Assessment of the EU Timber Regulation and FLEGT Action Plan

FROM SCIENCE TO POLICY 1

Ragnar Jonsson, Alexandru Giurca, Mauro Masiero, Ed Pepke, Davide Pettenella, Jeffrey Prestemon and Georg Winkel From Science to Policy 1

Contents

Summary ...... 3 1. Combating illegal timber logging and trade ...... 5 2. Policy measures to reduce illegal logging ...... 6 The EU FLEGT Action Plan ...... 6 Voluntary Partnership Agreements ...... 6 The EU Timber Regulation ...... 7 Monitoring market developments...... 9 Policy measures outside the EU ...... 9 3. What does scientiﬁc evidence tell us about the impacts of the policy measures? ...... 11 Experiences in exporting (source) countries ...... 12 Experiences in the EU (importing) countries ...... 15 4. Impacts on global timber markets ...... 19 Recent trends in global timber markets ...... 20 Impacts on Russia ...... 21 Impacts on China ...... 21 Experiences from the US Amended Lacey Act ...... 22 5. FLEGT and EUTR: Impacts on forest governance and implementation ...... 23 Partner countries...... 23 EU implementation ...... 23 6. Lessons learned ...... 25 Lessons learned from scientiﬁc studies ...... 25 7. Policy implications ...... 26 Abbreviations ...... 27 Recommended reading ...... 28 Authors ...... 29

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Recommended citation: Ragnar Jonsson, Alexandru Giurca, Mauro Masiero, Ed Pepke, Davide Pettenella, Jeffrey Prestemon and Georg Winkel. 2015. Assessment of the EU Timber Regulation and FLEGT Action Plan. From Science to Policy 1. European Forest Institute.

2 Assessment of the EU Timber Regulation and FLEGT Action Plan

summary

he European Commission presented the Lessons learned TEU Forest Law Enforcement, Governance and Trade FLEGT) Action Plan in 2003, as part of its continu- • The FLEGT/VPA process has apparently result- ous endeavours to tackle illegal logging. The Plan’s ed in significant improvements in forest govern- objective is to eliminate illegal timber in internation- ance in partner countries. However, many studies al trade, acknowledging the shared responsibility of warn that local communities have yet to be proper- exporters and importers. A cornerstone of the Plan ly involved in the negotiation process or are simply is establishing Voluntary Partnership Agreements not aware of legality verification. Experience shows (VPAs) with timber producing and exporting coun- that going beyond timber legality and including tries, and the introduction of FLEGT-licensed timber. socioeconomic development objectives will make A second key element of the plan is the EU Timber VPA implementation more successful. Regulation (EUTR), which came into full effect in • Unlike the EU market, the potential effects of the March 2013. VPAs and the EUTR are meant to rein- LAA on timber markets and trade flows have already force each other, addressing the supply (export) and been analyzed quantitatively for the US market. In demand (import) side of the timber product trade general, tropical timber product imports seem to respectively. The EUTR obliges timber product im- decrease, while temperate hardwood imports may porters to take adequate measures to minimize the fill the resulting gap in timber supply. The causal risk of importing illegal timber products to the EU. link between this trend and the legality verification Timber products that will be covered by a FLEGT li- policy is, however, yet to be established. Shifts in cence, or a Convention on International Trade in trade need to be better analyzed to understand the Endangered Species of Wild Fauna and Flora (CITES) causalities and the ultimate consequences in terms permit, are considered to meet EUTR requirements. of the existence and economic significance of trade Another key initiative was the amendment of the diversions and market substitutions. Lacey Act (LAA) in the US in 2008, prohibiting the • Policy measures like FLEGT, the EUTR and LAA import of illegally sourced timber products into the tend to result in reduced imports of illegal tim- US. Other major importing countries such as Japan ber products in countries imposing such meas- and Australia have also followed this trend of regu- ures. The prices of the legal imports from the same lating illegal timber entering their markets. source countries tend to be higher compared to This study reviews scientific and expert studies the case without those measures. which address the issue of (a) the effectiveness of • We cannot yet definitely say that the policy meas- these policies in reaching their objectives and (b) the ures have reduced illegal logging in suspect- impacts of FLEGT (including VPAs and the EUTR) ed source countries, although they could have. and the LAA. It is possible that these source country produc- It is still too early to be able to draw strong con- ers could have redirected their illegal timber prod- clusions, in particular quantifiable ones, regarding ucts to other countries without comparable poli- the impacts of FLEGT and the EUTR on reducing ille- cy measures. It is also possible that more illegal gal logging. The global legality verification regime is wood in source country markets has been redi- complex and evolving dynamically. Thus, while there rected to domestic consumers, pushing more le- are more and more studies being published on the gal wood into world markets, and the net effect on issue, the evidence regarding important questions is illegal timber remaining unclear. More research is still limited. needed to verify these kinds of supply diversions.

3 From Science to Policy 1

summary

• Outside the EU, the effects of both VPAs and the • It is crucial for the success of the EUTR to involve EUTR on forest governance, forest management, major timber product producers/ importers from and the timber product manufacturing sector are emerging economies, most notably China. The only evolving now. The arising legality verification bilateral negotiations the EU is already conduct- regime has strongly increased the awareness of ing with such countries are therefore essential. different stakeholder groups in producer and con- However, multilateral negotiations involving also sumer countries of the illegal logging issue, yet the other major destinations for the trade in timber consequences of this increased awareness for har- products, notably the US and Japan, could be even vest, trade and production practices are yet hard- more fruitful. ly known. • There is a need to re-consider the importance of the emerging legality verification regime in the con- Policy implications text of a broader global governance system target- ing the sustainable management of the world’s • In the EU, the implementation of the EUTR is still a forests. Legality is a core precondition for sustaina- major challenge. While some countries are well ad- bility, but does not guarantee sustainability per se. vanced in the implementation process, others are • There is a danger that the emerging legality ver- still at the beginning. The technical and economic ification regime creates advantages for large, ex- challenges of the implementation remain substan- port-oriented enterprises compared to smaller tial, for example the lack of resources and knowl- firms in both exporting and importing countries, edge, and the sheer number of operators versus due to the perceived costs of legality verification. personal resources of the implementing agencies. Inside the EU, monitoring organizations, which • Effective and consistent implementation of the provide advice and directions for exerting due dil- EUTR across all EU Member States should avoid igence, have a key role here. It is essential that a counterproductive “race to the bottom”, i.e., in- support for small and medium sized firms is also adequate implementation inducing legally ques- forthcoming in source countries for timber prod- tionable timber product trade flows. Coherent im- ucts. In summary, it is essential to strike the right plementation of the EUTR across Member States balance between the demands of EUTR compli- should also reduce the risk of trade disputes. In ance and the existence of an inclusive, competitive this respect, helping to facilitate the benchmarking timber product market. The Independent Market of good practices from more experienced coun- Monitoring (IMM) project, analyzing timber prod- tries would be valuable. uct market trends to assess the impacts of the • Implementation should be done in close cooper- Action Plan, should aid in striking this balance. ation with industry, striking the right balance between effective implementation and acceptable costs. A process of mutual learning could aid the achievement of this balance. In this instance, the Independent Market Monitoring (IMM) project, in creating a database for the analysis of timber trade development, could play a key role.

