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Australian Industry Timber Due Diligence

Guidance and Tools

Stephen Mitchell

Sustainability Programme Manager stephen.mitchell@tdansw.asn.au

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Illegal Logging

• Undercuts legitimate trade

• Contributes to environmental and social degradation

• Organised crime responsible in some countries (Interpol 2012)

• Governments loose revenue (i.e. royalties)

• A significant concern in some developing countries

FWPA Webinar – 30/04/2014

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International Context

• European Union – EUTR 2012

– From March 2013 importers and domestic supplier must undertake due diligence

• USA - Lacey Act amendments 2008

– Undertaking due care mitigates penalties

• Many bilateral agreements and projects to reduce illegal logging in some developing countries E.g.

Africa, SE Asia

• Many private company procurement policies.

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Australian Legislation

Illegal Logging Prohibition Act 2012

• Implemented in two stages - Nov. 2012 / Nov. 2014

• Prohibition, penalties, inspection regime Illegal Logging Prohibition Regulation 2013

• Effective 30th November 2014

• Defines regulated timber products and exemptions

• Details due diligence requirements.

FWPA Webinar – 30/04/2014

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Australian Legislation: ILP Act - from 30/11/14

• Prohibited to import illegally logged regulated timber products or

• Penalties

– Up to 5 years jail

– Fine ($85k for individual, $425k for company) – Forfeiture

• Level of proof for Commonwealth

– Illegally logged & importer negligent

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Australian Legislation: Reg - from 30/11/14

• Importers of regulated timber products & domestic processors

of raw logs

• Must undertake due diligence

1. Gather information

2. Identify and assess risk

3. Mitigate (if risk other than low)

• Fines

– $51k for individual – $255k for company

FWPA Webinar – 30/04/2014

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Australian Legislation: Definition of illegally logged

“harvested in contravention of laws in force in the place (whether or not in

Australia) where the

timber was harvested.”

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This Project

Stage 1: Investigation of current due-diligence measures for illegally logged wood

www.fwpa.com.au/Demonstrating_legal_wood_products_Industry_benchmarking

Stage 2: Development of due diligence guidance a nd tools

www.fwpa.com.au & www.timberduediligence.com.au

FWPA Webinar – 30/04/2014

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This Project: Stage 1

Part I - timber and timber products

– All 28 importers are undertaking some due diligence – Certification and large range of 3rd party legality

verification (merbau) and government documentation – Practices driven largely to protect their reputation as well

as market demands from key customers.

Part II – pulp, paper, wood furniture and other wood

– pulp and paper – COC to FSC and/or PEFC/AFS

– wood furniture – not much except single, stable suppliers and regular visits to them.

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Source: Mitchell, S. (2012) Demonstrating legal wood products - Industry benchmarking Part I. Prepared for Forest & Wood Products Australia. Available at http://www.fwpa.com.au/Demonstrating_legal_wood_products_Industry_benchmarking

Based on interviews with twenty-eight regular Australian timber product importers/wholesalers

Stage 1: Timber and timber products: Drivers

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Stage 2: Guidance and tools

• Australian Industry Timber Due Diligence (AITDD)

• Based on:

– Research into current practices

– Research into overseas due diligence systems – particularly European Timber Trade Federation

– ILP Act, Regulation, accompanying explanatory statements

& memo and Dept. of Agriculture information – Consultation with domestic and importer trade

• Freely available at www.timberduediligence.com.au

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Timber Due Diligence: Options

• Develop and use your own system of procedures

• Extend existing system (e.g. FSC, PEFC or AFS CoC)

• AITDD tools and guidance

www.timberduediligence.com.au

• Commonwealth Department of Agriculture tools and guidance www.daff.gov.au/illegallogging

• Other standards (e.g. EU NEPCon LegalSource system, US ANS Standard for Due Diligence in

Procuring / Sourcing Legal Timber – later in 2014)

FWPA Webinar – 30/04/2014

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AITDD: Tools and Guidance

• Domestic processors of raw logs

– Australian sawmills, pulp and paper mills etc

• Importers into Australia of regulated timber products

– most timber, pulp, paper and wood furniture

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AITDD: Domestic processors

1. Overview of legislation and obligations 2. Due Diligence Summary Template

Note: State specific guidelines (to be provided by State and

Commonwealth Governments) will be important for straight forward compliance for some domestic processors

