It’s official: EU says neither FSC nor Ukraine government can guarantee wood is legal

This analysis can be read in Ukrainian here.

• A new guidance document for timber imports from Ukraine states that neither official logging documents nor FSC certificates constitute compliance with EU timber laws.
• The adoption of such strict Guidance has been long called for by NGOs, and forms official acknowledgement by the EU of the limitations of the Forest Stewardship Council in meeting EU-mandated standards of legality.
• The development has radical implications for a billion-dollar Ukraine-EU timber trade and highlights the need for urgent reform of the FSC and Ukrainian Forestry Agency.

The European Commission has adopted a new guidance document for timber imports from Ukraine that will require timber companies to adopt exhaustive new measures to ensure the legality of their purchases. The document was adopted at a meeting of European authorities tasked with enforcing the European Union Timber Regulation (EUTR) held in December last year. It constitutes formal recognition by EU timber authorities that for Ukraine timber certified by schemes like FSC (Forest Stewardship Council) will alone not be enough to meet EUTR-prescribed thresholds of "negligible risk" of illegality.

In what may prove to be a crucial turning point for efforts to protect Ukraine’s precious forests from illegal loggers, the EU has officially declared that flawed green labelling scheme FSC’s systems are unable to ensure its wood is legal. The decision, which has been over two years in the making, follows reports by Earthsight revealing how wood from illegal cutting and linked to high-level corruption is being greenwashed by FSC, undermining the impact of the EUTR, which is meant to ensure EU consumers don’t unwittingly drive forest destruction through their purchases of wood products.

The Guidance will impact a thriving (and largely illegal) billion-dollar timber trade between the EU and Ukraine, with potentially serious implications for the Ukrainian economy.  As Europe’s poorest country, timber sales are an important part of its economy.

The new guidance also has major implications for the legitimacy of certification in other high-risk source countries such as Brazil or Russia, where state systems are also riddled with corruption and illegality, and where flawed FSC systems are too often being relied on to ensure wood is clean. It is likely that similar rulings on FSC’s flaws in relation to these other countries will follow. As Earthsight has previously noted, FSC must urgently reform the conflicts of interest and other flaws in its structure to make it fit for the future.

The Guidance also opens up questions about the role private certification should play to meet the standards set by future laws currently being debated in the EU, which may require due diligence to be undertaken on imports of other forest-risk commodities, such as palm oil, soy, beef and leather.

What the Guidance says

The EUTR states that  ‘’In order to recognise good practice in the forestry sector, certification or other third party verified schemes that include verification of compliance with applicable legislation may be used in the risk assessment procedure.’’ Since the law first came into force in 2013 there has been a surge in demand for wood certified by schemes such as the FSC. But successive Earthsight reports have shown that despite major problems, wood carrying the FSC-label had a de facto green lane into the EU for years, with authorities and companies demanding little else towards EUTR compliance.

The new Guidance on Ukraine reiterates a previous EU finding that illegal logging ‘’with papers’’ is a major problem in Ukraine. It notes that illegal sanitary felling, misclassification of the type or price of timber on official contracts of sale, corruption and the use of letterbox companies in the illegal timber trade are common.

The Guidance also notes that ‘’violations of FSC rules, lack of proper stakeholder engagement in FSC auditing processes and poor performance by auditors’’ have been observed in Ukraine. It states that while illegal sanitary felling, bribery of officials and illegal timber exports have been observed in enterprises with ‘FSC-FM’ (FSC Forest Management) certification, "FSC-CW (Controlled Wood) certification is unable to eliminate corruption risks due to its heavy reliance on official documentation and self-declarations by suppliers,". It states that "despite such observations of illegality, these forests have usually continued to hold valid certification."

Based on this the document concludes:

• Neither official Ukrainian government documents including certificates of origin nor the electronic timber tracking systems relying on them will alone be sufficient to minimise risk of sourcing illegal timber
• Neither FSC nor other private third party certification schemes provide sufficient risk mitigation measures and that additional steps must be taken by EU operators looking to comply with the EUTR.

