Country Risk Profiles

A military conflict involving the Russian invasion of Ukraine has taken place with the support and collaboration of Belarus authorities. 

A trade ban implemented by the Council of the EU on products from Crimea or Sevastopol due to the annexation of this part of Ukraine has existed since 2014. See Council Regulation (EU) No 692/2014 of 23 June 2014. Imports into the European Union of goods originating in the non-Ukraine controlled areas of Donetsk and Luhansk oblasts are also prohibited in line with Council Regulation (EU) 2022/263 of 23 February 2022. 

Based on European Commission guidance on the prevalence of armed conflict and sanctions in Due Diligence Systems there is a risk that products sourced from some parts of Ukraine can be considered high-risk for legal non-compliance, due to the ‘prevalence of armed conflict’ in parts of the country. In these areas, it could be concluded that a de-facto lack of law enforcement in the forest sector may exist due to the armed conflict.

This guidance is mirrored in decisions made by important forest certification schemes:

• A recent statement from PEFC considers that wood-products “…originating from occupied Ukrainian territory is considered ‘conflict timber”. 
• FSC has communicated that - in the invaded regions of Ukraine or within armed conflict zones - the norms of Ukrainian legislation cannot be enforced. This position is also reflected in the revised FSC Controlled Wood Risk Assessment for Ukraine which also makes risk conclusions for the Autonomous Republic of Crimea, temporarily occupied by Russia, as well as the Anti-Terrorist Operation zone in the Donetsk and Lugansk regions – zone of armed conflict. 

Similarly, the summary record of the Ninth Meeting of the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR/FLEGT (29April22) concluded the following guidance in relation to areas not subject to the prohibitions described above:

• Areas of active military hostilities within Ukraine: in those parts of the Ukrainian territory with ongoing military hostilities, active governmental control of timber logging as well as tracking of timber trade is not possible. Third party verification is suspended and operators cannot conduct field checks due to risk of being affected by active military activity. In view of these factors, it is not possible for operators to draw conclusions about a negligible risk level.  
• Other parts of Ukraine: In areas not subject to active military hostilities, the situation remains highly volatile. While challenges exist for the possibility to minimise the risk of sourcing timber in contravention of the applicable Ukrainian legislation, it is possible for operators to place on the market if negligible risk is achieved. However, the conclusions on timber imports from Ukraine of the 2nd meeting of the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR/FLEGT (09December20) remain valid. See the specific guidance and annex in relation to Ukraine, from this meeting.

Guidance: 

For companies based in the European Union:

It is not possible to legally import wood-products from Crimea or Sevastopol, nor from the non-Ukraine controlled areas of Donetsk and Luhansk oblasts.

Preferred by Nature recommends that companies carefully monitor the situation, and exercise additional caution in their due diligence process, if timber is being sourced from the remainder of Ukraine. According to the EU Timber Regulation, due diligence needs to be applied on imports from Ukraine. Companies must assess risks in relation to armed conflict in zones where a de-facto lack of law enforcement in the forest sector may exist due to the armed conflict: 

• Cease sourcing from areas temporarily occupied by Russia or areas of active military hostilities within Ukraine.  
• For other parts of Ukraine not subject to active military hostilities, the situation remains highly volatile. While challenges exist for the possibility to minimise the risk of sourcing timber in contravention of the applicable Ukrainian legislation, it is possible for operators to place on the market if negligible risk is achieved. However, the following guidance should be followed.

1. Guidance and annex in relation to Ukraine, from the 2nd meeting of the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR/FLEGT.
2. Ninth Meeting of the Multi-Stakeholder Platform on Protecting and Restoring the World’s Forests, including the EUTR/FLEGT (29April22)
3. EC guidance on armed conflict and sanctions in Due Diligence Systems

For companies based outside of the European Union:

Carefully monitor the situation, and exercise additional caution in their due diligence process, if timber is being sourced from Ukraine.

Country overview

Ukraine has around 9.7 million hectares of forest land (FAO, 2020), representing 16.7% of the total land area. Only 60 thousand hectares (0.6%) are primary forests, 4.7 (49%) million hectares of otherwise naturally regenerated forest, and over 50%, 4.9 million hectares are planted forest. The Nature Reserve Fund (NRF) area covers 16.6% of the forests managed by SFRA. For forests managed by other entities, there are no summarized data at the national level. The protected forests of the SFRA (NRF objects) occupy one-third (33%) of the whole state Nature Reserve Fund (including other types of land, e.g., pasture).

