Final Report. Legal Forest Products Assurance A framework for differentiating legality verification and chain of custody schemes

Transcription

1 Final Report Legal Forest Products Assurance A framework for differentiating legality verification and chain of custody schemes 3 MARCH Prepared for Department of Agriculture, Fisheries and Forestry 8 Marcus Clarke Street Canberra City ACT

2 Project Manager: Project Director: Kerri Rusnak Senior Consultant URS Australia Pty Ltd Level 6, Southbank Boulevard Southbank VIC 36 Australia T: F: Blair Freeman Project Director Reviewer: John Tredinnick Senior Principal Date: Reference: Status: 3 March //4 Final Document delivery URS Australia provides this document in either printed format, electronic format or both. URS considers the printed version to be binding. The electronic format is provided for the client s convenience and URS requests that the client ensures the integrity of this electronic information is maintained. Storage of this electronic information should at a minimum comply with the requirements of the Commonwealth Electronic Transactions Act (ETA). Where an electronic only version is provided to the client, a signed hard copy of this document is held on file by URS and a copy will be provided if requested.

3 Table of Contents Executive Summary...v Introduction... Overview of Schemes...3. Summary of schemes...3. Related initiatives Assessment Framework Key elements Assessment criteria Rigour and robustness... 4 Assessment of Schemes Assessment scorecards Assessment of schemes Verification requirements Audit requirements Governance arrangements Synthesis of Findings Legal origin Legal compliance Chain of custody Trade in Verified Products Traded products Australian imports Verified trade Initiatives impacting verified trade Conclusions Assessment of schemes Guidance for timber importers Capacity building initiatives References Limitations //4 i

4 Tables Table - Selected legality and CoC schemes... 5 Table - Coverage of selected legality and CoC schemes... 7 Table 3- Assessment criteria for legality and CoC schemes... Table 6- Indicative value of verified wood and paper products, imported to Australia from selected Asia-Pacific countries (9) Figures Figure - Context for legality and chain of custody schemes for forest products... Figure 4- Assessment of verification requirements for legal origin Figure 4- Assessment of verification requirements for legal compliance Figure 4-3 Assessment of verification requirements for chain of custody Figure 4-4 Assessment of audit requirements of legality schemes Figure 4-5 Assessment of audit requirements for chain of custody schemes Figure 4-6 Assessment of governance for legality schemes Figure 4-7 Assessment of governance for chain of custody schemes Figure 5- Assessment of legal origin schemes Figure 5- Assessment of legal compliance schemes... 4 Figure 5-3 Assessment of chain of custody schemes... 4 Figure 6- Australia s imports of wood and paper products from selected countries in the Asia Pacific region (8) Appendices Appendix A Overview of schemes Appendix B Relevant studies of verification schemes Appendix C Assessment of selected schemes Appendix D Commentary on selected schemes Appendix E Trade volume imports to Australia //4 ii

5 Abbreviations Abbreviation AFCS AFS ASEAN CoC CPET DAFF DFA EU FLEGT FMU FSC GFS GFTN ISEAL ISO ITTO LPI LC LO LV MLTV MoF MOU MTCC MTCS NGO ODI PEFC PNG RAFT RAP/CoC Description Australian Forest Certification Scheme Australian Forestry Standard Association of South East Asian Nations Chain of Custody Central Point of Expertise on Timber Department of Agriculture Fisheries and Forestry Defined Forest Area European Union Forest Law Enforcement, Governance and Trade Forest Management Unit Forest Stewardship Council Global Forestry Services Inc Global Forest Trade Network International Social and Environmental Accreditation and Labelling Alliance International Organization for Standardization International Tropical Timber Organization Lembaga Penilai Independen (Mandatory legal compliance) Legal compliance Legal origin Legality verification Mandatory Legal Timber Validation Indonesian Ministry of Forestry Memorandum of Understanding Malaysian Timber Certification Council Malaysian Timber Certification Scheme Non-governmental organisation Overseas Development Institute Programme for the Endorsement of Forest Certification schemes Papua New Guinea Responsible Asia Forestry and Trade Programme (USAID program) Requirements and Assessment Procedures for Chain-of-Custody Certification //4 iii

6 Abbreviation RCoC SFM SGS SVLK TFF TFT TLAS TLTV TTAP UNFF URS VLC VLO VPA WCS WTP WWF Description Requirements for Chain-of-Custody Certification Sustainable Forest Management Société Générale de Surveillance Sistem verifikasi legalitas kayu (Indonesia s Timber Legality Assurance System) Tropical Forest Foundation Tropical Forest Trust Timber Legality Assurance System (see also SVLK) Timber Legality & Traceability Verification Timber Trade Action Plan United Nations Forum on Forests URS Australia Pty Ltd, trading as URS Forestry Verification of Legal Compliance Verification of Legal Origin Voluntary Partnership Agreement (under EU FLEGT programme) Wood Control System Wood Tracking Program World Wildlife Fund //4 iv

7 Executive Summary Introduction URS Forestry (URS) was engaged by the Department of Agriculture, Fisheries and Forestry (DAFF) to: (i) (ii) Describe existing legality verification (legality) and chain of custody (CoC) schemes that are used to verify the legality of timber and wood products exported to Australia from producer countries in the Asia-Pacific region; and Provide a framework to differentiate schemes on the basis of the rigour and robustness of their verification and auditing requirements and governance arrangements. The outcomes of the project are intended to assist importers and domestic producers to identify schemes that have the capacity to provide a level of assurance that timber products are from a legal source. The level of assurance required should be commensurate with the risks of products being derived from illegally harvested sources. URS has developed an assessment framework through the distillation and synthesis of a broad range of criteria and indicators for verifying legality. This framework applies equal weightings to the assessment criteria and indicators. A more definitive assessment of schemes would require direct inputs from relevant schemes and a broad stakeholder review of the proposed criteria and indicators. The URS framework can be used as the basis for further engagement with government agencies, timber importers, scheme operators and other stakeholders working to combat illegal logging within the region. Key matters to be addressed to support a finer differentiation of schemes would be to consider the criteria and the weightings applied to them. This review covers schemes that have the broader aim of certifying sustainable forest management (SFM), but has focussed only on the principles and indicators relating specifically to legality verification requirements. The assessment of broader forest management and sustainability aspects of certification schemes was not included in the review. Key elements and assessment criteria Based on a review of selected schemes and other relevant studies, three key elements of legality and CoC schemes were identified: Verification - The specific standards and other requirements of the scheme against which the legality of wood products or the CoC is assessed; Audit - Auditor requirements and the processes for auditors to follow when assessing whether the requirements of the scheme have been met; and Governance The structure and processes for the establishment and ongoing management of standard setting, verification and administration procedures. Using these elements, the rigour and robustness of schemes were defined as follows: Rigour The coverage and depth of a scheme s processes and procedures for verification and audit requirements; and Robustness The capacity of a scheme to withstand external influences and to respond to industry dynamics and drivers for improvement in relation to its governance //4 v

8 Executive Summary Assessment framework Assessment criteria were developed for each of the key elements and these are presented in Table. These criteria form the basis of a framework that importers and domestic producers can use as part of their due diligence to minimise the risk of illegal timber entering their supply chain. Table Assessment criteria for legality and CoC schemes Key element Schemes Assessment criteria Verification Legal origin Principle: Legal access and rights to harvest are clearly defined and established Legal access and harvest rights are clearly defined and legally established Legal compliance Chain of custody Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels All royalties, fees and taxes properly due from timber production are paid to land owners, local community and other entities Principle: Rights to harvest and compliance in the conduct of forestry operations are clearly defined and established Same criteria as for Legal origin, plus Compliance with all codes of practice for harvesting operations and all relevant social and environmental legislation and regulations relevant to forestry operations Principle: Auditable systems are in place for tracking and monitoring the flow of wood products from the forest through the supply chain The scheme requires systematic processes to verify the origin of materials and ensure valid documentation matches nominated materials The scheme requires a chain of custody system to track certified or verified legal wood along the certification chain, using appropriate inventory methods and documented controls The scheme requires effective controls to prevent products from unverified and potentially illegal sources from entering the supply chain The scheme has a defined policy for product labelling and processes for managing associated product claims Audit All schemes Principle: Compliance with the scheme is audited regularly and the results are publicly available Compliance with all legality verification requirements is documented and maintained for audit Stakeholder consultation is undertaken as appropriate during the audit Audit reports and certificate holder status for the scheme are publicly reported Governance All schemes Principle: Robust standard setting processes are in place for verification and audit and for management of non-compliance The scheme s standard has been developed by a nationally or internationally recognised standards authority The scheme has been developed with broad stakeholder input There is a clear basis for establishing compliance and corrective actions for non-compliance Auditors are independent third parties that are accredited by an independent accreditation body //4 vi

9 Executive Summary Assessment of schemes This framework was applied to existing legality and CoC schemes operating within the Asia-Pacific region. Under this framework, a scoring system was developed to compare the schemes and identify key aspects of differentiation. For the purpose of this review, the assessment outcomes were grouped into broad categories relating to the extent to which the schemes provide a level of assurance that timber products are from a legal source. Based on the assessment framework developed in this project and information currently available, the following schemes ranked highly against the criteria: Rigour Legal verification Australian Forest Certification Scheme - Sustainable Forest Management Forest Stewardship Council (FSC) Controlled Wood Systems FSC Principles & Criteria for Forest Management Société Générale de Surveillance (SGS) Timber Legality & Traceability Verification SmartWood Verification of Legal Origin (VLO) and Verification of Legal Compliance (VLC) Chain of custody Australian Forest Certification Scheme Chain-of-Custody SGS Timber Legality & Traceability Verification FSC Chain-of-Custody standard Malaysian Timber Certification Scheme Programme for Endorsement of Forest Certification (PEFC) Chain-of- Custody SmartWood Chain of Custody Robustness Australian Forest Certification Scheme - Sustainable Forest Management FSC Controlled Wood Systems FSC Principles & Criteria for Forest Management Malaysian Timber Certification Scheme Indonesia s Sistem verifikasi legalitas kayu (SVLK) - Timber Legality Assurance System Australian Forest Certification Scheme Chain-of-Custody FSC Chain-of-Custody standard Malaysian Timber Certification Scheme Programme for Endorsement of Forest Certification (PEFC) Chain-of- Custody Indonesia s SVLK - Timber Legality Assurance System SGS Timber Legality & Traceability Verification As legality verification and CoC schemes are evolving, it is expected the assessment of schemes will change over time in response to market influences and continuous review and improvement mechanisms. Two broad conclusions can be drawn from the assessment against the criteria. These are: Benefits of scale the more rigorous and robust schemes tended to be those which have the resources to develop and implement audit procedures and governance structures that support the implementation of schemes on the ground, including national programs and well established global frameworks such as the FSC and PEFC; and Improvement of audit and governance elements in broad terms, verification requirements tended to be stronger than the auditing and governance requirements across a range of schemes. This indicates importers and producers may need to give particular attention to auditing and governance requirements within schemes to minimise risks that the products are from illegally harvested sources //4 vii

10 Executive Summary Guidance for timber importers The assessment framework developed in this review can assist importers to complete a due diligence assessment of the legal origin of timber and wood products. The key requirements for legality and CoC schemes are as follows: Key requirements for legality verification. The scheme s standard is developed by or in conjunction with a national or internationally recognised standards authority;. Auditors are accredited by an independent accreditation body; 3. Legal access and rights to harvest are clearly defined and legally established; 4. Where required, approval of management plans by the appropriate authority; 5. Compliance with all codes of practice for harvesting operations, and all relevant social and environmental legislation and regulations relevant to forestry operations; 6. Stakeholder consultation during the audit process; and 7. Documented compliance with all aspects of the legality verification scheme. Key requirements for chain of custody. The scheme s standard is developed by, or in conjunction with, a national or internationally recognised standards authority;. Broad stakeholder input is sought during the development of the scheme; 3. Auditors are accredited by an independent accreditation body; 4. Systematic process are in place to verify the legal origin of wood direct from the forest through checks on accompanying documentation; 5. Effective controls to prevent unverified wood from entering the supply chain, such as a risk assessment to identify wood from high risk sources, and physical segregation of wood from high risk or otherwise unverified sources; and 6. Product claims are used in accordance with a product labelling policy relating to claims on legality verification. Importers can use this framework to identify the risks of products being derived from illegally harvested sources and then determine if available schemes provide an adequate level of assurance that the product is from a legal source. Where available schemes do not address the risks adequately, this framework indicates the additional information that importers would need to obtain from their suppliers to minimise the risks. Trade in legally verified products Knowledge of the volume and value of trade in legally verified timber and wood products, and the rigour and robustness of schemes used to verify the legality of these products relative to total imports, is important to effectively combating illegal logging. However, there is limited information available on the total volume of legally verified products. In the absence of this information, a methodology is proposed to determine indicative values based on the proportion of the area certified or verified legal product for selected producer countries in the Asia Pacific region. For each country and scheme, records of forest management, legality and CoC certificates were referenced to identify the product groups that have been verified. The legally verified proportion of products imported to Australia was then determined by comparing the product groups that have been verified within the exporting country to the products that are exported to Australia from that country. Using this proposed methodology and trade value data from Global Trade Information Services, New Zealand is estimated to be the largest exporter of verified materials to Australia, accounting for an estimated 8% of the value of verified imports from Asia Pacific countries. The next largest exporters of verified materials to Australia are Malaysia (4%) and then Indonesia (3%), followed by China, Thailand, Vietnam and Papua New Guinea //4 viii

