An investigation by the UK competent authority has revealed serious issues with EUTR compliance amongst UK companies importing Chinese plywood. The results point towards the need for EUTR-specific capacity building of small and medium-sized enterprises.
As part of enforcing the EU Timber Regulation (EUTR), the UK competent authority - the National Measurements Office (NMO) - has followed intelligence to assess the risk of plywood imported from China into the UK.
The results were quite significant: Shortcomings were found in the due diligence system of 14 out of 16 companies, whilst testing proved 9 out of 13 species declarations to be wrong.
The NMO assessed the combined value of the imports of the investigated companies to represent 10% of all plywood imported from China into the UK in the last year. Around 50% of tropical plywood imports into the UK are from China.
China is the world’s largest plywood producing and exporting country. Whilst production from its domestic sources are not thought to be critical, the country imports large volumes of tropical wood from high risk areas, used for front and back face veneer.
“Any company placing Chinese plywood on the EU market needs to be aware of the risks involved”, says NEPCon forest legality expert Christian Sloth. “Tracking the origin of composite products can be very tricky. If the product derives from a country with known corruption, you can’t take official-looking documents at face value”.
Due diligence system shortcomings
The NMO found the due diligence performance of 14 of 16 companies insufficient to meet the EUTR. The report notes a number of issues, mainly with regard to evaluating and mitigating risk in the supply chain.
According to the NMO, “The common thread running through these failures was a lack of narrative explaining how the combination of document gathering, risk assessment and mitigation (where necessary) enable the company to reach a conclusion of negligible risk that the timber in the product was sourced illegally”.
The NMO also stated, ”studying the supply chains as a whole, unreliability of paperwork was ubiquitous, indicating that this is a clear area for concern in due diligence procedures”.
Several cases over the past years have shown that overreliance on documentation by EU companies is an area of concern and can constitute a risk of legal non-compliance.
Ten companies had failed to improve their systems despite previous visits and guidance provided by the NMO. They received a Notice of Remedial Action outlining the shortcomings that they need to address. Prosecution will only come into question in the event that a company fails to do so.
False species declarations
The NMO used microscopic testing to verify the composition of 13 plywood products traded by the companies under scrutiny. Nine products contained types of timber that did not match their declaration.
The most worrisome cases were those where an undeclared high-risk species such as Red Meranti turned out to be present in the product.
“The results of these probes and the poor outcome of the due diligence system survey clearly demonstrate that there are risks of Chinese plywood imports that are not properly handled”, comments Mr Sloth.
He stresses that the NMO has targeted those parts of the trade suspected of being particularly risky with regard to EUTR compliance. Hence, the worrying level of non-compliance uncovered by the NMO is not likely to reflect the general state of affairs amongst the UK industry.
“I commend the NMO for its structured and risk-based approach to enforcing the legislation”, he adds.
In a related release, the UK Timber Trade Federation (TTF) also welcomed the move, noting that ” the report provides the clearest benchmark to date of the NMO’s expectations of industry’s approach to due diligence”.
Based on the findings of this study, the NMO plans to continue probing other companies within the plywood trade over the next year. It also indicates that agents are likely to be in focus. Agents are often EUTR Operators and need to meet the full set of EUTR due diligence obligations.
A third area that the NMO may look into is the possibility to conduct DNA testing of timber products that allows identification of the content down to timber species level. The current method used by the NMO – microscopic testing – only enables identification at genus level.
SMEs need tools and support
The NMO focussed this effort on the small to medium enterprises (SMEs), as the next step after engaging intensively with the larger companies.
“The findings show a very low level of compliance, with 88% of the investigated companies violating the law at some level. This underlines the SMEs’ need for support in dealing effectively with the EUTR, especially for complex products and supply chain. They need training and resources designed for them”, says Mr Sloth. “The lenient approach taken by the NMO, using dialogue rather than legal action as the primary tool, is very wise. It shows that the NMO recognises the difficult position of the SMEs”.
NEPCon is engaged in developing a range of free tools that help the industry to tackle due diligence. NEPCon’s LegalSource Due Diligence System includes practical guidance, templates and checklists as well as quality requirements that help organisations in structuring and documenting their due diligence efforts. The Global Forest Registry is another initiative providing free information on forest legality through an interactive world map.
NEPCon is also producing country-specific risk profiles. The country profiles present data and guidance related to timber legality in a user-friendly format, based on comprehensive analyses of risks and the applicable legislation.