SCS LegalHarvestTMDue Diligence SystemStandard

To demonstrate compliance with the European Union Timber Regulation

Draft 1-0 for Public Consultation: February 15, 2013

Table of Contents

Table of Contents

Introduction

Background

Components of a due diligence system

Defining legality

Risk assessment

Scope

Legal Disclaimer

References

Definitions

SCS Due Diligence System

1.Commitment to and Scope of the Due Diligence System

2.Supply Chain and Material Information

3.Risk Assessment

4.Risk Mitigation

Introduction

Illegal logging is a pervasive problem of major international concern, posing a significant threat to forests around the world. Illegal logging contributes to the process of deforestation and forest degradation, which is responsible for about 20% of global CO2 emissions. It also threatens biodiversity, and undermines sustainable forest management and development including the commercial viability of operators acting in accordance with applicable legislation. Regulatory and market requirements place increasing demands on companies to avoid illegally sourced forest products.

In 2010, the EU passed the first of a series of legislation dictating a system for ensuring only legal timber enters the EU market. The European Timber Regulation (EUTR) will become applicable in the EU on March 3rd, 2013 and sets out the obligations of operators who place timber products on the EU market. Operators placing timber products on the EU market are required to have a due diligence system (DDS) in place to control the risk of trading in illegal wood products. A DDS is designed to control the risk that illegal materials are in a given product.

The Due Diligence System (DDS) is a mechanism for timber product importers to demonstrate that they have taken sufficient measures to reduce the risk of placing illegally harvested timber products on the European market. SCS has designed a DDS Standard to be compatible with and show compliance to the European Timber Regulation (EUTR)[1]. It supports companies trading in forest products by establishing a DDS in accordance with the EUTR that enables these companiesto evaluate the risks of sourcing illegal products and to take appropriate mitigations measures.

Under the EUTR, Operators can set up their own Due Diligence System or follow one provided by a Monitoring Organization (MO). Ifan Operator develops its own Due Diligence System, the system does not need to be previously approved by the European Union. However, as a Monitoring Organization, SCS mustregularly maintainits Due Diligence Systems and ensure that Operators correctly use them. This way, Operators can take comfort that they are correctly implementing a system that has been duly recognized by the European Commission. Checksby enforcement bodies to assess Operators’complianceto the Regulation may be less intensivefor Operators using an officially recognizedDDS rather than using their own, unapproved DDS.

Background

Components of a due diligence system

A DDS is not just a standard; it is a stepwise process by which companies can determine the scope of their products to assess, assess the risk of illegality along their supply chains and in the products being sent to the EU, and systematically evaluate and mitigate risk of illegality. Implementation of a DDS is not a onetime activity but, rather, a continual process that will become part of company’s sourcing strategies and business practices for all wood products sold within the EU.

There are four key steps in implementing theDue Diligence System. These steps are fundamental components of all due diligence systems and are regulated to varying degrees by the EUTR.

  • Define the scope. The first step in the process requires the company to define the scope of their DDS. This means identifying all the timber products that the company places on the EU market andthat are covered by the EUTR. There are exemptions for certain kinds of timber products; for a full list of timber product types for which due diligence must be conducted under the EUTR, please see Annex I to Council Regulation (EEC) No 2658/87 [4], the latest version of which is available from:
  • Collect information. Once the scope of the DDS has been defined, information must be collected about the timber products and supply chains within the scope. Required information is listed in the Standard, but all information must be sufficiently detailed to allow for effective evaluation of the risk of sourcing illegal material.
  • Assess risk. Once the relevant information is collected on all the material and supply chains within the scope, the company must conduct a risk assessment using the method laid out in the Standard to identify areas at risk of sourcing illegal material. The information collected in this step is integral to assessing risk in the designated risk categories, as lack of information on the material or its supply itself constitutes a source of risk.
  • Mitigate risk. If risk is determined to be non-negligible through application of the risk assessment, the company must take actions to mitigate identified risks prior to placing affected timber products on the EU market. Risk mitigation could include any number of the following options: collecting additional information about supply chains, supply chain audits, desk-based or on-site forest management unit audits; replacing the supplier(s); requesting and replacing non-certified with certified material.

Figure 1: The four steps of a Due Diligence System

Defining legality

The EUTR defines “illegally harvested” as “harvested in contravention of the applicable legislation in the country of harvest.” ‘Applicable legislation’ is defined as “the legislation in force in the country of harvest covering the following matters:

  • rights to harvest timber within legally gazetted boundaries,
  • payments for harvest rights and timber including duties related to timber harvesting,
  • timber harvesting, including environmental and forest legislation including forest management and biodiversity conservation, where directly related to timber harvesting,
  • third parties’ legal rights concerning use and tenure that are affected by timber harvesting, and
  • trade and customs, in so far as the forest sector is concerned.”

