Effects of the EU Timber Regulation and the Demand for Certified Legal Timber on Business and Industry in India

Effects of the EU Timber Regulation and the demand for certified legal timber on business and industry in India

T R Manoharan

Funded by the European Union EU FLEGT Facility and the Governments of European Forest Institute Finland, France, Germany, the www.euflegt.efi.int Netherlands, Spain and the United Kingdom.

Table of Contents

Abbreviations ...... 2

Acknowledgements ...... 3

Executive summary ...... 4

1. Introduction ...... 6

1.1 Background...... 6

1.2 Objectives ...... 8

1.3 Approach and methodology ...... 8

1.4 Organisation of the paper ...... 9

2. Impact of the EU Timber Regulation ...... 9

2.1 The EU Timber Regulation ...... 9

2.2 India’s timber market ...... 11

2.3 Paper industry ...... 13

2.4 Wooden handicrafts industry ...... 14

2.5 India’s international trade in timber and timber products listed in the EUTR . 15

3. Legality in timber production and trade ...... 19

3.1 What is ‘legal’? ...... 19

3.2 Forestry laws and policies in India ...... 19

3.3 Legality requirements and constraints on compliance with the EUTR ...... 20

3.4 Stakeholder perceptions ...... 21

4. Forest certification in India ...... 24

4.1 Forest certification ...... 24

4.2 Uptake of FSC certification in India ...... 25

This report has been produced with the assistance of the European Union. The contents are solely the responsibility of the authors and can in no way be taken to reflect the views of the European Union.

4.3 Forest management unit certification ...... 26

4.4 Government initiatives ...... 27

4.5 Cost of certification ...... 27

5. Effect of procurement policies ...... 28

5.1 Procurement policies of selected multinational companies ...... 28

5.2 Procurement policies of selected Indian companies ...... 30

5.3 Discussion ...... 32

6. Conclusion and recommendations...... 32

6.1 Recommendations ...... 33

References ...... 34

List of tables and figures ...... 36

List of Annexes ...... 37

Annexes ...... 38

Annex A : List of interviewees ...... 38

Annex B: Timber and timber products listed in the Annex to the EUTR ...... 40

Annex C: Top 50 export commodities, India (Apr–Jun, 2011 and 2012) (US$ million) ...... 41

Annex D: Top 50 import commodities, India (Apr–Jun, 2011 and 2012) (US$ million) ...... 44

Annex E: Key concerns discussed with stakeholders ...... 46

Annex F: Timber products included in the FLEGT Licensing Scheme under VPAs . 47

Annex G: Exports of wooden handicrafts from India ...... 48

Annex H: Exports to selected EU countries from India (April–June, 2011 and 2012) ...... 49

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

Abbreviations

BILT Ballarpur Industries Limited (Avantha Group)

CoC chain of custody

DDS due diligence system

DGCIS Directorate General for Commercial Intelligence and Statistics, Ministry of Commerce and Industry, India

EFI European Forest Institute

EPCH Export Promotion Council for Handicrafts

EU European Union

EUTR European Union Timber Regulation

FLEGT Forest Law Enforcement Governance and Trade

FSC Forest Stewardship Council

IFCC Indian Forest Certification Council

IPMA Indian Paper Manufacturers Association

MNC multinational corporation

MoEF Ministry of Environment and Forests, India

MTPA metric tons per annum

SME small and medium enterprise

TNPL Tamil Nadu Newsprint and Papers Limited

VPA Voluntary Partnership Agreement

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

Acknowledgements

European Forest Institute

Ms Aimi Lee Abdullah, European Forest Institute’s EU FLEGT Facility.

Ministry of Environment and Forests, Government of India

Ms Rachel Butler, European Timber Trade Federation

Dr Richard R Perkins, London School of Economics

Ms Fiona Wheatley, Marks and Spencer, UK

Ms Julia Young, WWF UK

Mr H K Chen, TRAFFIC-International

Dr Aparna Sawhney, Jawaharlal Nehru University

Dr Ligia Noronha, The Energy and Resources Institute, New Delhi

Professor Baskar Vira, University of Cambridge

Ms Rohini Chathurvedi, University of Cambridge

Mr Jean Baukauma, GFTN-France, WWF France

Ms Mary Vallée, FSC France

Mr Angel Llavero, GFTN, WWF International

Mr S N Venkataraman, Vice President, ITC

Mr Suneel Pandey, Vice President, BILT

Mr A M Singh, IFS, Ministry of Environment and Forests, Govt of India

Dr P J Dilip Kumar IFS, Ministry of Environment and Forests, Govt of India

Mr Rakesh Kumar, Executive Director, Export Promotion Council for Handicrafts, New Delhi

Mr John Hontelez, Chief Advocacy Officer, Forest Stewardship Council

Mr Alistair Monument, Forest Stewardship Council

Mr Shaji Joseph, Managing Partner, Atheena Exports, Kochi, Kerala

Mr S K Mohanty, Research and Information System for Developing Countries, New Delhi.

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

Executive summary

This paper assesses the potential impacts of the EUTR and the growing demand for forest certification on India’s timber products industry. In particular, the paper examines European companies’ procurement policies and practices; explores the implications of the EUTR for the competitiveness of India’s timber products industry; and assesses the measures that selected Indian companies and multinational corporations operating in India are likely to take in response to changes in market requirements. The report also suggests possible strategies for adoption by the Indian government to mitigate the negative impacts of the changes.

As of early 2013, India was not considering entering into a Voluntary Partnership Agreement (VPA) under the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan, largely because India has prohibited the export of timber in the form of unprocessed logs. The export of timber products from India, however, is not only permitted but is actively encouraged by the government and is growing. The EU, India’s largest overall international trade partner, is a major market for India’s semi-processed and value-added timber products, including wooden handicrafts, pulp and paper, plywood and veneer, and wooden furniture.

India’s timber products industry is therefore likely to be affected by the introduction of the EU Timber Regulation (EUTR), which came into force on 3 March 2013. For India, products listed under the EUTR have an annual export value of around US$1.3 billion, and in 2012, six EU Member States accounted for more than 12% of this total value. Furthermore, India’s exports of value-added timber and timber products to the EU and other markets are increasing, with these products manufactured from both domestically sourced and imported timber.

In response to a severe shortage of timber from domestic sources, India is increasingly importing timber, including from countries that have, or are negotiating, a VPA. Although illegal logging is not considered a serious problem in India, which has a long history of forest management policies and laws, the large volumes of imports could ultimately harm the world’s high conservation value forests and areas with a high incidence of illegal logging.

India is a priority country for the EU FLEGT Asia Regional Support Programme (FLEGT Asia) because it is one of the world’s largest consumers of wood products and a major importer of timber from other countries in Asia. In particular, India is one of the fastest growing paper markets in the world, with an annual turnover of US$6 billion. Furthermore, the wooden handicrafts industry has high export potential and exports are increasing. This industry, which is dominated by small and medium enterprises, makes an important contribution to economic development and provides employment to millions of artisans and woodworkers.

In addition to boosting trade, the size of India’s domestic market is attracting investment from many multinational corporations. The EU is one of the biggest investors in India, and the potential for the EU to increase trade and investment in India is substantial. Several European companies, including Tesco, IKEA and Tetra Pak, have announced plans to scale- up their business in India by investing in the retail sector.

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

In this context, the EUTR is expected to induce changes in India’s timber products industry in several ways. First, European companies operating in India will be encouraged to establish greater safeguards and improved due diligence systems. This will help clean up the supply chain and will induce companies – both Indian and multinational corporations operating in India – to strengthen their procurement policies and invest more in research and development, technology, monitoring systems, legality and certification. The cost of compliance will be lower for businesses that are in multinational corporations’ supply chains, to the benefit of farmers and primary processors. At the same time, Indian companies also will be more likely to adopt improved due diligence systems (e.g. forest certification) in a cost-efficient manner.

Second, the introduction of the EUTR will encourage more forest certification in India because the regulation will indirectly provide incentives to parties that would prefer to shift towards credible forest certification (responsible and sustainable trade). In the absence of a VPA, credible forest certification can contribute towards the development of an effective due diligence system for use by operators and traders to minimise their risk of trading in illegal timber or in products derived from illegal timber at some point in the supply chain.

In India, use of international forest certification systems in the industry, particularly Forest Stewardship Council (FSC) certification, has increased 10-fold during the past five years, partly because of the response towards FLEGT among buyers in the EU. The Indian Ministry of Environment and Forests is establishing the Indian Forest Certification Council as a step towards developing a national forest certification system. In the meantime, to support trade and investment in the industry, the Indian government has sought to minimise the approvals and records needed to comply with legality and other requirements. Nevertheless, it is frequently difficult for industry players to gather the information and documentation for verification, monitoring and evaluation, particularly in the downstream supply chain and for farmers and small and medium enterprises at the primary processing level.

Given the potential impacts of the EUTR on India’s timber products industry, the following recommendations are made.

1. Raise awareness of the EUTR and its requirements among the key stakeholders in India. Timber trade associations, export promotion councils and relevant non- government institutions should take an active role in this. 2. Provide fiscal incentives to the industry, particularly small and medium enterprises, to establish due diligence systems. 3. Promote credible forest certification in both government-managed forests and plantations and private areas, including agroforestry, farm forestry and social forestry areas. 4. Set up a government task force to study the ramifications of the EUTR. 5. Provide technical support to address the risk involved with continuing business as usual (e.g. provide user-friendly materials and accessible designated focal points such as a government institution or local non-government institution). 6. Encourage the Indian industry to invest resources in establishing cost-effective and locally adaptable due diligence systems to address the issue of illegal logging. 7. Allocate sufficient funds to relevant institutions to conduct training and other capacity-building programmes.