11 Executive Summary In total, it is estimated that around AUD549 million of verified wood and paper products were imported from these countries into Australia in 8, representing approximately 9% of the total import value from the Asia Pacific countries of interest. This analysis indicates there is a large proportion of wood product imported from within the Asia Pacific region that is not covered by certification or legality verification schemes. This does not necessarily imply that these unverified products are from illegal sources. However, in countries where regulatory systems relating to the assurance of timber legality have limitations, further effort is required to provide this assurance for Australian importers, producers and consumers. Capacity building to develop legality and chain of custody schemes Initiatives that are likely to have a significant impact on the extent of uptake of timber legality verification and CoC schemes within the Asia Pacific region in the future include: Voluntary Partnership Agreements implemented between producer counties and the EU; US Lacey Act amendments and EU legislation that have been designed to establish due diligence requirements for operators to implement management systems that will minimise the risk of importing or otherwise trading in timber and wood products from illegally harvested sources; Growing interest in climate change mitigation, particularly reduced emissions through avoided deforestation and degradation (REDD) and the processes required to ensure credibility of REDD projects and emission reduction credits; and Increasing stringency of public and industry procurement policies in consumer countries. Australia may help focus efforts on the development and adoption of timber legality verification and CoC schemes through the above initiatives and through capacity building programs and policy leadership within the Asia Pacific region. In addition to this report, programs underway that facilitate this contribution include the Asia Pacific Forestry Skills & Capacity Building Program (Phases I and II) and the development of an industry code of conduct designed to assist importers to identify illegally logged timber and restrict its import into Australia. These initiatives will strengthen Australia s policy position on illegal logging and provide a clear framework within which Australia can engage directly with other countries with shared interests in restricting the trade of illegally logged timber. This assessment suggests Australia could focus its further efforts in capacity building on initiatives that will strengthen auditing requirements and governance associated with timber legality verification and CoC schemes. This could include: Governance roles within national or regional programs. For example, this may include: o Roles on governing boards or advisory committees for regional or national schemes or initiatives with the purpose of developing common standards and governance systems; and o Roles on audit or compliance committees responsible for overseeing the implementation of regional or national schemes or initiatives, including the review of auditor accreditation and compliance reporting; Promotion of the development and implementation of auditor training programs, potentially through an independent accreditation entity or facility to support timber and wood product legality verification within the Asia Pacific region; and Secretariat functions for intergovernmental initiatives, to support the implementation of schemes and facilitate the further development of coordinated initiatives across the region //4 ix

12 Introduction URS Forestry (URS) has been engaged by the Department of Agriculture, Fisheries and Forestry (DAFF) to establish a framework that will assist importers and producers to differentiate legality verification (legality) and chain of custody (CoC) schemes. This framework can be used by importers to identify those schemes that have the capacity to address identified risks of timber and wood products being derived from illegally harvested sources. The scope of the framework is intended to cover timber and wood products exported to Australia from producer countries in the Asia-Pacific region. This review also discusses the proportion of wood products imported into Australia that are covered under existing schemes. The common purpose of legality schemes and CoC schemes is to provide an assurance of the legality of timber and wood products to customers and other stakeholders. However, the scope of schemes varies depending on the criteria and verification processes specified. For the purposes of this project, the scope of legality and CoC schemes is delineated as follows: Legality schemes relate specifically to verification of the legal status of timber and wood products harvested from specified areas. This analysis encompasses two levels of legality: Verification of Legal Origin and Verification of Legal Compliance. These levels are defined as : Verification of Legal Origin (VLO) verifies that producers have the right to access and harvest, complying with the relevant timber harvesting laws and regulations. This includes possession of required approvals and permits, adherence to production quotas and allowable species, and that they have paid all relevant fees, charges, taxes and royalties; and Verification of Legal Compliance (VLC) verifies that legal origin has been demonstrated and that producers have complied with all relevant local, national and international forestry, environmental, social and labour regulations, codes of practice and conventions. Chain of custody schemes relate to verification of the controls and systems implemented to ensure the origin of verified or certified wood products is from legal sources. This is achieved by tracking the wood products through all the steps in the process from the forest, through the various manufacturing and distribution stages and ultimately to the point where the final consumer purchases the product, where claims of legal origin or compliance are made. The scope of this review includes schemes that have the broader aim of certifying sustainable forest management (SFM), but with a focus only on the principles and indicators relating specifically to legality requirements. The assessment of broader forest management and sustainability aspects of certification schemes was not included in this project. Figure - outlines the scope of legality and CoC schemes for forest products, and their interaction in the broader context of sustainable forest management initiatives. In this framework, VLO and VLC assessments relate to forestry operations within the forest gate, and the CoC extends from the forest gate to the end consumer of wood products. URS developed this assessment framework in consultation with DAFF, following an analysis of existing schemes and a review of recent and relevant studies relating to forest certification and legality assessments. The framework is focussed on the key elements of schemes and the use of assessment criteria to compare their rigour and robustness. Based on definitions and descriptions of VLO and VLC by SmartWood (7) and SGS (9) Crawford (7) //4

13 Introduction The development of the framework is described in Section 3. Results of an assessment using this framework for existing schemes are presented in Sections 4 and 5. An assessment of verified trade from key producer countries is presented in Section 6. Outcomes and conclusions are presented in Section 7, with discussion of how the analysis and results can be used by key stakeholders, including timber importers and policy makers. This section also outlines the scope for Australia to assist further in capacity building in key producer countries. Figure - Context for legality and chain of custody schemes for forest products Source: Derived from SmartWood (7) Generic Standards for VLO and VLC; and Crawford (7) //4

14 ummary of Schemes S Overview of Schemes The legality and CoC schemes addressed in this analysis all operate within the Asia-Pacific region, for the purpose of assessing and verifying legality and CoC for timber and wood products. All of the schemes use a detailed standard or defined set of principles and criteria.. Summary of schemes A summary of schemes included in this analysis is set out in Table -. This summary comprises brief descriptions of the following aspects of each scheme: Owner the proponent of the scheme; Type the coverage of the scheme in terms of legality verification and CoC requirements; Certificates issued the number of certificates issued within the Asia Pacific region; and Product scope the forest and wood products that can be verified by the scheme. Table - illustrates the scope of the schemes addressed in this analysis in terms of the extent of their coverage across legality verification and CoC certification. Further information on each of these schemes is outlined in Appendix A.. Related initiatives There is a range of other programs and initiatives underway that relate to efforts to restrict illegal logging and related trade. While excluded from this analysis, it is important to recognise the role they play in supporting the development of legality and CoC systems within the region. These programs and initiatives include: Intergovernmental processes and agreements, such as the United Nations Forum on Forests (UNFF), International Tropical Timber Organization (ITTO) policy and projects, and the European Union s (EU) Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan. Bilateral agreements formed under these processes, such as Voluntary Partnership Agreements (VPAs) between the EU and producer countries, are supporting the further development of Timber Legality Assurance Systems (TLAS) where VPAs have been established; National import legislation and regulations, such as the US Lacey Act, and the proposed EU due diligence regulations. Under the Lacey Act, timber importers are required to exercise due care to ensure timber legality. Credible third party verification of legality or forest management certification can be used as one means of demonstrating this due care. The proposed EU due diligence regulations include requirements for member states to ensure that only legally harvested timber and timber products are placed on the market. This requires employment of a traceability system and third party verification; Government timber procurement policies, such as the UK Timber Procurement Policy and the New Zealand Timber and Wood Products Procurement Policy, specifying the purchase of legal timber with a preference or requirement for third party verification of legality; and Supply chain support programs, which assist or facilitate industry members in verifying and/or strengthening the assurance of legality in their supply chains. These include government and industry sponsored programs such as the WWF Global Forest and Trade Network (GFTN) //4 3

15 Table - Selected legality and CoC schemes Standard Owner Type ASEAN Timber Legality Criteria and Indicators Australian Forest Certification Scheme (AFCS), Australian Forestry Standard (AFS) Sustainable Forest Management - AS 478 AFCS CoC Standard - AS Chain of Custody for certified wood and forest products ASEAN and supporting regional partners Australian Forest Certification Scheme (AFCS) Certificates issued Product scope VLO/ VLC In development Wood based and non-timber forest products VLO/ VLC 5 Wood based raw materials AFCS CoC 4 Wood based raw materials, post-consumer wood raw material Certisource Legality and CoC Verification Certisource UK VLO/ VLC/ CoC 8 Logs and sawn timber Forest Stewardship Council (FSC) Principles and Criteria for Forest Stewardship FSC Controlled Wood Standard for Forest Management Enterprises FSC Standard for Chain of Custody Certification Global Forestry Services (GFS) Requirements on Legality (LVS-5) GFS Guidelines on Requirements - CoC (WTP - 5) Indonesia s Sistem verifikasi legalitas kayu (Timber Legality Assurance System) FSC VLO/ VLC 8 Wood based and non-timber forest products FSC VLO/ VLC 4 Wood based and non-timber forest products FSC CoC Not available Wood based and non-timber forest products from virgin and/or reclaimed materials from wood/paper processing Global Forestry Services VLO/ VLC Not available Wood based forest products Global Forestry Services CoC 4 Raw and processed wood products Indonesian Ministry of Forestry (MoF) SVLK VLO/ VLC/ CoC In development Wood based forest products Malaysian Criteria and Indicators for Forest Management Certification Malaysian Timber Certification Council (MTCC) VLO/ VLC Wood based raw materials Programme for Endorsement of Forest Certification - CoC of Forest-based Products Requirements Malaysian Timber Certification Council (MTCC) CoC 6 in Malaysia, plus 86 PEFC CoC in region, except Australia Wood based raw materials, post-consumer wood raw material //4 5

16 Overview of Schemes Standard Owner Type SmartWood Generic Standard for Verification of Legal Origin Rainforest Alliance SmartWood program Certificates issued Product scope VLO 8 Wood based and non-timber forest products SmartWood Generic Standard for Verification of Legal Compliance Chain-of-Custody Standard for General Applications Rainforest Alliance SmartWood program Rainforest Alliance SmartWood program VLC Wood based and non-timber forest products CoC Not available Wood based and non-timber forest products Société Générale de Surveillance (SGS) Timber Legality and Traceability verification (TLTV) (draft) Generic Standard Tropical Forest Foundation (TFF) Standard for Legal Origin (v..) & CoC minimum requirements TFF Standard for Legal Compliance (v.5.) (Indonesia) & CoC minimum requirements SGS VLO/ VLC/ CoC Timber production and timber processing (wood based forest products) Tropical Forest Foundation VLO/ CoC 6 Wood based and non-timber forest products Tropical Forest Foundation VLC/ CoC Wood based and non-timber forest products Tropical Forest Trust (TFT) Wood Control System (WCS), also known as Chain of Custody System Source: Company information, October 9 Tropical Forest Trust (TFT) CoC 59 members Wood based and non-timber forest products //4 6

17 Overview of Schemes Table - Coverage of selected legality and CoC schemes SFM VLC VLO AFSC SFM ASEAN TCI Certisource LAC FSC P&C FSC CW for FMEs GFS LVS MTCS SGS TLTV Smartwood VLO Smartwood VLC + Smartwood VLO SVLK TFF VLO TFF SLC + TFF VLO TFT WCS forest gate COC AFCS COC Certisource LVP FSC CoC GFS WTP MTCS/ PEFC COC SGS TLTV SmartWood CoC SVLK TFF LV/RIL-COC TFT WCS //4 7

18 3 Assessment Framework 3 Each legality and CoC scheme contains multiple criteria and indicators, which can make it difficult to determine whether particular schemes can adequately verify the legal origin of wood-based products. To this end, an assessment framework has been developed to assist importers and domestic producers to differentiate between legality and CoC schemes. This framework, presented below, has been designed to assist importers to complete a due diligence assessment of the legal origin of timber and wood products. Importers that identify risks of products being derived from illegally harvested sources can use the framework to determine if available schemes provide an adequate level of assurance that the product is from a legal source. Where available schemes do not address the risks adequately, this framework indicates the additional information that importers would need to obtain from their suppliers to minimise these risks. The most significant component of the framework is the distillation and synthesis of key elements and common criteria and indicators for verifying legality. The key elements and assessment criteria identified by URS in this review are set out below. 3. Key elements Based on the review of selected schemes and other relevant studies (outlined in Appendix B), three key elements of legality and CoC schemes were identified. These key elements are: Verification The specific standards or requirements of the scheme against which the legality of wood products or the CoC is assessed; Audit The audit processes employed to assess whether requirements of the scheme have been met; and Governance Structure and processes for standard setting and management of the scheme. 3. Assessment criteria For each of the three key elements, assessment criteria were derived from the review of selected schemes and consideration of key aspects of differentiation. These criteria are presented in Table 3-. These criteria form the basis of a framework that importers and domestic producers can use as part of their due diligence to minimise the risk of illegal timber entering their supply chain //4 9

