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Report from
Europe
Record low EU27 tropical timber imports in 2020
Total EU27 (i.e. excluding the UK) import value of
tropical wood and wood furniture products was US$2.99
billion in 2020, 9% less than the previous year.
This is a significantly higher level of import than forecast
when the first waves of the COVID-19 pandemic hit the
continent early in 2020. It was, however, the lowest level
in recent decades and represented a further decline in a
market which has been severely restricted ever since the
financial crises (Chart 1).
Total EU27 tropical wood and wood furniture import
value in December 2020 was US$242 million, an 8% fall
compared to the previous month. However imports during
December were relatively high for that month, being 17%
more than the same month in 2019, as products continued
to arrive after delays earlier in the year (Chart 2).
Consumption was holding up much better than expected
across many sectors, from construction and DIY to
merchants and furniture makers.
In fact material supply has been more of an issue than
demand, particularly due to lack of container space and
soaring freight rates. With global container distribution
disrupted by the pandemic, shippers out of Asia have been
naming their price. Importers report five- and six-fold rises
in container rates since mid-2020.
Decline in EU27 imports recorded for all tropical wood
product groups
Unsurprisingly, EU27 imports of all the main tropical
wood products fell in 2020, but in each case the decline
was less dramatic than expected earlier in the year when
the scale of the pandemic and associated lockdown
measures was just becoming apparent. Further analysis of
EU imports will be provided in the end April report.
Discussion on possible merger of EUTR with EU
deforestation©\free regulations
The EU is considering introduction of new forest and
climate policy measures which would reshape timber trade
relations with tropical countries. In some ways, the
proposed measures build on the existing policy framework
contained in the FLEGT Action Plan. However, they also
raise questions about the future of existing instruments
such as the EU Timber Regulation (EUTR) and FLEGT
licensing systems.
The potential far-reaching implications of the on-going
policy discussions were highlighted in a presentation by
Hugo Schally of the European Commission¡¯s
Environmental Directorate (EC DG ENV) to a webinar
hosted by FERN, the Brussels based environmental NGO,
on 17 March 2021 which brought together a range of
policy makers and civil society stakeholders for
presentations and discussions on the theme ¡°Enforcing
Due Diligence regulation for forest risk commodities.
See:
https://www.youtube.com/watch?v=zuaEQggFXCE
Mr. Schally starts speaking at around 1hr 15 minutes into
the webinar
Mr. Schally¡¯s presentation provides an insight into the
EC¡¯s latest thinking on international forestry-related issues
at a time when the EU has committed - referenced in three
separate policy instruments; the European Green Deal, the
EU Biodiversity Strategy for 2030 and the Farm to Fork
Strategy - to present, in 2021, a legislative proposal to
avoid or minimize the placing of products associated with
deforestation or forest degradation on the EU market.
This commitment follows the 2019 EU Communication on
¡°Stepping up EU Action to Protect and Restore the
World¡¯s Forests¡±. It was also reinforced in October last
year when the European Parliament adopted MEP Delara
Burckhardt¡¯s report, ¡®An EU legal framework to halt and
reverse EU-driven global deforestation¡¯.
Burckhardt¡¯s report calls on the Commission to ensure
companies are obligated to conduct due diligence on
deforestation and human rights before placing ¡°forest risk¡±
goods on the EU market. It also suggests financial
institutions conduct due diligence before providing money
to companies that harvest, extract, produce, process or
trade forest- and ecosystem-risk commodities and derived
products. It further calls for traceability obligations to be
placed on EU market traders of these products.
The European Parliament¡¯s decision pre-empted the EC¡¯s
on-going impact assessment of regulatory options to
¡°decrease the risk of imported deforestation and forest
degradation¡±. The impact assessment, the results of which
have yet to be published, is being undertaken by EC DG
ENV drawing on insights from a public consultation held
in the last quarter of 2020.
This impact assessment will also take account of the
results of the on-going Fitness Check, also led by EC DG
ENV, of the FLEGT and EUTR regulations, the two key
legal instruments of the EU FLEGT Action Plan.
