Carbon exchange launched
On 9 December Malaysia launched its Voluntary Carbon Market (VCM) Exchange to drive the nation's environmental and sustainability goals.
Nik Nazmi Nik Ahmad, Environment and Climate Change Minister said the government is committed implementing climate actions to further reduce the country’s carbon emissions even though Malaysia’s share of global greenhouse gas (GHG) emissions is only around 0.7 percent.
On the carbon trading policy the Minister clarified that under the VCM no restrictions have been imposed on the sales of carbon credits generated from projects located in Malaysia to buyers outside of the country.
The shortage of foreign labourers is still disrupting production in many economic sectors. While the timber sector is badly affected the plantations sector is facing a worse situation.
The Malaysian Palm Oil Association (MPOA) is continuing to engage the Malaysian government to resolve the chronic labour shortage issue that has been plaguing the palm oil industry, especially since the onset of the Covid-19 lockdowns in 2020.
MPOA Chief Executive, Joseph Tek Choon Yee, pointed out that revenue lost due to the shortage of harvesters is estimated to be about RM20 billion. The oil palm sector alone is in need of 200,000 foreign workers.
First woman CEO for Timber Council
The Malaysian Timber Council (MTC) appointed Noraihan Abdul Rahman as its Chief Executive Officer effective from 1 December. Noraihan replaces Muhtar Suhaili.
Noraihan, who was MTC's first woman Chief Operations Officer, is now the Council's first woman CEO in its 30-year history. MTC said she would oversee the strategic direction and drive sustainable growth for the council.
MTC said Noraihan's promotion was celebrated as a step in the right direction for an industry that has few women in its top ranks.
Developing the market in France
Malaysian Wood Moulding and Joinery Council (MWMJC) held an online meeting with the French Timber Trade Federation (LCB) and the International Tropical Timber Technical Association (ATIBT) to exchange information on the Malaysian timber industry and French market for tropical timber.
France is a traditional market for Malaysian wood products and the aim of the meeting was to strengthen and promote the existing good bilateral trading relations between the two sectors.
Both sides discussed the possibility of further collaboration between MWMJC and LCB/ATIBT particularly in view of the potential demand for sustainable timber products in construction projects for the 2024 Olympic Games in Paris.
Sarawak timber exports
Sarawak exported wood products valued at RM3.05 billion in the third quarter of this year compared to RM2.92 billion for the corresponding period last year.
Japan remains the main importer of wood products contributing RM1.88 billion or 62 percent of the total export value in the third quarter of this year. Other major markets were India (RM357 million), Middle East (RM134 million), China (RM131 million) and Taiwan (RM117 million).
In terms of products, plywood exports increased around 2.5 percent in value in the third quarter to RM1.67 billion compared to RM1.63 billion for the third quarter 2021.
The State Government has indicated it intends to continue to boost the industry by providing the necessary infrastructure such as furniture testing laboratories and sites for furniture parks in Demak Laut and Tanjung Manis.
The state government will also continue to increase R&D collaboration with higher educational institutions, research institutes and industry players to develop highly competitive, value-added products.
New strategic plan for Heart of Borneo initiative
The Sabah government has launched a new Strategic Plan of Action (2021-2023) to address emerging challenges and take advantage of potential opportunities to enhance conservation and management of the Heart of Borneo (HoB) landscape.
New features are introduced in the new plan to further align its focus and address strategic shifts critical to lift the Sabah HoB Initiative to a higher level.
Public awareness of the HoB and its conservation efforts has always been a priority in Sabah. Over the past years, roadshows, environmental education and training programmes to promote the HoB Initiatives were conducted for teachers and local communities.
The area of HoB in Sabah represented around 60 percent of Malaysia’s Heart of Borneo landscape area and it holds one of the remaining bastions of treasured biodiversity. A total of 64 percent of Sabah’s landmass is protected forests of which 52 percent are gazetted as Forest Reserves, State Parks, Wildlife Sanctuary and also Wildlife Conservation Areas.
Increasing commitments for legal and sustainable trade
The Programme for the Endorsement of Forest Certification (PEFC) International invited the Malaysian Timber Council (MTC) to participate in the ‘PEFC-For Trade’ regional conference and dialogue held in Ho Chi Minh.
