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Report from
North America
Indonesia currently largest supplier of hardwood
plywood to US
Hardwood plywood imports were down 14% in February
(173,179 cu.m.). Imports from most countries declined
month-over-month with the largest fall in shipments from
China and Russia. Imports from Malaysia increased from
January, but Malaysia¡¯s shipments to the US have not yet
recovered to 2017 levels.
Year-to-date plywood imports fell 40% compared to
February 2017, but the value of imports decreased by only
25% due to higher prices of Chinese plywood in recent
months.
Unsurprisingly the largest drop was in imports from
China, while imports from Vietnam and Cambodia gained
after the US introduced antidumping and countervailing
duties on Chinese hardwood plywood. In terms of volume,
Indonesia has replaced China as the largest supplier of
hardwood plywood to the US.
Wood product imports down except hardwood flooring
Hardwood flooring imports were up in February while
imports of tropical veneer, hardwood moulding and
assembled flooring panels declined from January.
Hardwood flooring imports increased 18% year-to-date
and 25% month-over-month in February.
Flooring imports from Malaysia tripled from January to
737,580 cu.m. Hardwood flooring shipments from China
and Vietnam were down in February. In assembled
flooring panels (engineered and laminate) imports from
Europe grew significantly in February.
Tropical veneer imports from China fell in February,
following two months of higher imports. Veneer is not
affected by the U.S. duties on hardwood plywood.
Decline in wooden furniture imports
Wooden furniture imports declined in February to under
US$1.6 billion, but year-to-date imports remain higher
than in February last year.
The month-on-month decline was mainly in imports from
China and Vietnam, but imports from most other suppliers
(except Canada) were also down. Non-upholstered seating
imports were unchanged from January, but imports of all
other types of wooden furniture posted declined.
Furniture and home furnishing retails sales rise first
quarter
The furniture and wood products manufacturing industries
reported growth in March, according the Institute for
Supply Management¡¯s survey (Manufacturing ISM Report
On Business).
New furniture orders in January were up 2% over orders in
January 2017, according to the Smith Leonard survey of
U.S. residential furniture manufacturers and distributors.
Furniture shipments in January were unchanged from the
same time last year.
Retail sales at furniture and home furnishing stores picked
up in March, according to the U.S. Census release of
preliminary estimates. In the first quarter of 2018,
furniture and home furnishing retail sales were 4.8%
higher than in the first quarter last year.
Year-to-date cabinetry sales through February 2018 were
down 0.6% according to participating manufacturers the
Kitchen Cabinet Manufacturers Association¡¯s monthly
Trend of Business Survey. For the year 2017, U.S. cabinet
manufacturers reported a 3% increase in sales.
US trade policy viewed negatively by consumers
Economic growth was strong in the first quarter with GDP
increasing 2.3%, according to the advance estimate
released by the Bureau of Economic Analysis. In the
fourth quarter of 2017, GDP increased 2.9%. The
unemployment rate was unchanged at 4.1% in March,
according to the U.S. Bureau of Labor Statistics
employment in manufacturing increased.
Consumer confidence was down slightly in April from the
previous month. The U.S. administration¡¯s trade policy
and new duties were viewed as negative by the majority of
respondents in the University of Michigan Surveys of
Consumers.
Affordability and supply affect housing market
Multi-family housing construction drove the growth in
housing starts in March, according to the latest data
release by the U.S. Census Bureau and the U.S.
Department of Housing and Urban Development.
Total starts were 11% higher than in March 2017, at a
seasonally adjusted annual rate. Single-family starts fell in
March but the number of permits for new houses is high
and indicates future growth.
Existing-home sales grew for the second consecutive
month in March. While demand for homes is up in the
current economic environment, low supply and rising
home prices hold back many would-be buyers, according
to the National Association of Realtors.
Moulding and trim market
Engineered wood and plastic moulding and trim are
expected to gain market share in the U.S. over the next
four years, but wood will remain the main material.
Demand for wood moulding and trim is projected to
increase 3.7% annually to US$5.5 billion in 2022,
according to a new Freedonia market study (Moulding and
Trim in the US by Material, Product, Market and Region,
7th Edition).
Wood will account for more than half of all moulding and
trim sales in 2022, despite having the slowest growth rate
of all materials. Engineered wood and plastic will grow at
a faster rate because of cost and durability considerations.
New home construction and renovation, especially in
single-family houses, as well as non-residential
construction (office and institutional) will drive the growth
in moulding demand.
