Responding To The EUTR

As the most recent effort by EU to curb imports of illegally sourced timber, the EU Timber Regulation (EUTR) raises important questions concerning

the international timber trade. For its successful implementaion, it is cruical to identify and classify various actors involved and examine the roles they play.  By AlexandruGiurca, Swedish University of Agricultural Sciences, and RagnerJonsson, Institute for Environment and Sustainability, European Commission

The European Union (EU) is an important export market for countries with high levels of illegality and poor governance in the forest sector. Consequently, the EU initiated the EU Forest Law Enforcement Governance and Trade (FLEGT) action plan.

In March 2013, an additional step was taken with Regulation no.995/2010 of the European Parliament and of the Council, commonly known as the EU Timber Regulation (EUTR). This new regulation raises important questions for the future of both the European and the international timber trade. 

The EUTR was welcomed by many as a long awaited effort to curb illegal logging. However, particularly in the early stages of its implementation, the regulation could cause ambiguity in international timber markets, when the effects and/or the requirements are not fully understood or known by agents and stakeholders. These issues are likely to arise when each member state (MS) transposes the new regulation into its own policy framework.

An effort has been made to disseminate information and adapt viable risk assessment and risk mitigation procedures through adequate Due Diligence Systems (DDSs) by European companies, industry federations, non-governmental organisations (NGOs) and MS. Following consultations with stakeholders and experts, the EC has acknowledged that certain aspects of the EUTR and its non-legislative aspects need clarification, hence producing guidance documents and supporting various information campaigns. There are still some concerns among operators and traders regarding uncertainty and risk aversion.

As the EUTR was only recently introduced, assessments of the effects on timber markets of this regulation are very scarce, especially as the full impact of EUTR will be visible only once all national legal frameworks are implemented. However, how the EUTR is understood and regarded by different stakeholders will clearly be of paramount importance for the implementation of the regulation.

The new regulation has, however, generated a lot of discussions in the media and the opinion of some stakeholders is already in the public eye. There is, however, currently a high degree of ambiguity around the new regulation in this early stage of its implementation. 

Policy Context

The FLEGT Action plan introduces two policy instruments: the Voluntary Partnership Agreements (VPAs) and the EUTR. Both instruments address the problem of illegal logging, the first aimed at producing countries whereas the latter at EU importers. VPAs and EUTR are meant to reinforce each other.

Under the EUTR, European operators (the main focus of the legislation) are held accountable for the products that they bring into the EU. Operators are encouraged to produce adequate documentation as proof for legally sourced timber. Each MS is responsible for determining how to control the legality of its imports, and how sanctions are applied if necessary.

EUTR covers a broad range of timber products (including solid wood products, flooring, plywood, pulp and paper) and sets out three main requirements for EU operators:

(i)Prohibition—this prohibits placing illegally harvested timber or timber products on the EU market. 

(ii)DDSs—which sets the following requirements: provide access to information on imported timber (country of harvest, concession, species, sizes, quantities), implement a risk assessment procedure (evaluate the risk of occurrence of illegally harvested products) and apply risk mitigation measures and procedures. 

(iii)Traceability obligation—operators must keep detailed records with information on their suppliers.

Under the EUTR regulation, ‘illegally harvested’ means harvested in contravention of the applicable legislation in the country of harvest. Therefore, the basis for defining illegal logging is the legislation of the producing country, considering that there is no international agreement on how to define legally harvested timber. 

EUTR explicitly states that timber and timber products covered by FLEGT licenses or Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) permits meet its requirements. It could be said that the EUTR creates a strong market advantage for such products. 

Furthermore, though certified products provide evidence of legally sourced timber, certification alone does not automatically ensure legality, unlike FLEGT or CITES licenses. Certified products may be considered as low-risk within the DDSs of companies, but it has not been determined if this approach will be accepted by law enforcement bodies. Therefore, the exact role of certification under the EUTR is yet to be determined.

Actors & Their Roles

Requirements imposed by a new regulation can be perceived as complex, ambiguous or indeterminate. Consequently, actors may associate complex phenomena, such as the EUTR, with certain characteristics such as safe or risky; predictable or indeterminate; important or unimportant. It is therefore essential, when assessing how a regulation may be perceived, to consider reducing its complexity and to manage uncertainty.