Supported by a public consultation undertaken early last
year and an external study (not yet published), the fitness
check is looking at the effectiveness, efficiency,
coherence, relevance and EU added value of both
regulations in contributing to the fight against illegal
logging globally.
Presenting to the FERN webinar under the heading ¡°EU
Action on Deforestation: State of Play¡±, Mr. Schally
began by explaining some of the EU thinking behind a
new regulatory approach focused on agricultural
commodities in addition to timber products, implying this
gave greater market leverage.
¡°[The FLEGT and EUTR regulations] have to be seen in
the policy context of the early 2000s¡and the way the
problem was seen at that point in time, namely that the
major driver and the main problem was identified as
commercial logging, and therefore the focus was on timber
trade¡±.
¡°And, of course, when we did the impact assessment on
the new timber regulation, it was clear that international
trade in timber and derived products, was when you look
at overall sizes of the markets and of the economies, was a
fairly marginal issue economically.¡ when you talk about
the proposal that is in the making [for due diligence
regulation], this is radically different, it deals with a broad
range of agricultural commodities, I think we go into a
different ballpark figure¡±.
As background to this new regulation, Mr. Schally
mentioned some of the EC¡¯s preliminary conclusions from
their on-going Fitness Check of the EUTR, noting both
positive results and continuing challenges, particularly for
smaller operators.
¡°Now I think that we all agree that when the results of the
fitness test will be handed out that there has been a
positive result with regard to incentivizing companies to
keeping supply chains clear, however, we have come
across a number of major challenges which is that
infractions under the EUTR are difficult to prove and
substantiate in court, which undermines its dissuasive
power¡±.
¡°And I think that one main complaint that the member
states¡¯ competent authorities have is we're dealing with
complex supply chains with a lot of small and medium
sized enterprises, which leads to high costs for companies,
perhaps too high in that regard (we're still checking on
that), that when you look at the situation over the years,
the imports of timber from some high risk countries where
we can be fairly sure that there is a good proportion of
illegal timber involved has actually increased.
Mr. Schally also elaborated on some specific challenges of
legal interpretation that makes prosecution difficult in the
EUTR, ¡°The term negligible or non-negligible risk is
subjective. The legal system in the member states, very
often have no clear understanding and no long standing
tradition in dealing with the concept of due
diligence¡..We have seen some member states where this
has almost paralysed prosecution and enforcement and
made it really hard to apply any sanctions to governments
in question¡±.
Moving on to FLEGT regulation, Mr. Schally questioned
the value of the legality licensing approach which has been
a core component of the VPA process to date.
¡°Now, on the FLEGT regulation, I think that we need to
make the distinction of what has worked and what hasn't
worked, and I think that the positive story of the FLEGT
VPAs, is that where we have VPA processes we see
positive results in terms of enhanced stakeholder
participation in policymaking and the national level
improvements in forest governance and administration and
some enforcement.
¡°However, when we look at it - and I think it's not
surprising because we're dealing with illegal logging -
there is no hard evidence that VPAs have contributed to
reducing illegal logging in partner countries, or the
consumption of illegally harvested wood in the EU.
¡°That's partially due to the fact that since 2005 when we
started with that regulation, only one country out of the 15
with whom we have engaged has an operating licencing
system in place. And when you look at the overall trade
pattern, only one VPA country is among the top 10 EU
trading partners, which is Indonesia again.
¡°So I think that from our perspective, the part where we
are not confident has made its proof is the licencing
system, and the timber legality assurance system in partner
countries¡±.
While questioning the specific role of legality licensing,
Mr. Schally did, however, emphasise the continuing value
of partnership agreements: ¡°But I think that one thing that
we absolutely need under all costs to be maintained, is the
support mechanism to enable partner countries to comply
with requirements without the elements that do not work.¡±
But he also stressed that the EU¡¯s intent will be to change
the scope and focus of these agreements, to include a
wider range of forest-risk commodities, mentioning beef,
palm oil, soy, rubber, cereals, cocoa, and coffee alongside
wood. He suggested that ¡°it's very clear we're moving
from legality to sustainability¡± and that ¡°there would not
be added value in a dual system for legality on the one
hand and sustainability on the other hand¡±.