The main market for wood is in residential construction and
renovation, while commercial construction uses mostly
metal. Office and institutional buildings use a range of
materials for moulding and trim, including wood and
engineered wood.
EPA declares biomass energy carbon neutral
The federal Environmental Protection Agency (EPA) has
declared biomass from managed forests as carbon neutral
when burned for energy production.
The agency noted that the decision was not based on
scientific evidence or recommendations by the
independent Scientific Advisory Board, who was tasked in
2011 to establish a factor for carbon emissions from the
entire life cycle of biomass feedstocks for electricity
generation.
Forest industry groups such as the American Wood
Council have welcomed the announcement. At the same
time the effect on biomass energy use in the U.S. is
unclear because many states have their own policies on
biomass use for renewable energy.
Environmental groups have criticized the declaration
given the Science Advisory Board¡¯s finding that not all
wood biomass is carbon neutral. The National Resources
Defense Council noted that the EPA and the federal
government lack jurisdiction over the regrowth of most
U.S. forests and therefore cannot guarantee that the
biomass grows back.
ITTO/EC IMM Report
Market role of EUTR and FLEGT licensing
A key question for the long-term future of the EU trade in
tropical timber products is the impact of the EU Timber
Regulation (EUTR).
This is particularly true of suppliers in those tropical
countries, like Indonesia, that have a Voluntary
Partnership Agreement (VPA) with the EU and are
seeking an assurance that FLEGT licensed timber will
benefit in the market from the ¡°green lane¡± offered by
EUTR.
FLEGT licensed and CITES certificated timber products
are the only products recognised by EUTR as requiring no
further checks by EU importers to ensure their legal status.
For those suppliers of tropical timber products that are not
FLEGT licensed, there are key issues surrounding the
types of information that the EU importers will accept as
assurance that there is a negligible risk of illegal harvest.
These issues have been highlighted in recent weeks by the
prosecution of one UK importer for a failure to comply
with EUTR in relation to sawnwood imported from
Cameroon. The prosecution was solely focused on the
company¡¯s due diligence systems relating to its purchases
of FSC-certified ayous from Cameroon in January 2017.
Although the prosecution acknowledged that none of the
material imported was from an illegal source, the company
was found guilty of failing to adequately check the legality
of the timber when placing it on the market.
The company was fined £4000 in the second successful
EUTR prosecution in the UK. The first was last year when
a designer furniture retailer was fined £5000 for importing
a sideboard from India without carrying out the required
due diligence assessment.
Commenting on the latest prosecution, a representative of
the British Woodworking Federation said: ¡°Companies
bringing timber products in directly from outside the EU
need to have their own due diligence system in place even
for one-off transactions and cannot rely on suppliers to
carry this out on their behalf.
¡°This must include information about the supply of timber
products, an evaluation of the risk of placing illegally
harvested timber and timber products on the market and
necessary steps to mitigate this risk; for example
additional information and third party verification¡±.
¡°Simply bringing in FSC, PEFC or similar Chain of
Custody certified timber is not enough to satisfy the due
diligence requirements for these importers, although
FLEGT licenced timber would suffice.¡±
In practice, given the extra due diligence steps required to
import even FSC certified timber into the EU market,
EUTR should offer significant market advantages to
tropical suppliers of FLEGT licensed timber.
At present that applies only to Indonesia, which has
licensed timber for the EU market since November 2016.
The latest data from the FLEGT Independent Market
Monitor, hosted by ITTO, suggests that this market
advantage may be filtering through into a rise in EU trade
with Indonesia for product groups like plywood and
decking that have been an immediate focus of EUTR
enforcement activity.
There has been quite a sharp increase in EU imports of
Indonesian plywood since November 2016, lending
support to anecdotal reports of EU plywood importers
being encouraged to stock more Indonesian product due to
licensing. EU imports of decking products from Indonesia
were sliding in the first half of 2017 but recovered in the
second half of the year.
However, it would be a mistake to attempt to attribute
these trends to a single cause, even one so significant as a
regulation applicable to every company placing timber on
the market in the EU. An increase in trade can be expected
in a year when the EU economy began to grow more
strongly after a long period of slow growth following the
European debt crises.
It¡¯s also apparent that the rise in trade with Indonesia
during 2017 was not universal across product groups. EU
imports of wood furniture from Indonesia were flat during
the year, while imports of Indonesian flooring and glulam
declined.
