EU's action to fight illegal logging makes the headlines in the Financial Time's "This is Africa" Magazine.

Source: http://www.thisisafricaonline.com/Business/Regulating-Africa-s-timber-sector?ct=true

By Cate Reid

Africa’s timber resources have long drawn interest from investors worldwide. New regulations in the EU promise to tackle its darker side

Close to a quarter of Africa’s land is covered with forest. The Congo Basin is home to one of the world’s largest tropical rainforests – second only to the Amazon. It reaches across six countries in central and west Africa, where forestry accounts for 60 percent of GDP in the form of timber exports. These include some of Africa’s major timber producers - the Democratic Republic of Congo (DRC), Congo (Brazzaville), Gabon and Cameroon - which are also the source of much of the European market’s tropical timber imports.

According to Interpol, at least half of forestry activities in key producer tropical countries such as the DRC can be characterised as illegal logging – and that figure could stretch as high as 90 percent. Estimated to be worth between $30 and $100bn a year, illegal logging is comparable in value to the international drugs trade. It results in not only deforestation and forest degradation – causing potentially long-term environmental damage on a global scale – but is also, Interpol says, used by a ‘timber mafia’ to generate revenue and launder money for organised crime.

The European Union is now cracking down on the issue. The EU commissioner for development, Andris Piebalgs, says the fight against illegal forestry is a high priority. “We cannot stand by and watch while illegal logging causes irreparable environmental damage and leads to billions of euros of lost revenue every year. This is affecting the livelihoods of millions of poor, vulnerable people in developing countries especially,” he explains.

EU rules on illegal timber

European companies using timber from sub-Saharan African forests must now comply with tough new legislation introduced by the EU. Drafted in 2010, the EU Timber Regulations (EUTR) came into force on March 3 this year. Aimed at tackling the environmental, social and economic damage caused by widespread illegal logging, the laws require businesses to ensure that timber comes from legal sources.

This is no small challenge. The NGO Global Witness recently highlighted the level of risk involved for companies importing tropical hardwood from the Congo basin. Its investigation ‘Logging in the Shadows’ points to the systematic abuse of logging permits in Cameroon, Liberia, Ghana and the DRC, which it says could put the EU at risk of laundering illegal timber imports.

Once prevented from expanding because of local conflict, the logging industry in the DRC has boomed in recent years with dozens of permits allocated between 2010 and 2012. Global Witness finds that these violated national forest laws in at least 10 different ways and Europe campaigner Alexandra Pardal says the level of illegal activity is such that “most if not all timber coming out of DRC could be illegal”. And yet endangered species of tropical hardwood are easily found in UK shops – such as Wenge, which is the number one species exported from DRC, and can be used to make furniture or musical instruments.

Change through trade

The movement behind the new laws dates back as early as 1998, when the G8 first put illegal logging on the agenda. In the early 2000s, the concept of using trade to tackle environmental problems by introducing laws that required industry to comply with certain standards had begun to influence thinking on problems such as conflict diamonds – leading to the establishment of the Kimberley Process. Mr Piebalgs says this approach that has shaped the EUTR: “The EU does not seek to impose its own standards on African timber-exporting countries but simply to ensure that their own forest legislation is complied with, and is seen to be complied with,” he explains.

The EUTR is one of two key elements of the EU’s Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan. The other is the Voluntary Partnership Agreements (VPAs), which are negotiated with producer countries and, Mr Piebalgs explains, “offer a structured and credible means for the EU to engage with partner countries to help them reach this objective”. Both elements involve a wide range of interested parties - EU member states, partner countries, the private sector and civil society. “We all need to join forces if we want these potentially powerful instruments to be effective,” Mr Piebalgs says.

Under EUTR, timber not produced in accordance with the laws of the country of harvest is deemed to be illegal. Companies are now banned from placing illegally harvested timber, or products made from illegal timber, on the EU market.