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1. Introduction

1.1 Background

Illegal logging continues to be a major threat to sustainable forest management globally. Its environmental, social and economic impacts include deforestation and forest degradation, the abuse of human rights, loss of livelihood opportunities among forest-dependent communities, corruption and annual revenue loss of US$15 billion to timber-producing countries (World Bank 2006a). The debate on what constitutes illegal logging is ongoing in the international policy arena because of its complexity. The focus is presently on the illegal harvest of logs, defined as timber that is not harvested according to the laws of the country in which the trees grow (European Commission 2010).

In an effort to address the problem of illegal logging, the Bali Declaration on Forest Law Enforcement and Governance (FLEG) was adopted in September 2001, in a meeting attended by several ministers from Asia and countries in other regions. However, many countries found implementing the Bali Declaration difficult, revealing a need to strengthen the FLEG initiative through measures in major international markets.

In 2003, the European Union (EU) introduced its Forest Law Enforcement Governance and Trade (FLEGT) Action Plan, which comprises a package of measures designed to support international efforts to combat illegal logging and associated trade, with the ultimate goal of achieving sustainable forest management. These measures include Voluntary Partnership Agreements (VPAs) between the EU and timber-exporting countries.1 The first VPA was signed with Ghana in 2009. To date, a VPA has been concluded in six countries (Cameroon, Central African Republic, Ghana, Indonesia, Liberia and Republic of the Congo (Brazzaville)). Another six countries are in the negotiation phase (Democratic Republic of the Congo, Gabon, Guyana, Honduras, Malaysia and Vietnam) and a VPA is in the information/pre- negotiation phase in 14 countries.2

As VPAs are bilateral and voluntary and do not affect imports from countries that have not entered into a FLEGT Partnership, many countries where timber is illegally harvested could simply ignore the initiative. To address this problem, in 2010, the EU introduced the EU Timber Regulation (EUTR), which is applicable to all Member States and became fully operational in early March 2013. The regulation targets ‘operators’ and ‘traders’ that first place the listed timber products on the EU market. Operators in the EU market must undertake ‘due diligence’ to ensure the timber they place on the market is legally sourced, and traders in the supply chain must keep the requisite records. The EUTR applies both to timber harvested in the EU Member States and imported timber.

In 2008, the EU FLEGT Facility, managed and implemented for the EU by the European Forest Institute (EFI), an international organisation based in Finland, established a regional office in Kuala Lumpur, Malaysia. The aim of this Asia regional funding programme is to promote good forest governance, contributing to poverty eradication and sustainable management of natural resources in Asia, through direct support of the EU’s FLEGT Action Plan. It also aims to strengthen regional cooperation in forest governance and to promote and facilitate international trade in verified legal timber. India is a priority country for FLEGT Asia because

1 Council Regulation (EC) No 2173/2005 of 20 December 2005. The categories of timber products included in the FLEGT licence scheme, irrespective of the partner country, are HS 4403, 4406,4407,4408 and 4412 (Annex II). 2 European Forest Institute: http://www.euflegt.efi.int/portal/home/vpa_countries/ 6

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

it is one of the world’s largest consumers of timber products and a major importer of timber from other countries in Asia.

India is the largest democratic economy in the world and growing fast, with a population of more than 1.2 billion. It is also a megadiverse country. As of late 2012, India’s international trade in goods and services totalled around US$1 trillion. Exports increased from US$44 billion in 2001 to US$244 billion in 2011; during the same period, imports increased from US$50 billion to US$352 billion. Given the size of the domestic market, multinational corporations (MNCs) are choosing to invest in India, including in the retail sector. The increase in disposable income among the growing middle class and the large proportion of economically active young people in the economy are comparative advantages. The national government has expressed a commitment to sustainable development and environmental governance.

The EU is India’s largest market for international trade. EUIndia trade was valued at US$110 billion in 2011 and is forecast to double by 2016. In 2011, the 27 Member States of the EU accounted for 18.8% of India’s total exports, and 12.2% of India’s total imports, making the EU the top-ranking trading partner for both exports and imports.

The EU is also one of the biggest investors in India, although EU investment in India accounts for only 0.6% of its investment worldwide; therefore, the potential for the EU to increase trade and investment in India is substantial. Several European companies, including Tesco, IKEA, Carrefour, Marks & Spencer and Tetra Pak, have announced plans to scale-up

their business in India by investing in the retail sector.

T. Dr. Manoharan Wood procured from farm forestry areas being rent to the mills of a leading paper manufacturing company

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

As of late 2012, India is not considering entering into a VPA with the EU, largely because India has prohibited the export of timber in the form of unprocessed logs. Timber imports are permitted and liberalised, and India imports timber from across the world, including from countries that have, or are negotiating, a VPA. However, the export of timber products, including pulp and paper, is permitted, and the government has introduced several incentives to encourage the trade. The EU is a major market for India’s semi-processed and value-added timber products, including wooden handicrafts, pulp and paper, plywood and veneer and wooden furniture. Of particular note are the benefits for the wooden handicrafts industry, which is dominated by small and medium enterprises (SMEs) and provides employment to millions of artisans and woodworkers.

In the absence of a VPA, credible forest certification can contribute towards the development of an effective due diligence system (DDS) for use by operators and traders to minimise their risk of trading in illegal timber or in products derived from illegal timber at some point in the supply chain. In India, use of international forest certification systems in the industry, particularly Forest Stewardship Council (FSC) certification, has increased 10-fold during the past five years, partly because of the response towards FLEGT among buyers in the EU. The Indian Ministry of Environment and Forests is in the process of establishing the Indian Forest Certification Council (IFCC), to develop a national forest certification system based on recommendations made by the National Forest Certification Committee in a report submitted in September 2010 and ministry consultation with stakeholders in 2011.

1.2 Objectives

The overall objective of this paper is to assess the potential impacts of the EUTR and the growing demand for forest certification on India’s wood products industry, particularly the production of paper products, wooden furniture and wooden handicrafts.

Specific objectives are as follows:

1. To understand the procurement policies and practices of selected European companies. 2. To explore the implications of the EUTR for the competitiveness of India’s wood products industry. 3. To examine the measures that selected Indian companies and MNCs operating in India are likely to take in response to such external changes in market requirements.

To suggest possible strategies for adoption by the Indian government to mitigate the negative impacts.

1.3 Approach and methodology

This report is based on a literature review and interviews and discussions with stakeholders both in India and in Europe during July and August 2012. In addition to face-to-face meetings, information was collected through telephone and video calls and other web-based methods, for cost-effectiveness. Data from the Government of India and other reputable institutions were also used to prepare this report. The interviewees are listed in Annex A.

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

1.4 Organisation of the paper

This report is divided into six sections. It begins with a description of the EUTR in Section 2. Sections 3 and 4 discuss legality in the timber industry and trade in India and forest certification in India, respectively. Section 5 examines the procurement policies operating in business and industry, with examples from European companies that have invested in India and Indian companies. The conclusion and recommendations are given in Section 6.

2. Impact of the EU Timber Regulation

2.1 The EU Timber Regulation

In May 2003, the European Commission adopted the EU FLEGT Action Plan, the aim of which is to combat illegal logging and its associated trade. The principal instruments of the FLEGT Action Plan are VPAs between timber-producing countries and the EU. These bilateral partnership agreements establish control and licensing procedures to ensure that only legal timber products from partner countries can enter the EU.

However, VPAs only cover the direct trade between FLEGT partner countries and the EU, and only the products specified under the agreement. Circumvention by third parties (i.e. countries that export to the EU but that do not have a VPA with the EU) remained a risk. Therefore, in October 2010, the EU introduced the EUTR to further strengthen the control of timber of all origins entering the EU market. The EUTR became fully operational on 3 March 2013.

The formal name of the regulation is:

Regulation (EU) No. 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market.

Rules for implementing the EUTR are contained in:

 Commission Delegated Regulation (EU) No. 363/2012 of 23 February 2012 on the procedural rules for the recognition and withdrawal of recognition of monitoring organisations as provided for in Regulation (EU) No. 995/2010 of the European Parliament and of the Council laying down the obligations of operators who place timber and timber products on the market.  Commission Implementing Regulation (EU) No. 607/2012 of 6 July 2012 on the detailed rules concerning the due diligence system and the frequency and nature of the checks on monitoring organisations as provided for in Regulation (EU) No. 995/2010 of the European Parliament and of the Council laying down the obligations of operators who place timber and timber products on the market

Obligations: The EUTR prohibits the placement on the EU market of illegally harvested timber and timber products derived from such timber. It applies to the time that products are first placed on the market, and encompasses both EU and imported timber. The obligation is placed only on operators and traders, to minimise unnecessary administrative burdens. The main requirements are the following:

 All EU operators (companies importing timber and timber products in all 27 EU Member States) that place timber and timber products on the EU market for the first

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

time will be required to demonstrate ‘due diligence’ in ensuring the legality of the products traded.  Other traders in the EU supply chain will need to keep records of their suppliers and customers to allow for traceability of products up to the point where the products are first placed on the EU market. T. Dr. Manoharan

Decorative wooden frames for mirrors displayed in an Indian showroom. Products covered: The EUTR covers a wide range of timber and timber products, including logs, sawn timber, veneers, railway sleepers, picture frames, builder’s carpentry and joinery, plywood, pulp and paper, packing cases, pellets, briquettes, scrap wood and sawdust, particle, fibre and oriented strand boards, and furniture (the full list is reproduced in Annex B). The list does not include recycled timber and timber products, rattan, bamboo, notebooks or printed materials such as books, magazines and newspapers.3

Due diligence: A DDS is based on the following three key elements.

1. Information on the supply of timber products: Required information includes the species of timber, volume, country of harvest, the harvest location, concession of harvest, name and address of supplier, and evidence of compliance with the applicable legislation. 2. Risk assessment: This includes assessing the risk of illegal timber entering the operator’s supply chain based on information about the supplier. 3. Mitigation: If the operator identifies a high risk of illegal timber entering the supply chain, the operator must make efforts to lower this risk.

Certification: The EUTR states: ‘In order to recognise good practice in the forestry sector, certification or other third party verified schemes that include verification of compliance with applicable legislation may be used in the risk assessment procedure.’

