DOVETAILPARTNERS,INC.

January 2018

EdPepke,Ph.D.

JimBowyer,Ph.D.JeffHowe,Ph.D.ChuckHenderson

RichardA.Levins,Ph.D.HarryGroot

KathrynFernholz

IMPACTOFMARKETFORCESANDGOVERNMENTPOLICIESONTHETROPICALTIMBERTRADE

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Impactofmarketforcesandgovernmentpoliciesonthetropicaltimbertrade

ExecutiveSummaryTropical timbers are valuable in many applications, which is why they have been tradedinternationally for centuries. Egyptian craftsmen imported tropical woods before 3000 BC(Wikipedia,2017).Liketemperateforests,tropicalforestscanbemanagedsustainablytoproduceacontinuousarrayofwoodandnon-woodgoodsandservices.Buttheyarenotuniversallymanagedsustainably,andthemajorityoftheworld’sdeforestationoccursbetweentheTropicofCancerandtheTropicofCapricorn.

The rise in awareness of the extent of continuing deforestation and degradation has directlyimpacted the tropical timber trade.Government, industry, andnon-governmental institutionsandorganizations working independently and in concert have taken steps to assure continued,sustainable and legal trade. Despite some positive results, problems remain. Governments haveenactedpoliciestoensurelegalityandsustainabilitycoupledwithenforcementmechanismsandstiffpenalties for non-compliance. Companies, in turn, have sought to exercise due diligence, seekingdocumentedassuranceoflegalityofshipments.Lackingsuchassurance,sometropicaltimberusershave begun to substitute temperate species or non-wood products. Combined, these marketreactions and government policies have had both positive and negative impacts on the tropicaltimbertrade.

Tropicaltimber’sattributeshavedrivendemandandthustradebyconsumers.Producersintropicalcountriescangaineconomicbenefitsofexportingtheirwoodresources,especiallywhenprocessingand exporting value-added products. Social benefits of sustainable production and sustainedmarketscanbe realized forpeople livingandworking in forests through the transport,processingandexportingchain.Thisreportexplainsthevalueoftropicaltimbertradeforproducersandinternationalconsumers.Itdelvesintotheimpactsofmarketforcesandgovernmentpolicieswhichareintendedtoensurelegalandsustainablesupply.Andthereportconcludeswithopportunities forproducersandconsumerstocontinuetradingtropicalwoodandpaper.

Introduction

Whatistropicaltimber?AccordingtotheInternationalTropicalTimberOrganization(ITTO),“tropicaltimbermeans tropical wood for industrial purposes which grows or is produced in the countriessituated between the Tropic of Cancer and the Tropic of Capricorn” (ITTO, 2017).While the ITTOlimitsitsdefinitiontoprimaryproductstologs(roundwood),sawnwood(lumber),veneersheetsandplywood, tropical forests produce a wealth of other wood and non-wood resources. Whileacknowledging the importance of tropical non-wood forest products, this report focuses on thetrade of tropical timber. Secondary-processed products include items such as wooden furniture,windows,doors,etc.

Thevalueofglobaltropicalwoodproductstradeofprimary-andsecondary-processedproductswasUS$31.1billion in2016 (ITTO, IndependentMarketMonitoring,2017).Thiswasapproximately20percentoftheglobaltimbertrade.Theinteractionsofsubstitutionwithtemperatespecies’productsbecauseofappearance, technicalattributesandpricehavedirect influenceonthestrengthofthetropicaltimbertrade.

There are environmental, social and economic concerns about tropical timber use and trade.Environmental concerns are focused on tropical forests because the majority of the world’sdeforestationhasoccurredinthetropicsoverthepastcentury(figure1).Thereissomegoodnewsin this regard. According to the Food and Agricultural Organization (FAO), the global rate of

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deforestation decreased from an average of 7.3 million hectares per year in 1990-2000, to 4.0millionfrom2000-2010,to3.3millionduringtheperiod2010-2015.Fortropicalforeststheratesofdeforestation have been higher for these three periods: 9.5million hectares, 7.2million and 5.5millionrespectively.ForestareaisincreasingsubstantiallyinChinathankstowidespreadplantationestablishment.ElsewhereforestareaisrisingannuallyintheUnitedStates,ChileandAustralia.Mostcountrieshavesmallchangeinforestarea.Butforestareaisdecliningmainlyintropicalcountries.These statistics must be viewed with caution, however, since the methods of calculation ofdeforestation, afforestation and the definition ofwhat constitutes a forestwere changed by FAOafter1990,whichcontributedtothelowerestimatesofdeforestation.Eventhoughitappearsthatthe rate of deforestation is falling, it is still too high in light of the environmental, social andeconomicconcerns.