19 3 Assessment Framework Table 3- Assessment criteria for legality and CoC schemes Key element Schemes Assessment criteria Verification Legal origin Principle: Legal access and rights to harvest are clearly defined and established Legal access and harvest rights are clearly defined and legally established Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels All royalties, fees and taxes properly due from timber production are paid to land owners, local community and other entities Legal compliance Chain of custody Principle: Rights to harvest and compliance in the conduct of forestry operations are clearly defined and established Same criteria as for Legal origin, plus Compliance with all codes of practice for harvesting operations and all relevant social and environmental legislation and regulations relevant to forestry operations Principle: Auditable systems are in place for tracking and monitoring the flow of wood products from the forest through the supply chain The scheme requires systematic processes to verify the origin of materials and ensure valid documentation matches nominated materials The scheme requires a chain of custody system to track certified or verified legal wood along the certification chain, using appropriate inventory methods and documented controls The scheme requires effective controls to prevent products from unverified and potentially illegal sources from entering the supply chain The scheme has a defined policy for product labelling and processes for managing associated product claims Audit All schemes Principle: Compliance with the scheme is audited regularly and the results are publicly available Compliance with all legality verification requirements is documented and maintained for audit Stakeholder consultation is undertaken as appropriate during the audit Audit reports and certificate holder status for the scheme are publicly reported Governance All schemes Principle: Robust standard setting processes are in place for verification and audit and for management of non-compliance The scheme s standard has been developed by a nationally or internationally recognised standards authority The scheme has been developed with broad stakeholder input There is a clear basis for establishing compliance and corrective actions for non-compliance Auditors are independent third parties that are accredited by an independent accreditation body //4

20 3 Assessment Framework 3.3 Rigour and robustness Using key elements to provide the basis for the assessment, schemes can be considered in the context of both their rigour and robustness. For the purpose of this analysis these terms are broadly defined as follows: Rigour The coverage and depth of a scheme s processes and procedures for verification and audit against the requirements of the scheme. The assessment criteria developed under the key elements of Verification and Audit requirements are considered to relate directly to this measure. Robustness A measure of the scheme s structure and capacity to withstand external influences while also responding to industry dynamics and drivers for change. The assessment criteria developed under Governance relate directly to this measure. The dimensions of rigour and robustness are incorporated in the assessment framework to assist users in considering whether available schemes have the capacity to provide a level of assurance that timber products are from a legal source //4

21 Assessment of Schemes 4 4 The assessment framework was applied to existing legality and CoC schemes operating within the Asia-Pacific region. Under this framework, a scoring system was developed to compare the schemes and identify key aspects of differentiation. 4. Assessment scorecards The scoring system developed for this assessment comprises separate scorecards for schemes relating to verification of legal origin, legal compliance and chain of custody. These three sets of scorecards are set out below. The scorecards incorporate indicators for each of the assessment criteria. The indicators were derived to provide guidance for scoring of the criteria, on a scale of to. On this scale, a score of indicates that there is no substantial conformance to the criterion and a score of represents full conformance with the criterion. A score of represent partial conformance, and indicators are incorporated for each criterion to provide guidance to the basis on which URS has assessed partial conformance. Recognising that there are a differing number of criteria for each element, the total scores for criteria for each element were converted to a score out of. This provided a consistent basis for testing the proposed framework through a comparison of assessment results across key elements of each scheme //4 3

22 4 Assessment of Schemes Legal origin schemes VERIFICATION Principle : Legal access and rights to harvest are clearly defined and established Scoring Criterion. Land access and harvest rights are clearly defined and legally established Indicator... Requirement to define legal access arrangements and establish harvest rights for a designated forest area through an authorised approval or permit process, with reference to land tenure as appropriate Indicator... Requirement to establish legal access and use rights that could be met with permits approved at the national level only, without addressing land tenure and use rights at the regional or local level Indicator..3. There is no requirement for land tenure, legal access and use rights to be defined or established Criterion. Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels Indicator... Requirement for management plans to be approved by appropriate authority and the plan is required to include calculated allowable or otherwise regulated yield for designated forest area Indicator... Requirement for management plans, which may include allowable or otherwise regulated harvest levels, but no requirement to submit them for approval by an appropriate authority Indicator..3. Management plans may be prepared but are not required Criterion.3 All royalties, fees and taxes properly due from timber production are paid to appropriate entities Indicator.3.. Requirement for all royalties, fees and taxes properly due from harvesting and transportation to be paid to appropriate entities Indicator.3.. Requirement for royalties to be paid, but no reference to other applicable fees and charges that may be payable to appropriate entities Indicator.3.3. There is no requirement to verify payments properly due from harvesting and transportation have been paid to appropriate entities Total - Maximum score 6 Total - Normalised score (out of ) //4 4

23 4 Assessment of Schemes AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Scoring Criterion. Compliance with legality verification requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the legality verification scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all legal criteria of the scheme Indicator..3. There is no requirement that records of legal compliance with the legality verification scheme be maintained Criterion. Stakeholder consultation is undertaken as appropriate during the audit Indicator... Requirement that key stakeholders are identified and consulted during the audit process Indicator... The scheme recognises that consultation with stakeholders may be undertaken during the audit process Indicator..3. There is no requirement for consultation to be undertaken as appropriate during the audit Criterion.3 Audit reports and certificate holder status for the scheme are publicly reported Indicator.3.. Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator.3.. Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports Indicator.3.3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request Total - Maximum score 6 Total - Normalised score (out of ) //4 5

24 4 Assessment of Schemes GOVERNANCE Principle 3: Robust standards setting processes are in place for verification, audit and management of non-compliance Scoring Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager has substantial experience with standards development and auditing in the forestry sector Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body Criterion 3. The scheme has been developed with broad stakeholder input Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme Indicator There is no requirement for stakeholder input during the development of the scheme Criterion 3.3 There is a clear basis for establishing compliance and non-compliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit Total - Maximum score 8 Total - Normalised score (out of ) //4 6

25 4 Assessment of Schemes Legal compliance requirements VERIFICATION Principle : Rights to harvest and compliance in the conduct of forestry operations are clearly defined and established Scoring Criterion. Land access and harvest rights are clearly defined and legally established Indicator... Requirement to define legal access arrangements and establish harvest rights for a designated forest area through an authorised approval or permit process, with reference to land tenure as appropriate Indicator... Requirement to establish legal access and use rights that could be met with permits approved at the national level only, without addressing land tenure and use rights at the regional or local level Indicator..3. There is no requirement for land tenure, legal access and use rights to be defined or established Criterion. Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels Indicator... Requirement for management plans to be approved by appropriate authority and the plan is required to include calculated allowable or otherwise regulated yield for designated forest area Indicator... Requirement for management plans, which may include allowable or otherwise regulated harvest levels, but no requirement to submit them for approval by an appropriate authority Indicator..3. Management plans may be prepared but are not required Criterion.3 All royalties, fees and taxes properly due from timber production are paid to appropriate entities Indicator.3.. Requirement for all royalties, fees and taxes properly due from harvesting and transportation to be paid to appropriate entities Indicator.3.. Requirement for royalties to be paid, but no reference to other applicable fees and charges that may be payable to appropriate entities Indicator.3.3. There is no requirement to verify payments properly due from harvesting and transportation have been paid to appropriate entities Criterion.4 Compliance with all codes of practice for harvesting operations, and all relevant social and environmental regulations relevant to forestry operations Indicator.4.. Specific requirement to comply with codes of practice for timber harvesting and all relevant social and community regulations and all relevant environmental laws and regulations Indicator.4.. General requirement to comply with all relevant legislation and regulations, but no specific requirements to comply with codes of practice and/or applicable regulations relevant to forestry operations Indicator.4.3. There is no specified requirement to comply with social or environmental legislation and regulations Total - Maximum score 8 Total - Normalised score (out of ) //4 7

26 4 Assessment of Schemes AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Scoring Criterion. Compliance with legality verification requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the legality verification scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all legal criteria of the scheme Indicator..3. There is no requirement that records of legal compliance with the legality verification scheme be maintained Criterion. Stakeholder consultation is undertaken as appropriate during the audit Indicator... Requirement that key stakeholders are identified and consulted during the audit process Indicator... The scheme recognises that consultation with stakeholders may be undertaken during the audit process Indicator..3. There is no requirement for consultation to be undertaken as appropriate during the audit Criterion.3 Audit reports and certificate holder status for the scheme are publicly reported Indicator.3.. Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator.3.. Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports Indicator.3.3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request Total - Maximum score 6 Total - Normalised score (out of ) //4 8

27 4 Assessment of Schemes GOVERNANCE Principle 3: Robust standards setting processes are in place for verification, audit and management of non-compliance Scoring Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager has substantial experience with standards development and auditing in the forestry sector Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body Criterion 3. The scheme has been developed with broad stakeholder input Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme Indicator There is no requirement for stakeholder input during the development of the scheme Criterion 3.3 There is a clear basis for establishing compliance and non-compliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit Total - Maximum score 8 Total - Normalised score (out of ) //4 9

28 4 Assessment of Schemes Chain-of-Custody schemes VERIFICATION Principle : Auditable systems are in place for tracking and monitoring the flow of wood and wood products from the forest through the supply chain Scoring Criterion. The scheme requires systematic processes to verify the origin of materials and that documentation is valid and matches nominated materials Indicator... Requirement for a system to verify the legal origin of wood direct from the forest through checks on accompanying documentation Indicator... Requirement for a system to verify that wood received direct from the forest matches accompanying documentation, but no requirement for verifying the legal origin at the source Indicator..3. There is no requirement for a system to verify the legal origin of wood direct from the forest through checks on accompanying documentation Criterion. The scheme requires a chain of custody system to track certified or verified legal wood along the certification chain, using appropriate inventory methods and documented controls Indicator... Requirement for a chain of custody system to track wood from specified sources along the supply chain, with appropriate inventory methods and controls that can be audited at any time Indicator... Requirement for a means to trace wood from specified sources through the supply chain but no specific requirement for an inventory-based accounting system to account for verified wood flows over time Indicator..3. There is no requirement for a system to trace wood from specified sources through the supply chain Criterion.3 The scheme requires effective controls to prevent products from unverified and potentially illegal sources from entering the supply chain Indicator.3.. Requirement for effective controls to prevent unverified wood from entering the supply chain, such as a risk assessment to identify and manage wood from high risk sources, and physical segregation of wood from high risk or otherwise unverified sources Indicator.3.. Requirement for controls to separately track verified wood from unverified wood, but minimal specification of the types of controls that should be used to be effective Indicator.3.3. There is no requirement for controls to prevent unverified wood from entering the supply chain Criterion.4 The scheme has a defined policy for product labelling and process for managing associated claims Indicator.4. Requirement for product claims to be used in accordance with a product labelling policy relating to claims on legality verification Indicator.4.. Requirement for product labels or claims to be used with scheme approval only, and limited guidance on the permitted use of such claims Indicator.4.3. There is no requirement or specification relating to product labelling or associated claims under the scheme Total - Maximum score 8 Total - Normalised score (out of ) //4 3

29 4 Assessment of Schemes AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Scoring Criterion. Compliance with scheme requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the CoC scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all aspects of the scheme Indicator..3. There is no requirement that records of compliance with the CoC scheme be maintained Criterion. Audit reports and certificate holder status for the scheme are publicly reported Indicator... Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator... Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports Indicator..3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request Total - Maximum score 4 Total - Normalised score (out of ) //4 3

30 4 Assessment of Schemes GOVERNANCE Principle 3: Standards setting processes are in place for verification, audit and management of non-compliance Scoring Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager has substantial experience with standards development and auditing in the forestry sector Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body Criterion 3. The scheme s standard has been developed with broad stakeholder input Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme Indicator There is no requirement for stakeholder input during the development of the scheme Criterion 3.3 There is a clear basis for establishing compliance and non-compliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit Total - Maximum score 8 Total - Normalised score (out of ) //4 3

31 4 Assessment of Schemes 4. Assessment of schemes The scorecards developed under this framework were used to assess existing schemes operating in the Asia-Pacific region. URS undertook this assessment with reference to publicly available information for each of the schemes at the time of this review. Detail of assessment scores and commentary on points of differentiation across the schemes are provided in Appendix C and Appendix D respectively. The proposed framework applies equal weightings to the assessment criteria and indicators. A more definitive assessment of schemes would require direct inputs from relevant schemes and a broad stakeholder review of the proposed criteria and indicators. The URS framework can be used as the basis for further engagement with government agencies, timber importers, scheme operators and other stakeholders working to combat illegal logging within the region. On this basis, the assessment outcomes were grouped into broad categories relating to the level of assurance that timber products covered by the schemes are from a legal source. These categories were defined in terms of the extent to which the schemes provide high, moderate or low levels of assurance. In this way, they can provide direct guidance to importers on the requirements for additional information, as follows: Levels of assurance Guidance for importers High High level of assurance that the timber products are from a legal source; requirements for additional information about the supply chain are minimal Moderate Reasonable level of assurance that the timber products are from a legal source; further information may be required to address key areas of risk Low Low level of assurance that the timber products are from a legal sources; further information would be required to obtain a reasonable level of assurance. Assessment outcomes are summarised below, focusing firstly on verification requirements, then auditing requirements and governance arrangements across all schemes. 4.. Verification requirements Figure 4- and Figure 4- present the results of the assessment of verification requirements for VLO and VLC respectively. The legality schemes that ranked highest for verification incorporated standards with specific requirements that addressed each of the assessment criteria //4 33

32 4 Assessment of Schemes Figure 4- Assessment of verification requirements for legal origin 3 High Level of Assurance Moderate Low AFS FM ASEAN TLS FSC CWS SW VLO TFF LO Certisource LAC FSC P&C MTCS SGS - TLTV SVLK GFS LVS Figure 4- Assessment of verification requirements for legal compliance 3 High Level of Assurance Moderate Low AFS FM FSC CWS MTCS SGS - TLTV SW VLC TFF LC ASEAN TLS Certisource LAC FSC P&C SVLK GFS LVS SVLK //4 34

