FLEGT AND TRADE What will the impacts be?
by Emily Fripp, Consultant (ERM) Environmental Resources Management (ERM) 8 Cavendish Square, London, W1G 0ER www.erm.com [email protected]
Published by: Sustainable Development Programme Chatham House 10 St James Square, London SW1Y 4LE, UK www.chathamhouse.org.uk/sustainabledevelopment
November 2004
© Royal Institute of International Affairs 2004 This material is offered free of charge for personal and non-commercial use, provided the source is acknowledged. For commercial or any other use, prior written permission must be obtained from the Royal Institute of International Affairs. In no case may this material be altered, sold or rented. Credit: © Royal Institute of International Affairs 2004
FLEGT and Trade: What will the impacts be?
Contents
SUMMARY ...... 3
1 INTRODUCTION ...... 6 1.1 PURPOSE OF THE STUDY ...... 6 1.2 THE OBJECTIVES OF THE EU’S FLEGT ACTION PLAN ...... 6 1.3 COMPONENTS OF THE ACTION PLAN ...... 6 1.4 APPROACH OF THIS STUDY ...... 7 1.5 LAYOUT OF THE REPORT ...... 8
2 TRADE REGULATIONS AND STANDARDS – LESSONS FOR THE TIMBER TRADE ...... 9 2.1 LOG EXPORT BANS...... 9 2.2 THE CATCH DOCUMENT SCHEME...... 11
3 REGIONAL AND NATIONAL INITIATIVES...... 12 3.1 REGIONAL INITIATIVES ...... 12 3.2 NATIONAL INITIATIVES...... 13
4 GLOBAL TRADE – PATTERNS AND TRENDS ...... 15 4.1 TRENDS IN THE GLOBAL WOOD BASED PRODUCTS TRADE ...... 15 4.2 KEY GLOBAL MARKETS ...... 17 4.3 POTENTIAL IMPACTS OF THE LEGALITY LICENCE SCHEME ON GLOBAL TRADE ...... 21
5 CASE STUDY PRODUCER COUNTRIES AND POTENTIAL IMPACTS...... 23 5.1 BRAZIL ...... 23 5.2 INDONESIA ...... 24 5.3 CAMEROON ...... 26 5.4 CONCLUSIONS & POTENTIAL IMPACTS ...... 27
6 GENERIC POTENTIAL IMPACTS ON TRADE PATTERNS...... 29 6.1 POTENTIAL IMPACTS...... 29 6.2 FACTORS INFLUENCING THE POTENTIAL SIGNIFICANCE OF IMPACTS ...... 32
ANNEX I: GLOBAL TRENDS – SUPPORTING GRAPHS...... (AVAILABLE SEPARATELY)
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Summary
The purpose of this study is to assess the potential impact of the EU FLEGT Action Plan on the trade in wood-based products between the EU and the partner producer countries. To reiterate, the overall aim of the Action Plan is to influence trade in illegal wood-based products and to reduce the amount of illegal wood-based products consumed and the scale and significance of the associated illegal activities in the producer countries.
The study takes the approach of a standard impact assessment, comparing the business-as-usual scenario with the situation that would result under the Action Plan, in particular the implementation of the legality licence scheme, through Voluntary Partnership Agreements. The assessment considers lessons from other trade-based regulations, current global trends, other market drivers affecting production, consumption and trade and a number of interviews held with a range of stakeholders actively involved in the trade of wood-based products. The study considers the potential impact with regard to three case-study countries: Indonesia, Brazil and Cameroon.
Two trade-based regulations with lessons of relevance to the implementation of the legality licensing scheme are log export bans and the CCAMLR Catch Document Scheme. Log export bans are introduced for normally one of two reasons: either to encourage domestic processing and value- adding, or as an environmental tool, e.g. to reduce the amount of deforestation and over-logging. The impact of such bans has varied but includes an increase in the supply of logs to the domestic market, leading to a fall in market price, in effect providing subsidised raw material to the processing industry. Unless government enforcement is adequate there is a risk that log production will increase. However, the experience of the CCAMLR Catch Document Scheme shows that where the harvest area is defined and fish stocks are sufficiently reduced, with demand constant, prices for legally caught fish will increase. A price premium has emerged in the market place for legal toothfish.
There are a number of other drivers (in addition to the EU FLEGT Action Plan) influencing the trade in wood-based products; these include regional FLEG processes and trade action plans, public procurement policies of EU member states, and a range of private sector and NGO initiatives such as supply chain management, business-to-business initiatives, producer and buyer groups, procurement policies and guidelines.
Before assessing what the possible impacts may be, a review of the current trends in the market place provides a baseline, or business-as-usual, scenario. Key global trends include: the increasing demand for processed and engineered products such as paper; global consolidation of the industry; and increasing ownership and responsibility for supply chain issues. Globally Japan, China, the US and EU are the main markets for wood-based products and this trade is dominated by processed products. For two of the case-study countries, Indonesia and Brazil, the EU market is a smaller export market than that of Japan, China and the US, but it remains a desirable and higher value market. Although most of this trade is in processed products, such as pulp and paper and plywood, for the third case- study country, Cameroon, exports are predominantly logs and sawnwood and the EU is a key market destination; China, however, is becoming increasingly important.
In particular in Brazil, with more than 80 per cent of tropical products being consumed domestically and only a small share of production exported, the majority of exports going to the EU are processed – plywood and pulp and paper and some sawnwood – the legality licence in its initial form will only have a limited impact on both production and trade patterns.
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In Indonesia, the legality licence is likely to have a limited impact in its initial form (logs and sawnwood only) on trade between the EU and Indonesia and may even cause a distortion in trade patterns away from the EU towards other less stringent markets, where strong trade partnerships already exists, for example to China and Japan. With a log export ban in place and excess demand in the domestic market a switch from export to domestic markets is also a possibility.
Between 70 and 80 per cent of Cameroon’s exports go to the EU, accounting for almost all sawnwood exports and 50 per cent of the log exports. China is the other main buyer of Cameroon’s logs. Strong vertical linkages and traditional buying relationships exist between producers in Cameroon and buyers in the EU, especially in southern Europe. With a WWF GFTN Producer Group, a working group for certification, an independent observer, significant donor presence and private sector initiatives such as the UK TTF and SGS programmes, the legality licensing scheme will potentially have a significant impact. It will support and be supported by the existing trade and timber production initiatives currently in place.
Generic potential impacts
Potential generic impacts, as identified by stakeholders interviewed and based on global trends in the wood-based products trade, can be summarised under three broad groups: market substitution, product substitution and price impacts.
There is a risk of market substitution for buyers – although the overall impact is not clear. With current NGO activity putting pressure on buyers there is a reputational risk associated with buying from high-risk countries, and some traders and buyers have already withdrawn from such markets. However, the legality licence could put confidence back into the tropical timber markets and thus buyers may return to high-risk countries.
For producers there is a risk of market substitution away from the EU to other less stringent markets. Where the costs of compliance are too high, or market conditions and requirements too stringent, alternative markets could be sought. This is more likely to affect those who are already trading with less stringent markets (they will increase the amount of exports to that market) or are less interested in maintaining a market presence in the EU. The EU market is, however, seen as a highly respected and valuable market which producers are keen to maintain supplying. Supplying alternative markets such as China is not always an attractive option, given often low prices and high freight costs.
A switch from export to domestic markets is also possible. As with log export bans, the legality licence may encourage domestic processing of logs for export. Whilst increasing domestic value- adding of timber products, this will encourage the avoidance of the legality licence scheme if the scheme only covers logs and sawnwood.
Product substitution is already occurring and may increase. It is already evident that product substitution away from tropical hardwood to either treated softwood or engineered products is occurring. This trend is likely to continue as the demand for engineered products increases, together with the increase in plantation-sourced products, etc. Tropical hardwood may well become a high- value niche product. Thus the trend away from tropical hardwoods will limit the overall potential impact of the Action Plan, unless the Action Plan is inclusive of all timber, both temperate and tropical.
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With all these possible market and product substitutions the impact on price is harder to predict. If the partner country is a significant supplier of logs or sawnwood to the international market, then the legality licensing scheme may well result in an increase in the international price as supply decreases. However this is unlikely to be the case for any of the producer countries in this study, as they do not supply sufficient volumes of tropical timber to the market to be able to influence international prices. In the long run it would be expected that the costs of compliance with the legality scheme for the producer would be passed on to the buyer through price increases. There is some agreement and expectation in the trade that this will be the case and that ultimately a price premium is a feasible outcome for logs and sawnwood with a legality licence in the EU.
As in any market, ultimately the forces of demand and supply will determine the market price. A price premium for legal timber will be created as the demand for legally marked timber exceeds the supply. However the higher price is likely to act as an incentive for other suppliers to enter the market and thus the price may reduce once supply increases. Alternatively, the higher price may result in consumers seeking alternative products and thus falling demand.
Factors influencing the scale and scope of impact
The overall potential impacts of the legality licensing scheme will ultimately depend on the composition and implementation of the scheme itself – the costs, levels of bureaucracy, coverage of products and markets, credibility, producer-country incentives to implement and the political willingness to support the scheme in both the producer and consumer countries. The Action Plan contains a component that will focus on the development of capacity of the relevant institutions in the producer countries in the bilateral agreements. This will go some way to reducing the costs of implementation and ensuring that the incentive to introduce the scheme is maintained.
