Conference Summary - International Timber Trade

							Conference Summary
- International
Timber Trade
Federation Day –
Responding to changing
market requirements
Hotel Kempinski, Geneva, Switzerland
Monday, 27 October 2008
Background
International Timber Trade Federation Day, the first of its kind, brought together Timber
Trade Federations (TTF) from around the world, providing an opportunity for networking
and lesson sharing. The aim of the day was to exchange experiences in responding to
changing market requirements, in particular changing legislation (EC legislation and US
Lacey Act) and timber purchasing policies for both the public and private sectors.
61 participants representing timber trade associations and the private sector (Belgium,
Denmark, France, Malaysia, Netherlands, Spain, United Kingdom, Brazil, USA, Australia,
Finland, Guyana, Indonesia, IFIA, Gabon, China, Germany, Germany, Switzerland, France,
Democratic Republic of Congo, Denmark, Netherlands, United Kingdom), governments, the
EC, UNECE, EFI, independent experts and NGOs, attended the seminar.
Please note that the views expressed in the discussion are not necessarily those of the TTAP
or the European Commission, but are a reflection of the discussions during the seminar.


Timber Trade Action Plan (TTAP)
The conference was funded by the European Commission through the Timber Trade Action
Plan (TTAP) (www.timbertradeactionplan.info) and UK Government, Department for
International Development (DFID)
TTAP is a seven-year project begun in March 2005 that is co-funded by the European
Commission, the participating TTFs and their members. It was developed by European TTFs
to assist their suppliers in delivering verified legal timber to the European Union. To make
this happen, TTAP works with TTFs to ensure purchasing policies are consistent with
government and FLEGT requirements, sending one clear message to producers around the
world and facilitating responsible trade.
TTAP is managed by the Tropical Forest Trust (TFT), which provides technical expertise to
timber suppliers in Africa, Asia and South America.



Conference purpose
The conference was targeted at those involved in the trade of tropical timber and related
products and aimed to provide:


•   Global networking between TTFs and private sector representatives from around the
    globe;
•   Opportunity to hear how TTFs in the US and EU have responded to the requirements of
    US Lacey Act and pending EU legislation, for example the need for due diligence
    systems;
•   Exchange experience, tools and guidance on implementing due diligence systems,
    responsible purchasing policies and codes of conduct, designed to meet the market
    requirements; and

                                                                                          1
•   Exchange ideas on the role of TTFs in changing international markets and how best to
    meet the needs of their members.



Opening of the conference
The International Timber Trade Federation Day was introduced by Scott Poynton, founding
member and director of the Tropical Forest Trust (TFT) and Hugh Speechly of the UK
Department for International Development (DFID). They welcomed all participants and
highlighted the uniqueness of this event bringing together a large number of leading timber
trade organisations from around the world and discussing private sector actions to exclude
timber of illegal origin from the international markets. They outlined recent impressive
efforts within the private sector, and specifically by a number of TTFs implementing
progressive purchasing policies and guidelines.



Presentations and discussions
All presentations can be found on the TTAP website www.timbertradeactionplan.info, below
only the summaries of the panel discussions are included.


Market requirements for legal timber
The following presentations were given in the morning session:
•   Maria Pachta, European Commission, DG Environment – Environmental
    Agreements & Trade: EU FLEGT Action Plan update: VPAs and additional options
•   Ron Tenpas, Assistant Attorney General for the Environment and Natural
    Resources Division, US Government: US Lacey Act –Overview and update on progress
•   Rupert Oliver, Independent Advisor on Trade and Environment to AHEC and
    AF&PA, Director, Forest Industries Intelligence Ltd: Responsible Purchasing Policies –
    Taking control of the Green Agenda



Panel Discussion
Maria Pachta presented the EU proposal on due diligence that has been adopted on 17 Oct
2008. She explained that once the proposal becomes law, an organisation that has a
mandatory risk management system can apply for its recognition in the EU Member State. If
accepted, it would then be recognised in the entire EU. She clarified that the proposed EU
regulation does not prohibit import and trade in illegal timber. Penalties will only be applied
for organisations that do not comply with the EC legislation, i.e. do not conduct due
diligence in the purchasing process. The proposal allows Member States to apply additional
penalties for companies trading timber of illegal origin. A participant pointed out that the
proposal suggests setting up an advisory group, including the private sector, and asked what
the status of this process was. Maria Pachta responded that so far the advisory group has not
been established, because it is a legal proposal only. When the proposal is being adopted by
the European Parliament and the European Commission the advisory group will be set up, to