Timber and timber products covered by a valid FLEGT licence (VPA) or CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) licence are considered to comply with the requirements of the regulation.

Monitoring organisations: The EUTR includes provisions on ‘monitoring institutions’. These are private entities that can provide EU operators with an operational DDS. Operators can choose to develop their own DDS or to use a DDS developed by a monitoring organisation.

3 The EUTR states: “timber and timber products” means the timber and timber products set out in the Annex, with the exception of timber products or components of such products manufactured from timber or timber products that have completed their lifecycle and would otherwise be disposed of as waste, as defined in Article 3(1) of Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste’. 10

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Penalties: The provisions dealing with penalties for non-compliance with the EUTR are yet to be finalised; penalties may include fines, seizure of the timber and immediate suspension of authorisation to trade.4

2.2 India’s timber market

Although India is one of the International Tropical Timber Organization’s top producers of tropical logs, it is experiencing a severe shortage of timber supply from domestic sources to meet its growing demand (MoEF 2009; Manoharan 2011). As a result, timber imports – primarily unprocessed logs – are growing at a rate of 12% a year. If the current situation continues (business as usual), India will need imports to meet about half of its timber requirements by 2020. The volume of the import demand could have a detrimental impact on the world’s high conservation value forests and on areas with a high incidence of illegal logging, unless effective measures are taken through international agreements. As noted, India’s exports of value-added timber and timber products to the EU and other markets are increasing, with these products manufactured from both domestically sourced and imported timber.

The production, trade and consumption volumes of selected wood products in India are given in Table 2.1. As seen, the two main product categories are industrial roundwood and paper and paperboard.

Table 2.1. India’s production, trade and consumption of selected wood products (2008).

Item Production Imports Exports Consumption (1000 m3) (1000 m3) (1000 m3) (1000 m3)

Wood-based panels 2592 126 65 2653

Pulp (for paper) 4048 432 21 4459

Paper and 7600 1734 373 8961 paperboard

Industrial 23192 1768 14 24946 roundwood

Sawnwood 14789 48 40 14797

Source: FAO (2011)

4 http://www.cpet.org.uk/eutr 11

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Table 2.2. Demand for wood in India (2000–2020) (million m3)

Year Wood-based Wood-based Durable wood- Total demand pulp panels based products

2000 8.76 11.55 37.69 58.

2005 14.32 14.69 44.99 74.00

2010 21.92 18.82 54.26 95.00

2015 34.67 23.96 64.37 123.00

2020 45.86 30.53 76.61 153.00 Source: Khanduri and Mandal (2005), MoEF (2009)

The past and projected domestic supply of selected wood products in India is shown in Table 2.3. As seen, growth is particularly strong for paper and paperboard and for plywood.

Table 2.3. Domestic supply of wood products in selected industries in India (2000–2020) (million m3)

S. No. Industry 2000 2005 2010 2015 2020

1 Paper and 4.48 8.96 15.50 26.64 35.85 paperboard

2 Newsprint 1.78 2.80 3.42 4.63 6.22

3 Construction 3.18 3.88 4.42 5.26 5.70

4 Packaging 2.31 2.77 3.20 3.78 4.50

5 Plywood 5.50 7.0 8.98 11.45 14.60

6 Veneer 0.14 0.17 0.22 0.27 0.35

Total 17.39 25.58 35.74 52.03 67.22

Source: MoEF (2009)

It is expected that production from natural forests will decline, and plantation forestry, including farm forestry and agroforestry, will become the major source of timber in India (Table 2.4). India has relatively low timber productivity of 0.7 m3/ha/year (the world average is 2.1 m3/ha/year).

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Table 2.4. Changes in sources of India’s domestic timber supply (2000–2020) (million m3)

Source 2000 % 2010 % 2020 %

Natural forests 14.00 48.28 14.00 28.02 14.00 23.35

Government 9.24 31.86 22.16 44.36 32.16 53.64 plantations

Social forestry 5.80 20.00 13.80 27.62 13.80 23.02

Total 29.00 100.00 49.96 100.00 59.96 100.00

Source: MoEF (2009)

Dr. T. Dr. Manoharan Dr. T. Dr. Manoharan Wood for pulping being unloaded Paper stored in the factory for transportation

2.3 Paper industry

India is one of the fastest growing paper markets in the world, with an annual turnover of US$6 billion. The Indian paper industry accounts for about 1.6% of the world’s production of paper and paperboard. In 2012, the annual production of paper, paperboard and newsprint in India was about 10.11 million tonnes, and consumption was around 11.5 million tonnes (although note that per capita consumption of paper in India is much lower than in other countries, at about 9.3 kg a year). It is projected that, by 2020, the consumption of paper in India will reach 22 million tonnes, but production will be at 19 million tonnes (Kumar 2011; IPMA 2012).

The Indian paper industry has substantially reduced its dependence on wood for paper production through the increased use of recycled fibres and agro-based raw materials. In 1970, wood was used for 84% of paper production in India, recycled fibre for 7% and agro- based raw materials for 9%. By 2011, the share of wood had fallen to 31%, whereas the shares of recycled fibre and agro-based raw materials had risen to 47% and 22%, respectively. About 75% of wood-based raw materials are sourced from farm forestry and social forestry areas.

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2.4 Wooden handicrafts industry

The wooden handicrafts industry in India makes an important contribution to economic development and the creation of employment opportunities, particularly through SMEs. In particular, this sector has high export potential. Exports of wooden handicrafts from India increased from US$46 million in 1995/96 to US$546 million in 2011/12 (Figure 2.1). Europe is a major destination for wooden handicrafts from India: in 2012, the UK and Germany combined accounted for about a quarter of the country’s exports of wooden handicrafts (Annex H). Other important markets are the USA, Australia, Japan and the United Arab Emirates. The industry depends mainly on locally available wood species, primarily Dalbergia sissoo (sheesham), Mangifera indica (mango), Dalbergia latifolia (Indian rosewood), Tectona grandis (teak), Acacia nilotica (babul), Santalum album (sandalwood). The availability of affordable wood is a concern for the industry.

Figure 2.1. Exports of wooden handicrafts from India (1995/96–2011/12) (US$ million)

3000

2500

2000

1500 Wooden handicrafts Total handicrafts

1000

500

0 1995/96 2000/01 2011/12

Furthermore, exports of wooden handicrafts have increased as a proportion of total handicrafts exports, from 5.4% in 1995/96 to 20.03% in 2011/12 (Table 2.5).

Table 2.5. Export value of wooden handicrafts from India (1995/96–2011/12) (US$ million)

Year Wooden All Wooden handicrafts handicrafts handicrafts as % of the total

1995/96 46 894 5.14

2000/01 96 1538 6.24

2011/12 542 2705 20.03

Source: Export Promotion Council for Handicrafts (EPCH; 2012)

The number of wooden-handicraft producers in India with FSC certification has increased in response to international market demand, from fewer than 20 in 2009 to more than 200 in 2012.

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2.5 India’s international trade in timber and timber products listed in the EUTR

In 2011, India’s exports of timber products listed in the EUTR were valued at about US$1.3 billion. Of these, paper and paperboard and paper pulp (HS 48) and other wooden furniture (HS 940360) are two important categories (Table 2.6).

Table 2.6. Export value of products listed in the EUTR from India (US$ million)

Timber and Export Export value timber products value 2010/11 listed in the EUTR 2009/10 (HS code)a

4401 0.22 0.13

4403 2.29 1.5

4406 0.02 0.01

4407 14.5 18.42

4408 19.47 15.75

4409 2.99 2.44

4410 1.58 1.63

4411 10.89 9.33

4412 17.53 13.83

4413 0.43 0.4

4414 4.73 7.91

4415 4.62 6.52

4416 0.16 0.15

4418 8.28 8.74

47 1.81 0.9

48 588.55 836.9

940330 1.77 4.2

940340 0.94 2.37

940350 1.51 2.09

940360 231.52 352.66

940390 1.32 3.15

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Timber and Export Export value timber products value 2010/11 listed in the EUTR 2009/10 (HS code)a

940600 13.12 22.09

Total value of 928.25 1311.12 timber and timber products listed in the EUTR a See Annex B to this report for a list of categories and their codes under the EUTR.

Source: Directorate-General of Commercial Intelligence and Statistics (DGCIS), Indian

Ministry of Commerce and Industry. The European Economic Community is a signatory to the International Convention on the Harmonised Commodity Description and Coding System, known as the harmonised system (HS). The harmonised system forms the based for the combined nomenclature established by the EEC. Article 1, Para 2(a) of EEC 2658/87 dated 23 July 1987 states: ‘The combined nomenclature shall include harmonised system nomenclature.’

In 2012, six EU Member States accounted for 12.68% of India’s the total export value of products listed in the EUTR: the Netherlands, UK, Germany, Belgium, France and Italy (Annex H).

The UK was the largest export market for paper and pulp products (HS 48) from 2006/07 to 2010/11 (Table 2.7). During this period, the share of exports of wooden furniture (HS 940360) to Germany increased (Table 2.8).

