Updated Memo Regarding Resolute Forest Products

Forest Stewardship Council®

Updated Memo regarding Resolute Forest Products

Document: BM67.12 Annex 2 Date: 05 November 2014 Author: Kim Carstensen / Francois Dufresne Action: Decision Status: Confidential

Changed text from the version of 21 October is marked in yellow Background In May 2010, the Canadian Boreal Forest Agreement (CBFA) was signed after years of difficult negotiations between the forest industry and ENGOs. Bold and ambitious, it was designed to pave the way to protect large areas of the Canadian intact boreal forest. However, the agreement became quickly fragile because of lack of proper mechanisms to execute on the intended objectives and, most importantly, the absence of the aboriginal people at the table. Late 2012, Resolute and major ENGOs (Greenpeace, Canopy and others) left the CBFA over a deadlock in the negotiations. This event has essentially crippled the CBFA, which is still in a dead end as of today. Early 2013, Green- peace renewed their campaign to protect high profile boreal forests in Ontario and Quebec (i.e. Broadback, Mon- tagnes Blanches) under Resolute jurisdiction. The situation worsened when Greenpeace openly targeted Resolute over its forest management and when Reso- lute Forest Products in response to the Greenpeace campaign filed a $7 million lawsuit in Ontario Superior Court against Greenpeace Canada and two of its staff. See more from Greenpeace about this lawsuit here. Some per- spectives on these issues from Resolute Forest Products can be found here or here. By the end of 2013, Resolute Forest Products was the company with the largest area of FSC certified forest glob- ally. In total, Resolute were managing 7 FSC FM/COC certificates in the Canadian provinces of Ontario and Que- bec, covering a total area of 13 million hectares. Resolute signed a partnership with WWF Canada (Climate Saver Program) and pledged to have 80% of its forest operations FSC certified by 2015. In January 2014, 3 of the certificates of Resolute Forest Products were suspended by Rainforest Alliance. These certificates covered an area of 8 million hectares (in different Forest Management Units, FMUs), and are still suspended. The certificates and the issues leading to suspension are: 1) Certificate #: RA-FM/COC-005956 (Lac St-Jean) in Quebec:  P3: 3.1.2 – lack of agreement with the Cree nation; 3.2.2 – indigenous resources diminishing because non application of the Paix des Braves provisions on Cree traplines (Baril-Moses agreement area); 3.3.2 – supports for monitoring forest management impacts not conclusive;  P6 & P9 : 6.2.5 – precautionary approach for caribou; 6.3.5 – proportion of old forests; 9.3.3 – HCVF: 2 values not well protected (large core forest habitats, woodland caribou); 9.4 monitoring of 2 values (woodland caribou and large core forest habitats); 2) Certificate #: RA-FM/COC-004525 (Mistassini-Péribonka) in Québec:  P6 & P9: 6.2.5 - Precautionary approach for caribou; 6.3.5 – The target, the lack of a broad consen- sus for that target and the full age-range of old forest; 9.4 - Monitoring of 2 values (woodland caribou and large core forest habitats); BM 67, Oaxaca / Mexico, 10 November 2014 Page 1 of 11

