New report: Cutting Down the Poor

Executive Summary from the World Growth report ‘Cutting Down the Poor

The government of the United Kingdom and the European Union have introduced measures against illegal logging with their trading partners that are currently costing approximately €22.4 million annually. By the EU’s own estimates these measures are likely to be ineffective  and will:

-          cause job losses among the rural poor in developing countries,

-          have little impact on illegal logging;

-          have virtually no impact on deforestation, if any.

The measures are also likely to put the EU in breach of international trade laws.

Timber exporters to the EU should consider trade retaliation. EU taxpayers should demand an inquiry.

Illegal logging first emerged as a campaign issue in 1998. The illegal timber trade was linked to global concerns over deforestation. Action against illegal logging in developing countries was supported by Western industries that were facing increased competition from timber and paper producers, particularly in China. It was also supported by environmental campaign groups that made unsubstantiated claims about the levels of illegal logging taking place globally.

However, there has been very little ground-based research on levels of illegal logging in many countries.

The emergence of the EUTR and VPAs

In 2003 the European Union (EU) first announced it would attempt to prevent the sale of ‘illegal’ timber on European markets through a combination of domestic legal instruments and international agreements.  They are the European Union Timber Regulation (EUTR) and Voluntary Partnership Agreements (VPA) respectively.

These policy instruments have emerged following a long international campaign based on unsound data and emotive campaigning by Green groups and uncompetitive manufacturers in Europe.

Voluntary Partnership Agreements were introduced as the key policy measure for Europe to take action against ‘illegal’ timber.  The VPAs were ostensibly introduced as a means for exporting nations to ‘fast track’ timber products into Europe from nations that comply with European regulatory demands.   The real purpose is to pressure developing countries that export timber products to apply standards determined by the EU to regulate exports, under the threat of import bans.

VPAs require the implementation of a licensing system for exporters wishing to export timber products to Europe that verify the legality of the product. For many developing nations this is a costly exercise.

Slow progress

VPA uptake has been slow.  This has been in part due to a reluctance of developing nations to enter into trade agreements that propose conditions on non-trade items, such as environment and labour. The slow uptake and potential loopholes for non-VPA timber prompted European Greens to press for the introduction of the European Union Timber Regulation (EUTR) in 2008.

The EUTR is set to come into effect in March 2013. It threatens European operators with legal action if they sell ‘illegal’ timber in European markets and/or do not make efforts to mitigate the risk of selling ‘illegal’ timber on European markets.  This risk can be mitigated with the implementation of tools such as independent third-party verification of timber being exported to Europe, distinct from the VPA licensing system. This is an expensive undertaking for many developing country exporters.

Licensed VPA imports were supposed to be exempt from the EUTR and considered risk-free once VPAs were operational.

In the case of a large number of VPA countries, VPAs have been signed and ratified, but none are functional.  This has placed these countries in a double-bind, where they have ceded to Europe’s demands on the VPA in order to avoid the EUTR – only to be slugged with the EUTR regardless.

High costs, negative impacts

This failure comes despite approximately €270 million in EU and UK spending on implementation costs over 12 years.  Exporting nations have also had to divert funds into bringing their industries into compliance.

Both the VPA and EUTR will also have negative impacts on countries exporting to the EU. According to EU modelling, the measures will prompt significant losses in employment in the forestry sector in exporting nations of around 14 per cent. The EUTR will have a concentrated impact on the rural poor in developing countries.  The measures will also cause losses in forestry processing sectors in these countries.

Further, the measures are likely to have negligible impacts on illegal logging and deforestation. According to EU documents, the measures will reduce global illegal logging by – at most – 2 per cent, and deforestation by less than 0.01 per cent.

Despite the low impact and high expense of these measures – particularly for developing countries – the EU has pressed on regardless.

Both the EU and DFID have attempted to maintain that these measures will support livelihoods in developing countries. When the EUTR was introduced in 2008, part of the justification for the measure was that it would assist in reducing deforestation.  Both of these contentions, in World Growth’s opinion, stretch the truth.  The EU has, however, been very careful not to state that VPAs offer any economic benefits.

When the EU’s modelling on economic and environmental impacts of the measures was released in 2008 – on the same day as the EUTR was first proposed to European parliament – at least four countries had already entered into formal VPA negotiations. A number of others had already commenced informal negotiations.

Ghana was one of these countries. Subsequent analysis has estimated that reforms to the timber sector precipitated by the VPA will result in the loss of more than 100,000 jobs.  World Growth has estimated that around 18 million micro-enterprises in Indonesia producing handicrafts and furniture will be affected by the EU measures.

Breaching international trade rules

The measures restrict trade in a way that multilateral institutions were designed to prevent.  The upshot of the trade restrictions is they will end up favouring the EU’s own industries.  Subsequently many European businesses have backed the policies, despite raising their own compliance costs.

World Growth considers the EUTR measures to breach the obligation of EU member states as parties to the World Trade Organization (WTO) agreements.

Sadly, it is not surprising that the EU has pursued these wasteful and ineffective policies that ultimately act as a trade barrier for ‘Fortress Europe’.

The EU has led the imposition of trade barriers on environmental grounds. The FLEGT policies follow a string of similarly targeted policies affecting chemicals, electronics and food that many developing countries have difficulty complying with.

Developing countries – VPA partners or otherwise – should demand better. There are grounds for action against the EU through the World Trade Organisation.

Developing countries should wholeheartedly reject new FLEGT agreements. The EU’s trade policies are partly responsible for the direly uncompetitive state of European industry.  No country should consider following this path.

European – and particularly UK — taxpayers also deserve better. Most EU budgets are under strain.  A total of €270 million is not a large sum in the greater scheme of things, but ineffective, wasteful and damaging policies should not be encouraged.

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