THE EU FLEGT ACTION PLAN Malaysian/Asian Market Perspective

EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE

Aimi Lee Abdullah European Forest Institute – FLEGT Asia Kuala Lumpur, 16 November 2011

©European Forest Institute 1 EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE Consumer & Producer Dynamics in a Highly- Charged & Sometimes Emotional Landscape

©European Forest Institute 2 EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE CHALLENGES FACED BY ASIAN TIMBER SECTOR ‘Dirty, dangerous, demeaning /difficult’ Importer perceptions – Cheap & Low quality Market Competition Limited information on species Rising costs (labour, raw materials, transportation) Different preferences & regulations between Japan, US & EU markets Poor governance, corruption & illegal logging

©European Forest Institute 3

CHALLENGES

TARIFF BARRIERS NON-TARIFF BARRIERS

Technical Requirements Impediments / Other TBs

• Product Standards • Specific Limitations • Regulations on Solid Wood Packaging Material (ISPM) • Formaldehyde emission . Bans . (Japan Agricultural Standard (JAS) . Boycotts . European Committee for Standardization (CEN) . Licenses . California Air Resources Board (CARB) . Quotas . Chemicals (REACH) . Tariff escalation • Timber Certification / Legality • Technical / Grading Rules . Japan Industrial Standard (JIS) . CITES . CE Marking . FLEGT / Lacey Act . British Standard (BS) . FSC / PEFC . IHPA • Diversity of Technical & • Sanitary & Phytosanitary Requirements (SPS) Standards • Building Codes • Environmental Credentials ©European• Quality Forest Standards Institute / Test Requirements • Homeland Security Measures • Safety, health and building practices ©European Forest Institute 5 ©European Forest Institute 4 September 2008 6  Illegal logging is on Global Agenda

 Estimated to constitute 8-10% of global trade

 Findings of WWF study ‘Illegal wood for the European market’ (July 2008) - - 16-19% illegal - largest quantity from Russia - 10 top exporters of illegal wood into the EU (Russia-10.4, Indonesia-4.2, China-3.7, Brazil-2.8, Belarus-1.5, Ukraine-1.5, Bosnia-1.2, Lithuania-?, Cameroon-0.645, Gabon-0.59 million m3 of RWE - Malaysia 0.28million m3 of RWE = about 1.4%

©European Forest Institute ©European Forest Institute Norway bans tropical timber mongabay.com July 2, 2007

Concerned about deforestation rates in the world's most biodiverse forests, Norway has banned the use of tropical timber in all public buildings, reports the Rainforest Foundation Norway.

According to the NGO, the move comes after a series of scandals where governmental institutions have been caught using wood from threatened rainforests in building projects, despite a 2002 mandate to only use sustainably logged tropical wood. Since the government does not recognize any tropical forest certification system as reliable, the Directorate of Public Construction and Property (Statsbygg) has banned the use of all tropical wood, including certified wood. "The government wants to stop all trade with unsustainably or illegally logged tropical forest products. Today there is no international or national certification that can guarantee in a reliable manner that imported wood is legally and sustainably logged," stated a plan issued by the Norwegian government. "Tropical wood shall not be used neither in the building itself nor in materials used in the building process."

Rainforest Foundation Norway says the decision makes Norway a global leader in "green" procurement policies.

Felled canopy tree in the rainforest of Gabon (top). Photo by Rhett A. Butler "Putting a ban on all tropical wood in public buildings makes Norway an international pioneer in this field. As far as we know, no other countries have an equally strict and ambitious public procurement policy on tropical timber," said Lars Løvold, director of Rainforest Foundation Norway. "Hopefully this will inspire other countries to strengthen their policies too."