4 Assessment of the EU Timber Regulation and FLEGT Action Plan

1. Combating illegal timber logging and trade

The trade of illegally sourced timber has detrimen- 2001 Bali Action Plan tal effects on the forest sector, undermining legal trade and posing severe environmental, social and 2003 EU FLEGT Action Plan economic threats. The importance of legal and sustainable timber markets has been increasingly recognized by governments, international organizations, 2006 Green Purchasing Law (Japan) non-governmental organizations, trade associations, and wood processing industries alike. Widespread 2008 Lacey Act Amendment (US) recognition of the severity and consequences of illegal logging and the trade of illegal wood began at 2010 EU Timber Regulation a meeting of the G8 in 1998. The support of timber legality verification initially started with the ‘Bali 2012 Illegal Logging Prohibition Act (Australia) Action Plan’ in 2001 at the first regional Forest Law 2013 EUTR comes into effect Enforcement and Governance (FLEG) conference, when some of the world’s leading economies com- Figure 1. Timeline of major actions to fight illegal mitted to supporting legality in the forest sector. This logging new approach was complementary to other previous efforts such as forest certification, criteria and indica- markets. Other major importing countries such as tor practices, and National Forest Programs. Japan and Australia have also followed this trend In 2003, the European Commission (EC) present- of regulating illegal timber entering their markets. ed the EU Forest Law Enforcement, Governance Clearly, these initiatives have attracted different and Trade (FLEGT) Action Plan. The key difference responses from both importing and exporting coun- from previous processes was the addition of trade tries impacted directly or indirectly by the regula- to the Action Plan, which gave a new and concrete tions. Not only have such initiatives influenced na- focus. The objective is to eliminate the demand for tional, and to some extent, global forest governance, illegal timber in international trade. However, this but also the international timber trade. is just one aspect of the FLEGT Action Plan, which This study reviews scientific and expert studies ad- goes far beyond previous policies, as it acknowledg- dressing the issue of the effectiveness of the pol- es the shared responsibility of exporters and im- icies in reaching their objectives and the already porters. The cornerstone of the Plan is to establish observed impacts of FLEGT (including VPA and Voluntary Partnership Agreements (VPAs) with EUTR) and the LAA. The first section of the study both tropical timber producing and exporting coun- offers a general outline of the policy context, ex- tries. The VPAs include bilateral processes to estab- ploring policy measures in the EU and three ma- lish legislation and its enforcement. A second key jor importing countries (US, Australia, and Japan). element of the Plan is the EU Timber Regulation This helps to put the EU policy measures in a larger (EUTR). VPAs and the EUTR are two parts of the perspective, and provides a basis for comparison. The FLEGT Action Plan which are meant to reinforce second section focuses on the experiences from each other. In 2015, FLEGT has been in force for 12 timber exporting and importing (European) coun- years, and the EUTR for two years. tries. We explore the latest trends in the interna- Another key initiative came from the United tional timber trade and discuss possible linkages States, which amended the US Lacey Act in 2008, between these trends and the policy measures. In prohibiting the import of illegally sourced timber the third section, we explore the lessons learned products into the United States and its territories. so far. Have the policy measures been successful The Lacey Act Amendment of 2008 (LAA), in fact, in tackling the trade of illegally harvested timber was a key factor in the subsequent passage of the and in promoting good forest governance? Finally, EUTR. Thus, both the EU and the US are promot- drawing on the lessons learned from recent scien- ing legality verification as a means to access their tific studies, we discuss policy implications.

5 From Science to Policy 1

2. Policy measures to reduce illegal logging

The EU FLEGT Action Plan 5. Safeguards for financing and investment, including action to encourage banks and finan- The FLEGT Action Plan is the first European strate- cial institutions investing in the forest sector gic initiative that focused on halting the placement to develop due care procedures when granting of illegally harvested timber on the EU market. The credits. Action Plan recognizes the shared responsibilities 6. Use of existing legislative instruments or adop- of both producer and consumer countries. Hence, tion of new legislation to support the Plan, in- it introduces combined demand and supply side cluding the EU Timber Regulation. measures to address the issue of illegal trade of tim- 7. Addressing the problem of conflict timber. ber. The Action Plan focuses primarily on governance and enforcement issues as a way to promote Voluntary Partnership Agreements legal timber. It encourages policy reforms, trans- parency, and information sharing. In summary, the VPAs are bilateral trade agreements between the EU Action Plan focuses on seven broad areas: and timber product-exporting countries outside the EU. Under a VPA, a timber-producing country is ex- 1. Support for timber product exporting countries, pected to develop systems to verify that its timber including action to promote equitable solutions product exports are legal. The legality needs to be to the illegal logging problem. verified through a legality assurance system (LAS). 2. Activities to promote trade in legal timber, in- The LAS consists of legality definitions established cluding action to develop and implement through a multi-stakeholder process, procedures for Voluntary Partnership Agreements between the legality verification and the creation of tracking sys- EU and timber exporting countries. tems, processes for issuing the FLEGT licences, and 3. Promotion of public procurement policies, in- the methods for carrying out independent audits. cluding actions that guide contracting author- Once the LAS is in place, shipments will be award- ities on how to deal with legality when specify- ed a FLEGT licence. ing timber in procurement procedures. A VPA is expected to guarantee that wood export- 4. Support for private sector initiatives, including ed from a timber product-producing country to the action to encourage private sector initiatives for EU comes from legal sources, and is also meant good practice in the forest sector, including the to support the partner country in improving forest use of voluntary codes of conduct for private governance and regulations. VPAs are voluntary for companies to source legal timber. timber product-exporting countries. However, once

Incentive Instruments Main Features

- Bilateral trade agreements between Voluntary Partnership the EU and selected producer Agreements (VPA) countries - Not a legislative act but a voluntary Forest Law Enforcement agreement Governance and Trade ent - If ratified, they become legally binding (FLEGT) Action Plan (2003) Reinforcem

European Union Timber - Focuses on EU importing countries Reguation (EUTR) - A legislative act 2013

Figure 2. The FLEGT Action Plan with its two main instruments and their main features. Source: Giurca and Jonsson (2015)

6 Assessment of the EU Timber Regulation and FLEGT Action Plan

a VPA has been ratified, it is legally binding on both The first FLEGT-licensed timber product ship- sides. ments are expected in 2016. Some important tim- The VPA implementation is coordinated through ber product trading countries, for example China, a Joint Implementing Committee. Although the may never enter into a VPA with the EU. Even so, overall objectives of the VPAs are clear, how they the EU is conducting bilateral negotiations with are actually implemented may vary somewhat from such countries to communicate the implications of country to country. Hence, what is framed in a legal- the EUTR and to encourage countries to improve ity definition is the result of each national process. their control on the legal origin of timber products. VPAs build on national ownership, therefore “one size does not fit all”. The EU Timber Regulation Partner countries are granted improved access to EU timber markets if the partners can assure the An important step taken to support and increase the legal production of wood. The EU provides assis- effectiveness of the FLEGT Action Plan was the in- tance to the partner state to develop a viable timber troduction in 2010 of the Regulation No. 995/2010, tracking and licensing system, and in strengthen- commonly known as the EU Timber Regulation ing national governance capacity, as large civil socie- (EUTR). This came into full effect in March 2013. ty participation is required. Up until the first quarter The EUTR requirements are directed at the demand of 2015, six countries (Cameroon, Central African (import) side, while VPAs aim at the supply (export) Republic, Ghana, Indonesia, Liberia, and Republic side of the timber product trade. The EUTR oblig- of Congo) have signed a VPA with the EU and are es timber product importers (operators) to take ad- implementing systems to control and verify their le- equate measures to minimize the risk of importing gal timber exports. Nine other countries (Côte d’Ivo- illegal timber products to the EU. Operators are held ire, Democratic Republic of the Congo, Gabon, accountable for the products they bring into the EU Guyana, Honduras, Laos, Malaysia, Thailand, and (see below) and are required to have a due diligence Vietnam) are negotiating the agreement with the system that is based on adequate documentation EU, while another 11 countries have expressed in- and risk assessment to assess the legal provenance terest in VPAs (EU FLEGT Facility 2015). of imported timber products.

The EUTR sets out three requirements for European operators (European Commission 2013): 1. Prohibition: The regulation prohibits placing illegally harvested timber or timber products on the EU market. 2. A Due Diligence System (DDS): Operators can apply due diligence by themselves or through the assistance of Monitoring Organizations (MO). Operators need to provide access to information on the timber product (country of harvest, logging concession, species, sizes, quantities), implement risk assessment (evaluate the risk of occurrence of illegally harvested products), and implement risk mitigation measures and procedures to minimize the likelihood of illegality. 3. A Traceability Obligation: After placing timber products on the market for the ﬁrst time, as part of their DDS, traders have to keep records with information from whom they bought and to whom they sold the timber product.

The EUTR applies to a wide range of timber prod- covers fuelwood, panel products (plywood, particle- ucts: roundwood, primary-processed products such board, and ﬁberboard), packaging such as pallets, as sawn hardwood, and secondary-processed prod- builders’ joinery and carpentry, and prefabricated ucts such as wooden furniture and paper products. wooden buildings. The products covered can be in- The FLEGT-licensed products that are currently creased; an updated listing of products covered ap- speciﬁed include industrial roundwood, sawnwood, pears in the EUTR annex (EU 2010). plywood, and veneer, which are typical export prod- Timber products that will be covered by a FLEGT ucts of VPA countries. Additionally, the EUTR also licence, or a Convention on International Trade

7 From Science to Policy 1 EU FLEGT Facility, European Forest Institute European Forest EU FLEGT Facility,

The FLEGT VPA process in different countries. Cameroon, Central African Republic, Central Cameroon, Ghana, Indonesia, Liberia, Republic of the Congo d’Ivoire, Democratic Republic Côte Gabon, Guyana, of the Congo, Honduras, Laos, Malaysia, Thailand, Vietnam Implementing Negotiating European Union Figure 3.