The study highlighted the significance of the role and influence of ‘the buyer’. In particular the role of pubic procurement policies of EU member states, driving the development of private sector procurement policies and supply chain management initiatives, is seen to be a key factor influencing the way in which trade in wood-based products is being carried out.
The legality licensing scheme and the wider package of activities that will form the voluntary partnership agreements will be a key supporting tool and provide a wider policy framework to the market and policy initiatives already in place. It is, however, important that the wider package provides adequate support and incentives to the producer countries to ensure compliance and importantly that political support to the scheme is maintained. Collectively, as long as duplications of costs and procedures with other initiatives can be avoided, it is expected that the legality licence will have a positive influence on the trade in wood-based products as a supporting tool and framework, in achieving the overall objectives of the FLEGT Action Plan.
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1 Introduction
1.1 Purpose of the study
1 The purpose of this paper is to analyse the potential impacts of the EU FLEGT Action Plan, in particular the legality licensing scheme, on the wood-based products trade between the EU and three case study countries: Cameroon, Brazil and Indonesia. This analysis will be based on lessons from other trade-related regulations, current trends in the forest sector and in trade patterns (at a global and producer-country case-study level) and the perspectives of stakeholders involved in the wood products trade. The assessment of potential impacts will identify whether the overall objectives of the EU FLEGT Action Plan are likely to be achieved and/or where the potential negative impacts may need to be mitigated.
1.2 The objectives of the EU’s FLEGT Action Plan
2 The OECD estimates that the global trade in timber is worth over €150 billion per year.1 It is generally accepted that approximately 10 per cent of the global trade is illegal. In this context illegality can mean a number of things including illegal origin, violation of regulations for forest production and evasion of taxes.
3 In response to growing global concerns regarding illegal logging and a series of international initiatives such as the G8 Action Plan on Forests, the EU Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT) was developed in May 2003 and approved by the Council in October 2003. The Action Plan provides a strategic process and package through which the EU proposes to address the growing problem of illegal logging. The aims of the Action Plan are to:
• Reduce the amount of illegal timber in trade (it is currently not illegal in the EU to import illegally produced timber products);
• Reduce the amount of illegal timber consumed; and • Reduce the scale and significance of illegal logging activities, currently prominent in some key producing countries.
1.3 Components of the Action Plan
4 Given the complexities of developing a multilateral agreement the Action Plan focuses on bilateral or regional actions. The Action Plan comprises the following sets of activities:
• Development cooperation – with a focus on capacity-building and institutional strengthening; • Trade in timber – primarily through the application of legality licences; • Public procurement; • Private sector initiatives – the encouragement of voluntary initiatives; and • Financing and investment safeguards.
1 OECD Environmental Outlook, Paris 2001.
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5 A key component of the Action Plan is the application of the legality licensing system to identify legal products in partner countries and license them for import to the EU, with unlicensed products being denied entry. The potential mechanics of the legality licence are discussed in this report’s companion paper, A Licensing System for Legal Timber – Options and considerations for a legality licence system under the EU FLEGT Action Plan. However, the overall aim is for the legality licensing scheme to be applied through voluntary bilateral agreements between the EU and the partner producer country. Initially the legality licence will be applied to only a limited range of products – logs and rough sawnwood – but this will be gradually extended to include other wood-based products. Following the production of the draft findings of this and other research the coverage of the legality licence was extended to include plywood and veneer; this final version of the report takes this into account where possible.
6 The licence will be applied at a national level in the producer country. It will be implemented in the EU by a new regulation to be developed and applied at the EU level. In addition the development of new legislation is being considered that will make it illegal to import illegally produced timber products into the EU, from any source, including producer countries which do not join the licensing scheme.
7 Imports to the EU of logs and sawnwood from countries not in the partnership agreements would not be required to have a legality licence, as this system would only apply to those producer countries which have negotiated an EU FLEGT Voluntary Partnership Agreement (VPA). The impact on trade could therefore create global trade distortions, creating the potential to trigger market substitution in the global trade.
1.4 Approach of this study
8 There are various sources available for guidance on how to undertake an impact assessment, be it for trade, environment or social impacts, for example, the European Commission’s Communication on Impact Assessment (2002), and the UK Cabinet Office’s Regulatory Impact Assessments (RIAs).2 Such guidance tools tend to follow a series of steps: 1. Problem identification – in this case, what is the scale and scope of illegal logging? 2. Objective of the proposal – What are the objectives of the EU Action Plan, and in particular the legality licence objectives? 3. Baseline scenario against which the impact will be assessed – What are the current trends facing the industry and, given these trends, what then will be the impact of the Action Plan? For example, if there is a current market shift away from tropical timber then any such change that occurs post-implementation of the Action Plan cannot be wholly attributed to the Action Plan. 4. Analysis of the impacts – What will the impact of the Action Plan be on trade in wood-based products? 5. Follow-up – reporting, targets, monitoring the impacts. This is beyond the scope of this study.
2 Further information on Regulatory Impact Assessments can be found on the Cabinet Office website, http://www.cabinet- office.gov.uk/regulation/scrutiny/ria-guidance.pdf
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9 In line with this approach, this study undertook a review of the current status and trends in the global wood-based products market and the key international, regional and national initiatives which are influencing the manner in which trade is being conducted. This provides a ‘business as usual’ scenario that can then be compared with the ‘with the EU Action Plan’ scenario to provide an assessment of the potential impact.
10 Interviews were held with stakeholders involved in the wood-based products trade to gain their perspective on the potential impacts of the legality licence and to discuss factors that will influence the likely size of the impacts. The information gathered was collated with lessons from other trade-related regulations, wood-based products trade trends and drivers at a global and case-study level.
11 An important part of any impact assessment is the monitoring and evaluation of the impacts over time (Step 5 above). Key indicators should be identified for monitoring the impacts after the introduction of the legality licence, along with ways to monitor and report on any impacts. Continuous monitoring and reporting of the impacts is key to ensuring that long-term positive impacts are enhanced and any negative impacts that may arise are addressed. The development of such monitoring and evaluation indicators, however, is beyond the scope of this study.
12 The EU and FLEGT Partners will need to consider, in the development of VPAs, how to identify indicators and undertake monitoring and reporting on the resulting impacts of the EU Action Plan and associated regulations. Such targets could include:
• Trade volume and value by countries within the partnership agreement and other trading partners to identify any market substitution that may occur.
• Changes in macro-economic data such as employment, forest-related tax revenues, or contribution to GDP.
1.5 Layout of the report
13 The remainder of the report is structured as follows:
• Section 2: Provides a brief summary of two main trade-based regulations that have potential lessons for the impact of the legality licence on the wood-based products trade – the CCAMLR Catch Document Scheme and log export bans.
• Section 3: Outlines some of the regional and national initiatives currently driving change in the forest sector and in the way that trade in wood-based products occurs.
• Section 4: Summarises some of the key trends in the forest sector in general which are affecting the timber trade patterns. This provides an overview of the global level business-as- usual scenario and highlights potential impacts that may arise from the introduction of the FLEGT Action Plan.
• Section 5: Focuses on the current situation and trends in each of the case study countries – Indonesia, Brazil and Cameroon. This provides the benchmark against which the impacts of the Action Plan will be assessed.
• Section 6: Based on perspectives of stakeholders, global and producer-country specific situations, the potential impacts of the legality licence are presented. Factors that will influence the scale of any potential impacts are also described.
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2 Trade regulations and standards – lessons for the timber trade
14 Lessons can be drawn from other trade-based policies and regulations that are of relevance to the potential impact of the legality licence on the wood-based products trade. This section looks at the lessons from log export bans and the CCAMLR Catch Document Scheme.
2.1 Log export bans
15 Log export bans are normally introduced for one of two reasons, either:
• To encourage domestic processing and value-adding of the wood-based products; or • To address environmental externalities, such as the damage caused by illegal logging.
16 Producer countries often argue that export bans will enable them to develop domestic log processing industries, foster economic development and lessen their need to over-exploit natural resources. As an environmental policy the export ban works on the assumption that by restricting trade in logs, deforestation will decrease as a result. Many developing countries therefore use timber trade restrictions as a means of achieving economic, environmental and social objectives.
17 The overall impact of a log export ban is heavily debated. Some impacts include:
• In the short term a log export ban is likely to result in an increase in the amount of logs available on the domestic market. This will result in a lowering of the domestic price, which in turn will stimulate the expansion of the domestic processing industry to capture more of the value of the logs. This helps to increase timber-derived income and possibly creates employment. However this is, in effect, providing a subsidy to the processing industry and may also lead to an increase in the rate of log production to meet the growing capacity of the domestic processing operators.
• The lower price undervalues the forest resource, making it difficult for legal log producers (who are assumed to pay all relevant taxes) to be financially sustainable.
• The undervalued prices of logs can result in inefficient and wasteful production processes of domestic producers, leading to decreasing competitiveness, due to the over-protection of the domestic industry.
• For effective implementation of the ban, there needs to be strong political will and enforcement. Successful application in achieving wider environmental policies is greatly enhanced by strong government support and enforcement.
• On the international market there will be a decline in the amount of logs available and a resulting increase in price, if the producing country is significant in its scale of exports, or is exporting a niche species. Ultimately if supply is sufficiently reduced there will be an increase in the price of logs.
• A long-term log export ban could limit the harvest as long as the ban is not temporary, but the fall in the log harvest will be less than the amount of banned exports because of the expansion of the domestic processing industry. There is a possibility that the log harvest will even increase if domestic processing expands beyond the sustainable levels of supply.