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3) Certificate #: RA-FM/COC-005587 (Black Spruce & Dog River) in Ontario:  P6: 6.4.2 - Reasonable level of representativeness has not been achieved. Lack of information related to the regional significance of conservation values; 6.4.5 – Lack of documentation demonstrat- ing support (for proposed protected areas to address gaps in ecosystem representation) by interested parties. After these suspensions, FSC Canada was informed by Rainforest Alliance that the Caribou Forest certificate was likely to be suspended mainly because of failure of meeting the indicator 6.4.5. : “Lack of support from interested parties (ENGOs)”. This situation takes its origin in the fact that Resolute had invested all its ENGO support within the CBFA and lost that support when leaving the agreement. At the request of Rainforest Alliance, FSC Canada issued an interpretation of the indicator 6.4.5 (approved by PSU) with regards to the meaning of interested parties. In April 2014, Rainforest Alliance performed a Corrective Action Verification Audit (CVA) in Ontario to address:  The suspended FM certificate #: RA-FM/COC-005587 (Black Spruce & Dog River) ;  The potential suspension for a fourth FM Certificate #: RA-FM/COC-004570 (Caribou Forest);  The request to include FMU English River with the Caribou Forest. On May 6th 2014, Resolute filed a legal injunction against Rainforest Alliance to prevent the publication of the audit report, along with damage claims against the auditors and RA. FSC Canada and FSC international received a letter (letter attached) from Resolute explaining their rationale not to follow the FSC Complaint resolution process. Essentially, Resolute claims that it had been treated unfairly and without impartiality. Little information about the audit has been made available so far due to the injunction and the confidentiality agreement between the parties. For this reason, no action has been immediately possible related to the Caribou Forest certificate, which therefore remains valid. However, the increasing risk to FSC brand and credibility from not taking action against a certificate holder by- passing our normal dispute resolution system, is brought up by many observers and interested parties. The court case between Resolute Forest Products and Rainforest Alliance is still ongoing, and it is not known how long it may take to reach a conclusion. We know that there are active discussions out of court between Resolute Forest Products and Rainforest Alliance, and we know that a proposal for a way forward is under negotiation, but we cannot tell when conclusions – if any – might be reached. Situation regarding FM certification As long as the Caribou Forest certificate is valid in our database, Resolute Forest Products can continue to sell wood from this area as FSC FM certified. The certificate was first issued on 21st December 2009, and is therefore going to expire on December 20th, 2014. We do not know of any attempts to prepare an audit for this time, it seems likely that the certificate will just expire, after which the area will no longer be certified after our standards. In that sense it seems certain that the situation around this certificate will not drag on unresolved. Resolute have 3 other valid FM certificates, two with QMI and one with SAI. These certificates are not affected by this situation Situation regarding Controlled Wood At the same time, Resolute Forest Products are continuing to source wood from the areas with suspended certificates as controlled wood. This is allowed under our current rules for the certificate holders who obtained the certificate before 2012 and until the revised controlled wood standard is in force (we currently expect the revised

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standard to have its effective date on 1 July 2015, after which there would be a transition period to allow companies to shift to the new rules. We have not yet decided the transition rule, so the length of this transition period is uncertain. Normally it would be one year from the effective date): FSC decided in 2012 that Certificate Holders (CHs) certified according to the CoC-CW standard shall not be allowed to risk-assess and source CW from the forests they own/manage, including their affiliated companies (ADVICE-40- 005-18), unless the forests are certified according to the FM-CW standard. The FM-CW standard is not based on risk assessments, but on a model quite similar to FM certification applies, whereby the CW requirements are implemented directly at the forest level and evaluated by a Certification Body (CB). Under these rules, Resolute would not be allowed to implement the CoC-CW standard in the suspended FMUs, because these FMUs are owned/managed by Resolute (or affiliated companies). However, there is an exception to these rules for CHs who had been implementing CoC-CW in their own forests before the requirement (ADVICE-40-005-18) came into the force in 2012. These CHs may still use the CoC-CW Standard for their own risk assessment until the revised version of the CoC-CW standard comes into force (planned approval March 2015). Resolute’s certificates were issued in 2009, and therefore Resolute may still source CW from the suspended FMUs, according to the CoC-CW standard. However, sourcing controlled wood from suspended areas shall only take place when it is confirmed that the violation of FM requirements that led to the suspension do not involve any violation of CW requirements: Implementing the CoC-CW standard still requires Resolute and other sourcing companies to re-assess their suspended areas within 2 months of the suspension in order to verify whether the reasons for the suspension prove a violation of CW requirements. The CB is to evaluate the company’s re-assessment within an additional month – this requirement has been introduced in January 2014 via a standard interpretation to address reported problems with sourcing CW from suspended areas. This shall prevent unacceptable material from suspended FMUs entering the supply chain, irrespective of the ownership of the forest from where CW is sourced. From our database we can see that two QMI CoC certificates provide confirmation that the revision was done with a view to source from the suspended area. Quote from the reports for QMI-COC-001267 and QMI-COC-001702: “This risk assessment was revised taking account that two FSC FM certificates have been temporarily suspended in a portion of the district of origin (UAFs 2251, 2551, 2751, 2451). It follows FSC International new directive - dated February 05, 2014 – on CW CoC. The overall results of the analysis indicate a low risk of sourcing wood from uncontrolled sources.”