                                                                                             2
ensure all parties are represented. Furthermore she explained that the details of the definition
of monitoring organisations/ legal entities having a mandate to evaluate due diligence
systems are described in the proposal: e.g. due diligence system must be mandatory to all
members, risk management or auditing systems must be defined. With legal entities the EC
primarily means organisations that set up the due diligence system, “legal entity” is just the
most appropriate all encompassing legal term. Non-EU monitoring organisations, can apply
for approval as monitoring organisation. For WTO reasons, it is left open where the
monitoring organisation is based.
It is also left open to the member states to determine acceptable proof of due diligence/ risk
assessment systems, a risk of which is a variety of penalties and mechanisms. This is why
the proposal was put forward in the first place, to enable member states proposing their own
standards and systems. EC will strongly encourage harmonisation of member state systems.
It was underlined that this is still a proposal and there will be a period of extensive
consultation by EC and member states.
A participant asked Ron Tenpas how the US Government deals with re-imported timber from
low risk countries. Mr. Tenpas explained that companies must use “due care”. The US
government has not defined what due care is, that is not its approach, because: 1. US
government does not provide a “safe harbour” for e.g. a certain certificate as the problem is
dynamic and needs constant adoption. 2. The US government aims for a flexible and
reasonable approach to address the varying and difficult circumstances the industry has to
tackle. In most cases it will be a complex issue to show that a product has violated laws in
the producer country. The lawyers would look into best practice in the industry, and also
consider what TTFs suggest companies to do in terms of due diligence.
Another participant raised the concern that his timber trade federations’ members can
currently not provide verified proof of legal origin, and few are in the process with e.g. TFT
or TTAP. This would mean that in the short term, these members will not be able to provide
required proof of origin; will they not be able to sell to the US anymore. Mr. Tenpas
responded that the legislation is designed to reflect this situation, but that it is crucial for
companies to do the best effort to avoid trading in illegal timber.


Private sector due diligence systems
•   John White, Timber Trade Federation (UK), and Eric Boilley, Le Commerce du
    Bois (France), and André de Boer, Netherlands Timber Trade Association, joint
    presentation: Lessons learned in developing RPPs - The UK, Dutch and French
    experience
•   Peter Krogsgaard Kristensen, DLH Group: European company’s approach to supply
    chain and risk management in the context of illegal logging
•   Mr. Guangqian Zhu, Chairman CTDA, on behalf of Chinese TTFs (CTDA,
    CNFPIA, China National Furniture Association, and Pizhou Timber Distribution
    Association): How do China’s TTFs view the issue of legality and seek to control the
    inflow of illegal timber?
•   John Halkett, Technical Manager, Australian Timber Importers Federation Inc.:
    An update on the response of the Australian timber importers to changing international
    markets