The EU is not alone here. The US implemented a similar ban under the 2008 Lacey Act and Australia is soon to follow suit when it enacts its Illegal Logging Prohibition Act next year.

And the US has demonstrated that such laws should be taken seriously. Last year, Gibson Guitars were found to have imported illegal wood from Madagascar and paid out $300,000 to settle their case. EU companies will also face stiff penalties if they find themselves in breach of the new law. Importers are required to conduct due diligence to verify the origin of their timber and manufacturers must keep detailed records of their suppliers. Decided by each member state, the law says penalties for failing to comply must be effective, proportionate and dissuasive. “No business can afford to be complacent,” says Ms Pardal. Companies caught dealing in illegal timber may face fines, seizure of timber and products, and suspension from trading.

With tough laws in force in key export destinations, the market for illegal timber is shrinking rapidly. The UK’s Department for International Development (Dfid), which has played a significant role in the EUTR, believes the legislation will have real impact in combating the problems of illegal logging. “There is a lot of optimism about the new laws – this approach is unlike anything tried before in the sector. It pushes responsibility down the supply chain, using trade to drive these changes,” a Dfid spokesman says.

Industry on board

Rather than fighting a losing battle to force governments in developing countries – including those in Africa – to crack down on the logging companies, the new laws leave EU buyers no option but to purchase from companies that can prove their timber is legal. For the many companies operating illegally, the only way to hold on to their major international markets may be to clean up their businesses.

This has come as welcome news for companies whose ethos is to operate legally and sustainably. One of these is Olam International, which has forestry operations throughout central Africa including the Republic of Congo, and is one of the region’s largest suppliers of FSC certified wood – a hallmark of sustainably managed timber operations.

Robert Hunink, president and global head of wood products and Olam, is optimistic that the EUTR will go some way towards addressing the problems of illegal timber entering the European supply chain.

Buyers have also welcomed the legislation, which should allow them to verify the legality of their timber imports more easily. Swedish household goods manufacturer Ikea is one of the world’s largest users of timber in the retail sector. One of the founding members of the FSC, it has spoken out against illegal logging for years and was involved in the discussions around the development of the EUTR.

Anders Hilderman, global forestry manager at the company’s Swedish headquarters, says that “the most significant advantage of these legislations is that it helps us convince suppliers to direct adequate attention and resources to ensuring legality of the wood”. He believes the new laws will help create the much-needed level playing field for companies placing legal timber on the EU market and would “like to see a swift and consistent implementation of the regulation”.

Tackling forest crime

Dfid, meanwhile, stresses the importance of the laws in tackling illegal logging by addressing not only timber legality but also the root causes of forest crime. UK international development minister Lynne Featherstone tells This is Africa that the new legislation and voluntary agreements “will tackle both the governance and market failures that allow illegal logging and associated timber trading to continue”. She argues that this “will address some of the fundamental problems that have undermined the forest sector in many developing countries, such as stopping poor people’s rights to forest land and resources, inadequate collection of forest taxes, and corruption.”

Global Witness found in its report that corruption has been a major driver of illegal logging in central Africa. It sees the participation by corrupt local elites as “massively undermining international efforts to regulate the international timber trade” – including the VPAs. The evidence for large-scale, lucrative, illegal logging operations is “a worrying trend”, Ms Pardal says: “Logging companies are systematically colluding with corrupt officials to get around laws designed to stop them decimating forests and abusing those who live in them.”

Other investigations by NGO the Environmental Investigations Agency in Mozambique also demonstrate that forestry is dominated by a corrupt elite, who operate with little concern for the law or the environment. Dfid believes this has been a longstanding problem. “The way logging has been managed for over half a century has led to the destruction of the forests, a few people have made a lot of money and it has had limited impact on development,” a spokesperson explains.

Raising awareness

Yet the laws face obstacles. Many European companies required to comply with the legislation are not fully aware of the problem of illegal logging and the high risk of importing illegal timber, industry members say.