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18 The impact of using a log export ban for forest conservation purposes has not been encouraging in practice. Only moderate success has been seen in South East Asia from the introduction of such policies. For example, although processing capacity expanded in Malaysia, Philippines and Indonesia it was achieved at high economic costs, both in terms of the direct costs of subsidy, and the additional costs of wasteful and inefficient processing operations. In 1999 Cameroon banned exports of some endangered hardwoods, though sapelli and ayous, which make up over 50 per cent of Cameroon’s log production, are excluded from the ban.3
19 In Indonesia during the Suharto era a log export ban was introduced to encourage domestic processing. However, this log export ban, while helping the processing industry, also succeeded in an overall fall in log production, which can predominantly be attributed to strong government control that was in place at the time. When the government control was later weakened, the industry was left with overcapacity in the processing sector and the freedom to increase log production. In October 2001, the log export ban was reintroduced as a means to control illegal logging by restricting demand rather than by attempting to use weakened government agencies to enforce confusing laws.4 There is, however, no clear evidence that this log export ban will have the desired effect of reducing harvest pressure on forests. The outcome is dependent, in part, on the response of the domestic processors and logging concessions to temporary changes in log supplies and log prices which can be caused by the export ban.5
20 The current log export ban in Indonesia has also had limited effectiveness in stopping exports as its implementation has been weak. It is conceivable that an effective log export ban, coupled with strong regulation of domestic milling capacity, could assist in controlling over-logging, but neither of these actions is likely under current circumstances.
21 Log export bans can be counterproductive, resulting in depressed prices, discouragement of sound forest management and efficient processing, and reductions in government export revenues. They too often reflect the government’s failure to control forest activities properly and to put in place appropriate systems to protect revenues and improve forest management. Log export bans are often an inadequate solution to the problem of over-exploitation of the forest, as they do not address the issue of domestic companies’ responsibility for unrestrained tree-cutting.
Lessons for the legality licence
22 To be effective in achieving the environmental policy, i.e., reducing the amount of logging, strong political support and enforcement is required. The use of verification, monitoring and enforcement are key components of the legality licensing scheme and will therefore help to ensure adequate enforcement and protection of the forest resource.
23 There is a risk that the legality licence will in practice have a similar effect to a log export ban in terms of encouraging a switch to the domestic market, away from exports, rather than increasing the amount of legal exports being traded with the EU.
3 Associated Press, 1 July 1999 (www.forests.org). 4 R. Dudley, ‘Can a log export ban limit over-harvest and illegal logging? An example from Indonesia’ (Revised draft submitted for publication in System Dynamics Review, 2004). 5 Ibid,
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2.2 The Catch Document Scheme
24 The Convention on the Conservation of Antarctic Marine Living Resources (CCAMLR) Catch Document Scheme for the Patagonian toothfish, a heavily (and frequently illegally) fished deep-sea species, became binding on all members in May 2000. The scheme is designed to track the landings and the trade flows of toothfish caught in the Convention area and, where possible, adjacent waters, and to limit the catches to the national allocation of catch areas and sizes.6 Ultimately the scheme is designed to exclude illegally caught toothfish from international markets.
25 Signatories to the scheme include Argentina, Australia, the UK and Chile on the producer side, with the main importers being the US and Japan. Some processing and re-export to China also occurs.
26 The impacts of the scheme have included:
• Prior to the scheme in 1996/97, fish supply surged and prices crashed to about a quarter of their original level, and fish stocks diminished.
• Following the ban, as fish supply was reduced (supply has decreased by two-thirds in the last four years), and demand exceeded supply, the price increased. Legal toothfish now commands a price premium of 20–30%.7
Lessons for the legality licence
27 Where global supply can be reduced the international price will increase. The removal of illegal operators resulted in a sharp decline in global supply and a corresponding increase in the global price.
28 For toothfish there is a well-defined area for fishing and the ban is on all illegal toothfish, not just that supplying a particular market; whereas for the legality licence for logs and sawnwood, other markets exist which do not demand the licence, and thus the impact on global supply and price will be less apparent.
6 Duncan Brack, A Licensing System for Legal Timber (RIIA, 2004). 7 D. Agnew, ‘The drivers behind black markets: illegal and unregulated fishing’ (talk given to the RIIA workshop on International Environmental Crime, May 2002).
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3 Regional and national initiatives
29 This assessment of the impacts of the EU FLEGT Action Plan, in particular the legality licence, takes into account other regional and national initiatives, in addition to the FLEGT itself. These initiatives are providing a policy framework to address the demands and concerns of stakeholders – both driving and supporting change in the way that trade is conducted. They are already showing a potential to influence and change the way in which trade is conducted, in particular with the aim of reducing the amount of illegal wood-based products being traded. Private sector companies are beginning to review their supply chains with the aim of being in a position to meet the public procurement policies, for instance.
3.1 Regional initiatives
30 Regional FLEG (Forest Law Enforcement and Governance) Processes. While the FLEG processes themselves are not legally binding, and have no direct impact on trade, some bilateral agreements resulting from them may impact trade. For example, the Indonesia–China MoU talks of the exchange of information on forest laws, regulations and enforcement, and enhancement of economic cooperation, with some possible indirect influence on trade rather than any direct impact on trade. The Japan–Indonesia MoU is more directed at trade, detailing ways to develop, test and implement systems for verification of legal compliance, and the effective collaboration of enforcement agencies and networks which will affect the legality of products produced and traded. However, to date a lack of competencies and in some cases slow implementation have, limited the potential impacts of such bilateral agreements.
31 Regional Trade Action Plans. Where trade is significant within a geographical region, the impact of any trade-based initiative will be greater if it is applied at a regional rather than bilateral level. A regional process will reduce any negative trade impacts, e.g. potential market substitution, opportunities for processing in a third country, etc. Such regional plans are being recognised as key potential initiatives and actions to develop one in Asia are being discussed, as outlined in Box 3.1.
Box 3.1 Regional initiatives
Regional FLEG (Forest Law Enforcement and Governance) Processes. The Asia FLEG took place in September 2001 and brought together nearly 150 participants from twenty countries, representing government, international organisations, NGOs and the private sector. The meeting resulted in the adoption of a Ministerial Declaration which contained a number of commitments to tackle illegal logging. The Africa FLEG took place in October 2003 and the outcome of this process was again a Ministerial Declaration with associated actions for implementation at the national, regional and inter-regional levels.
Regional Trade Action Plans. Regional trade plans have been recognised as a useful tool by the European Commission and in South East Asia, a regional trade action plan, the Trans-Regional EU–ASEAN Trade Initiative (TREATI) will be developed. This action plan has the potential to play a key role in the prevention or mitigation of the trade and processing in third countries before entering the EU. For example, Indonesia’s wood exports to Malaysia and Singapore before possible processing and re-export to the EU, which is not covered by the legality licence applied in a bilateral agreement, will be affected by the regional trade action plan.
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3.2 National initiatives
Public sector procurement
32 Public sector timber procurement policies are key drivers already influencing the wood products being traded. National level public procurement policies are under various stages of development for EU member states such as the UK, the Netherlands, France, Germany, and Denmark.8 The public sector is a major market for all timber, including tropical, in these countries, and thus a procurement policy with the aim of buying only legal and sustainable timber and related products is already having an impact on the products being traded. The implementation of the French government’s procurement policy is expected to come into effect in 2007 and will be a key driver for trade with and production in Central African countries.
33 For example, various sources estimate that the UK public sector accounts for approximately 20– 40 per cent of total timber trade. Its position as a bulk purchaser, largely for construction and refurbishment projects and office furniture, means that the government has significant buyer power in the market.9 The players in the timber or wood-based products trade supplying the market are already responding to this initiative, driving traders, retailers and ultimately producers to take more ownership over their supply chains and ensuring that systems are being put in place that will permit them to meet requirements, especially in terms of proof of evidence of legality.
34 The licensing scheme, if credible, will be seen as a key tool to support the evidence to be provided by supplies to the public sector to meet public procurement requirements.
Private sector initiatives and NGO drivers
35 In response to demands from consumers, NGOs, public procurement policies and corporate social responsibility pressures, the private sector is actively developing its own procurement policies, managing the potential risk in the supply chain (identifying risky countries that supply it and in some cases diverting trade to other sources), and in general taking more responsibility over its supply chains. Such initiatives are impacting not only on trade but also production. Examples are listed below with further information included in Box 3.2.
• Private sector procurement guidelines and policies: for example, the UK Timber Trade Federation is developing such guidelines in consultation with key stakeholders in Cameroon.
• Supply chain management and tracking: companies are increasingly taking ownership of their supply chains, building relationships with their suppliers and working to ensure legality of their timber sources.
• Business-to-business approaches, such as the Tropical Forest Trust. • Producer and buyer groups established by WWF/GFTN.
8 Further details can be found in ERM, DEFRA Procurement of Timber Products from ‘Legal and Sustainable Sources’ by Government and its Executive Agencies (Scoping Study Report, 2002) and Paul Toyne, Cliona O’Brien and Rod Nelson, The Timber Footprint of the G8 and China (WWF, 2002). 9 Environmental Audit Committee, Buying Time for Forests: Timber Trade and Public Procurement – Government Response to the Committee’s 6th Report (July 2003).