33 4 Assessment of Schemes Figure 4-3 presents the results of the assessment of CoC scheme requirements. Figure 4-3 Assessment of verification requirements for chain of custody 3 High Level of Assurance Moderate Low AFCS COC FSC COC MTCS/PEFC COC SGS TLTV TFF LV/RIL-COC SVLK SW COC Certisource LVP GFS COC The CoC schemes that ranked highest for verification generally comprised clear requirements for the establishment of accounting methods and handling systems to track and separate materials as required through the supply chain. 4.. Audit requirements The assessment of audits of compliance with scheme requirements was combined for schemes covering VLO and VLC, as requirements for verification were consistent across these schemes. Figure 4-4 presents the results of the assessment for audits of compliance for legality schemes. The legality schemes that ranked highest for audits of compliance comprised strong procedural requirements for documenting compliance with the scheme and broad stakeholder participation in the process //4 35

34 4 Assessment of Schemes Figure 4-4 Assessment of audit requirements of legality schemes 3 High Level of Assurance Moderate Low FSC CWS FSC P&C SGS - TLTV AFS FM GFS LVS SW VLC SW VLO MTCS TFF LC TFF LO Certisource LAC SVLK Figure 4-5 presents the results of the assessment of audit requirements across CoC schemes. Figure 4-5 Assessment of audit requirements for chain of custody schemes 3 High Level of Assurance Moderate Low AFCS COC FSC COC SGS TLTV SW COC Certisource LVP GFS COC MTCS/PEFC COC SVLK TFF LV/RIL-COC This assessment produced the same trend in results as outlined for the legality schemes, with the largest forest certification schemes ranked highest. This was expected, as there is considerable overlap in the management of schemes covering legality and CoC requirements. The main aspect of differentiation is the requirement for compliance with all aspects of the scheme to be documented and maintained for audit. This shortcoming can be attributed largely to a lack of specificity only, as there is a general intent to maintain documented control systems //4 36

35 4 Assessment of Schemes 4..3 Governance arrangements Consistent with the approach adopted for the audit element, the assessment of the governance processes for VLO and VLC schemes were grouped. Figure 4-6 presents the results of this assessment. For this element in particular, the larger forest certification schemes demonstrated stronger governance processes compared with schemes that are focussed primarily on legality verification services. Development of the standards by an independent, recognised standard setting authority was the main differentiator between these and other schemes. Figure 4-6 Assessment of governance for legality schemes 3 High Level of Assurance Moderate Low AFS FM FSC CWS FSC P&C MTCS SVLK SGS - TLTV SW VLC SW VLO TFF LC TFF LO Certisource LAC GFS LVS Figure 4-7 presents the results of the assessment of governance across CoC schemes. This assessment produced the same trend in results as outlined above for legality schemes. Figure 4-7 Assessment of governance for chain of custody schemes 3 High Level of Assurance Moderate Low AFCS COC FSC COC MTCS/PEFC COC SVLK SGS TLTV SW COC TFF LV/RIL-COC Certisource LVP GFS COC //4 37

36 Synthesis of Findings 5 5 The assessment of key elements can be combined to provide an overall perspective on the rigour and robustness of schemes. The assessment of rigour relates to the coverage and depth of a scheme s implementation processes and procedures; it is based directly on the combined scores for verification and audit. The assessment of robustness relates to the scheme s structure and capacity to withstand external influences while responding to industry dynamics; it is based directly on the scores for governance. 5. Legal origin Figure 5- presents the overall assessment of schemes that incorporate VLO, based on the same categories that describe the extent to which the schemes provide high, moderate and low levels of assurance that timber products are from legal source. Figure 5- Assessment of legal origin schemes Level of assurance 3. High. Moderate Low. - FSC CWS AFS FM FSC P&C SGS - TLTV SW VLO MTCS TFF LO SVLK Verification Audit Governance Certisource LAC GFS LVS ASEAN TLS In terms of rigour, the key aspects of differentiation in this assessment were requirements for: Legal access and rights to harvest to be clearly defined and legally established; Where required, approval of management plans by the appropriate authority; Stakeholder consultation during the audit process; and Documented compliance with all aspects of the legality verification scheme. In terms of robustness, the key aspects of differentiation in this assessment were requirements for: The scheme s standard to be developed by or in conjunction with a national or internationally recognised standards authority; and Auditors to be accredited by an independent accreditation body. These represent the important aspects for timber importers to consider as part of their assessment of legality schemes for legal forest products assurance //4 39

37 5 Synthesis of Findings 5. Legal compliance Figure 5- presents the overall assessment of schemes that incorporate verification of legal compliance. Figure 5- Assessment of legal compliance schemes 3. High Level of assurance. Moderate Low. - FSC CWS AFS FM FSC P&C SGS - TLTV SW VLC MTCS TFF LC Verification Audit Governance SVLK GFS LVS Certisource LAC ASEAN TLS The results for VLC schemes are similar to those for VLO schemes. The VLC assessment incorporates an additional criterion relating to compliance with all codes of practice for harvesting operations, and all relevant social and environmental legislation and regulations relevant to forestry operations. This is an important aspect of differentiation, particularly the extent to which scheme requirements covered laws relating to labour, community and social impacts. SGS TLTV scored well in this regard due to its requirements covering compliance with relevant environmental, labour and social laws. The results for robustness of VLC schemes are similar to those for VLO, as they are based on the criteria for governance processes that relate to both legal origin and legal compliance verification. A key finding of this assessment is that the more rigorous and robust legality verification schemes tended to be those which have the resources to develop and implement audit procedures and governance structures that support the implementation of schemes on the ground. This includes the national programs such as the AFS and MTCS and the well established global frameworks such as the FSC and PEFC, with SGS also sharing this benefit of scale. The other key finding is that in broad terms, the rankings for scheme requirements for verification of legality exceeded those for audit and governance for most of the schemes. This suggests that when importers identify risks of products originating from illegally harvested sources, their due diligence should consider the auditing and governance arrangements in place for schemes that cover these products. Importers may need to seek additional information in respect to these elements. 5.3 Chain of custody Figure 5-3 presents the overall assessment of CoC schemes. The highest ranked were the FSC and AFSC schemes followed by the MTCS, SGS TLTV and SW schemes. These schemes scored well across all three key elements, in particular verification and governance. In respect to other schemes, in most cases they were found to have relatively strong legality verification requirements; while by comparison, their auditing and governance requirements were more limiting //4 4

38 5 Synthesis of Findings Figure 5-3 Assessment of chain of custody schemes 3. High Level of assurance. Moderate Low. - AFCS COC FSC COC MTCS/PEFC COC SGS TLTV SW COC SVLK Verification Audit Governance TFF LV/RIL- COC Certisource LVP GFS COC In terms of rigour, the key aspects of differentiation in this assessment were requirements for: Systematic processes to verify the legal origin of wood direct from the forest through checks on accompanying documentation; Effective controls to prevent unverified wood from entering the supply chain, such as a risk assessment to identify and manage wood from high risk sources, and physical segregation of wood from high risk or otherwise unverified sources; Product claims used in accordance with a labelling policy relating to claims on legality verification. In terms of robustness, the key aspects of differentiation in this assessment were requirements for: The scheme s standard to be developed by or in conjunction with a national or internationally recognised standards authority; Broad stakeholder input is sought during the development of the scheme; and Auditors to be accredited by an independent accreditation body. The CoC requirements associated with SFM schemes generally ranked higher in both rigour and robustness than the CoC requirement of other schemes. This reflects in large part the internationally recognised standardisation processes employed to develop SFM and CoC schemes and the revisions and refinement of these schemes over time. Aspects relating to handling of materials from non-verified sources were generally found to be stronger in SFM CoC schemes than for legality verification schemes. Similar to the finding for legality schemes, the scoring of CoC verification requirements generally exceeded those for audit and governance elements across most of the schemes. This indicates importers and producers may need to give particular consideration to the auditing requirements and governance arrangements of schemes to ensure they are adequate to minimise the risks that products are from illegally harvested sources //4 4

39 6 Trade in Verified Products 6 There is a broad range of products that are, or have the potential to be, covered by the legality verification and CoC schemes currently implemented in the Asia-Pacific region. The following provides an estimate of products which are, and could potentially be, covered by the schemes included in developing the assessment framework presented in this report. 6. Traded products To provide consistency with other analyses underway, the scope of products and product categories referred to in this analysis is aligned with those defined by the Timber Development Association (TDA, 9) for the development of an Industry Code of Conduct. These product groups are: Solid wood products; Composite wood products; Manufactured wood products; Other manufactured wood products; Wood packaging and pallets; Pulp, paper and paperboard; Other paper and paperboard products; Wood fibre products; and Other products of wood origin. The constituent products and tariff codes for each of these product groups are incorporated in the analysis below. It is important to note that the tariff codes relating to Manufactured wood products and Other paper and paperboard products are not included in forest and wood products trade statistics reported in Australia by the Australian Bureau of Agriculture and Rural Sciences (ABARE). For this reason there is a significant difference between ABARE reports on the total value of wood and paper products imported into Australia (A$4.66bn in 8) and the estimated total value of imports for the product categories used by the TDA and in this analysis, which is based on data from Global Trade Information Services 3 (A$7.63bn). 6. Australian imports From the perspective of imports into Australia, the primary Asia-Pacific countries in which legality verification and related CoC initiatives are underway comprise New Zealand, Malaysia, Indonesia, Papua New Guinea, China, Thailand, Vietnam and the Philippines. These countries accounted for approximately AUD.9 billion, or around 4 percent of the total import value of wood and paper products imported to Australia in 8 (Global Trade Information Services, 9). A number of these countries import a significant proportion of logs from within the region and the wood processing supply chains vary in their level of complexity. 3 Global Trade Information Services //4 43

40 6 Trade in Verified Products Australia also imports significant volumes of wood and paper products from Canada, Japan and the United States. However, these countries are not included in this analysis of trade as they are outside the regional focus of this study. Value of imports Australia s imports of wood and paper products from primary Asia Pacific producer countries for the year ending 3 December 8 are shown Figure 6-. Product categories Wood packaging and pallets, Wood fibre products and Other products of wood origin are not shown as they represent a relatively minor proportion of the total wood products import value (less than %). Figure 6- Australia s imports of wood and paper products from selected countries in the Asia Pacific region (8) 8 AUD million 6 4 Composite wood products Other manufactured wood products Other paper and pa perboard products Solid wood produc ts Manufactured wo od products Pulp, paper and paper board Source: Global Trade Information Services In overall terms the Pulp, paper and paperboard product group is the most significant contributor to the value of wood and paper imports into Australia. This product grouping comprises products within the tariff codes 47 and 48, while other paper and paperboard product include products within tariff code 49. For the Asia Pacific countries of interest, the combined categories of pulp, paper and paperboard, and other paper and paper board products account for around AUD.43 billion of imports, or approximately 49% of imports from these countries. The next largest product category for imports to Australia from these countries is the manufactured wood products category, totalling approximately AUD97 million. This is comprised of engineered wood products, windows and joinery, manufactured flooring and furniture products. Solid wood products rank third with approximately AUD375 million imported in 8, or around 3% of the total value of imports from countries of interest //4 44

41 6 Trade in Verified Products Product quantities Product quantities are more challenging to summarise, due to the differing units of measure reported within Customs data. Units of measure include cubic metres (m 3 ), tonnes, square metres (m ), lineal metres (m), and number of items (# items). No product group includes a single unit of measure, and there are often differences in units specified at a 4-digit HS tariff code level. Total product quantities imported into Australia from the Asia Pacific countries of interest are set out in Appendix E. 6.3 Verified trade Knowledge of the volume and value of trade in legally verified timber and wood products, and the rigour and robustness of schemes used to verify the legality of these products relative to total imports, is important to effectively combating illegal logging. However, there are limitations on the data available to assess verified trade. While most of the schemes included in this study provide some information regarding the products covered under legality and CoC certificates, there is only limited information available on verified product quantities. Limited data on quantity of trade The largest schemes currently in operation are the FSC and the MTCS - a program affiliated with the PEFC. FSC and PEFC forest management certificates provide information on areas certified, and in some instances, annual harvest volumes. However, it is difficult to use these as a basis for estimating product quantities and export/imports to particular countries in any given year. SGS, Certisource and SmartWood provide information on quantities (including area and volume) covered under legality verification certificates, but these are only three of the schemes and their coverage varies across the region. In the absence of reliable product quantity information, imports to Australia can only be compared on the basis of reported value, the area of certified forest or verified legal product in each country and product groups listed on CoC certificates. Estimating value of trade of verified products Table 6- sets out indicative values of verified wood and paper products imported to Australia from selected countries within the Asia Pacific region. The methodology for estimating these indicative values is outlined below. For each country of interest: Methodology for estimating value of trade of verified wood products Step Determine the value of each of the wood product groups that are imported into Australia, based on data from the Global Trade Information Services Step Identify the wood product groups for which there are publicly available records of legality verification, forest management certification and CoC certificates Step 3 Determine the percentage of the area certified under forest management certification, plus the percentage of verified legal product for each producer country, based on scheme information and URS estimates of scheme coverage of forest management areas and traded products Step 4 Apply the percentage of the combined area covered by forest management certification and legality verification (Step 3) to the value of each relevant product groups (Step ), to calculate the estimated value of verified imports //4 45