This assessment by QMI could be challenged by interested stakeholders through a complaint to the CB, but to our knowledge this has not happened.

Competitive landscape There are 153 million hectares of certified forests in Canada, which makes it by far the largest certified nation worldwide. The vast majority of FSC offices do not have the level of competition that is being experienced in Can- ada. There is a major battle being waged by SFI – an aggressive, well-funded, serious competitor. Together PEFC and SFI have nearly half of their certified forests in Canada compared to one third for FSC. One cannot ignore that PEFC / SFI will do whatever it takes to maintain, protect and grow their position in this country. At the end of 2013, SFI had 79 million hectares of certified forests in Canada compared to 60 million hectares for FSC. Both certification schemes have steadily grown from the mid-2000. FSC is well implemented in Eastern Can- ada where the pulp & paper industry is largely based. SFI dominates British Columbia in Western Canada where the solid wood business is mainly located. However in 2013, there was a significant increase of 20 million hectares of SFI certified forests in Ontario and Quebec where there were already forests with the FSC certification.

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This sudden significant increase in dual certification in Eastern Canada is worrisome to FSC Canada as it seems to indicate a strategic move by the forest industry to position SFI as an eventual replacement for FSC. As previously mentioned, Resolute is by far the largest forest company in Canada and the largest FSC certified company in the world. Their contribution to the FSC supply chain is important in North America and elsewhere in the world. Therefore, basic features of the completive landscape have shifted in 2014 with the suspension of 8 million hectares of FSC certified forests, and this will have significant implications for the possible future of both sides of the competition. At the request of WWF US, FSC Canada held the annual GFTN meeting in Montreal in August 13, 2014 (the minutes of the meeting are attached). Major supply chain players in the US are concerned with the loss of FSC certified products caused by these suspensions and are worried about the future. It is unclear what the intentions of Resolute Forest Products are going forward. It appears that they are at a cross road to decide whether to stay with FSC or not. The indications received from them in conversation and letters tend to reiterate their support and conviction towards FSC. However, there are no firm actions on the ground to reinstate the suspended FSC certificates, and rumors also indicate the opposite in a sense that Resolute could be planning to leave FSC along with a critical mass of certificate holders in Canada. FSC Board discussions and decisions At BM66 in Vancouver in early July 2014, the FSC Board discussed the threat to FSC’s credibility from the actions of Resolute Forest Products against Rainforest Alliance. Quoting from the minutes of the meeting: “The Board agreed that FSC needs to be active and take a public stance on this Resolute Forest Products issue and discussed a number of possible actions. Decision: The Board agreed that a statement should be developed in consultation with legal counsel in Canada, and should be issued jointly by FSC International and FSC Canada. The Board also requested that the DG and Francois Dufresne should follow up on the conversations they had already had and seek additional input from major stakeholders in Canada including the aboriginal chamber and Northern Cree. The DG and Francois Dufresne were further requested to engage in a dialogue with both parties in the conflict with a view to obtain full information about the case and to seek a role that FSC or ASI could play in resolving the conflict. The DG was requested to report back to the Board’s Executive Committee after these steps had been taken, for a discussion of possible further action. Further action could include different options, among others:  Removing Resolute from membership  FSC to enter court case alongside RA in support of the Dispute Resolute System  Pulling Resolute’s trademark licenses for the concerned certificates  Checking whether there is a basis for a case under the Policy for Association”

Developments since BM66 After BM66, FSC Canada and FSC International worked together to seek guidance from legal counsel in Canada and produced a public statement about Resolute Forest Products’ legal action against Rainforest Alliance. After significant legal input, the statement was issued in late July and can be found here.

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Further, FSC Canada and FSC International entered into dialogue with both sides of the conflict and have had sev- eral conversations with both sides. The conversations with Rainforest Alliance have provided useful, confidential information about the situation and some possible developments, whereas the conversations with Resolute For- est Products have been inconclusive. Both FSC Canada and FSC International have received a number of requests from stakeholders to act on this issue. Most recently, on September 22nd, we received a letter to the Board of FSC International from a number of Canadian NGOs, calling on “FSC International to take immediate and tangible steps to resolve these issues”

Options for further action Below, we are listing some possible follow-up actions towards Resolute Forest Products for discussion and decision by the Board. The possible actions have been through a legal and technical analysis for their feasibility and the risks involved.

