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IMM Annual Report looking into links between FLEGT and certification

The question of where FLEGT stands in relation to voluntary third-party certification is frequently raised in discussions during IMM Trade Consultations and in interviews conducted as a part of IMM surveys. Is the FLEGT VPA process “a step backwards” because it focuses on demonstrating compliance to national forest laws rather than to international “sustainable forestry” principles that are the basis for forest certification systems? Or is the FLEGT process “better” than voluntary certification, because it is mandatory, better placed to achieve a broad national stakeholder consensus on forest management standards integrated with national regulatory and fiscal frameworks, and helps to ensure equitable access for all forest operators? 

It is not IMM’s role to answer questions on the relative contribution of different mechanisms to achievement of specific forest policy goals in VPA partner countries, only to inform on the evolving market position of FLEGT licensing in relation to forest certification, and from this, to advise on strategy to improve market access for FLEGT licensed timber in the EU.

However, it is becoming clear, from the feedback received from IMM surveys and consultations, that a key part of this strategy must be to clarify the different but complementary roles of FLEGT VPAs and voluntary certification to promote sustainable forest management. Furthermore, market opportunities for FLEGT licensed timber may be enhanced, both by reducing the costs of verification and increasing market recognition, by building on synergies between FLEGT licensing and voluntary forest certification. In line with the IMM indicators, the IMM 2018 Annual Report reports on: 

Comment on market implications

The view sometimes expressed that the movement to develop TLAS in VPA partner countries is undermining efforts to progress towards third party certification in these countries is not supported by the available data which indicates that: progress towards certification in most cases was very slow before VPA implementation began; by far the most rapid recent progress to achieve third party certification in the tropics has been made in Indonesia, the one country that was also the first to achieve FLEGT licensing; and there has been no uptick in third party certification in non-VPA tropical countries, even where their exports to the EU have been rising in recent years (as is the case, for example, for furniture from India, charcoal from Nigeria, and decking from Peru and Bolivia). 

While there has been a shift towards supply regions with higher "exposure to verification" in the EU, there are continuing high levels of EU import from countries and regions with low exposure, notably China and India, raising questions relating to the forms and credibility of legality assurances being offered by suppliers in these regions. IMM survey data suggests that much of this may be covered by third party legality verification systems operated by individual certification companies and agencies, but there is no centralised and consistent data published on these systems, relating either to the standards used, the scope of operators covered or the costs involved. If these systems are being offered, and accepted, as appropriate evidence of EUTR compliance, effectively as alternatives to FLEGT licenses, then there needs to be much greater scrutiny of the comparability of their standards, and more information made available on their coverage. 

Although analysis elsewhere in the IMM Annual Report shows there are other contributory factors (such as logistics and a growing focus on just-in-time ordering favouring local suppliers), the “exposure to verification“ measure does suggest that EUTR and procurement policies are having an effect, both to increase the area of forest verified as low risk of illegal harvest in major supply countries, and to encourage an overall shift in trade towards countries with greater access to verified products. 

This in turn reinforces the view that, first, the slow pace of third-party certification in VPA partner countries, and the challenges of obtaining reliable legality assurances by other means, has been a contributory factor behind their decline in share in these markets. Another implication is that FLEGT licensing has a critical role to play in helping to reverse this trend, particularly for suppliers in Africa and South East Asia. Furthermore, the FLEGT licensing process may be particularly beneficial for smaller operators that, from analysis of certification uptake, it is clear have struggled to engage in private sector certification systems,  both in the tropics and in non-tropical regions outside Europe. 

The signs are that, having certified the “low hanging fruit” of generally larger state and industrial forest operations, and better organised associations of small operators, in countries with good governance, the forest certification movement has been unable to expand in more challenging regions where there is a need for governance reform and/or which lack strong organisations on which to build group certification. 

In those supply regions where there is clear evidence of good governance, such as the EU and North America, the evidence suggests that, in the absence of certification, smaller operators (at little marginal cost to themselves) have been able to maintain access to the EU market through the use of regional risk based approaches, notably the FSC CWNRA framework. This so far has not provided a channel for small operators in VPA partner countries, none of which are recognised in any CWNRA as being low risk of illegal harvest.