The event attracted the participation of various international and Southeast Asian stakeholders including countries such as Cambodia, Laos, Myanmar, Thailand, Malaysia and Australia.
The conference gathered all the stakeholders involved in the UN-REDD project with the goal to increase national commitment for legal and sustainable trade in wood products.
The dialogue and conference covered topics related to the Vietnam Forest Certification System (VFCS), best practices on VFCS or PEFC sustainable forest management and PEFC chain-of-custody certification from PEFC-certified entities and to understand PEFC’s work on the ground, especially in the rubber sector.
Training CoC auditors
The Malaysian Timber Certification Council (MTCC) will organise a PEFC Chain of Custody Training Course for PEFC-Notified Certification Bodies under the MTCS.
The training course is for new CoC auditors, reviewers and certification decision makers of certification bodies under the MTCS. This training is conducted to fulfil the training requirement as stipulated in the PEFC ST 2003:2020.
Forest industry resilience in face of possible recession
The Ministry of Environment and Forestry (KLHK) is preparing a strategic policy to strengthen the forestry sector to face the threat of a possible global recession in 2023.
The Minister of Environment and Forestry, Siti Nurbaya, said to maintain the productivity and sustainability of forestry businesses, the government has provided a number of incentives.
Among them is the facilitation of postponing and paying in an instalment of Non-Tax State Revenue (PNBP) for forestry business actors through Ministerial Regulation Number 21 of 2021.
Indroyono Soesilo, chairman of the Association of Indonesian Forest Concession Holders (APHI) identified incentives that would be helpful in a global recession.
Among them is the implementation of the Job Creation Law for the forestry sector, particularly in relation to the implementation of multi-business forestry, the implementation of satellite imagery-based work to identify area boundaries and solutions for solving of non-forestry development.
APHI also hopes that the government can revise the Government Regulation Number 12 of 2014 concerning Types and Tariffs of Non-Tax State Revenues that are applied to the Ministry of Forestry, specifically related to the payment of Reforestation Funds (DR) in Rupiah.
In addition APHI hopes that the government will extend the Ministry of Trade Regulation Number 19 of 2021 concerning export policies and arrangements regarding the policy of expanding the cross-section for commercial wood species that can be exported.
Scathing comments on EU Deforestation-free commodity law
According to a representative of the Indonesian government, the new EU ‘Deforestation-Free Commodity Law’ could become a trade barrier for a number of Indonesian commodities and, if implemented, will be anti-multilateralism and discriminatory.
The Indonesian commodities that must meet the requirements of the law are palm oil, beef, soybeans, coffee, cocoa, wood and rubber. In addition, this law also covers derivative products, including meat, furniture, paper, leather and chocolate.
The new EU law will not allow these commodities and products to enter the EU market if they were produced on land deforested or degraded after 31 December 2020.
A spokesperson for the American and European Intraregional Cooperation unit in Indonesia’s Ministry of Foreign Affairs, Ms. Emilia H. Elisa, is quoted as saying the EU regulation will have an impact on business actors and even small producers in Indonesia.
According to Ms. Elisa, the Indonesian government views the EU Deforestation Free Commodity Law as anti-multilateralism because it violates various international and multilateral commitments.
The Indonesian government feels that the law also violates the legal sovereignty of a country to make land-use decisions regarding forests.
Ms. Elisa stated that the Indonesian government believes that the EU policy is a form of discriminatory action that violates WTO rules, especially Article XI of the 1994 General Agreement on Tariffs and Trade (GATT).
Perhutani ready to supply raw materials
Perum Perhutani, together with the Indonesian Furniture and Craft Industry Association (Asmindo), established a Supply Chain cooperation mechanism for wooden furniture and craft enterprises through a Memorandum of Understanding agreed between the Commercial Director of Perum Perhutani, Ahmad Ibrahim and the Chairman of Asmindo, Dedy Rochimat.
Ahmad Ibrahim said that Perum Perhutani is open to collaboration with SMEs. Asmido Chairperson, Dedy Rochimat, said that Asmindo welcomed this collaboration and hoped to obtain the best quality wood raw materials from Perhutani so that it could increase selling power to the global market.
