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FROM SCIENCE TO POLICY 1 Assessment of the EU Timber Regulation and FLEGT Action Plan Ragnar Jonsson, Alexandru Giurca, Mauro Masiero, Ed Pepke, Davide Pettenella, Jeffrey Prestemon and Georg Winkel From
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FROM SCIENCE TO POLICY 1 Assessment of the EU Timber Regulation and FLEGT Action Plan Ragnar Jonsson, Alexandru Giurca, Mauro Masiero, Ed Pepke, Davide Pettenella, Jeffrey Prestemon and Georg Winkel From Science to Policy 1 Contents Summary Combating illegal timber logging and trade Policy measures to reduce illegal logging...6 The EU FLEGT Action Plan...6 Voluntary Partnership Agreements...6 The EU Timber Regulation...7 Monitoring market developments...9 Policy measures outside the EU What does scientific evidence tell us about the impacts of the policy measures?...11 Experiences in exporting (source) countries...12 Experiences in the EU (importing) countries Impacts on global timber markets...19 Recent trends in global timber markets...20 Impacts on Russia...21 Impacts on China...21 Experiences from the US Amended Lacey Act FLEGT and EUTR: Impacts on forest governance and implementation...23 Partner countries...23 EU implementation Lessons learned Policy implications...26 Abbreviations...27 Recommended reading...28 Authors...29 ISBN (printed) ISBN (pdf) Editor-in-chief: Lauri Hetemäki Managing editors: Rach Colling, Minna Korhonen Layout: Grano Oy / Jouni Halonen Printing: Grano Oy Disclaimer: The views expressed in this publication are those of the authors and do not necessarily represent those of the European Forest Institute. Recommended citation: Ragnar Jonsson, Alexandru Giurca, Mauro Masiero, Ed Pepke, Davide Pettenella, Jeffrey Prestemon and Georg Winkel Assessment of the EU Timber Regulation and FLEGT Action Plan. From Science to Policy 1. European Forest Institute. 2 Assessment of the EU Timber Regulation and FLEGT Action Plan summary The European Commission presented the EU Forest Law Enforcement, Governance and Trade FLEGT) Action Plan in 2003, as part of its continuous endeavours to tackle illegal logging. The Plan s objective is to eliminate illegal timber in international trade, acknowledging the shared responsibility of exporters and importers. A cornerstone of the Plan is establishing Voluntary Partnership Agreements (VPAs) with timber producing and exporting countries, and the introduction of FLEGT-licensed timber. A second key element of the plan is the EU Timber Regulation (EUTR), which came into full effect in March VPAs and the EUTR are meant to reinforce each other, addressing the supply (export) and demand (import) side of the timber product trade respectively. The EUTR obliges timber product importers to take adequate measures to minimize the risk of importing illegal timber products to the EU. Timber products that will be covered by a FLEGT licence, or a Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) permit, are considered to meet EUTR requirements. Another key initiative was the amendment of the Lacey Act (LAA) in the US in 2008, prohibiting the import of illegally sourced timber products into the US. Other major importing countries such as Japan and Australia have also followed this trend of regulating illegal timber entering their markets. This study reviews scientific and expert studies which address the issue of (a) the effectiveness of these policies in reaching their objectives and (b) the impacts of FLEGT (including VPAs and the EUTR) and the LAA. It is still too early to be able to draw strong conclusions, in particular quantifiable ones, regarding the impacts of FLEGT and the EUTR on reducing illegal logging. The global legality verification regime is complex and evolving dynamically. Thus, while there are more and more studies being published on the issue, the evidence regarding important questions is still limited. Lessons learned The FLEGT/VPA process has apparently resulted in significant improvements in forest governance in partner countries. However, many studies warn that local communities have yet to be properly involved in the negotiation process or are simply not aware of legality verification. Experience shows that going beyond timber legality and including socioeconomic development objectives will make VPA implementation more successful. Unlike the EU market, the potential effects of the LAA on timber markets and trade flows have already been analyzed quantitatively for the US market. In general, tropical timber product imports seem to decrease, while temperate hardwood imports may fill the resulting gap in timber supply. The causal link between this trend and the legality verification policy is, however, yet to be established. Shifts in trade need to be better analyzed to understand the causalities and the ultimate consequences in terms of the existence and economic significance of trade diversions and market substitutions. Policy measures like FLEGT, the EUTR and LAA tend to result in reduced imports of illegal timber products in countries imposing such measures. The prices of the legal imports from the same source countries tend to be higher compared to the case without those measures. We cannot yet definitely say that the policy measures have reduced illegal logging in suspected source countries, although they could have. It is possible that these source country producers could have redirected their illegal timber products to other countries without comparable policy measures. It is also possible that more illegal wood in source country markets has been redirected to domestic consumers, pushing more legal wood into world markets, and the net effect on illegal timber remaining unclear. More research is needed to verify these kinds of supply diversions. 