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36 There has been an increasing role for civil society in forest monitoring and advocacy of sustainable forest management and legality. Civil society has been a key driver in forcing the timber trade, the EU and its member states to respond to the issues of sustainable forest management and more recently in forest governance, monitoring and transparency with regards to legality. For example Global Witness has been appointed as the official independent observer in Cameroon This activity is in general creating a change in the way that trade is being conducted, as companies involved in the trade are becoming more responsive, taking greater ownership over their supply chains in an attempt to minimise potential reputational risk. For example, as a result of the Greenpeace ‘Partners in Crime’ report campaign, four large timber importers stopped buying Indonesia plywood.
Box 3.2 Private Sector and NGO initiatives
Development of guidelines by the UK Timber Trade Federation. The UK TTF is currently developing ‘best practice’ guidelines as the basis for defining locally agreed (involving all stakeholders) baseline definitions of legality as a first step towards setting up a scheme for independent verification of legality and, ultimately, sustainable forest management in Cameroon.
The Tropical Forest Trust (TFT) or business-to-business approach. This approach involves suppliers of hardwood products implementing wood origin control systems to identify legal sources of timber. A levy on the product is used to fund improvements in forest management in supplying forests, eventually leading to independent certification. The TFT administers the programme, provides independent audits of progress and technical support. Such an approach has an impact on trade and consumption and results in changes in forest management and production.
A similar approach has been implemented by the WWF Global Forest and Trade Network (GFTN) Producer Group approaches. The WWF GFTN Producer Groups assist manufactures to implement mill action plans to ensure full traceability for products and the phasing out of wood from unwanted (including illegal) sources. A mixture of government aid agency and private sector sources fund the development and implementation of forest certification action plans leading to credible certification in source forests. The WWF GFTN is an affiliation of twenty-two national and regional Forest and Trade Networks (called Buyer and Producer Groups) in nearly thirty producer and consumer countries in Europe, Asia, Africa and the Americas that provide information, technical support, market and finance links and independent audits of progress to participating countries.
WWF GFTN Buyer Groups in Southern Europe and Producer Groups globally. Demand-oriented Forest and Trade Networks, i.e. Buyer Groups, are made up primarily of retailers, distributors, end-users and specifiers of forest products committed to phasing out products from unknown and unwanted sources and sourcing ever-increasing quantities of credibly certified forest products. Buyer Groups are now operating in almost twenty countries and are widely recognised as having been a dominant force in generating demand for certified forest products in the 1990s. To increase the degree of influence in the trade with Central Africa, WWF/GFTN have established Buyer Groups in France (June 1999), Spain (January 1998) and Italy (October 2001) and Producer Groups in Ghana and Central Africa (October 2003). In Asia, WWF/GFTN is currently recruiting new companies in Japan, Hong Kong and mainland China, and have established Producer Groups in Indonesia, Malaysia. In the Americas, Producer Groups have been established in Central America and the Caribbean and Brazil and are under development in Bolivia and Peru.
Page 14 FLEGT and Trade: What will the impacts be?
4 Global trade – patterns and trends
37 In order to assess the potential impact of the EU FLEGT Action Plan, an overview of current trade patterns and trends in the wood products trade – i.e. the business-as-usual scenario – is required. Any potential impacts of the Action Plan need to be considered in light of what would have happened anyway. An overview of the key trends in global trade patterns and the main buyers in the global market – China, Japan, the US and the EU – is presented here. The resulting potential impacts on trade patterns of the legality licensing scheme will then be highlighted.
4.1 Trends in the global wood based products trade
38 The OECD estimates that the global trade in timber is worth over €150 billion per year. Global trade in forest products grew from US$80 billion in 1985 to approximately US$180 billion10 in 2001. In recent years, the industry has had to respond to a changing marketplace, in particular in terms of changes in the sources of timber (changing availability due to over-exploitation, the greater role of plantations, ethical sourcing), the demands of consumers and the growing role of civil society. The potential impacts of the legality licence are assessed in light of these global trends, of increasing demand for processed products, an increase in the use of plantation resources, the increasing role of business-to-business initiatives, with more responsibility over individual supply chains, and building relationships with suppliers. Key global trends11 facing the forest industry are outlined below, with supporting graphs in Annex I.
Increasing role of plantations in timber supply
39 Forest plantations are playing an increasing role in the production of timber, as shown in Figures 1.3 to 1.5, with increased emphasis on fast-growing species such as eucalyptus and pines, supplying industrial wood, particularly for pulp and paper. Currently 50 million hectares of fast-growing plantations produce 20 per cent of the wood harvest.12 More than 10 million hectares of forest plantations have been established in China, Russia, the US, India and Japan, which collectively account for 67.5 per cent of global forest plantation resource. FAO estimates that plantations could be producing 1500 million m3 by 2050, approximately 50–75 per cent of projected total consumption.13
40 This is also supported by a shift towards temperate sources as natural forest resources are declining and tropical timber is becoming a niche, higher valued product.
Increasing demand for timber products, especially paper products
41 Demand for timber products, especially for paper and engineered products (such as veneer and particleboard), is continuing to grow, albeit at a slower rate than historically. Demand is fuelled by global economic growth, particularly rapidly increasing population in China and growth in
10 US$180 billion breaks down to: $80 billion as paper; $60 billion as timber (including wood chips but excluding wooden furniture), $20 billion as wooden furniture; and $20 billion as pulp (excluding that which is not based on virgin wood fibre, i.e. recycled). 11 The key trends represent the opinions of the authors, based on a rapid review of relevant background material and our own knowledge and understanding of the industry. 12 WWF, The Forest Industry in the 21st Century. 13 Ibid.
Page 15 FLEGT and Trade: What will the impacts be? construction in transition economies, as shown in Figures 1.6 to 1.10. China is increasing its imports of logs from Russia and Asia to support a move from other fibres, such as straw-based pulp to wood- based fibres in the production of paper, as discussed in the following section.
Global consolidation of industry
42 Global consolidation of the industry is occurring, with the bigger forest product companies merging and continuing to expand. For example, Stora Enso processes a timber volume equal to the wood consumption of Italy and International Paper processes a comparable amount to the wood consumption of Germany and the UK with a turnover approaching US$30 billion. Approximately 50 per cent of the annual wood harvest is processed by the top fifty forest product companies, and the top fifty users of this wood consume 10 per cent of the total.14
43 Global consolidation of the timber industry has resulted in increased buyer power exerted by a few conglomerates, able to exert influence over the market and production processes. These conglomerates have a potentially significant role to play in influencing trade and production. For example, strong links exist between southern European buyers and producers in Central Africa, either through traditional buying relationships or more formal vertical integration of the companies.
Supply chain management and ethical sourcing
44 The recent rapid development of international initiatives such as FLEG, NGO pressures and the development of public sector procurement policies, are important drivers for the forest product markets, as discussed in Section 2. Producers and suppliers are having to modify their supply chains, management systems, etc., in order to meet the demands of their consumers and, importantly, in order to provide supporting documentary evidence for their products. Evidence exists (see Section 6) that some traders are moving away from high-risk producing countries, are they are unable to meet the demands of their end-users by continuing to trade with producers who are unable to provide the supporting evidence required. A result, producers and buyers are now working closer together to ensure the demands of the end user are met.
45 There is an increasing trend, in terms of volume and value of trade, in ethical sourcing15 by timber processors. Although overall market share of certified timber is still modest, growth has been significant in recent years; the US retailer Home Depot, for example, in 2002 sold $250 million worth of FSC-certified products, up from only $15 million in 1999.
Increasing use of engineered wood products
46 Technological changes and improved production efficiency have resulted in increasing demand for engineered, higher value wood products such as particle-board and laminates, typically produced from lower value trees, with more tree species being utilised. Production of particleboard worldwide grew by 50 per cent between 1983 and 1997.16 Producer countries are shifting from raw material-based products to secondary processed or recycled products for export, resulting in tropical log exports declining globally in recent years. This shift towards processed products is further explored in Section
14 WWF, The Forest Industry in the 21st Century. 15 Ethical sourcing means sourcing of timber and related products from legal sources and where possible, as certified products. Direct ethical sourcing enables processors to have more direct control and influence on their supply chains. 16 WWF, The Forest Industry in the 21st Century.
Page 16 FLEGT and Trade: What will the impacts be?
4.2 and has implications for the effectiveness of the legality licence if the licence only covers logs and sawnwood.
47 Producers are responding to increasing demands of the consumers, for instance with just-in-time delivery, seasonal demand for products, pre-packaged products such as door units, window-units, I- beams, etc. More often products are supplied as kits or finished products.
4.2 Key global markets
48 Overviews of the key global markets – China, Japan, US and UK – for wood-based products are provided here based on data for 2002 (a fairly representative year out of the previous few years). These overviews support the global trends identified above. The statistics highlight the relative importance of each market, in terms of buying power and ultimately the potential influence of the buyer on the production processes. The relative importance of the EU market is shown and resulting potential impacts of the legality licence on global trade patterns highlighted.
49 Globally, Japan and China are the leading importers of tropical timber – China for logs and Japan for more processed products.17 Between them, Japan and China currently account for roughly 40 per cent of the tropical timber trade (on a roundwood equivalent volume basis). These two markets are therefore fundamentally important if a global signal to producers is to be sent. Until these two markets are also working to similar standards and requirements as the EU, the overall impact on global production of the EU Action Plan will be limited.
Imports to China
Figure 1: Imports to China, 2003
35
e 30 Paper ) 25 Pulp
metres) 20 Wood chips Other timber cubic 15 Plywood
(million Sawn wood 10 Logs
Roundwood equivalent volume 5
0 Brazil Cameroon China Indonesia Malaysia Russia Other Other - Other - Tropical Timber Paper Supplying Country
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
17 UNECE/FAO Forest Products Annual Market Review, 2001–02 and GlobalTimber.org.uk
Page 17 FLEGT and Trade: What will the impacts be?