See: http://www.flegtimm.eu/index.php/newsletter/flegt-marketnews/
54-eu-imports-from-indonesia-in-2017).
These trends seem to be confirming earlier forecasts in the
ITTO MIS (16-30 Sept 2016 & 16-30 April 2017) that the
combination of EUTR and FLEGT licensing offer an
immediate opportunity for Indonesian suppliers to retake
share in those sectors ¨C like decking and plywood - where
Indonesian products are familiar to EU importers and
already favoured for their strong technical performance,
but where demand has been dampened by concerns over
the legality of wood supply.
However, in isolation, FLEGT licensing is less likely to
generate immediate benefits in those high value sectors
like furniture and joinery where the specific technical and
environmental features of Indonesian wood products have
been less significant barriers to competitiveness than wider
issues such as labour costs, red tape, logistics, processing
efficiency, innovation, and marketing.
In these sectors, increasing share may well be achieved if
FLEGT licensing is combined with market development
initiatives to improve the international competitiveness of
Indonesian wood manufacturers across a wider range of
issues, although this is likely to take time.
ClientEarth: EUTR not ¡°effective, proportionate and
dissuasive¡±
The potential value of FLEGT licensing is also partly
dependent on the extent to which EUTR is being
implemented consistently across the EU. This is a question
considered in a new report issued by ClientEarth, a UK
based NGO specialising in analysis of environmental law.
In the report, ClientEarth provide their assessment of
whether the enforcement regimes, which under EUTR are
required to be implemented by the individual EU member
countries, are ¡°effective, proportionate and dissuasive¡±
according to the law.
The report highlights that although the EUTR was first
introduced in March 2013, some EU member countries
delayed introduction of a national enforcement regime for
some time after that date, although nearly all had done so
by the end of 2016.
ClientEarth show that penalties for EUTR infringements
vary widely across the EU. Certain Member States (such
as Austria, Poland, Romania and Bulgaria) have chosen a
penalty regime relying mainly on administrative penalties;
others (such as Denmark and the Netherlands) rely mainly
on criminal penalties for key EUTR obligations. Some
Member States (such as Belgium, Finland, France,
Germany and Italy) have adopted a combination of the two
systems.
EUTR penalties include notices of remedial actions,
seizure of timber, suspensions of authorisations to trade,
fines and imprisonment. ClientEarth conclude that
competent authorities and Member State courts have been
more actively enforcing the EUTR since 2016 compared
to the years 2013 to 2015 when almost no penalties had
been imposed.
ClientEarth summarise all the EUTR actions that have
been reported publicly to date referencing the two UK
cases mentioned earlier together with two cases in the
Netherlands, two cases in Sweden, and one in Germany.
In the Netherlands, a fine of €1,800 per cubic metre of
timber was imposed on a company for a failure to gather
information tracing back the entire supply chain of
imported sawn timber deemed to be risky from Cameroon.
In another case, a preventive measure was ordered against
two Dutch importers of Burmese teak, imposing a fine of
€20,000 per cubic metre for each teak shipment placed on
the market in breach of the EUTR.
In Sweden, the cases so far have all involved prosecutions
for a failure to undertake appropriate due diligence in
imports of Myanmar teak.
One company was fined SEK 17,000 (approximately
€1,700), another the much larger amount of SEK 800,000
(approximately €79,500) due to a failure to implement
measures stipulated in an earlier injunction.
In addition to these cases which led to fines, in 2017
several other Swedish companies were prohibited under
EUTR from importing any products containing Burmese
teak.
In Germany, an administrative court confirmed in 2017 a
decision by the competent authority taken in 2013 to
confiscate timber imported from the DR Congo due to
irregular documentation. The timber will be auctioned and
the money from the auction allocated to the federal
budget.
While these few cases have been brought in a limited
number of Member States, according to ClientEarth, 'soft'
approaches involving no punitive action and a mainly
educative purpose still seem to be the preferred
enforcement option in many Member States. Such
measures include advice letters and warnings, as well as
injunctions and notices of remedial action without noncompliance
penalties.
Based on this analysis of the cases brought date, the text of
laws introduced at national level, publicly available
information on regulatory checks and sanctions regimes,
and interviews with several competent authorities,
ClientEarth conclude that ¡°EUTR penalties rarely seem
enforced to the 'effective, proportionate and dissuasive'
legal standard, even in Member States where a positive
trend in EUTR enforcement is noticeable.¡±
Comment on ClientEarth assessment of EUTR
The ClientEarth study has limitations. The conclusions are
based on a technical analysis of sanctions regimes -
considering, for example, whether the costs of sanctions
are likely to significantly exceed the costs of
implementing EUTR due diligence measures and therefore
to provide an effective deterrent.
