonia believed that
definitions, particularly for "forest degradation", must only
contain concepts agreed at international level.
Some Southern European countries, while expressing
broad support, also raised specific substantive objections.
For example Italy said the scope of the draft law extends
well beyond EUTR and will be challenging to implement
and called for "reasonable time frames" before full
implementation. According to Italy, more time is needed
to develop "effective new platforms to link together
operators" and "new innovative tools, including
partnerships with private entities". Italy also suggested that
existing FLEGT partnerships should be developed before
coming up with new partnerships. There was a need too
for more consideration to be given to interim arrangements
when switching from EUTR to the new regulation.
Greece was particularly emphatic that the new regulation
must be in line with WTO rules, must take account of
national conditions and natural processes such as forest
fires, must be transparent and simple and implemented in
harmonised way. Greece said that due diligence
requirements should be precise and consistent with
international standards such as OECD guidelines to
minimise costs. Greece felt the "forest degradation
definition should be kept out of the regulation allowing
countries to adopt national provisions".
European Parliament calls for even more far-reaching
regulation
While this debate is on-going in the European Council, on
31 March the ENVI Committee of the European
Parliament, the other branch of EU legislature, published a
draft report setting out their proposed amendments to the
new law. In some respects the amendments proposed in
the ENVI Committee's draft report respond to the same
problematic issues as those raised in European Council
discussions.
But overall, the ENVI Committee draft amendments, if
accepted, would significantly expand the scope of the law
in relation to land area captured, the products covered and
the obligations to be placed on operators.
The key amendments proposed in the ENVI Committee's
draft report include:
1. Change to product scope
The ENVI Committee draft report proposes that rubber is
added to the list of commodities covered by the regulation,
alongside cattle, cocoa, coffee, oil palm, soya, and wood.
The draft report also proposes a specific exclusion for
recycled materials and recycling products.
2. Conversion to tree plantations treated as
"deforestation"
The ENVI Committee draft report proposes that the
definition of "deforestation" be extended to prevent any
conversion to tree plantations. The current draft includes a
prohibition against conversion to plantations as a form of
"degradation". The ENVI Committee draft would
strengthen this prohibition by defining conversion to
plantations as a form of "deforestation" and tree crops as a
form of "agricultural use".
3. Conversion of "other wooded land" treated as
"deforestation"
The ENVI Committee draft report proposes that the
definition of deforestation be extended to include
conversion of "other wooded land" as well as forest land
so as to address threats to "forest-mosaic ecosystems and
tropical woodlands and savannahs" alongside natural
forests.
Drawing on the FAO definition, the draft report proposes
that "other wood land" should include "land not classified
as forest, spanning more than 0.5 hectares, with trees
higher than 5 meters and a canopy cover of 5 to 10
percent, or trees able to reach these thresholds in situ, or
with a combined cover of shrubs, bushes and trees above
10 percent, excluding land that is predominantly under
agricultural or urban use."
4. Slightly more flexible "degradation" definition
While the ENVI Committee draft report proposes that the
definition of deforestation be extended in relation to tree
plantations, it proposes that the definition of "forest
degradation" be slightly more flexible. This is justified
according to the draft report because "FAO states that a
globally agreed definition of sustainable forest
management (SFM) is impractical because of the huge
diversity of forest types, conditions and socioeconomic
contexts worldwide."
The existing draft law indicates that any harvesting of
forest products on "vulnerable soils" or involving "large
clear-cuts" or any reduction or loss of soil quality or
biodiversity, irrespective of timescale, is "unsustainable"
and will lead to "forest degradation".
The ENVI Committee draft report proposes that there be
no general prohibition on practices such as "large clearcuts"
and no specific requirement for low impact
harvesting.
Instead it proposes a more flexible requirement that the
forest site must be regenerated through planting or natural
regeneration so that there be no overall decrease of forest
land.
5. Greater focus on ensuring equity for smallholders
The ENVI Committee's draft amendments to the law
highlight that "the share of smallholders in the production
of the commodities concerned can be as high as 80%" and
acknowledge that "special attention needs to be paid to the
challenges that smallholders will face with the
implementation of this Regulation" and that "the new rules
should aim to minimise the burden on smallholders in
third countries and prevent barriers to their access to the
market and international trade".
The one major change proposed by the Committee's draft
report to facilitate greater access for smallholders would
be to make the "geolocation" obligation slightly more
flexible. Rather than require, as in the current draft, that all
products must be traceable to an individual "plot of land",
the requirement would be that products be traceable to
"production areas". This is still quite narrowly defined as
"a plot of land, farm, plantation, cooperative or village".
