Report
from
Europe
Rising concern on market impact of EUTR
The market impact of the EU Timber Regulation (EUTR)
is a major concern for the European timber trade and
policy makers.
Now that over a year has passed since coming into force,
trade interests are raising concerns about inconsistent
application of the Regulation across the EU and even
within Member States.
The lack of clear guidance on key elements such as risk
assessment and the need for a greater focus on commercial
implications and on evolution of cost-effective
mechanisms for compliance, particularly amongst smaller
companies that are so important in the timber trade.
Equally NGOs are raising concerns about lack of visible
progress by some EU Member States to develop
enforcement regimes. This, in turn, has encouraged the
European Commission to take measures to ensure that all
Member States honour their commitments to implement
and enforce EUTR.
In July, the European Timber Trade Federation (ETTF)
convened a meeting "to consider perspectives on
implementation, enforcement and outcomes of the EUTR
on the market".
The meeting was attended by representatives of ETTF
member associations from France, Germany, Italy,
Netherlands, and the UK. Also attending were Svetla
Atanasova of the EC Environment Directorate and Rupert
Oliver, Lead Consultant to ITTO‟s EC-funded FLEGT
VPA Independent Market Monitoring (IMM) project.
Oliver delivered a presentation for the ITTO IMM on ¡°Do
Statistics tell us anything about EUTR implementation and
possible impacts?¡± Drawing on the following sequence of
charts (1-4), he considered whether there is any evidence
EUTR has contributed to a reduction in EU trade in
tropical hardwoods.
Oliver further observed that, when considered over a long
timescale, EU trade in tropical hardwoods since
introduction of EUTR is more remarkable for its relative
stability (at a low level) than for any significant change
(Chart 1).
Market weak but stable
This stability might itself be partly due to the EUTR
which, along with weak consumption and lack of financial
credit, has contributed to greater risk adversity in the trade.
There appears to be much less speculative purchasing of
tropical hardwood products by European importers than in
the past.
![](aaw20513.jpg)
Oliver highlighted recent structural changes in Europe‟s
tropical hardwood trade. The EU import data combined
with anecdotal reports suggests that one effect of the
EUTR has been to concentrate the trade in the hands of a
few larger operators.
European operators are now being much more selective in
who they deal with in tropical countries, tending to focus
on suppliers with whom they have formed long-term
commercial relationships and which have been most cooperative
in provision of the detailed information now
required to demonstrate negligible risk.
But the structural changes are equally due to long term
constraints on supply of tropical hardwood to European
specifications following a reduction in processing capacity
in some tropical supply countries and increasing diversion
of trade to domestic and emerging markets, notably China.
In a sellers‟ market, tropical hardwood exporters have
more options and have become less inclined to service
increasingly demanding European buyers.
![](aaw20514.jpg)
Oliver noted that, when looking at short-term fluctuations
in EU hardwood imports since enforcement of the EUTR,
the identifiable trends are most readily explained by
commercial factors rather than by the EUTR.
For example, a notable recent trend in EU sawn tropical
hardwood imports is the downward slide that began in
August 2013 and reached a low in February 2014 (Chart
2).
This was due to the combined effects of: low availability
of the commercially most popular African species such as
sapele; infra-structure problems at Douala Port, which
greatly reduced exports from Cameroon; overstocking in
the European garden decking sector and the sharp dip in
imports from Malaysia in early 2014 after an increase in
EU import taxes following the change in Malaysia‟s GSP
status.
Since February this year, there has been a small rebound in
sawn tropical hardwood imports into the EU with an
easing of the tight supply situation in Africa and with
improved consumption in many European markets
including France, Belgium, Netherlands, Germany and the
UK.
All these trends are apparent from analysis of monthly EU
tropical hardwood imports by source of supply (Chart 3).
![](aaw20515.jpg)
Are imports being directed to EU countries with poor
record of EUTR enforcement?
Oliver also considered whether there is any evidence of
changes in the direction of imports of tropical wood from
EU countries with strong sanctions regimes to those EU
countries with weaker regimes. He concluded that, up to
now, there are no strong signs of this from analysis of
timber trade statistics.
Again, alterations in the sourcing of imports into the EU
are more readily explained by changes in consumption
than by differences in the EUTR regimes (Chart 4).
Imports of tropical hardwood products into the UK
increased consistently throughout 2013, even after
implementation of the EUTR and despite the UK having
one of the most active EUTR regimes.
Meanwhile tropical hardwood imports into France, which
is only now introducing a regime for the EUTR
enforcement, were declining last year.