Table 2.7. Export value of HS 48 products (paper & paperboard) from India to selected EU countries (2006/07-2010/11) (US$million)

Country 2006/07 2007/08 2008/09 2009/10 2010/11

UK 33.12 39.33 36.14 40.43 43.64

Netherlands 3.13 5.52 5.12 5.3 5.91

Germany 6.21 8.1 7.61 5.14 9.04

Belgium 1.48 3.86 3.2 2.72 2.73

France 1.79 2.5 2.37 4.51 3.43

Italy 5.47 5.46 3.73 3.92 6.04

World 442.89 486.69 541.62 588.85 836.9

Source: DGCIS

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Table 2.8. Export value of HS 940360 (wooden furniture) products from India to selected EU countries (2006/07–2010/11) (US$ million)

Country 2006/07 2007/08 2008/09 2009/10 2010/11

UK 28.62 30.79 23.57 20.38 27.88

Netherland 9.08 11.63 12.98 8.52 13.64 s

Germany 12.54 26.79 31.69 33.09 49.84

Belgium 7.93 8.74 11.14 7.17 8.89

France 23.53 35.86 27.66 23.9 34.61

Italy 18.24 20.88 13.97 10.97 12.48

World 250.03 310.17 259.26 231.52 352.66

Source: DGCIS

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Figure 2.2. Exports of other wooden furniture (HS 940360) from India to selected EU countries (2006/07–2010/11) (US$ million)

50 Germany

40 UK France Netherlands 30 Germany UK UK Belgium France France Italy 20 Italy

Netherlands Germany Italy 10 Netherlands Belgium Belgium

0 2006/07 2007/08 2008/09 2009/10 2010/11

Figure 2.3. Exports of paper and paperboard (HS 48) from India to selected EU countries (2006/07–2010/11)

(US$ million)

45 UK

30 UK Netherlands 25 Germany Belgium France 20 Italy

10 Germany Italy 5 France Netherlands Belgium 0 2006/07 2007/08 2008/09 2009/10 2010/11

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3. Legality in timber production and trade

3.1 What is ‘legal’?

The legality of timber and timber products is a crucial aspect of both domestic and international trade (WWF, 2010). ‘Legality’ can be defined as timber produced, harvested and traded in accordance with all applicable local, national and international laws. The EUTR contains clear definitions of ‘legally harvested’ and ‘illegally harvested’. In short, ‘legally harvested’ means the timber was harvested in accordance with the relevant legislation in the country of harvest.5

However, the relevant application and verification criteria depend largely on the specific context. Therefore, if the industry does not have sufficient information on the laws and procedures, it can suffer serious adverse effects. The Gibson Guitar case on the ‘illegal importation’ of musical wooden parts (Indian ebony and rosewood) from India to the United States is an example (Maher 2012). Although the case, brought to court under the US Lacey Act, was settled in August 2012, it has sparked debate on legality issues associated with timber trade not only among timber traders but also among the wider public. As this case shows, the effective implementation of the EUTR will require awareness raising and capacity building among stakeholders in both EU Member States and their trade partners.

3.2 Forestry laws and policies in India

In India, the harvest of timber is governed by the Indian Forest Act 1927,6 as well as by other relevant legislation at both central and state levels. Forestry appears on the concurrent list of the Indian Constitution; this means that both the central and state governments can legislate on forestry, but that, in the case of any conflict between central and state laws, the laws enacted by the central government prevail.

In contrast to many tropical countries, illegal logging is not a serious concern in India. However, the National Forest Commission has documented the unrecorded removal of timber from natural forests and plantations (Government of India 2006). An estimate in the Ministry of Environment and Forests’ Forest Outlook Study puts the annual volume of timber harvested illegally in India at about 2 million m3 (MoEF

2009).

India has a long history of forest management EFI policies and laws. The scientific management of Loading logs onto bandsaw at a sawmill in Kozhikode, Kerala, Southern India

5 The EUTR states: ‘In the absence of an internationally agreed definition, the legislation of the country where the timber was harvested, including regulations as well as the implementation in that country of relevant international conventions to which that country is party, should be the basis for defining what constitutes illegal logging.’ 6 Under this Act, ‘timber’ includes trees, when they have fallen or have been felled and all wood whether cut up or fashioned or hollowed out for any purpose. 19

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forests in India began with the appointment of Dr Dietrich Brandis, a German forester, as the country’s first Inspector General of Forests in 1864. Forest management was based on the concept of ‘sustained yield’. Early forest legislation focused on the production of commercial timber. The principal aim of the National Forest Policy of 1988 was ‘to ensure environmental stability and maintenance of ecological balance including atmospheric equilibrium which is vital for sustenance of all life forms, human, animal and plant. The derivation of direct economic benefit must be subordinated to this principal aim.’ The policy placed several restrictions on sourcing of timber from forests. In India, ‘no forests should be permitted to be worked without government having approved the management plan, which should be in a prescribed format and keeping with the National Forest Policy’.

3.3 Legality requirements and constraints on compliance with the EUTR

In India, the requirements for legality vary across products and states. To support trade and investment in the industry, the Government of India has sought to keep to a minimum the number of approvals and records that manufacturers and traders must keep to comply with legality and other requirements. Nevertheless, several factors make it difficult for industry players to gather the information and documentation for verification, monitoring and evaluation required to comply with the applicable national and international regulations. An illustrative list of the required documentation and the degree of constraint in the supply chain are given in Table 3.1. The difficulty is greater in the downstream supply chain, particularly for farmers and SMEs at the primary processing level.

Table 3.1. Legality requirements and constraints on compliance with the EUTR (checklista)

Points in India’s Legality requirements Constraints on Degree of supply chain for compliance with EUTR constraint timber products and establishment of DDSs

1. (a) Government  Approved management All records are available Nil forest/plantation plan  Working plan  Lease agreement (b) Private forest  Record of ownership Obtaining information for High (including  Lease agreement one or more certificates agroforestry, farm  Management plan for verification is difficult forestry, social  Cutting permit from the relevant authority forestry areas) (particularly difficult:  If a cutting permit is not management plan and required, a copy of the cutting permits, including notification or other records of the tree proof of this from competent authority location and species)

2. Depot/store  Stock register Obtaining information for Medium  Auction notice one or more certificates  Tax receipt for verification is difficult  Transport permit 3. Processor  Registration of the unit in Obtaining information for Medium accordance with the law one or more certificates  Permission to operate the for verification is difficult mill/processing unit

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Points in India’s Legality requirements Constraints on Degree of supply chain for compliance with EUTR constraint timber products and establishment of DDSs

 Bank account  Invoice/purchase order from the supplier  Tax receipt  Stock register  Transit permit  Other relevant certificates 4. Manufacturer  Manufacturing licence (as Obtaining information for Medium applicable) one or more certificates  Registration of the for verification is difficult manufacturing unit in accordance with the law  Bank account  Invoice/purchase order from the supplier/processor  Stock register  Transit permit  Tax receipt  Other relevant certificates 5.  Company registration Obtaining information for Low Trader/importer  Bank accounts some certificates for and exporter  Tax receipts verification is difficult  Copy of export/import order  Invoice  Transit permit  Other relevant certificates 6. Retailer  Company registration Obtaining information for Low  Bank accounts some certificates for  Tax receipts verification is difficult  Invoice  Transit permit  Other relevant certificates 7. End consumer  Receipt of money paid Nil Nil  Delivery receipt  Other relevant certificates (e.g. transit permit) a This list of documents is indicative only, and is not an exhaustive list of legality requirements. Requirements vary across states.

3.4 Stakeholder perceptions

During the interviews with stakeholders conducted for this study, the following points emerged on legality in timber production and trade in India and its linkages with the EUTR.

 The Indian domestic market is significant because of the magnitude of the country’s consumption of wood and wood products. However, reliable disaggregated data on the domestic market and domestic consumption are not available. Therefore, a priority should be to improve the database on timber production, consumption and trade priority.

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 Several MNCs that make commitments on forest certification and responsible procurement policies globally may not necessarily adhere to these in their local operations. It is argued that they can generate huge profits by delaying their compliance to their commitments at global level by two to three years.  Many companies have no guarantee that they will get a premium price for their certified products, even though they make additional investments to obtain certification. Although some companies continue to pay extra to procure certified raw materials for production, in the absence of premium pricing, they may make adjustments to other costs, including wage rates. Some European companies pay a premium price for certified products. However, it is unclear whether they pay the premium when sourcing from India.  The unit values of trade commodities can be a key factor. The question arises of how to develop strategies for unit values of commodities when sourcing from legal and certified sources. For example, unit values for products imported from Malaysia or Ghana are often lower than those for Myanmar, even for similar timber and timber products. More research is required to understand the implications.  There is a need to create awareness in local markets about the benefits of certification.  Forest certification does not guarantee compliance with EUTR requirements in all contexts. However, it can help in strengthening DDSs. When the supply chain is extended, the costs of due diligence will be onerous.  In addition to companies’ individual initiatives, trade associations, export promotion councils and cooperative societies can make use of the provisions on monitoring systems in the EUTR. In India, relevant institutions include the Export Promotion Council for Handicrafts (EPCH); Indian Paper Manufacturing Association (IPMA); Global Forest and Trade Network–India; TRAFFIC–India; Green Building Council; and Confederation of Indian Industry (CII). The cost of compliance can be a major factor in decisions on sustainability and procurement of raw materials. If a retailer passes some or all of these costs onto the supplier, the latter ultimately has to cut costs or lose the business.  Companies such as Tesco and IKEA have openly said that they would supply ‘cheap’ products in the European market. If so, the Indian market would offer them business opportunities in retail.  The constraints on efforts by suppliers in India to source legal wood from India would be an interesting area to address, because information on such constraints is not available. Many European buyers are not aware of the difficulties involved. For example, if an Indian supplier buys wood from a government depot, the supplier also needs to seek several documents from various institutions, including species information, transport permits and cutting permits. Then, to comply with the EUTR, buyers in Europe will require even more documentation from their suppliers in India. Because of the EUTR’s due diligence requirements, European companies have to make additional efforts to ensure that they are sourcing timber in accordance with the new legislation. This could affect the Indian suppliers in a number of ways. It could affect even the most stable and legal sources such as the wood supplied by the government.  The introduction and scaling-up of activities by MNCs in India may have ramifications for the local market. For example, corporate procurement policies can have a huge impact on local markets. In many cases, MNCs have the power to set prices for products, and local suppliers ultimately have little choice but to agree with their terms and conditions. Another important element is labelling/standards. Each company has its own way of addressing this: some have a preference for a certain label, whereas others develop their own label or method of advertising a commitment to environment and quality.

