Ghana Legality Verification for Timber

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Ghana Legality Verification for Timber

EXCLUDING ILLEGAL TIMBER: Border controls and procurement - making the system work Workshop, Monday 6th – Tuesday 7th October 2003

SGS Paper on “Implementation challenges”, a contribution to the fourth session of the workshop on “Ways forward”

Preamble Producer countries are being faced with challenges and opportunities created by a growing number of institutional and private sector-led initiatives aiming to deny market access to illegally sourced and illegally produced timber products. The EU Action Plan for FLEGT1 is a major institutional initiative encouraging producer countries, through bi/multilateral agreements, to build credible verification systems to identify and certify timber harvested legally, and to monitor flows of timber exports. The plan also envisages making these measures a legal requirement through legislation to control imports of illegal timber into the EU. The EU Action Plan recognises that independent third-party verification, monitoring and auditing arrangements, variable in nature, will be essential to provide internationally-recognised guarantees that timber has been harvested legally.

A Workable Definition of Legality Local laws and regulations are often weak, over-complicated and contradictory or inconsistent within and across countries. The EU supports policy reforms which encourage harmonisation and simplification of procedures. Another longer-term option is to establish a global mechanism to define what is legal and how it should be verified. In the short term, however, it is suggested that bi/multilateral agreements should refer to relevant ‘legality’ criteria, acceptable to all stakeholder groups.

A Stepwise Approach to Verifying Legality Verifying compliance with all the relevant laws and regulations that may apply to the forest sector in a particular country – for the purpose of guaranteeing the ‘legality’ of timber - may be a cumbersome and counter-productive exercise. To address this issue, the scope of ‘legality’ can be split into two major elements:  a ‘Legal Origin’ (LO) element: i.e. legal origin, ownership and compliance of logs and timber products throughout the production chain (the concept of ‘legally sourced’ timber); and  a ‘Legal Compliance’ (LC) element: i.e. compliance of the log and timber sources with relevant national legislation on forest management and exploitation (the concept of ‘legally produced’ timber). Timber successfully verified as both legally sourced and legally produced would qualify as ‘legal timber’. Likewise, verification activities would comprise two major components: Verification of Legal Origin (VLO) and Verification of Legal Compliance (VLC), which could be further broken down into modules. The degree of control within each module could vary over time and the scope of ’legality’ could be gradually enhanced to incorporate, for example, social legislation. This modular structure would allow the verification programme to be implemented gradually.

1 Forest Law Enforcement, Governance and Trade (FLEGT)

1 Full LO/LC certificates would not be issued until all the relevant modules have been implemented and their criteria met by the producers. However, verification statements to meet the needs of export permits could be issued for any modules already in force. Agreements between producer and consumer countries/regions following such a stepwise approach would incorporate a schedule specifying the phases of implementation and the scope of what is to be verified (and how) at each phase. This stepwise approach is felt to be pragmatic, as it would recognise different country situations and allow time for producer countries to undertake any necessary changes to adapt to the situation.

See footnotes2/3.

Legal Origin criteria Under the suggested stepwise approach it is proposed that the ‘legal origin’ criteria, for a batch of logs undergoing verification, would include requirements that:

1. All companies involved in the chain of custody of these logs, up to the point of issuance of the certificate, are fully registered and licensed to operate.

2. The logging company is covered by valid official access and use rights to the land and forest resources.

3. The log production area is free from any serious disputes with indigenous peoples or other social stakeholders over traditional, customary or civil rights.

4. Logs can be reliably traced back to the legal source and owners can prove ownership throughout the supply chain (including a legal destination).

5. Area-based royalties, taxes and fees have been duly settled in full by the logging company for the log production area.

6. Product-based royalties, taxes and fees have been duly settled and to the correct amount for the batch of logs undergoing verification.

7. Logs conform to product-related regulations (i.e. protected species, minimum diameters).

Similar principles would apply to processed wood products including: production licence, traceability of the products back to legal logs, payment of product-based taxes and fees, compliance with processing quotas.

