FEFCO BRIEFING NOTE FOR A BETTER UNDERSTANDING OF THE EU TIMBER REGULATION AND ITS IMPACT ON THE CORRUGATED INDUSTRY

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1 FEFCO BRIEFING NOTE FOR A BETTER UNDERSTANDING OF THE EU TIMBER REGULATION AND ITS IMPACT ON THE CORRUGATED INDUSTRY This note is intended to contribute to a better understanding of the new provisions of the Regulation. However, it is the responsibility of the company to ensure compliance with the obligations laid down in the Regulation. FEFCO cannot foresee every possible case. The EU Timber regulation becomes applicable on 3 rd March The Regulation is legally binding in all 27 EU Member States. The EUTR does not have retroactive effect. The prohibition will not apply to products placed on the market before 3 rd March In case of products stored in a warehouse, presumably, they are not covered if cleared by the customs before 3 rd March First of all, in order to avoid an under estimation of the legal effects of the Regulation, you must consider that your company might have criminal liability if you do not comply with the legal provisions. Member States will ensure that infringements of this Regulation, including operators, traders and monitoring organisations, are sanctioned by effective, proportionate and dissuasive penalties 1. The operators are liable to criminal prosecution if they were found to have placed or be placing illegal timber on the market. Penalties will be proportionate to the crime and may include imprisonment. Penalties for traders will be on the basis of non- compliance with due diligence systems. Overview The Regulation contains three key obligations: 1) It prohibits the placing of the illegally harvested timber and products derived from such timber on the EU market, 2) It requires EU traders of timber products on the EU market to exercise 'due diligence'; 3) It requires EU traders to keep records of their suppliers and customers. Definitions of Operator and Trader Operator Your company is an operator if you are placing the timber/timber product for the first time on the EU market. Obligations Prohibition to place illegally harvested timber and products derived from such timber on the EU market; Exercise due diligence when placing timber or timber products on the market and evaluate it regularly; Keep records of the suppliers and customers. 1 Penalties - Article 19 of the EUTR

2 Trader You are a Trader if your company is not placing products on the EU Market for the first time. Obligations Being a Trader obliges you to ensure systems able to trace timber purchases to sales. Such systems will allow enforcement agencies to establish the source of entry into the EU of any illegal timber found down the supply chain and therefore instigate any criminal proceedings against the relevant operator. The complexity of the supply chain will be linked on the ability to trace back the timber up to its place of harvest. Traders are obliged to keep records for 5 years of their suppliers and buyers.. What is "due diligence"? The operator has to undertake a risk management exercise so as to minimise the risk of placing illegally harvested timber, or timber products containing illegally harvested timber, on the EU market. The three key elements 2 of the "Due Diligence System"(DDS) are: 1) Information: The operator must have access to the product description, origin country, species, quantity, supplier and any compliance with national legislation. 2) Risk assessment 3 : The operator should assess the risk of placing illegal products on the market (in his supply chain) taking into account criteria set out in the regulation. 3) Risk mitigation: Additional information and verification from the supplier should be requested in case of a risk of placing illegal products on the market (supply chain). The level of risk can only be assessed on a case by case basis and there is not a single accepted system for risk assessment. Which products are covered by the Regulation? The products are listed in the Annex of the EUTR with a code according to the Combined Nomenclature 4 or CN comprised of the Harmonized System (HS) nomenclature. The Regulation covers: A broad range of both imported and domestically produced timber products including solid wood products, flooring, plywood, pulp and paper. Packing cases, boxes, crates, drums and similar packings, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood if they are sold on the markets as a packaging in its own right. 2 Article 6 of the EUTR 3 There is no quantification of the term negligible risk in the regulation. Negligible risk should be understood to apply to a supply when no cause for concern can be discerned from the risk assessment. If the risk is negligible, there is no obligation for the operator to apply mitigation measures. 4 The Combined Nomenclature is the tariff and statistical nomenclature of the Customs Union. The Common Customs Tariff is the external tariff applied to products imported into the European Union (EU) as set out in Annex I to the Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff. 2

