More than 120 days have elapsed since the EUTR went into force. What is the current state of actual enforcement and how do markets respond? We take stock of the development during the first enforcement period of this landmark legislation.
As most of our readers will know, the EU Timber Regulation (EUTR) entered into force on 3 March 2013. Four months into the new era of regulation, how are the EU and world markets responding?
“EU governments, businesses and export markets are in the process of adapting to the new conditions, but at very different speed”, says NEPCon Forest Legality Programme Manager Christian Sloth.
Enforcement and support systems unfold
Several EU countries are still translating the EUTR into national legislation and defining procedures for the Competent Authorities overseeing EUTR enforcement at the national level.
“The full impact of the EUTR will only be visible once the enforcement mechanisms and national legal frameworks are fully implemented according to the plan”, observes Mr Sloth.
Applications from organisations seeking formal recognition as Monitoring Organisations (MOs), envisaged to play an important role in aiding companies to secure EUTR compliance, are still being processed. The first formal recognitions from the European Commission are expected to be issued in September.
Industry calls for guidance
“The EUTR assumes enormous importance in our sector. Everybody talks about the EUTR, however nobody knows what to do about it”, says Peter K. Kristensen, Vice President of the CSR & Environment Department of DLH, one of the world’s largest tropical timber traders.
“At DLH we are keen to secure compliance. We have had systems in place for years to ensure the legality of our timber and we run a functional due diligence system that we feel is adequate. However, this follows our own interpretation of the EUTR, based on expert consultations. The lack of operational guidance and a functional oversight mechanism that would allow us to gauge the validity of our system is quite exasperating”.
To ensure that they are on the right track, DLH has invited the Competent Authorities to review their system. “However they informed us that they are not ready for the task yet as they are still calibrating interpretations”, says Mr Kristensen.
“We want to do the right thing, but we don’t know for sure that what we are doing is the right thing. It is like trying to drive a car without a speedometer in an area without road signs – and where you know that the police will crack down heavily if you are caught speeding”.
Rachel Butler, independent advisor to the European Timber Trade Federation (ETTF), calls for objective guidance at an operational level: “The EUTR contains grey zones open to interpretation which makes it very confusing for people. Many enterprises facing the EUTR are SMEs without comprehensive resources to deal with this. People are looking for simple yes/no questions and answers”, she says.
She also points towards a communication gap: “Awareness of the EUTR varies a lot across countries and sectors. My impression is that in some sectors, such as the paper and printing industry, many operators are still not aware that they are obligated even in a country such as the UK where the level of awareness is comparatively high”.
Impact on the European market
Ms Butler speculates that the EUTR may accelerate an existing trend where traders are moving away from sourcing tropical timber. Timber imports into the EU may slow down, which could benefit the EU forest sector. Another possible scenario is a switch from tropical timber to increasing use of alternative materials such as concrete, plastic and steel.
She also sees a key benefit coming from the EUTR which may ultimately serve to strengthen European industries: “It pushes companies to manage their supply chain and their risk. Making sure that your supplies are secure is crucial in an area of resources insecurity”.
However, Ms Butler underlines that proper guidance is needed to support SMEs to come on board.
Belgian case casts doubts on green lane for CITES
On 25 March 2013, Belgian authorities took two shiploads of CITES-licensed Afrormosia timber from the Democratic Republic of Congo (DRC) into custody after Greenpeace had raised suspicions about the valid basis for the licenses. The timber cargo was released on 13 May 2013 following an investigation, a decision that was heavily criticised by Greenpeace.
The case exemplifies why official documentation from countries with high corruption levels often need further risk assessment before they can be trusted. It also questions the green lane approach taken towards CITES licensed timber under the EUTR, where CITES licensed timber is exempt from risk assessment.
Timber certification – a key solution for buyers
Timber certification is expected to play a significant role in mitigating risk under the EUTR, and both the FSC and the PEFC schemes have adjusted their systems in order to align with the EUTR.
“It is very positive that the schemes seek to align with the EUTR, as they have the potential to form streamlined solutions for EU buyers. In our assessment, the FSC system is heading towards a robust solution for buyers seeking EUTR-compatible legality assurance. PEFC’s adjustments are very recent and clarification from PEFC on several points is needed before they can be properly evaluated”, says Mr Sloth.
The adjustments of both systems will be phased in over the coming months, so none of them currently provides the full assurance that the system changes intend to achieve.
Impacts on the export markets
“The EUTR is likely to have a major impact in export markets, and due to its detailed requirements the market response will probably be stronger compared to the US Lacey Act”, says Ms Butler. “Suppliers selling to the EU market are meeting requests for information from their European buyers that they don’t get from other buyers”.
Rupert Oliver of Forest Industries Intelligence says: “It’s still early days and the impact of the EUTR is not clear yet. The big question is how this is going to affect the trade in higher value products which constitute a significant part of the total EU timber product imports. Furniture from China and other non-EU countries is one of the most challenging areas with regard to meeting the EUTR. One possible outcome is that the Chinese suppliers will start to replace the wood contents in composite furniture with other material types to satisfy their European buyers”.
Trends for the impact of the EUTR on certified markets are only beginning to emerge; however, some high-risk export markets seem to be responding by growing engagement in certification. For example, demand for FSC certification seems to be growing in Russia.
Also, the past months have seen the arrival of timber on the EU market with certificates for the legal origin of timber from Indonesia (SVLK or V-Legal) and Malaysia (MY-TLAS). Mr Sloth warns: “Buyers should be aware that these are national certificates that should not be confused with a FLEGT license”.
FLEGT licensed timber will be exempt from risk assessment under the EUTR, but FLEGT timber is still not available from any country. Although the Malaysian and Indonesian schemes are developed within the countries’ FLEGT/VPA processes, these certificates do not constitute FLEGT licenses and thus do not exempt operators from the EUTR due diligence requirements at this point.
Support tools are emerging
“Some may feel that the EUTR is derailing due to initial shortcomings and delays. However, I believe that the EUTR will become a strong tool for halting illegal logging once the legal framework and support systems become fully functional”, foresees Mr Sloth.
A number of resources have become available over the past months helping industries that seek to ensure EUTR compliance.
For example, FSC and PEFC offer guidance on how certification can help meet the EUTR, and organisations such as the ETTF, Forest Legality Alliance, WWF and Bureau Veritas also offer resources for the industry, while NEPCon has made our LegalSourceTM Due Diligence System freely available in the public domain at www.nepcon.org/DDS.