The definition of legality is pertinent because through the use of a DDS a companyneeds to demonstrate that itsproducts comply with all the legal requirements of the EUTR. This means that a companymust assess legality on the same categories as does the EU to ensure itsproducts will be considered legal and in compliance with the Regulation. The definition of legality used in the SCS DDS aligns with the EUTR’s definition and meets all the requirements of the Regulation.

Risk assessment

One of the requirements of implementing a DDS is conducting a risk assessment on all the products determined to be under the scope of aclaim. A risk assessment is simply a process whereby the risk of illegality is determined for each product determined to be in the scope;i.e., products intended to be placed on the EU market. General categories of risk have been defined by the EUTR as: Forest Management Risk, Supply Chain Risk and Mixing/Trade Violation Risk.

The SCS DDS contains a risk assessment methodology for companies to follow that assures they are following the risk assessment and mitigation requirements of the EUTR. The risk assessment methodologyand guidance on how to implement it for a company’s supply chain and products is provided in the SCS Risk Assessment Manual.

Scope

The EU Timber Regulations state that “on the basis of a systemic approach, operators placing timber and timber products for the first time on the internal market should take the appropriate steps in order to ascertain that illegally harvested timber and timber products derived from such timber are not placed on the internal market. To that end, operators should exercise due diligence through a system of measures and procedures to minimize the risk of placing illegally harvested timber and timber products derived from such timber on the internal market.”

The Regulation may apply to anycompany, located in the EU or externally, that first places timber products on the EU market (i.e., imports wood from a non-EU country into one of the 27 member states of the European Union). “Timber products” include most wood products, with some exceptions. One principal exception is “used timber and timber products that have completed their lifecycle, and would otherwise be disposed.”

‘Placing on the market’ refers to supplying the product on the internal market, for distribution or use in commercial activity. The Regulations apply regardless of whether the goods were received in return for payment or free of charge. While the focus is on the product importer, information must be gathered and checked throughout the supply chain.

The full requirements of the Regulations do not apply to products derived from timber or timber products already placed on the internal EU market. ‘Traders,’ companies who are distributing or manufacturing products made from materials already placed on the internal market, must still be able to provide information on the entitythey received material from (i.e., an ‘Operator’ or another ‘Trader’), as well as “where applicable, the traders to whom they have supplied timber and timber products.”

SCS’ Due Diligence System is intended to assist companies placing products on the EU market to meet these requirements. SCS’ DDS is designed principallyfor Operators, but Traders may use it as well to minimize the risk of sourcing illegal products.

If questions arise regarding the applicability of the Regulations to a company or product, please contact SCS for assistance.

Legal Disclaimer

This document describes the requirements of the SCS Global Services’ Due Diligence SystemStandard (DDS). While thisnormative Standardis intended to be recognized by the European Commission, it is not intended, and should not be construed as legal advice. The role of SCS Global Services as a Monitoring Organization is to maintain this Due Diligence SystemStandard and to regularly evaluate proper application by its users. Conformity to this Standard demonstrates a measure of the user’s Due Diligence as defined by the European Union Timber Regulation. Conformity to this Standard does not relieve its users from the responsibility to comply withthe European Union Timber Regulation. SCS will not assumeresponsibilityfor any legal actions by European Union Competent Authorities or other parties taken against users of this Standard. Companies seeking legal advice on compliance with any law, regulation or requirement should consult with a qualified legal professional.

References

FSC-STD-40-004v2-1, FSC Standard for Chain of Custody Certification

Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010

SCS LegalHarvest™ Verification Chain of Custody Standard, Version 1.0

SCS LegalHarvest™ Verification Standard for the Assessment of Forests, Version 1.0

Definitions

Country of Harvest - the country or territory where the timber or the timber embedded in the timber products was harvested.

Illegally harvested - harvested in contravention of the applicable legislation in the country of harvest; (h) ‘applicable legislation’ means the legislation in force in the country of harvest covering the following matters:

  • rights to harvest timber within legally gazetted boundaries,
  • payments for harvest rights and timber including duties related to timber harvesting,
  • timber harvesting, including environmental and forest legislation including forest management and biodiversity conservation, where directly related to timber harvesting,
  • third parties’ legal rights concerning use and tenure that are affected by timber harvesting, and
  • trade and customs, in so far as the forest sector is concerned.

Legally Harvested - harvested in accordance with the applicable legislation in the country of harvest.

Operator- any natural or legal person that places timber or timber products on the market.

Placing on the Market- the supply by any means, irrespective of the selling technique used, of timber or timber products for the first time on the internal market for distribution or use in the course of a commercial activity, whether in return for payment or free of charge. It also includes the supply by means of distance communication as defined in Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts ( 3 ). The supply on the internal market of timber products derived from timber or timber products already placed on the internal market shall not constitute ‘placing on the market’.