1. Communications and dialogue with the parties to the conflict:  Send a letter to Resolute presenting our concerns with their circumvention of our system, and requesting action to end the current impasse by using the normal FSC system  Turn the letter into a public statement (a draft of such a statement is included as Annex 3 to BM67)  Request for a meeting with Resolute to discuss these issues Analysis: These options are all feasible and would in themselves involve little risk. Depending on the substance of the communication, they would also demonstrate to other stakeholders that FSC is taking the issue seriously. Communication would be part of any of the actions proposed below, so it will be important to know what next steps we will be willing to explore further.

2. Legal actions related to the court case

This could include an intervention by FSC to join the court case between resolute and Rainforest alliance by either:  Becoming an ‘added party’ pursuant to Rule 13.1 of the Ontario Rules of Civil Procedure1, or by  Becoming a ‘friend of the court’ (‘amicus curiae’) pursuant to Rule 13.2 of the Ontario Rules of Civil Procedure2.

1 Rule 13.1 reads as follows: (1) A person who is not a party to a proceeding may move for leave to intervene as an added party if the person claims, (a) an interest in the subject matter of the proceeding; (b) that the person may be adversely affected by a judgment in the proceeding; or (c) that there exists between the person and one or more of the parties to the proceeding a question of law or fact in common with one or more of the questions in issue in the proceeding. 2 Rule 13.2 reads as follows: (2) On the motion, the court shall consider whether the intervention will unduly delay or prejudice the determination of the rights of the parties to the proceeding and the court may add the person as a party to the proceeding and may make such order as is just.

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Analysis: These are relatively labor intensive activities with unclear outcomes. They could be symboli- cally powerful, but do involve a certain level of risk. Based on a recommendation from Jamie Lawrence, we have checked again with Rainforest Alliance their perspective on us taking steps in this direction. The reaction si that they would be interested in seeing us follow this route, preferably under as an ‘added party’ (Rule 13.1 above) and not just as a friend of the court. However, RA thinks that it is not yet a good timing, since the process out of court is still ongoing. Rule 13.1 as mentioned above allows a non-party to intervene in a proceeding on its own motion as a party on the grounds that it has an interest in the subject-matter of the proceeding or its outcome. As an ‘intervener’ the non-party becomes an added party to the proceedings and will be henceforth involved in the fact-finding process. Moreover, the intervener may adduce evidence and present argument. Rule 13.2 as outlined above allows an applicant (including a corporation) to intervene as a friend of the court either by means of its own motion or by means of an invitation by the presiding judge. It applies to those who, because of special interest or different perspective or expertise, may be of assistance to the court in understanding the issues in the case. If allowed to intervene, the amicus curiae neither becomes a party to the proceeding nor becomes involved in the fact-finding process. It will simply assist the court by way of argument. Some further requirements in these scenarios are listed in the footnote below3. In all cases, the court would need to accept FSC’s argumentation. Before any final decision is made on these options, it is recommended to initiate a full and detailed case study based on Canadian law. Our internal legal counsel advises against pursuing these options, because there are too many uncertainties involved, and the damage to FSC could be too severe if we were not successful.

3. Actions related to the appropriateness and quality of the certification process. Using elements of our normal system to sort out the factual substance of the case  Request ASI to review how critical indicators of the FSC National Boreal Standard (those referred to by Resolute in their argumentation of RA’s failures) are assessed by CBs in Canada Analysis: This action would have the advantage of a systemic look at certification practices and being less occupied with and trapped in the case-specific situation and allegations, and it would thus carry little legal risk for FSC. On the other hand, the conclusions would be helpful mainly for future certification processes, and would not give any immediate response to the NGO concerns.

3 To become an added party under rule 13.1 above, FSC would either:

1) be required to argue that it has an immediate interest in the subject matter of the proceedings since – as a preliminary example – the dispute between the parties has directly impacted its own financial future; or

2) FSC would have to demonstrate that it would bring an advantageous or unique perspective to the court. This perspective could – as a preliminary example – rest on the fact that FSC has developed the certification standards and knows them better than anyone and that, consequently, the court would benefit from its intervention. This expertise could be a powerful argument that would weigh in substantially for granting the motion to intervene; or

3) FSC would have to demonstrate that it has a question of fact or law in common with one of the parties. This commonality between FSC and one of the litigants may appear obvious provided that the key issues underlying the dispute between the litigants are FSC’s rules and how those FSC rules are being applied or interpreted.