Figure1Annualchangeinforestarea,2010-2015.

Source:FAO,2017.

Thecausesandeffectsoftropicaldeforestationaremany,butonesignificantdriveristhedemandfortropicaltimber.Sincetheadventofcertificationofsustainableforestmanagementinthe1990s,ithasbeenpossibletoensuretheresponsibleproductionandtradeoftimber,bothtropicalandtemperate,throughthird-partyverifiedcertificationprograms.Tropicaldeforestationwasamaindriverfortheoriginalestablishmentofinternationalcertificationsystems.Butinternationallyrecognizedcertificationsystemshavenotsucceededasenvisionedinthetropics.Mostcertifiedforestland,87percent,isinthenorthernhemisphere,i.e.temperateforests.Only13percentoftropicalforestsarecertifiedeventhoughtogethertheyrepresent60percent(2.4billionhectares)ofglobalforests(UNECE/FAO,2017).

Socialconcerns.Tropicalforestsarehometomillionsofpeople.Manyofthemaredependentonforestsforbasicnecessitiessuchasshelterandfood.Theyalsodependuponthemfortheirlivelihood.Insometropicalcountriestherightsofforest-dwelling,indigenouspeoplesarenot

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respected.Ashumanpopulationscontinuetogrow,thedemandforforestresources,woodandnon-wood,continuestogrow.Thefastestincreaseinpopulationgrowthisoftenoccurringintropicalcountries(figure2)(FAO,2017a).Theworld’spopulationisnotonlyincreasingbecauseofbirths,butalsobecausepeoplelivelonger.Globallyin1990therewere0.8hectaresofforestperperson,butthatdecreasedto0.6hectaresby2015duetoincreasingpopulationandlossofforestland(FAO,2017b).

Figure2

Populationchange,1990-2013

Source:FAO,2017.

Economicconcerns.Obviouslysustainableharvestingoftimberiscriticalforlong-term,economicallyviable forest products markets. A continuous supply of wood and non-wood forest resources isdependenton sustainedproduction. Proper forestmanagementperpetuateshigh growth ratesofdesiredspecies.Theharvesting,processingandmarketingof forest resources isessential tomanyforest-richtropicalcountries.Manydevelopingtropicalcountriesdonothaveadequateprocessingcapacity to turn logs/roundwood into more value-added products such as lumber/sawnwood,veneerorpanels.Theexportoflogscanbringrevenuetoacountry,butthosecountrieswhichhavedevelopedprocessing chains to producehigher valuewoodproducts, such as furniture, or paper,achieveconsiderablyhigherrevenues.Sometropicalcountrygovernmentshaveinvokedlogexportbanstopromotevalue-addedprocessing.Governmentsbenefitfromtaxesonincomesandprofits,andsectordevelopmentcanoccurwhenprivateandpublicgainsarefunneledbackintotheforestsector.

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Whoisresponsibleforaddressingtheconcernsabouttropicaltimber?

Governments, both in the tropics and elsewhere are responsible for addressing issues regardingtropical forestsandtheir responsiblemanagement. Inmanytropicalcountries thevastmajorityofforestland is government-owned. Obviously national governments must realize that sustainableforestresourcesareessentialfortheshort-,medium-andlong-termhealthoftheircountry,bothintermsoftheenvironment,andtheeconomicandphysicalhealthofcitizens.Mosttropicalcountrygovernments have long-established departments of forestry, and they have developed forestmanagement plans. But that does not mean that the plans are implemented and enforced. Toooftenthereisuncontrolledcutting,frequentlyforinefficientfuelwooduseandsometimesasaresultofcorruptionlinkedtocommerciallogging.Globallythemajorityofroundwoodisusedforcookingandheating.Realizing thatpeopleneedwood forheatingand cooking,manygovernments turnablindeyetothedegradationofforests.Illegalcuttingunderminesanyforestmanagementpractices(Dovetail,2016).Realizingthecontributionofarobustforestindustrytoforestretention,aswellasadvantageswhichincreaseddevelopmentoftheforestsectorcanbringthroughreturnofrevenuesand taxes, many governments promote value-added processing and trade. Many of thesegovernmentsalsorealizetheirresponsibilitytoensuresustainableandlegaltrade.Theirpoliciesarediscussedbelow.