The EUTR creates a new framework within which various actors involved in the timber trade can interact. The regulation incorporates the roles of existing actors with new actors who are responsible for new tasks. It is important to categorise these actors, to classify their roles and responsibilities, and to understand how they interact.

Officially, the EUTR operates with reference to six main actors:

•the European Commission (EC): responsible for the effective implementation of the regulation;

•MSes: each responsible for the implementation of the regulation through national competent authorities;

•Operators: the primary placers of timber or timber products on the European market;

•Traders: actors who receive timber or timber products from operators and trade on the European market;

•Monitoring organisations (MOs): assisting operators with adequate DDSs.

The EC assigns different MOs who in turn provide services to operators by assisting with DDSs. Competent authorities, designated by each MS, are responsible for the verification of the functionality of MOs. Hence, although the EC can offer or withdraw recognition to MOs, there is no investigative authority and is therefore relying on the evaluation of competent authorities. MOs offer services to operators and past or ongoing relationships between the two parties are therefore to be considered in the implementation.

The EC and MS are classified as‘political actors’. Both operators and traders are also referred to as ‘businesses’. In addition, MOs as well as ‘trade-related organisations’ including timber trade federations (TTFs) and other similar organisations (profit and/or non-profit) are placed in the same category, under ‘trade-related organisations’. The rationale being that, although different, such organisations assist and/or support businesses in the interpretation and implementation of the EUTR.

The EUTR is under scrutiny from public opinion and media as well as from different environmental and research organisations. Various NGOs play an important role in influencing both the formulation and implementation of the EUTR—58 international NGOs have called on the EC to adopt a regulation against illegal timber imports, but have subsequently criticised the regulation’s implementation and effectiveness. Universities and research organizations are also considered important and influential actors that scrutinise various aspects of the regulation.

Not surprisingly, there is a considerable heterogeneity amongst actors’ standpoints. Given the fairly recent introduction of the regulation, most actors are cautious in expressing definitive standpoints. 

Political actors such as the EC—which advocate good forest governance, sustainable forest management, and the necessity to combat illegal logging—appear to be the main supporters of the regulation.

Divided Business Sector

There are diverging opinions amongst business representatives. Unfavourable standpoints were found typically to come from companies which have faced public scrutiny and that have been accused of engaging in unlawful practices. Business representatives generally criticised the uncertainty around the regulation indicating ‘the lack of operational guidance and a functional oversight mechanism’. Others expressed concerns that the focus is mostly on legal compliance, rather than on both legality and sustainability.

Favourable standpoints were clearly detectable in statements from North American trade-related organizations. Other representatives state that the EUTR “could be very beneficial for Canadian producers of wood and products made of woods that are harvested in Canada, given the country’s negligible risk status.”

Although there were a vast number of statements from other trade-related organisations, few expressed a clear standpoint. However, these opinion statements generally suggest a need for improved guidance and clarification as there is ‘still widespread confusion’ around some details of the EUTR.

Some governance experts inferred that the EUTR “is likely to violate at least one substantive World Trade Organization (WTO) provision” because it “makes the marketing of illegally logged timber a criminal offence and therefore creates a ‘de facto’ restriction on the importation of timber…”.

Some WTO members expressed concerns regarding the regulation, representatives for Canada noted that EUTR’s “…traceability requirements could provide an unfair competitive advantage to manufacturers of forest products in the EU compared to their international competitors”. Indonesian representatives also expressed concerns related to EUTR’s DDS requirements.

The view of NGOs towards the EUTR is varied and interesting. 

International NGOs have long urged governments to adopt a timber trade legislation and many NGOs had declared their support for the EU FLEGT Action and EUTR. However, since the introduction of the EUTR, some NGOs have criticised the regulation’s weak law enforcement, implementation, and effectiveness. 

This has led to calls for governments to take prompt and punitive actions against operators who have been found to be breaking the law: “if any governments in the EU turn a blind eye to illegal imports, the forest destruction in areas including the Congo Basin will continue to be driven by our use of wood and associated products.” Consequently, NGOs are concerned that weak penalties will lead to ineffective regulation.

The media has a particularly important role in providing the general public with information that may be otherwise difficult to obtain. Likewise, the media can serve as an indicator for public opinion concerning political decision makers. The media also has a more insidious influence on society, influencing and sometimes distorting public opinion on certain issues. 