Rather than focusing on illegal logging, Mr. Schally said
¡°it is clear that we need to deal with agricultural
production and agricultural expansion, and we actually
need to move from a system that rewards effort and
announcement to a system that rewards performance and
effect.¡±
Moving on to consider the legislative instrument to be
introduced in the EU, Mr. Schally noted four specific
objectives:
¡°to minimise the risk of placing on the EU market
commodities associated with deforestation and
forest degradation;
to make sure EU consumers and citizens are
aware of the impact; thereby,
to promote the demand for and consumption of
commodities and products that are not associated
with deforestation and forest degradation;
and
to incentivise investment and financial interest in
sustainable production systems¡±.
Mr. Schally identified ¡°one of the cornerstones¡± of the
new initiative as the ¡°deforestation free criteria, including
forest degradation¡±, which he said ¡°needs to be based on
solid science¡±. He referenced various relevant sources
including the FAO definition of deforestation, the
UNFCCC and REDD+, and High Carbon Stock Approach.
He suggested that under the new proposed legislation
products from plantations would still be allowed to be
placed on the EU market, but this may be subject to a cutoff
date for conversion yet to be determined, mentioning
that the European Parliament report said this should be no
later than 2015.
In relation to the specific obligations placed on wood and
agricultural commodity traders, and despite having
highlighted some of the challenges of the EUTR due
diligence approach, Mr. Schally noted that ¡°in the end, a
variety of due diligence is what works best because with
all stakeholders, we can actually build on experiences that
they have had with implementing due diligence
requirements¡±.
However, he also suggested mechanisms be introduced to
ensure due diligence does not overburden competent
authorities and economic operators. ¡°We really feel that
[due diligence] needs to be complemented by some
benchmarking country assessments, possibly also by a
system by which public certification systems in third
countries and EU member states would be recognised.
¡°That would mean we would arrive at a tiered system of
due diligence with more requirements for some and less
requirements for others, depending on the fact whether
there is mandatory public certification or benchmarking¡±.
Mr. Schally suggested, however, that a specific
¡°deforestation free requirement¡± for forest-risk
commodities placed on the EU market would be a ¡°nuclear
option¡± and likely very challenging to implement ¡°because
that's a very linear application of the EUTR system to
trade in agricultural commodities¡±. He concluded, ¡°we're
still assessing [the deforestation-free requirement] but I
think that probably whatever we do an element of due
diligence will be important¡±.
While Mr. Schally¡¯s comments are preliminary and views
may alter before any official EU policy is announced,
some of the observations relating to the perceived lack of
effectiveness of the EUTR and FLEGT licensing system in
removing illegal wood from EU trade imply that the EC is
considering a significant change in policy direction.
At this stage it is impossible to foresee the impacts of such
a change in policy direction; however it is possible that
EUTR may be rolled into the broader regulation covering
all ¡°forest risk¡± commodities and including deforestation
free requirements. As for the VPAs, after a period of 15
years when the EU has been actively encouraging tropical
countries to adopt FLEGT licensing systems for timber
products through these legally binding trade agreements,
the focus of future negotiations may change significantly.
The objective may be to finalise agreements covering all
¡°forest risk¡± commodities, as defined in the new EU
regulation, and to develop procedures for ¡°benchmarking
country assessments¡± and ¡°public certification¡± to
demonstrate that their trade does not to contribute to
deforestation or forest degradation.
There may also be a greater emphasis in the agreements on
monitoring the impacts of agricultural commodity trade on
forest carbon stocks.
This would align with another anticipated EC policy
measure, to introduce a border carbon levy for which a
detailed proposal is expected in June. This levy is
expected to help finance NextGenerationEU, the €750
billion ($888 billion) economic recovery instrument now
being rolled out across the EU while also contributing to
the EU target of cutting emissions by 55% compared to
1990 levels by 2030 on the way to making the EU climate
neutral by 2050.
