Provisional text
OPINION OF ADVOCATE GENERAL
ĆAPETA
delivered on 4 July 2024 (1)
Case C‑370/23
Mesto Rimavská Sobota
v
Ministerstvo pôdohospodárstva a rozvoja vidieka Slovenskej republiky
(Request for a preliminary ruling from the Najvyšší správny súd Slovenskej republiky (Supreme Administrative Court of the Slovak Republic, Slovakia))
(Preliminary reference – Environment – Regulation (EU) No 995/2010 – Timber and timber products – Concepts of ‘operator’ and ‘placing on the market’)
I. Introduction
1. Mesto Rimavská Sobota (‘the applicant’) is a municipality in the river valley of the Slovenské rudohorie (Slovak Ore Mountains) in southern Slovakia. It administers a municipal forest.
2. In June 2018, the applicant sold a certain quantity of timber to a legal person, and was subsequently fined by the competent authorities for failing to have in place a due diligence system, as required by the Slovak Timber Law, (2) which implements Regulation (EU) No 995/2010 (‘the Timber Regulation’). (3)
3. Challenging that fine before the Slovak courts, the applicant claims, inter alia, that, for the purposes of the transaction at issue, it does not act as an ‘operator’, within the meaning of the Timber Regulation, and should not therefore be subject to the due diligence obligation arising therefrom.
II. Background of the case and the question referred
4. On 11 June 2018, the applicant entered into a contract with MK&MK Holz, s.r.o. (‘the purchaser’) for the sale of timber.
5. Pursuant to the national file, under the terms of that contract, the applicant sold a specified volume of timber (expressed in cubic metres) to the purchaser. Pursuant to that same contract, the purchaser was ‘to carry out’ the timber harvest until 31 December 2018. The contract also provided for the specific parcels of (wood)land in the municipal forest of Rimavská Sobota in which the harvest was to occur. The applicant’s employees were to supervise the purchaser’s felling of the trees and to measure the volumes harvested in order to ensure the complete satisfaction of the contract terms. In return for receipt of the amount of timber agreed upon, the purchaser was to pay the applicant a fixed price per cubic metre of timber, inclusive of VAT.
6. According to the referring court, the applicant also sold timber to natural persons in a similar manner for use as fuel wood. (4)
7. By its decision of 25 June 2019, taken on the basis of the earlier decision of the Slovenská lesnícko-drevárska inšpekcia (Slovak Forestry and Timber Inspectorate), the Ministerstvo pôdohospodárstva a rozvoja vidieka Slovenskej republiky (Ministry of Agriculture and Rural Development of the Slovak Republic, Slovakia; ‘the Ministry’), found that the applicant had committed an administrative offence under the Slovak Timber Law by failing, in its capacity as an ‘operator’, to maintain a system of due diligence in order to prevent illegally harvested timber or timber products from being placed on the internal market for the first time. It imposed a fine of EUR 2 000.
8. The applicant challenged that fine before the Krajský súd v Banskej Bystrici (Regional Court, Banská Bystrica, Slovakia). That court dismissed that action.
9. On appeal before the Najvyšší správny súd Slovenskej republiky (Supreme Administrative Court of the Slovak Republic, Slovakia; ‘the referring court’), the applicant claims that it is not an ‘operator’, within the meaning of the Timber Regulation.
10. The definition of an ‘operator’ is provided for in Article 2(c) of the Timber Regulation, which states that an ‘operator’ means any natural or legal person that places timber or timber products on the market.
11. Article 2(b) of the Timber Regulation further explains that ‘placing on the market’ means the supply by any means, irrespective of the selling technique used, of timber or timber products for the first time on the internal market for distribution or use in the course of a commercial activity, whether in return for payment or free of charge.
12. In that regard, the applicant claims that, under the terms of the contract, it is the purchaser that ‘places timber products on the market … for the first time’, as it is the purchaser that harvests the timber in question. Therefore, it is the purchaser and not the applicant who acts as the ‘operator’ for that particular type of transaction, and hence is subject to the due diligence obligation under the Timber Regulation. The applicant accordingly claims that it could not be reproached for failing to establish a system of due diligence.
13. The Ministry considers that since the applicant had sold timber directly to a third party without, however, transferring all the rights that are attached to the status of forest manager under Slovak law, it alone was subject to the obligation of maintaining the specific records required by Zákon č. 326/2005 Z. z. o lesoch (Law No 326/2005 on Forestry), as amended, to implement a system of due diligence.
14. Against that factual and legal background, the Najvyšší správny súd Slovenskej republiky (Supreme Administrative Court of the Slovak Republic) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Is Article 2(b) of Regulation [No 995/2010] to be interpreted as meaning that the placing on the market of timber also constitutes a sale for consideration of raw timber or fuel wood within the meaning of Annex 1 to that regulation, if, under the harvest concession agreement, the purchaser harvests the timber under the direction and supervision of the seller?’
