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EU’s deforestation-free regulatory proposal raises concerns about impacts on FLEGT VPAs

Mar 8, 2022 | FLEGT Policy News, News

Peatland forest in Parupuk village, Katingan. Central Kalimantan. Credit: CIFOR

The ITTO Market Information Service (MIS) has published a commentary on the draft EU law on “deforestation-free” and “forest degradation-free” products, announced by the European Commission (EC) on 17th November last year. This article is an excerpt from the MIS commentary, focussing on implications for FLEGT VPA partner countries, especially on market access for FLEGT-licensed timber products from Indonesia. 

The draft “deforestation regulation” is planned to replace the EU Timber Regulation (EUTR) while at the same time extending regulations to a range of “forest risk” agricultural commodities, including beef, cocoa, coffee, palm oil and soy together with derived products. To become law, the final text must be adopted jointly by the European Parliament and the European Council of Ministers. 

According to MIS and drawing on views expressed by Agriculture Ministers of Member States at their Council meeting on 21 February, there seems to be broad endorsement across all EU member states of the law’s objectives and agreement that due diligence by producers and importers placing regulated products on the EU market should be the basis of the regulation. 

On the other hand, there is a variation in views across Member States on the details of the regulation, particularly the definitions of “deforestation” and “forest degradation” and the controversial proposal that the law should ban commodities derived from land that is legally deforested (i.e., as part of a nationally approved land use plan) as well as illegally deforested. 

There is also widespread concern across Member States over the complexity of enforcement, the costs and potential discriminatory consequences for smallholders and SMEs and the impact on consumer food prices and competitiveness of European producers in the global forest products and agricultural commodities trade. 

The Agriculture Council meeting indicated that there is a way to go before Member States reach consensus on this legislation, with some calling for more product specific impact assessments to extend the assessment already undertaken by the EC. This process may take some time, despite the clear stated priority attached to passage of the law by the current French Presidency of the EU Council, which runs for the first six months of this year.

Major implications for FLEGT VPAs

The implications of any potential delay in the EU reaching some form of consensus on the new law, irrespective of whether the EU eventually decides to adopt something similar to the existing text, or to reject it altogether, are significant for those tropical countries that are signatories to existing FLEGT Voluntary Partnership Agreements (VPAs). There is now considerable uncertainty over the future policy direction in the EU raising concerns about a hiatus in implementation of existing agreements. 

The uncertainty is particularly problematic for Indonesia, the only country to have achieved FLEGT licensing, and which is looking to the EU to fulfil its obligations under Article 13 of the VPA. This requires that the EU “shall promote a favourable position” in the EU market for licensed timber, including through “public and private procurement policies that recognise a supply of and ensure a market for legally harvested timber products; and a more favourable perception of FLEGT-licensed products on the Union market”.

If the draft deforestation legislation is passed into law in its current form, the scope for the EU to promote “a favourable position” for FLEGT licensed timber in the EU market would be constrained.  While the regulatory proposal includes a provision declaring wood covered by a FLEGT license to have fulfilled the legality requirement there is no provision for FLEGT licenses to meet the “deforestation-free” or “degradation-free” requirement. 

This creates a situation whereby EU operators could reject FLEGT-licensed timber on grounds that, while it is entirely legal, it does not fulfil the EU’s definitions of “deforestation-free” or “degradation-free timber”. Any suggestion that FLEGT-licensed timber may not meet these definitions would contradict the EU’s obligation to promote “a more favourable perception of FLEGT-licensed products on the Union market”. 

The draft legislation provides one potential route out of this dilemma, through the proposed country benchmarking. The draft legislation enables the European Commission to assess the risk of commodity-driven deforestation and forest degradation by country and to categorise each country (or sub-national region) as “low”, “standard” and “high risk”. 

Operators would be permitted to implement “simplified due diligence” procedures excluding the requirement for risk assessment and mitigation for all commodities from countries assessed to be “low risk”. 

The far-reaching forest reform process undertaken as part of the VPA should better position Indonesia to achieve a “low-risk” status. However, according to the current draft regulation, achieving such a status would require that Indonesia demonstrates that no forest-risk commodities with potential to enter EU supply chains derive from any forest land cleared after 31 December 2020, irrespective of whether the clearance is legal or illegal. 

All timber products would also be required to meet a definition of “degradation-free” which is regarded, even by some governments of EU member states, to be highly problematic and likely to conflict with national forest policies. 

