EU Timber Regulations: Well-intentioned or risky?

In March 2013 the European Union will start enforcing a new timber regulation that is designed to prevent illegally logged wood, and products made from illegally logged wood, from entering into the EU. The EU Timber Regulation (EUTR) will include pulp, paper and paper products as described under sections 47 and 48 of the Uniform Tariff Credit Code.

Each European country will set up a structure to implement this and each country will be given the ability to start criminal proceedings against importers of any goods found to be in contradiction of this new regulation. This may sound harsh, but it is designed to protect global forest resources as well as the biodiversity, local livelihoods and businesses, and the national economies of forested areas around the world. It will obviously support legitimate forestry businesses, and has been created to allow them to compete on a fair and transparent basis.

So, it will be the responsibility of the importer to ensure compliance by putting in place a due diligence system that understands, tracks and retains information about the legality and origin of the wood that has been used. Major certification schemes such as Forestry Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC) are taking steps to ensure that their forest management and chain of custody systems comply with the EU's definition of due diligence, although the EU does point out that certification in itself is not a guarantee of compliance the EU timber regulation.

How it affects your business

The final wording for implementation of this regulation should be in place by 3 June 2012. Until this time importers probably need to anticipate the requirements of the regulation and start collecting information and details so that they can fine tune their due diligence mechanisms later in the year. Due diligence will need to be in place before goods are imported, so later in the year it will be sensible to complete the due diligence process before goods are ordered. In the USA under a similar system called the Lacey Act the US Government has been able to confiscate wood consignments thought to come from illegal sources. Obviously the paper industry has long supply lines, and even longer contract periods, so it may not be prudent to wait until all of the government mechanisms are in place, importers should start the work soon.

One of the more interesting requirements is that the scientific species name, or if ambiguity exists a common name, of all the tree species involved should be collated. In some locations specific tree species are protected so the country of origin is also needed. Considering that certification bodies such as FSC and PEFC create a chain of custody around batch production processes there may be certain limitations with actual tree identification for many paper and board products, especially when recycled material has also been introduced into the final product. This could prove to be an interesting challenge in itself. Of course, it is not just the tree species that is being examined by this process but the very legality to harvest these trees in the first place.

So a quick summary of information needed: description species; country of harvest; quantity; name and address of supplier and trader, and any other documentation indicating compliance with this legislation. Unless the risk of illegality is negligible the importer must take steps to mitigate any risk and this includes research and collation of additional information and possibly third-party verification of legality.

European paper mills are obviously covered by this regulation because they will be importing pulp, wood chips and even in some instances jumbo rolls of product for conversion. Interestingly packaging that protects goods shipped into Europe is currently excluded from this regulation, so there is no need to apply due diligence to such pallets, core bungs and similar materials.

Importers, or as they are described in the regulation ‘operators', can either use their own due diligence system or make use of one provided by an official Monitoring Organisation, although at this point the EU you still has to clarify the exact method of becoming a monitoring organisation.

One of the more technical aspects of EUTR is that this process ties in with another EU regulation called Forest Law Enforcement, Governance and Trade (FLEGT). Operators who purchase FLEGT licensed timber do not need to carry out further due diligence. The EU FLEGT licensing system identifies legal timber and timber products in producer countries and licenses them for import to the EU. The system is developed using a voluntary partnership agreement with cooperating producer countries. These producer countries tend to be in tropical or rain-forest areas. Although there are several African countries working on the FLEGT process, it is probably just the Asian countries that sign a FLEGT that will be of interest to the paper trade. Indonesia has already signed such a FLEGT agreement with the EU.

Will it work?

These are the rough facts, but we have to wait and see is whether this level of complexity, albeit very well intentioned, will turn out to be a protectionist policy. You will be hard pressed to find anyone who objects to the deforestation reasons behind this legislation, however the practicalities of dealing with it for paper importers, especially smaller organisations looking to establish a niche and widen the market, are not going to be simple due to the likelihood of multiple pulps being used in any one product. Fortunately the majority of virgin wood fibre for paper is coming from plantations today.

Also each member state is charged with managing their own border to the non-EU world, so the governance of monitoring organisations, the implementation of investigations, and any resulting fines & penalties may not be consistent across all 27 member states. Already some customs & excise experts have expressed concern over possible weak EU entry points.

Inside the paper industry we fully understand the need for forest certification and chain of custody. But with under ten percent of the worlds forest resources certified on the ground, and the industry making no significant progress in rapidly increasing this volume, we risk pushing certified paper into a dominant position in the economic North, possibly in a shrinking market. Is this a bad thing you ask? Perhaps not, but what happens in the rest of the world?

Considering the increasing global demand on land and with the current inability to significantly increase yields through genetic modification of trees (as prevented by mainstream certification) we are leaving our industry's supply source very vulnerable to another growing, and heavily EU incentivised sector, wood pellets for biomass. Just a thought.