15. Written observations were submitted by the Hungarian and Slovak Governments as well as the European Commission. The latter two parties also presented oral argument at the hearing that took place on 15 May 2024.
III. Analysis
16. My Opinion is structured as follows. I will first take position on the Slovak Government’s concerns relating to the admissibility of the present action (A). Thereafter, I will turn to the interpretation requested by the referring court (B). In that exercise, I will briefly introduce the system set up by the Timber Regulation (B.1), before explaining why, in the type of arrangement at issue in the present case, I consider the applicant to hold the status of ‘operator’ (B.2).
A. Admissibility
17. The Slovak Government has expressed doubts concerning the admissibility of the reference. It considers that the question, as formulated by the referring court, demands that the Court apply the Timber Regulation to the facts at issue in the main proceedings. However, that government does not propose that the Court find the present reference inadmissible. Instead, it suggests that the question be reformulated so as to enquire, more generally, about the interpretation of the Timber Regulation.
18. I am not convinced that the question, as referred, requires reformulation. In the manner that it was put to the Court, that question already respects the division of labour, laid down in the first subparagraph of Article 267 TFEU, between the interpretation of EU law (which is a matter ultimately left to the Court) and the application of the same body of law (which is a task for the national courts).
19. The question may thus be answered as formulated, even if, as will be demonstrated, a useful answer to the referring court does entail the additional interpretation of other parts of the Timber Regulation, and not only Article 2(b) thereof.
B. Substance
1. Placing the Timber Regulation within its context
20. The 2003 Forest, Law, Enforcement, Governance and Trade (‘FLEGT’) action plan (5) recognised ‘the growing problem of illegal logging and related trade’ as one of the Commission’s priorities. (6)
21. With a view to reducing illegal logging and timber production and related forest degradation and deforestation, the FLEGT Action Plan led to two key pieces of legislation: the FLEGT Regulation (7) and the Timber Regulation.
22. The FLEGT Regulation regulates the importation of timber and timber products into the European Union from countries with which the European Union concludes specific types of partnership agreements. (8) For that purpose, it introduces a system of ‘FLEGT licences’. These are essentially administrative certificates issued by the competent authorities of the partnership country, with which an EU importer of timber and timber products may certify that the products it seeks to place on the internal market were harvested in accordance with the applicable national law of the partner country. In other words, FLEGT licences certify that the imported products were ‘legally harvested’. (9)
23. The Timber Regulation is a much broader instrument. It entered into force on 2 December 2010 and started applying from 3 March 2013. (10)
24. It governs the placing on the internal market of all timber and timber products falling within its scope, (11) whether produced in the European Union or not, and irrespective of whether the timber and timber products in question were imported from a FLEGT partner country.
25. The Timber Regulation does not tackle illegal logging as such, but seeks to discourage such practices by regulating the market for the trade of the resulting timber and timber products in the European Union. (12)
26. To that end, that regulation imposes two horizontal obligations on ‘operators’. (13)
27. The first obligation on that group is the prohibition to place illegally harvested timber or products derived from such timber on the market for the first time. (14) The second such obligation is the use of a due diligence system before placing timber or timber products on the market for the first time. (15)
28. Such a due diligence system, which may be devised either by the operators themselves or by a monitoring organisation, (16) must contain three elements: first, measures and procedures designed to keep track of the origin and legality of the timber and timber products; (17) second, risk assessment procedures enabling an analysis and evaluation of the risks of illegally harvested timber and timber products being placed on the market; (18) and, third, in cases where identified risks are not negligible, risk mitigation measures that are adequate and proportionate to minimise effectively those risks. (19)
2. Who is the ‘operator’ in the present case?
29. The referring court in essence seeks an interpretation of the concept of an ‘operator’ in order to decide whether the fine was correctly imposed on the applicant for failing to have in place a due diligence system.
30. Under Article 4(2) of the Timber Regulation, only ‘operators’ are subject to the due diligence obligation imposed thereby. (20)
31. That obligation is imposed in order to enable the reasonable traceability of timber and timber products that are placed on the internal market, (21) and thus to contribute to the prevention of trade in illegally harvested timber.
32. That obligation further reflects the purpose of the Timber Regulation, which, according to recital 31 thereof, constitutes the fight against illegal logging and related trade. It is to that end that the Timber Regulation imposes specific obligations on ‘operators’ and ‘traders’. (22)
33. However, the obligations imposed on ‘operators’ are different from those imposed on ‘traders’. While ‘traders’ have the obligation of identifying the persons that supplied them with timber or timber products and, where applicable, the persons to whom they have supplied such products, (23) ‘operators’ have the obligation of due diligence. (24)
34. A combined reading of Article 2(b) and Article 2(c) of the Timber Regulation tells us that an ‘operator’ is the person who supplies timber or timber products for the first time on the internal market for distribution or use in the course of a commercial activity, whether in return for payment or free of charge.