Legal Compliance criteria The ‘legal compliance’ criteria for the producing company would include guarantees that forest management and exploitation is compliant with specified regulations, including the terms and conditions of any concession agreement or permit (for example preparation and implementation of management and harvesting plans, including base maps, forest inventories, assessment of social, economic and environmental impacts, zoning, planning, monitoring of management and keeping production records).

2 The split between VLO and VLC elements is a practical approach, allowing the gradual implementation of robust legality verification systems, and potentially leading to the next phase of certifying forests, to a stringent scheme such as the FSC. In VLO, most criteria apply to a specific batch of products considered for export (although minimum requirements may also apply to the companies involved in the chain of custody (CoC) of these products). Other ‘stepwise approaches to certification’ consisting of first ensuring that the producer is fully compliant with the law (as a condition for assuming that its products are also legally produced), and then going down the chain, are likely be too difficult to implement. 3 The VLO/VLC approach is generic. In some countries, implementation of VLO and then VLC in two steps may not be feasible or appropriate, and a flexible approach is recommended to implement VLO and VLC simultaneously or in a different order.

2 In addition (optionally, these criteria may be included in the Legal Origin):

1. Areas outside the legitimate production area are not being logged; areas inside or outside the production area are not being illegally converted to other land uses by the concessionaire.

2. Log volumes comply with authorised volumes of cut or with set quotas for each production area.

Legality verification systems at national level: what not to do The EU Action Plan recognises that the details of the legality verification systems and structures required in the country of origin will need to be tailored to meet different country conditions. Minimum requirements include the need for licensing and associated schemes to be usable by industry and commerce, controllable by governments and other relevant services, cost-effective, reliable and verifiable, and that they should not penalise legitimate businesses. According to the Action Plan, credible structures and systems to verify the legality of wood production could include, amongst other things:

 developing technical and administrative systems to monitor logging operations and identify and track timber from the point of harvest to the market or point of export;

 building checks and balances into the tracking and licensing system, including the appointment of independent monitors;

 developing procedures to license the export of legally harvested timber.

To illustrate this, the Action Plan provides an example of procedures under a hypothetical Forest Partnership Agreement, whereby the FLEGT Partner Country: i) designates an accreditation body, which is empowered to appoint bodies to certify the legality of wood products and ii) designates an independent monitor. Although these suggestions can be understood in several different ways, SGS believes that some approaches would be very difficult to implement, for the following reasons:

 Relying on the traditional ‘institution capacity building’ approach to help producer countries develop the required technical and administrative systems has so far generally failed to provide tangible and long-lasting results. In other words, it is not short-term technical assistance that is needed but long-term public/private partnerships involving, precisely, professional and experienced verification organisations for the effective development and operation of new systems (in fine contributing to building institution capacity in the country).

 Independent verification is a more appropriate instrument than certification in this context. Certification tools in general, and forest certification in particular, are not robust legal compliance verification tools and could not be used appropriately for this purpose (See Box 1). Certification methods are not relevant to carry out: i) continuous monitoring and sampling of forest and trade activities, ii) comprehensive log/timber tracking and, iii) the validation of information before eventually issuing certificates. Even if it was possible to achieve this at individual company level by using a combination of 2nd and 3rd-party monitoring and auditing, it still is of critical importance that key elements of these functions are centralised and co-ordinated at national level, on a mandatory basis and under credible systems (i.e. technology, procedures) and structures. The addition of individual CoC audits will never be as good as an Agency centralising these key functions and consolidating information at the national level4.

 Whatever the possible participation of civil society groups (such as NGOs) in the process, it is evident that in many countries the appointment of an independent monitor merely to carry out ex- post spot checks on the government tracking and licensing system (supposed to pre-exist as a result of the above controversial ‘institution capacity building’ approach) would not be feasible and

4 Individual companies should be allowed to develop their own systems, but it should be ensured that these systems are compatible and can exchange data with the central systems and are easily auditable. If companies use self-assessment or 2nd-party or 3rd-party auditing to verify legal compliance, the Agency would draw on that work and reduce the level and costs of its intervention.