An Annex to the Guidance states that additional risk mitigation measures that may be taken include verification of the information on documents by checking they correspond to the product, “proactively” checking court registers and media articles for allegations of corruption levelled against forestry officials and companies in Ukraine, checking the Ukrainian state forestry agency’s website to see that logging areas correspond to information on logging documents, and checking satellite images to ensure logging did not take place outside permitted boundaries.

The Guidance will have important implications for both importers who are the “first placers” of Ukrainian timber on the EU market and subsequent buyers of products made with this timber down the supply chain. While the first destinations for Ukrainian timber imports are often large sawmills based in the countries bordering Ukraine such as Romania, Poland, Slovakia and the Czech Republic, multi-billion-dollar companies based in Western Europe and big public facing brands such as Ikea are some of the firms where it eventually ends up. Many household products used by EU citizens in their everyday lives are made from Ukrainian wood - from furniture and paper to the houses in which they live or the clothes they wear. A previous Earthsight report showed that due to the large volumes of Ukrainian timber used in the EU, the country had become the single largest source of likely illegal timber to the bloc - more than all tropical countries combined.

The document was adopted a few months after Ukrainian NGOs sent an open letter to the EU last year urging it to adopt strong guidance on Ukrainian timber which recognised the limitations of certification and to step up EU enforcement on illegal timber cases. It also follows the publication of a major report on failures of FSC certification in relation to Ukrainian timber used by Ikea published by Earthsight last year.

Tara Ganesh, head of Earthsight’s Timber Investigations Unit, said: “The fact that the EU has adopted this document shows that it means business when it comes to tackling illegal wood imports from Ukraine’s forests - some of the last in Europe. Now the authorities tasked with enforcing the EUTR should follow its lead and drastically ramp up their enforcement, slapping non-compliant companies with fines and blacklisting repeat offenders.”

Asked to comment, a spokesperson for the European Commission, Niels Boelling, told Earthsight the Guidance was primarily aimed at “Member state competent authorities for a common understanding of the situation in Ukraine. And for anyone planning to import or already importing from Ukraine. For the Ukrainian authorities and politicians to get a better understanding of where their lack of law enforcement of applicable legislation and weak governance are causing problems for their exporters/EU importers.”

Requested to comment on the new Guidance document, FSC’s Regional Director for Europe appeared to acknowledge FSC’s flaws, admitting to Earthsight that “when trying to mitigate risks of sourcing in countries such as Ukraine where the operating context is complex and risky, FSC certification is not the only tool that should be used.”

“FSC Network Partners (NPs) across Europe, including Ukraine can support FSC certificate holders (CHs) on additional due diligence. However, under no circumstances does the FSC system and/or support from FSC NPs, take the responsibility of due diligence away from companies wishing to source in the Ukraine, whether the material has FSC claims or not.”

Systemic problems with certification require systemic solutions

In November 2018, five months after Earthsight’s first report on the country hit the headlines there, the EU published the results of its own study on the state of the forestry sector in Ukraine. The study acknowledged that Ukraine’s state forestry agency [SAFR] was “extensively prone to corruption” and that such corruption was a “far larger problem” than completely illicit felling.

We spoke to one of the authors of the EU report, Stella Boke, who told us that her extensive interviews with Ukrainian government officials from several departments conducted in the course of writing the report were “eye-opening”. She told Earthsight: “The situation with illegal logging in Ukraine is very bad. And mostly with ‘legal illegal’ logging, the one with all official documents in place. From Ukrainian officials we heard sentences like ‘half of the sanitary logging is unjustified [illegal]’.”

Asked whether she found such illegalities occurred less frequently in certified forests, she stated: “When we asked one of the main inspecting authorities about it, we were told that, with regard to illegal logging or illegal forest management, they saw no difference in FSC-certified and non-certified forests.”