Internationalorganizationsbecomeinvolvedinsustainableandlegaltradeintropicalcountriesfroma number of perspectives. Some are directly involved because of overall concerns about tropicalforest lossandsustainability,forexampletheEuropeanForest Institute(EFI),FAOandITTO.Otherorganizations have programs dealing with tropical forests targeting legality of trade, e.g. theConventiononInternationalTradeinEndangeredSpeciesofWildFaunaandFlora(CITES)orsocialconcerns. International negotiations under the UN Framework Convention on Climate Change(UNFCCC) created REDD+. Initially REDDwas to “reduce emissions from deforestation and forestdegradation” but the “+”was added in 2013 to expand to conservation of existing forest carbonstocks, sustainable forestmanagement, and enhancement of forest carbon sinks.Manynorthern-hemispherecountriesdonatefundingforREDD+aspartoftheirpoliciestoprotecttropicalforests.

Tradeassociationsandtheirindustrymembersrealizethevalueinpromotinglong-termlegaltimbersupply. Illegality intimbertradenotonlytaintsthecompanies involvedandtheirassociations,buttheentireforestsector.Consumerscannotbeexpectedtodistinguishbetweenallsustainableandlegalproducts,andsometimeschoosenon-woodsubstitutes.

Environmental non-governmental organizations (ENGOs) and NGOs are often at the forefront oftropical forest issues.ManytropicalENGOsseekprotectionof forest resources including floraandfaunaandtheirecosystems.OthertropicalNGOswatchoutforthewell-beingofforestdwellersaswell as their country’s environment. International ENGOs are vigilant and raise attention tounsustainablepracticesandillegality.

Globaltropicaltimberexports

Theglobaltropicaltimbertradecanbemeasured involume(e.g.cubicmetersorweight)orvalue(e.g. inUSdollars)–but theresultsarenot thesame.Expressed involume, ITTO’s tropical timberproductstradeshowsadecliningtrendoverthelast25years(figure3)(ITTO,2017).Thegraphisforexportsthatgloballyshouldequalimportssinceeverythingthatisexportedisimported.Earlier,logsdominatedthevolumesoftimbertraded,buttheirsharedeclinedto40percentin2016,almostthesameas lumber.This is inpartduetotropicalcountriescapturingvalue-addedbenefits,economicandsocial,bylegislatinglogexportbans.

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Figure3Globalexportvolumeofprimarytropicaltimberproducts,1990-2016

Note:ITTOprimaryproductsareonlylogs,lumber,veneerandplywood.

Source:ITTO,2017.When the global tropical trade ismeasured in termsof value, the result is different and shows astrongrecoveryfollowingtheworld’s2007economicandcrisis.Thetradeappearscyclical,asithasregained strength followingmajor economic downturns. Trade peaked recently in 2014 and as involume,logsconstitutedthemajorityat37percent(figure4)(ITTO,2017).Howcanmeasurementinvalueshowmorepositivegrowth?Limitedavailabilityofsomepreferred,expensivespecies,suchasrosewood,driveupthetradevalue.Thedeforestationandforestdegradationmentionedabovehasalsoreducedsupplies,oftenofdesired,commonly-usedspecies,resultinginhigherprices.

Figure4Globalexportvalueofprimarytropicaltimberproducts,1990-2016

Source:ITTO,2017.

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Globaltropicaltradeofprimary-andsecondary-processedproductstogetherpeakedin2014atUS$35.0billionbeforedeclining9%in2015andafurther3%in2016(figure5)(ITTO,2017).Thespikein2014 was largely due to China’s imports of logs. One species in particular, rosewood, has beenfashionable,andexpensive,thusdrivingupthetradevalue.

Figure5Globaltropicaltimbertradeofprimary-andsecondary-processedproducts,2004-2016

Source:ITTOIndependentMarketMonitoring,2017.

The total value of wood and paper products trade, tropical and temperate, was estimated to be$173billionin2016(personalcommunicationwithITTO,2017).Thismeansthatthetropicalshareofthetimbertradein2016wouldhavebeenapproximately20%oftheglobaltrade(figure6).

Figure6Tropicalversustemperateprimary-andsecondary-processedtimbertrade,2016

Note:TradevaluesinUS$billion.Excludespaperandpulptrade.

Source:PersonalcommunicationwithITTO,2017.