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 It is unclear whether MNCs would be willing to invest resources to build capacity among suppliers, particularly in another country. If the benefits of such investment will not be felt for some time, companies may prefer to switch to another supplier/country. For example, Myanmar has emerged as a potential market for sourcing timber since European sanctions were suspended.  Government procedures tend to take a long time. Therefore, corporations play an important role in supporting efforts to establish a DDS and extend the supply chain.  Equity in the distribution of the benefits of certification is an important issue. Although MNCs can cover the costs of certification, compliance costs can be prohibitive for many small companies and growers. They may not be able to comply without subsidies/incentives. Government support through environmental fiscal reforms could be one option.

Dr. T. Dr. Manoharan

A stand of plantation timbers

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4. Forest certification in India

4.1 Forest certification

Forest certification has become an important mechanism for forest conservation and sustainable use of forests since the FSC was established in 1993 in response to the Rio Declaration. UNEP-WCMC (United Nations Environment Programme and World Conservation Monitoring Centre) is tracking the extent of the area under FSC certification as an indicator of biodiversity conservation globally.7 FSC standards for certification are based on economic, environmental and social principles and criteria approved by its members. These standards can be adapted to the local context by developing local indicators (national standards).

Globally, several forest certification schemes emerged after the FSC, including the Programme for Endorsement of Forest Certification (PEFC), Sustainable Forest Initiative (SFI), Malaysian Timber Certification Council (MTCC) and Lembaga Ekolabel Indonesia (LEI). The aim of forest certification is to ensure the traceability of timber from the retail shop or consumer to its origins in a sustainably managed forest area (certified forests) through a tracking system of chain-of-custody (CoC) certificates along the entire supply chain. Certificates are issued by a recognised independent third-party auditor.

Figure 4.1. Area under FSC certification (1995–2012)a

a As of September 2012, Source: FSC (2012)

Demand for FSC certification is increasing in the international market. As of September 2012, the area under FSC certification is around 160 million ha (Figure 4.1), with more than 22 000 CoC certificates issued. Many leading MNCs have committed to FSC certification and have introduced changes in their procurement policies and other business practices accordingly.

7 http://www.unep-wcmc.org/bip-forest_86.html 24

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Critics of forest certification argue that the demand for forest certification can potentially create a non-tariff barrier for developing countries where meeting the costs of certification is a challenge.8 In the case of SMEs, forest certification creates several – possibly prohibitive – challenges unless adequate incentives are provided. The equity issues associated with forest certification are attracting attention (Thornber et al. 1999).

Forest certification is a non-state, market- EFI driven initiative recognised as one of the Timber processing mill in Kozhikode, Kerala, Southern India most innovative institutional designs of the past 50 years (Cashore et al. 2004). However, a role for government in creating enabling conditions for forest certification cannot be ruled out.

4.2 Uptake of FSC certification in India

The uptake of FSC certification in India since 2005 has been considerable. The number of FSC CoC certificates increased from two in 2005 to 324 as of September 2012 (Figure 4.2). An area of 418018.49 ha across five states (Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra and Odisha) has FSC forest management unit certification. These areas are managed by private and cooperative societies (FSC 2012).

Figure 4.2. FSC certificates in India (2005–2012)

(Number of certificates [both CoC and forest management unit/CoC] as of 14 September 2012)

350 329

300

250 218

200 FSC certificates 150 137

100

50 42

9 2 3 4 0 2005 2006 2007 2008 2009 2010 2011 2012

8 ‘[Some people have the impression that forest certification] has not reduced deforestation as originally intended, but acts instead as a market governance tool which may become barrier to international trade’(Max and Cuypers, 2010). 25

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4.3 Forest management unit certification

India’s pulp and paper industry has played an important role in promoting FSC certification. The industry has supported four of the five forest management unit certificates awarded to date, through both financial and technical support of the farmers’ cooperative societies in the areas where companies source wood. The four supporting companies are ITC, Ballarpur Industries Limited (BILT), Tamil Nadu Newsprint and Papers Limited (TNPL) and West Coast Paper Mills. The area under forest management unit certification is likely to increase, given that these companies plan to assist more areas to obtain certification. Many other companies are also following this approach: most of the leading paper manufacturing companies in India have already secured CoC certificates. Murugappa Group secured the first forest management unit certificate in its rubber plantation in New Ambady Estate in Kanyakumari District, Tamil Nadu, in 2007. About 378170 ha of forest area managed by Maharashtra State Government Forest Department also secured FSC Certification in December 2012.

Table 4.1. Area in India under FSC certificationa

Organisation Area (ha) Species Year State Supporting organisation

New Ambadi 688 (Rubber) 2007 Tamil Murugappa Estate (P) Ltd Nadu Group

Patneswari 928 Eucalyptus 2011 Odisha BILT Agricultural camaldulensis; Acacia Cooperative mangium; Eucalyptus Ltd (PACL) tereticornis

Society for 10643 Eucalyptus tereticornis; 2011 Karnataka West Coast Afforestation, Eucalyptus spp; Acacia Paper Mills Research and harpophylla; Eucalyptus Allied Works pellita; Dalbergia (SARA) sissoo; Leucaena leucocephala; Eucalyptus urophylla; Eucalyptus urograndis

ITC Ltd – PSPD 8028 Eucalyptus spp; 2012 Andhra ITC Ltd Unit, Pradesh Bhadrachalam

Tamil Nadu 19561.49 Eucalyptus spp; 2012 Tamil TNPL Newsprint and Gmelina arborea Roxb.; Nadu Papers Ltd Dalbergia sissoo; Acacia mangium; Melia azedarach L.;

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Organisation Area (ha) Species Year State Supporting organisation

Bhamaragarh 378170 Tectona 2012 Maharasht Maharashtra Forest grandis;Terminalia ra State Forest Division, spp.;Bombax ceiba L; Department Maharashtra Dalbergia sissoo;

Forest Pterocarpus marsupium

Department Roxb.; Dendrocalamus strictus

Total 418018.49 a As of December 2012, Source: FSC (2012)

By investing in forest certification, a company can minimise risks and establish a DDS while enhancing its own reputation.9

4.4 Government initiatives

India’s Ministry of Environment and Forests established a committee on forest certification, chaired by Dr Maharaj Muthoo, which submitted its report in September 2010. The ministry then met with various stakeholders in 2011. As of late 2012, the Ministry of Environment and Forests was finalising its policy, expected to result in the creation of the Indian Forest Certification Council (IFCC) within two years (Singh 2012). The objective of the IFCC will be to develop certification criteria, certification processes and accreditation criteria and processes in order to establish forest certification of timber and non-timber forest products at national level (MoEF 2011; WWF 2012). The industry, particularly SMEs, has expressed concerns about procedural delays in government initiatives.

The Indian Ministry of Textiles, through the Development Commissioner (Handicrafts) and EPCH, is providing support to help the wooden handicrafts sector obtain forest certification in order to meet export demand. The Planning Commission, in its report by the Working Group on Ecosystem Resilience, Biodiversity and Sustainable Livelihoods for the 12th Five- Year Plan, recommended certification and labelling as a means of enhancing local livelihoods (Planning Commission 2012).

4.5 Cost of certification

The cost of certification continues to be a major constraint, particularly for SMEs and small- scale growers, including in agroforestry and farm forestry. Certification costs comprise not only the fees and charges levied by certification bodies but also compliance costs, both one- off and recurring. The cost of certification is falling slightly as more certification bodies become active in India, with many certification bodies adopting innovative approaches to minimise costs, such as training local auditors.

9 The EUTR states: ‘In order to recognise good practice in the forestry sector, certification or other third party verified schemes that include verification of compliance with applicable legislation may be used in the risk assessment procedure.’ 27

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As mentioned, the EPCH has introduced programmes to provide financial and technical support to the Indian wooden handicrafts industry in obtaining FSC certification in order to meet export demand. This has been shown to be of great importance, as the wooden handicrafts industry in India is losing business to the value of around US$300 million annually because of the lack of internationally accepted certification schemes such as FSC certification (Singh 2011).

As noted above, the pulp and paper industry in India has provided both financial and technical support for FSC certification to some cooperative societies and farmers in plantations/farm forestry and agroforestry areas where companies source wood for paper production. Initiatives by the ITC-PSPD, BILT, West Coast Paper Mills and TNPL are likely to be followed by other paper companies.

5. Effect of procurement policies

The linkages between corporate procurement policies and environmental conservation are well established. Consequently, related policies and practices offer key indicators for a company’s environmental performance.

European companies and traders have increased their commitment to environmental sustainability and support initiatives to combat illegal logging in several ways. In addition to individual efforts, companies have actively supported collaborative efforts. One example is the formation of the Timber Retail Coalition by four European companies, namely Marks & Spencer, Kingfisher, IKEA and Carrefour. The Timber Retail Coalition publicly welcomed the EUTR and the introduction of ‘due diligence measures’.10 Indian companies, particularly large and medium companies, also have introduced procurement policies designed to suit local conditions while meeting national and international standards.

5.1 Procurement policies of selected multinational companies

IKEA

IKEA is the world’s largest furniture retailer, with more than 300 stores in 38 countries and annual sales of US$23 billion. It is also one of the largest consumers of wood among retailers. The company has announced its commitment to environment sustainability and responsible procurement. In 1999, IKEA introduced a policy that prohibits the use of wood from intact natural forest, except from FSC-certified areas.11 In addition, IKEA has established a code of conduct for its suppliers in accordance with international norms.

10 http://www.errt.org/timber-retail-coalition 11 IIED case study 28

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In India, IKEA is presently operating out of Gurgaon (Haryana) as part of IKEA Trading Hongkong Ltd, with an annual turnover of US$260 million. The company deals in textiles, rugs, metals and plastics, and has not yet started sourcing wood and wood products from India. However, this situation is likely to change, given that it has long-term plans to invest in the retail industry in India. IKEA is expected to invest around US$700 million in the short

term, increasing to US$1 billion in the next 15 to 20 years.