35. Consequently, what distinguishes an ‘operator’ from a ‘trader’ for the purposes of the Timber Regulation is not the fact that they supply timber or timber products on the internal market – they both do. The distinguishing characteristic is that the ‘operator’ is the person that is first in the supply chain of timber and timber products on the internal market, whereas traders sell or buy timber or timber products that are already placed on the internal market.
36. It follows that the determinative element for the purpose of defining who constitutes an ‘operator’ within the meaning of the Timber Regulation is the point within the commercial chain of trade in timber and timber products at which those products are first placed on the internal market.
37. In that regard, we may distinguish between two situations: one, in which timber and timber products originate from standing trees located in a third country, which are then imported into the European Union and placed on the internal market (as raw timber or derived products), and, another, in which timber and timber products are produced from standing trees located in the European Union and placed on the internal market.
38. Given that the first placing on the market for the former category arises at the point of release for free circulation by the national customs authorities, in that context, it is the importer of timber and timber products from third countries that acts as the ‘operator’ for the purposes of Article 4(2) of the Timber Regulation.
39. It is therefore the importer that needs to satisfy the due diligence obligation imposed on ‘operators’. The choice of the EU legislator to impose the due diligence obligation on the importer is logical, since the importer is the first person on which EU law can directly impose enforceable obligations when the timber or timber products at issue originate from a country outside the European Union. (25)
40. If, however, as in the case at hand, the trees that are turned into timber and timber products, and the illegal harvesting of which the Timber Regulation ultimately aims at preventing, are located in the European Union, the commercial chain of trade in timber (or derived products) begins with the felling of those trees in a Member State.
41. In that scenario, the ‘operator’ is the person that disposes of those trees under the entitlement granted to it by national law.
42. Accordingly, it is also only that person who can establish, within the due diligence system of Article 4(2) of the Timber Regulation, that the products thus entering into circulation are ‘legally harvested’ (that is to say, harvested in accordance with the applicable national legislation, as stipulated in Article 2(f) of that regulation).
43. That brings me to the case at hand. From the court file, it arises that the applicant, which the Slovak Government confirmed at the hearing holds the entitlement to act as the forest manager under Slovak law, sold a certain quantity of timber to the purchaser. That timber had to be harvested, since the trees in question had not yet been felled. Accordingly, the contract for the quantities of timber in question has the effect of resulting in the first placing on the internal market of products falling within the scope of the Timber Regulation, since it is at that point that the commercial chain for the timber in question commences. It is thus the applicant who acted as the ‘operator’ for that particular transaction, and who holds the obligation of having in place and using the due diligence system of Article 4(2) of the Timber Regulation. After all, the applicant is the only person that can legally establish that the first placing on the market of the products in question took place in accordance with the applicable Slovak legislation.
44. For the determination of the ‘operator’, it is irrelevant who physically felled the trees in question. Since only the ‘operator’ can satisfy the due diligence obligation of confirming the legality of the resulting harvest, delegating the act of felling the trees to a third person cannot rid the applicant of their due diligence obligation, imposed on them by Article 4(2) of the Timber Regulation.
45. The opposite would mean that the placing on the market of timber or timber products could be dissociated from the obligation arising from Article 4(2) of the Timber Regulation to assure the legality of the harvest in question. That, in turn, risks the result of timber and timber products being placed on the internal market without the person doing so, or in charge of doing so, being able to evidence the legality of their harvesting, in accordance with that person’s obligations. (26)
46. In the context of the present case, the purchaser could become an ‘operator’ only if the applicant sold or transferred the management rights over the trees prior to their harvest. Only in that scenario would the decision to fell the trees and place the resulting timber or timber products on the market be taken by the purchaser. (27) Subject to confirmation by the referring court, that, however, does not appear to have been agreed in the present case.
47. In conclusion, in the factual circumstances of the case at hand, it is the applicant that acted as the ‘operator’. It is thus that person who should have had in place a due diligence system to ensure, inter alia, compliance with the applicable Slovak legislation.
IV. Conclusion
48. In the light of the foregoing, I propose that the Court answer the question referred for a preliminary ruling by the Najvyšší správny súd Slovenskej republiky (Supreme Administrative Court of the Slovak Republic, Slovakia) as follows:
The concept of ‘placing on the market’ in Article 2(b) of Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market
must be interpreted as covering a sale for consideration of raw timber or fuel wood within the meaning of Annex 1 to that regulation, if, under a harvest concession agreement, the purchaser harvests the timber in question under the direction and supervision of the seller.