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AITDD: Importers

AITDD-01 Due diligence system guide Annexes 1 - 8

AITDD-02 Company due diligence system manual template

AITDD-03 Supplier and product due-diligence spreadsheet

AITDD-04 Supplier questionnaire template

AITDD-05 Evaluating legal conformance at forest

level

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AITDD-01

Importers due diligence system guide

• Core document

• Step by step guidance on DD

FWPA Webinar – 30/04/2014

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1

Establish a due

2 3 4

diligence system

Gather information

Assess compliance or risk

Mitigate risk (if not low)

 Gather information about:

• products

• country of harvest

• species

• supply chain

 Collate any certification, legality verification (if available)

 Gather evidence of compliance (if needed)

 Commit to purchasing of legal harvested products

 Appoint a responsible person

 Establish written procedures

• responsibilities

• train staff

 Evaluate information

 Assess compliance against timber legality frameworks and/or country specific guidance (if info. available)

 Assess risk against 4 factors

 Identify specific risks (where not low)

 Identify risk mitigation measures

 Involve supply chain

 Implement mitigation measures: E.g.

• more information

• independent verification

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AITDD-01

Step 1. Set up system

– Are your timber products regulated timber products? (Info. sheet)

– Assign person with overall responsibility for DD

– Develop a legal timber procurement policy (doesn't have to be public) (Annex 1)

– Read communications guidance (Annex 2)

– Develop written procedures (AITDD-02):

• Assign specific responsibilities & train staff.

FWPA Webinar – 30/04/2014

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AITDD-01

Step 2. Gather information

As much info. as is “reasonably practicable”

– Type of product

– Common name, or scientific name

– Country, region and/or forest harvesting unit (FMU) of harvest

– Country of manufacture

– Name and address of supplier – Quantity/volume

– Any evidence of compliance with laws that relate to harvesting

Supplier Spreadsheet (AITDD-03) Questionnaire (Annex) where additional

info. needed

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AITDD-01

Step 2. Gather information

• Evidence around:

– Legal right to harvest

– Harvested within legally gazetted boundaries – Payment of harvesting royalties

– Any person with legal rights of use/tenure, their rights not affected by harvesting

FWPA Webinar – 30/04/2014

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AITDD-01

Step 3. Risk identification and assessment

METHOD 1 - Assess compliance with a scheduled timber legality framework (FSC or PEFC FM) METHOD 2 - Assess compliance

with relevant scheduled country specific guideline

METHOD 3 - FSC / PEFC Chain of Custody Certification and/or 3rd party verification

METHOD 4 - Assess risk against four factors.

Annex 4: Risk

assessment flowcharts

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AITDD-01

Step 3. Risk identification and assessment

METHOD 4 - Assess against four factors

– Prevalence of illegal logging in the area in which the timber was

harvested

– Prevalence of illegal logging of the species in the area in which the timber was harvested

– Any armed conflict in area of harvest

– Complexity of the product.

FWPA Webinar – 30/04/2014

Annex 4: Risk

assessment flowcharts

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AITDD-01

Step 3. Risk identification and assessment

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AITDD-01

Step 3. Risk identification and assessment

• Record risk conclusion

AITDD-03 Supplier and product spreadsheet

• If risk not low go to next Step (Risk Mitigation)

Annex 4: Risk

assessment flowcharts

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AITDD-01

Step 3. Risk identification and assessment

Must also consider any other information that you ought reasonably know about.

FWPA Webinar – 30/04/2014

Annex 4: Risk assessment flowcharts Annex 6: Other information sources

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AITDD-01

Step 4. Risk mitigation

• If risk anything “other than low”

• Mitigation measures adequate and proportionate to risk include:

– FHU audit - document based – FHU audit - onsite

– Requesting certified or verified material – Supplier replacement

– Product replacement

– Recommendation - use mitigation

measure that gives strongest assurance of legality

– Record mitigation and reassess risk.