Dr. T. Dr. Manoharan Dr. T. Dr. Manoharan

Wooden furniture (chair parts) manufacturing Wooden side tables with drawers manufactured unit for export

The Government of India requires that a company source 30% of its raw materials locally for ‘single-brand’ FDI in retail. However, procuring the desired wood from Indian sources may be a constraint for IKEA, at least in the short term, because of the insufficient supply of timber and timber products that meet the company’s criteria. That is, there are not enough FSC-certified timber and timber products to meet IKEA’s immediate requirements.

Tetra Pak

Tetra Pak is a multinational food packaging and processing company of Swedish origin. It operates in 170 countries and has an annual turnover of around US$10 billion. It is the world’s leading supplier of carton packaging.

According to promotional materials by the company, ‘Tetra Pak aims to use the greatest possible proportion of responsible renewable materials, such as wood in the paperboard, in its products. Choosing paperboard suppliers that use wood from certified and well-managed forests gives Tetra Pak a competitive advantage among today’s environmentally conscious consumers.’12

12 Forest Partnership: WWF and Tetra Pak: www.tetrapak.com/Document%20Bank/environment/TetraPak_WWF_2011.pdf 29

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Tetra Pak launched the world’s first FSC-labelled cartons in 2007 through Sainsbury’s, a supermarket chain in the UK. In 2010, Tetra Pak produced and sold 8.5 billion FSC-labelled cartons globally. Tetra Pak has given the following reasons for its support of the FSC:13

 FSC standards are globally recognised as the highest social and environmental standards in forestry.  Each individual operation is audited at least once a year. A company must comply with all FSC’s requirements to achieve and maintain certification  Certification bodies are also regularly audited to ensure strict and consistent implementation of FSC rules and procedures.  A tracking system allows tracking of FSC-certified wood throughout the production chain to the final labelled product.  FSC is the only internationally recognised standard-setting organisation for responsible forest management supported by global environmental organisations like WWF and Greenpeace  FSC is represented in over 50 countries around the world.

Source: http://www.tetrapak.com/Document%20Bank/environment/TetraPak_FSC_March2011.pdf

Tetra Pak, through its participation in the Global Forest and Trade Network (GFTN), has set a target of having 50% of the raw materials used in Tetra Pak packages FSC certified; as of 2009, 36% of materials were FSC certified.

Tetra Pak India was founded in 1996 and is based in Gurgaon. Tetra Pak India Private Limited operates as a subsidiary of Tetra Pak International AB. In India, the company has offices and plants in Gurgaon (Haryana), Pune (Maharashtra) and Bangalore (Karnataka).

Tetra Pak has experienced rapid growth in the Indian market, particularly in the dairy and beverages industries. In addition, packaging materials are manufactured in India to supply overseas markets. The company’s recent investments include establishing a packaging- materials factory (at a cost of INR 600 crores), since the existing one, in Pune, reached full capacity. The new plant will have a total capacity of 8.5 billion packages a year, with the potential to scale-up to 16 billion packages, putting it among Tetra Pak’s top five packaging- materials factories worldwide.

5.2 Procurement policies of selected Indian companies

ITC

ITC is an Indian public conglomerate with diversified business in fast-moving consumer goods, hotels, paper and packaging and agribusiness; it has an annual turnover of about US$7 billion. The paper and paperboards division (ITC-PSPD) is the company’s third largest business.

ITC-PSPD produces 0.5 million tonnes a year of paperboard, paper and specialty papers through its four units, located in Bhadrachalam, Tribeni, Kovai and Bollaram. ITC is setting up a board machine with a capacity of 100 000 metric tons per annum (MTPA), to start

13 In its 2012 Sustainability Update, Tetra Pak stated that ‘…. towards our goal of the totally renewable package, we’re committed to securing a sustainable supply of paperboard for our cartons through Forest Stewardship Council™ (FSC™) certification’ (http://reports.tetrapak.com/su2012/home/). 30

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production in early 2013. This machine will be used to produce virgin fibre boards and recycled boards.

ITC-PSPD meets approximately 59% of its total fibre needs throughout social and farm forestry projects; another 17% comes from recycled fibre and the remaining 24% from imported pulp (Figure 5.1).

Figure 5.1. ITC-PSPD sources of wood fibre

24%

Social and farm forestry projects Recycled fibre Imported pulp 59% 17%

The ITC has made a commitment to sourcing wood fibre from legal and certified sources. According to the company’s wood-fibre procurement policy, FSC is its preferred scheme. It has set a primary target of obtaining FSC certification for the bulk of the farm and social forestry plantations in areas where the company operates.

As of late 2012, ITC supported farm forestry and social forestry plantations covering around 112 000 ha in three districts in Andhra Pradesh, namely Khammam, West Godavari and Krishna. Of these, a total area of 8028 ha owned by around 9000 small-scale farmers is FSC certified. This certification is expected to boost the credibility of sourcing throughout the extended supply chain while increasing the economic benefits to small-scale farmers.

According to ITC’s publicly available procurement plan, it has set a target of having 75% of total production in its Kovai unit under FSC or similar certification by 2013–14. ITC’s 2011 Sustainability Report gives the corresponding targets for its Bhadrachalam, Tribeni and Bollaram units and educational and stationery products as 58%, 45%, 58% and 58%, respectively.

BILT

BILT forms part of the US$4 billion Avantha Group, which is India’s largest manufacturer and exporter of paper, including writing and printing paper, industrial paper and specialty paper. The company has six manufacturing units in India, located in Yamuna Nagar (Haryana), Ballarpur and Bhigwan (Maharashtra), Kamalapuram (Andhra Pradesh) and Sewa (Orissa). It also has three subsidiaries in the Netherlands and one subsidiary in Sabah, Malaysia, where BILT manages around 300 000 ha of plantations.

The company made the following statement in its 2011 Annual Report: ‘The company’s raw material requirements of approximately 2 million tones of bamboo and pulp wood were met from renewable sources. While 20 per cent from government forests and 80 per cent was procured from pulp wood grown by the farmers. The major dependence of fibre sourcing

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from the farming community is in conformity with the principles as stipulated in the National Forest Policy.’14

BILT introduced its Fibre Resource Development Programme as a way of increasing its supply of raw materials in a sustainable manner. In particular, the company was instrumental in securing FSC certification for Patneswari Agricultural Cooperative Limited (PACL) in Jeypore, Odisha. PACL is an association of small-scale farmers who produce pulpwood on their degraded land. BILT has a buy-back arrangement with PACL members, and also provides them with credit facilities.

5.3 Discussion

The EUTR is likely to induce European companies to establish improved DDSs. Many of these companies have operations in India, and some plan to scale-up their operations considerably through FDI in the retail sector. Although these companies have limited experience with India’s conditions in the field, particularly for working with small-scale growers and SMEs in rural areas, their capacity to clean up the supply chain through improved DDSs will have positive effects on the Indian economy. On the other hand, Indian companies have the capacity to engage with growers and primary processors of timber and timber products effectively while developing business relationships with MNCs. This also will help to extend the supply chain of the timber and timber products industry in India, thereby bringing economic benefits to people and businesses downstream.

6. Conclusion and recommendations

The present analysis shows that the EUTR is likely to affect India in several ways. This creates a need to understand its challenges and opportunities not only for the timber and timber products sector but for the whole economy and population. Products listed under the EUTR have an annual export value of around US$1.3 billion; paper and paper products and wooden furniture are major contributors to this amount. Other products where India has large potential, such as bamboo, rattan and recycled products, are outside the scope of the EUTR.

India does not have a VPA with the EU and is not considering entering into VPA negotiations, although several of India’s trade partners do have or are negotiating a VPA as part of the FLEGT Action Plan. Nevertheless, the introduction of the EUTR will encourage forest certification in India. The EUTR will indirectly provide incentives to parties that would prefer to shift towards credible forest certification (responsible and sustainable trade). The regulation encourages the market to introduce sufficient safeguards and establish improved DDSs; this in turn induces companies to invest additional resources to strengthen their procurement policies, research and development, technologies, monitoring systems, legality and certification. As seen, leading MNCs and market leaders in the industry have already responded in this direction.

14 BILT Annual Report 2011. http://www.avanthagroup.com/companies-ballarpur.asp 32

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The EUTR will influence the procurement policies of both MNCs and Indian companies and help extend the supply chain. The cost of compliance (certification, procurement rules and other provisions) will be lower for businesses, including SMEs, that are in MNCs’ supply chains. This will be beneficial for farmers and primary processors. The regulation will also positively contribute to the competitiveness of the wood products industry in both domestic and international markets. Indian companies are likely to adopt improved DDSs (e.g. forest certification) in a cost-efficient manner.

EFI

Timber processing mill in Kerala, Southern India – logs are floated down the Kallai River to mills by the river banks. During high tide, the logs are easily guided into

6.1 Recommendations

2. Provide fiscal incentives to the industry, particularly SMEs, to establish due diligence systems.

3. Promote credible forest certification in both government-managed forests and plantations and private areas, including agroforestry, farm forestry and social forestry areas.

4. Set up a government task force to study the ramifications of the EUTR.

5. Provide technical support to address the risk involved with continuing business as usual (e.g. provide user-friendly materials, accessible designated focal points such as a government institution or local non-government institution).

6. Encourage the Indian industry to invest resources in establishing cost-effective and locally adaptable due diligence systems to address the issue of illegal logging.

7. Allocate sufficient funds to relevant institutions to conduct training and other capacity-building programmes.

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References

Cashore, B., Auld, G. and Newsom, D. 2004. Governing through markets — forest certification and the emergence of non-state authority. Yale University Press, New Haven, CT, USA.

Export Promotion Council for Handicrafts (EPCH). 2012. Export data on handicrafts. Export Promotion Council for Handicrafts, New Delhi, India. http://www.epch.in/hed.htm

European Commission. 2010. FLEGT Asia Regional Programme: supporting responsible trade for Asia’s Forests. EuropeAid Coordination Office, Brussels, Belgium.

