Trade impact of the EUTR Rupert Oliver, Forest Industries Intelligence Ltdwww.forestindustries.info

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Status of EUTR Enforcement

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Client Earth Survey March 2014

Legislation introduced: Austria, Denmark, Croatia, Germany, Cyprus, Czech Republic, Portugal, Luxembourg, Slovenia, UK.

Interim system operationalNetherlands

Legislation in draftBelgium, Bulgaria, Finland, France, Ireland, Poland, Romania and Sweden.

No legislation Estonia, Lithuania, Greece, Malta, Hungary, Slovakia, Spain, Italy

No informationLatvia

Approved monitoring organisationNEPCon (EU wide)Conlegno (Italy)

EUTR economic & trade context

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EUTR introduced at very bottom of the downturn

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Overall decline in EU timber trade

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Most extra-EU imports from countries with high corruption & low certified forest area

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82007 Global tropical hardwood trade flows by US$ value. All import flows over $100k into 34 of the world’s largest importing countries. From Global Trade AtlasIncludes logs, sawn, veneer and plywood.

Scale in U$ million Total value of trade: $12.8 billion

Share of imports:

EU: diminishing direct role in high risk flows

92012 Global tropical hardwood trade flows by US$ value. All import flows over $100k into 34 of the world’s largest importing countries. From Global Trade AtlasIncludes logs, sawn, veneer and plywood.

Scale in U$ million Total value of trade: $12.6 billion

Share of imports:

EU: diminishing direct role in high risk flows

EUTR trade impacts

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Anecdotal evidence indicates some immediate effects of EUTR• Less focus on CoC to label just a few product lines (greenwash)• More focus on negligible risk of illegal wood entering supply

chains of all product lines• Merchants/retailers more rapidly extending minimum

documentation requirements to all product lines• In complex supply chains or chains where risks are high,

increased pressure to move to FSC/PEFC certification• Greater scrutiny of formal CoC and forest certification systems

to ensure genuinely deliver negligible risk of illegality• Suppliers of low risk products spending a lot of time correcting

misinterpretation of EUTR obligations

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Speculative trade flow responses

• Concentration of DD functions in a few specialised importers• more reliance on cross-trading within the EU

• More reliance on wood harvested in the EU• EUTR DDS applied at EU harvest sites so no need to deal with supply chain

• More reliance on wood products manufactured in the EU• Strengthen existing trend towards “reshoring” of European manufacturing

• Switch in external EU trade: • Away from EUTR regulated to non-regulated materials & products• Away from countries & timber suppliers with high perceived risk to low perceived risk• Away from tropical timber to non-tropical countries (offset by VPAs?)• Away from certified to uncertified• Away from MS with tough regimes to MS with weak regimes

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Will EUTR contribute to declining EU imports from tropical countries?

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EU28 long-term tropical hardwood import trend

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A Perfect Storm: drivers of tropical hardwood market decline

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Status of FLEGT VPA

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• Timber-producing country develops systems to verify timber exports are legal• VPA licensed timber not subject to EUTR due diligence• Indonesia legality system operating on a pilot basis since January 2013• Ghana expecting first licensed deliveries during 2014• Malaysia could quickly deliver licensed timber if political issues were resolved

EUTR could contribute to long-term stability in EU tropical trade• EUTR, FLEGT & forest certification as

platform to rebuild tropical wood’s reputation

• Rising % of EU tropical imports now 3rd party certified or legally verified• e.g. 40% Cameroon forest legally verified;

MTCS in West Malaysia, SVLK in Indonesia

• EU Sustainable Tropical Timber Coalition (STTC) launched on 6 November 2013

• FII appointed Lead Consultant to ITTO “Independent Market Monitoring” project

• Monitor FLEGT VPA & EUTR impact• Essential background information for

improved tropical hardwood marketing

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Will EUTR contribute to declining EU imports from China?

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EU28 long-term trend in timberimports from China

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EUTR short-term trend in timber imports from China• Complex opaque supply chains for

plywood, flooring & furniture sector may lead to loss of share

• Use of tropical wood already much reduced in Chinese products – e.g. eucalyptus, birch & poplar dominate EU plywood imports

• Search for replacements to PNG bintangor & Russian hardwoods

• More plywood with dyed “fineline” (reconstituted) poplar

• Further encourage shift from Russian oak to US oak in furniture & flooring

• Some manufacturers cutting out traders & buying direct – but overall trend in China is towards GREATER reliance on traders

• Narrower range of suppliers, mills offering FSC-certified oversold

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EU28 monthly imports of product from China

EU manufacturing competitiveness rising relative to China?

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Will EUTR lead to diversion of trade to EU Member States with weak sanctions?

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EU Member State imports from “very high risk” countries

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23“Very high risk” (VHR) countries have Corruption Perceptions Index of less than 30% & certified/ legally verified forest area of less than 10%. The EU imported €242 million of timber from these countries in 2013.

No clear evidence yet of switching of high risk imports to other EU Member States…..

….unless Belgium is seen as a soft touch

Will EUTR lead to substitution of wood for non-wood products?

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EU28 annual imports of furniture by material type 2005-2013

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Conclusions• Trade data yet to reveal significant direct trade impact of

EUTR• Trends indicative of other factors – economic & construction

downturn, reduced supply, diversion of trade to emerging markets, rising labour and other costs in China, subsidies for biomass, changes to Russian export taxes

• EUTR reinforcing existing trends rather than leading to step change in EU trade

• Full impact only apparent if and when:• EU economy stabilises and begins to recover• EUTR fully implemented & communicated across the EU• Capacity for enforcement in place• FLEGT VPA licensed timber arrives on the market

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Thank you!Rupert Oliverrjwoliver@btinternet.com or rupert@forestindustries.info www.forestindustries.info

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