50 Total imports of wood-based products to China in 2003 were approximately 91 million m3 roundwood equivalent (RWE). The main products imported are pulp, paper, logs and sawn wood. Pulp and paper are required to meet the growing demand from an increasing population and the logs and sawnwood feed the timber processing sector.
51 In 2002, logs and lumber massively dominated China’s timber product imports, together accounting for about 85 per cent of volume and 80 per cent of value of total timber product imports.18 Other key trends include19:
• Forest product imports more than doubled in RWE volume between 1997 and 2002, rising from 40.2 million to 95.1 million cubic metres. In value overall imports in the sector increased by 75 per cent during the same period, rising from US$6.4 billion to $11.2 billion. Preliminary data for 2003 show that the trend has continued rising to US$12.9 billion, RWE 106 million cubic metres;
• The doubling of timber imports over the period 1997–2002 reflects the marked expansion of China’s timber processing industry. This was driven not only by domestic demand but also by international demand for low-cost finished products, e.g., furniture; and
• Pulp and paper accounts for approximately 60 per cent of China’s forest products imports by RWE volume. Demand for higher paper quality has resulted in a shift away from predominantly straw-based pulp and paper towards greater use of (often imported) wood fibres.
52 Tropical timber accounts for a large proportion of China’s log, sawnwood and plywood imports. Indonesia supplies a substantial share of China’s sawnwood, plywood and pulp imports, and Brazil supplies a small amount of pulp and some sawnwood. Although Cameroon supplies a very small amount of China’s wood-based products imports, China is now the principal destination for log exports from Cameroon.
53 China has a growing role in the global trade of wood-based products, as a significant importer of raw material that is then processed and subsequently exported. The volume of China’s timber product exports is rising rapidly. China’s principal export markets in 2003 were: US (37%), Japan (17%), Hong Kong (14%), and the EU (10%).China’s principal product exports were: wooden furniture (47%), plywood (20%), joinery (7%), and miscellaneous manufactured products (14%). China is a significant exporter of furniture, especially bedroom furniture to the US. China accounts for more than 50 per cent of furniture imports to the US. China also exports a mix of sawnwood, plywood, other timber, pulp and paper to Japan.
Imports to Japan
54 Total imports of wood-based products to Japan in 2002 were approximately 86 million m3 (RWE), with much of this trade being in processed products, not logs and sawnwood.
55 Indonesia is the major supplier of wood-based products to Japan, accounting for approximately 9 million m3 (RWE) in 2002. Over half of this was tropical plywood.
18 Forest Trends, CIFOR and Centre for Chinese Agricultural Policy, China’s Forest Product Import Trends, 1997–2002, 2004. 19 Ibid.
Page 18 FLEGT and Trade: What will the impacts be?
56 China is supplying an increasing proportion of Japan’s timber imports. With logging bans in place in the key producing regions of China, much of this timber can be assumed to have originated from outside China, for example from Indonesia, Russia, Liberia (until mid 2003) and other tropical countries, as seen in Figure 1 above.
Figure 2: Imports to Japan, 2002
25 e Paper 20
) Pulp Wood chips metres) 15 Other timber cubic Plywood 10
(million Sawn wood Logs 5 Roundwood equivalent volume
0 Brazil Cameroon China Indonesia Malaysia Russia North Other Other America "New World" Supplying country
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
57 Log imports are predominantly from Malaysia and Russia. Cameroon does not supply Japan and only a minimal amount of pulp and wood chips is imported from Brazil.
58 Japan is increasingly sourcing wood products domestically, in particular to supply the plywood sector. This driver could have an impact on the supply of plywood from Indonesia. In addition to this switch in supply, Indonesia and Japan have an MoU (as described in Section 3) which could have a potential impact on the trade between the two countries, especially if it includes processed products. The MoU includes agreements to share lessons on enforcement and on ways to introduce verification processes within the supply chain which will influence the legality of the products traded and potentially the relationships between those doing trade.
Imports to the US
59 Total imports of wood-based products to the US in 2002 were approximately 47 million m3 (RWE). The greatest share of the US market is in importing plywood.
60 Brazil, China and Indonesia are key suppliers. Again the majority of the trade consists of processed products – pulp from Brazil, furniture from China and plywood from Indonesia. Through China it is likely that timber products originating in Indonesia are also imported to the US.
61 Much of the timber supplied by Brazil comprises tropical hardwood from natural forest, not plantations. Brazil supplies a very significant proportion of the US’s non-NAFTA pulp imports. Some sawnwood is also exported from Brazil.
Page 19 FLEGT and Trade: What will the impacts be?
Figure 3: Imports to US, 2002
16
14 e Paper 12
) Pulp 10 Wood chips metres) Other timber 8
cubic Furniture 6 Plywood (million Sawn wood 4 Logs
Roundwood equivalent volume 2
0
Brazil Cameroon China Indonesia Malaysia Russia Other* - Other* - * excluding Canada and Mexico Timber Paper Supplying country
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
Imports to the EU
62 Total imports of wood-based products to the EU in 2001 were approximately 183 million cubic metres (RWE). However, in terms of tropical timber and related products, the EU market is relatively small when compared to Japan and China. Most imports to the EU are supplied by other parts of Europe and Russia. The EU appears to import tropical timber specifically for end-users for which the aesthetic and technical properties of the material are important, and this also reflects the price differential between tropical and other timber products.
63 Although neither Brazil, Cameroon nor Indonesia supply a substantial share of the EU’s wood- based product imports, they do collectively supply a major share of the EU’s plywood imports and account for a substantial share of the EU’s imports of tropical timber. However this is primarily sawnwood, plywood and other products, with the exception of logs. The EU is importing (small but) rapidly increasing quantities of timber from China.
Page 20 FLEGT and Trade: What will the impacts be?
Figure 4: Imports to the European Union, 2001
European Union - wood-based product imports (2001) (supplying country, by product) 70
e 60 Paper ) 50 Pulp
metres) 40 Wood chips**
cubic 30 Other timber Plywood
(million 20 Sawn wood
10 Logs Roundwood equivalent volume
0
Brazil Cameroon China Indonesia Malaysia Russia Other Other* - Other* - * excludes intra-EU trade tropical Timber Paper Note: source data has been converted to Supplying Country estimate roundwood equivalent volume Source: Eurostat
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
4.3 Potential impacts of the legality licence scheme on global trade
64 Global trends are indicating a growing demand for processed products, global consolidation of the industry and increasing use of engineered wood products, coupled with a growing awareness of issues such as ethical sourcing and ensuring legality in the supply chain. Businesses are aware of the potential risk to their reputations of not taking more responsibility in managing their supply chain and of not meeting consumer demands and requirements such as the UK timber trade procurement policy.
65 The figures and discussion above focusing on the four main importers of timber and wood-based products demonstrate the dominance of processed products in wood trade patterns. Globally, while the EU is the largest market for imports of timber and wood-based products, in terms of tropical timber and related products, Japan and China are the leading importers – China for logs and Japan for more processed products.
66 In particular, China is a major processor of logs, for export to the US, Japan and the EU of processed wood-based products including paper, furniture and plywood. Russia, Indonesia and Malaysia are key suppliers of logs and sawnwood to China and thus this trade relationship is key especially in terms of influencing the way that trade and the related production processes are carried out. Without the inclusion of this trade relationship in the FLEGT process and the adoption of the legality licence within a broader geographical scope and coverage of processed products, the overall impact of the legality licence will be limited.
67 For the EU, tropical timber and related products make up a relatively small proportion of total imports. This share of tropical timber has declined over recent years, representing a shift away from tropical timber to softwood and plantation-sourced timber.
68 Within the framework of global trade, trends and key market players, the legality licence is likely to:
• Assist the industry to respond to the requirements of consumers, by providing proof of legality, as long as it is credible and supported by third-party verification.
Page 21 FLEGT and Trade: What will the impacts be?
• In its initial phase, when processed products are not included and not all major players in the market are included under VPAs, there will be a limited impact on global trade patterns, in terms of the four key global buyers – China, Japan, US and the EU – where the trade is dominated by processed products and alternative sources of timber in addition to tropical.
• With limited coverage, both geographically and for products covered, a more focused business-to-business type approach, targeted on those businesses with a specific interest in supplying the EU, will have a more direct impact in countries where exports are primarily processed and trade with less stringent markets is prevalent.
69 The next section provides an overview of the relative importance of the EU market from the perspective of each of the case study countries – Cameroon, Brazil and Indonesia.
Page 22 FLEGT and Trade: What will the impacts be?
5 Case study producer countries and potential impacts
70 This section provides an overview of the relative importance of the EU market for the case study countries, Brazil, Cameroon and Indonesia, and highlights the global trends presented in Section 4 on a case-by-case basis. The possible impact on trade patterns as a result of the voluntary bilateral agreements between each country and the EU, and in particular the application of the legality licence, are also highlighted. To support this country-specific analysis, Section 6 discusses more generic potential impacts of the proposed legality scheme as perceived by stakeholders involved in the timber trade, drawing on the lessons learned from trade patterns and other related regulations.
5.1 Brazil
Figure 1: Exports from Brazil in 2002
7
6 e
5 Paper ) Pulp
metres) 4 Chips & pulp logs
cubic 3 Other timber Furniture (million 2 Plywood Sawn wood Roundwood equivalent volume 1 Logs
0 China EU Japan USA Other China EU Japan USA Other Destination country
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
71 Figure 1 provides an overview of exports from Brazil in 2002. Brazil is itself the biggest consumer of tropical wood in the world, with more than 80 per cent of the wood produced in the Amazon consumed domestically.