8 Assessment of the EU Timber Regulation and FLEGT Action Plan

in Endangered Species of Wild Fauna and Flora Monitoring (IMM) project. This five-year project is (CITES) permit, are considered to meet EUTR re- administered by the International Tropical Timber quirements, and EUTR due diligence procedures Organization (ITTO) through a project called need not be applied. Thus licensed timber prod- ‘Independent market monitoring: analysis of the re- ucts have a strong market advantage over those that ception of FLEGT licensed timber on the EU mar- are not licensed. Further, procurement of certified ket as framed by VPAs’. The IMM is implemented forest and chain of custody certified products will through consultations with the EU Member States, help EU importers to minimize the risk for illegal VPA partner countries, and relevant stakeholders in sourcing. Although certified products provide ev- the timber sector. The goal is to develop a database idence of legal origin, certification alone does not of timber trade flows into the EU market from VPA necessarily ensure legality under the EUTR, since it and potential VPA countries. Through analysis of is possible to incur illegality at any stage of the sup- timber product market trends, the IMM will assess ply chain after initial forest certification takes place. the impacts of the Action Plan, including the EUTR. However, both major international forest certifi- Knowledge of market trends will guide policy devel- cation systems, Forest Stewardship Council (FSC) opments in the EU and VPA countries. and The Programme for the Endorsement of Forest Certification (PEFC), have made modifications to Policy measures outside the EU control legality through the entire chain-of-custody to address the EUTR due diligence requirements. Besides those measures introduced by the EU to re- Each EU Member State is responsible for con- duce illegal logging, several countries outside the trolling the legality of its imports and applying EU have also imposed various policy measures or sanctions if needed. Member States are required to legislation to prevent illegally sourced timber prod- designate a competent authority (CA) with responsi- ucts from entering their markets. bility for enforcement of the regulation. To this date, all 28 Member States have designated their CAs, United States which currently are at different stages of fulfilling In 2008, the US amended the Lacey Act, which was EUTR obligations1. originally created in 1900 as a tool to combat ille- The European Commission accredits Monitoring gal trafficking of wildlife, fish or plants and prod- Organizations (MOs) to assist operators and trade ucts. The 2008 amendment to the Lacey Act (LAA) associations with establishing due diligence sys- was designed to expand the coverage of the law to tems (European Commission 2013). MOs are typ- include trees among its listed plants and to include ically commercial companies engaged in certifi- timber products. cation or control services, or trade associations The LAA has two main elements: a legality require- supporting member companies in compliance with ment and a declaration requirement. The legality re- the EUTR. The latter often rely on certification bod- quirement stipulates that plant and plant products ies in the monitoring of due diligence systems com- entering the US and transported across state lines pliance. At the beginning of 2015, nine MOs are rec- within the US be legally harvested or produced, that ognized by the EC2. More MOs are to be accredited. all transactions (taxes, fees and duties paid) associated with the production and transport into and within the Monitoring market developments US be legal, and that all plant protection laws (local laws at the source of the product and the Convention In order to monitor market developments due to the on International Trade in Endangered Species) be fol- FLEGT Action Plan and the EUTR, the European lowed3. Penalties for violation of the legality require- Commission established the Independent Market ment have been described and include forfeiture of the imported product, fines, and even potential imprisonment for failure to have exercised due care in 1 State of implementation of EU Timber Regulation in 28 Member States: http://ec.europa.eu/environment/forests/pdf/EUTR%20 assuring legality. Importantly, it is the government’s implementation%20scoreboard.pdf 2 Bureau Veritas Certification Holding SAS, Consorzio Servizi Legno Sughero, Control Union Certifications B.V., GD Holz 3 The Lacey Act was amended in the Food, Conservation, and Service GmbH, ICILA S.R.L, Le Commerce du Bois, NEPCon, Energy Act of 2008 (P.L. 110-234, 122 Stat. 923, Sec. 8204), avail- SGS United Kingdom Limited, and Soil Association Woodmark able at http://www.nrcs.usda.gov/Internet/FSE_DOCUMENTS/ (see http://ec.europa.eu/environment/forests/pdf/mos.pdf) stelprdb1045988.pdf

9 From Science to Policy 1

burden to prove that legality was violated. Due care Australia can be demonstrated by maintaining records of ef- Australia’s Illegal Logging Prohibition Act4 came forts to comply, documented changes in efforts to re- into force in late 2012 and restricts the import of il- spond to practical experiences, asking and recording legally logged timber into Australia. Like the EUTR answers to questions of source producers, etc. and LAA, the Australian measure promotes trade in The declaration requirement of the amended LAA legally harvested timber. Similar to the EUTR, the compels the importer to declare the quantity, val- Australian legislation applies both to Australian- ue, country of harvest, and the scientific names of sourced and imported timber products and con- all of the species included in the imported product. siders that compliance with source country nation- Exemptions exist for products produced before the al legislation in harvesting assures the legal origin amendment took effect (May 22, 2008), plant-based of timber. The legislation is directed at persons and packing material, common food crops and cultivars, corporations importing and processing illegal wood and plants for planting. There is also a ‘special use with an intent to sell, or otherwise subsequently designation’ that may be applied to composite wood transfer ownership, of an illegally logged raw or pro- products if the genus, species, or country of origin of cessed product, and importers are required to prac- all wood fibres contained in the product are unknown tice and prove due diligence. Australian wood pro- such that due care is not possible, and still meet the cessors must also be able to prove due diligence in declaration requirement. The legality requirement the sourcing of their timber products. still holds for such composite materials, however. The Australian government sought to align the The EUTR and LAA are similar in that both ini- law with the EUTR and the LAA in order to mini- tiatives acknowledge that sustainably managed cer- mize the impact of the legislation on businesses im- tified products are more likely to conform to the porting timber products into Australia. EUTR and LAA requirements, although sustainability and certification are not sufficient to prove legality Japan for either law. The penalties and sanctions under the The Government of Japan introduced new meas- LAA vary according to the severity of the offence, the ures to ensure the legality of imported timber prod- value of the goods and the type of operator. Hence, ucts under the Green Purchasing Law in 2006. larger corporations pay the highest penalties. A key Under this law, wood and wood products are includ- difference between the two regulations is that the ed as products needing verification of their legal or- LAA binds any party that procures timber products igin and being sustainably produced (‘Goho-wood’). along the value chain. Thus it applies also to timber The Japanese Purchasing Law holds individual com- products purchased within the US as well as tim- panies responsible for their wood imports. Japanese ber products imported into the country. The EUTR importers can voluntarily certify the legality and binds only operators that place timber (for the first sustainability of wood and wood products, and have time) on the EU market. Subsequent parties in the different methods for verifying the legality and sus- value chain only need to document the supply/pur- tainability of imports. chase-related information. Moreover, penalties and The Japanese initiatives have been criticized for be- risks associated with violating the regulations are po- ing less stringent than their European, American or tentially more severe under the LAA, hence penalty Australian counterparts. The Green Purchasing Law measures include imprisonment, unlike the EUTR. states that sustainable wood should be purchased Like the FLEGT VPAs, the US has bilateral tech- “where possible”. Furthermore, the Goho-wood nical assistance programmes with the forest sector guidelines do not require the wood to be verified by in many producing countries, and sometimes such a third party or independent monitoring organiza- efforts are coupled with free trade arrangements tions. Nevertheless, despite criticism, the number (such as the US-Peru Trade Promotion Agreement of certified companies under the Goho system has of 2006). been increasing. Current efforts to improve the system focus on defining legality and sustainability, in- troducing independent monitoring, and on creating an open-access database on wood imports.

4 The “Illegal Logging Prohibition Act 2012 – C2012A00166”, with a date of assent of 28 November 2012, is available at http:// www.comlaw.gov.au/Details/C2012A00166

10 Assessment of the EU Timber Regulation and FLEGT Action Plan

3. What does scientiﬁc evidence tell us about the impacts of the policy measures?

To assess the full impacts of the EU measures to consuming countries. We can frame the global con- prevent illegal logging, it is helpful to conceive of text as one involving a series of actions and reac- these efforts as part of a multifaceted global effort to tions in both the source (exporting) and destination address illegal logging and timber products. FLEGT, (importing) countries, all contributing to greater the VPAs, and the EUTR are part of, and are bol- potential total effect than any effort by one country stered by, parallel efforts in other producing and alone could achieve.