                                                                                              3
Panel Discussion
John White (UK TTF) and André de Boer (VVNH) explained that the TTFs are working
toward harmonization of their approaches. Mr. de Boer expressed the need to help producing
countries comply with European requirements by providing information, workshops etc. and
mentioned the lack of knowledge about legality requirements in Eastern European countries.
In view of the EC’s difficulties in defining the criteria for risk assessments, the TTF
presenters where asked to share their ideas on assessing risk:
VVNH members currently get voluntary guidelines that will become mandatory when the EC
legislation will be in place. The basis of the guidelines is that every member must know the
origin of timber (Step 1).
LCB’s risk assessment is basic, and has been set up in line with the French public
procurement policy. It will be adapted to possible future modifications of the public
procurement policy.
For UK TTF members, risk assessment is done on the product. All products with evident
low risk (certified, legally verified) are excluded from the risk assessment. For all other
products, more evidence is needed: Hierarchy of questions: 1. Is the country risky (based on
Transparency International (>6.5))? 2. What evidence do you have? Depending on the
evidence, the product may be identified as low risk.
Peter Kristensen confirmed that DLH has already stopped making business with suppliers
because of the results of the Good Supplier Program (GSP) questionnaire: DLH phased
timber from Burma out even before the EU ban, and is currently phasing out suppliers in
Brazil and Indonesia. However, before DLH stops with a supplier they first try to help him
improving the performance.
A discussion took place about the impact of the upcoming tax increase for Russian log
exports (from 15 to 50€/cbm). Russia aims to reduce illegal trade with this measure, but this
could also encourage Chinese companies to relocate to Russia. Apparently, round wood
exports from Russia decreased in recent times, but sawnwood export increased to China.
China will increase investment plants in Russia, to continue to decrease log imports from
Russia, and increase imports from other countries, such as from Canada and New Zealand.
According to what has been said in the discussions, the Chinese market is not sensitive to
FSC certified timber and FSC is not yet frequently required in China. Only if buyers in
Europe and the US ask for it, the Chinese market will respond. It was also said that it is very
difficult to obtain proofs of origin and legality in China as furniture often contains timber
from many different countries.
Concerns have been expressed about the competition of other industries (concrete/steel) with
the Australian timber sector, aside the usual challenges of illegal logging and social issues.


Producer country perspective
•   Sheam Satkuru-Granzella, Malaysian Timber Council: Malaysian private sector’s
    approach on responding to changing consumer country requirements

                                                                                             4
•   Guilherme Carvalho, Technical Director/ Association of Timber Exporters of Pará
    State (AIMEX) and Fernando Castanheira, ABIMCI and Fórum Nacional das
    Atividades de Base Florestal, Brazil: Needs and options for Brazilian exporters to
    meet changing consumer country requirements with regards to legality verification
•   Catherine Peguillan, InterAfrican Forest Industries Association (IFIA): Changing
    market requirements in Europe – how African timber exporters and TTFs are responding
•   Ambar Tjahyono, Chairman of ASMINDO: Changing market requirements in Europe
    – how Indonesian timber exporters and TTFs are responding
•   Koh Tji Beng, PT. Sumber Graha Sejahtera Group, ISWA member: ISWA’s
    experience with changing market requirements

Panel Discussion
According to a Malaysian representative, Malaysia primarily wants to include the basic
products in the VPA as a starting point and gain experiences, as composite products could
prove to be extremely complicated.
An Indonesian representative explained BRIK, a system to monitor timber origin that could,
if slightly improved, help members of Indonesian TTFs be compliant with the new EC
legislation.
Speakers agreed that EU TTFs could help producer country TTFs to better understand
consumer market buying requirements through:
•   Keeping systems and requirements simple
•   Close cooperation between producer and consumer country TTFs
•   Facilitation of workshops and seminars
•   Working with other institutions such as ITTO
•   Help in producing and spreading information


The speakers had mixed opinions about the EU legislation approach:
A participant pointed out that illegal logging is a problem for the domestic market in Brazil,
but not for the exporting market. The EC legal approach will therefore not have a big impact
on Brazil.
With regards to Indonesia, authorities seem to prefer tackling their issues internally, and not
because of external pressure.
A Malaysian representative expressed concerns with the current version of the EC proposal
as regards legal matters, due to the autonomy of certain States such as Sabah and Sarawak.
Apparently, producers are not concerned about the impact of legality requirements on price
any more, but on market access.


Open discussion
During the open discussion, the importance to keep the “finger on the pulse” has been
underlined, as certification schemes don’t bring security and comfort (e.g. Norwegian ban of