42 6 Trade in Verified Products Step 5 Compare the estimated value of verified imports from each country (Step 4) to the total value of wood and paper product imports to Australia from that country (Step ) Step 6 Determine the total indicative value of verified legal products imported to Australia from selected Asia Pacific countries, as a percentage of total wood and paper products from these countries In value terms, New Zealand is estimated to be the largest exporter of verified materials to Australia, accounting for an estimated 8% of the value of verified imports from Asia Pacific countries. The next largest exporters of verified materials to Australia are Malaysia (4%) and then Indonesia (3%), followed by China, Thailand, Vietnam and Papua New Guinea. While pulp and paper product categories are prominent in the main exports from countries listed in Table 6-, the focus of verified products is within the solid wood and manufactured wood products categories. Composite wood and pulp and paper products have significantly less coverage by legality verification schemes. For example, in Malaysia approximately 3% of the total forest area is covered by forest management certification or legality schemes, but pulp, paper and paperboard do not feature strongly among the verified products. As pulp, paper and paperboard is a major import category to Australia, it is expected the proportion of products entering Australia from Malaysia that are covered by certification or legality schemes would be less than the proportion of forest area in Malaysia covered by such schemes. Pulp and paper product categories are likely to be less prominent in verified/certified trade flows due to the world scale capacity of a number of pulp mills in the region. Some of the world s largest pulp and paper mills are located in Indonesia and China, and these mills draw fibre inputs from multiple sources across a relatively greater geographic area, including imports from other islands and countries. Supply chains are therefore more complex and the cost of verification activities on a significant scale may be a limiting factor. Based on the analysis outlined above and the limitations of available data, it is estimated that around AUD549 million of verified wood and paper products were imported from the selected countries into Australia in 8. This estimate represents approximately 9% of the total import value from the Asia Pacific countries of interest. This analysis indicates there is a large proportion of wood product imported from within the Asia Pacific region that is not covered by legality verification schemes. This does not necessarily imply that these unverified products are from illegal sources. However, in countries where regulatory systems relating to the assurance of timber legality have limitations, further effort is required to provide this assurance for Australian importers, producers and consumers //4 46

43 6 Trade in Verified Products Table 6- Indicative value of verified wood and paper products, imported to Australia from selected Asia-Pacific countries (9) Country Primary export products from country to Australia Product import categories covered by certificates FM certification schemes in country % Total forest area FM certified* LV certification schemes in country % Total forest area verified legal* Estimated value of verified imports** Estimated % of total imports to Australia*** (%) (%) (A$) (%) China Manufactured wood products Pulp, paper and paperboard Other paper and paperboard products Manufactured wood products Pulp, paper and paper board Other paper/paperboard products Other manufactured products Solid wood products Composite wood products Other products of wood origin FSC.6% GFS**** Not available $7,3,.6% Indonesia Manufactured wood products Pulp, paper and paperboard Solid wood products Solid wood products Pulp, paper and paper board Manufactured wood products Other manufactured products FSC 3.5% SmartWood VLO, TFF, TFT, GFS****, SGS TLTV.6% $7,6, 4.3% Other paper/paperboard products Composite wood products Malaysia Manufactured wood products Pulp, paper and paperboard Manufactured wood products Solid wood products FSC, MTCS 3.3% SmartWood VLO, GFS****.% $79,7, 4.7% Solid wood products Composite wood products Other manufactured products Philippines Manufactured wood products Pulp, paper and paperboard Manufactured wood products - - SmartWood VLO, GFS****.5% $6,.% Vietnam Manufactured wood products Pulp, paper and paperboard Other manufactured wood products Manufactured wood products Pulp, paper and paper board Other manufactured products Solid wood products FSC.% TFT.% $345,.4% //4 47

44 6 Trade in Verified Products Country Primary export products from country to Australia Product import categories covered by certificates FM certification schemes in country % Total forest area FM certified* LV certification schemes in country % Total forest area verified legal* Estimated value of verified imports** Estimated % of total imports to Australia*** (%) (%) (A$) (%) Thailand Manufactured wood products Pulp, paper and paperboard Paper/paperboard products Pulp, paper and paper board Manufactured wood products Other paper/paperboard products Other manufactured wood products Solid wood products Composite wood products FSC.4% - $347,.4% Papua New Guinea Solid wood products Manufactured wood products Solid wood products Manufactured wood products FSC.% SGS.% $7,.4% New Zealand Pulp, paper, and paperboard Solid wood products Pulp, paper, and paperboard Solid wood products FSC 53.% - - $444,8, 53.% Manufactured wood products Manufactured wood products Other paper/paperboard products Composite wood products Other manufactured wood products Other products of wood origin Total $549,49, 9% Source: Notes: Scheme information and URS estimates on scheme coverage of forest management areas and traded products; GTIS (9) for trade data in value terms. * Combined total coverage of forest management (FM) certification and legality verification (LV) schemes that reported area information ** Estimated value of verified imports, derived from the % total forest area certified or verified, applied to the value of those product categories covered by certificates from each country *** The estimated total value of wood and paper imports that are verified legal as a proportion of the total value of wood and paper imports to Australia from each country **** GFS certificates are issued in a range of countries, however there is no forest area information associated with this scheme //4 48

45 6 Trade in Verified Products 6.4 Initiatives impacting verified trade Initiatives that are likely to have a significant impact on the extent of timber legality verification and trade within the Asia Pacific region include: Voluntary Partnership Agreements (VPAs) implemented between producer counties and the EU; US Lacey Act amendments and EU legislation that have been designed to establish due diligence requirements for operators to implement management systems that will minimise the risk of importing or otherwise trading in timber and wood products from illegally harvested sources; Growing interest in climate change mitigation, particularly reduced emissions through avoided deforestation and degradation (REDD) and the processes required to ensure credibility of REDD projects and emission reduction credits; and Increasing stringency of public and industry procurement policies in consumer countries. Under the EU FLEGT programme, VPAs are being negotiated between the EU and Indonesia and Malaysia. When VPAs are implemented producers in these countries will only be able to access the EU market if they are covered by a Timber Legality Assurance System (TLAS). If the TLAS is implemented for all of the producer country exports, other importing countries will benefit from the systems put in place under VPAs. In comparison to private sector initiatives, the government-backed TLAS initiatives are likely to have better access to resources and support for ongoing improvement and effectiveness. A key challenge for VPA initiatives will be the capacity to address the volumes traded through nonpartner countries. Supply chains that flow through non-partner countries can provide opportunities for illegal timber to circumvent control measures and flow into consumer markets. Actions and opportunities pursued under climate change, notably REDD, may provide added support to combat and restrict illegal logging in the region. The systems and processes developed for legality and CoC, as well as SFM schemes, could assist with establishing baseline data and monitoring protocols for REDD (Elson, 9). Legality initiatives may also provide evidence of effective governance on the ground as would be required under robust REDD provisions, particularly if land tenure and local community needs and rights are considered within the schemes. Voluntary initiatives in consumer countries, including government or industry timber procurement policies, may have a lesser impact on the overall level of timber legality verification activity than nationally administered schemes. However, they may be an important driver for an increase in verified volumes traded for specific supply chains or product groups. In particular, public and private sector procurement policies are moving to more robust criteria for establishing legality and sustainability, and increasingly require independent verification for non-sfm certified products. Schemes and standards operated by private sector service providers that meet the requirements of such policies will remain important, particularly as national-level initiatives are not yet operational //4 49

46 Conclusions 7 7 An assessment framework has been developed through this review to differentiate legality and CoC schemes. The framework and related findings are intended to inform a range of stakeholders, including timber importers and policy makers. Two broad conclusions can be drawn from applying the framework to existing schemes operating in the Asia-Pacific region. These are: Benefits of scale apply the more rigorous and robust schemes tend to be the larger schemes, which have benefited from years of development, implementation and refinement. These include national programs and well established global frameworks such as the FSC and PEFC, which have the resources to develop verification systems and governance structures that support the implementation of schemes on the ground; and There is further scope to improve verification and governance elements of leading schemes in broad terms, verification requirements tended to be stronger than the auditing and governance requirements across a range of schemes. This indicates importers and producers may need to give particular attention to these elements within schemes. 7. Assessment of schemes Based on the assessment framework developed in this project and information currently available for selected schemes, the following schemes ranked highly in terms of rigour and robustness: Rigour Legal verification FSC CWS AFSC SFM FSC P&C SGS TLTV SmartWood VLO/VLC Chain of custody AFCS CoC SGS TLTV FSC CoC MTCS CoC SmartWood CoC Robustness AFCS SFM FSC CWS FSC P&C MTCS SVLK AFSC CoC FSC CoC MTCS CoC SVLK SGS TLTV Frameworks and accepted definitions for assessing timber legality are evolving over time. In this context, it is not intended that this assessment provide a definitive ranking of schemes. Rather, the purpose is to apply the assessment framework and identify the basis on which some schemes can be more robust and rigorous than others in verifying the legal production of timber and wood products. As schemes evolve over time, it is expected the assessment of the selected schemes will also change. 7. Guidance for timber importers The assessment framework presented in this report can assist importers to complete a due diligence assessment of the legal origin of timber and wood products. Importers would firstly identify risks of products being derived from illegally harvested sources and then use the framework to determine if available schemes provide an adequate level of assurance that the product is from a legal source. Where available schemes do not address the risks adequately, this framework indicates the additional information that importers would need to obtain from their suppliers to minimise these risks //4 5

47 7 Conclusions In the absence of a credible legality or CoC scheme, timber importers should consider the supply chain complexity and the risks based on their knowledge of the supplier and the regulatory frameworks in which they operate. This assessment has identified the following key requirements of legality verification and CoC schemes: Key requirements for legality verification. The scheme s standard is developed by or in conjunction with a national or internationally recognised standards authority;. Auditors are accredited by an independent accreditation body; 3. Legal access and rights to harvest are clearly defined and legally established; 4. Where required, approval of management plans by the appropriate authority; 5. Compliance with all codes of practice for harvesting operations, and all relevant social and environmental legislation and regulations relevant to forestry operations; 6. Stakeholder consultation during the audit process; and 7. Documented compliance with all aspects of the legality verification scheme. Key requirements for chain of custody. The scheme s standard is developed by, or in conjunction with, a national or internationally recognised standards authority;. Broad stakeholder input is sought during the development of the scheme; 3. Auditors are accredited by an independent accreditation body; 4. Systematic processes are in place to verify the legal origin of wood direct from the forest through checks on accompanying documentation; 5. Effective controls to prevent unverified wood from entering the supply chain, such as a risk assessment to identify wood from high risk sources, and physical segregation of wood from high risk or otherwise unverified sources; and 6. Product claims are used in accordance with a product labelling policy relating to claims on legality verification. 7.3 Capacity building initiatives For policy makers, this review provides specific scope for capacity building initiatives to increase the rigour and robustness of these schemes and expand the coverage of schemes across a larger range of traded products. Australia can contribute directly to these initiatives through capacity building programs and policy leadership within the Asia Pacific region. There are programs underway to facilitate this contribution. For example, DAFF is administering the Asia Pacific Forestry Skills & Capacity Building Program (Phases I and II), which is funding a portfolio of projects in Indonesia and Papua New Guinea. This will address capacity building requirements that relate to core themes including sustainable forest management, REDD and governance and trade of timber and wood products within the region. This project activity will run through to mid. In respect to policy development, the Australian government is facilitating the development of a regulatory impact assessment of the potential costs and benefits to Australian industry sectors from policy intervention options for restricting trade in illegal logged timber. The government is also facilitating an industry code of conduct that is designed to assist importers to identify illegally logged timber and restrict its import into Australia. Both of these initiatives will strengthen Australia s policy position on illegal logging and provide a clear framework with which Australia can engage directly with other countries with shared interests in restricting the trade of illegally logged timber. The development of a public or industry-based procurement policy for verified legal timber is one of the options under consideration //4 5

48 7 Conclusions This analysis suggests Australia could focus its further efforts in capacity building on initiatives that will strengthen auditing requirements and governance associated with schemes for legality verification and CoC. This could include: Governance roles with national or regional programs. For example, this may include: o o Roles on governing boards or advisory committees for regional or national schemes or initiatives with the purpose of developing common standards and governance systems; and Roles on audit or compliance committees responsible for overseeing the implementation of regional or national schemes or initiatives, including the review of auditor accreditation and compliance reporting; Promotion of the development and implementation of auditor training programs, potentially through an independent accreditation entity or facility that supports legality verification within the Asia Pacific region; and Secretariat functions for intergovernmental initiatives, to support the implementation of schemes and facilitate the further development of coordinated initiatives across the region //4 53