A multifaceted global effort: the mechanism of achieving a synergistic total effect can be described as follows: (1) policy makers in importing countries discuss creating new trade measures and other programmes designed to discourage illegal logging, or the processing and sale of illegally produced timber products; (2) source country governments pass new legislation, promote voluntary measures, or increase law enforcement efforts to prepare the domestic forest sector for possible new importing country legislation; (3) trade measures are enacted in importing countries; (4) source country governments respond with new laws and other efforts—sometimes encouraged through bilateral and multilateral efforts such as the VPAs under FLEGT, forest sector assistance and capacity building programmes that are sponsored by importing countries (e.g. the EU Member States), or through the efforts of NGOs that help to advance legality through certiﬁcation and other forms of assistance.

Literature offers several lines of evidence support- “The complexities of the interactions among the ing the idea of these kinds of synergistic, feedback policies and related efforts in source and destination processes and impacts. For example, from the ear- countries make quantifying the separate effects of in- ly to the late 2000s, there had been increased law dividual efforts such as the LAA, the EUTR, or any enforcement efforts, higher and rising levels of for- particular VPA a technical challenge. Disentangling est certiﬁcation, new source country legislation pro- them requires a multi-pronged research effort that is tecting primary forests, and improved systems of le- so far lacking.” gality tracking. Also, the literature indicates that the amended Lacey Act played a role in spurring discussions and stimulating training in other destination The conception of EU efforts as part of a multifac- or source countries, including China, and that both eted and global programme to address illegal log- the LAA and the EU VPAs were helpful in cutting off ging compels us to examine the evidence for what sources of demand for illegally produced materials. existing FLEGT VPAs have achieved, and how they Overall, the effects were reduced rates of illegal ﬁt into this larger picture. A number of studies have logging and exports of illegally harvested timber analyzed the VPA process in different partner coun- products across many major producers. These re- tries. Here, we examine the evidence from Ghana, ductions were noted for Brazil, Cameroon, Ghana, Indonesia, and Cameroon. Indonesia, and Malaysia.

11 From Science to Policy 1

Timber tracking system, Ghana Photo: EU FLEGT Facility, European Forest Institute

Experiences in exporting (source) legislation, were also explored. The national timber countries legality programme included considerations for the export market as well as the domestic market. Also Ghana the need to include social safeguards for local com- Ghana was among the first countries to initiate VPA munities was acknowledged. negotiations with the EU in December 2006. The However, a lack of formal mechanisms for ongo- VPA was signed in November 2009 and ratified in ing and long-term civil society participation seems March 2010. In Ghana, almost half of the annual tim- to persist, and there is a limited representation of ber harvests are consumed domestically, the other forest communities within civil society platforms. half being exported, with around 43% in value going There are also concerns about how VPAs may ad- to the EU. Illegal logging is prominent in the country. versely and differentially affect the livelihoods of Ghana’s forest industry consists mainly of large-scale different social groups in the country. Finally, legal- companies that obtain timber from small- and medi- ity licensing is perceived as creating market barri- um-size enterprises5. It has been estimated that 80% ers for small-scale and domestic market-oriented of sawnwood in Ghana’s domestic market is illegally producers, partly to the benefit of larger and ex- produced ‘chainsaw’ lumber. port market-oriented producers. Fears that efforts to The VPA process in Ghana built upon earlier ex- combat illegal logging in Ghana are likely to further periences with a national timber verification system restrict local communities’ access to forest resourc- and included consultations with various non-gov- es are voiced by some. ernmental organizations. Different aspects, such as forest values and their compliance with forest Indonesia Indonesia was among the first Asian countries to initiate VPA negotiations with the EU, in March 2007, 5 Small enterprises are those with fewer than 50 employees and less than €10 million in annual turnover (gross revenues); Medium in order to control the problem of illegal logging. enterprises have fewer than 250 employees and less than €50 million in annual turnover. Source: http://ec.europa.eu/enterprise/ The VPA was signed in September 2013 and rati- policies/sme/facts-figures-analysis/sme-definition/index_en.htm fied in April 2014. Indonesia has a leading role in

12 Assessment of the EU Timber Regulation and FLEGT Action Plan

Members of a community forest processing timber in Java, Indonesia. Photo: EU FLEGT Facility, European Forest Institute

international timber markets. The majority of tim- The Indonesian government launched its own li- ber exports are destined for China, India, and other censing system for timber products exported to the major economies in the Asian region. Around 15% EU—the Sistem Verifikasi Legalitas Kayu (SVLK)— of Indonesia’s total timber export value comes from in 2009, which became the basis for Indonesia’s trade with the EU (Source: ITTO). LAS. There is considerable uptake of SVLK certifi- The Indonesian private sector is divided between cation among large-scale operators, but small-scale large-scale (export-oriented) operators and small- producers lag behind, mainly because of stakehold- scale (domestic market-oriented) operators. Over ers’ limited understanding of SVLK and the VPA. 80% of Indonesian wood production is for domes- Concerns about additional costs and uncertainty tic use and a significant amount of this comes from about the benefits of formalizing their operations small-scale operators. Approximately half of the ex- keep many small-scale operators from pursuing cer- ported timber products (20% of total production) tification. is produced by these small-scale operators, includ- Again, as in Ghana, the ‘uniform approach’ driving many processing facilities and thousands of for- en by technical verification requirements tends to est owners. Naturally, this adds to the complexity of create disproportionate market barriers for small- controlling timber legality in Indonesia. holders and domestic producers. Some studies While half of Indonesian stakeholders surveyed warn that by shortening the supply chain in the about the VPA process were positively disposed to- sense of reducing the number of agents, legality wards the participatory approach of the VPA, oth- verification has the potential to negatively impact ers considered that it had a limited focus on the tra- small-scale timber industries. This would further ditional timber sector. Quite a few did not consider negatively impact small-scale operators. However, the process socially responsible, while some critics the VPA is currently being adapted to reflect this voiced concerns related to environmental sustaina- issue. The latest revisions of the SVLK describe a bility. Nevertheless, the Indonesian VPA was com- more simplified procedure for small-scale opera- mended for its extensive civil society participation tors to place their timber under SVLK-controlled in the legality monitoring process. supply chains.

13 From Science to Policy 1

Inspection of a log truck, Cameroon Photo: EU FLEGT Facility, European Forest Institute

Cameroon timber demand, technicalities of the VPA, the high Cameroon started negotiations with the EU in cost of achieving legality, and a lack of awareness November 2007, signing a VPA in October 2010, from the private sector. and ratifying it in December 2011. Cameroon is The objective of Cameroon’s VPA is not only to Africa’s largest exporter of tropical hardwoods produce legal timber for the EU, but also to include (mostly sawnwood) to the EU. Cameroon’s forestry economic opportunities for local small-scale pro- sector is characterized by high rates of illegal log- ducers. However, studies warn that the positive im- ging and corruption. The country’s producing sec- pact of the VPA might still only be felt by industri- tor is multi-faceted, including both large-scale op- al (export-oriented) forest companies, whereas the erators (multinational companies) that are more high costs of implementing the VPA and its com- export market-oriented, and small-scale, often in- plex procedures risk driving small-scale operators in formal, operators producing for the domestic mar- local communities out of business. ket. Most actors involved in timber production expect The VPA process is seen as having the potential to see illegal harvesting eliminated, corruption and to contribute to more sustainable management of poverty reduced, legal timber business opportuni- forest resources in Cameroon, and its implemen- ties expanded, and legal investments in the sector tation is expected to result in positive behaviour- achieving higher returns. However, there are warn- al change towards legality among forest stakehold- ings that the expectations of Cameroon’s private for- ers. However, Cameroon still faces several barriers est sector are not always in line with the aims of the to its VPA implementation: ongoing corruption, the VPA, and this lack of alignment may lead to further informal nature of the domestic sector, changing fragmentation in Cameroon’s forest sector.