To become an amicus curiae under rule 13.2 above, FSC would have to prove that it can bring an unbiased point of view that has not been adopted by either of the parties. Most importantly, FSC would have to prove that it does not hold a private interest in the dispute which might be difficult.

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 Request ASI to carry out a compliance audit for the Caribou Forest certificate of Resolute Analysis: Compliance assessments differ in focus from witness assessments which have the purpose to verify that CB auditors are able to apply their knowledge and skills in an audit situation. A compliance assessment is conducted by an ASI assessment team directly with the certificate holder, typically a few months after a CB has completed its latest assessment of the certificate holder, and therefore allows ASI to compare evidence and some of the conclusions presented in the CB's audit report with reality on the ground. It could therefore be well-suited to ‘clarify’ whether Rainforest Alliance auditors had acted properly and reached appropriate conclusion for the certificate in question – in other words it would help to verify Resolute's allegations against Rainforest Alliance and at the same time could highlight potential short- comings on the side of Resolute in terms of non-compliances with certification requirements. From the above, it also becomes clear that in order for such a compliance assessment to fulfil its purpose, a CB audit report should be available – which in this case would therefore have to be agreed upon by the parties. Given further that the certificate expires before end of the year and that it appears un- likely for Resolute to continue with Rainforest Alliance, a compliance assessment at this point in time might be of limited value. Finally, such an ASI intervention would bear the risk that its results would be used by Resolute in the court case and thereby could support the route that they had chosen to circum- vent the CB's dispute resolution process. It could also lead to new allegations by Resolute to ASI or an extension of the ones raised towards Rainforest Alliance and bring forth new legal risks accordingly. This option should therefore only be considered if both parties would agree to seek resolution outside of court and use an ASI intervention as a fact-finding way forward to pave the way towards an amicable arrangement. It could also be considered as an option in case that Resolute would engage another certification body for a new certification process, i.e. once a new main audit had been conducted, in order to provide stakeholders with confidence that such a process would not in any way would be less thorough than the one by Rainforest Alliance.

4. Actions related to the certificates or the membership of Resolute Forest Products  Suspend or terminate the relevant Trademark Licenses Analysis: FSC has implemented a system which requires each Certificate Holder to hold a valid trademark license agreement (TLA) in order to use FSC’s trademarks for on-product labelling and advisement. These TLAs are issued by the CABs on behalf of FSC GD and shall be uploaded in the FSC Database. As a result, the certification – even though issued by an independent third-party certification body under contract – has a direct link to and correlates with the TLA. The TLA becomes automatically suspended once the certification is being suspended by the CAB4. How- ever, FSC reserved the right to suspend (temporarily) 5 or terminate (permanently)6 the TLA on its own discretion aside from any decision made by the CAB. FSC may decide to suspend the TLA(s) with Resolute if the licensee fails to demonstrate compliance with the TLA including its conditions. Important to note is that the certification requirements have become an integral part of the TLA7. FSC may further terminate the TLA by giving a notice period of three months without the need to give a reason. The contract terms allow also for a termination with immediate effect for important reasons.

4 See Section 4.2. of standard TLA 5 See Section 12.1. of standard TLA 6 See Sections 13.2. and 13.4. of standard TLA 7 See Clause 5 of standard TLA