Almost all forests in Ukraine are state-owned, and suffer from ingrained problems of corruption, a lack of oversight and conflicts of interest. Yet most of these State Forestry Enterprises have continued to carry FSC’s seal of approval. In its summer 2020 report, Earthsight spoke to whistleblowers and activists who told us of an unhealthily close relationship between the logging companies and FSC auditors, with the latter being only too willing to ignore environmental concerns as a result.

The FSC has noted that its standards “were not designed to deal with corruption.” Yet we have previously shown how FSC in Ukraine had been lobbying for existing laws on forest protection to be weakened. FSC International, for its part, has been calling for FSC certification to be “formally recognised” in the due diligence systems used by companies, which would effectively give it a green lane under the EUTR, either in principle or practice. The new Guidance document on Ukraine demonstrates why it would be disastrous for such formal recognition to be given to certification schemes under the EUTR.

Yehor Hrynyk, from NGO Ukrainian Nature Conservation Organisation, has been monitoring illegal logging and the FSC’s response in Ukraine for a number of years. Questioned about steps taken by FSC to improve its functioning in Ukraine, he stated that there were systemic problems with FSC that required a systemic response.

‘’FSC in Ukraine says one thing but does another. It claims it has implemented major changes but the reality is very different. For example, they developed a statement about sanitary logging in the so-called “silence season”, saying that any sanitary logging within this period would be considered as a major non-conformity. Yet this year we observed multiple cases of such violations by FSC-certified forestries - and no reaction from FSC. It is just one of numerous examples of how FSC has failed to improve itself in practice.”

“There are a lot of problems [with the FSC]. I would say that two of them are among the main ones. First one - internal conflict of interests within the FSC-certification.  Logging companies directly pay the auditors who provide them with FSC-certificates. Of course, it all goes wrong. 

“Second problem - the environment where FSC operates. Ukraine is a highly corrupt country with inadequate law enforcement. Not a single certification scheme in their current form can properly work in such an environment.”

Despite repeated scandals from large scale illegal deforestation, human rights abuses and timber laundering being detected in FSC certified forests and companies, the green label has largely ignored calls for serious change, choosing to kowtow to the timber lobby instead. FSC certifying bodies are competing entities, and paid directly by their clients, creating a “race to the bottom” where whomever implements the standards least strictly is more likely to win contracts. For the same reason, certifying bodies are highly reluctant to strip entities found to be implicated in illegal activities (i.e. their clients) of their certification. FSC-certified supply chains are also very non-transparent with audit reports not being made available for companies that carry “Chain of Custody” certificates - the issuance of which forms a n important source of income for the FSC. Earthsight detailed the challenges faced by FSC worldwide and what it must do to regain legitimacy in its 2020 report, Flatpacked Forests.

Yet instead of taking steps to reform, FSC has dug its heels in, continuing to act as though bad behaviour on part of FSC-certified entities are unfortunate, isolated instances that it had no part in facilitating. Companies like Ikea, which as major clients of FSC and hold enormous sway over it, have meanwhile refused to use their leverage to initiate structural changes at the organisation. It remains to be seen if the European Commission’s acknowledgement that FSC standards are lower than those required by EU law will lead to change at the green label.

Ukrainian reform means a more legal timber trade to the EU

While Boke (who was an advocate for adoption of the new Guidance and is also a representative for the Latvian EUTR Competent Authority) welcomes the Guidance as a crucial step, she warned that unless the forest system in Ukraine is significantly overhauled, it would be practically impossible for EU operators to ensure the legality of their timber imports from the country. Boke told Earthsight: “Unless something has considerably changed in the last few months in Ukraine, I hold a view that there is no functioning forest control system in Ukraine and forest law enforcement is absent, while the scale of illegal logging (forest management practices that do not follow laws and rules) by the forest managers themselves is huge.”

“In such circumstances to mitigate risks to negligible for an operator or a consultant in another country by doing some rare, once a year, field checks is quite impossible. In this respect, I also do not see difference if its FSC certified timber or not, as, as far as I know, FSC auditors also do not act as forest inspectors, constantly monitoring illegal activities in the forests.”