Acknowledging national certification systems
Tropical timber producing countries formed a coalition to urge consuming countries to recognise the certification system developed in each producing country. The coalition included Indonesia, Guyana, Liberia, Ghana, Republic of the Congo, Cameroon and Gabon.
This coalition was announced at the Indonesian Pavilion at the UNFCCC/COP27.
Present for the announcement of the coalition were Deputy Minister of Environment and Forestry of Indonesia, Alue Dohong, Chair of The Forestry Development Authority Liberia Harrison Karnwea, Director of the Ghana Forestry Commission, Chris Beeko, Minister of Forest Economy Republic of the Congo, Rosalie Motondo.
The coalition consists of countries that have introduced a tracking/legality certification system as part of preparations for a Voluntary Partnership with the European Union.
Every country involved has improved forest governance and established a national timber certification system, but these efforts have not attracted market incentives.
Tropical forest and climate action cooperation
Representatives from Indonesia, Brazil and the Democratic Republic of the Congo released a statement on the sidelines of the G20 Summit to reassert their mutual commitment to tropical forest and climate action cooperation while reiterating the need for enhanced climate financing mechanisms.
The Ministers recalled the trilateral meeting between their countries in November 2021 in Glasgow to initiate Forest Power for Climate Actions. This initiative aims to find ways in which tropical forest countries can contribute to climate issues including by boosting their influence in climate negotiations.
Increasing trade in sustainable timber from Indonesia
During a Business Community Dialogue on Indonesia’s sustainable commodities the UK agreed to increase imports of sustainable timber from Indonesia.
The Indonesian Ambassador in London, Desra Percaya, witnessed the signing of a contract for the purchase of wooden doors and plywood between Pacific Rim, Hanson Plywood and James Latham with PT Kutai Timber Indonesia (KTI) and Kayu Lapis Indonesia (KLI) worth around US$25 million. A contract was also signed for paper products between Calington with Asia Pulp and Paper (APP).
Indonesia hopes these contracts can boost exports of sustainable wood products to the UK so as to raise British consumer awareness and confidence in sustainable commodities from Indonesia.
First payment for reducing emissions in East Kalimantan
On 8 November, a World Bank press release announced that Indonesia has received an advance payment of US$20.9 million under the Emissions Reduction Payment Agreement between the Government of Indonesia and the World Bank’s Forest Carbon Partnership Facility (FCPF) for reducing emissions from deforestation and forest degradation (REDD+) in East Kalimantan Province.
Under the Agreement, Indonesia would receive up to US$110 million (IDR1.6 trillion) for verified emissions from reducing deforestation and forest degradation.
Indonesia has become the first country in the East Asia Pacific Region to receive payments through the World Bank’s FCPF. The full payment will be released once the independent third-party verification of the reported emissions reductions, which is currently ongoing, is complete.
APHI supports wood biomass for energy transition
The chairperson of the Association of Indonesian Forest Concession Holders (APHI), Indroyono Soesilo, has said the Association supports energy transition efforts through utilising biomass for electricity generation to achieve a partial shift from coal to biomass which is renewable.
Some four million tonnes of biomass will be required annually and Indroyono said Indonesia has a number of plant species that can be used to support co-such as acacia, giricidia and calliandra.
Furniture export target—US$5 billion
The Director General of Agro Industry in the Ministry of Industry, Putu Juli Ardika, has said the Ministry is supporting the domestic furniture industry to continue to improve performance and competitiveness. This is with the aim of achieving exports of US$5 billion by 2024.
In 2020 exports of furniture were US$1.9 billion and in 2021 this increased to US$2.5 billion. In the January-September 2022 period furniture exports had already reached around US$2 billion.
However, there are many challenges such as the lingering effect of covid and declining international orders. To improve the profitability of the national furniture industry the Ministry is encouraging a renewed focus on the domestic market.
Forest product exports
The news outlet ‘New Light of Myanmar’ has quoted the Ministry of Commerce as saying more than US$94.28 million were earned from the export of forest products from Myanmar from 1 April to 25 November 2022 of the financial year 2022-2023.