14 Assessment of the EU Timber Regulation and FLEGT Action Plan

Experiences in the EU (importing) application of the EUTR have been acknowledged. countries As a result, CAs meet regularly and have established procedures for cooperation. Many CAs have ampli- The EU level fied their capacity-building and the development of risk-assessment tools and have begun sharing information about operators and illegal timber product “The EUTR created a new framework within which flows. different actors involved in the timber trade from both Better coordination is still needed on the devel- importing and exporting countries now interact. It is opment of document-authenticity validation pro- important to acknowledge the heterogeneity of actors cesses, sharing of information on monitoring or- and their different perceptions of the EUTR.“ ganizations, and the development of inter-state communication mechanisms. An ongoing issue is the lack of coordination of CAs with CITES manage- There are still some aspects of the regulation itself ment authorities, which could potentially become that need clarification. Indeed, it has been pointed a weak point in the implementation of the EUTR. out that ambiguity in trade could originate as a side Regarding third-party certification, the EUTR (and effect of the transition towards a stricter regulation perhaps also the LAA) seems to have been height- for tropical timber. Possible consequences from in- ening interest in certification as another means of creased ambiguity are, for example, increased sub- meeting legality requirements. stitution of temperate hardwood lumber for tropical hardwood lumber, and a diversion of exports of United Kingdom timber to destinations with less stringent regulatory The UK is among the EU’s biggest tropical timber frameworks, within as well as outside the EU. importers and an important market in the glob- Analysis of different stakeholder opinion state- al timber trade. In 2011, almost 20 million cubic ments indicates that some stakeholders—notably metres of timber products were imported into the those exporting temperate hardwood timber to the UK. Of these, 13 million cubic metres originated EU—see the EUTR as advantageous for their busi- from within the EU and the remaining 7 million nesses, while others—exporters from source coun- originated from Russia, China and Malaysia, large- tries of tropical timber products—see it as an im- ly plywood and wood furniture, in particular from pediment. Both importers and exporters raise China. issues, such as weak law enforcement, insufficient Operators and traders in the UK importing tropi- guidance from regulatory and implementing au- cal timber products have been faced with increased thorities, and increased bureaucracy. The trade-off scrutiny of their timber product supply chains, en- between effective legislation and ease of trade is a countering high standards from various groups of concern for some stakeholders. actors (civil society representatives, the government) Every EU Member State has designated its and a growing consumer awareness. Extensive me- Competent Authority (CA) responsible for enforcing dia coverage of illegal logging indicates a wide- the EUTR, and significant progress has been made spread awareness of the issue over the first half of in preparing national legislation implementing the the decade. EUTR. CA resources and responsibilities have in- The UK has a strong record of tackling illegal creasingly been put in place. However, observers re- logging and its associated trade. Even before the port that some challenges still remain. The capaci- FLEGT Action Plan was introduced, the UK un- ties of CAs are still limited in many countries, with dertook a number of different measures (see be- quite small numbers of staff members assigned to low) that were focused on promoting sustainabil- EUTR implementation, despite the very large num- ity through trade. This gave birth to networks of ber of operators and traders in these countries. In companies and organizations such as buyers and some cases, the CAs that oversee the largest num- producer groups committed to making certified ber of operators are also the least staffed. timber a priority in their buying and selling oper- The importance of coordination between the CAs ations. The growing number of companies with in different countries and of consistency in the chain-of-custody certification and the resulting

15 From Science to Policy 1

amount of certiﬁed wood-based products placed ﬁrst in the 2014 edition of the WWF Government on the UK market indicate a pro-active attitude Barometer assessing EU member states’ efforts to from the UK private sector. Indeed, the UK ranked tackle illegal logging6.

Various government procurement policies, together with codes of conduct initiated by the UK Timber Traders’ Federation, have been directed at advancing legality and sustainability. The UK government adopted voluntary guidance in 1997 that encouraged its government departments to purchase timber products from legal or sustainable sources. In 2000, this became a binding commitment. Under the Timber Procurement Policy (TPP), last modiﬁed in 2009, public authorities are required to only purchase timber products that derive from sustainably managed forests, or are licensed under a FLEGT agreement. So far, the TPP has been an important tool in combating illegally sourced timber imports. Although commended for its achievements, the policy implementation still lacks appropriate monitoring, according to WWF UK.

The focus is now on implementing and enforc- outside the EU in 2011. China’s growing timber prod- ing the EUTR. Observers report that stakeholders uct manufacturing sector, fuelled by its surging man- have been engaged and that efforts towards rais- ufacturing base in general, may be associated with this ing awareness and understanding of the legislation trend. However, the UK’s growing Chinese imports have been made. Enforcement action in the UK is could also be the result of trade diversion stemming well advanced, and regular checks on importers from the increasingly demanding EU legality require- are underway. The UK’s Competent Authority, the ments; tropical exporters might be choosing to export National Measurement Office, has focused so far timber products to other markets characterized by less on capacity building, improving understanding of stringent regulatory frameworks. 6 the regulation, and helping companies to comply with the new rules. However, there are concerns Italy around the fact that the current checks focus too Notwithstanding a general decrease in overall much on high-profile companies and too little on wood imports in recent years, mostly due to de- smaller, less visible operators and traders. clining construction activity and falling furniture In February 2015, Soil Association Woodmark consumption, Italy remains a major player among was the first UK-based Monitoring Organization European wood importers, e.g., accounting for 15% recognized by the EC and one of only four MOs of the EU sawnwood imports in 2013 according to with capacity to cover all EU states. Somewhat FAOSTAT. Imports are mostly intended as inputs uniquely, Soil Association Woodmark is a mem- for an export-oriented wood-furniture-industry. bership charity practicing certification and setting However, recently Italy has also shown an increas- legality standards. The MO has developed a com- ing dependence on the international biomass mar- prehensive due diligence system which operators ket, becoming the largest worldwide importer of can use to show compliance with the EUTR. firewood and the fourth largest importer of wood In addition to a general decline in the demand chips, particles and wood residues. In addition to for solid wood products (tropical and non-tropical this, Italy is the main European importer of wood alike) in the UK, imports of tropical timber also pellets for residential use. suffer from the development of temperate hard- Italy enjoys well-established commercial rela- wood products marketed as alternatives to tropi- tionships with many VPA partner countries for in- cal hardwoods. Econometric analyses indicate that dustrial timber products, with a strong recent shift temperate hardwood, in particular oak, is a substi- from tropical to temperate species. However, as re- tute for tropical timber in the UK. gards the biomass for energy sector, the procure- The most significant trend as regards UK timber ment relationships are not as well-established. For imports is the increasing role of China, providing 44%

of all UK wood-based product imports originating 6 http://barometer.wwf.org.uk/what_we_do/government_ barometer/

16 Assessment of the EU Timber Regulation and FLEGT Action Plan

Ship transferring a timber load. Photo: jazzed/Fotolia.com

biomass for energy the number of supplier coun- efforts to tackle illegal logging. In particular, technical tries has been increasing and the share of imports and/or financial initiatives to support VPAs under the from EU countries has been diminishing. Indeed, FLEGT Action Plan have yet to be undertaken. in some non-EU countries the exports of forest bi- The Ministry of Agricultural, Food and Forestry omass to Italy are of a very high value (e.g. Bosnia Policies was designated as the national Competent Herzegovina, Serbia and Ukraine). According to Authority and the State Forestry Corps (Corpo the Institute for Environmental Protection and Forestale dello Stato, CFS) as the body in charge of Research, the share of illegally sourced wood could performing controls in December 2012, i.e., about range between 7% and 10% of total wood imports. two months before the Regulation would have come Illegality, however, has also been reported with re- into full force. Ultimately, the Ministry appointed the gard to the domestic sources and trade, especially Directorate General for Rural Development as the for firewood and pallets. It has been estimated that national body in charge of coordinating EUTR im- more than 100,000 national companies are poten- plementation and identified CITES units of CFS as tially subject to EUTR requirements, of which about the main controlling bodies (January 2013). The late a quarter qualify as operators. Indeed, about 19,000 designation of responsible bodies delayed the defi- companies imported wood and wood-based prod- nition of penalties and control procedures. Indeed, ucts in 2013, while another 5,000 operate as forest the EC report on EUTR implementation by Member sector businesses placing domestically harvested States indicated Italy as non-fully compliant until wood on the Italian market. October 20147. Penalties were finally approved by Given this state of affairs, a pro-active attitude means of a Ministerial Decree in December 2014, from the State in implementing international and but additional Decrees are now needed to make the national measures to reduce illegality along the val- system fully operative. The national government did ue chain could be expected, but this is not yet appar- not include further restrictions on EUTR measures ent. Italy ranked 24th in the 2014 edition of the WWF Government Barometer assessing EU Member States’ 7 In the most recent version of the EC scoreboard Italy is reported as fully compliant.