Mr. Schally¡¯s comments on the limitations of EUTR and
FLEGT licensing raise immediate questions about the
future of the EU¡¯s existing FLEGT VPAs ratified with
seven tropical timber producing countries ¨C Cameroon,
Central African Republic, Republic of Congo, Ghana,
Indonesia, Liberia, and Viet Nam ¨C plus the two
agreements still awaiting ratification with Guyana and
Honduras.
The stakes are particularly high for Indonesia which has
been issuing FLEGT licenses now for nearly five years
and has successfully applied its timber legality assurance
system (TLAS) and SVLK certification to all wood
product exports and is looking to the EU to follow up on
specific commitments made in the VPA ¡°to promote a
favourable position in the Union market¡± for FLEGT
licensed products, including specific ¡°efforts to support:
(a) public and private procurement policies that recognise
a supply of and ensure a market for legally harvested
timber products; and (b) a more favourable perception of
FLEGT-licensed products on the Union market¡±.
This implies continued commitment to the ¡°green lane¡±
for FLEGT licensed products in the EUTR, which at least
before the onset of the COVID-19 pandemic was
beginning to pay dividends in terms of rising market share
for Indonesian wood products in the EU. It also implies
further efforts to communicate the benefits of FLEGT
licensing, of the sort described in the 2020 report by the
Center for International Forestry Research (CIFOR)
¡°Collecting Evidence of FLEGT-VPA Impacts for
Improved FLEGT Communication¡±.
The CIFOR report, which draws on research in Cameroon,
Ghana and Indonesia, concludes that ¡°globally, the VPA
process has contributed positively towards a decrease in
illegal logging rates particularly illegal industrial timber in
export markets, notably derived from production forests
being mandated to have management plans.
¡°At the country-level this held true across Cameroon,
Ghana, and Indonesia as the share of legal timber in export
markets had gone up with direct attribution to VPAs. In
Indonesia, the share of national timber production
exploited with a legally obtained permit has also gone up.
Further, across each country, the ultimate goal of SFM
was being better achieved through more thorough
implementation of forest management plans¡±.
CIFOR stressed that ¡°the VPA process has contributed
positively to a more coherent legal and regulatory
framework with sanctions being more regularly enforced
and more credible due to the VPA, and to greater
transparency in the forestry sector¡±.
Following on from Mr. Schally¡¯s comments, and a similar
presentation delivered by the EC on 25 February to the
¡°Multi-stakeholder platform with a focus on Deforestation
and Degradation¡±, an invitation-only group of mainly
European trade associations and NGOs, a joint response
was issued by Indonesia¡¯s Civil Society Organization
(CSO) Coalition working in monitoring the
implementation of TLAS-SVLK.
Slides of the presentations of this meeting are available at :
https://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupMeeting&meetingId=23741
The Indonesian CSOs state that ¡°Without clearly
understanding the research method applied to obtain the
data, whether the data source has been validated and to
what extent the partner countries were consulted, the
stakeholders felt that the European Commission was too
early in concluding that the VPAs have not contributed to
reducing illegal logging in partner countries and did not
capture other detailed information related to the impact of
FLEGT VPA¡±.
The statement highlights that ¡°since the implementation of
SVLK, the number of illegal logging cases declined from
nearly 1800 cases in 2006 to 80 cases in 2020¡± and ¡°since
the implementation of FLEGT licence in 2016,
Indonesia¡¯s timber product export value increased from
USD 9.84 billion in 2016 to USD 11.05 billion in 2020.
Meanwhile, furniture export in 2019 rose 14.5% and in
2020 (during the Covid-19 pandemic) continued to
increase by 12.2% (USD 2.18 billion)¡±.
¡°Furthermore that during VPA implementation, legal
timber and timber products administrative system
(logging, distribution, processing, trade) in Indonesia
experienced an improvement, which reduced the space for
illegal logging and timber distribution. In the wood chip
processing industry, SVLK implementation had a positive
impact on reducing indications of illegal timber entering
the supply chain¡±.
Finally the Indonesian CSO statement ¡°underlined the
issue of market uptake, in which the EU has not fully
support[ed] and promote[d] FLEGT-licenced timber from
Indonesia, as mandated in the VPA text.¡±
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