In the last financial year, 2020-2021, exports totalled US$128.072 million and during the 2021-2022 earnings were US$83.901 million. Products exported included teak, other hardwoods, plywood, bamboo, cardamom seeds, wax, mustard oil, pine extract, orchids, edible bird’s nest and straw.
In order to export timber and other forest products it is necessary to obtain a certificate verifying legality of forest products. Based on the verification of a ground inspection team and confirmation of the chain of custody a certificate verifying legality will be issued within two days by the director of the Yangon Region Forest Department and the relevant township Forest Departments.
Indian rosewood handicraft exporters given reprieve
Indian exporters of Dalbergia sissoo (Indian rosewood) have been granted an exception under CITES for the export of a limited range of furniture and handicrafts.
During the CITES meeting Indian participants successfully argued that Dalbergia sissoo is found in abundance in the country and is not an endangered species. However, because of the lack of easy-to-use technology for distinguishing rosewood species the Indian timber was not delisted.
Weak rupee dents panel product imports
The weakened rupee against the US dollar has made imports more expensive and this has hit importers of panel products, especially medium density fibreboards (MDFs).
At the beginning of the year there were reports of rising MDF imports from Thailand, Vietnam and Sri Lanka as freight rates dropped, but the sudden weakening of the rupee exchange rate slowed the growth of imports and gave a boost to domestic manufacturers.
Timber not on the restricted list of Myanmar commodities
Rajeev Bhattacharyya, a senior journalist writing in the Irrawaddy, reports that the Indian government has informed the Mizoram State authorities that timber is not on the restricted list of commodities imported from Myanmar.
This followed a petition by an association of wood-based industries in the state which believed timber was on the restricted list of commodities.
India’s Minister of Commerce, Piyush Goyal, said that only two types of timber—rough sandalwood and rough red sanders are on the restricted list of imports from Myanmar.
The author continued “trade between India and Myanmar, both legal and illicit, supports large numbers of people on both sides of the frontier” and it is likely that timber imports from Myanmar will increase given India’s current construction boom.
Wood and wood product (W&WP) trade highlights
According to Vietnam’s General Statistics Office W&WP exports to the US market in November 2022 reached US$550 million, down 7.5 percent compared to November 2021.
Exports of wood and wood products to the US decelerated sharply compared to the first 11 months of 2022.
In the first 11 months of 2022, exports of wooden furniture are estimated at US$9.1 billion, up 1.1 percent year-on-year.
Vietnam's exports up 9% in 11 months
Vietnam exported nearly US$14.6 billion worth of W&WP in the first 11 months of this year, up nine percent year-on-year.
Vietnam has a target to export US$16.5 billion worth of W&WP in 2022. The high season for these products often comes at year-end due to increasing demand for furniture in major export markets. However, prospects are gloomy this year.
In 2021, Vietnam earned over US$14.8 billion from exporting W&WP which increased 19.7 percent year-on-year and accounted for 4.4 percent of the country's total export revenue with the US China, Japan and South Korea among the major markets.
Between January and November this year Vietnam spent more than US$2.8 billion importing W&WP, up 4.4 percent year-on-year.
Vietnam maps out pivot to domestic wood
To ease dependence on imported wood products Vietnam aims to strengthen the domestic supply, a goal the government aims to reach by applying a traditional carrot and stick approach.
Woodsland JSC, one of the biggest wooden furniture manufacturers in Vietnam, is making both interior and exterior wood products for IKEA in markets such as the EU, the United States and Japan and says it has few timber supply problems.
Do Thi Bach Tuyet, chairwoman of Woodsland, said that the company uses up to 200,000 cubic metres of logs per year of which the demand for raw wood from FSC and FM-certified forests is over 90 percent.
In 2015, Vietnam’s wood industry reached out into the global supply chain and many wood companies cooperated to develop large timber forests with FSC certification.
Woodsland has cooperated with five forestry companies in the northern province of Tuyen Quang to invest in the management of 28,000 hectares of forest and purchases FSC-certified plantation timber.
The company is also coordinating with forestry companies and groups of households to develop a forest management plan for at least seven years so that it can create a wood material base to meet processing needs.