72 The EU and the USA are the main markets for wood-based products exported from Brazil. Products exported to the EU are primarily sawnwood, plywood, pulp and paper, with some furniture and chips.
73 In 2001, the EU imported approximately 9 million m3 of wood-based products, accounting for approximately 40 per cent of the total exports. Of the 9 million m3, approximately 42 per cent was pulp, 27 per cent was plywood and 11 per cent sawnwood. Exports to the EU are therefore predominately processed products, in line with the trends expressed in Section 4. Additionally, these products were predominantly sourced from the fast-growing plantation sector that is playing an increasingly important role in the forestry sector of Brazil. This increasing role of plantations in supplying timber to the global market is reflective of the global trend also presented in Section 4.
Page 23 FLEGT and Trade: What will the impacts be?
Figure 2: Imports from Brazil into the EU in 2001
2 1.8 1.6 1.4 Furniture Paper 1.2 Pulp 1 Other 0.8 Plywood Sawn wood 0.6 Logs million cubic meters 0.4 Wood chips 0.2 0
Italy UK Spain Austria France Greece Ireland Belgium Finland Portugal Sweden Denmark Germany Netherlands
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
74 Figure 2 shows that imports into the EU, in 2001, were fairly evenly spread across the following countries, the UK imports 21.2 per cent, Germany 17.7 per cent, Belgium 16.2 per cent, France 15.1 per cent and Italy 11.4 per cent. Approximately 64 per cent of the volume imported into the UK was plywood and this volume accounts for roughly 50 per cent of all plywood imports entering the EU. Sawnwood was exported to France, Spain and the Netherlands.
75 Approximately 70 per cent of all pulp imports, in 2001, went to Germany, France and Belgium, in fairly equal proportions.
5.2 Indonesia
76 Indonesia is a significant producer of tropical hardwood logs and sawn timber, plywood and other boards, and pulp. With a log export ban, Indonesia’s exports are predominantly processed products. Figure 3 provides a summary of exports from Indonesia in 2002.
Figure 3 Exports from Indonesia in 2002
12
10 e
) Paper 8 Pulp metres) 6 Wood chips cubic Other timber
4 Furniture (million Plywood
Roundwood equivlent volume 2 Sawn wood Logs 0 China EU Japan USA Other China EU Japan USA Other Destination
Page 24 FLEGT and Trade: What will the impacts be?
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
77 Japan and China are very significant markets for Indonesian exports. Japan dominates the demand for plywood products and China that for sawnwood, pulp and paper.
78 In 2002, the EU (primarily northern Europe) imported roughly 10 per cent of the roundwood equivalent of wood-based products exported from Indonesia. Most of this is in the form of plywood and joinery. Plywood accounts for the majority of Indonesia’s exports and China is by far the biggest importer of Indonesia’s sawnwood exports.
79 A mismatch of data between the declared direct imports of importing countries of timber from Indonesia and Malaysia and the corresponding declared exports by Indonesia and Malaysia would suggest that a large additional quantity of Indonesian timber is supplied indirectly to the EU – primarily through Malaysia (particularly as logs, sawnwood and plywood) and increasingly, it seems, via China (in furniture, plywood and other processed goods).
80 While the data for Indonesia’s exports to the EU tend to match quite closely the EU’s imports from Indonesia, the discrepancies with trade to China and between Indonesia and Malaysia are more evident. The roundwood equivalent volume of the timber which Indonesia declares as exports to Malaysia is far lower than that which Malaysia declares as imports from Indonesia, even allowing for the error in converting weight into volume measures of exports and imports. The products where the major discrepancies arise are logs and sawnwood. In the six year period 1997–2002, the overall annual discrepancy varied within a range 0.7 to 1.7 million cubic metres RWE. Malaysia’s inputs varied from 0.9 to 1.9 million cubic metres RWE and Indonesia’s exports varied from 0.1 and 0.2 million cubic metres RWE.20
Figure 4: Imports from Indonesia to the EU, 2001
1.2
1
0.8 Furniture Paper 0.6 Pulp Other Plywood 0.4 Sawn wood
million cubic meters Logs 0.2 Wood chips
0
Italy UK Spain Austria France Greece Ireland Belgium Finland Portugal Sweden Denmark Germany Netherlands
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
81 Figure 4 shows the breakdown of exports to the EU by country in 2001. In total the EU imported approximately 5 million cubic metres of the total wood based products exported (RWE) or 15 per cent of total wood-based products exported (other estimates say only 9 per cent of exports enter the EU
20 Eurostat and analysis by James Hewitt.
Page 25 FLEGT and Trade: What will the impacts be? directly). The UK is responsible for approximately 24% of the imports, followed by Belgium (18%), Italy (17%), France, Germany and Netherlands (approximately 12% each).
5.3 Cameroon
Figure 5: Exports from Cameroon, 2002
1.6
1.4 e 1.2 Paper ) 1.0 Pulp metres) 0.8 Wood chips
cubic Other timber 0.6 Furniture (million 0.4 Plywood
Roundwood equivlent volume Sawn wood 0.2 Logs 0.0 China EU Japan USA Other Destination
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
82 Figure 5 provides a summary of the export destinations from Cameroon in 2002 and clearly shows that the EU is the main market for logs and especially sawnwood exports, accounting for approximately 90 per cent (1.8 million cubic metres) in 2002. However, China is becoming increasingly significant as a market for Cameroon’s log exports.
83 In 2002, sawnwood accounted for approximately 75 per cent of the exports to the EU, and logs for 18 per cent. Total RWE volume exported by Cameroon was approximately 1.1 million m3 of sawn wood and 0.5 million m3 of logs in 2002. China dominates the trade in logs, accounting for approximately 0.2 million m3 in 2002, the remainder going to the EU.
84 The total import value of timber exports to the EC was in the region of €490 million (CIF) in 2002, with sawnwood and logs accounting for approximately €300 million (CIF) and €150 million (CIF) respectively. In comparison, veneer accounted for only €30 million (CIF) in 2002.21
85 Figure 6 shows the relative importance of importing countries in the EU. Spain and Italy are by far the most important trading partners for Cameroon, accounting for 30 per cent and 27 per cent of the total volume exported respectively. 94 per cent of the exports to Spain are sawnwood (54 per cent for Italy) and the remainder is logs. The strong linkages between consumers in Southern Europe and producers in Central Africa has been a driving force behind the establishment of buyer groups in Italy, Spain and France by the GFTN/WWF and a producer group in Central Africa.
21 Eurostat/UNECE/FAO, compiled by James Hewitt
Page 26 FLEGT and Trade: What will the impacts be?
Figure 6: Imports into the EU from Cameroon, 2001
0.6
0.5
Furniture 0.4 Paper Pulp 0.3 Other Plywood Sawn wood 0.2 Logs
million cubic meters Wood chips 0.1
0
Italy UK Spain Austria France Greece Ireland Belgium Finland Portugal Sweden Denmark Germany Netherlands
Data Source: Eurostat, UNECE/FAO (compiled by James Hewitt)
5.4 Conclusions & potential impacts
86 Since the production of the draft report for this study, the EU has expanded the coverage of the legality licence to include plywood. Thus some of the analysis and recommendations presented here are now less applicable.
Brazil
87 Unless the legality licence includes plywood and other processed products it is likely to have a limited impact on trade between Brazil and the EU.
88 With more than 80 per cent of the tropical products being consumed domestically and the small share of production that is exported, the majority of exports going to the EU are processed products – plywood and pulp and paper and some sawnwood – and therefore the legality licence in its initial form will only have a limited impact on both production and trade patterns.
89 Concerns of exporters in Brazil are that the legality licence may have the adverse affect of diverting trade away from the EU towards either the US or a third country, such as China, for further processing.
90 Price premiums do exist for certified products from Brazil, as demand in the EU is exceeding supply. The EU share (excluding mahogany) has increased and is supplied with a significant share of certified products. This is further discussed in Section 6.
Page 27 FLEGT and Trade: What will the impacts be?
Indonesia
91 The legality licence (without the inclusion of plywood and other processed products) is likely to have a limited impact on trade between the EU and Indonesia.
92 The legality licence is likely to have a limited impact in its initial form (logs and sawnwood only) on trade between the EU and Indonesia and may cause a distortion in trade patterns away from the EU towards other less stringent markets, where strong trade partnerships already exist, for example to China and Japan. With a log export ban in place and excess demand in the domestic market a switch from export to domestic markets is a possibility.
93 There are, however, individual producers who are keen to maintain access to the EU market and who are working with NGOs, the UK TTF, and TFT, to develop chain-of-custody systems to ensure that legality is assured to the buyers in the EU. The focus on such business-to-business approaches, supported by the implementation of member state timber procurement policies, are in the short run likely to have a greater impact on trade between the EU and Indonesia and thus a positive impact in terms of achieving the ultimate goals of the FLEGT Action Plan of reducing the amount of illegally produced timber in trade and being consumed in the EU. The adoption of the legality licence through a VPA between the EU and Indonesia would support the private sector initiatives that are taking place.
Cameroon
94 With high volumes of logs and sawnwood exports to the EU, the legality licence could have a significant positive impact on trade flows between Cameroon and the EU.