The relative slow pace of implementation of FLEGT licensing and of uptake of third-party certification in all tropical countries clearly creates challenges for all agencies seeking to influence forestry practice through the medium of regulatory measures like EUTR and responsible procurement policies. The architects of these policies have a responsibility to ensure equitable access for operators, both large and small, in all supply countries, not only in the narrow legal sense (for example, for public authorities to ensure compliance with WTO non-discrimination principles), but also to maintain market leverage and influence in those areas where illegal logging and associated problems, such as deforestation, are a genuine threat. The FLEGT VPA process is the key mechanism by which this can be achieved in the EU, a fact recognised in EUTR, but which needs to be more clearly articulated to other actors in both the public and private sector in the EU. 

There may also be strong opportunities created by the FLEGT and forest certification initiatives working more closely together, a fact increasingly recognised by stakeholders involved in both initiatives. While there is internal debate within FSC, with some interests seeking to maintain the purity of FSC values and an exclusive focus on certification as a voluntary market-based instrument, others seem interested in working more closely with government agencies and to engage in the FLEGT TLAS dialogue, particularly as a way to increase FSC access for small holders and communities in tropical countries. 

This difference of opinion within FSC creates an immediate issue for FLEGT licensed products in the EU market. The fact that FSC does not acknowledge Indonesian FLEGT licenses as demonstrating compliance even with the legality criteria for Controlled Wood, despite FSC stating their criteria are fully compatible with EUTR criteria, has potential to cause confusion and undermine wider market recognition of FLEGT licenses in the EU. Efforts need to be made to work with FSC to resolve this, or at least clearly articulate the reasons for the difference of interpretation. 

Attitudes appear more straight-forward within PEFC where there seems to be a widespread desire for close dialogue with agencies developing FLEGT TLAS to help simplify verification, reduce the bureaucratic burden, limit duplication, improve cost effectiveness, improve market access, and prevent unnecessary competition between systems.

The potential market benefits of exploiting this synergy between FLEGT licensing and third party certification are perhaps best illustrated in relation to Indonesia.  A key rationale for the development of the SVLK-PHPL system, the basis for FLEGT licensing, is that by imposing a national system, the costs of verification are shared widely by all operators in the sector, there is also a rational framework for cost sharing with the public sector, for a dialogue with all stakeholders to ensure alignment of legislation with certification standards, and to ensure equitable access of all forest operators in the country. 

The success of this strategy in the market place is ultimately dependent on ensuring that there is widespread customer (and investor) recognition for the national system that results. This is where the experience of private sector certification systems is particularly valuable. This shows that, in practice, it is extremely difficult to promote individual national certification systems in global markets. To date, it has always been necessary to seek some form of international endorsement. It is this need which has led so many state forest operations to seek FSC or PEFC certification around the world. This need was the driving force for the formation of the PEFC in the first place, initially to allow European operators to promote their conformance to national regulatory frameworks aligned to sustainable forestry as defined in the European Ministerial Forestry Principles. Since then, even large national certification systems with deep domestic markets and supported by multinational corporations (like the Sustainable Forestry Initiative in the United States) have seen a need to affiliate to the PEFC framework to achieve international recognition. 

It is an open question as to whether linkage of the SVLK-PHPL framework in Indonesia to the FLEGT process can provide this kind of international recognition. Compared to voluntary systems like FSC and PEFC, FLEGT licenses benefit from specific regulatory recognition in the EUTR in an important export market. However, while some non-EU countries are now giving similar recognition in their own import legislation (see Chapter 13), the appeal of the FLEGT VPA process is strongly associated with the EU market. Ultimately, if the aspiration of Indonesia, and other VPA partner countries, is to achieve market recognition for TLAS timber products beyond regulatory compliance to EUTR, then the most efficient way to achieve this may be to find an accommodation with PEFC or FSC. The TLAS would benefit from international market recognition and the marketing initiatives of the international program. The certification system would benefit from closer regulatory alignment, both in producer and consumer countries, and from greatly expanding the reach and relevance of certification in the tropics. 

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