AITDD-03 Supplier and product spreadsheet

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AITDD-01 Other tools

• Importer due diligence overview and summary template (Annex 7)

– A template for importers to summarise their due diligence for particular suppliers and/or regulated timber product

• DRAFT Importer customs broker authorisation template (Annex 8)

– declaration for importers to authorise their customs broker to answer the required Customs Community Protection

Question

FWPA Webinar – 30/04/2014

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AITDD-01

Due diligence system guide

Annexes 1 - 8

1. Explanation of terms

2. Company legal timber policy template 3. Communications guide

4. Risk assessment flowcharts 5. Template - letter for a supplier 6. Further information sources

7. Importer due diligence overview and summary template 8. DRAFT Template – Importer’s customs broker

authorisation

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AITDD-02

Due diligence system manual template

• If used must be adapted for circumstances

• Includes suggested words and/or space for:

• Procedures and documents - location

• Legal sourcing policy / commitment

• Quality system and management (e.g. Assignment of

Responsibilities, Training and Competence Assurance, Due

Diligence Revision Process, Procedures for Maintaining Records Relating to Certification, Communication Compliance)

• Material Control

• Gathering Supply Chain Information

• Risk Assessment & Risk Mitigation

• FAQs template for customers (e.g. Merchants)

FWPA Webinar – 30/04/2014

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AITDD-03

Supplier and product spreadsheet

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AITDD-03

Supplier and product spreadsheet

FWPA Webinar – 30/04/2014

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AITDD-03

Supplier and product spreadsheet

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AITDD-03

Supplier and product spreadsheet

FWPA Webinar – 30/04/2014

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AITDD-03

Supplier and product spreadsheet

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AITDD-04

Supplier questionnaire template

• Brief cover letter and detailed attachment

• For sending to suppliers where important information is lacking

• Not for every supplier (e.g. low risk sources)

• Can also be used as basis for research by importer (where suppliers don't fill out questionnaires!)

FWPA Webinar – 30/04/2014

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AITDD-05

Evaluating legal conformance at forest level

• Where timber has been assessed as not a low risk at the forest harvesting unit (FHU) level and a FHU audit is chosen as a risk mitigating measure

• Includes table of scope of legislation under each and possible verifiers for legality

• Evaluation should only be done by someone with appropriate expertise and experience.

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AITDD-05

Evaluating legal conformance at forest level

Low risk if non-compliance are:

a) temporary lapses;

b) unusual/non–systematic; or

c) limited in temporal and spatial impact.

FWPA Webinar – 30/04/2014

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AITDD-05

Evaluating legal conformance at forest level

Not low risk if non-compliances:

a) continue over a long period of time

b) affect a wide area and/or causes significant damage

c) indicate the absence or break down of enforcement of the legal system

d) are not corrected or adequately responded when identified; or

e) have a significant negative impact on the production of forest products and other services, the forest ecosystem and directly or indirectly, any people.

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Importer Information Sheets

IIS-01 Importers Overview

IIS-02 Regulated Timber Products IIS-03 Country of Harvest Risk

IIS-04 CITES, Australia and Timber Products IIS-05 PEFC Endorsed Standards

IIS-06 Indonesia TLAS/SVLK & FLEGT/V-legal

FWPA Webinar – 30/04/2014

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IIS-02

Regulated Timber Products

• Based on Tariff codes

• Regulated:

– Sawn timber, mouldings, veneer, plywood, MDF, – Doors & window joinery

– Most pulp and paper products, wood furniture

• Exempt or not regulated:

– Recycled timber/pulp/paper – Wood packaging/pallets

– <$1000 customs value

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IIS-02

Regulated Timber Products

• Includes worked examples of what is and what isn't an RTP

– E.g. Boxes of tissue boxes

• Lists of typical products under tariff codes

• Important - customs brokers / independent advice be consulted in tariff classification.

FWPA Webinar – 30/04/2014

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IIS-03

Country of Harvest – Illegal Logging Indicators

• Includes key indicators of risk of illegal logging at a country level including:

– Transparency International's Corruption Perception Index (CPI) of major wood supply countries.

– NEPCon's FSC Global Forestry Register

– A list of the status of countries negotiating Voluntary

Partnership Agreements (VPAs) with the European Union (EU) as part of the EU's FLEGT (Forest Legality

Enforcement Governance and Trade) Program.

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IIS-05

Indonesia TLAS / SVLK & FLEGT / V-legal

• Information on the status of the Indonesian timber legality

assurance system (TLAS or SVLK) for most timber product exports from Indonesia.

• Includes sample SVLK certificates

& V-legal licenses.

FWPA Webinar – 30/04/2014

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Timber Due Diligence starter training

• Three pilot one day workshops in early June

• Melbourne, Sydney and Brisbane

• Includes case studies (much easier to understand!)

• To be run with The Forest Trust (TFT)

• Programme and registration

www.timberduediligence.com.au shortly

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Thank you Questions

www.timberduediligence.com.au

FWPA Webinar – 30/04/2014

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