While the EU and Indonesia may yet negotiate a way around the looming roadblock for FLEGT licensed timber created by the new regulation it is hard to escape the conclusion that this ratcheting up of requirements only five years after FLEGT licensing became operational is not what Indonesia signed up for through the VPA, nor is it likely to be viewed in Indonesia as an adequate return in terms of a favourable position in the EU market after a decade of forest reform. 

The on-going negotiations around the new deforestation regulation in the EU also have implications for the recent rebranding campaign for the SVLK standard, which forms the basis for the FLEGT licensing system, as a sustainable forestry standard. 

The campaign developed by the Indonesian Ministry of Environment and Forestry (MoEF) through a multi-stakeholder process supported by the UK government has the expressed aim to ensure that SVLK certification meets the sustainability requirements of even the world’s most environmentally sensitive markets. 

The SVLK rebranding is explicitly designed to address increasing demand for sustainably produced timber products and deforestation-free supply chains. It also addresses the reluctance among the timber trade to promote the concept of “legal timber”, which is now considered a basic requirement in regulated consumer markets and not an add-on that should be specifically promoted or highlighted. 

Besides sustainability aspects, the Indonesian promotion campaign intends to highlight the strengths of Indonesian timber products identified through stakeholder consultations in Indonesia and other research and surveys, including trade surveys by the IMM. 

To ensure that the market benefits of Indonesia’s delivery of FLEGT licensing after a decade of forest reform are not lost during this period of uncertainty, there is a clear need now for dialogue between Indonesia and the EU to resolve potential differences of interpretation in relation to definitions of deforestation, forest degradation and sustainability, concludes the MIS.  

FLEGT in relation to changes in wider EU policy environment

All tropical timber supplying countries need now to consider that the overall thrust of both the draft deforestation law and FLEGT Fitness Check published by the EC at the same time in November last year suggests that the concept of FLEGT licenses and of VPAs focussed on timber products may be dropped or substantially amended. 

In their place, the EU has indicated an intent to promote broader Forest Partnerships to deliver on European Green Deal priorities, particularly in relation to zero carbon, as well as the EU’s development cooperation objectives including poverty alleviation and human rights.

With respect to VPAs, the draft deforestation regulation only states that “some VPA components might be integrated where feasible and agreed by the partners into specific cooperation programmes, like Forest Partnerships or others to further support forest governance”. 

The political background to negotiation of the new Forest Partnerships is also very different compared to when the FLEGT VPAs were being negotiated in the decade between 2007 and 2017. During that period, there was strong emphasis on development and trade recognition of forestry standards decided in the partner country through a stakeholder consultation process. 

As noted in a recent paper for the European Centre for Development Policy Management (ECDPM), “By focusing on legality as defined by the law in producer countries rather than by imposing European standards, FLEGT ensures respect for territorial rights and World Trade Organization (WTO) rules, while avoiding politically sensitive sovereignty concerns in partner countries and thereby increasing the likelihood of their participation in the FLEGT scheme.” 

This consensus-based approach was combined with a positive trade incentive through provision of “green lane” access in the EUTR and other commitments by the EU to promote a favourable market position for FLEGT licensed timber.  

In contrast, discussions over the new deforestation law, and negotiations towards the new Forest Partnerships, are set within the context of an EU that is becoming “more assertively defensive in its trade policy”, according to POLITICO, the independent EU-based policy news organisation. 

This is illustrated by a comment made by the French Agriculture Minister Julien Denormandie in January, that “Europe must impose its standards on others and not have others’ standards imposed on it.” 

This is a different proposition to the FLEGT VPAs where the objective was to support partner countries in ensuring compliance with their own forest laws. For the advocates of the new law, deforestation of any kind in third countries is unacceptable, irrespective of whether or not legally sanctioned. Nor is there scope for the EU to actively promote products from third countries inside the EU unless they explicitly contribute to achievement of the EU’s zero carbon goal. 

This last point raises an intriguing opportunity for tropical timber given their potential to substitute for more carbon intensive products such as steel, aluminium, and plastics in certain applications.   Recent successes of ATIBT to encourage SOLIDEO, the Paris Olympic commissioning organisation, to communicate on the advantages and open certain orders to the use of certified tropical hardwood, and to persuade the SNCF, the French national rail company to use these timbers for sleepers and supports, sets a precedent for this. So too does rising EU imports of biomass, which doubled in value to USD800 million between 2016 and 2020, mainly from the USA and Russia, a trade which benefited from renewable energy subsidies in the EU. 

In each case, it is notable that public sector support for forest products from non-EU countries was contingent on sustainable forest certification and clear information on carbon impacts.   

The full commentary, including detailed information on EU Member States’, NGOs’ and trade federations’ positions on the draft regulation was published in ITTO MIS on 28 February 2022.