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At risk of casting uncertainty on thestatistics, the difficulty in isolating thetropical timber trade value and volumemerits explanation. It is evident thatwhenatropicaltimbercountryexportsitsown forest resources, and regardless ofthecommodity,thatcanbequantifiedastropicaltimberexports.Butsometropicalcountries, forexampleVietnam,notonlyexport their forests’ products, but alsoimportsignificantquantitiesoftemperatespecies. Countries such as Vietnam havebecome processing hubs, importingtemperate species (for example red oakfrom the United States), and tropicalspecies too, and processing them into avariety of value-added products for re-export.Inthissituation,itisimpossibletoaccurately separate exports of tropicaltimber-based products for export andtemperate timber-based products for re-export. Some products, for exampleplywoodandfurniture,areoftenamixoftemperate and tropical woods. Productssuch as furniture are impossible toquantify in terms of cubic meters orboard feet and some statistical sourcesprovide weights for furniture. The bestmeasure of their trade is in the value ofexports which is in US dollars for thisreport. And the estimation of the 20percentvalueofthetropicaltimbertradebytheITTOisthebestestimatepossible.

RoleofGovernment:ImpactofEUregulations

Ever since some EU countries hadcolonies in tropical countries, there havebeen imports of tropical timber intoEurope.Originallymostimportswerelogsas tropical countries lacked processing capacity. However, a disadvantage of logs is that they areseldomusedinthatform,thusthewasteincurredduringprocessingoccursintheimportingcountry,and they are green/wet and heavy, thus costly to ship. Some EU companies have invested inprocessingfacilitieswithintheproducingcountriestoenableexportsoffurther-processedproducts.Andtropicalcountriesseekingthefinancialandemploymentadvantagesofvalue-addedprocessinghaveencouragedthat,e.g.vialogexportbans.Hence,theEUhasbeenimportingfewerandfewerlogsinrecentyears(figure7).

IndependentMarketMonitoringSystem

Asanaside,theEuropeanCommissionawardeda5-year, multi-million euro contract to the ITTO toestablishtheIndependentMarketMonitoring(IMM)systemin2013.TheIMMhasachallengingmandateto monitor the development of timber licensedunder Forest Law Enforcement Governance andTrade (FLEGT) (ITTO IMM, 2017). The overallobjectiveof the IMM is tomonitorhowtheEUandwiderinternationalmarketforFLEGT-licensedtimberdevelops. Inorder todosoduringthelifeofaVPA,the IMM is to improve the quality of timber tradestatistics and the effectiveness of timber marketdevelopmentprogramsforFLEGTtimber.TheIMM’sspecificobjectivesareto:

1. Collect, analyze report and disseminateinformationontheacceptanceandtrendsofFLEGT-licensedtimberontheEUmarket.

2. Improve knowledge and understanding ofthe impactsof VPAson timber prices, tradeand market trends globally, especially withregardtotheVPApartnercountries

3. Ensure VPA countries and the EC providereliable statistics and information on FLEGTtimbertrade

4. Respond to requestsand informdecisionbyVPA countries by providing independent,timely and accurate information on marketimpact

5. Contribute tomonitoring the impactsof theFLEGT Action Plan and to inform itsimplementation

6. Develop a long-term strategy for sustainingtheIMMinconsultationwiththeEUandVPApartnercountries(ITTOIMM,2017).

ThelastobjectiverelatestothelifeoftheIMMthatisscheduledtoendin2018.

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Figure7EUtropicaltimberimportsoflogs,lumber,veneerandplywood,1990-2016

Source:ITTO,2017.

Tropicaltimberimportspeakedin2007intheEUandworldwide,theyearthattheglobaleconomicand financial crisis began. The trade had not recovered as of 2016, in large part because theeconomiesoftheEUcountrieshadnotfullyrecovered.

The EU imports considerablymore temperate than tropical timber (figure 8). As was the case intropical timber imports, the EU’s temperate timber imports peaked in 2007. In comparison totropicaltimberimports,therehasbeenanunsteady,buton-goingrecovery.

Figure8EUimportsoftemperateversustropicallogs,lumber,veneerandplywood,1990-2016.

Source:ITTO,2017.

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EUimportsfromVoluntaryPartnershipAgreementcountries

The EU established the FLEGT Action Plan in 2003withmultiple objectives, one of whichwas toensurethattheimportsoftropicaltimberarelegal.TheEuropeanCommissionismandatedbytheCouncil of the EU to negotiate Voluntary Partnership Agreements (VPAs) with tropical timberproducing and exporting countries. A VPA is a legally binding agreement1 to ensure that timberexportedtotheEUcomesfromlegalsources.Currentlyin2017theEChas15VPAsintwodifferentcategoriesofdevelopment:• 6 implementing signed agreements (Cameroon, Central African Republic, Ghana, Indonesia,

LiberiaandtheRepublicofCongo)• 9 negotiating agreements (Côte d’Ivoire (Ivory Coast), Democratic Republic of Congo, Gabon,

Guyana,Honduras,Laos,Malaysia,ThailandandVietnam).