There is no actual appraisal of whether the national
differences in sanctions regimes is leading to significant
failures in enforcement or other negative impacts, such as
diversion of illicit trade through countries with weaker
enforcement regimes.
It is notable that in none of the cases cited was it ever
proved that the wood was from an illegal source - there is
no obligation under EUTR on the EU authorities to
provide such proof - the prosecutions were all due to the
failure on the part of the importer to demonstrate
compliance to the due diligence steps required in EUTR.
The fact that these prosecutions were brought and led to
significant sanctions, even without evidence of illegality at
source, suggests that the law has teeth and places a
significant lever to encourage more far-reaching due
diligence measures in the hands of the EU authorities.
It¡¯s the kind of regulatory power that needs to be used
wisely to avoid unintended consequences, such as the
creation of technical barriers to trade, feeding of
protectionist instincts and discrimination against smaller
operators.
ClientEarth acknowledge that their conclusions are based
on inadequate information, noting that there is relatively
little publicly available information about the number of
penalties that have been applied since the EUTR has been
in force. The EC has already indicated an intent to
improve transparency on this issue and much more
information is expected to be available later in the year.
ClientEarth is also critical of what it refers to as ¡®soft¡¯
approaches, arguing that they do not provide an effective
deterrent to timber products from placing timber at risk of
being illegal on the EU market.
This is one interpretation, but in practice EUTR is a
complex and innovative law for which most national
authorities have had to acquire new knowledge and skills,
often from the private operators they are required to
regulate, many of which were implementing responsible
procurement policies for years even before EUTR was
introduced.
Regulating the purchasing decisions throughout 28
Member States of a fragmented industry with nearly half a
million enterprises, one in five of all manufacturing
enterprises in the region, is unprecedented. In the early
years of implementing EUTR, there has been some
confusion and ambiguity over the exact measures required
by individual operators to demonstrate conformance.
Communicating to timber operators, often small traders
with only limited access to legal advice, that they cannot
accept either FSC certificates or government documents at
face value as evidence of a ¡°non-negligible risk of illegal
harvest¡± takes time and effort.
It is challenging to explain to operators that it is their
responsibility to identify which products are ¡°nonnegligible
risk¡±, particularly when the EC and other
regulators cannot advise on the relative risks associated
with different supply countries and product groups. In
such a situation it would be unjust to rush to prosecution ¨C
and runs the risk of discrediting the legislation,
particularly amongst those operators being regulated.
The success of the EUTR to date has been built to a
significant extent on the active support of the private
sector within the EU. This support would quickly
evaporate if a perception arose that it was just being used
as a rod to beat the industry.
A lengthy period of ¡°soft¡± regulation seems most
appropriate, at least until such time as guidelines and
supporting information sources have been properly
developed and communicated and the authorities are
sufficiently competent to accurately interpret and enforce
the law. However, there may be a distinction between
certain member states using ¡°soft¡± measures as part of a
concerted effort to evolve an effective, efficient and
equitable regulatory program, and others that may be
hiding behind these measures to avoid more meaningful,
and potentially costly, action.
If the latter attitude is widespread it could have the
negative consequences mentioned by ClientEarth; an
unequal playing field for trade in the EU, undermining the
efforts of those operators that are conscientiously
implementing due diligence procedures, undermining
demand for FLEGT licensed timber, and encouraging
diversion of illicit trade through less regulated countries.
So far, the information gathered by ClientEarth is not
sufficient to judge the effectiveness of EUTR and their
conclusion that the law does not provide a reliable
deterrent to trading illegally harvested wood seems
premature.
A clearer picture will emerge only when the EU publishes
more comprehensive information on the regulatory
measures and sanctions introduced at national level in the
EU and with more detailed analysis of actual trade flow
trends and the compliance steps being taken by operators
across the EU.
The European Commission monitors impacts and
implementation of the EUTR and updates can be found in
ITTO¡¯s market reports and the IMM website
http://www.itto.int/imm/.
Readers can find the ClientEarth report here and make their own
judgement on this:
https://www.documents.clientearth.org/library/downloadinfo/
national-eutr-penalties-are-they-sufficiently-effectiveproportionate-
and-dissuasive/
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