Product- See Timber and Timber Products

Recycled Timber and Recycled Timber Products - used timber and timber products that have completed their lifecycle and would otherwise be disposed of as waste.

Timber and Timber Products- the timber and timber products set out in the Annex,at the end of the Regulation with the exception of timber products or components of such products manufactured from timber or timber products that have completed their lifecycle and would otherwise be disposed of as waste, as defined in Article 3(1) of Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste (2).

Trader- any natural or legal person who, in the course of a commercial activity, sells or buys on the internal market timber or timber products already placed on the internal market.

SCS Due Diligence System

1.Commitment to and Scope ofthe Due Diligence System

1.1The Organizationhas a written, publicly available policy, endorsed at the executive level that states the Organization’s commitment to sourcing wood products in compliance with the requirements as stated in the EUTR; namely avoiding placing illegally harvested timber on the market or timber products derived from such timber.

1.1.All relevant staff demonstrates awareness of and competence in implementing the Organization’s procedures relevant to fulfilling this Standard.

1.2.The Organizationhas written procedures covering all applicable elements of this Standard.

1.3.The Organizationannually monitors its conformance to this Standard.

1.4.All non-conformities to this Standard or the Regulation identified by or brought to the attention of the Organizationare documented.

1.5.The Organization ensures that records demonstrating conformance with the written procedures per 2.1 are maintained and available to SCS.

1.6.All relevant records are retained for a minimum of 5 years.

1.7.The Organization ensures that all identified non-conformities are resolvedwithin one year.

1.8.The Organizationdoesnot place timberproducts on the market ifthe Organization isawarethat the productsdo not fulfill the requirements specified in the Regulation.

1.9.The Organization clearly defines and documents the scope of their due diligence system in terms of supply chains, product and species covered.

2.Supply Chain and Material Information

2.1.The Organizationmaintainsthe following up-to-date information about products included within the scope of the DDS:

2.1.1. a description of the product, including product type and trade name;

2.1.2. the common and full scientific name of tree species used in theproduct[2];

2.1.3. the amount of material purchased and sold, expressed in volume, weight or numbers of units;

2.1.4. the country of harvest and where applicable the sub-national region where the timber was harvested and concession of harvest[3],

2.1.5. the name and address of suppliers from whom the Organization purchased material;

2.1.6. the name and address of buyers (traders) to whom the Organization supplied products;

2.1.7. the certification/verification status of the supplier and material supplied;

2.1.8. documents or other information indicating compliance of those timberproducts with the applicable legislation

2.1.9. If the Organization is also handling material which is not included in the scope of the DDS, the Organization ensures that material under the DDS scope is not mixed with any other materials and complies.

2.2.The Organizationhas access to and utilizesinformation about its supply chains of timberproducts to a level that allows the Organization to effectively identify, assess and mitigate risks for receiving illegal timber products[4].

2.3.The Organizationinforms its suppliers about the pertinent requirements of the Regulation.

2.4.The Organization requests from suppliersregular updates and notifications of changes to product information that is pertinent to compliance with the Regulation.

3.Risk Assessment

3.1.The Organization assesses and specifies the level of risk of illegal timber products being placed on the market, including risks in the following areas[5]:

3.1.1. the risk of legal violations related to forest management activities, taking into account;

  • the prevalence of illegal harvesting of specific tree species;
  • theprevalence of illegal harvesting or practices in the country of harvest and/or sub-national region where the timber was harvested, including consideration of the prevalence of armed conflict.
  • the risk of legal violations within the supply chains in relation to transport and trade of the products, including declaration and classification of the material for customs; and
  • therisk that the material is mixed with other material of illegal or unknown origin somewhere in the supply chain during transport, processing or storage.
  1. The Organizationdoes not source wood from countries with sanctions imposed by the UN Security Council or the EU Council on timber imports or exports or from countries with prevalence of armed conflicts.
  2. For each product the Organizationwrites a Risk Assessment using the Risk Assessment Manual to assign and justify a level of risk for each risk category (forest level, supply chain level and risk of mixing with unacceptable material).
  3. Risk assessmentsare reviewed at least annually and whenever changes occur that could alter the level of risk.

4.Risk Mitigation

4.1.The Organization develops and implementsmeasures and procedures that are adequate and proportionate to effectively mitigate the assessed risk[6].

4.2.The Organization implements risk mitigation actions before the product isplaced on the market.

4.3.The Organizationdoes not place onto the market products from suppliers found to have major or repeated violations of the requirements of this Standard.

4.4.Where the Organization or the Certifier determines the need for verification audits, the Organizationobtains consent from its suppliers to allow external auditors to access evidence of compliance with the Standard and to conduct supply chain and forest-level audits, where necessary[7].