Most forests (nearly 87 %) are state-owned, while 13% of forestry land plots are attributed to communal and private property. State Forest Resources Agency of Ukraine (SFRA) and other central government bodies manage the state-owned forest. 

Part of the wood (not less than 25% of the monthly planned volumes of harvested wood) must be displayed on the electronic trading system Prozorrо. The pilot project provides an opportunity for FME to choose some from more than 40 electronic platforms to sell wood. A draft Resolution of the Cabinet of Ministers was developed, which continued the experimental project but extended to 100% of the planned timber harvest. The decision has already been approved. There is no procedure for implementing the law, and it is not enforced yet.

State-owned and managed by SFRA

SFRA has 272 Forest Management Enterprises (FMEs) and manages 73% of Ukrainian forest. FMEs belonging to SFRA are responsible for the most significant part of the wood sold at the market (80-90%). FMEs from this category are under coordination of Regional Directorates for Forestry and Game Management which serve as the Agency’s regional bodies.

The main tasks of the State Forest Resource Agency are in coordination and support of the FMEs in:

• ensuring the implementation of state forest and hunting policy, as well as protection, conservation, rational use and reproduction of forest resources, hunting fauna, improving the efficiency of forestry and hunting; 
• carries out public administration in the field of forestry and hunting, as well as state control over compliance with regulations on forestry; 
• development and organization of national, interstate and regional programs in the field of protection, increasing productivity, management and reproduction of forests

State-owned and managed by other entities

State forest managed by other central government bodies includes forest belonging to the Ministry of Defence (12 FMEs) – the biggest group in this category, and forest belonging to several other agencies. The number of FMEs belonging to other agencies cannot be estimated, as there is no official statistic.

Auction system

From February 1, 2020, forests that are state-owned and managed by SFRA, as well as the FMEs which belongs to different ministries, are obliged to sell raw wood through electronic auctions, as well as to use an electronic timber accounting system, which will allow tracking the movement of available resources, i.e., purchase and sale. The pilot project provides an opportunity for all state-owned FMEs to choose electronic sites to sell wood. Part of the timber must be displayed on the Prozorro electronic trading system (no less than 25% of the monthly planned volumes of raw timber harvesting). Thus, a woodlot must be formed of wood of one assortment, in volume not less than 150 cubic meters or at the starting price of a lot no less than 200 thousand hryvnias. The FMEs can display all other volumes of wood on any other e-sites. Electronic auctions do not apply to the sale of wood in the following cases: for the population for heating; for the needs of individual construction and repair of buildings (for individuals); to meet the needs of budgetary institutions to meet the needs of national security and defence, overcoming the consequences of emergencies, natural disasters, following the Law of Ukraine "On Public Procurement," the use of which is provided by collective agreements of permanent forest users.

Communal forests

The actual owners of communal forests in Ukraine are local communities. In some provinces (oblasts), the management was united at the highest level - in communal enterprises, the founders of district and oblast councils. The number of FMEs belonging to local communities cannot be estimated, as there is no official statistic.

The existing communal forestry enterprises were established during 2000-2001, implementing the land reform (revised Land Code), legislation allowing local authorities to take in property forest areas from their territory that does not belong to other agencies. 

The fragmentation of communal forests and the low economic value of many of them remain negative factors for managing these forests. Compared to state forest enterprises, forest use and protection efficiency is much lower, caused by several legal, managerial, and economic problems. Most utilities and manage forests inefficiently and with numerous violations of the law, resulting in deterioration of the ecological functions of communal forests and a lack of income for local communities (EPL 2020).

Communal FMEs are also obliged to sell raw wood through electronic auctions and implement an electronic timber accounting system, which will allow tracking the movement of available resources, i.e., purchase and sale.

Private forest

The share of forests in private property is less than 0.1% of the total forest area. 

Typically, small-scaled private forests are not managed for commercial harvesting but used for recreational purposes. As exclusion, just the only FME could be mentioned - Kovel Specialized Forestry Private Joint-Stock Company "Tour" with the forest fund area 32.4 thousand hectares and 198 full-time employees. It has developed FMP and provides all forestry, hunting, and wood-processing activities according to the same rules as communal FMEs.