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Three examples are made in the contract to support an ‘important reason’: (a) failure to demonstrate compliance with the TLA within the given period of time or within a maximum period of twelve months following a suspension decision8; (b) damaging FSC’s reputation9, or (c) violation of core elements of PfA10. In any case, FSC would need to have hard evidence at hand to secure an effective suspension or termination. As FSC is offering an open system for any company or group wishing to comply with FSC’s standards, FSC may count as a so-called ‘quality mark association’ in the meaning of Sec. 20 par. 6 of the Federal Act Against Unfair Restraints of Competition which is based on European law. This would lead to the fact that a termination of a TLA should be (a) objectively justified (=> facts & evidence at hand), (b) all CHs should be treated equally (=> no discrimination), and (c) only permissible methods should be chosen which are necessary and do not create disadvantages which could be avoided in case the goal could be achieved otherwise with a less radical method (=> fairness). On top of European and German laws, for full safety the national law(s) of the country(ies) the Certificate Holder is based and operating in should be checked as well before a decision is made. If these requirements are not fulfilled, FSC risks that Resolute potentially files a law suit in either Canada or Germany claiming losses and damages resulting from being excluded to use FSC’s trademarks. Our internal legal counsel advises against pursuing this approach, since there are too many uncertainties, and the damage to FSC could be significant in case we were not successful.  Pull Resolute Forest Products’ membership of FSC Analysis: A membership destitution process against Resolute could be initiated by a member of the Board or by a member of FSC International supported by two other members. The destitution proposal would need to be submitted to the Board of Directors in writing, accompanied by a justification in which the destitution cause would have to be explained and strongly evidenced. Under FSC International’s Statutes, the following are considered ‘destitution causes’11: (i) participation in activities contrary to the interests of FSC International, as outlined in FSC’s Policy for Association12, (ii) a member no longer meets membership requirements (the organization is not bona fide, or does not genuinely support FSC and its activities13), or (iii) non-payment of annual dues for two consecutive years. Evidence to support a destitution cause may be obtained from (i) documentation, information, facts, etc. that led to the suspension of the certificates in January, 2014, (ii) Resolute’s decision not to follow FSC Complaint Resolution Process, (iii) Resolute’s decision to hinder RA from discussing the audit report with FSC and risking FSC’s brand and credibility, or (iv) other public sources that would evidence Resolute’s lack of support of FSC. This may – if true – be based on previous audit reports to which FSC International has had access and based on which it was decided to suspend 3 of Resolute’s certificates. Once the Board receives the destitution proposal, it would have to review the matter and would have to grant Resolute the opportunity to present its position on the matter within one month. If within such period Resolute does not challenge this conclusion in writing before the Board, it shall be considered to

8 See Section 13.4.1. of standard TLA 9 See Section 13.4.2. of standard TLA 10 See Section 13.4.3. of standard TLA 11Under applicable legislation, a member can only be excluded per the decision of the membership based on the causes set forth in the Statutes of the organization. 12Please see Policy for the Association of Organizations with FSC (FSC-POL-01-004 V2-0 EN). 13Please see Clause Twelfth of FSC International’s Statutes.

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have withdrawn from FSC International’s membership. If Resolute does challenge the Board’s preliminary conclusion, the Board would then need to submit the proposal together with Resolute’s arguments for a decision of the General Assembly14 to resolve whether to exclude or not Resolute from FSC, which would be final15. To be legally safe, FSC would have to prove the legitimacy of the destitution cause and that the destitution process set forth in the Statutes was properly followed, otherwise it risks that Resolute potentially files a law suit in Oaxaca claiming losses and damages. Our internal legal counsel advises against pursuing this approach, since there are too many uncertainties, and the damage to FSC could be significant in case we were not successful.

 Raise a PfA case against Resolute Forest Products Analysis: There is a number of reasons why an activation of the FSC Policy for Association would be problematic and entail considerable legal risks for FSC: o There is no substantive evidence for a violation of the PfA, i.e. an unacceptable activity at a scale (impact, frequency) that would justify action across a corporate organization. o There is no established protocol for a proactive investigation of a potential PfA violation – while in general the absence of a formal protocol can be acceptable from a legal standpoint, it in- creases the uncertainties that already exist with any PfA application. o The PfA should not be used to override or substitute certification decisions, as the Board had confirmed in its guidance note towards the PfA Working Group: “Focus on non-certified land: An existing FM or CW-FM certificate covers all the aspects of the PfA for that particular Man- agement Unit, and therefore any concerns would be governed by the relevant standard, not by the PfA. The PfA is meant to be applied to non-certified areas." It could possibly be used to complement a certification decision in cases of severe non-compliances with certification requirements that would equal an ‘unacceptable activity’ or where it can be shown that the certification process for reasons of limited scope cannot properly deal with a complex responsibility held by the organization (such as in the Siforco / Danzer case).

The circumstance that Resolute would lose all its other FM/CoC and CoC certificates would almost cer- tainly fuel Resolute's opposition towards such an investigation and their inclination to employ all possible legal means against such a decision. Given the overall uncertainties that exist with the PfA and the weaknesses outlined applying in this particular case as outlined above, raising a PfA case against Reso- lute would expose FSC towards new, incalculable legal and financial risks.