Media oriented specifically at the trade sector displayed some criticism towards the regulation, regarding its impacts on trade: “the significant extra cost and complications caused by the legislation have exacerbated the continuing commercial decline of imports.” Stark criticism and/or general adversity were advocated by some information platforms, arguing that “it is clear that the burdensome EUTR and FLEGT VPAs are not only failing timber consumers in developed nations, but also failing to curb illegal logging itself.”

Best Approach?

All of the actors recognised and acknowledged the problem of illegal logging, the risks it poses, and the urgent need to combat it. However, concerns as to whether the EUTR is the best method to combat illegal logging and its associated trade is at the core of the debate, resulting in conflicting frames among actors. In general, timber-exporting countries have expressed their concerns in terms of the potential trade-restrictive effects of legislation.

While some actors see the EUTR as beneficial for their businesses, others fear the regulation could be disadvantageous. The EUTR creates a strong market advantage for products coming from low-risk countries; generally those in the northern hemisphere. On the other hand exporters from developing, high-risk countries feel disadvantaged by the regulation as it creates administrative hurdles and extra costs associated with compliance. In fact, bureaucracy-related concerns are expressed by actors from both importing and exporting countries.

It is notable that some perceived short-comings are at least theoretically addressable, ie: they could be solved if dealt with, including enforcement and guidance issues. EUTR’s penalty system has also been criticised since each member state decides the level of fines to be applied and there is no consensus on the compatibility of fines within the EU. Creating effective penalty systems at a national level is critical to strengthen the overall effectiveness of the EUTR.

Greater Clarity & Guidance

Bureaucracy is a structural, or unavoidable, problem as any legislation which attempts to curb the illegal timber trade will, in all likelihood, incur some degree of bureaucracy, costs, and restrict free trade. Indeed, stricter law enforcement would be likely to increase this ‘shortcoming’, as the possibility to circumvent regulation would diminish. Therefore, in this sense there is a trade-off between effective legislation and the ease of trade. Increased guidance (by the EC, MS governments, and MOs) should at least alleviate this bureaucratic burden.

Steps to address the lack of guidance have, in fact, been taken. Following consultations with stakeholders, experts from MS, members of the FLEGT facility and the EC acknowledged that certain aspects of the EUTR needed clarification. Guidance and clarification for definitions such as: ‘placing on the market’, ‘negligible risk’, and ‘complexity of the supply chain’ were produced. 

Further, details were given on the ‘requirement for documents indicating compliance of timber with applicable legislation’, ‘the product scope’, ‘the role of third parties’ verified schemes in the process of risk assessment and risk mitigation’, ‘regular evaluation of a due diligence system’, ‘composite products’, ‘forest sector’, and ‘treatment of CITES and FLEGT-licensed timber’. Apparently, additional measures to increase transparency and clarity have been called for.

Understanding how stakeholders interpret and evaluate the EUTR should help avoid unwanted detrimental side-effects of the regulation on the international market. If the requirements of the EUTR are not fully understood, however, European importers may assess the risks associated with the value of the wood they want to purchase and opt for more reliable timber sources within Europe and North America. Hence, the general uncertainty around EUTR interpretation may become detrimental for tropical timber exports.

In addition, any ambiguity related to the EUTR, along with associated costs for compliance, could encourage producers in developing countries to export timber to other, more weakly regulated markets. This trade diversion could be reduced by a transparent and consistent application of the EUTR, again with clear guidelines for exerting due diligence, and by encouraging legal exports from developing countries through, for example, price premiums and/or long-term contracts. These two mechanisms are largely in the hands of market forces.

Although stakeholders seem to have reached consensus on the problem of illegal logging and its associated trade, there are still concerns as to whether the EUTR is the proper instrument to address this issue. Some stakeholders see the EUTR as advantageous for their businesses, others see it as an impediment and raise issues such as: law enforcement, lack of guidance and bureaucracy. 

In order to diminish the degree of possible unwanted side-effects (such as trade diversion and substitution of temperate timber for tropical timber) the implementation of the EUTR needs to build on transparency, consistency and clear guidelines for exerting viable due diligence.

It is clear that some aspects of the regulation still need clarification and specific interpretation. However, other structural aspects of the regulation need to be addressed in order to avoid conflicts of interest in the private sector with consideration at the same time, for free and equitable international trade.

 

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