                                                                                             5
tropical wood fearing fake FSC logos and Californian Government challenging oil and in
future eventually timber industry for causing climate change).
Participants agreed that the major issues for the timber industry working towards compliance
with legality and SFM are costs, resources, and capacity. They underlined the need for
harmonisation of regulations and requirements. “Keep it simple!” was said to be key for
producers. On the buyers’ side, some European buyers are still willing to purchase timber of
unknown origin and should give much more importance to credible evidence for legality.
Some producers wished buyers would be ready to pay more for certified wood. Owners of
certified forests should get credits from carbon trading to be compensated for their efforts, it
was said.
According to Ron Tenpas, the US Department of Justice (DoJ), hopes that industry will
betray those who deal with illegal wood to make them accountable, as this makes it easier for
DoJ to detect breaks of the Lacey Act. Some participants however cautioned about whistle-
blowing, as companies could unjustifiedly betray and accuse competitors. By closely
cooperating with experts of the foreign country’s laws and sometimes even government
representatives, DoJ is able to judge if there has been a breach with the foreign country’s
laws or not, Mr. Tenpas said. If the government representative claims that the product has
been legal, but an expert says the contrary, it would very difficult to judge, Mr. Tenpas
admitted.
Maria Pachta (EC) announced that the EC will provide time and resources to comply with
legal requirements via OD or FLEGT programs, and that it will likely provide funds for SME
enterprises to be able to adapt to the new legal requirements. As the proposal will probably
be mandatory from May 2011 on only, there is no phasing-in or exemptions made for
companies that are not yet ready to comply with regulations by then.
During the discussions it has been clarified that palm oil plantations in Malaysia are planted
on deforested or agricultural land only. Malaysia is engaged in Kyoto and REDD, but these
two schemes give preference to plantations and young trees rather than to old tropical forests.
A participant was pleased about the new generation of forest and company managers in
South East Asia in general ready to proof the origin and the quality of their products. The
increasing number of certified hectares in Africa further contributed to his optimism.
Chinese participants seemed to favour domestic law enforcement bodies being responsible
for verifying legality to private certification schemes or pressure from the outside. Generally,
companies were encouraged to implement work plans and timetables to improve verification
systems as increased sales could reward the costs.



Wrap up
The chairs Scott Poynton and Hugh Speechly briefly summarized the discussions of the day.
They mentioned the urgency of the fight against illegal timber, but pointed to some recent
positive developments such as the proposed EC legislation and some private sector
initiatives. They underlined the importance of the forest industry for tropical producing
countries and the need for support and capacity-building to those producer countries that join
VPAs. The timber industry hopes that timber prices will rise when illegal producers are
squeezed away, they said, as there are no specific price premiums for legal timber given that
legal timber is not regarded as an added value, but as a norm.
They summarised a major debate of the day about the harmonisation of buying requirements,
and highlighted that suppliers need to know what the consumer markets want. They
underlined the difficulty to make policies within Europe coherent and encouraged timber
trade federations to cooperate in this respect and to promote harmonisation.

                                                                                              6
The chairs reminded of the opportunity to distinguish products with the brand “legally
verified” and explained that VPA licences are not supposed to act as trade barriers but to
allow for distinguishing verified legal products from others.
Hugh Speechly expressed the need to better promote the timber sector and encouraged
companies to work towards verified legal timber e.g. by participating in TTAP. Only
countries that are able to control illegal logging might have the chance to get funding from
REDD programs and avoid that discussions about climate change risk push the focus on
forests in the background.
All presentations, the agenda and a press release about the seminar can be found under
www.timbertradeactionplan.info




                                                                                          7
Partners
                                      Belgian Timber
                                      Importers’ Federation (FBCIB)
                                      e info@boisimport.be


                                      Malaysian Timber Council (MTC)
                                      e council@mtc.co.uk


                                      Tropical Forest Trust (TFT)
                                      e ttap@tropicalforesttrust.com


                                      UK Timber Trade Federation (UK TTF)
                                      e ttf@ttf.co.uk


                                      Netherlands Timber Trade Association (VVNH)
                                      t +31 (0)36 532 1020
                                      e info@vvnh.nl


                                      European Hardwood
                                      Federation (UCBD)


                                      European Timber
                                      Trade Association (FEBO)


                                      French Timber
                                      Trade Federation (LCB)


                                      Association Inter Africaine
                                      des Industries Forestières




This document has been produced with the financial assistance of the European Union. The contents of this document
are the sole responsibility of the Tropical Forest Trust and can under no circumstances be regarded as reflecting the
position of the European Union. TTAP is co-financed by the Department of Nature of the Dutch Ministry of Agriculture,
Nature and Food Quality.


               The second day of this event is financed by UK Government, Department for International Development.




                                                                                                                   8