Sliding tropical hardwood imports into Germany during
the second half of 2013 might be partly explained by the
uncertainties created by EUTR enforcement action taken
against wenge log imports from Democratic republic of
Congo in August 2013.
Tropical hardwood imports into Germany improved in
2014, although this is due less to recovery in imports of
African products than of Asian products, notably bangkirai
decking and Indonesian plywood.
![](aaw20516.jpg)
It is perhaps unsurprising that trade flows have yet to show
significant change as a direct response to the EUTR given
the current status of enforcement regimes. Reports from
national associations and the EC at the ETTF meeting
highlighted that there are still significant gaps in
enforcement.
EC puts member states on notice to toughen up EUTR
enforcement
Svetla Atanasova reported that the EC Environment
Director General Karl Falkenberg sent a letter to all
member states in April putting them on notice to toughen
up on the EUTR or face sanctions. It asked them to detail
their implementation of the Regulation to date within a
month.
It quizzed them on enacting legislation and sanctions, and
whether due diligence checks on affected companies have
been started by their national competent authorities. If
these had not begun, governments were told to make sure
they do.
The majority of EU countries replied to the the letter and
reported that they have taken implementation measures.
The EC prepared a summary table of the status of
implementation across the EU found at
http://ec.europa.eu/environment/forests/pdf/scoreboard.pdf).
Responses to the letter indicated that 17 of the 28 EU
Member States have already fulfilled the three main
obligations of EUTR ¨C that is to establish EUTR
Competent Authorities, to implement sanctions, and to
start checks on operators.
The countries fulfilling all these obligations are: Austria,
Belgium, Bulgaria, Czech Republic, Cyprus, Denmark,
Estonia, Finland, Germany, Slovakia, Ireland, Lithuania,
Netherlands, Portugal, Slovakia, Sweden, and the UK.
¡¡
A further eight countries are in the process of fulfilling all
the obligations ¨CFrance, Greece, Italy, Latvia,
Luxembourg , Malta, Slovenia, and Romania. At this
stage, only three countries have not begun to fulfil one or
more of the obligations: Croatia, Poland and Hungary.
Judging from the EC‟s summary table, Hungary seems to
be particularly lagging behind.
Svetla Atanasova said the EC would take enforcement
action against any Member State which fell short of their
EUTR obligations. She noted that an EUTR enforcement
group, comprising officials from Member States is due to
meet for the second time in September. The EUTR will
also be taken up by a task force, including EC
representatives, which will work with countries to increase
implementation efficiency.
Regular EUTR checks in the UK
Further insights into the status of EUTR enforcement at
national level were provided by trade representatives at the
ETTF meeting in July. Anand Punja of the UK TTF
reported that enforcement action in the UK is already well
advanced with regular checks underway of UK importers.
The NMO, the UK‟s EUTR competent authority, has
required a number of operators to alter their due diligence
procedures, the main concern being a failure to adequately
assess the credibility of documents received from
suppliers. There have been no prosecutions to date but the
trade is not being complacent.
The NMO has stated that it has concentrated so far on
building capacity and improving understanding of the
issues before attempting to make a legal case.
Overall there is a good working relationship between the
UK trade and NMO, the latter having focused so far on
helping firms to comply with the legislation. However the
TTF has specific concerns.
The NMO is targeting firms on the basis of its‟ own
analysis of risk associated with individual products,
species and countries. In the TTF‟s view, targeting should
be based on evidence of corporate due diligence. The
current regime leads to too much emphasis on high profile
companies that are already taking far-reaching steps, and
not enough on less visible companies.
Active EUTR enforcement in the Netherlands
Paul van den Heuvel of the Dutch VVNH noted that
EUTR enforcement is active in the Netherlands, although
resources are spread thin given that the Dutch Competent
Authority has identified 5000 operators placing timber on
the market. Although checks are underway, the Dutch
Competent Authority has been unwilling to divulge details
of any issues that may have been identified.
As far as VVNH is aware based on information from
members, few problems have yet emerged and the existing
comprehensive due diligence procedures of Dutch firms
are working well.
Drawing on EC guidance and with input from the auditing
firm NEPCon, VVNH has adapted its existing
procurement requirements for members into a new
¡°Timber Checker¡± system to ensure full compliance to
EUTR.
French EUTR regulation expected in September
Eric Boilley of the French association Le Commerce du
Bois (LCB) noted that, after several delays, the French
regulation establishing the EUTR enforcement regime in
France is now expected to be passed September.