She also warned of possible complicity of EU companies in corruption being an impediment to effective application of the new guidance.

“One more situation where the guidance would not help is if an EU operator (or its partner in Ukraine) is itself involved in corruption or some form of illegal logging in Ukraine, for example by paying bribes to get access to desirable timber,’’ she said. ‘’In such a situation, the operator might have a nice DDS [Due Diligence System] but nevertheless be importing illegal timber. I have often heard anecdotal stories of these situations, and this has also been mentioned in Earthsight’s reports.”

In Ukraine, the adoption of the EU guidance has become an important tool for campaigners and progressive elements within government who are attempting to reform the SAFR, despite continued resistance by the Agency, according to sources.

The same forestry agency that profits from the sale of timber is also tasked with detecting illegalities in Ukrainian forests, in a gross conflict of interest that both the EU and environmental campaigners have said must be remedied. The Ukrainian forestry agency was recently shifted to sit under the control of the country’s Ministry of Environment and Natural Resources (MENR), a step that was thought to be necessary to eradicate the entrenched corruption. Sources have told Earthsight that there is significant opposition to this move by the Agency, which would prefer to revert to the charge of the Agricultural Ministry, under which corruption thrived.

The EU is also continuing to contradict itself in its attitude to its billion-Euro timber trade with Ukraine. The very same month the EC guidance was adopted, an EU panel ruled that Ukraine’s log export ban was illegal and contravened free trade provisions in the bilateral EU-Ukraine Association Agreement.

Earthsight’s 2018 report had previously shown how many EU firms and member states receiving logs banned from export were also lobbying the EU for help in putting pressure on Ukraine to cancel it. It would appear these attempts have been successful. The EU has stated that Ukraine is now required to “terminate the export ban as soon as possible.”

Yet if EU authorities follow the spirit of their own new guidance on timber imports it will make scant difference whether the log ban is lifted or not. Under the new guidance it is near impossible to import timber from Ukraine legally, whether these are logs or higher processed timber goods and this will not change unless reforms are implemented by the Ukrainian government and FSC. Meanwhile EU’s own enforcement of illegal Ukrainian timber cases leaves a lot to be desired, with none of the major importers of high-risk Ukrainian timber detailed in Earthsight’s 2018 or 2020 reports being penalised till date.

Domestically, reforming the forestry agency in Ukraine which controls almost all harvesting and sales, and is hotly resisting reform, remains the predominant hurdle to overcome on the path to a less corrupt forest sector, and consequently, a more legal and sustainable timber trade to the EU. The Environment Ministry of Ukraine will require continued support from the EU and an increased budget to achieve this mammoth task.  As already shown, certification has proved itself to be no substitute for stronger forest governance in the country and is at a crossroads. In the meantime the new EU Guidance is clear that for Ukraine: “If it is not possible to carry out adequate risk mitigation measures or if the risk of corruption and illegality associated with timber shipments is still non-negligible despite taking the appropriate steps, operators should refrain from placing the timber and products thereof on the EU market.”

When questioned about how the new guidance document should be used by authorities in the EU looking to make cases about illegal timber imports in court, Boelling stated: “The CA's [Competent Authorities] should use the document when inspecting operators and verify that the operators follow the guidelines . This isn’t a legal document, but it is an important tool for competent authorities in any legal cases, as this conclusion represents the common assessment by the CAs of all 27 EU Member states’ enforcement agencies. If you decide to disagree with all Member States you’d need really good arguments!”

It remains to be seen whether Member States will follow the new guidance – especially those with powerful domestic industries reliant on a steady flow of cheap Ukrainian wood. A key step has already been taken by competent authority in Germany – the EU’s biggest end-consumer of Ukrainian wood. Following its adoption companies in Germany were put on formal notice of the new guidance, which was provided to them all translated into their native tongue. Earthsight will be watching closely to ensure other important Member States, such as Romania, Poland, Austria and the Czech Republic follow suit.