49 8 References 8 Australian Forestry Standard Limited (8), AFS Logo Use Rules Manual, AFS/--. 3//8. Australian Forestry Standard Limited (7), Procedure : Standards Development within the Australian Forest Certification Scheme (AFS/ --). Issue 3, 7/9/7. Brown, D. (6), Designing Verification Systems for the Timber Trade: Learning from International Processes. VERIFOR Briefing Paper. Brown, D., Schreckenberg, K., Bird, N., Cerutti, P., Del Gatto, F., Diaw, C., Fomété, T., Luttrell, C., Navarro, G., Oberndorf, R., Thiel, H., Wells, A. (6). Legal Timber Verification and Governance in the Forest Sector. Central Point of Expertise on Timber (6). UK Government Timber Procurement Policy, Criteria for Evaluating Certification Schemes (Category A Evidence). Second Edition, May 6. Certisource (3), Certisource Criteria and Indicators. Available online: Certisource (a), Certisource policies. Available online: Certisource (b), DNA Tracking system CP4 v. DNA Source Assurance and SOP-Op..,.,., 3., 3. Certisource (c), Legality Verification CP 5v..; Legality and CoC Verification and Standard Operating Procedures Confederation of European Paper in Industries (). Comparative Matrix of Forest Certification Schemes. Crawford, H (7), Chain of custody in the forest products industry: A practical guide. Prepared for Forest and Wood Products Australia, Project Number: PN7.55. Elson, D (9), Adding Value: Can FLEGT Voluntary Partnership Agreements lead to increased investment And trade for partner countries? Report for Forest Trends and the UK Department of International Development (DfID). FSC (6a) FSC Controlled Wood Standard for Forest Management Enterprises (FSC-STD-3- ). FSC (6b), Standard for Company Evaluation of FSC Controlled Wood (FSC-STD-4-5). GFS (8a), GFS Guidelines on Requirements CoC WTP 5. GFS (8b), GFS Verification of Legal Compliance (VLC), LVP-5. GFS (8c), GFS Verification of Legal Origin (VLO), LVS-5. GFTN (6), Keep it Legal' Available online: GFTN (6), Responsible Purchasing of Forest Products (nd edition). Available online: Governments of Indonesia and United Kingdom (), Memorandum of Understanding between the Government of the Republic of Indonesia and the Government of Great Britain and Northern Ireland on cooperation to improve forest law enforcement and governance and to combat illegal logging and the international trade in illegally logged timber and wood products //4 55

50 8 References Hinrichs and Prasetyo (7), Forest Certification Credibility Assessment in Indonesia Applying the Forest Certification Assessment Guide on National Level International Tropical Timber Organisation & Food and Agriculture Organisation of the United Nations (5). Best practices for forest certification and legal compliance in the forestry sector. FAO Forestry Paper 45. Rome. Joint Accreditation System of Australia and New Zealand (8). Procedure Number 6, Requirements for bodies providing audit and certification of forest management systems. Issue No. 3, 7//8. Malaysian Timber Certification Council (4), Requirements for Chain of Custody Certification. Malaysian Timber Certification Council (), Malaysian Criteria and Indicators for forest management certification. PEFC (7). Technical Document Annex 3 - Basis for Certification Schemes and their Implementation. PEFC (5), Technical Document Annex 4 - Chain of Custody of Forest based Products Requirements. ProForest (5), Modular Implementation and Verification (MIV) - A toolkit for the phased application of forest management standards and certification assets. Saunders, J. (6), Supply chain management and illegal timber. Chatham House, UK. Société Générale de Surveillance (9), SGS Timber Legality and Traceability Verification (TLTV) Standard for Malaysia (Sarawak). Société Générale de Surveillance (8a), Timber Legality and Traceability verification (TLTV) (draft) TLTV Generic Standard/ Société Générale de Surveillance (8b), Forest Sector Monitoring Timber Tracking Programme. Société Générale de Surveillance (8c), SGS Timber Legality and Traceability Verification (TLTV Standard for Papua New Guinea. Société Générale de Surveillance (7), Timber Legality & Traceability Verification (TLTV): Code of Practice RD-TLTV--. 5//7. Société Générale de Surveillance (5), Development and Pilot Testing of a Third-Party Wood Legality verification and Tracking Program. Smartwood (9a), Country and Region Legality standards - Indonesia, Malaysia, Philippines. Smartwood (9b), Sustainable Forestry, Verification of Legal Origin and Legal Compliance. SmartWood (7a), SmartWood Generic Standard for Verification of Legal Origin. SmartWood (7b), SmartWood Generic Standard for Verification of Legal Compliance. SmartWood (6), Chain-of-Custody Standard for General Applications, June 6. Speechly, H. (8), Legality Assurance Systems, EU Action Plan for Forest Law Enforcement, Governance and Trade. Standards Australia (7), The Australian Forestry Standard AS Standards Australia (6), Chain of custody for certified wood and forest products AS TFT (7a), Clarification on the Use of FSC CoC Certificates as Verification of Good Practice //4 56

51 8 References TFT (7b), Good Wood, Wood Business. Corporate brochure. Available online: TFT (8), TFT Member s Handbook. Available online: Wells, A. (6), The legal basis for verification systems standard setting for legal compliance (Draft). 7/6/ //4 57

52 9 Limitations 9 URS Australia Pty Ltd (URS) has prepared this report in accordance with the usual care and thoroughness of the consulting profession for the use of the Department of Agriculture, Fisheries and Forestry and only those third parties who have been authorised in writing by URS to rely on the report. It is based on generally accepted practices and standards at the time it was prepared. No other warranty, expressed or implied, is made as to the professional advice included in this report. It is prepared in accordance with the scope of work and for the purpose outlined in the Proposal dated May 9. The methodology adopted and sources of information used by URS are outlined in this report. URS has made no independent verification of this information beyond the agreed scope of works and URS assumes no responsibility for any inaccuracies or omissions. No indications were found during our investigations that information contained in this report as provided to URS was false. This report was prepared between June 9 and February and is based on the conditions encountered and information reviewed at the time of preparation. URS disclaims responsibility for any changes that may have occurred after this time. This report should be read in full. No responsibility is accepted for use of any part of this report in any other context or for any other purpose or by third parties. This report does not purport to give legal advice. Legal advice can only be given by qualified legal practitioners //4 59

53 Appendix A Overview of schemes A A.. Australian Forest Certification Scheme (AFCS) The Australian Forest Certification Scheme (AFSC) comprises the Australian Forestry Standard for sustainable forest management certification and the Australian Forestry Standard for CoC certification. The Australian Forestry Standard - SFM Certification - AS 478 (AFS) is a voluntary standard for forest owners and managers seeking independent, third-party certification of their forests. The AFS is based on internationally recognised frameworks, including ISO 4 environmental management standards and the Montreal Process for sustainable forest management. The AFS was developed in accordance with the Australian Standards process and may be used either by itself or in conjunction with AS/NZS ISO 4:4 Environmental Management Systems - Requirements with guidance for use. The AFCS has been recognised by the Programme for the Endorsement of Forest Certification (PEFC) Council as an accredited scheme. The AFSC CoC Standard for Certified Wood and Forest Products (AF 477-6) sets out minimum criteria and requirements for CoC certification for wood or forest products originating from a defined forest area (DFA) that has been certified to the AFS (or sourced from other forests managed under schemes recognised as substantively equivalent to the AFS). The standard is intended to provide a common approach to track the pathway that wood or forest products take from a DFA or stated source to the final consumer. It is applicable to all of the links in the certification chain including manufacturing, transformation and distribution. The AFS Standard is based on the PEFC CoC requirements set out in the PEFC Technical Document, Annex 4: Chain of Custody of Forest based Products Requirements. A.. Forest Stewardship Council The Forest Stewardship Council (FSC) was established in 993 and has developed a number of standards related to forests and timber supply chain management. It also administers product labelling of timber and timber products as third-party certified against its standards. The FSC is administered by FSC International and is implemented through National Initiatives, which promote FSC in particular countries and supports the development of national or sub-national FSC standards. Standards encompassing legality verification The FSC Chain of Custody, Controlled Wood and Forest Management standards incorporate elements of legality verification for timber products. Principle of the FSC Forest Management standards include components of legal compliance, including considerations of laws relating to forest harvesting licensing as well as international labour laws and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). FSC Controlled Wood FSC Controlled Wood standards were developed to distinguish between acceptable ( controlled ) and unacceptable ( uncontrolled ) wood. There are two FSC standards related to controlled wood; the FSC Controlled Wood Standard for Forest Management and the Standard for Company Evaluation of FSC Controlled Wood. The former specifies requirements for forest management enterprises in demonstrating a controlled wood supply (FSC 6a); the latter is designed to allow companies to avoid trading in uncontrolled wood, including that which is illegally harvested wood (FSC, 6b) //4

54 The FSC Controlled Wood standards have been developed to support the production of FSC mixed sources by setting minimum specifications for non-certified material in FSC supply chains. FSC Chain of Custody The FSC Standard for CoC Certification (FSC-STD-4-4 (Version -) EN) is designed to track FSC certified material through the production process from the forest to the consumer, including all stages of processing, transformation, manufacturing and distribution. Only FSC CoC certified operations are allowed to label products with the FSC trademarks. The FSC standard specifies the management and production requirements for CoC control with respect to sourcing, labelling (where applicable) and sale of products as FSC-certified, which provides the basis for a range of options for making FSC claims. The FSC requires certified organisations to identify the origin of raw materials used in FSC-certified products, to keep FSC-certified products separate from other products throughout the production process, and to allow their tracking from one operation to the next. A..3 SmartWood Verification and Chain of Custody SmartWood is a program of the Rainforest Alliance, launched in 989. In addition to its role as a FSC certification body, the Rainforest Alliance SmartWood Program has also developed its own VLO, VLC and CoC standards. SmartWood VLO and VLC SmartWood s VLO and VLC standards are adapted from their generic standards to national jurisdictions by incorporating local laws and regulations. During this process it also invites stakeholder comment. To date, SmartWood has developed VLO and VLC standards for Indonesia, Malaysia and the Philippines. SmartWood also undertakes third party verification of timber legality for companies supplying timber products against these standards. SmartWood requires forest managers to commit to continual improvement toward SFM when signing up for legality programs. SmartWood Chain of Custody SmartWood has a generic CoC standard and provides third-party verification against this standard. The CoC standard may be applied to a variety of certification and verification services to provide evidence of traceability from the origin to the end claim, including, Verification of Legality, Verification of Origin, and SmartLogging. A..4 SGS Independent Verification of Legal Timber services SGS (Société Générale de Surveillance S.A.) is an inspection, verification, testing and certification organisation. SGS is also a certification body for FSC s Forest Management and CoC Certification, as well as PEFC Forest Management and CoC certification. SGS has developed a suite of generic standards as part of its Independent Verification of Legal Timber Services. The Legality Standards developed by SGS include: Timber legality and traceability verification (TLTV); Mandatory Legal Timber Validation (MLTV); and //4

55 Voluntary Legal Timber validation (VLTV). SGS undertakes monitoring and auditing, and issues legality-based statements or reports and export permits. These standards incorporate principles and criteria relating to CoC monitoring systems to ensure adequate control and traceability of timber production. Timber legality and traceability verification (TLTV) TLTV is a voluntary company-level verification program for assessing compliance with requirements relevant to the forest and timber products industry and trade sectors. It may be used to demonstrate legal compliance to national authorities and incorporates principles and criteria relating to CoC. To date, SGS has developed TLTV standards in the Asia-Pacific for PNG and Sarawak (Malaysia). Mandatory Legal Timber Validation (MLTV) MLTV is a country level program (national scheme) to enforce, monitor and verify timber legality. It is implemented as a mandatory standard across all parts of the forestry sector and includes VLO and VLC. Currently there is a MLTV program operating in PNG; the Log Export Monitoring Agreement. Voluntary legal timber validation (VLTV) VLTV is a voluntary country level approach which provides monitoring and verification programs associated with timber production at country level. Usually VLTV is initiated through individual forest companies with support from relevant authorities. VLTV is based on generic Legal Origin and Legal Compliance principles developed by SGS with criteria and systems developed in-country. A..5 Malaysian Timber Certification Scheme The Malaysian Timber Certification Scheme (MTCS) began operation in October using a phased approach to certification of forest management in tropical forests. The initial standard was the MC&I : Malaysian Criteria, Indicators, Activities and Standards of Performance for Forest Management Certification based on the 998 ITTO Criteria and Indicators for Sustainable Management of Natural Tropical Forests. The standard has been revised and the MC&I : Malaysian Criteria and Indicators for forest management certification, contains nine principles, 47 criteria and 96 indicators. Two types of certificates are issued under the MTCS: The Certificate for Forest Management issued to confirm that the Permanent Reserved Forests in the Forest Management Unit (FMU) have complied with the requirements of the forest management standard used in the MTCS; and the Certificate for CoC issued to confirm that the manufacturer or exporter has complied with the CoC standard used in the MTCS. The MTCS was recently endorsed by the PEFC Council. The Malaysian Requirements and Assessment Procedures for CoC Certification (RAP/CoC) was the initial standard used for assessing timber manufacturers and exporters for CoC certification. A revision of the RAP/CoC was carried out through multi-stakeholder consultation at the national-level in August 4. The revised standard, known as the Requirements for CoC Certification (RCoC), has been used since 6 for CoC certification of wood processing or trading companies under the MTCS. Since July, 8, the MTCS CoC Certification has been aligned directly with the PEFC s Technical Document - Annex //4