3 From Science to Policy 1 summary Outside the EU, the effects of both VPAs and the EUTR on forest governance, forest management, and the timber product manufacturing sector are only evolving now. The arising legality verification regime has strongly increased the awareness of different stakeholder groups in producer and consumer countries of the illegal logging issue, yet the consequences of this increased awareness for harvest, trade and production practices are yet hardly known. Policy implications In the EU, the implementation of the EUTR is still a major challenge. While some countries are well advanced in the implementation process, others are still at the beginning. The technical and economic challenges of the implementation remain substantial, for example the lack of resources and knowledge, and the sheer number of operators versus personal resources of the implementing agencies. Effective and consistent implementation of the EUTR across all EU Member States should avoid a counterproductive race to the bottom, i.e., inadequate implementation inducing legally questionable timber product trade flows. Coherent implementation of the EUTR across Member States should also reduce the risk of trade disputes. In this respect, helping to facilitate the benchmarking of good practices from more experienced countries would be valuable. Implementation should be done in close cooperation with industry, striking the right balance between effective implementation and acceptable costs. A process of mutual learning could aid the achievement of this balance. In this instance, the Independent Market Monitoring (IMM) project, in creating a database for the analysis of timber trade development, could play a key role. It is crucial for the success of the EUTR to involve major timber product producers/ importers from emerging economies, most notably China. The bilateral negotiations the EU is already conducting with such countries are therefore essential. However, multilateral negotiations involving also other major destinations for the trade in timber products, notably the US and Japan, could be even more fruitful. There is a need to re-consider the importance of the emerging legality verification regime in the context of a broader global governance system targeting the sustainable management of the world s forests. Legality is a core precondition for sustainability, but does not guarantee sustainability per se. There is a danger that the emerging legality verification regime creates advantages for large, export-oriented enterprises compared to smaller firms in both exporting and importing countries, due to the perceived costs of legality verification. Inside the EU, monitoring organizations, which provide advice and directions for exerting due diligence, have a key role here. It is essential that support for small and medium sized firms is also forthcoming in source countries for timber products. In summary, it is essential to strike the right balance between the demands of EUTR compliance and the existence of an inclusive, competitive timber product market. The Independent Market Monitoring (IMM) project, analyzing timber product market trends to assess the impacts of the Action Plan, should aid in striking this balance. 4 Assessment of the EU Timber Regulation and FLEGT Action Plan 1. Combating illegal timber logging and trade The trade of illegally sourced timber has detrimental effects on the forest sector, undermining legal trade and posing severe environmental, social and economic threats. The importance of legal and sustainable timber markets has been increasingly recognized by governments, international organizations, non-governmental organizations, trade associations, and wood processing industries alike. Widespread recognition of the severity and consequences of illegal logging and the trade of illegal wood began at a meeting of the G8 in The support of timber legality verification initially started with the Bali Action Plan in 2001 at the first regional Forest Law Enforcement and Governance (FLEG) conference, when some of the world s leading economies committed to supporting legality in the forest sector. This new approach was complementary to other previous efforts such as forest certification, criteria and indicator practices, and National Forest Programs. In 