95 The EU is the export destination for 70–80 per cent of Cameroon’s exports, accounting for almost all of the sawnwood exports and 50 per cent of the log exports. China is the other main buyer of Cameroon’s logs. Strong vertical linkages and traditional buying relationships exist between producers in Cameroon and buyers in the EU. With a WWF GFTN Producer Group, a working group for certification, an independent observer, significant donor presence and private sector initiatives such as the UK TTF and SGS programmes, the legality licence scheme will potentially have a significant impact. It will support and be supported by the existing trade and timber production initiatives currently in place.
96 The extent of its impact, though, will greatly depend on the costs of implementation and compliance by producers. If the costs are perceived as too high, then there is the potential for market substitution, e.g. a switch in exports from the EU to China, a less stringent and growing market. Costs are further discussed in the next section.
Page 28 FLEGT and Trade: What will the impacts be?
6 Generic potential impacts on trade patterns
97 This section summarises some of the more generic potential impacts of the EU FLEGT Action Plan on the wood-based products trade, and the factors that may influence the significance of these impacts. These are based on the global market trends, producer country exports, experiences of the CCAMLR Catch Document Scheme and log export bans and, importantly, on the perspectives of stakeholders involved in the trade. The previous section focused on the more specific impacts that would directly affect the trade between the case study countries and the main importing countries, including the EU.
98 Interviews were held across a range of stakeholders involved in the wood-based products trade sector. These included NGOs, a trade federation, a retailer, traders, consultants, certifiers and trade network groups. The primary focus of the interviews was to gain an overview of what these stakeholders perceived, from a practical point of view, the likely impacts of the EU FLEGT Action Plan to be.
6.1 Potential impacts
99 The potential impacts have been grouped under three main headings:
• Market substitution and diversion through a third processing country; • Product substitution; and • Price impacts.
100 These impacts are all inter-related and one will often affect the other, for example changes in products and markets are influenced by price changes.
Market substitution
101 Market substitution as a result of the imposition of the legality licensing scheme is possible in a number of ways. From the point of view of the producer market, substitution may occur by:
• Switching from the export of logs to domestic processing, i.e. a switch from export to domestic markets;
• Diverting trade through a third processing country for export on to the EU (with or without further processing); and/or
• Changing the market destination of log exports away from the EU to other markets such as China and Japan.
102 From the point of view of buyers in the EU, market substitution may occur by:
• Switching to alternative producer countries which are seen as less risky; however • With the introduction of the legality licence and voluntary partnership agreements some buyers in the EU may be encouraged to return to producers that were perceived to be too risky before the introduction of the legality licence.
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103 The legality licence scheme may have an adverse impact on trade by encouraging producers to increase the processing of their products domestically prior to export. In this way, exporters may continue to export to the EU but will have substituted processed products for logs and sawnwood. This resembles the current export patterns and trends where trade with the EU is dominated by plywood and pulp from Indonesia and sawnwood and plywood from Brazil. The ultimate impact of such a change in market, export to domestic, may have the negative impacts as described for log export bans (Section 2) if law enforcement and political willingness and support is insufficient. With log export bans already in place in Indonesia and Cameroon, this is a strong possibility.
104 The imposition of the legality licence may act as a restraint on trade with the EU and thus encourage producers to export to other less stringent markets. This is perceived by both traders and producers as a real potential risk. With the current global trends and dominance of the wood products trade by Japan and China, there is a risk that more exports will be orientated towards these two markets for processing prior to re-export to the EU. China is exerting an increasing presence in the export market for Cameroon’s log exports and for sawnwood from Indonesia. Japan is a key buyer for Indonesia’s plywood exports.
105 In addition to the possibility of exporting products to a third country such as China for further processing, there is the potential risk of exporting to the EU via a third county en route, such as Singapore. This would then mean that exports from Indonesia would be stamped as exported from Singapore before entering the EU, thus bypassing the legality licence that would be required only for exports from Indonesia that are directly imported into the EU. This potential for diversion en route is further discussed in the report accompanying this one, ‘A licensing system for legal timber’.
106 While the potential to export to China is real and growing, doing business with China is not seen as a necessarily attractive option, with buyers continuously pushing for lower prices. In addition, the costs of shipping are the responsibility of the producer/exporter. For the novice exporter, there is scope for Chinese port authorities to delay the docking of the ship by finding errors in the shipping documents. This is apparently a frequent occurrence and the ship can then occur demurrage, sometimes in the region of US$5000/6000 per day. Given the buyer is already paying a low price, this increase in cost can create difficulties.
107 In addition, the recent high demands for logs and sawnwood by China has created increased demand for freight carriers. As a result the cost of freight has increased in the last year and is continuing to increase.
108 Thus, supplying the Asian market is not seen as good opportunity for many, although it is often seen as a opportunistic market, with less stringent requirements than that of the EU. Producers will potentially lose revenue by supplying this market, the risk of incurring additional costs is high and the market price received is constantly being pushed down. The market is highly competitive and is likely to be supplied by illegal and/or low-cost producers, who can afford to accept the lower prices.
109 The impact of the legality licence from the point of view of the buyers is perceived to be more positive. The recent campaigns by NGOs, public and private sector procurement policies are driving change in the requirements being demanded by buyers. Adverse publicity and risk of damaging reputations are making buyers more cautious in who they are trading with. As a result of the recent Greenpeace report Partners in Crime (2004), four major traders with Indonesia withdrew from the Indonesian market.
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110 For producers there is a risk that if the demand for tropical timber by the EU market falls, due to buyers unwilling to take the risk to their reputations of being supplied by high-risk countries, then producers may have to increase their supply to alternative markets such as China. However, many exporters are keen to maintain their share of the market in Europe. This is because the EU market is perceived to be of higher value, not just for price, but also in terms of respectability where it is seen as having a more honourable business etiquette. However, the legality licence, as long as it is seen as credible, may encourage buyers to return to more risky markets and put the confidence back in the tropical timber market. This is especially so if there is limited impact on the price of tropical products as a result of the licence.
Product substitution
111 The global market trends described in Section 4 show that there is a growing shift towards processed and engineered products. In addition, buyers are moving away from tropical products towards alternative softwood and plantation-sourced wood-based products. Increasing amounts of timber are being sourced from the EU and North America, representing a switch from tropical to temperate sources.
112 Interviews with stakeholders in the trade stressed that this trend is occurring and will continue to occur, regardless of the legality licence. There may be some move back to tropical sources as a result of the legality licence, but it is more probable that tropical timber and wood-based products will ultimately become niche products. The extent of the potential product substitution depends on a number of factors (price, demand and supply, for example). If, for example, the price of tropical timber with a legality licence increases (the price distortions of illegal products removed) then less may be demanded – although if demand for products with a legality licence exceeds current supply then a price premium for products with licences may prevail.
113 There is also the possibility of switching to alternative materials such as synthetics, e.g. UPVC doors. Alternative products such as OSB, which are produced from FSC sources, can be used instead of tropical plywood in some situations. Treatment of softwoods with chemicals to gain the characteristics of hardwoods is increasingly being used, but at high cost. With more marketing and public awareness this trend could continue. However, many customers in the timber or forest products trade are conservative and reluctant to change.
114 In producer countries, there may be product substitution as a result of the legality licence from logs and sawnwood to more processed products, as described above. This would bypass the requirements or coverage of the legality licence, thus reducing the possible positive impact of the legality licence.
Impact on prices: are price premiums feasible?
115 Undoubtedly prices will be affected, both domestically and internationally, as a result not only of the legality licence but also because of the other market drivers encouraging the removal of illegally produced wood-based products from the market (international and domestic).
116 With a switch from export to domestic markets for logs and sawnwood, the domestic price may decrease as supply increases, as discussed under log export bans in Section 2. With a domestic market in, for example, Indonesia, already flooded with illegal and/or low-cost products, the domestic market
Page 31 FLEGT and Trade: What will the impacts be? price is already low and an increase in supply will further reduce the price. Such low prices undervalue the real value of wood-based products.
117 The potential impact on the international market price will depend on the market share of the exporting country for logs and sawnwood. If the exporter is a price taker, i.e. has a limited share of the international market then the reduction in logs and sawnwood available globally will not be sufficient to result in an increase in price. The reverse was true for toothfish and the CCAMLR Catch Document Scheme.
118 However, within the EU itself, demand for products with a legality licence or certification stamp is likely to increase, especially as public procurement polices take hold. This demand may well result in an increase in the price of such products, creating a price premium for those with legality licences. Any such price premium will only remain in place until supply increases to meet the demand or to the point where alternative products may be sought. This may also act as an incentive for those producers supplying the EU to continue and possibly expand their exports. For example, there is already a price premium for FSC-certified Brazilian plywood, PT Diamond Raya’s ramin and Deramokot’s meranti. Public procurement agencies are expressing a willingness to pay for legality, and the Tropical Forest Trust approach effectively shows how buyers will pay a price (2 per cent of the fob value) to assist the producers through technical assistance, to improve their forest management and tracking systems.
119 It is unlikely that the final end users or consumers will pay a premium for legality per se, although ultimately, the increases in costs associated with compliance with the legality licence scheme, declining availability of tropical timber and the growing demand for certified and/or legal products will result in a price increase in such markets as the EU. However, there is a potential risk that if the price rises as a result of the legality and other related initiatives, then there could be a switch in both market and products away from legal products and markets that demand legality.