The secondmeasure, promoting legal timber trade, got its strength in 2013when the EU TimberRegulation (EUTR) came into effect. The regulation requires “operators” (the companies that firstplacetimberontheEUmarket,i.e.importers)toexerciseduediligencetoensurethatthetimberiscompletelylegal.

AccordingtotheEUTR,thethreekeyelementsofaduediligencesystemare:

• Information:Theoperatormusthaveaccesstoinformationdescribingthetimberandtimberproducts, countryofharvest, species,quantity,detailsof the supplier,and informationoncompliancewithnationallegislation.

• Risk assessment: The operator should assess the risk of illegal timber in the supply chaininvolvedbasedontheinformationidentifiedaboveandtakingintoaccountcriteriasetoutintheregulation.

• Risk mitigation: When the assessment shows that there is a risk of illegal timber in thesupplychainthatriskcanbemitigatedbyrequiringadditional informationandverificationfromthesupplier.

If the information in the three elements above is not sufficient to assess legality, then operatorsmustrequestadditionalinformationorimposeadditionalmeasures(e.g.certificationofsustainableand legal forest management, third party verification of legality, and/or documentation of theharvestsite,licensing,transport,processing,etc.).2

FormoreinformationonVPAsseeVPAUnpackedatwww.vpaunpacked.org/2FurtherinformationontheEUTRmaybefoundintheDovetailreport“Impactsofpoliciestoeliminateillegaltimbertrade”publishedin2015.See:www.dovetailinc.org/reports/Impacts+of+Policies+to+Eliminate+Illegal+Timber+Trade_n679?prefix=%2Freports

ThesevenmeasuresoftheFLEGTActionPlanare:1. Supporttechnicallyandfinanciallytimber-producingcountriestoaddressillegallogging2. PromotetradeinlegaltimberthroughtheEUTimberRegulation(seebelow)3. Promoteenvironmentallyandsociallybeneficialpublicprocurementpolicies4. Supportingprivate-sectorinitiativestoensuresupplychainsarefreeofillegalities5. Ensure financing and investmentsafeguards to limit negative social and environmental

effectsintheforestsector6. Usingexisting legislation,orcreatingnew legislation if lacking, toensure the legalityof

domesticallyconsumedorexportedtimberproducts7. Address conflict timber, i.e. legal or illegal timber profits that fund domestic and

internationalconflicts.

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Timberwhichmeets the FLEGT Legality Assurance System requirementsmay attain the status ofFLEGT-licensed.ThefirstFLEGT-licensedtimberappearedontheEUmarketinNovember2016fromIndonesia. The other 5 VPA countries that are implementing their agreements are preparing tolicense FLEGT timber. FLEGT-licensed timber wouldmeet due diligence requirements and have agreenlane,i.e.withoutfurthercustomscontrols,forEUimports.

WhileitisdifficulttoisolatetheeffectoftheEUTRonthetropicaltimbertrade,anecdotalevidencestrongly suggests that EU importers have turned away from timber for which legality cannot besubstantiated.Thiscanmeanimportingthedesiredproductsandspeciesfromanothercountrywithbetter legality documentation, or switching to anothermore reliable speciesor source. The latterhas supported substitution by temperate species which either naturally have, or which can betransformed,throughheatand/orchemicals,tohaveequivalentpropertiesoftheformerlyimportedtropicaltimber.

Afterapeakin2007,beforetheeconomicandfinancialcrisis,tradebetweentheEUandthe15VPAcountries has decreased throughout most of the following decade until reaching a low in 2014.Importsroseslightlyin2015andagainin2016(figure9)(Comext,2018).

Figure9EUimportsofwoodandpaperproductsfrom15VPAcountries,2006-2016

Source:Comext,2018.

TheexportsoftheVPAcountriestotheEUvaryconsiderablydependingontheirlevelofprocessingcapacity.Forexample,IndonesiaexportssignificantvolumesofwoodpulpasopposedtocountriessuchasGhanawhichhavenopulpingcapacityandthusareforcedtoimportpaperproducts.USLaceyActAmendment3

In 2008, theUS Lacey Act (LAA) of 1900was amended to include timber and timber products. Itbecamethepremierlegislationagainstillegalloggingthroughbanningimportsofillegaltimberandtimber products. The LAA imposes uniform requirements throughout the US wood supply chain(timber importers, traders, processors, middlemen, wholesalers and retailers). This is a distinct

3Thissectionfromabove-citedDovetailreporton“Impactsofpoliciestoeliminateillegaltimbertrade”.

