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EU proposed illegal wood law has profound implications for the whole wood trade
timber/forests/panels

03 June 2009

EU proposed illegal wood law has profound implications for the whole wood trade

By Rupert Oliver
Director, Forest Industries Intelligence Ltd

The European Union is considering introducing a new law with the intent of removing illegal wood supplies that could impact profoundly on the whole of the wood trade. The law might deliver a useful framework building on and strengthening existing initiatives to encourage responsible procurement practices in the EU. On the other hand, it could equally well create a monstrous pile of red tape burying the wood industry, seriously undermining its competitiveness and creating unnecessary barriers to trade. Everything hinges on the direction of high level negotiations now underway within the European institutions.
Following 18 months of intensive discussions and consultations on various legislative options to reduce the risk of illegal wood being traded in the EU, the European Commission (EC) published their recommendations in October last year. The EC proposed that individual European operators engaged in the trade and production of wood products should be required to implement a “due diligence” management system to minimise the risk of any illegal wood entering their supply chains. The legislation would apply only to operators who place timber and timber products “for the first time on the Community market”. The product scope of the proposed legislation is extremely broad including everything from raw logs through to furniture and paper products.
The EC’s proposed legislation sets out broad principles for the “due diligence systems” that would be recognised by the authorities. Companies could either develop their own due diligence system or become members of a group due diligence system operated by a “monitoring organisation” (for example the WWF Global Forest and Trade Network, the Timber Trade Federation’s Responsible Procurement Policy, or the Netherlands Timber Trade Association Code of Conduct). Both individual and group due diligence systems would have to meet certain minimum standards and recognised by government authorities in the individual EU member states. There would be mutual recognition so that once a member state recognises a system operating within its national borders all other member states would be obliged to recognise it.
Implementation of the EC’s legislative proposal would be a challenge. The technical resources required to develop, implement and effectively regulate due diligence systems are considerable and may well be lacking in many EU member states. The process of developing relevant and reliable procurement policies in the private sector has taken many years and it may well be unrealistic to expect their emergence in the timescales envisaged in the EC’s proposal (within two years of adoption of the legislation). There is potential for significant variation in the quality of due diligence systems introduced in the various EU member states, at least in the short to medium term. Also there is a need for greater clarity with respect to the operators to be covered by legislation and appropriate risk assessment procedures.
But the EC’s proposal also has significant strengths. It has potential to build on, expand, and formalise existing private sector initiatives which are already demonstrating their ability to reduce the risk of illegal wood entering trade if sufficiently well supported, formulated and monitored. The proposed law would avoid the problems associated with establishing a chain of evidence linking a particular piece of timber with an illegal forestry operation overseas.
The EC’s proposal is also proportionate to the scale of the illegal logging problem. Recent estimates by Forest Industries Intelligence Ltd suggest that at most, only 5% of the wood consumed in the EU is potentially at risk of being derived from an illegal source. The emphasis on risk assessment means that new potentially bureaucratic and costly measures to prevent illegal imports are focused on those external suppliers where risks of illegal trade are high. By targeting only those EU operators that first place timber on the market, the legislation avoids the problems and costs associated with extending the requirements to operators further down the European supply chain (involving around half a million companies).
Unfortunately, there is now a chance that many of the positive aspects of the legislation will be lost as it passes through the EU’s decision-making process. The legislation is being considered for adoption under the EU’s convoluted “co-decision” procedures which require consensus agreement of both the European Parliament and the Council of Ministers.
Before the European Parliament voted on the legislation on 23 April 2009, Caroline Lucas, Leader of the EU’s Green Party and an MEP for Southern England, was instrumental in introducing a huge number of amendments completely altering the thrust and character of the legislation. There was little opposition from MEPs who, it seems, had little understanding of the implications of the amendments.
The Parliamentary amendments turn a proposal requiring a targeted group of EU operators to practice appropriate due diligence procedures into a proposal for rigorous state control over the entire European wood supply chain. While the challenges and costs of introducing the EC’s original proposal would be considerable, they would be nothing compared to those required if the Parliamentary text were to be adopted.
The Parliamentary text introduces a new requirement that “operators shall ensure that only legally harvested timber and timber products are made available on the market”. This amounts to a reversal of the burden of proof, implying that prosecutions could be brought against companies simply because they are unable to prove the legality of a timber product. But the challenge of “proving” legality is considerable, even when procuring wood from countries where there is little risk of illegal logging. This is due to the problem of establishing traceability in situations where wood is sourced from numerous small forest owners and where there is comprehensive mixing of wood raw material from different forests during grading and processing.
So for example, the American Hardwood Export Council has commissioned credible independent research to demonstrate that there is a less than 1% chance of any hardwood imported from the U.S. coming from an illegal source. However, because these timbers are procured from a resource owned by 7 million small family foresters it is rarely practical to provide “proof” of legality with each individual parcel of timber.
And yet full traceability for every parcel of timber is exactly what the Parliament’s amended text would require, irrespective of the level of risk that wood derived from an illegal source. It states that operators must “ensure that only legally harvested timber and timber products are placed on the market, employing a traceability system and third party verification”.
To make matters worse, the Parliament’s amended text proposes that these requirements be imposed immediately. The two year bedding-in period proposed by the Commission is dropped, allowing no time to develop the necessary competence, capacity or procedures. How to find the thousands of personnel skilled in implementation and auditing of wood tracking systems necessary to implement these measures is not considered.
Then there is the question of sanctions. The Parliament’s text proposes that if an operator is “presumed to have infringed these requirements”, government authorities should have powers to seize timber products and to order the operator to immediately cease commercial activities pending a full investigation. An operator could be closed down based merely on a suspected failure to meet its obligation to demonstrate the legality of all wood supplies.
In short, the Parliament’s text is unworkable, unjust, disproportionate and, if implemented, would create a significant barrier to the legitimate trade in wood products, particularly products derived from small non-industrial family forests. It would, for example, lead to active discrimination against U.S. hardwoods despite these being shown through independent research to be low risk with respect to illegal wood and, through regular federal government forest inventories over the last 70 years, to provide a long-term sustainable supply of timber products.
The hope now is that wiser heads will prevail when the legislative proposal is put before the European Council of Ministers in the next few weeks. The signs here are more positive. The Swedish government which holds the European Presidency during the second half of 2009 is likely to be primarily responsible for navigating the legislation through the Council. The Swedish government can be expected to have a much clearer insight than the European Parliament into the implications of the legislative proposal for the wood sector.
Quoted in a recent Euractiv.com article, Swedish government officials say they are hoping to finalise the new timber legislation during their EU presidency but that the negotiating difficulties are considerable. Another member-state source told EurActiv.com that the Council are taking a very different line compared to the Parliament, being more concerned with the technical issues in the draft text, such as how to make the monitoring and compliance systems work. This source also noted that "the Parliament's approach is more ideological" and also acknowledged that the obligation for all operators to check the origin of their timber would place a heavy burden on the industry.
The stakes are high, not only for the wood industry but also for the wider environment. There is a need for more effective action to minimise the risk of illegal wood entering European supply chains. The approach enshrined in the EC’s original legislative proposal of October 2008 - based on credible risk assessment and building on existing best practice in the private sector - is an efficient and proportionate response.
At a time when concern for climate change demands greater use of natural energy-efficient materials capable of sequestering carbon, it makes no sense to smother the wood supply chain with controls which are out of all proportion to those imposed on competing fossil-fuel intensive materials such as plastic, steel or aluminium.

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