The first checks on operators are expected to occur soon
after. The sanctions regime will be extremely onerous,
with fines of €150,000 just for failure to implement
adequate due diligence.
LCB has been requiring mandatory due diligence
procedures for its members already for seven years so is
hopeful that the new sanctions regime will not cause
immediate disruption.
LCB has also formed a close working relationship with
both the French Ministry of Agriculture, which will act as
the EUTR Competent Authority, and with WWF which
advises LCB on risk assessment and the status of legal
documentation in supplying countries.
Italian enforcement measures barely begun
Davide Paradiso and Domenico Corradetti of Italian
Federlegno Arredo noted that EUTR enforcement
measures have barely begun in Italy and that all the work
to date to inform industry and prepare for EUTR has been
carried out by the association.
This is a vast task given the numbers of mainly smaller
operators in Italy. There are estimated to be up to 10000
operators in the paper sector, 6000 in the importing sector,
and 8000 forest enterprises. It was also noted that, due to
the absence of sanctions in Italy, enterprises are not
strongly motivated to improve due diligence procedures.
Despite these constraints, Federlegno has made significant
progress to develop a practical system for EUTR
conformance for member companies. The system is
known as LEGNOK which sets out standard procedures
for risk assessment in line with EUTR.
Companies can upload all their own risk assessments of
suppliers on to an on-line database to reduce duplication of
effort and to allow review by a Wood Information Centre
located in the Italian office of TRAFFIC, the international
NGO established to monitor trade in wildlife.
The Wood Information Centre provides an independent
view of the credibility of legality information and makes
recommendations to the importer.
Bureaucratic approach to EUTR in Germany
Nils Olaf Petersen of GD Holz noted that the Federal
Office for Agriculture and Food (BLE) which acts as the
EUTR Competent Authority in Germany has undertaken
checks of timber importers since July last year.
Around 60 companies have been checked so far and the
procedures have been strict, more so than audits of
financial accounts.
The BLE has adopted a bureaucratic approach, assessing
first whether the operator has a due diligence system in
place, second whether the operator has adequately
described the system in company documents, and third
whether it is being implemented effectively.
The latter step involves operators being required to show
specific examples of risk assessments and demonstrating a
clear rationale for acceptance of legal documents. There
have penalties imposed, including a severe penalty on an
importer of wenge logs from the Democratic Republic of
Congo.
BLE has reported that of those companies so far visited,
25% were identified as not undertaking due diligence as
required under EUTR. BLE state that the main problem is
that while nearly all companies are collecting documents
they are not then taking sufficient time to consider their
credibility and authenticity.
The BLE has emphasised that the regulatory approach will
be progressively tightened and more companies will be
sanctioned in the future if they do not demonstrate more
diligent checks on documents received from suppliers.
BLE is also working closely with the Th¨¹nen Centre of
Competence on the Origin of Timber which brings
together expertise of the three Th¨¹nen Institutes of Wood
Research, Forest Genetics, and International Forestry and
Forest Economics, responsible for wood identification,
proof of origin, certification and timber trade structures.
The Centre is extremely busy, not only with enquiries
from the BLE, but also from Competent Authorities in the
UK and a few other EU Member States, NGOs seeking to
identify illegal imports, and from trading companies
wishing protect themselves from regulatory action.
ETTF call for definitive guidance on supplier legal
documents
ETTF ended their July meeting with a call for definitive
central guidance on the legal documents provided by
overseas suppliers. Competent Authorities are clearly keen
to ensure that importers do not take legal documents at
face value and instead scrutinise their validity.
It was noted that Greenpeace‟s latest claims that legality
documentation from Brazil fell short of EUTR
requirements also highlighted the importance of this issue.
In the absence of clear independent advice, several large
European importers have discontinued all purchases of
Brazilian ipe on the strength of the Greenpeace campaign.
Given that very few timber importing companies have the
resources or skills at their disposal to undertake detailed
scrutiny of the legal situation in each country and the
validity of every document supplied with consignments,
there is an essential need to rationalise the approach and
provide more support. Otherwise more tropical wood may
well be excluded at the merest hint of controversy simply
for lack of better information.
Andre de Boer, ETTF‟s Secretary General, concluded by
stating that a detailed proposal would be prepared, for
possible funding as an ITTO project, to develop a central
public on-line database which would provide access to
detailed information on applicable legislation in all timber
supplying countries.
He emphasised that the aim would be to provide wellstructured
comprehensive information and not to judge the
quality of legislation or documents. Forming judgments
would remain the obligation of the EU operator, as
required by the EUTR.
|