3 Exceptions: Not included are recycled products, as well as printed papers 5. Examples: Bamboo-based and recovered (waste and scrap) products; Products of the HMS codes 4415 (cartons, boxes, cases bags and other packaging containers etc. from wood) and 4819 (cartons, boxes, cases bags and other packaging containers etc. from paper) will not be covered by the regulation, if they are sold on the markets as a packaging material to support, protect or carry another product placed on the market. Application by Monitoring Organisations The Regulation provides for "Monitoring organisations" to be recognised by EU 6. Operators may develop their own system or use one of a monitoring organisation. The Commission adopted the Regulation of 23 February 2012 on the rules for the recognition and cancelation of monitoring organisations as provided for in Regulation (EU) No 995/2010 of the European Parliament and of the Council laying down the obligations of operators. Certification Only FLEGT 7 and CITES 8 licensed timber will be recognised as legal timber under EUTR, everything else will have to have gone through a system of Due Diligence. Certified products (FSC, PEFC, etc) should be regarded as lower risk but will not be recognised as legal timber under EUTR. Documentation The EUTR provides 9 the list of documents and other information indicating compliance with applicable legislation in the country of harvest that must be collected as part of the DDS obligation. The Commission or, the national authorities, will not establish an official database with data from third countries. European Commission Guidance The guidance on the EUTR implementation is not legally binding, and that it has been developed as a support tool for the competent authorities and operators. An updated version is expected to be published before March The updated Guidance will contain (not exhaustive list): 5 Printed books, Newspapers, pictures, and other products of the printing industry, manuscripts (Reference: 6 The list of Monitoring Organisations (MO) is expected to be released by the Commission before March FLEGT Voluntary Partnership Agreements (VPAs): voluntary scheme to ensure that only legally harvested timber is imported into the EU from countries agreeing to take part in this scheme. More info at: 8 CITES: the Convention on International Trade in Endangered Species of Wild Fauna and Flora 9 Article 6 of the EUTR -Due Diligence Systems (DDS): See Annex. 3

4 1) The definition of "placing on the market : art 2 2) Definition of negligible risk: art 6 3) Clarification of "complexity of the supply chain : art 6 4) Clarification of the requirement for documents indicating compliance of timber with applicable legislation: articles 6 &2 5) Clarification of the product scope packaging materials: art 2 & Annexe 6) Clarification of the product scope "waste"/"recovered" products: Recital 11, Art 2 & Directive 2008/98 (Waste) 7) The role of third parties verified schemes in the process of risk assessment and risk mitigation: Recital 19, art 6 & 4 8) Regular evaluation of a due diligence system: art 4 For more information: FEFCO January

5 ANNEX DUE DILIGENCE SYSTEM (DDS) Article 6 of the EUTR - Due Diligence Systems (DDS): The due diligence system referred to in Article 4(2) shall contain the following elements: (a) measures and procedures providing access to the following information concerning the operator s supply of timber or timber products placed on the market: description, including the trade name and type of product as well as the common name of tree species and, where applicable, its full scientific name, country of harvest, and where applicable: (i) sub-national region where the timber was harvested; and (ii) concession of harvest, quantity (expressed in volume, weight or number of units), name and address of the supplier to the operator, name and address of the trader to whom the timber and timber products have been supplied, documents or other information indicating compliance of those timber and timber products with the applicable legislation; (b) risk assessment procedures enabling the operator to analyse and evaluate the risk of illegally harvested timber or timber products derived from such timber being placed on the market. Such procedures shall take into account the information set out in point (a) as well as relevant risk assessment criteria, including: assurance of compliance with applicable legislation, which may include certification or other third-party- verified schemes which cover compliance with applicable legislation, prevalence of illegal harvesting of specific tree species, prevalence of illegal harvesting or practices in the country of harvest and/or subnational region where the timber was harvested, including consideration of the prevalence of armed conflict, sanctions imposed by the UN Security Council or the Council of the European Union on timber imports or exports, complexity of the supply chain of timber and timber products. (c) except where the risk identified in course of the risk assessment procedures referred to in point (b) is negligible, risk mitigation procedures which consist of a set of measures and procedures that are adequate and proportionate to minimise effectively that risk and which may include requiring additional information or documents and/or requiring third party verification.en Official Journal of the European Union L 295/27 2. Detailed rules necessary to ensure the uniform implementation of paragraph 1, except as regards further relevant risk assessment criteria referred to in the second sentence of paragraph 1(b) of this Article, shall be adopted in accordance with the regulatory procedure referred to in Article 18(2). Those rules shall be adopted by 3 June Taking into account market developments and the experience gained in the implementation of this Regulation, in particular as identified through the exchange of information referred to in Article 13 and the reporting referred to in Article 20(3), the Commission may adopt delegated acts in accordance with Article 290 TFEU as regards further relevant risk assessment criteria that may be necessary to supplement those referred to in the second sentence of paragraph 1(b) of this Article with a view to ensuring the effectiveness of the due diligence system. For the delegated acts referred to in this paragraph the procedures set out in Articles 15, 16 and 17 shall apply. 5