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differencefromtheEUTRwhichonlyplacestheresponsibilityforlegalimportsonthefirstimporterinto the EU. The amendment resulted from a broad consensus between the timber industry,environmentalorganizationsandtheUSgovernment–allpartiesagreedthatthelawwouldbenefitthelegaltimbertrade.

TheLAAprohibitsanyperson from importing,exporting,selling, receiving,acquiringorpurchasingany plant or plant product (e.g. wood or paper product), knowing that it was taken, possessed,transportedorsoldinviolationofexistinglawsorregulations.TheActextendstooperatorsabroadwiththepossibilityforprosecutingnon-UScitizens.TheLAAalsoprohibitsfalselabelingofgoods.

TheLAAsuggeststhatcompanieswhichtrade,useand/ormarkettimberapply“duecare”toensurecompliance. This is different than EU and Australian legislation, where there are specificrequirementsfora“duediligence”system(explainedbelow).DuecareisaconceptdevelopedintheUS legal system thatmeans the degree of care that a reasonably prudent personwould exerciseunder the circumstances. Therefore, it recognizes varying degrees of knowledge among differentoperators.

TheActhasclear,progressivepenalties.TheseverityofLAApenaltiesandsanctionsvaryaccordingtoanoffender’sawarenessoftheillegalityofagivenaction.Thevalueofthegoodsalsoaffectstheseverityofpunishment.Sanctionsandpenaltiesrangefromsmallfinesandpossibleforfeitureofthegoods, to a felony level fine of US$ 500,000 (or twice the maximum gain or loss from thetransaction),apossibleprisonsentenceofuptofiveyears,andforfeitureofthegoods.Theamountofthefineisdeterminedbasedonthetypeofoperator,withlargercorporationsfacingthehighestpenalties.4Since itsenactment,companiesfoundtohavebeeninpossessionof illegaltimberhavebeenpenalizedandtheirtimberimpounded.

ImpactsofEUpoliciesandconnectionstoUSandotherpartsoftheworld

DespitetheeffortsoftheEUtoassisttheVPAcountriestoimprovelegalityandtheirexportstotheEU,theothermajorimportersoftropicalwoodandpaperproductshavebeengainingmarketshare.SincegradualrecoveryinthemaindriverofUSimports,housing,startingin2011,tropicalwoodandpaperproductshavebeenontherise(figure10)(UNComtrade,2017).TheEUFLEGTActionPlanisapolicypush,inpartaimedatimprovedEUtropicaltimbertrade,butmarketforces,specificallyweakdemandforwoodandpaperproductsfornumerousreasons,areworkingagainstthePlan.

Figure10EUimportsfromVPAcountrieslosingmarketshare,2006-2015

Source:UNComtradeandauthor’sinterpretation,2017.

4ForadditionaldiscussionoftheLaceyAct,seetheDovetailReport,“UnderstandingtheLaceyAct”availableat:http://www.dovetailinc.org/report_pdfs/2013/dovetaillaceyact1113_0.pdf

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CountrieswithlegislationsimilartoLAAandEUTRtoeliminateillegaltimber(especiallytropical)trade

The EU and the US are not the only countries which have timber legality assurance policies.Australia,JapanandSouthKoreaalsohavepolicies.Australia’sIllegalLoggingProhibitionActof2012promotesthetradeof legally loggedtimberandtimberproducts.TheActconsiders“intentionally,knowinglyorrecklessly”importingorprocessingillegally loggedtimberacriminaloffense.Inordertobe inaccordancewithWorldTradeOrganization rules, like theEUTR, theAustralianAct coverstimber harvested nationally and internationally. The legislation only places requirements onAustralian businesses, and importers are required to practice and prove due diligence. Australianbusinessesmust practice due diligence “to assess andmanage the risk that the timber or timberproductstheyareimportingforprocessinghasbeenillegallylogged.”TheAustralianActisdesignedtocomplementEUTRandLAA.

The Japanese legislation specifically addresses illegal timber trade. The Japanese Governmentintroduced a Green Purchasing Law in 2006 to ensure that domestic companies import legal andsustainablyproduced timberproducts. Japanese importersvoluntarily certify, according tovariousmethods, the legality and sustainability of wood and wood products (Goho-wood, 2017). Due totheirvoluntarynature,JapaneserulesareviewedasweakerthanthoseoftheUS,EUandAustralia.

South Korea established in 2012 the Act on the Sustainable Use of Timber. The Act includesmeasuresagainst illegal timberbeing tradedandused inSouthKorea (Statutesof theRepublicofKorea,2017).Avoluntaryduediligenceoptionisindevelopment.