3 would not be an effective way of addressing the underlying issue of corruption, since the independent monitor is unlikely to have sufficient authority to exert the appropriate level of verification.

Box 1 – Limitations of certification as a means to verifying legality Certification in general demands goodwill and trust. Competitive, price-driven selection of certifiers by timber producers means that some certifiers will tend to provide the lowest standards of service in terms of time spent and means of investigation used. Certification is adequate as an independent assessment tool for a great number of products, systems and services. But yearly or twice-yearly certification audits, pre-announced, consisting of a quick document review and checklist-based interviews will not work for verification of legality. Such audits are unlikely to provide any in-depth investigation into claims of legality. The EU would struggle, in many countries, to ensure that the accreditation process itself is fair, and that accredited certification bodies and individual auditors, and therefore the whole system, are trustworthy, given the interests at stake. It is unlikely that forest or environmental certification schemes in particular, such as FSC, PEFC or ISO 14000, or any scheme derived from them in future to cover ‘legality’ aspects, can be used to provide effective and reliable verification of legality: these voluntary ‘quality assurance’ systems have not been designed as tools to enforce the law and they have not been created to be made compulsory in the future. They rely on paper-based chain-of-custody systems that can be forged. Auditors are only shown what companies are prepared to let them see and know. In any case, some of these schemes are reluctant to adopt a stepwise approach i.e. initial legal compliance requirements leading on to ‘sustainability’. Given the above, certification methods will not provide the level of confidence that is likely to be required to demonstrate legal origin. Little confidence could be placed in ‘certificates of legal timber’ issued as the result of such processes.

A Separate Monitoring Function Efficiency, transparency and accountability call for a clear separation of the government’s overall forest sector monitoring function from other government roles, in order to allow specialisation and avoid conflicts of interest. But in many cases, having a separate government division monitoring and verifying legal compliance in the forest sector will not be enough. Such divisions often lack the appropriate skills, systems and resources, and corruption is rampant.

Independent third-party verification Internationally-recognised, independent third-party verifiers should be invited to play an important role in forest sector monitoring where they could independently validate the data and information on the basis of which 'legality’ certificates will be issued. They will underwrite these certificates with their brand name and international reputation. Placing these organisations in a position to independently validate forest sector data and information will be at the heart of any credible timber-licensing scheme. At some point, development of an EU-approved, world wide accreditation procedure may be relevant to accredit such independent third-parties.

Public/private sector partnership An experienced and reputable private sector organisation should be contracted to assist in running a Timber Licensing Agency established as a separate government body (though possibly within the forestry authority). For a legal origin verification scheme to provide the maximum efficiency, centralised systems should be implemented by the Agency countrywide on a mandatory basis for continuous product tracking and comprehensive monitoring throughout the production chain:

 A robust computer-based tracking system is recommended, run by a single organisation across an entire province/ country/ region. This would provide technical coherence, cost-efficiency

4 (economies of scale), consistency of methods and accountability. If producing companies use their own systems, they must be verifiable and be able to interface/ communicate with the central data system.

 A database system, integrated with the log tracking system, is needed to centralise, cross check and consolidate the data. Depending on local conditions i) the new information system will replace the existing forest database system and data network, or ii) it will be developed separately and will share data with it or iii) it will be developed as an enhancement of the existing system and will add new functionalities to it. If the managing organisation is a recognised independent third-party verification body, it can also carry out - or co-ordinate, supervise or audit (as appropriate) – verification activities both of documents/ systems and in the field, and would therefore be in a position to prepare or issue credible 'legal origin' certificates on behalf of the authorities. The main responsibilities of the Timber Licensing Agency would therefore be to develop and run - or assist with running – the following centralised functions and associated systems: - data management5 system; - timber and wood product tracking system; - data verification6 and validation7 service; and - preparation and issuance8 of the certificates.