Data from the Vietnam Timber and Forest Product Association (ViForest) showed that the amount of imported wood to Vietnam is constantly increasing. From 2012 to 2021, Vietnam imported more than 4.8 million cubic metres of raw wood each year and this came from 100 countries and territories. In 2021 alone, the amount stood at around six million cubic metres of roundwood.
Vietnam is importing wood materials mainly from Europe and North America. But the invasion of Ukraine by Russia has had a big impact on the supply of Russian wood products worldwide and has driven prices of European wood higher.
Vo Quang Ha, General Director of Tavico Timber JSC, said, “The EU has retained a part of its wood material to make up for the shortfall in imports from Russia. The auctions for raw wood are very competitive and freight rates continue to remain high.”
Ha often has to do two things at the same time. “I need to convince customers to use domestic timber and also find alternative sources of plantation timber. But this also poses many problems relating to the quantity and quality of resources and the stability of the domestic supply.”
Tavico’s plan to replace oak with locally grown acacia also faces many challenges. Raw acacia trees are entering the main harvest time of the year, but the selling price of this kind of wood remains very high.
According to ViForest, the price of imported wood has increased sharply since the beginning of 2021. For instance, imported sawnwood increased from an average of US$275 per cubic metres in December 2020 to US$561 per cubic metres in March this year.
ViForest believed that Vietnam is using about 70 percent of its domestic raw materials for woodworking for export. This wood comes from two main sources: Domestic plantations, about 21.5 million cubic metres per year and rubberwood and other trees, about 9.5 million cubic metres per year.
The second source is imported wood. On average, Vietnam imports about 5-6 million cubic metres of raw wood each year of which about 60-70 percent are from verified legal sources and used for export manufacturing.
However, Vietnam aims to replace imported wood sources in the long term. The government has adopted a policy to convert more than 126,000 hectares of small forests to large timber plantations. Currently the country has about 490,00 hectares. of large timber plantations but this figure is still modest.
According to the General Department of Forestry, Vietnam is producing FSC and VFCS-certified wood. However, the implementation and maintenance of these certifications for afforestation units face many obstacles in terms of land, technology, market and policy.
About 180,000 hectares of all plantations are FSC certified yet only about 20-30 percent of those trees are actually harvested.
Vietnam is trying to change the supply of wood products from large plantations. But foresters said that this does not mean that the country’s deep-processing enterprises can access the material in the future.
To increase raw materials for the wood industry, the government is attracting investment to support large timber plantations and a favourable tax structure for the timber industry.
High level uncertainty for medium to long term growth prospects
In December, sentiment among the major Japanese manufacturers rose for the first time in four months and in the service sector optimism was growing as companies began to see signs of consumers spending again.
But there were concerns in both sectors that there is a high level of uncertainty for medium to long term prospects. This uncertainty stems from the up and down recovery from the pandemic in Japan, the slowdown in China which could get worse as Covid-19 restrictions are eased and infections spread and the risk of a global downturn.
Rising prices and weak consumer spending—slow growth anticipated
Kanako Tanaka and Fumiko Kuribayashi have summarised the main findings of a recent Asahi Shimbun survey of 100 major companies as follows:
?More than half of leading companies believe the economy has stalled or is slowly contracting because of rising prices and sluggish consumer spending.
?46 percent of companies in the latest survey viewed the economy as flat, up by nine percent from the previous survey.
?Seven percent said the economy is slowly shrinking.
?53 percent gave a pessimistic assessments of the economy compared with 38 percent in the spring survey.
?The number of companies that feel the economy is slowly expanding fell to 46 out of 100 from 59 in the previous survey.
?No company assessed the economy as on a steady growth path.
Asked to provide the main concerns for the economy:
· 59 companies cited rising prices of crude oil and raw materials
· 34 companies said flagging consumer spending was a big concern. This was more than double the figure in the previous survey.
· 20 companies mentioned the weakened yen.
Establishing Standards leads to high quality products
This year marks the 30th anniversary of the founding of the National Technical Committee for Standardisation of Wood-based Panels.
China’s production of wood-based jumped from 4.3 million cubic metres in 1992 to around 350 million cubic metres in 2021 and the range of wood-based panel products has expanded to more than 100 types today.