Food and Agriculture Organization (FAO). 2011. State of the world’s forests 2011. FAO, Rome, Italy.

Forest Stewardship Council (FSC). 2012. Questions and answers about FSC and EU Timber Regulation. FSC International Centre, Bonn, Germany, 19 July.

Government of India. 2006. Report of the National Forest Commission. Ministry of Environment and Forests, New Delhi, India.

Indian Paper Manufacturers Association (IPMA). 2012. Indian paper industry – overview. IPMA Indian Manufacturers Association, New Delhi, India. http://www.ipma.co.in/

Khanduri, S.K. and Mandal, R. 2005. National forest policy and wood production: an introspection. Environment and Forest Unit, Planning Commission, Government of India. New Delhi, India.

Kumar, A. 2011. Challenges of finding raw material supplies: recovered paper, wood, non- wood and plantation restrictions, RISI India Seminar, New Delhi, India, 9 December.

Maher, K. 2012. Gibson Guitar to pay fine over wood imports. The Wall Street Journal, August 7.

Manoharan, T.R. 2011. Supply determinants of timber trade in India. Research report supported by the Planning Commission, Government of India. WWF-India, New Delhi, India.

Max, A and Cuypers, D.2010. Forest certification as a global environmental governance tool: what is the macro-effectiveness of the Forest Stewardship council? Regulation & Governance 4:408-434

Ministry of Environment and Forests (MoEF) 2009. Asia-Pacific forestry sector outlook study II: India outlook study 2020. MoEF, New Delhi, India.

Planning Commission. 2012. Report of the Working Group on Ecosystem Resilience, Biodiversity and Sustainable Livelihoods for the 12th Five-Year Plan. Planning Commission, Government of India, New Delhi, India.

Singh, A.M. 2011. Ministry of Environment and Forests: presentation on the stakeholders meeting, 24 November. WWF India, New Delhi, India.

Singh, A.M. 2012. Forest certification. Presentation at the Indian Forest Congress, New Delhi, November 2011. Ministry of Environment and Forests, New Delhi, India.

EFFECTS OF THE EU TR AND THE DEMAND FOR C ERTIFIED LEGAL TIMBE R I N I N D I A

Thornber, K., Plouvier, D. and Bass, S. 1999. Certification: barriers to benefits. A discussion of equity implications. Discussion Paper 8. European Forest Institute. Finland

World Bank. 2006a. Strengthening forest law, enforcement and governance. World Bank, Washington DC.

World Bank. 2006b. Unlocking opportunities for forest-dependent people in India. Report No. 34481-IN, Agriculture and Rural Development Sector Unit, South Asia Region, World Bank, New Delhi, India.

WWF. 2010. Exporting in a shifting legal landscape. Global Forest and Trade Network (GFTN) and WWF International. Gland, Switzerland.

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List of tables and figures

Table no. Caption Page

2.1 Production, trade and consumption of selected wood 12 products in India (2008)

2.2 Demand for wood in India (2000–2020) (million m3) 12

2.3 Domestic supply of wood products in selected industries 13 in India (2000–2020) (million m3)

2.4 Changes in sources of India’s domestic timber supply 13 (2000–2020)

2.5 Export value of wooden handicrafts from India 15 (1995/96–2011/12) (US$ million)

2.6 Export value of products listed in the EUTR from India 16 (US$ million)

2.7 Export value of HS 48 products from India to selected EU 17 countries (2006/07–2010/11) (US$ million)

2.8 Export value of HS 940360 products from India to 18 selected EU countries (2006/07–2010/11) (US$ million)

3.1 Legality requirements and constraints on compliance 21 with the EUTR (checklist)

4.1 Area in India under FSC 27

Figure no. Caption Page

2.1 Exports of wooden handicrafts from India (1995/96– 15 2011/12) (US$ million)

2.2. Exports of other wooden furniture (HS 940360) from 19 India to selected EU countries (2006/07–2010/11) (US$ million)

2.3 Exports of paper and paperboard (HS 48) from India to 19 selected EU countries (2006/07–2010/11) (US$ million)

4.1. Area under FSC certification (1995–2012) 25

4.2 FSC certificates in India (2006–2012) 26

5.1. ITC-PSPD sources of wood fibre 32

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List of Annexes

Annex A: List of interviewees

Annex B: Timber and timber products listed in the Annex to the EUTR

Annex C: Top 50 export commodities, India (Apr–Jun, 2011 and 2012) (US$ million)

Annex D: Top 50 import commodities, India (Apr–Jun, 2011 and 2012) (US$ million)

Annex E: Key concerns discussed with stakeholders

Annex F: Timber products included in the FLEGT Licensing Scheme under VPAs

Annex G: Exports of wooden handicrafts from India

Annex H: Exports to selected EU countries from India (April–June, 2011 and 2012)

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Annexes

Annex A : List of interviewees

1 Ms Rachel Butler European Timber Trade Federation London

2 Ms Fiona Wheatley Plan A Sustainable Development Manager Marks and Spencer, Merchant Square, North Wharf Road, London

3 Dr Richard R Perkins London School of Economics

4 Ms Julia Young Manager, GFTN UK, WWF UK

5 Mr H K Chen TRAFFIC-International

6 Dr Aparna Sawhney Associate Professor School of International Studies Jawaharlal Nehru University, New Delhi

7 Dr Ligia Noronha Executive Director The Energy and Resources Institute (TERI), India Habitat Centre New Delhi

8 Prof. Baskar Vira Department of Geography Downing Place University of Cambridge, UK

9 Ms Rohini Chathurvedi, Doctoral Student University of Cambridge

10 Mr Jean Baukauma GFTN France, WWF France,

11 Ms Marie Vallée Director, FSC France 5 rue de Bernus 56000 Vannes

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12 Mr Angel Llavero Responsible Purchasing Coordinator, Global Forest and Trade Network (GFTN)

13 Mr S N Venkataraman Vice President, ITC-PSPD Hyderabad (India)

14 Mr Suneel Pandey Vice President, BILT, India

15 Mr A M Singh Inspector General of Forests Ministry of Environment and Forests, Government of India

16 Dr P J Dilip Kumar Director General of Forests and Special Secretary to Government of India Ministry of Environment and Forests

17 Mr Rakesh Kumar Executive Director Export Promotion Council of Handicrafts (EPCH),

New Delhi

18 Mr John Hontelez Chief Advocacy Officer FSC International Centre

19 Mr Alistair Monument Director, Asia Pacific Forest Stewardship Council Asia Regional Office

Hong Kong

20 Mr S K Mohanty Research and Information System for Developing Countries (RIS) India Habitat Centre, Lodhi Road New Delhi

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Annex B: Timber and timber products listed in the Annex to the EUTR

REGULATION (EU) No 995/2010 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market, Official Journal of the European Union L295/31-L295/32 dated

12.11.2010

ANNEX Timber and timber products as classified in the Combined Nomenclature set out in Annex I to Council Regulation (EEC) No 2658/87 ( 1 ), to which this Regulation applies

— 4401 Fuel wood, in logs, in billets, in twigs, in faggots or in similar forms; wood in chips or particles; sawdust and wood waste and scrap, whether or not agglomerated in logs, briquettes, pellets or similar forms — 4403 Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared — 4406 Railway or tramway sleepers (cross-ties) of wood — 4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm — 4408 Sheets for veneering (including those obtained by slicing laminated wood), for plywood or for other similar laminated wood and other wood, sawn lengthwise, sliced or peeled, whether or not planed, sanded, spliced or end- jointed, of a thickness not exceeding 6 mm — 4409 Wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rebated, chamfered, V-jointed, beaded, moulded, rounded or the like) along any of its edges, ends or faces, whether or not planed, sanded or end-jointed — 4410 Particle board, oriented strand board (OSB) and similar board (for example, waferboard) of wood or other ligneous materials, whether or not agglomerated with resins or other organic binding substances — 4411 Fibreboard of wood or other ligneous materials, whether or not bonded with resins or other organic substances — 4412 Plywood, veneered panels and similar laminated wood — 4413 00 00 Densified wood, in blocks, plates, strips or profile shapes — 4414 00 Wooden frames for paintings, photographs, mirrors or similar objects — 4415 Packing cases, boxes, crates, drums and similar packings, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood (Not packing material used exclusively as packing material to support, protect or carry another product placed on the market.) — 4416 00 00 Casks, barrels, vats, tubs and other coopers’ products and parts thereof, of wood, including staves — 4418 Builders’ joinery and carpentry of wood, including cellular wood panels, assembled flooring panels, shingles and shakes — Pulp and paper of Chapters 47 and 48 of the Combined Nomenclature, with the exception of bamboo-based and recovered (waste and scrap) products — 9403 30, 9403 40, 9403 50 00, 9403 60 and 9403 90 30 Wooden furniture — 9406 00 20 Prefabricated buildings

( 1 ) Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (OJ L 256, 7.9.1987, p. 1).