The verifier should participate actively and from the beginning in the overall data monitoring, verification and validation processes9 i.e.: 1) firstly in the design and development of the wood tracking and data management systems (so as to bring their experience and incorporate audit and security devices into the systems) and 2) secondly in the operation and running of these systems - for efficient management and continuous improvement purposes and, importantly, in order to have the required level of independent control over the whole system.

The semi-autonomous agency will provide verification services that may complement the activities of the government’s own forest monitoring department, if such exists. Again, the ultimate goal is to issue credible and internationally acceptable 'legal timber' certificates, and the agency should be responsible for issuing, or at least preparing, the certificates on behalf of the forestry authorities. The relationship between the agency and the other government departments involved needs to be carefully considered.

Local Institutional Arrangements The efficiency of the arrangement will depend upon the level of integration of the Agency – and the independent contractor running it - with existing forest monitoring institutions. Two main options exist:

1) Externalisation of specific government forest control services:  Complete outsourcing to the verifier, which potentially provides the highest degree of efficiency, independence and accountability (and therefore credibility) - as well as flexibility if implemented as part of a BOT (Build-Operate-Transfer) process10. A Joint Venture with an independent Government office is also an option.

5 Data collection and processing, including reporting and publishing. 6 Documentary verification and physical inspections or audits, based on exhaustive or randomly-sampled or guided checks. Testing and cross-checking techniques are used. 7 Information and data can be validated when it has been found to be comprehensive, accurate, up to date and consistent (for a sample - and for the whole if statistical, risk profiling or expert opinion methods can be used to extrapolate the results from samples to the whole with an appropriate level of confidence). 8 The Agency should issue the certificates on behalf of the forestry authority or, at least, prepare and endorse the certificates to be issued by the forestry authority. 9 ‘ Active participation’ may encompass a variable (or decreasing over time) degree of involvement (i.e.: controlling directly, coordinating and supervising, assisting with, watching, or auditing, or a combination) in these processes.

5  Alternatively, good results can also be achieved through the direct supervision and authority over the staff, work and equipment of the Agency (established as an independent Government office) by the verifier.

2) Direct control over data systems plus supervision/ coordination of government’s field audits Making the verifier responsible for the administration of the database and timber tracking systems while supervising/ coordinating the government’s field audits is another alternative. It can provide an acceptable degree of efficiency, with limited needs for restructuring existing institutions (which could be achieved by employing selected government staff on secondment to the Agency for the duration of the contract). In practice, different institutional arrangements can be used for the different monitoring functions and components of the verification programme.

Two other models are discussed in the Annex to this paper and should be discarded (see Annex): 3) Auditing of the Government’s forest control activities and information systems 4) Technical assistance & Auditing of the Government’s forest control activities and information system

To summarise, the degree of control exerted by the verifier and its capacity to issue credible ‘legality' certificates are presented in the following table: Database and Collection of Documentary Field verification Validation of data, log tracking industry’s verification and monitoring reporting, and systems records issuance of ‘certificates’11 1. Outsourcing/ direct 100% 100% 100% 100% 100% supervision of government forest control services 2. Administration of data 100% 100% 100% 100% 100% systems + super-vision/ coordination of field audits 3. Ex-post auditing of 0% 0% 0% 0% 0% government control activities

4. Technical assistance + 100% 0-100% 0-100% 0% 0% auditing of government data systems It is evident that only two options (P1 and P2) can be seriously considered for implementing any independent third-party legality verification scheme.

10 The choice of this approach is mainly political. The need for down-sizing the existing forest control division as a result of outsourcing may be mitigated by transferring some staff to other functions such as forest management or support services (which will benefit from increased revenues) and by employing selected government staff on secondment to the Agency for the duration of the outsourcing contract. 11 Possibly including official approval of management plans and issuance of harvesting and transport permits (where applicable)

6 Verifying the verifiers An independent monitor (independent “observer” would be a more appropriate wording) or surveillance committee12 would then act as ‘fourth-party’ to “monitor the monitor” and guarantee that the whole process is satisfactory; it would be able to do this efficiently, having access to a robust, transparent and auditable third-party verification system. It would be allowed to publish any findings or allegations.