Chinaisintheprocessofdevelopingalegalverificationpolicywhichhasbeeninalongexperimentalstage. Although some local industry associations have started to introduce their own verificationprograms, they lack resources, credibility, and transparency needed for wide acceptance by themarketplace, especially in internationalmarkets. The EU extends its FLEGT program objectives toassistcountriessuchasChinaandIndia,whicharemajortropicaltimberimporters,toensurelegaltrade.

Howdoescertificationofsustainableforestmanagement,orthelackthereof,influencethetropicaltimbertrade?

Thelackofcertificationinmostofthetropicalforestsmeansexclusionuncertifiedtimberfromsomeduediligencesystems.AccordingtotheIndependentMarketMonitoringproject(IMM),“themarketinteractionbetweenFLEGT licensingandotherverificationsystems isnotonlydependentontheirrelativegeographiccoverage,butalsoontheirperceivedlevelofassurance,bothwithrespecttothecredibilityofauditingproceduresandthecontentofstandards”(ITTOIMM,2017).China’stropicaltimbertrade

An analysis of tropical timber importsmust include China, the single largest importing country oftropicaltimber,aswellasmanytemperatewoodandpaperproducts.With itsmassivepopulationgrowing in economic stature, China’s production of wood and paper products goes first to fulfildomestic needs. Themore lucrative exportmarkets create demand for the value-added productsprocessed in China. China’s exports of wooden furniture at over one-third (35.7 percent) of theglobalexports,dwarfallothercountries.Incontrasttomostoftherestoftheworld,Chinadidnotsufferasmuchduringtheglobalfinancialandeconomiccrisisof2007.China’s importsofprimary-processed wood products rocketed from 2009 through 2014 reaching a total of $19.6 billion, ofwhichtwo-thirds(66.7percent)weretropical(figure11)(ITTO,2017).

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Figure11China’simportsoftemperateversustropicallogs,lumber,veneerandplywood,2000-2016

Source:ITTO,2017.

Conclusions

Marketforcesalonewillnotdrivesustainableandlegalproduction.Demandfortropical,aswellastemperate,timberisgrowingglobally.AccordingtoFAO,thevalueofproductionofwoodandpaperproductsin2016finallyrecoveredtolevelsbeforethe2007-2008economicandfinancialcrisis.Evenifthevolumesoftropicaltimbertradedaredeclining,theirvalue is increasing.Whilehigherpricescan mean higher revenues, if supply constraints are the basis for higher prices, then continuedsupplymaybeinjeopardy.

Deforestationandforestdegradationhavedrawntheworld’sattentiontotheplightinthetropics.Thesenotonlyhavesevereenvironmentalconsequences,buttheyalsonegativelyimpactcountries’economies and populations. The attention has resulted in domestic and international policies tocombat these issues.The“T” inFLEGTprovidedtheammunitiontostop illegal tradecoming fromVPAcountries. IfFLEGT-licensedtimberbecomesavailablefrommorethanthesinglecountrynowlicensed(Indonesia),andinsufficientquantitiestomeetthedemandstemmingfromduediligencesystems,itcouldencouragemoreVPAs.TheincreaseinexportsfromVPAcountriestotheEUsince2013isapositivesignofEUmarketconfidence.

Countriesandcountrygroupswhichhaveestablished legislation toensure importsof legal timberaretakingtherightpolicy-pushstepstodrivelegaltimbertrade.TodatethoseincludeAustralia,theEU,Japan,SouthKoreaandtheUS.Whilethesecountriestogetheraccountforamajorportionoftimberimports,somekeycountriesarenotyetincluded,notablyChinaandIndia.TogethertheEUandthefournon-EUcountrieswithEUTR-likelegislationaccountforoverhalfofChina’sexports,andathirdofChina’simportsofwoodandpaperproducts.Thereforetheyconstituteasignificantforceto require thorough proof of legality for sources of China’s timber imports, aswell as for China’sexports to their countries.Governmentsatmany levels cando theirpart todrive sustainableandlegaltradeviatheirpurchasingpolicies.Tradeassociationshaveanobligatoryroletoplaytoo,i.e.toensuretheirmembershipabidesbylegalandsustainablepracticesandtoreportondevelopmentsinthisarena.NGOsandENGOsarecriticaltoraiseissuesandcreatesolutionstosolvethoseproblems.