17 From Science to Policy 1

or ‘illegally harvested’ and ‘applicable legislation’ the number of wood species imported by the com- definitions. While national legislation basically mir- pany during the last year. The decline in the number rors the EU text, it also includes some additional is- of species imported was attributed by the company sues such as the development of a national register to the high cost of implementing the due diligence of operators and of a multi-stakeholder permanent procedures, which compelled it to focus on few- board on FLEGT-EUTR issues, with the aims of co- er species and consolidate trade relationships with ordinating different parties and achieving effective some suppliers. implementation.8 Despite delays and inactivity in the identification and activation of the Competent Authority, two “If confirmed by further studies, this experience Italian organizations, ConLegno and ICILA, have al- would represent a major effect of the EUTR on tim- ready been recognized as Monitoring Organizations, ber product markets. The EUTR facilitates the consol- both with an operational scope limited to Italy9. idation of trade patterns and partnerships and it dis- Given the prevalence of small and medium enter- courages the imports of products/species suspected prises (SMEs) within the wood sector, MOs are ex- at being of higher risk, which in turn could be diverted pected to play a key role in the implementation of towards countries with weaker legality standards.” EUTR requirements in Italy. SMEs are indeed more likely to need technical support in order to address the Regulation; otherwise, there might be a risk of As no additional resources will be made available market concentration, with SMEs depending on for the Competent Authority, Italian companies will large importers and turning, in some cases, from bear additional costs. These costs include those nec- operators to traders. essary to meet EUTR requirements and compul- So far, about 100 companies have applied for sory ones due to registration to the national reg- ConLegno services on the EUTR, and 15 of them ister of operators and the payment of fees for the have also submitted a request for the use of the import of any load of timber product covered by a LegnOK logo. Meanwhile, the Competent Authority FLEGT licence. The burden of extra costs for com- has implemented no specific controls so far. As well, panies might induce trade-offs between compulso- national legislation clearly states that no additional ry and voluntary investments, since forest certifi- human or financial resources will be devoted to this cation does not afford automatic compliance with service. However, the CFS declared that they believe EUTR requirements. This is of particular relevance most Italian companies are not in full compliance for Italy, given that the country ranks third among with the EUTR requirements and are likely wait- EU countries in terms of FSC and fourth in terms of ing for the enforcement of national legislation be- PEFC chain of custody certificates. fore they begin adopting specific measures. A case In summary, the Italian case shows that despite in point: in December, 2013, Greenpeace informed the relevant role of Italy in the international timber the Italian Competent Authority about the arrival – trade, the public sector has not been very pro-active via Belgium and Germany – of an illegal wood ship- in the domestic implementation of EUTR. National ment from a Congolese company. But while logs legislation, indeed, has been developed and ap- from the same load were confiscated by the German proved quite late and no formal controls have been Competent Authority, no actions were taken by the implemented so far. On the other hand the private Italian CA. sector has been rather active, with two MOs already During a pilot test to check ConLegno’s system, recognized and several initiatives in place. Since the MO and the CFS jointly visited three companies most of the Italian enterprises operating in the tim- with potentially high-risk suppliers. One of them re- ber sector are small or medium size enterprises, ported a significant decrease – from 120 to 25 – in the role of MOs is likely to be relevant. Companies are expected to bear extra costs for compliance with EUTR requirements; to what extent they could be 8 Decree n.178, 30th October 2014 (Official Journal n. 286, 10th affected by this, however, it is hard to say because December 2014) www.gazzettaufficiale.it/atto/serie_generale/ caricaDettaglioAtto/originario?atto.dataPubblicazioneGazzet- the implementation of the EUTR is still at an ear- ta=2014-12-10&atto.codiceRedazionale=14G00191&elenco- 30giorni=false ly stage. 9 http://ec.europa.eu/environment/forests/pdf/mos.pdf

18 Assessment of the EU Timber Regulation and FLEGT Action Plan

4. Impacts on global timber markets

The main objective of FLEGT and the EUTR, and logging. Also, there are signs that exports of tropi- other similar polices such as the LAA, is to reduce cal timber (both legally and illegally sourced) are di- the international trade in illegal timber. Has this verted to destinations with less stringent regulatory been achieved so far? frameworks. There are basically two reasons why arriving to a Clearly, if the EU and US timber legality require- definite conclusion regarding the impacts of FLEGT ments are seen as being too demanding, then ex- and the EUTR on international timber trade, based porters might choose to export timber products to on quantitative analysis, is challenging. First of all, other markets. However, possibly higher growth there are many other important factors affecting in- in the demand for timber in those other markets ternational trades besides FLEGT and the EUTR, would also accelerate such shifts in global timber such as, for example, the business cycle, exchange product trade flows, as already mentioned. Cutting rate movements, and differences in economic off access of illegally produced timber products to growth and ensuing demand for timber products. some of the world’s largest markets by the joint im- Therefore, the precise identification and quantifica- plementation of the FLEGT, EUTR and the LAA— tion of the impacts of FLEGT and the EUTR may creating a level playing field and thus not putting not be possible. the policy imposing region in a competitive dis- Secondly, the time that FLEGT and the EUTR has advantage vis-a-vis other major timber importing been in force in practice is rather short, which im- regions— should strengthen the impact on ille- pedes the ability to identify their impacts and to gal logging. Some EU importers might be opting make strong conclusions of their effectiveness. Yet, for temperate hardwoods instead of tropical hard- there are already studies that help to give insights woods in order to avoid the risk of importing ille- and preliminary understanding of the possible im- gally sourced tropical timber, reinforcing the trend pacts of these measures. Some studies speculate that of this substitution mentioned in connection with actions such as FLEGT or the LAA may have played the UK. a role in reducing illegally traded timber, while oth- However, estimates of the scale of illegal logging er studies estimate that FLEGT and the LAA would are still very uncertain; illegal trade is, for obvious be only moderately effective in decreasing illegal reasons, not recorded in trade databases.

5 3 4

3 Million m 2

0 2011 2013 1995 1997 2012 1998 1994 1996 1999 2001 2010 2005 2003 2007 2002 2008 2004 2006 2009 2000

Industrial roundwood Sawnwood Veneer Plywood

Figure 4. EU tropical timber imports. Source: ITTO, 2015.

19 From Science to Policy 1

35%

30%

25%

20%

15%

10%

0% 2011 2013 1995 1997 2012 1998 1994 1999 1996 2001 2010 2005 2003 2007 2002 2008 2004 2009 2006 2000

Industrial roundwood Sawnwood Plywood & veneer

Figure 5. EU tropical timber imports as percentages of total volume of imports of primary processed products. Source: ITTO 2015.

“Nevertheless, until the first fully FLEGT-licensed Figure 4 indicates a trend of reducing tropi- shipments arrive in Europe, analysts and policy mak- cal timber imports to the EU. More interestingly, ers will remain uncertain as to the actual effects of Figure 5 suggests that the share of tropical timber the EUTR on EU imports.” imports in total timber imports were declining well before FLEGT (VPAs) and EUTR implementation. Apparently tropical timber imports to the EU have Until then, some indication of its effect could be in- been substituted by timber of temperate (and bore- ferred by examining recent trends in international al) origin for quite some time. timber product trade. Primary-processed tropical timber (both soft- woods and hardwoods) accounted for 32% of glob- Recent trends in global timber al trade in 2013 (Figure 6). Apparently tropical tim- markets ber has managed to upheld its market share better in value than in volume terms, which could be taken The introduction of the LAA in 2008 and the issu- as an indication of more value-added tropical tim- ance of the EUTR in 2010 coincided with a glob- ber imports. al economic and financial crisis. The financial crisis caused the collapse of the wood-based housing construction industry in the US and the economic “An emerging pattern, preceding the EUTR, in inter- crises also significantly dampened construction ac- national trade in timber products is temperate tim- tivity in the EU. While US demand for wood has re- ber substituting for tropical timber in EU imports. bounded with its housing market since the end of FLEGT/EUTR could possibly reinforce this trend.“ the US recession 2009, in Europe the demand for wood remains stagnant. Clearly, these trends have had an important impact on the reduced import de- Further, the circumstance that the market value mand for timber products in the US and the EU. share of tropical timber has more or less remained This makes it difficult to identify what have been unchanged suggests that there has been a shift with- the impacts of financial and economic crises on tim- in the EU imports of tropical timber to further pro- ber imports, and what may be the result of FLEGT cessed products. (VPAs), the EUTR and LAA.