Enforcement of a timber licensing scheme at importing country end Enforcement agencies will need a relevant piece of legislation in order to deny access to illegal wood. SGS assumes that bilateral agreements as proposed in the EU Action Plan would provide the right framework for enforcement agencies to act, as long as these agreements would include that Export Permits are issued as the result of producer countries implementing reliable systems and structures to verify the legality of timber. On that basis, consignments accompanied by such Export Permits would be allowed in. Consignments NOT accompanied by such Export Permits would simply not be shipped in the first place (that’s what Export Permits are used for). If, for some reason, a consignment was shipped WITHOUT an Export Permit, then the enforcement agency must be allowed to stop the products under rules set forth by the bilateral agreement.

On ‘Further processing in 3rd-countries’, and the consequent difficulty to ensure that there is no illegal timber from a FLEGT Partner Country being laundered by transiting through a 3rd-country: 1. If the 3rd-country is NOT a FLEGT Partner Country, then it is suggested that FLEGT Partner producer countries should be required to monitor and report exports to 3rd-countries outside the EU. A consequence of this is that independently issued/verified Export Permits should be made a requirement for ALL exports from any FLEGT Partner Country, regardless of the destination. Apart from being seen as a ‘good governance’ measure, this would also greatly help understand international timber flows and detect gaps by cross-checking information. This could assist the EU working towards convincing a particular country to enter the scheme – or, if feasible, envisaging to ban all timber imports from that country (unless certified to FSC or equivalent). 2. If the 3rd-country is also a FLEGT Partner Country, this should not be an issue. Any bilateral agreement should imply that the exporting country is able to track timber originating in a different country.

Getting started Box 2 – Recommended options for a Phase One of implementing a legality verification programme Start implementing VLO modules at both ends of the production chain by: - making it compulsory for companies to mark all logs at the log landing in the forest (and at the port/border for imported logs) and all primary products at mills, with uniquely-numbered and registered bar-coded tags, and to declare the utilisation of each barcode tag with a description of the corresponding product on a register or regulatory declaration - establish an export monitoring programme for timber and wood products. Advantages:  Any log or bundle caught at the point of export without a tag is deemed illegal.  This can be started very quickly. There is no need for any legislation review.  Producers can be made responsible for purchasing and affixing the bar-coded tags on products and providing declarations – at no net cost to the system.  All exports (i.e. all declared shipments) are registered and physically inspected (on a comprehensive or randomly sampled basis), possibly including checks on documentation and marking/labelling requirements. This can be used to ensure that no illegal wood is exported.  A centralised data system, including the whole chain of custody, is developed and populated with the declarations.

12 Committee comprising representatives from civil society groups (local communities, NGOs, other social stakeholders).

7  As part of international communication requirements, a 'prior notification' system for shipments can be managed; access to statistical reports is possible for both the exporting and the importing country.  Improved government revenue capture may be expected as products are duly declared, correctly classified and valued, and export duties are paid.  Origins and movements of products are declared.  Declared sources can be verified and monitored for ownership, harvesting rights, respect of boundaries, volumes, quotas etc.  At this stage verification can be limited to total volumes (per month / producer / species / shipment etc.). This would already provide a good level of information.  Anomalies can be detected and reported.  The essential elements of a system to verify the legality of exports are already under control and official "reports of findings" can be issued for all exports.  Reliable inspection in the country of origin makes control by Customs at the point of entry into the importing country much easier.

It is worth noting that such a Phase One, consisting of a simplified log tracking system and an export monitoring service is already in place or currently being implemented in several countries (Cameroon, Congo Brazzaville, Papua New Guinea and, to some extent, the Central African Republic) where export permits are independently issued. Ecuador has a full LO/LC service in place for forest products. These countries would be natural candidates for the first bilateral agreements to be signed with the EU in the context of the EU Action Plan for FLEGT. The plan could soon become a reality.

