EU Timber Regulation: Is your business at risk?
The EUTR : Not just for timber merchants.
The EU Timber Regulation or "EUTR", which came into force on 3 March 2013, places obligations on businesses dealing with timber and timber products. The aim is to reduce the impact of products sourced from illegal logging, which is currently costing the EU market billions in evaded taxes and suppressed prices.
Under the EUTR, 'operators' who first place timber products on the EU market must implement a suitable due diligence system to risk assess the possibility that those products are sourced from illegal logging activity. 'Traders', businesses who buy and sell timber products already on the EU market, are required to retain records about transactions relating to timber products.
Failure to comply poses a risk of criminal sanctions; the maximum sentence in the UK is two years imprisonment and/or an unlimited fine.
The timber trade has been alive to the EUTR since its inception in 2010 and, as those in the sector will tell you, the EUTR is the current 'hot topic'. Organisations such as the Timber Trade Federation are resolutely behind the EUTR, seeing it as a way to improve the image of the sector which has previously suffered from negative association with illegal logging. Products and services designed to assist with EUTR compliance have sprung up across the sector and a large proportion of timber traders geared up well in advance of the EUTR coming into force.
However, there has been markedly less exposure outside the sector and businesses in other industries may not be aware that the EUTR exists, let alone that it is now in force and applies to them. The wide scope of the EUTR means some businesses may be classified as operators even though their business model is not based on importation and a large number of businesses will, to some degree, be traders.
As stated above, an operator is a business who first places timber products on the EU market. Under the EUTR placing on the market is defined as:
"the supply by any means …………….of timber or timber products for the first time in the [EU] market for distribution or use in the course of a commercial activity."
This means that the EUTR is not restricted to trading activity, the definition covers use, which is the element that may catch businesses out. This could relate to use within a business, from office supplies to furniture and even packing material. In fact, the European Commission's guidance on the EUTR uses a retailer importing till rolls for use in his business as an example of an operator.
Compliance with the EUTR could be quite burdensome for operators who are not used to supply chain management and do not have an adaptable system in place. For example, a consultancy firm importing mahogany office furniture may have little or no supply chain experience, in which case risk assessing the source of their furniture may be a difficult task.
A 'trader' is defined as any business which buys or sells timber products. As there are no 'de minimis' or minimum value exemptions for the EUTR, this could be as simple as buying a ream of printing paper. Whilst the obligations on traders are less than operators, there is still the risk of a fine up to £5,000 for non-compliance.
As discussed above, the penalties for non-compliance could be severe. Additionally, businesses may wish to consider the negative implications non-compliance could have on their brand and reputation. We have all seen how consumers have reacted to the horsemeat scandal; illegally sourced wood passing down the supply chain could be equally as damaging. Further, compliance with the EUTR may be required under the terms of existing contracts and is likely to be required in contractual relationships moving forward.
The powers of investigation of the National Measurements Office ("NMO", the body in the UK responsible for enforcement of the EUTR) could also impact businesses. These are quite extensive, ranging from on the spot checks to serving infringement notices. The power with the potential to cause the highest impact on businesses is, perhaps, the power to seize goods. The NMO may seize goods it reasonably suspects to be sourced from illegal logging activity and go on to dispose of, sell or destroy those goods. The NMO has stated it will aim to minimise impact on businesses in exercising this power. However, there is still the potential to cause undesirable business interference as there are no time limits for release or investigation into seized goods.
Compliance with the EUTR will be considered a defence to the penalties. However, goods may be seized from 'innocent' businesses, as illegal timber will be traced through the supply chain. DEFRA has advised businesses to ensure their contractual arrangements are adequate to cover seizure due to EUTR non-compliance, to protect against this eventuality. Whilst many contracts will cover non-compliance with legislation, claims for indirect losses such as loss of profits may not be included.
Now that the EUTR is in force, it is crucial for businesses to understand their obligations. After all, nearly all businesses use timber or timber products in one form or another and, as can be seen above, the potential impact and risk of non-compliance is high.
This article contains summaries of complex issues and should not be relied upon in relation to specific matter.