"We are not fundamentally against logging in tropical forests," Løvold continued. "The problem is that today there exist no reliable certification scheme for logging in tropical countries. Until such reliable schemes are in place or we have other ways© toEuropean secure thatForest logging Institute is done in a sustainable way, we support the government’s decision to ban the use of tropical wood." EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE

90 80 DEPENDENCY ON EU 70

60 50 40 30 20 10

EU SHARE OF TOTAL EXPORTS % EXPORTS TOTAL OF SHARE EU 0 CMR CBR COD CIV GAB NGA BRA IND SUR CAF GHA IND COA BOL CHN ECU

©European Forest Institute ITTO Report: Markku Simula et al Dec 2009 Progress on FLEGT VPAs FLEGT licenses (not yet) VPA Signed, System Development Formal negotiations Preparation, in-country consensus building Introduction

Vietnam

Malaysia

Liberia Indonesia

C.A.R. Ghana Congo Cameroon Gabon DRC ©European Forest Institute 11 Imports of Wood-based Products into the EU from Asia

Import value (Euro billion, cif, nominal) 2000 2001 2002 2003 2004 2005 2006 2007 2008 China 0.9 1.0 1.2 1.5 2.2 3.1 3.9 5.2 5.0 India 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 Indonesia 1.5 1.3 1.2 1.2 1.2 1.3 1.3 1.2 1.0 Japan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Malaysia 0.9 0.7 0.7 0.6 0.7 0.7 0.9 0.9 0.8 Philippines 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Singapore 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 South Korea 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Taiwan 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Thailand 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.2 Vietnam 0.2 0.2 0.2 0.3 0.4 0.4 0.5 0.6 0.6

©European Forest Institute Trade statistics Country Trade (EFI-WFSE Forest Products Trade Flow database VPA 2007) Total volume Total export value EU share of Status exported to EU exported to EU total export volume 1000 m3 RWE Million USD % 1 China 15,659.9 6,290.0 19% BCM 2 USA 20,321.4 4,618.2 12% 3 Russian Fed 36,742.3 4,360.4 33% Dialogue 4 Brazil 26,634.2 4,039.9 44% 5 Switzerland 10,691.0 2,698.9 91% 6 Norway 10,606.3 2,362.5 84% 7 Canada 10,698.0 2,040.7 5% 8 Indonesia 5,450.4 1,685.3 12% Concluded 9 Malaysia 2,617.6 1,221.5 7% Negotiation 10 Chile 7,414.9 1,145.3 22% 13 Viet Nam 859.3 904.2 14% Negotiation 15 Cameroon 2,757.2 668.8 82% Concluded 16 Gabon 1,056.8 558.9 29% Negotiation 18 Thailand 470.4 444.0 3% Interest 21 Cote d Ivoire 948.5 297.4 59% Interest 26 Dem Rp Congo 436.4 174.7 93% Negotiation ©European27 Ghana Forest Institute 380.2 173.1 25% Concluded 28 Rp Congo (Brazzaville) 507.7 133.6 51% Concluded EU imports of commodities (Year 2008)

Countries Commodity share / Commodities (ASIA) Total imports excl. Energy

Palm oil (47,7%), rubber (24%), coffee (10,1%), coconut oil (6,7%), tropical timber Indonesia 21.8% (4,7%), cocoa (3,8%), tea, nuts, gum, cotton, copper, and bamboo-rattan

Palm oil (51,6%), rubber (27,1%), tropical timber (14,7%), cocoa (5,3%), coconut oil, Malaysia 13.2% berries, coffee, tea, gum, bamboo-rattan and textile bast fibres

Myanmar 5.4% Tropical timber (90%) and coffee

Rubber (56,4%), rice (29,4%), palm oil (6,6%), tropical timber (2,6%), cocoa, berries, Thailand 5.3% fruits, bamboo-rattan, coffee, sugar, coconut oil, gum, nuts, cotton and tea

Tropical timber (30,8%), tea (26,3%), cocoa (13,5%), bamboo-rattan (11,5%), coffee China 0.1% (8,3%), copper (3,8%), zinc, cotton, gum, jute, nickel, lead, nuts, fruits, berries, coconut oil, rubber, rice and sugar

Taiwan 0.1% Tropical timber (96,7%) and tea

Tropical timber (47,1%), Rubber (23,5%), palm oil (13,7%), nuts, coffee, bamboo-rattan, Singapore 0.3% ©European Forest Institute tea, gum, coconut oil, cocoad, cotton, copper and zinc ©European Forest Institute ©European Forest Institute EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE

Europe is the second largest export market for Malaysian timber after Japan. In 2009, 13.9% of Malaysian timber exports, amounting to RM2.7 billion (@ Euro 645 million) in value

EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE Timber Certification in Malaysia 1999 MTCC set up to develop & operate a voluntary national certification scheme, MTCS 2001 Multi-stakeholder National Steering Committee set up to further MTCC-FSC collaboration 2002 MTCC becomes a member of the PEFC

2003 Danish Ministry of the Environment includes MTCS in Purchasing Guidelines

2009 MTCS becomes 1st tropical timber certification scheme in Asia Pacific region to be endorsed by the PEFC

©European Forest Institute 18 Recognition of Malaysian Timber Certification Scheme (MTCS)

MTCC scheme has been recognised and accepted as providing assurance of legal or sustainable timber by several authorities and organizations in key importing countries.

These authorities and organisations are:

 Danish Ministry of the Environment

 UK Department for Environment Food & Rural Affairs (DEFRA)

 Royal Horticultural Society of UK

 French Ministry of Environment and Sustainable Development and Ministry of Agriculture, Food & Rural Affairs

©European Forest Institute Recognition of Malaysian Timber Certification Scheme (MTCS)

 Keurhout Protocol for Legal Origin, The Netherlands

 Forestry Agency, Ministry of Agriculture, Forestry & Fisheries, Japan

 City of Hamburg in Germany has given recognition to the MTCS since June 2006 through the implementation of the MTCC- Hamburg Joint Project

 Ministry of Agriculture & Forestry, New Zealand

 UK CPET

©European Forest Institute EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE

EU FLEGT ACTION PLAN

• Proposal for a VPA discussed between EU & GOM in May 2004 in Kuala Lumpur • In Sept 2006, Malaysia formally agreed to start VPA negotiations

POTENTIAL MARKET RELATED BENEFITS OF

FLEGT VAP LICENSING

Resolve issues acting as a drag on marketing (native rights, alleged illegal imports from Indonesia)

Leverage EU support and build bridges

Demonstrate leadership – Malaysia benefits significantly from eradication of illegal logging in other countries

VPA countries strongly placed to demand more effective control by competitors

Insures against risk of market exclusion

Legitimise wood from planned conversion forest

Helps resolve issues with MTCC

Facilitates more widespread uptake of SFM certification

Source: Rupert Oliver (FII)

ENGO PERSPECTIVES

Interviews with EU-level representatives of major environmental groups (Greenpeace, WWF, FERN) held November/December 2007 on market acceptability of FLEGT VPA licenses.

NGOs supportive of the FLEGT VPA process and enthusiastic about the potential of FLEGT partnership agreements to bring all interests together to try to resolve problems.

FLEGT VPA licensing as a mechanism to avoid market exclusion rather than a mechanism for positive marketing of products as “legally verified”.

For purposes of GFTN recognition, VPA licensed timber would be considered a “known licensed source”, sufficient to prevent market exclusion and equivalent to private sector legality verification procedures. VPA seen as providing an “enabling environment for certification”.

Some NGOs expressed negative views of Malaysian forestry

• conflict over native customary rights in Sarawak • the alleged illegal smuggling of logs (particularly merbau) into Sarawak from Indonesia and laundering for shipment to China • forestry practices of Malaysian operations in Africa and PNG; • the continuing conversion of natural forests into plantations.

EUFLEGT.EFI.INT THE FOREST LAW ENFORCEMENT GOVERNANCE AND TRADE TEAM OF THE EUROPEAN FOREST INSTITUTE

Some Thoughts

•Need to engage with parties who don’t agree with us •VPA is not an easy solution •Open-mindedness and aspiration for goals •Good for the people & country as a whole (not only business) •Be at par with the rest of the enlightened world

For more information, please consult

http://ec.europa.eu/environment/forests/flegt.htm http://ec.europa.eu/environment/cites/home_en.htm http://ec.europa.eu/environment/forests/illegal_logging.htm

Or contact us

EUROPEAN FOREST INSTITUTE - FLEGT Asia Regional Office -

c/o Embassy of Finland Telephone: +603-4251 1886 5th Floor, Wisma Chinese Chamber Facsimile: +603-4251 1245 258, Jalan Ampang 50450 Kuala Lumpur,

Malaysia www.euflegt.efi.int