56 A..6 Certisource Certisource provides independent timber legality services for industry members that are representative of any element of the supply chain. Certisource carries out a range of legality checks of forest concessions across five areas including: Land Tenure and Use Rights; Timber Harvesting Laws and Regulations; Forest Taxes; Log identification Transfer and Deliver; and Timber Processing and Shipping. Products which meet the requirements are certified as Verified Legal Timber as defined by WWF and the GFTN ( Keep it Legal and Responsible Purchasing of Forest Products' (nd edition)). Where available, Certisource adapts principles and criteria to include applicable country specific standards. For example, the Principles, Criteria and Indicators, Verified Legal Timber, Indonesia includes legality criteria developed by LEI. Certisource conducts DNA tracking of individual logs throughout their entire supply chain. The Certisource DNA Tracking Program, coupled with timber bar-coding, seeks to provide assurance of a continuous and unbroken CoC. Certisource regional offices verify harvesting activities and provide Certisource Certificates of Legality approved by Certisource UK. A..7 GFS Wood Tracking Program The Global Forestry Services Inc (GFS) Wood Tracking Program (WTP) provides assessment and monitoring of manufacturers and traders under a formal CoC system. The WTP follows the GFTN s responsible purchasing guidelines in recognising environmental status as: Credibly certified ; In Progress, and Controlled Wood & Legal. Among the core objectives of the WTP is the aim to ensure that wood products are derived from raw material that is legally harvested from forest or plantation areas. The WTP requirements for CoC are listed in the WTP-5 standard, which can be used to evaluate a company s ability to purchase and trace raw material through production and sales of finished goods based on environmental status. GFS provides a standard for VLO described in LVS-5 to ensure traceability of material to a legal harvesting license. Audit statements verify the legal right to harvest and the system used to trace the origin of timber to specific harvesting units. Verification of Legal Compliance demonstrates compliance to national legal requirements and non-accredited standards such as national draft standards. LVP-5 provides generic requirements for auditing compliance to national regulations. Participants must set annual targets aiming to increase purchases of raw material sourced from forests from verified sources. A..8 ASEAN Timber Certification Initiative A Pan ASEAN (Association of South East Asian Nations) Timber Certification Initiative is working towards an ASEAN Economic Community blueprint to support a step-by-step approach towards Sustainable Forest Management. This includes the development of criteria and indicators for legality and CoC guideline for legal and sustainable timber. Representatives from ASEAN member states (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines and Thailand) have discussed six elements that are to be included in the regional timber legality standard. The agreement on ASEAN criteria and indicators in the meeting is expected to provide guiding reference for all ASEAN Member States. This Initiative is supported by the ASEAN-German ReFOP, the ASEAN-EU programme for Regional Integration Support-Phase II (AFRIS II) and also the //4

57 Responsible Asia Forestry and Trade Programme (RAFT). RAFT is a program supported by USAID and The Nature Conservancy. A..9 Timber Legality Assurance System The proposed Indonesian Timber Legality Assurance System, or Standar Verifikasi Legalitas Kayu, SVLK) was announced by the MoF in late 8 and came into effect on September 9. The standard includes social and environmental legal compliance requirements and applies to the forestry, processing and transport sectors. The MoF has advised that the LPI standard is to be used to audit the forestry sector for the initial three years of the SVLK program. A.. Tropical Forest Foundation The Tropical Forest Foundation (TFF) is an international, non-profit, educational NGO dedicated to the conservation of tropical forests through sustainable forestry. TFF s regional programs are heavily focussed on the promotion and training of Reduced Impact Logging (RIL). TFF Indonesia has a forest-market linking initiative which incorporates TFF s work on legality issues. Under this initiative, TFF has adopted a step-wise approach for engagement with forest management companies at the concession and the industry level. The first level is an agreement on the part of the forest management company to implement reduced impact logging (RIL) management strategies on its entire annual operating area within a two year time frame. In recognition of this commitment, TFF will issue the Legal Verified mark based on a successful, third party audit against legality and chain-of custody standards. The legality definition considered most appropriate for this mark is the TFF Standard of Legal Origin. However, a forest management company may choose to be audited against the higher TFF Standard of Legal Compliance. A.. Tropical Forest Trust Wood Control Systems The Tropical Forest Trust (TFT) is a UK registered charity that assists retailers and suppliers of tropical wood products in determining the origins of their timber and sourcing wood from legally verified forest operations. Its membership includes small to multi-national retailers, suppliers and importers in Europe, North America, South East Asia and New Zealand. The TFT has a number of programs to provide companies with support in tracking timber throughout the supply-chain including its Good Wood Guide and Wood Control Systems (WCS). The WCS consists of seven elements which guarantee a supplier provides only Good Wood. WCS monitor the tropical wood orders of its members as they progress through the supply chain. The TFT undertakes second party verification of the company s efforts to source wood from known and verified legal sources, and provides compliant TFT members with a trademark label. Labelling can relate to a number of claims, which initially may not constitute any verification of legality having taken place. The TFT is a supporter of FSC and seeks to work with forest projects and timber supply chains moving towards FSC certification (TFT 7). Tropical Forest Trust is also involved in a partnership with the European timber trade federations under the Timber Trade Action Plan (TTAP) //4

58 Appendix B Relevant studies of verification schemes B The following institutions and references provide a broader basis for identification of key themes and criteria that were relevant to developing an assessment framework for legality and CoC schemes. Institution References Chatham House CPET (UK) Guidance material and papers developed by Chatham House, in particular: Supply Chain Management and Illegal Timber (Saunders 6) Criteria for Evaluating Certification Schemes (Category A Evidence) Second Edition (6) CEPI Comparative Matrix of Forest Certification Schemes () FLEGT (EU) Action Plan Legality Assurance System Components (Speechly 8) VERIFOR ODI (UK) GFTN (WWF) Governments of Indonesia and United Kingdom ITTO/FAO Australian Government Research on existing verification systems related briefing papers: The legal basis for verification systems standard setting for legal compliance (Wells 6) Designing Verification Systems for the Timber Trade: Learning from International Processes (Brown 6) Legal Timber Verification and Governance in the Forest Sector (Brown et al. 6) Forest Certification Credibility Assessment in Indonesia: Applying the Forest Certification Assessment Guide on National Level (Hinrichs and Prasetyo 7) Memorandum of Understanding between the Government of the Republic of Indonesia and the Government of Great Britain and Northern Ireland on cooperation to improve forest law enforcement and governance and to combat illegal logging and the international trade in illegally logged timber and wood products () Best practices for forest certification and legal compliance in the forestry sector (5) Initiatives and projects that have been completed or are underway to support the Australian Government s commitments to combat illegal logging //4

59 valuation Scorecards CE Appendix C Assessment of selected schemes Detailed scorecards for the assessment of selected schemes are set out below, grouped under the type of scheme. This assessment was based on the framework described in this report and information available at the time of preparing the report. C. Legal origin schemes Legal Origin VERIFICATION Principle : Legal access and rights to harvest are clearly defined and established AFS FM ASEAN TLS Certisource LAC FSC P&C FSC CWS GFS LVS MTCS SGS - TLTV SW VLO TFF LO SVLK Criterion. Land access and harvest rights are clearly defined and legally established Indicator... - Requirement to define legal access arrangements and establish harvest rights for a designated forest area through an authorised approval or permit process, with reference to land tenure as appropriate Indicator... Requirement to establish legal access and use rights that could be met with permits approved at the national level only, without addressing land tenure and use rights at the regional or local level Indicator..3 There is no requirement for land tenure, legal access and use rights to be defined or established Criterion. Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels Indicator... Requirement for management plans to be approved by appropriate authority and the plan is required to include calculated allowable or otherwise regulated yield for designated forest area Indicator... Requirement for management plans, which may include allowable or otherwise regulated harvest levels, but no requirement to submit them for approval by an appropriate authority Indicator..3. Management plans may be prepared but are not required Criterion.3 All royalties, fees and taxes properly due from timber production are paid to appropriate entities Indicator.3.. Requirement for all royalties, fees and taxes properly due from harvesting and transportation to be paid to appropriate entities Indicator.3.. Requirement for royalties to be paid, but no reference to other applicable fees and charges that may be payable to appropriate entities Indicator.3.3. There is no requirement to verify payments properly due from harvesting and transportation have been paid to appropriate entitites AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Criterion. Compliance with legality verification requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the legality verification scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all legal criteria of the scheme Indicator..3. There is no requirement that records of legal compliance with the legality verification scheme be maintained Criterion. Stakeholder consultation is undertaken as appropriate during the audit - Indicator... Requirement that key stakeholders are identified and consulted during the audit process Indicator... The scheme recognises that consultation with stakeholders may be undertaken during the audit process Indicator..3. There is no requirement for consultation to be undertaken as appropriate during the audit Criterion.3 Audit reports and certificate holder status for the scheme are publicly reported Indicator.3.. Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator.3.. Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports - Indicator.3.3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request //4

60 Legal Origin GOVERNANCE Principle 3: Robust standards setting processes are in place for verification, audit and management of non-compliance AFS FM ASEAN TLS Certisource LAC FSC P&C FSC CWS GFS LVS MTCS SGS - TLTV SW VLO TFF LO SVLK Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager's experience with standards development and auditing in the forestry sector is considered to meet this objective in part Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body - Criterion 3. The scheme has been developed with broad stakeholder input - Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme Indicator There is no requirement for stakeholder input during the development of the scheme Criterion 3.3 There is a clear basis for establishing compliance and non-compliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented - Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit //4

61 C. Legal compliance schemes Legal Compliance VERIFICATION Principle : Rights to harvest and compliance in the conduct of forestry operations are clearly defined and established AFS FM ASEAN TLS Certisource LAC FSC P&C FSC CWS GFS LVS Criterion. Land access and harvest rights are clearly defined and legally established Indicator... - Requirement to define legal access arrangements and establish harvest rights for a designated forest area through an authorised approval or permit process, with reference to land tenure as appropriate Indicator... Requirement to establish legal access and use rights that could be met with permits approved at the national level only, without addressing land tenure and use rights at the regional or local level Indicator..3 There is no requirement for land tenure, legal access and use rights to be defined or established MTCS SGS - TLTV SW VLC TFF LC SVLK Criterion. Where required, operational plans are approved by the appropriate authority under relevant legislation and specify allowable or otherwise regulated harvest levels Indicator... Requirement for management plans to be approved by appropriate authority and the plan is required to include calculated allowable or otherwise regulated yield for designated forest area Indicator... Requirement for management plans, which may include allowable or otherwise regulated harvest levels, but no requirement to submit them for approval by an appropriate authority Indicator..3. Management plans may be prepared but are not required Criterion.3 All royalties, fees and taxes properly due from timber production are paid to appropriate entities Indicator.3.. Requirement for all royalties, fees and taxes properly due from harvesting and transportation to be paid to appropriate entities Indicator.3.. Requirement for royalties to be paid, but no reference to other applicable fees and charges that may be payable to appropriate entities Indicator.3.3. There is no requirement to verify payments properly due from harvesting and transportation have been paid to appropriate entitites Criterion.4 Compliance with all codes of practice for harvesting operations, and all relevant social and environmental legislation and regulations relevant to forestry operations Indicator.4.. Specific requirement to comply with codes of practice for timber harvesting and all relevant social and community regulations and all relevant environmental laws and regulations Indicator.4.. General requirement to comply with all relevant legislation and regulations, but no specific requirements to comply with codes of practice and/or applicable regulations relevant to forestry operations Indicator.4.3. There is no specified requirement to comply with social or environmental legislation and regulations AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Criterion. Compliance with legality verification requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the legality verification scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all legal criteria of the scheme Indicator..3. There is no requirement that records of legal compliance with the legality verification scheme be maintained Criterion. Stakeholder consultation is undertaken as appropriate during the audit - Indicator... Requirement that key stakeholders are identified and consulted during the audit process Indicator... The scheme recognises that consultation with stakeholders may be undertaken during the audit process Indicator..3. There is no requirement for consultation to be undertaken as appropriate during the audit Criterion.3 Audit reports and certificate holder status for the scheme are publicly reported - Indicator.3.. Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator.3.. Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports Indicator.3.3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request //4

62 Legal Compliance GOVERNANCE AFS FM ASEAN TLS Certisource LAC FSC P&C FSC CWS GFS LVS MTCS SGS - TLTV SW VLC TFF LC SVLK Principle 3: Robust standards setting processes are in place for verification, audit and management of non-compliance Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager's experience with standards development and auditing in the forestry sector is considered to meet this objective in part Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body Criterion 3. The scheme has been developed with broad stakeholder input - Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme Indicator There is no requirement for stakeholder input during the development of the scheme Criterion 3.3 There is a clear basis for establishing compliance and non-compliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit //4

63 C.3 Chain of custody schemes Chain of Custody VERIFICATION Principle : Auditable systems are in place for tracking and monitoring the flow of wood and wood products from the forest through the supply chain AFCS COC Certisource LVP FSC COC GFS COC MTCS/PEFC COC SGS TLTV SW COC TFF LV/RIL-COC SVLK Criterion. The scheme requires systematic processes to verify the origin of materials and that documentation is valid and matches nominated materials Indicator... Requirement for a system to verify the legal origin of wood direct from the forest through checks on accompanying documentation Indicator... Requirement for a system to verify that wood received direct from the forest matches accompanying documentation, but no requirement for verifying the legal origin at the source Indicator..3. There is no requirement for a system to verify the legal origin of wood direct from the forest through checks on accompanying documentation Criterion. The scheme requires a chain of custody system to track certified or verified legal wood along the certification chain, using appropriate inventory methods and documented controls Indicator... Requirement for a chain of custody system to track wood from specified sources along the supply chain, with appropriate inventory methods and controls that can be audited at any time Indicator... Requirement for a means to trace wood from specified sources through the supply chain but no specific requirement for an inventory-based accounting system to account for verified wood flows over time Indicator..3. There is no requirement for a system to trace wood from specified sources through the supply chain Criterion.3 The scheme requires effective controls to prevent products from unverified and potentially illegal sources from entering the supply chain Indicator.3.. Requirement for effective controls to prevent unverified wood from entering the supply chain, such as a risk assessment to identify and manage wood from high risk sources, and physical segregation of wood from high risk or otherwise unverified sources Indicator.3.. Requirement for controls to separately track verified wood from unverified wood, but minimal specification of the types of controls that should be Indicator dt b.3.3. ff There ti is no requirement for controls to prevent unverified wood from entering the supply chain Criterion.4 The scheme has a defined policy for product labelling and process for managing associated claims Indicator.4. Requirement for product claims to be used in accordance with a product labelling policy relating to claims on legality verification Indicator.4.. Requirement for product labels or claims to be used with scheme approval only, and limited guidance on the permitted use of such claims Indicator.4.3. There is no requirement or specification relating to product labelling or associated claims under the scheme AUDIT Principle : Compliance with the scheme is audited and recorded regularly and results are publicly available Criterion. Compliance with scheme requirements are documented and maintained for audit Indicator... Requirement that records of compliance with the CoC scheme are accurate, complete and up-to-date Indicator... Requirement to comply with relevant legislation and other requirements, but no reference to document compliance with all aspects of the scheme Indicator..3. There is no requirement that records of compliance with the CoC scheme be maintained Criterion. Audit reports and certificate holder status for the scheme are publicly reported Indicator... Requirement that audit reports and certificate status for certificate holders are made public, including names of companies Indicator... Requirement that certificate status for certificate holders are made public, including names of companies, but no such requirement for audit reports Indicator..3. There is no requirement for audit reports and certificate status for certificate holders to be made available in the public domain or by request //4