5. Immediate actions related to policy change:  The board could consider the possibility of making a policy change to create sanctions against certified Organizations, who take legal action outside the FSC's dispute resolution system to block the publishing of the public summary of a Certification Body's audit results.

14FSC International’s GA could make this decision through a written consent resolution (postal or electronic ballot) without holding a meeting. 15Destitution causes and the destitution process are set forth in Clause Seventeenth of FSC International’s Statutes.

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Analysis: We cannot prevent certificate holders from taking legal action. The fundamental right to seek help from a competent court can generally not be reduced. We might, however install a contractual obli- gation forcing certificate holders to use the FSC dispute resolution system despite any possible attempt to seek help from the court. If this is not done by the CH, it could be seen as a non-compliance with the contractual regulations and lead to a temporary suspension of the TLA and/or certificate until the matter is solved. This will need deeper legal analysis, and we are in the process of obtaining that. Technically, the rule could be that in such cases FSC would assume that the Corrective Actions called for in that audit result are sufficiently grave to be Major CARs and will suspend that Organization's certificate (and/or trademark license) until the public summaries of the audit results are published. One option to achieve this could be to fast-track PSU’s plans described below to strengthen the formal requirements for allowing (from the company’s perspective) and conducting (from the CB perspective) annual surveillance audits in a more general approach in the ongoing revision of FSC-STD-20-001. Failure to implement this commitment from either side would then lead to suspension of the certificate. We could fast-track such a rule through an Advice Note if a timely formal response through the norma- tive framework is desired. This action would be very much targeted at the specific Resolute case and could imply similar risks of negative consequences as any other action against them. Also, the gain in terms of time may be minimal in relation to the disruption and dissatisfaction that each Advice Note is bringing

6. Mid- to long-term actions to defend our system and avoid repetitions of cases like these  Conducting an analysis of possible adjustments to the system, e.g. revision of trademark license agreements and other regulatory documents Analysis: We could pursue a change to the Trademark License Agreement, for instance along the following lines: “The Organization agrees to seek settlement of any disputes, incl. those related to certification decisions, by following conflict resolution mechanisms provided by certification bodies, ASI and FSC. Fail- ure of doing so by e.g. imposing legal actions outside and instead of these mechanisms constitute a breach of this agreement and may result in the suspension of this agreement accordingly.” However, this would take time and, and changing the TLA agreement would need careful analysis, since the right to approach a competent court is a fundamental and constitutional right in all modern democ- racies. It is worth to be explored in more detail if and how such a proposed clause in our TLA would truly be valid and binding before the Board makes a final decision on it.  Including a provision into the accreditation standards that certificates need to be invali- dated within a certain period of time in the absence of an effective surveillance audit report. Analysis: As also indicated above, PSU is planning to strengthen the formal requirements for allowing (from the company’s perspective) and conducting (from the CB perspective) annual surveillance audits in a more general approach in the ongoing revision of FSC-STD-20-001. So far we trusted that in a voluntary system all parties show some level of commitment to play by the rules, meaning that a certificate holder undergoes an annual surveillance to maintain the certificate and the CB conducts an annual surveillance to confirm the continued compliance of the company with the rules. As this always worked fine in the past there is no sanction in case one of the 2 parties does not perform their tasks as expected. We will therefore propose to introduce 2 new clauses into the CB accreditation standard (revision process ongoing) to:

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A) Require the certificate holder per certification contract to enable and support an annual surveillance with the objective to evaluate and confirm the continued compliance of the company with relevant FSC requirements B) Require the CB to conduct an annual surveillance within the prescribed timelines with the objective to evaluate and confirm the continued compliance of the company with relevant FSC requirements Failure to comply with a) or b) will lead to the suspension of the certificate. Please note that this is not the final formal text as it still needs to be consulted with Legal, the WG and our stakeholders. Target for completing the revision is Q3/2015.  Strengthening the Controlled Wood system. Analysis: The CWTC proposed a mechanism that prohibits certificate holders to simply source from their own properties through an internal verification program. This rule will come into effect for all companies with the approval of the new CW standards.

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