This change is justified in the ENVI Committee's draft
report on grounds that "it might not be possible to trace
back every single cocoa bean e.g. to a particular farm of a
smallholder, but rather to the production area from which
a cooperative is sourcing. Allowing to monitor a certain
production area instead of every single plot of land will
make it easier to implement the regulation and minimise
the risk of excluding smallholders from the supply chain".
Beyond this, the ENVI Committee seems to take the view
that responsibility for ensuring equitable market access for
smallholders should lie with the operators, noting that "it
is therefore crucial that the operators buying from
smallholders provide timely financial and technical
support to help smallholders meet the new Union market
access requirements".
The ENVI Committee draft report also expresses an
optimistic view of the benefits that might accrue to
smallholders from the setting up of traceability systems to
deliver against the geolocation criteria, noting that such
systems "can empower smallholder farmers as it can avoid
the non-payment of promised sustainability premiums,
allow for electronic payments to producers by using the
national traceability system thus combatting fraud and
enable local authorities to collect knowledge on the
number of producer plots and control the number of
farmers."
6. Requiring third party audits of operators' due diligence
systems and statements
In the current draft of the law operators would be required
to implement a due diligence system and to prepare a due
diligence statement covering all the regulated products
placed on the EU market. The statements would be lodged
with the Competent Authorities who would be responsible
for checking on their veracity.
However, presumably due to concerns over the ability of
EU Competent Authorities to carry out effective checks,
the ENVI Committee draft report proposes that "operators¡¯
due diligence systems should be controlled by a thirdparty
external auditor on an annual basis".
The operators' obligation to submit the due diligence
statements would be extended to include "an annual audit
report by a third-party auditor".
7. Allow for differential approach between commodities
The current draft law would apply the same due diligence
rules to all "forest-risk" commodities. However the ENVI
Committee draft report argues that "applying the same
rules and definitions for significantly different supply
chains does not match the realities on the ground and will
make it difficult for both operators and national control
authorities to implement the regulation".
The draft report therefore proposes that "where necessary,
the Commission should develop guidelines laying down
specific rules on due diligence requirements, traceability
tools and liability rules in the supply chain for the different
commodities. Those rules should also be harmonised as
much as possible with the due diligence rules set out in
[the forthcoming Sustainable Corporate Governance
Directive]".
8. Simplify benchmarking framework
The ENVI Committee draft report proposes that the
existing proposal categorising countries/regions as "low",
"standard" and "high risk", for which different due
diligence obligations would apply, should be simplified.
Instead the Committee draft report proposes only that "low
risk" countries/regions be identified, for which products
would be subject to "simplified" due diligence. Competent
authorities would not be obliged to "apply enhanced
scrutiny on relevant commodities and products from high
risk countries or parts of countries identified as high-risk".
9. Due diligence obligations focused on "first placers"
The ENVI Committee draft report proposes that
"operators" to which detailed due diligence obligations
apply should be restricted to the "first placer" rather than
all suppliers throughout the EU supply chain. This would
align with the current EUTR in which due diligence
obligations only apply to the first placer. The draft report
proposes that first placers be required to "share their due
diligence statements with subsequent operators and traders
in the supply chain", thereby helping to avoid duplication
at every stage of the supply chain.
10. Require compliance with standards for indigenous and
community rights
The ENVI Committee draft report proposes that the
current draft requirement for harvesting to be
"deforestation-free", "degradation-free" and compliant
with national laws should be extended to include
compliance with "international laws and standards on the
rights of indigenous people and tenure rights of local
communities, including customary tenure rights and the
right to free, prior and informed consent."
There is a long way to go before any of these proposals ¨C
which are just a first draft of comments on a law which
itself is still only in draft form ¨C actually make it on to the
European statute book.
However, coming as they do from an influential
committee within the European Parliament, they do
indicate that there is strong strand of opinion within the
EU that even the existing legislative proposal for
deforestation-free products does not go far enough.
At this stage, there is every expectation that the new law
will eventually be passed in one form or another. However
the complexity of the issues involved, and the pleas from
some member states for more time to consider the full
implications and for wider international consultation,
suggest it may be several years before the new law is
effectively implemented. In the meantime, EUTR remains
in place and continues to provide the framework for
regulation of timber products placed on the EU market.
For additional insights, non-profit organisation Preferred
by Nature (PbN, formerly NEPCon) has run a seminar on
the operation and implications of the proposed new
regulation. A recording of the event is available at the link
below.
It features presentations by PbN¡¯s responsible sourcing
specialists Christian Sloth and David Hadley Garcia. They
give their insights into key elements and requirements of
the regulation and advise businesses trading in and using
the forest risk commodities it covers, including timber, on
what to prepare for ¡®if and when it comes into force¡¯.
See:https://preferredbynature.org/sourcinghub/eutr-info/eutrevents/webinar-eu-deforestation-regulation-english
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