64 Chain of Custody GOVERNANCE AFCS COC Certisource LVP FSC COC GFS COC MTCS/PEFC COC SGS TLTV SW COC TFF LV/RIL-COC SVLK Principle 3: Standards setting processes are in place for verification, audit and management of non-compliance Criterion 3. The scheme's standard has been developed by a nationally or internationally recognised standards authority Indicator 3... The scheme's standard has been developed by an internationally or nationally recognised standard setting authority Indicator 3... The scheme's standard has not been developed by an recognised standard setting authority, however the scheme manager's experience with standards development and auditing in the forestry sector is considered to meet this objective in part Indicator The scheme has been developed without reference to a nationally or internationally recognised standard setting body Criterion 3. The scheme's standards have been developed with broad stakeholder input Indicator 3... Requirement that broad stakeholder input is sought during the development of the scheme and during audits as necessary Indicator 3... Limited requirement that stakeholder input is sought during the development of the scheme or during the audit process Indicator There is no requirement for stakeholder input during the development of the scheme or through the audit process Criterion 3.3 There is a clear basis for establishing compliance and noncompliance and corrective actions for non-compliance Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified and processes for corrective actions are clearly established, followed and publicly reported Indicator Requirement that non-compliance with legality verification requirements of the scheme are identified but processes for corrective actions are not clearly established or demonstrably followed Indicator There is no requirement for non-compliance with legality verification requirements of the scheme to be identified and corrective actions implemented Criterion 3.4 Auditors are independent third parties that are accredited by an independent accreditation body Indicator Requirement that auditors are independent third parties, free of conflict of interests with the parties they audit, and can demonstrate accreditation by an accreditation body independent of the scheme Indicator Requirement that auditors are independent third parties, but are not necessarily accredited by an independent accreditation body Indicator There is no requirement for auditors to be independent or free of conflicts of interest with the parties they audit //4

65 Appendix D Commentary on selected schemes D The following commentary on aspects of differentiation across existing schemes is based on the assessment framework presented in this report and the assessment scores set out in Appendix C. This commentary considers firstly the verification requirements, then the audit requirements and governance arrangements for all schemes. D. Verification requirements D.. Legality schemes Legality schemes that ranked highest for verification included the AFS, the FSC Controlled Wood standard, SmartWood and TFF legality verification standards, and the ASEAN Timber Certification Initiative. The standards for these schemes incorporate specific requirements that address each of the assessment criteria. The differentiation between leading schemes and the next highest ranked schemes is attributable largely to specificity in the standard. For example, FSC P&C and MTCS received partial scores in respect to whether operational plans are approved by the appropriate authority. Both of these schemes require management plans to be implemented and up to date, but there is no specific requirement for approval by the relevant authority. In the case of SGS TLTV, it received a partial score against the requirement for operational management plans to specify the allowable volume of timber to be harvested. TLTV incorporates the requirement for reconciliation of production volumes in its traceability system, but does not refer to the need for management plans to incorporate volume information. The ASEAN Timber Certification Initiative scored strongly against verification requirements for VLO in particular and VLC also, but in respect of VLC criteria, it made no specific reference to compliance with codes of practice for harvesting and silvicultural operations. Indonesia s SVLK scored well against most criteria, but scored less than other schemes in respect to the legal basis for land tenure and use rights. SVLK standards and guidelines on timber legality verification incorporate the requirement to demonstrate legality with decree documents and licence documentation, however this requirement could be met with permits approved at the national level, and there is no reference to addressing land tenure and use rights at the regional or local levels where land tenure disputes may arise. The SVLK also received a partial score in respect of the criterion relating to compliance with codes of practice for harvesting and silvicultural operations. This scheme has a principle-level requirement to comply with the legal system and procedures for harvesting, and verification methods include field checks, but there is no specific requirement to comply with relevant codes of practice or operational regulations. Certisource has developed legality requirements for Indonesia based on the definitions and requirements that have evolved under the Indonesian SVLK initiative. Its standard therefore has some of the same limitations relating to the legal basis for land tenure and use rights and also compliance with codes of practice, as described for SVLK. In respect to VLC, Certisource s standard does not refer to the requirement to comply with all relevant social and community regulations relevant to forestry operations, or all relevant environmental laws and regulations including specific environmental prescriptions //4

66 GFS appeared to encompass the main aspects of VLO and VLC at a principle level, however there was limited development or elaboration of indicators used for verification assessments. D.. Chain of custody schemes The CoC schemes that ranked highest for verification included the sustainable forest management certification schemes - the AFSC, FSC and MTCS and also the SGS TLTV and TFF CoC system. They generally comprised clear requirements for the establishment of accounting methods and handling systems to track and separate materials as required through the supply chain. Several schemes received partial scores in respect to the requirement for systematic processes to verify the origin of materials. The SmartWood CoC, Indonesia s SVLK and the Certisource schemes incorporate requirements to check materials received against supporting documentation, but the requirement to verify the legal origin at the forest gate is not as clear as for other schemes. In the case of the GFS Wood Tracking Program, the main basis for differentiation is the extent to which the schemes set out requirements for a CoC system that tracks certified or verified wood along the supply chain. The GFS scheme requires all products to be traceable, but does not specify a requirement for an accounting system to track and monitor wood flows over designated periods. In addition, GFS did not include specific requirements to physically segregate verified and non-verified materials. This scheme contains a provision to phase out materials from unverified sources over a specified period of time, which in the interim could potentially allow wood from illegally harvested areas to enter the supply chain. Similarly, Certisource s CoC systems comprise intensive and detailed requirements for batches of verified materials, but it is not clear how the scheme addresses the criterion relating to un-verified sources entering the supply chain. Indonesia s SVLK standard includes requirements for a timber tracing system that is verified through a raw material and product tally sheet, an output report and cross checks made during the verification assessment of actual production and approved production quota. However, there is no further specification of the frequency of record keeping, requirements for monitoring within production batches or product groupings, and no requirement for the organisation to demonstrate to assessors that it undertakes reconciliation of volumes and verification of suppliers on an ongoing basis. There is also no specific requirement for unverified materials to be excluded or reported to authorities. D. Audit requirements The assessment of audits of compliance with scheme requirements was combined for schemes covering VLO and VLC, as requirements for verification were consistent across these schemes. D.. Legality schemes The legality schemes that ranked highest for audits of compliance included the FSC schemes (CWS and P&C) and the SGS TLTV, followed by the AFSC and the GFS. The FSC and SGS schemes comprised strong procedural requirements for documenting compliance with the scheme and broad stakeholder participation in the process //4

67 In the case of the AFCS, it also has strong procedural requirements for documenting compliance with the scheme, but its requirement for stakeholder participation in the audit process is limited to consultation with a sample of stakeholders as required. The SmartWood schemes, VLO and VLC, also received a partial score in respect to the requirement for stakeholder consultation to be undertaken as necessary during the audit. Under the SmartWood VLO and VLC schemes, auditors may choose to carry out stakeholder consultation in connection to the verification assessment or audits. In the case of GFS, the requirement for audit reports and certificate holder status to be made publicly available is limiting. The GFS has a requirement for summaries of all monitoring reports to be posted on the GFS WTP client database for transparency, but this database is still under development. The MTCS scheme addressed most of the assessment criteria, but its requirements for participating organisations to demonstrate compliance with all legal criteria of the scheme were not as clear as the highest ranked schemes. In addition, the MTCS limits the requirement for input from a range of stakeholders during assessments, to involve consultation with stakeholders where necessary. The TFF schemes require documentary evidence of compliance with its verification requirements and also make audit reports and status information on certificates publicly available. Their limitation is the absence of a requirement for input from a range of stakeholders during audit assessments. The SVLK and Certisource share a limitation relating to demonstrated compliance with all legal criteria of the scheme. The SVLK scheme requires the Forest Management Unit to have a Legal Work Plan that is in accordance with applicable regulations, but there is no specific reference to documentation of compliance with this plan or all legal criteria of the scheme. Similarly, Certisource requires the Management Unit to demonstrate a commitment to keeping accurate, complete and up to date records, but there is no specific reference to documenting compliance with the scheme. In addition, these schemes were ranked lower than others in respect to stakeholder consultation. None of these schemes make reference to requirements for stakeholder consultation to be undertaken during audits. The ASEAN Timber Certification Initiative does not comprise auditing requirements or governance arrangements for managing the scheme so was excluded from the assessment of these two elements. D.. Chain of custody schemes This assessment produced the same trend in results as outlined for the legality schemes, with the largest forest certification schemes ranked highest. This was expected, as there is considerable overlap in the management of schemes covering legality and CoC requirements. The main aspect of differentiation is the requirement for compliance with all aspects of the scheme to be documented and maintained for audit. This shortcoming can be attributed largely to a lack of specificity only, as there is a general intent to maintain documented control systems. Schemes such as the MTCS and Certisource have requirements for maintaining accurate, complete and up-to-date records, but are not specific about documenting compliance with all aspects of the scheme. The assessment of Indonesia s SVLK is based on structures and procedures that are yet to be implemented. The assessment of aspects such as the scheme s provision of standards and certificate information was based on information or statements of intent that were available. Lower scores were ascribed to this scheme on the basis that information is currently limited or not available //4

68 D.3 Governance arrangements Consistent with the approach adopted for the verification element, the assessment of the governance processes for VLO and VLC schemes were grouped. D.3. Legality schemes For this element in particular, the larger forest certification schemes such as the AFSC, FSC and the MTCS demonstrated stronger governance processes compared with schemes that are focussed primarily on legality verification services. Development of the standards by an independent, recognised standard setting authority was the main differentiator between these and other schemes. The AFS SFM scheme was developed through a national standards authority, and the FSC generic principles and criteria and the MTCS are aligned with independent standards development organisations including ISO and ISEAL. SGS TLTV and SmartWood s VLO and VLC schemes received partial scores in respect to accreditation of auditors by an independent accreditation body. In these schemes, auditors are not independent of the scheme or the accreditation body. However, both of these organisations have extensive experience in auditing and their accreditation as third party auditors for other schemes such as the FSC and the MTCS is recognised in the partial score. Similarly, GFS auditors are not accredited by an independent body, however GFS has experience auditing FSC standards and a partial score was allocated on this basis. Indonesia s SVLK scored well across three of the four criteria, but scored less than others in respect to the basis for establishing compliance and managing corrective actions for non-compliance. SVLK has a requirement for compliance across principles and criteria, but currently no process in place for distinguishing between major and minor corrective actions. In the case of Certisource and GFS, limiting issues related to the requirement for the scheme's standard to be developed by a nationally or internationally recognised standards authority and also the requirement for broad stakeholder consultation during development of the scheme. D.3. Chain of custody schemes This assessment produced the same trend in results as outlined above for legality schemes. The SGS TLTV standard was ranked higher relative to other legality schemes due to its clear specification of documentation required to accompany materials to the forest gate to demonstrate their legal origin //4

69 Appendix E Trade volume imports to Australia E Table E- Trade volume imports to Australia, for selected countries (8) Commodity Unit China Indonesia Malaysia PNG Philippines Thailand Vietnam Total Manufactured wood products 449 lm,98,9,69 3,9,53-5,7,88 m 3 44,38 66,64 37, ,9 448 m 58,444,7 3,39-4,468,87 86,83 # 6,998 6,76 5, , # 6,6,58 655,836,48,4 6, 76,53 8,567 9,64,856 Other manufactured wood products 443 t #,96,764,4,9 9, ,84 7,4 3,484,9 44 # 8,474, ,5 4,3 8,489,5 Other paper and paperboard products 49 # 97,886,59,385,8,3,6 3,793 6,478,884,48 6,877 4,66,643 Other products of wood origin 44 t 5, ,37 44 t 98, , t 8 8 Pulp, paper and paper board 47 t , # 68,685,94 85,634 3, ,87 Solid wood products 443 m m 3 7,56 8,885 45,59, ,8 448 m 98,645 3,3,57,5 33,79 3,543,9 m ,75 44 m 3 48,788 38,656 3,7 3, ,49 Composite wood products 44 m 3 9,6 -,53,54-3, m 3 7,3 57,477, ,38 Source: Global Trade Information Services //4

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