After 30 years of effort, a science-based and forward-looking Standard system for wood-based panels has been approved by the Science and Technology Department of the National Forestry and Grass Administration.
The Standard covers veneer, plywood, fibreboard, particleboard, wood laminated materials/integrated materials, wood-based panels faced materials and veneer wood-based panels, wood industrial adhesives, wood (base) flooring, wood wallboard, wood doors and windows, wood stairs and other products, wood (base) composite materials, structural (load-bearing) wood-based panels and products, all kinds of veneer wood-based panels and a variety of wood composite materials.
As of the end of October 2022 the Wood-based Panel Standards Committee was responsible for management of 178 Standards on wood-based panels, including 77 national standards and 101 industrial standards.
These standards support the wood-based panel industrial chain standardisation management in terms of wood-based panel industry raw and auxiliary material production, wood-based panel and its products (such as wood flooring, wood wallboard, wood stairs and doors and windows) processing, management, service and export trade.
These Standards have played an important role in regulating production and market development of China's wood-based panel industry, leading the technological progress of the wood-based panel industry and promoting the high-quality development of China's wood-based panel industry.
Three national mandatory Standards on wood-based panel industry had been formulated, namely the Formaldehyde Emission Limit of Wood-based Panel Products for Interior Decoration and furnishing Materials (GB18580), the Formaldehyde Emission Classification of Wood-based Panels Products (GB/T39600-2021) and A Guide to the Limited Quantity in Indoor Loading based on its ultimate Formaldehyde Emission Standards GB/T39598-2021) have been formulated and revised by the Committee for Wood-based Panel with the goal of controlling formaldehyde emissions to ensure the health of consumers.
Air pollution warnings—production halted or reduced
According to the China Environmental Monitoring Station and the provincial environmental monitoring centres in Beijing, Tianjin and Hebei heavy pollution was recorded on 17 November.
As a result, the authorities in the Beijing-Tianjin-Hebei are required to launch joint air pollution prevention and control measures.
During the same period many provinces, including Henan, Shandong, Shanxi, Hubei and Sichuan issued warnings of heavy pollution and launched emergency responses and required industrial enterprises in key industries to reduce emissions.
This is the second time since the beginning of the autumn that a number of pollution warnings have been issued. Air pollution prevention and control in the autumn and winter has become an important issue across the country.
EU Council and Parliament strike provisional deal on deforestation-free products regulation
On 6 December, the European Council and the European Parliament agreed on the text of a regulation to minimise the risk of deforestation and forest degradation associated with products that are imported into or exported from the European Union.
The agreement is provisional pending formal adoption in both institutions.
The agreed text of the regulation has yet to be published and the following description draws on:
· the official Council of the EU press release issued 6 December
· commentary by International Institute for Sustainable Development
· independent commentary by the Mongabay environmental news website
The EU regulation on deforestation-free products is a part of the European Green Deal and builds on the 2019 European Commission communication on stepping up EU action to protect and restore the world’s forests.
In this communication, the Commission announced four action items on deforestation:
· Reducing the footprint of EU consumption;
· Stepping up international cooperation;
· Improving sustainable financing; and
· Boosting research and innovation.
The new regulation builds on the first action item by recognising that the EU is complicit in global deforestation through domestic consumption. It complements the 2030 Forest Strategy, with which the EU aims to strengthen reforestation and conservation efforts inside the region and replaces the EU Forest Law Enforcement Governance and Trade regulation (FLEGT), which includes the EU Timber Regulation (EUTR).
The provisional agreement sets mandatory due diligence rules for all operators and traders who place, make available or export the following commodities from the EU market: palm oil, beef, timber, coffee, cocoa, rubber, and soy.
The rules also apply to a number of derived products which in the wood sector include furniture, charcoal, and printed papers.
The last two items were not formerly regulated under EUTR. A review will be carried out in two years to see if other products need to be covered.
The co-legislators set the cut-off date of the new rules at 31 December 2020, meaning that only products that have been produced on land that has not been subject to deforestation or forest degradation after 31 December 2020 will be allowed on the Union market or to be exported.