20 Assessment of the EU Timber Regulation and FLEGT Action Plan

30 US$ billion 20

0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Temperate Tropical

Figure 6. Tropical and temperate timber shares of global trade, 2003-2013. (Note: Based on 4 primary products: roundwood, sawnwood, plywood and veneer.) Source: ITTO 2015.

Impacts on Russia is the important timber producing region from an EU perspective, have been issued FSC certificates, A recent study on the readiness of Russian tim- thus bolstering confidence that timber from the re- ber companies to meet the requirements of the gion is harvested sustainably and legally. As seems EUTR was conducted by WWF Russia together to be the case in other countries around the world, with Levada-Center and NEPCon and supported by after the EUTR came into force, getting certified by the European Union within the framework of the FSC became more important also in Russia. Hence, FLEGT II10 programme. Directors of 100 Russian 32% of the surveyed companies which hold FSC cer- timber companies were asked questions related to tificates had perceived more stringent requirements the requirements of the EUTR. from their customers abroad. The Russian compa- According to the results, almost all (94%) the sur- nies which have voluntarily opted for certification veyed companies were aware of the EUTR (WWF have acknowledged the necessity to perform more Russia). However, only 45% of the surveyed com- frequent checks on their suppliers. panies exporting timber to EU countries consid- WWF Russia is currently making efforts to pro- ered the new regulation to be influencing their ac- vide additional information and raise awareness tivity. Many respondents believed that the EUTR on this topic. A Guidance Document on applicable will only increase bureaucracy, while others did not Russian legislation, which offers step-by-step rec- consider the EUTR to have any significant influ- ommendations on ensuring timber legality, has al- ence on the legality of timber products. The compa- ready been produced. Furthermore, a substantial nies least informed about the requirements of the contribution was made by the recently adopted leg- EUTR were situated in the Russian Far East, a re- islative amendments concerning the implementa- gion that supplies timber directly to Asian markets tion of the Unified State Automated Information (mainly China). To some extent, this may suggest System for tracing roundwood in Russia. that Russian companies have yet to adapt their operations in response to EUTR requirements. Impacts on China A positive development is that many Russian companies operating in North West Russia, which In order to meet the new requirements set by the LAA and EUTR, China, the world’s largest exporter of furniture, is in the process of establishing 10 The FLEG II Programme : http://www.enpi-fleg.org/about/ about-fleg/

21 From Science to Policy 1

the China Timber Legality Verification Scheme from those countries should be higher and quan- (CTLVS). The CTLVS is based on China’s domes- tities lower, compared to without the LAA. The re- tic timber management and control system, which search examined monthly import price and quantity includes a forest harvesting permit, a timber ship- data for hardwood plywood and seven separate cate- ment permit, and a timber processing permit. gories of tropical hardwood sawnwood from Bolivia, Under CTLVS, China-authorized organizations is- Brazil, Ecuador, Peru, Indonesia, Malaysia, China, sue timber legality certificates. However, there are and Taiwan, all of which could have been or have still many challenges to be overcome in the progress been considered suspected source countries for il- of implementing the CTLVS. legal wood. Finally, China and Russia are discussing cross-bor- The study found that the timing of the LAA enact- der timber trade and timber legality issues, which ment, even after accounting for the potentially con- could ultimately lead to greater overall joint com- founding factors, corresponded with a shift upward pliance with legality requirements in both nations. in prices and downward in quantities, as theory pre- Discussions are exploring opportunities for the two dicted. The LAA resulted generally in an increase countries to work together on cross-border forest by one-quarter to about one-half in import prices law enforcement and a business code of conduct. and a decrease by one-third to three-quarters in im- They are currently facilitating a bilateral dialogue on port quantities, depending on the country and prod- illegal logging and its associated trade (source: EU uct. Furthermore, results showed that source coun- FLEGT Facility). try domestic policies and programmes designed to reduce harvests from natural forests or of particular Experiences from the US Amended forest species in Bolivia, Peru, Brazil, and Indonesia Lacey Act were found to have been effective, at least in terms of reducing the supply of wood available for export Research quantifying the effects of the 2008 amend- to the US. ment to the Lacey Act is quite scant. An early anal- One should not interpret the findings of the study ysis, based on a survey of US wood product pro- as saying that the LAA has reduced illegal logging in ducers and importers, indicated that these industry suspected source countries. What the research indi- actors generally supported the trade measure, but cates is that the supply made available to the US for its were skeptical of its eventual effectiveness, particu- imports has declined, likely as a result of the LAA. While larly for achieving reductions in illegal logging. The overall supply from suspected source countries ap- interviewees indicated that there would be primar- parently has declined and incentives for illegal pro- ily diversion effects from the agreement—i.e., in- duction have been reduced, it is also probable that ducing illegal producers to redirect their exports to illegal production is still occurring at significant lev- countries without such trade measures in effect. It els in many supplying countries. Because the LAA should be noted that the interviews were prior to itself is most fundamentally focused on imports en- the enactment of the EUTR or similar measures tering the US, producers in suspected source coun- by Australia, Japan, and other major tropical wood tries essentially remain beyond its direct legal reach. product importers. Consequently, it is quite possible that these source One study has been published on the effects of country producers could have redirected their illegal the LAA on US imports from countries suspect- wood fibre to other countries without comparable ed of illegal fibre sourcing (illegal logging or illegal trade measures. It is also possible that more illegal timber product manufacture). This study evaluated wood in source country markets has been redirected whether the LAA had observable effects on US im- to domestic consumers, pushing more legal wood ports from suspected source countries. Economic into world markets, yielding an only small net ef- principles would suggest that, as illegal materi- fect on the rate of illegal wood production. More re- al is removed from the export supply of suspected search is needed to verify these kinds of supply di- source countries, prices of the remaining imports versions.

22 Assessment of the EU Timber Regulation and FLEGT Action Plan

5. FLEGT and EUTR: Impacts on forest governance and implementation

Partner countries “Available studies suggest that the negotiation process needs to be inclusive and acknowledge the ne- All FLEGT/VPA countries have developed and cessities of small-scale traders in order for the VPA agreed on a set of legality deﬁnitions through stake- to achieve both of its socioeconomic and legality holder consultation. goals.”

“Our review indicates that the FLEGT/VPA process Social safeguards need serious consideration in has resulted in significant improvements in forest VPA implementation. In fact, all VPAs currently governance in partner countries.” have an article on social safeguards. Countries such as Ghana, Indonesia and Cameroon are developing systems to monitor VPA impacts on livelihoods and VPA negotiations have indeed managed to enhance small and medium-sized enterprises. the participation of domestic civil society organiza- The implementation process has overcome tions in the decision making process, and important many challenges in achieving significant govern- steps towards improving legal reforms have been ance improvements. Perhaps the most immediate taken. Institutional mechanisms for auditing, mon- challenge of the FLEGT Action Plan is the delay itoring and reviewing national timber legality assur- of VPA countries in developing LAS that are ca- ance regimes have also undergone significant devel- pable of meeting the EU’s expectations of FLEGT- opment. licensed timber. The EUTR came into effect in However, while the VPA process is well recog- March 2013, but no country has yet been able to is- nized for opening up negotiations with a wider ar- sue FLEGT export licences. ray of stakeholders and for increased representation of civil society organizations, many studies warn EU implementation that local communities have yet to be properly involved in the negotiation process or are simply not aware of legality verification. Different countries “To avoid illegal timber products from entering the can interpret the VPA implementation in different EU, by diversion of exports to less stringent markets ways, with some partner countries being more in- within the EU, it is crucial that the EUTR be imple- clusive with regards to aspects such as timber legal- mented consistently across all member states.” ity and forest-based livelihoods while others tending to neglect the latter. In fact, experience shows that going beyond timber legality and including socioec- However, there is mixed evidence on wheth- onomic development objectives will make VPA im- er the EUTR is indeed being implemented con- plementation more successful. sistently and effectively in the different member The diverse private-sector and broad socioeco- states of the EU. Thus, a comparative analysis on nomic variety of stakeholders is common to all part- the EUTR implementation reveals very different ner countries implementing the VPA. Large-scale scenarios. The UK has been a frontrunner in the operators as well as small-scale operators are active development and implementation of measures in these countries. Whereas large-scale, internation- against illegal timber product imports long be- al market-oriented operators have the necessary re- fore the EUTR was implemented. Many of these sources to benefit from legality agreements, the re- initiatives gave a strong contribution to the design viewed literature suggests that small operators may and development of the EUTR at an EU scale. As be adversely impacted by the agreements. a consequence, the EUTR was introduced into a