2003, the European Commission (EC) presented the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan. The key difference from previous processes was the addition of trade to the Action Plan, which gave a new and concrete focus. The objective is to eliminate the demand for illegal timber in international trade. However, this is just one aspect of the FLEGT Action Plan, which goes far beyond previous policies, as it acknowledges the shared responsibility of exporters and importers. The cornerstone of the Plan is to establish Voluntary Partnership Agreements (VPAs) with both tropical timber producing and exporting countries. The VPAs include bilateral processes to establish legislation and its enforcement. A second key element of the Plan is the EU Timber Regulation (EUTR). VPAs and the EUTR are two parts of the FLEGT Action Plan which are meant to reinforce each other. In 2015, FLEGT has been in force for 12 years, and the EUTR for two years. Another key initiative came from the United States, which amended the US Lacey Act in 2008, prohibiting the import of illegally sourced timber products into the United States and its territories. The Lacey Act Amendment of 2008 (LAA), in fact, was a key factor in the subsequent passage of the EUTR. Thus, both the EU and the US are promoting legality verification as a means to access their 2001 Bali Action Plan 2003 EU FLEGT Action Plan 2006 Green Purchasing Law (Japan) 2008 Lacey Act Amendment (US) 2010 EU Timber Regulation 2012 Illegal Logging Prohibition Act (Australia) 2013 EUTR comes into effect Figure 1. Timeline of major actions to fight illegal logging markets. Other major importing countries such as Japan and Australia have also followed this trend of regulating illegal timber entering their markets. Clearly, these initiatives have attracted different responses from both importing and exporting countries impacted directly or indirectly by the regulations. Not only have such initiatives influenced national, and to some extent, global forest governance, but also the international timber trade. This study reviews scientific and expert studies addressing the issue of the effectiveness of the policies in reaching their objectives and the already observed impacts of FLEGT (including VPA and EUTR) and the LAA. The first section of the study offers a general outline of the policy context, exploring policy measures in the EU and three major importing countries (US, Australia, and Japan). This helps to put the EU policy measures in a larger perspective, and provides a basis for comparison. The second section focuses on the experiences from timber exporting and importing (European) countries. We explore the latest trends in the international timber trade and discuss possible linkages between these trends and the policy measures. In the third section, we explore the lessons learned so far. Have the policy measures been successful in tackling the trade of illegally harvested timber and in promoting good forest governance? Finally, drawing on the lessons learned from recent scientific studies, we discuss policy implications. 5 From Science to Policy 1 2. Policy measures to reduce illegal logging The EU FLEGT Action Plan The FLEGT Action Plan is the first European strategic initiative that focused on halting the placement of illegally harvested timber on the EU market. The Action Plan recognizes the shared responsibilities of both producer and consumer countries. Hence, it introduces combined demand and supply side measures to address the issue of illegal trade of timber. The Action Plan focuses primarily on governance and enforcement issues as a way to promote legal timber. It encourages policy reforms, transparency, and information sharing. In summary, the Action Plan focuses on seven broad areas: 1. Support for timber product exporting countries, including action to promote equitable solutions to the illegal logging problem. 2. Activities to promote trade in legal timber, including action to develop and implement Voluntary Partnership Agreements between the EU and timber exporting countries. 3. Promotion of public procurement policies, including actions that guide contracting authorities on how to deal with legality when specifying timber in procurement procedures. 4. Support for private sector initiatives, including action to encourage private sector initiatives for good practice in the forest sector, including the use of voluntary codes of conduct for private companies to source legal timber. 5. Safeguards for financing and investment, including action to encourage banks and financial institutions investing in the forest sector to develop due care procedures when granting credits. 6. Use of existing legislative instruments or adoption of new legislation to support the Plan, including the EU Timber Regulation. 