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Annex C: Top 50 export commodities, India (Apr–Jun, 2011 and 2012) (US$ million)

Rank Commodity Apr–Jun Apr–Jun 2012 % Growth % 2011 (P) Share

1 petroleum (crude & products) 15,283.23 12,377.99 -19.01 16.92

2 gems & jewellary 11,749.28 10,796.62 -8.11 14.76

3 transport equipments 7,005.65 5,468.11 -21.95 7.48

4 machinery and instruments 3,482.10 3,741.14 7.44 5.11

5 drugs,phrmcutes & fine chemls 2,981.45 3,378.82 13.33 4.62

6 guergum meal 349.17 2,923.60 737.31 4

7 manufactures of metals 2,061.08 2,537.50 23.11 3.47

8 rmg cotton incl accessories 2,633.76 2,112.15 -19.8 2.89

9 electronic goods 2,170.95 2,075.78 -4.38 2.84

10 other commodities 5,058.73 1,754.12 -65.32 2.4

11 cotton yarn,fabrics,madeupsetc 1,726.15 1,680.57 -2.64 2.3

12 plastic & linoleum products 1,778.61 1,440.41 -19.02 1.97

13 inorganic/organic/agro chemls 1,257.90 1,370.59 8.96 1.87

14 manmade yarn,fabrics,madeups 1,292.72 1,193.91 -7.64 1.63

15 prmry & semi-fnshd iron & stl 1,346.96 1,076.26 -20.1 1.47

16 dyes/intmdtes & coar tar cheml 989.21 996.43 0.73 1.36

17 cotton raw incld. waste 3.57 918.99 25,624.11 1.26

18 iron ore 923.39 878.82 -4.83 1.2

19 rice -basmoti 793.78 851.38 7.26 1.16

20 sugar 469.51 796.6 69.67 1.09

21 spices 564.8 748.81 32.58 1.02

22 non-ferrous metals 781.81 739.15 -5.46 1.01

23 meat & preparations 551.09 720.1 30.67 0.98

24 marine products 610.97 674.64 10.42 0.92

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Rank Commodity Apr–Jun Apr–Jun 2012 % Growth % 2011 (P) Share

25 rubr mfd. prdcts excpt footwr 545.99 631.67 15.69 0.86

26 rice (other than basmoti) 61.12 616.75 909.12 0.84

27 cosmetics/toiletries etc. 361.42 609.76 68.71 0.83

28 rmg manmade fibres 553.79 593.94 7.25 0.81

29 processed minerals 405.51 550.42 35.74 0.75

30 ferro alloys 418.58 503.43 20.27 0.69

31 oil meals 497.11 489.35 -1.56 0.67

32 paper/wood products 448.21 480.79 7.27 0.66

33 other ores and minerals 495.8 403.74 -18.57 0.55

34 footwear of leather 413.15 388.26 -6.02 0.53

35 residl chemicl & allied prdcts 354.74 376.95 6.26 0.52

36 rmg of othr textle matrl 294.96 362 22.73 0.49

37 gls/glswr/cermcs/reftrs/cmnt/ 296.32 336.02 13.4 0.46

38 other cereals 290.99 324.64 11.56 0.44

39 groundnut 251.19 312.48 24.4 0.43

40 finished leather 263.02 293.67 11.65 0.4

41 iron&stl bar/rod etc 345.23 288.79 -16.35 0.39

42 coffee 321.9 284.44 -11.64 0.39

43 castor oil 364.11 266.83 -26.72 0.36

44 leather goods 253.72 262.5 3.46 0.36

45 paints/enamels/varnishes etc. 199.81 226.28 13.25 0.31

46 misc processed items 183.43 224 22.12 0.31

47 carpet(excl. silk) handmade 205.7 222.82 8.32 0.3

48 cashew 207.73 198.54 -4.43 0.27

49 wheat 0.1 180.81 189828.8 0.25 9

50 fresh fruits 122.2 180.89 48.03 0.25

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Rank Commodity Apr–Jun Apr–Jun 2012 % Growth % 2011 (P) Share

Total 76,507.51 73,150.69 -4.39 100

Source: DGCIS, Kolkata

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Annex D: Top 50 import commodities, India (Apr–Jun, 2011 and 2012) (US$ million)

Rank Commodity Apr–Jun Apr–Jun % % 2011 2012 (P) Growth Share

1 petroleum, crude & products 39,425.04 39,376.21 -0.12 34.47

2 gold 16,104.91 9,105.88 -43.46 7.97

3 electronic goods 7,858.68 7,536.61 -4.1 6.6

4 machry excpt elec & electronic 7,588.06 7,226.97 -4.76 6.33

5 perls prcus semiprcs stones 9,440.14 5,743.04 -39.16 5.03

6 other commodities 2,522.58 4,464.97 77 3.91

7 coal,coke & briquittes etc. 4,216.44 4,205.84 -0.25 3.68

8 metalifers ores & metal scrap 3,366.12 3,943.19 17.14 3.45

9 organic chemicals 3,344.30 3,704.22 10.76 3.24

10 vegetable oils fixed (edible) 2,001.87 2,997.02 49.71 2.62

11 iron & steel 2,450.92 2,676.87 9.22 2.34

12 transport equipments 2,500.82 2,593.22 3.69 2.27

13 artfcl resns,plstc matrls,etc. 1,768.26 2,124.66 20.15 1.86

14 project goods 1,720.58 2,084.82 21.17 1.82

15 profsnl inst,etc excpt elctrnc 1,190.85 1,362.36 14.4 1.19

16 non-ferrous metals 1,271.51 1,195.13 -6.01 1.05

17 elec machry excpt electronic 1,194.24 1,160.79 -2.8 1.02

18 inorganic chemicals 1,155.48 1,043.69 -9.68 0.91

19 manufactures of metals 959.8 1,004.62 4.67 0.88

20 chemical matrl & prodcts 953.47 950.92 -0.27 0.83

21 fertilezers manufactured 1,135.15 893.44 -21.29 0.78

22 medicinal & phrmacuticl prodts 649.32 747.24 15.08 0.65

23 machine tools 747.52 695.75 -6.92 0.61

24 wood and wood products 565.81 620.58 9.68 0.54

25 non-metlc mnrl mnfs excl perls 466.49 521.35 11.76 0.46

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Rank Commodity Apr–Jun Apr–Jun % % 2011 2012 (P) Growth Share

26 oth txt yrn,fabs,madeup artl 446.53 471.75 5.65 0.41

27 silver 2,062.64 432.9 -79.01 0.38

28 synthc & reclmd rubber 434.13 399.9 -7.89 0.35

29 paper board & manufactures 395.68 387.23 -2.14 0.34

30 dyeng,tanng,colrng matrls 326.71 385.02 17.85 0.34

31 primry stel,pig iron basd itms 179.43 369.28 105.81 0.32

32 fertilizers,crude 257.65 353.56 37.23 0.31

33 pulp and waste paper 392.05 334.28 -14.73 0.29

34 pulses 424.29 307.99 -27.41 0.27

35 fruits & nuts excl cashew nuts 207.41 260.67 25.68 0.23

36 natural rubber 191.07 235.64 23.33 0.21

37 m-made fmnt/spun yrn(inc.was) 264.72 231.98 -12.37 0.2

38 cashew nuts 265.06 223.94 -15.51 0.2

39 newsprint 238.7 203.65 -14.68 0.18

40 comp.software in physical form 507.27 207.77 -59.04 0.18

41 prntd books,nwspaprs,jrnls etc 206.95 166.02 -19.78 0.15

42 other crude minerals 137.04 165.33 20.65 0.14

43 spices 122.98 129.76 5.51 0.11

44 essential oil & cosmetic prepn 96.61 126.73 31.18 0.11

45 leather 132.57 113.61 -14.3 0.1

46 sulphr & unrostd iron pyrts 88.49 101.37 14.56 0.09

47 wool, raw 112.91 98.47 -12.79 0.09

48 cotton raw:comb./uncomb./waste 92.58 75.96 -17.95 0.07

49 madeup textile articles 75.91 72.83 -4.05 0.06

50 synthetic & regenerated fibres 98.12 62.14 -36.67 0.05

Total 122,741.44 114,240.69 -6.93 100

Source: DGCIS, Kolkata

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Annex E: Key concerns discussed with stakeholders

 What are the driving factors behind forest certification in India?  Do business and industry in India consider forest certification to be an opportunity to promote their products?  Is the demand for forest certification acting as a non-tariff barrier for Indian companies in international trade and to market access, particularly in Europe and North America?  How do Indian companies deal with the cost of forest certification? Will this cost result in increased prices for certified products in the market?  Does forest certification help support government regulations?  How do business and industry build capacity to respond to EU FLEGT and the US Lacey Act?  Can the uptake of forest certification in India provide benefits to small growers and small and medium enterprises?  What are the linkages between certification and legality?

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Annex F: Timber products included in the FLEGT Licensing Scheme under VPAs

ANNEX II of Council Regulation (EC) No 2173/2005 of 20 December 2005

Timber products to which the FLEGT licensing scheme applies irrespective of the partner country HS heading | Description | 4403 | Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared | 4406 | Railway or tramway sleepers (cross-ties) of wood | 4407 | Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm | 4408 | Sheets for veneering (including those obtained by slicing laminated wood), for plywood or for other similar laminated wood and other wood, sawn lengthwise, sliced or peeled, whether or not planed, sanded, spliced or end-jointed, of a thickness not exceeding 6 mm | 4412 | Plywood, veneered panels and similar laminated wood |

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Annex G: Exports of wooden handicrafts from India

INR Crores

S. Country 2010–11 2011–12 No.

1 Australia 24.10 40.98

2 Canada 18.89 44.75

3 France 66.98 85.16

4 Germany 48.78 156.83

5 Italy 54.22 60.37

6 Japan 27.36 21.44

7 The Netherlands 46.56 73.62

8 United Arab Emirates 84.67 54.73

9 Switzerland 24.61 15.39

10 USA 279.56 506.18

11 UK 112.52 225.81

12 Latin America and Caribbean 11.33 32.45

13 Other countries 221.47 242.79

Total 1021.05 1560.50

Source: EPCH

1 Crore=10 Million

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Annex H: Exports to selected EU countries from India (April–June, 2011 and 2012)

Sl. Rank Country Export value % share total No. (US$ million) exports

1 7 Netherlands 2049.02 2.80

2 8 UK 2017.41 2.76

3 9 Germany 1775.95 2.43

4 12 Belgium 1303.75 1.78

5 15 France 1131.07 1.55

6 17 Italy 995.54 1.36

Total 9272.74 12.68

Other countries

1 USA 10448.4 14.28

2 United Arab 9898.49 13.53 Emirates

3 China 3775.94 5.16

4 Singapore 3355.34 4.59

5 Hong Kong 3030.32 4.14

6 Saudi Arabia 2483.04 3.39

India’s total 73150.7 100 exports

Source: DGCIS

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TR Manoharan is based in New Delhi

He be contacted at [email protected]