23 From Science to Policy 1

favourable regulatory environment in the UK, fa- Delay in the setting of national legislation favoured cilitating the timely implementation of enabling the emergence of an Italian MO as a pivotal player domestic legislation. in early implementation phases. As for Italy, the country has traditionally been re- Differences between the two countries in terms of luctant in defining specific measures to tackle illegal EUTR implementation can also be noticed with re- timber imports, and the EUTR was formally adopt- gard to effective controls in place as well as dedicated after nearly two years of delay (and is still not ed resources. As mentioned, basically no controls yet fully enforced), since it represented a complete- have been performed so far by the CFS in Italy, while ly new element in domestic legislation. It has been some 87 operators/traders were engaged in enforce- argued that countries which act as pace-setters in ment activities and checked11 in the UK (although in policy making, are likely to influence the designing the UK no fines have been issued yet but some tim- of EU policies, thus minimizing the costs in ‘down- ber has been seized). This could suggest that the first loading’ them to the domestic level. Latecomers in- year after the entry in force of the EUTR was seen as a stead often face severe problems because they might kind of testing-period, indirectly confirming the idea lack policies to upload to the European level or suf- that the UK maintains an informal implementation, ficient staff power, money, expertise and technolo- focusing more on outcomes rather than on defining gy actively to shape European policies. While in the formal procedures. As for available resources, the UK the process of implementing the EUTR is led National Measurement Office employs around seven by a centralized public authority that involves and persons within a specific EUTR team and relies on co-ordinates multiple stakeholders (producers, trad- an annual dedicated budget. The Italian Competent ers, retailers, environmental non-government or- Authority appointed CITES units of CFS as the main ganizations etc.) and initiatives, in Italy the role of controlling bodies, and this means that the involved the Competent Authority is quite weak, and the net- staffing levels is expected to increase up to about 50 work is based on strong links among organizations. people but no additional human or financial resources will be devoted to this service.

11 See: http://barometer.wwf.org.uk/what_we_do/government_ barometer/scores_by_country/country_answers. cfm?country=United%20Kingdom

24 Assessment of the EU Timber Regulation and FLEGT Action Plan

6. Lessons learned

It is still too early to be able to draw strong conclu- already been analyzed quantitatively for the US sions, in particular quantifiable ones, regarding the market. In general, tropical timber product im- impacts of FLEGT and the EUTR on reducing illegal ports seem to decrease, while temperate hardwood logging. The policy measures seek to influence both imports may fill the resulting gap in timber supply. the supply and demand for illegally logged timber. The causal link between this trend and the legality Drawing on scientific evidence regarding the impacts verification policy is, however, yet to be established. of the LAA in US, it can be expected that the supply of Shifts in trade need to be better analyzed to under- illegally logged timber to the EU will decrease. stand the causalities and ultimate consequences in Some of the attitudes of different stakeholders to- terms of the existence and economic significance ward the EUTR are clearly irreconcilable, e.g., those of trade diversions and market substitutions. who see it as a business opportunity versus those • Policy measures like FLEGT, the EUTR and LAA who see it as (unfairly) disadvantageous. The result- tend to result in reduced imports of illegal timber ing ambiguity in the current transition towards full products in countries imposing such measures. implementation could possibly reinforce the trend of The prices of legal imports from the same source reduced imports of tropical hardwood timber, as op- countries tend to be higher compared to the case erators opt for presumably less (legally) risky temper- without those measures. ate hardwood. However, the efforts in source countries to comply with the requirements of the EUTR • We cannot yet definitely say that the policy meas- should counter this effect in the longer run. ures have reduced illegal logging in suspected Likewise, the implementation of similar legisla- source countries, although they could have. It tion to the EUTR in other countries and/or global is possible that these source country producers sub-regions should limit the opportunities for mar- could have redirected their illegal timber prod- ket diversion of illegally logged timber. Similarly, ucts to other countries without comparable poli- support for small-scale timber industries in source cy measures. It is also possible that more illegal countries in complying with verification require- wood in source country markets has been redi- ments should reduce illegal logging and its associ- rected to domestic consumers, pushing more le- ated trade. There are also positive signs as regards gal wood into world markets, and the net effect on the Russian Federation and China, two major tim- illegal timber remaining unclear. More research is ber product source countries for the EU and world- needed to verify these kinds of supply diversions. wide, in establishing legality schemes. Since China is a major importer of primary wood products, not • The global legality verification regime is complex least tropical timber, which are then processed and and evolving dynamically. While there are more exported as value-added products, it is of paramount studies being published on the issue, the evi- importance that the country be included in the move dence regarding important questions is still lim- towards legality in the timber trade. ited; there are more hypotheses than empirically established causal links. • The FLEGT/VPA process has apparently resulted in significant improvements in forest governance • Outside the EU, the effects of both VPAs and the in partner countries. However, many studies warn EUTR on forest governance, forest management, that local communities have yet to be properly in- and the timber product manufacturing sector are volved in the negotiation process or are simply not only evolving now. The arising legality verifica- aware of legality verification. Experience shows tion regime has strongly increased the awareness that going beyond timber legality and including of different stakeholder groups in producer and socioeconomic development objectives will make consumer countries of the illegal logging issue, VPA implementation more successful. yet the consequences of this increased awareness for harvest, trade and production practices are yet • Unlike the EU market, the potential effects of hardly known. the LAA on timber markets and trade flows have

25 From Science to Policy 1

7 Policy implications

• In the EU, the implementation of the EUTR is still • It is crucial for the success of the EUTR to involve a major challenge. While some countries are well major timber product producers/importers from advanced in the implementation process, others are emerging economies, most notably China. The still at the beginning. The technical and economic bilateral negotiations the EU is already conduct- challenges of the implementation remain substan- ing with such countries are therefore essential. tial, for example the lack of resources and knowl- However, multilateral negotiations which also edge, and the sheer number of operators versus per- involve other major destinations for the trade in sonal resources of the implementing agencies. timber products, notably the US and Japan, could be even more fruitful. • Effective and consistent implementation of the EUTR across all EU-member states should avoid • There is a need to re-consider the importance of a counterproductive “race to the bottom”, i.e., in- the emerging legality verification regime in the adequate implementation inducing legally ques- context of a broader global governance system tar- tionable timber product trade flows. Coherent im- geting the sustainable management of the world’s plementation of the EUTR across member states forests. Legality is a core precondition for sustaina- should also reduce the risk of trade disputes. In bility, but does not guarantee sustainability per se. this respect, helping to facilitate the benchmarking of the good practices from more experienced • There is a danger that the emerging legality ver- countries would be valuable. ification regime creates advantages for large, export-oriented enterprises compared to smaller • EUTR implementation should be done in close co- firms in both exporting and importing countries, operation with industry, striking the right balance due to the perceived costs of legality verifica- between effective implementation and acceptable tion. Inside the EU, monitoring organizations— costs. A process of mutual learning could the aid in providing advice and directions for exerting achievement of this balance. In this instance, the due diligence have a key role here. It is essential Independent Market Monitoring (IMM) project, that support for small and medium sized firms in creating a database for the analysis of timber is also forthcoming in source countries for tim- trade development, could play a key role. ber products.

• In summary, it is essential to strike the right balance between the demands of EUTR compliance and the existence of an inclusive, competitive timber product market. The Independent Market Monitoring (IMM) project, analyzing timber product market trends to assess the impacts of the Action Plan, should aid in striking this balance.

26 Assessment of the EU Timber Regulation and FLEGT Action Plan

Abbreviations

CA: Competent Authority CFS: Corpo Forestale dello Stato/ Competent Authority and the State Forestry Corps CITES: Convention on International Trade in Endangered Species of Wild Fauna and Flora CTLVS: China Timber Legality Verification Scheme DDS: Due Diligence System EC: European Commission EUTR: European Union Timber Regulation FLEGT: Forest Law Enforcement Governance and Trade FSC: Forest Stewardship Council; IMM: Independent Market Monitoring ITTO: International Tropical Timber Organization LAS: Legality Assurance Systems LAA: The Lacey Act Amendment of 2008 MOs: Monitoring Organizations PEFC: Programme for the Endorsement of Forest Certification SMEs: Small and Medium-Sized Enterprises SVLK : Sistem Verifikasi Legalitas Kayu TPP: Timber Procurement Policy VPAs: Voluntary Partnership Agreements WWF: World Wide Fund

27 From Science to Policy 1