120 There are number of factors that will affect price. From the supply side, if costs of production, availability of raw material, costs of compliance and verification all increase then there will eventually be an increase in price. From the demand side, requirements for public procurement, reputational risk, etc., will drive the demand for legal products and if this demand outstrips supply then the price will increase. If the FLEGT Action Plan and other market drivers succeed in reducing the amount of illegally produced wood-based products traded then the supply will reduce and the price will rise.
121 At the same time prices and costs could remain stable or decline if costs are reduced as payments to unscrupulous officials are halted (as long as the legality licence does not increase the potential for bribery) and as more timber is processed locally.
6.2 Factors influencing the potential significance of impacts
122 The significance of each of these impacts will be influenced by:
• The design and implementation of the legality licence itself, including the cost of implementation and compliance, coverage of the licence in terms of products incorporated; and
• The role of the consumer – buyer power – in influencing production and trade patterns.
123 The design, implementation and compliance of the legality licence will ultimately influence the scale and scope of the impact of the legality licence on trade. The potential design of the legality
Page 32 FLEGT and Trade: What will the impacts be? licence is covered in the report accompanying this one, ‘A licensing system for legal timber’. Key factors that need to be considered, in terms of influencing trade and from the point of view of the stakeholders consulted, when designing the legality licence are discussed here.
Definition of legality criteria
124 From the point of view of traders and producers there are a number of definitions of legality that are emerging as conditions required by consumers; for example, the UK government’s timber procurement policy will have criteria for legality, as will other EU member state governments which are developing public procurement policies for timber, and certification schemes also have criteria for legality. There is a potential risk that the definitions of legality will differ slightly, making compliance with them bureaucratic and costly, and possibly sending confusing signals to the market. Thus a uniform approach to developing legality criteria is required.
125 The criteria for defining legality have to be robust to ensure the credibility of the legality licence system. The setting of national criteria for legality is already occurring; for example, the DFID/TNC project in Indonesia has recently developed a stakeholder definition of legality and is currently field testing it, and the Indonesian government has developed its own legality standard, BRIK. The two definitions of legality differ greatly and have different degrees of credibility with producers, traders and end buyers.
Geographical coverage
126 As discussed in the previous two sections, the scope and geographical coverage of the legality licence are key factors that will influence the scale of its impact on the global trade in wood-based products. With global trade for timber and related products dominated by China, the US, Japan and the EU, and China and Japan dominating the trade in tropical timber products, the wider the geographical coverage, the greater the potential impact.
Product coverage
127 Processed products are playing an increasingly important role in the global trade, with processing occurring either in the country of origin or in a third processing country en route to the final destination. Following the production of the draft report of this study, the Commission has expanded the coverage of the legality licence to include plywood.
Credibility
128 Credibility is key to ensuring that the licensing scheme is accepted by buyers and stakeholders involved in the trade. To ensure that the scheme is credible it must be supported by independent third- party verification. The credibility of the scheme is also linked to the definition of legality and the system of implementation and political support.
Bureaucracy
129 There is a potential risk that the legality licence will become an additional layer of bureaucracy, potentially with room for additional costs to be applied. The potential ease and level of bureaucracy
Page 33 FLEGT and Trade: What will the impacts be? required to obtain the licence is key – too little and it will be deemed to easy to obtain; too much and this will be seen as a potential obstacle or too costly. The scheme, in particular the awarding of the licence, will need to be monitored and correct procedures enforced. The presence of a watchdog or independent observer may be desirable. In Brazil it often takes the producers a long time to get all the right documents required for proof of legality and thus they are, to some degree, penalised for sticking to the rules. In many cases it can be more time-consuming and arduous to abide by the rules, though this should not detract from the need for transparency and clear systems.
Political willingness and support
130 These will be crucial to effective implementation, monitoring and enforcement. As shown in the lessons of log export bans, effective government support will be key to the successful implementation of the legality licence. Enforcement and governance go hand in hand with the legality licence. Two years ago the German government left the Consultative Group for Indonesia, and withdrew support from the forestry sector as, in their opinion, the Indonesian government was not making sufficient progress on the CGI targets. Conflicting policy decisions will also limit the effectiveness of the legality licence, e.g. support to an industry that has over-capacity and using unsustainable or illegal sources of timber in its supply chain.
Donor presence
131 Where international donors exert a strong influence on a producer country then there is a higher likelihood of positive impact of the legality licence. This is potentially true for Cameroon where donor presence is high, along with support from initiatives such as the independent observer role of Global Witness, the UK TTF trade guidelines and the influence of EU private sector buyers in the supply chain.
Costs of compliance
132 The cost of compliance will have a significant impact on the adoption of the legality licence by both producers and governments. More work is required to determine what the likely costs of both implementation and compliance will be. A general consensus among those interviewed was that the costs of compliance should be borne by the producers. The significance of any increase in cost on the profitability of producers will depend on a range of factors such as current management systems, the degree of change needed for compliance, and the size of profit margins and transport costs, for example.
• Current management systems, i.e. if the producer is already operating responsibly using sustainable forest management, complying with national laws and regulations, then the cost of compliance to obtain the legality licence will be comparatively low. If this is not the case, compliance costs will be higher.
• If the operator is small- or medium-sized the proportional cost increase will be more significant. Costs of compliance, setting up verification systems, tracking, etc., exhibit economies of scale – the cost tends to reduce as the scale of the operation increases. This can potentially be offset if the operator is supplying a niche market and/or has established buyer relationships where higher prices may be obtained.
• If the operator is already operating with low or negative profit margins (e.g. where recent forest tax increases of around 100 per cent have been introduced in some countries in Central
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Africa), then the additional cost may lead to a change in market or closure. Thus the tracking systems etc. will not be put in place for fear of going out of business – the operators cannot afford to be legal.
133 There is a current trend in which EU-based parent companies are selling off logging concessions in Central Africa to Asian and Lebanese buyers as the concessions are seen as uneconomical to run and are no longer competitive (this is especially true for those concession with high transport costs). The potential increase in costs associated with the legality licence, however marginal, may encourage this process.
Buyer Power – the role of the consumer
‘Consumer or buyer power has a key role to play – the EU market does matter.’ (Interviewee response)
134 The ultimate impact on trade from the legality licence will depend on the influence of buyers, i.e., buyer power. The influence of buyers as a market driver is increasingly powerful both in terms of the growing demand for engineered products, temperate products, plantation-sourced products, etc., and in the application of conditionalities to be met by the suppliers. However, where significant buyer power remains, in countries such as Japan and China, with less stringent requirements, the potential influence of EU buyers will be limited.
135 The EU market is regarded highly by many producers, not necessarily in terms of price premiums, but in terms of reputation, quality and reliability. The EU market is seen as being more stringent and tougher than other markets, but producers value it enough to respond to its demands. According to the UK Timber Trade Federation (TTF), the EU market is significant enough to be able to influence approximately half the Indonesian mills supplying the EU to comply with the CE marking initiative (an industry standard introduced in 2004), and ISO 14000 and 9000. The TTF estimate that roughly speaking, if a market or buyer can account for approximately 15 per cent of the product, then they can have an influence on trade.
136 A key recognised driver in the trade is public procurement. The players in the UK timber trade are very aware of the impact of the UK government’s timber purchasing policy and the impact it will have on their business. The players in the sector are responding to the needs of the public procurement policy and see the legality licence as a useful support tool or document that will assist them to meet the public procurement requirements. Some retailers already acknowledge that they will be looking for a legality stamp on their products, especially when they are supplying the UK public sector.
137 With regard to the EU FLEGT Action Plan as a whole, players in the timber trade know that there will be an impact but as yet remain unclear about what will happen and the implications for them. In response to this uncertainty, many players are already making preparations for its implementation. There appears to be three levels of preparations by companies, the second level being the preferred option. These levels are:
• Undertaking risk assessments to understand their sources and proportion of production and profit that might be illegal;
• Looking for alternative markets or products to the high-risk products and sources of products; and
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• An overall clean-up of sourcing, although this is currently only being undertaken by a minority.
138 Reputational risk is a key driver behind the private sector’s response to illegality in its supply chain. Actions by NGOs have a significant impact on the market place – e.g. Greenpeace earlier this year targeting UK traders who deal with Indonesian producers. In response, and as part of the actions in preparation of both the public procurement policies and the EU FLEGT Action Plan, private sector operators are developing their own procurement policies.
139 Key UK traders which import roundwood and sawnwood have been looking closely at their sourcing partners and policies. They have recently undergone internal changes to address potential product and market substitution and as a result have developed procurement policies. In addition, retailers are also developing procurement policies. One retailer interviewed has a procurement policy in place which states that they are committed to buying only legal products and are looking for third- party verification of products sourced in ‘high-risk areas’.
140 In Cameroon, the bigger operating companies have parent companies in the EU, in particular in France and the Netherlands. The role of EU member state procurement policies in influencing both the buying and producing practices will be key and for central Africa, the deadline of 2007 for the French government’s procurement policy coming into effect will be a significant driver. This process will be supported by the legality licence scheme, if Cameroon becomes a partner country to the EU FLEGT Action Plan.
141 The key driver or carrot for producers remains the desire to maintain access to the market, and this means meeting the requirements of the buyers. The effectiveness of buyer power will inevitably increase if buyers work together. At the national level, this is reflected in the development of WWF/GFTN Buyer Groups and initiatives such as the Tropical Forest Trust. However, at a global level, if countries or regions could work together then the impact would be greater – through regional action plans, multilateral agreements, etc. There is a need to harmonise and join forces across the main buyer groups – for example EU and Japan together possibly account for 50 per cent of the global timber trade.
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