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TheBottomLine

Sustainable economic and social development in forested tropical countries is often heavilydependent on sustainable forest management and sustained forest products markets, bothdomestic and export. While deforestation appears to be slowing according to FAO, forestdegradationcontinueswhereforestmanagementplansarenotfollowed.Inmanytropicalcountriesthe demand forwood fuel for heating and cooking is rising alongwith population growth due toincreasing birthrates and longevity. Globally more roundwood is burned for energy, ofteninefficiently,thanisusedforhighervaluewoodandpaperproducts.

Countries’ wood and non-wood forest resources must satisfy domestic demands, but wheninsufficient,theseresourcesmaybeimportedgivensufficienteconomicstrength.Exportingtropicalwood and paper products can have substantial, long-term economic benefits when done in asustainablemanner.Whendomesticorexportsuppliesdonotmeetdemand,substitutionoccurs–onecountrylosesmarketsharetoanotherortemperatetimberissubstitutedfortropicalorworse,non-wood-basedproductsaresubstitutedforwoodandpaper.

Although well-known, these problems need multifaceted solutions. Market demand alone is notsufficient to bolster tropical timber exports and producing countries’ economies. Policymeasuresfrom tropical countries and their trading partners are needed to ensure legal and sustainableproductionandtrade.Someimportingcountrieshavetakenpositivestepstonotonlyensuretheirimports are legal, but also to assist their trading partners.More countries need to adopt similarpoliciesandenforcetheirlawstoensurelegalandsustainabletrade.

Dovetail Partnershas followed these issues since its inceptionandwill continue toprovide timelyupdates.Relatedreportsarelistedinthefootnote.5References

DovetailPartnersInc.2015.ImpactsofPoliciestoEliminateIllegalTimberTrade.http://www.dovetailinc.org/report_pdfs/2015/dovetailtradepolicyimpacts0515.pdf.AccessedOctober2017.

EurostatComextdatabase.2017.http://epp.eurostat.ec.europa.eu/newxtweb/.AccessedOctober2017.

FoodandAgricultureOrganization(FAO).2017.Forestresourcesassessment.Mapsandfigures.http://www.fao.org/forest-resources-assessment/current-assessment/maps-and-figures/en/.AccessedSeptember2017.

TrendsintheGlobalForestSectorandImplicationsforForestCertification(2004)www.dovetailinc.org/report_pdfs/2004/dovetailglobal111904.pdf

InternationalStandardsandTradeBarriers(2006)www.dovetailinc.org/report_pdfs/2006/dovetailtradestandards0606.pdf

UnderstandingtheLaceyAct(2013)www.dovetailinc.org/report_pdfs/2013/dovetaillaceyact1113_0.pdf

ImpactsofPoliciestoEliminateIllegalTimberTrade(2015)www.dovetailinc.org/report_pdfs/2015/dovetailtradepolicyimpacts0515.pdf

DovetailPartners January2018 16

FAO.2017.Globalforestresourcesassessment2015–Howaretheworld’sforestschanging?http://www.fao.org/resources/infographics/infographics-details/en/c/325836/.AccessedSeptember2017.

ForestResourcesAssessment2015.2017.http://www.fao.org/3/a-i4793e.pdf.AccessedSeptember2017.

Goho-wood.2017.www.goho-wood.jp/world/.AccessedSeptember2017.

InternationalTropicalTimberOrganization.2006.InternationalTropicalTimberAgreement,2006.http://www.itto.int/direct/topics/topics_pdf_download/topics_id=3363&no=1&disp=inline.AccessedSeptember2017.

ITTO.2017.Biennialreviewandassessmentoftheworldtimbersituation,2015-2016.www.itto.int/annual_review/.AccessedSeptember2017.

ITTOIMM.2017.IndependentMarketMonitoring.FLEGTVPApartnersinEUtimbertrade,2014-2016.Draftmainreport.http://www.itto.int/files/user/imm/VPA_Partners_In_EU_Timber_Trade_2014_to_2016_IMM_Main_Report_vers_1.4_clean_copy.pdf.AccessedSeptember2017.

ITTOIMM.2017.IMM.www.itto.int/imm/.AccessedOctober2017.

StatutesoftheRepublicofKorea.2012.Actonthesustainableuseoftimbers.http://elaw.klri.re.kr/eng_mobile/viewer.do?hseq=25594&type=new&key=.AccessedOctober2017.

UNComtrade.2017.https://comtrade.un.org/.AccessedSeptember2017.

UNEconomicCommissionforEurope/FAO.2017.Forestproductsannualmarketreview,2015-2016.www.unece.org/index.php?id=43429.AccessedSeptember2017.

Wikipedia.2017.Nubia.https://en.wikipedia.org/wiki/Nubia.AccessedSeptember2017.

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