Agricultural land

Agricultural lands that have not been used for their intended purpose due to unattractive investment, lack of funds or other reasons are undergoing a process of self-afforestation. In Ukraine, there is no inventory of self-afforested areas on agricultural land. Still, according to the Land Directory of Ukraine, out of 41.4 million hectares of agricultural land, 2.9 million hectares are not cultivated (7%) (Land directory, 2020). Also, the self-afforestation of agricultural lands of state, communal and private property can be traced on orthophotos of the Public Cadastral Map of Ukraine.

There is a contradictory situation: according to Article 211 of the Land Code of Ukraine - non-use of land for its intended purpose is a violation of current land legislation, and according to the Forest Code of Ukraine, "all forests in Ukraine, regardless of which categories of land regardless of ownership, they constitute the forest fund of Ukraine and are under state protection.” Although legally, "self-seeding forest" does not correspond to the concept of "forest."

In Ukraine, work has begun to establish a legal foundation for regulating trees growing outside forest land. In particular, the Draft State Forest Management Strategy of Ukraine until 2035 states the following: "new private forests can be created only by granting the status of forest lands to existing self-seeding forests" (Ministry of Environment, 2021). Also, from July 24, 2021, in Ukraine, the type of purpose of the land use will be determined within the territory's relevant type of functional purpose, provided by a comprehensive plan of the spatial development of the territorial community or the master plan of the settlement. Thus, forests that grow on agricultural land can become forests in the legal sense.

Control agencies

The enforcement of legislation, regardless of the ownership at the level of forest management enterprise, is checked by the State Environmental Agency and State Service of Ukraine on the Work Issues. 

State Environmental Agency

The Ministry of Environment Protection and Natural Resources of Ukraine is responsible for conducting Environmental Impact Assessment (EIA) and providing a conclusion (decision). Also, the Ministry of Environment Protection considers the establishment of new Nature Reserve funds (NRFs) objects in forests in case of its national importance, and Regional Departments on Environmental Protection - in case of the NRF objects of local importance.

Ecological Inspectorate periodically controls the fulfillment of the environmental requirements by the FMEs, including harvesting areas. Also, Ecological Inspectorate checks the availability of the EIA during the state control and if information from EIA complies with field observation.

State Service of Ukraine on Work Issues

State Service of Ukraine on the Work Issues regional departments take responsibility for controlling occupational safety and health regulations and legal employment. 

The training on health and safety responsibilities for FMEs as well as for any other business entities is carried out by the State Enterprise "Main Training and Methodological Center of the State Service on Work Issues" as well as more than 40 other specialized organizations listed here: http://reg.asgop.com.ua 

Critics of forest legislation

At this point, the forest legislation in Ukraine is quite complex. There are cases when legislation is unclear or in contradiction with other legislation. As it was agreed by the participants of the round table organized by the FSC on the problems of crisis in the forest sector (Note 2020), “bureaucratized, formalized and lengthy process and style of environmental impact assessment following the current legislation of Ukraine increases enterprise production costs, encourages loopholes in legislation and increases corruption risks. There is an urgent need to resolve this issue.”

Corruption in Ukraine

According to numerous sources (EUACI, 2018, NAPC, 2021), the risk of corruption is mentioned at different levels. The corruption perception index scores Ukraine with 33 out of 100, representing 117 out of 180 countries (CPI, 2020). This scope increased by 3 points from 2019-2020 and 7 points since 2012. The CPI can show the actual changes across the country rather slowly — sometimes, it takes several years. The score of 2020 indicates the positive development that has occurred in Ukraine in the last years, especially until the spring of 2020. It does not consider the events that have finally “completed the chain” of creating the anti-corruption infrastructure in Ukraine, namely launching the High Anti-Corruption Court with the appropriate jurisdiction and restart of the National Agency on Corruption Prevention. 

Simultaneously, numerous publications (Earthsight 2018, Earthsight 2020, WWF 2020) provide countless detailed allegations of grand and petty corruption throughout all supply chain stages and affect various state institutions and private financial institutions. Numerous cases have been through the courts or are pending. There have also been numerous criminal prosecutions. The report concludes that corruption can happen at all levels of the supply chain and in all possible modes. 

It is well known that grand corruption and corruption, in general, is quite impossible to identify if it is happening in a specific supply chain. Despite that, in case of clear evidence that corruption practices are linked with one company, it is recommended to take adequate measures. For instances where corruption practices cannot relate to a specific company, the mitigation options shall ensure that activities align with legislation requirements instead of proving that corruption is not happening. VIEW LESS