Antoine de La Rochefordière

SGS Natural Resource Monitoring Services (NRMS) Sustainable Forestry Programme http://www.sgs.com/sgsead.nsf/pages/forestry.html Email: [email protected]

8 Annex: a criticism of the following models

3) ‘Auditing of the The independent contractor would act as an external auditor, relying on existing Government Government’s forest control service/s (GFCS) to monitor and verify legality in the forest sector, and then forest control doing a review (“independent monitoring”) of certificates issued by the Government. activities and SGS strongly believes that this ex-post auditing and checking approach is not feasible in information countries where existing government forest control divisions lack the systems, skills, systems’ resources and credibility to carry out these monitoring and verification activities. Donor- Ex-post review by funded capacity building projects have so far generally failed to construct the required an independent capability in tropical countries’ forest administrations. In the absence of such capability, the monitor of independent monitor would not have any serious means of accessing robust data and certificates issued assessing the government’s performance in verifying and monitoring legal compliance in the by the Government. forest sector. The independent monitor would only be able to identify and track cases (as Possible civil “whistle blower”). This is what NGOs do in some countries but it is not enough to generate society comprehensive, accurate, up-to-date and reliably verified data for the forest sector, country- participation. wide and in a systematic manner. What’s more, it would be very difficult to challenge certificates already issued or considered for issuance. As a result, the Contractor would not be in a position to validate the data processed, and endorse the ‘legality’ certificates issued by government. Civil society participation will not be enough to make this system work:

 Civil society ‘observers’, if acting from an independent situation and not equipped with robust data collection and systems, will inevitably lack efficiency (see above discussions on “independent monitor”) and will often have their own agendas.

 If integrated within joint government - civil society ‘brigades’ to operate checkpoints and carry out field inspections (with access granted to a robust central data system), civil society ‘observers’ will be exposed to corruption13. SGS believes that this arrangement is not likely to function effectively in most countries.

4) ‘Technical This proposal basically adds a technical assistance element to the previous proposal. Under assistance + this approach the Contractor provides:

Auditing of the  technical assistance (TA) to help the Government forest control service (GFCS) design, Government’s build, use and maintain the appropriate procedures and systems to collect, verify and forest control process the data; activities and  periodic or continuous auditing of the GFCS’s performance in controlling field activities, information using the central forest information and timber tracking systems correctly and taking system’ appropriate decisions (robust built-in audit trail and consistency checking functionalities The independent would be required). contractor is not Contrary to a Build-Operate and Transfer (BOT) arrangement, the Contractor does not run involved in field the Agency directly. monitoring activities. Civil The GFCS, possibly with some contribution from civil society groups, is responsible for society possibly is. monitoring the utilisation of the forest resource and for controlling timber flows. The Contractor is not present in the field for other purposes than providing intermittent technical support. None of the Contractor’s staff are involved in monitoring and assessing legal compliance in, and outside, forest areas. In the absence of the Contractor in the field, this approach has serious and inherent weaknesses:

 Even if procedures are adapted or developed in such a way that the Contractor must validate the data, it will not be able to do it without, among others, control of field level inspections.

 Adding in a level of field spot checks would put the Contractor in the very difficult position of having to investigate whether the GFCS did seriously monitor forest activities and did not turn a blind eye to infractions they (or civil society groups) might have detected. Such

13 Experience from Ecuador shows that the ‘Vigilancia Verde’ scheme alone, before the Government decided to outsource its GFCS, had failed to deliver significant results to tackle illegal activities.

9 a “police of the police” role (yet unarmed and without enforcement powers) would be inefficient, unpleasant and dangerous.

 Such verification of legal compliance by government and civil society would not be sufficiently robust, especially in the field, for the Contractor to have enough guarantees that forest crime is effectively and honestly detected and reported. Hence, the Contractor would not be in a position to issue or give credibility to certificates of legality issued under such TA arrangements. Therefore, the TA approach alone cannot lead to a credible 'legal timber' verification system. Finally, if this TA arrangement were to be adopted in a first instance, it would then be extremely difficult to strengthen the system afterwards by assigning enhanced roles to the Contractor in terms of supervising the forest information and timber tracking systems and the field monitoring activities.

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