7. Addressing the problem of conflict timber. Voluntary Partnership Agreements VPAs are bilateral trade agreements between the EU and timber product-exporting countries outside the EU. Under a VPA, a timber-producing country is expected to develop systems to verify that its timber product exports are legal. The legality needs to be verified through a legality assurance system (LAS). The LAS consists of legality definitions established through a multi-stakeholder process, procedures for legality verification and the creation of tracking systems, processes for issuing the FLEGT licences, and the methods for carrying out independent audits. Once the LAS is in place, shipments will be awarded a FLEGT licence. A VPA is expected to guarantee that wood exported from a timber product-producing country to the EU comes from legal sources, and is also meant to support the partner country in improving forest governance and regulations. VPAs are voluntary for timber product-exporting countries. However, once Incentive Instruments Main Features Forest Law Enforcement Governance and Trade (FLEGT) Action Plan (2003) Voluntary Partnership Agreements (VPA) Reinforcement - Bilateral trade agreements between the EU and selected producer countries - Not a legislative act but a voluntary agreement - If ratified, they become legally binding European Union Timber Reguation (EUTR) Focuses on EU importing countries - A legislative act Figure 2. The FLEGT Action Plan with its two main instruments and their main features. Source: Giurca and Jonsson (2015) 6 Assessment of the EU Timber Regulation and FLEGT Action Plan a VPA has been ratified, it is legally binding on both sides. The VPA implementation is coordinated through a Joint Implementing Committee. Although the overall objectives of the VPAs are clear, how they are actually implemented may vary somewhat from country to country. Hence, what is framed in a legality definition is the result of each national process. VPAs build on national ownership, therefore one size does not fit all. Partner countries are granted improved access to EU timber markets if the partners can assure the legal production of wood. The EU provides assistance to the partner state to develop a viable timber tracking and licensing system, and in strengthening national governance capacity, as large civil society participation is required. Up until the first quarter of 2015, six countries (Cameroon, Central African Republic, Ghana, Indonesia, Liberia, and Republic of Congo) have signed a VPA with the EU and are implementing systems to control and verify their legal timber exports. Nine other countries (Côte d Ivoire, Democratic Republic of the Congo, Gabon, Guyana, Honduras, Laos, Malaysia, Thailand, and Vietnam) are negotiating the agreement with the EU, while another 11 countries have expressed interest in VPAs (EU FLEGT Facility 2015). The first FLEGT-licensed timber product shipments are expected in Some important timber product trading countries, for example China, may never enter into a VPA with the EU. Even so, the EU is conducting bilateral negotiations with such countries to communicate the implications of the EUTR and to encourage countries to improve their control on the legal origin of timber products. The EU Timber Regulation An important step taken to support and increase the effectiveness of the FLEGT Action Plan was the introduction in 2010 of the Regulation No. 995/2010, commonly known as the EU Timber Regulation (EUTR). This came into full effect in March The EUTR requirements are directed at the demand (import) side, while VPAs aim at the supply (export) side of the timber product trade. The EUTR obliges timber product importers (operators) to take adequate measures to minimize the risk of importing illegal timber products to the EU. Operators are held accountable for the products they bring into the EU (see below) and are required to have a due diligence system that is based on adequate documentation and risk assessment to assess the legal provenance of imported timber products. The EUTR sets out three requirements for European operators (European Commission 2013): 1. Prohibition: The regulation prohibits placing illegally harvested timber or timber products on the EU market. 2. A Due Diligence System (DDS): Operators can apply due diligence by themselves or through the assistance of Monitoring Organizations (MO). Operators need to provide access to information on the timber product (country of harvest, logging concession, species, sizes, quantities), implement risk assessment (evaluate the risk of occurrence of illegally harvested products), and implement risk mitigation measures and procedures to minimize the likelihood of illegality. 3. A Traceability Obligation: After placing timber products on the market for the first time, as part of their DDS, traders have to keep records with information from whom they bought and to whom they sold the timber product. The EUTR applies to a wide range of timber products: roundwood, primary-processed products such as sawn hardwood, and secondary-processed products such as wooden furniture and paper products. The FLEGT-licensed products that are currently specified include industrial roundwood, sawnwood, plywood,
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