The Council and Parliament agreed to define “deforestation” in accordance with the definition established by the FAO for forest monitoring purposes in their Global Forest Resource Assessment (FRA): “the conversion of forest to other land use independently of whether human-induced or not”.
This definition implies that deforestation refers to a change in land use, not in tree cover.
It is also dependent on a definition of forest, which, in the FRA, combines physical criteria (minimum thresholds of 10% canopy cover, 0.5 hectare area and 5m in height) and a notion of the predominant land use, excluding tree-covered areas where the predominant use is agriculture or urban.
In accepting the FAO definition of deforestation, the legislation will impose no prohibition on products from conversion of “other wooded land” with sparser tree cover (like scrublands and savannas) as the European Parliament had proposed in amendments in July.
The co-legislators define “forest degradation” as “structural changes to forest cover, taking the form of the conversion of naturally regenerating forests and primary forests into plantation forests and other wooded land and the conversion of primary forests into planted forests”.
The EU Council press release refers to this as an “innovative” definition reflecting the fact that, according to the FAO 2022 State of the World’s Forests report, a “widely applied definition of forest degradation is unavailable, and data are scarce”.
The legislation prohibits placing on the EU market of any regulated commodity derived from deforested land or forest degradation in accordance with these definitions irrespective of whether the deforestation or degradation is legal or illegal in the country of harvest.
The co-legislators agreed on stringent due diligence obligations for operators, which will be required to trace the products they are selling back to the “plot of land”, identified by geolocation coordinates, where it was produced.
At the same time, the new rules are designed to avoid duplication of obligations and reduce administrative burden for operators and authorities. It also adds the possibility for small operators to rely on larger operators to prepare due diligence declarations.
The Council and Parliament agreed to set up a benchmarking system, which assigns to third and EU countries a level of risk related to deforestation and forest degradation (low, standard, or high).
The risk category will determine the level of specific obligations for operators and member states’ authorities to carry out inspections and controls. This would facilitate an enhanced monitoring for high-risk countries and “simplified due diligence” for low-risk countries.
The Council and Parliament also tasked the competent authorities to carry out checks on nine percent of operators and traders trading products from high, three percent for standard-risk countries and one percent from low-risk countries, in order to verify that they effectively fulfil the obligations laid down in the regulation.
In addition, competent authorities will carry out checks on nine percent of the quantity of each of the relevant commodities and products placed, made available on, or exported from their market by high-risk countries.
The legal text agreed between the European Council and Parliament also takes into account human rights aspects linked to deforestation, including the right to free, prior and informed consent by indigenous peoples.
The agreement maintains the provisions regarding effective, proportionate and dissuasive penalties and enhanced cooperation with partner countries, as proposed by the Commission.
It provides that fines proportionate to the environmental damage and the value of the relevant commodities or products concerned should be set at the level of at least four percent of the operators' annual turnover in the EU and includes a temporary exclusion from public procurement processes and from access to public funding.
Indonesia and Brazil raise “serious concerns” about EU legal proposal
On 28 November, a joint letter from Indonesia and Brazil addressed to the Presidents of EU Council, Commission and Presidency was circulated to the WTO Committee on Agriculture. This raises “serious concerns” regarding the EU deforestation-free legislative proposal.
The joint letter states:
“While we agree that the fight against climate change and the conservation and sustainable management of forests are urgent tasks, we regret that the EU has chosen the option towards unilateral legislation instead of an international engagement to deal with these shared objectives, reflected in the Paris Agreement and the SDGs, to which we have all subscribed”.
In the letter, Indonesia and Brazil jointly encourage the EU “to entertain further consultation with third countries, particularly developing producing countries before the final approval of the proposed legislation”.
They also claim that “Some of the concerns expressed by developing countries in formal public consultations about the proposed legislation have, regrettably, been given scarce consideration”.
Indonesia and Brazil raise specific concerns about the country assessment criteria and benchmarking system which they allege “are inherently discriminatory and punitive in nature”. They suggest that “Its most likely effect will be to generate trade distortion and diplomatic tensions, without benefits to the environment” and that “it imposes additional controls, entails reputational risks for companies and is likely to penalise producers in developing countries, especially smallholder farmers and SMEs”.