Olam’s Mr Hunink explains that “responsible operators are also undertaking everything possible... to make major timber retailers and smaller end-users aware of this issue and to convince them to only buy responsibly produced timber”.

For companies selling certified timber, competing with the cheaper, illegally produced material is also a problem. Global Witness estimates that illegal logging pushes down the price of legally harvested timber by 16 percent.

“Until we have a level playing field, some customers need to understand that legally produced timber has a different price tag compared to illegal material. Certain players in our industry have answered the call to supply certified timber but there are still some customers that need to put their money where their mouth is - even in these economically challenging times,” Mr Hunink says.

There are other problems too. An important element in the success of the EUTR will be the ability of companies to trace the origins of their timber. But none of the countries with VPAs have yet launched verification schemes and many continue to have poor methods for tracking timber. The illegal awarding of logging permits makes it even more difficult to be sure whether timber is legal, as the problem is not confined to timber felled in unlicensed concessions. Legitimate companies are able to disguise the illegal sourcing of their timber which finds its way into the EU market - and there are rumours of companies having stockpiled timber in anticipation of the EUTR coming into force.

Countries including Brazil have demonstrated that sophisticated tracking methods, including testing the DNA of wood, can be effective in enabling companies to trace the origins of timber. Such technology will be required if EU countries are to continue importing from Africa. But the process of establishing robust verification schemes in African producer countries, supported by donors such as the UK, has proved to be complex and protracted. Until these are launched, the onus will fall on companies to find their own ways of conducting risk assessments and due diligence on timber products in order to comply with EU law.

This will be challenging, but could help transform the industry from one operating on a so-called ‘race to the bottom’ basis to a ‘race to the top’. Once in competition to operate in increasingly illegal ways to make money, companies may find that those operating legally have a market advantage. In turn, countries fostering a more transparent business environment will be more appealing to the global market.

Dfid believes that despite the delay in implementing the tracking programmes, VPAs are already proving to be beneficial by helping governments give problems linked to logging higher priority. The agreement enabled Liberia, Dfid says, to be “able to take swift and effective action against the wide scale abuse of ‘private use permits’ with the support of the EU”. Liberia is now one of Africa’s largest timber producers and, according to Global Witness, has seen more than 60 percent of its rainforest licensed to logging companies since President Ellen Johnson Sirleaf came to power in 2006 – nearly a quarter of its total landmass.

China: the missing puzzle piece

The glaring gap in this increasingly tough international approach to illegal logging comes from China. Research by the Environmental Investigation Agency (EIA) shows China to be the main destination for timber exported from Mozambique. The DRC, which once exported mainly to the EU, is also increasingly exporting to China. EIA’s Julian Newman explains that the consumption of illegal timber has been “increasingly driven by domestic demand” and that despite China’s stricter laws governing its own forests, it “freely allows the import of illegally harvested timber”. Global Witness’ Ms Pardal agrees, saying that “China doesn’t have good enforcement and doesn’t yet feel the urgency to do so”.

While there is little the EU laws can do about China’s demand for illegal timber, there is some hope that they will have an indirect effect through a decline the EU market for wood processed in China. China is the number one processing hub for the global timber trade, and the UK is one of the main importers of Chinese wood products. Currently, Ms Pardal says China remains a “high risk” for UK importers but that if China wants to retain its EU market it will, in turn, have turn enforce higher standards on countries such as Mozambique, where the vested interests of the local elite dominate the forestry sector and the legality of timber is often difficult to establish.

Long road ahead

Industry is optimistic that the new laws will help strengthen the market for legally harvested timber but Ms Pardal says that it will still be “a long road” before we see the improvements that many hope will result from tougher EU legislation. She adds that the business model for exploiting tropical forest is “flawed” because here sustainability and profit do not go hand in hand.

Experts agree that it is difficult to make money by operating legally in the current environment. Though the EUTR is an important step towards addressing the serious environmental and social implications of logging in primary forests, other solutions – such as encouraging more plantations – will be necessary if the sector is to develop in a sustainable way.