Trade impact of the EUTR

1. Trade impact of the EUTR BD Holz Rupert Oliver, Forest Industries Intelligence Ltd www.forestindustries.info

2. Status of EUTR Enforcement Client Earth Survey March 2014 Legislation introduced: Austria, Denmark, Croatia, Germany, Cyprus, Czech Republic, Portugal, Luxembourg, Slovenia, UK. Interim system operational Netherlands Legislation in draft Belgium, Bulgaria, Finland, France, Ireland, Poland, Romania and Sweden. No legislation Estonia, Lithuania, Greece, Malta, Hungary, Slovakia, Spain, Italy No information Latvia Approved monitoring organisation NEPCon (EU wide) Conlegno (Italy) BD Holz

3. EUTR economic & trade context BD Holz

4. EUTR introduced at very bottom of the downturn BD Holz

5. Overall decline in EU timber trade BD Holz

6. BD Holz

7. Most extra-EU imports from countries with high corruption & low certified forest area BD Holz

8. EU: diminishing direct role in high risk flows Scale in U$ million Total value of trade: $12.8 billion 2007 Global tropical hardwood trade flows by US$ value. All import flows over $100k into 34 of the world’s largest importing countries. From Global Trade Atlas Includes logs, sawn, veneer and plywood. Share of imports:

9. EU: diminishing direct role in high risk flows Scale in U$ million Total value of trade: $12.6 billion 2012 Global tropical hardwood trade flows by US$ value. All import flows over $100k into 34 of the world’s largest importing countries. From Global Trade Atlas Includes logs, sawn, veneer and plywood. Share of imports:

10. EUTR trade impacts BD Holz

11. 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 BD Holz

12. 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 BD Holz

13. Will EUTR contribute to declining EU imports from tropical countries? BD Holz

14. EU28 long-term tropical hardwood import trend BD Holz

15. A Perfect Storm: drivers of tropical hardwood market decline BD Holz

16. Status of FLEGT VPA BD Holz • 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

17. 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 AHEC Convention Budapest 2013

18. Will EUTR contribute to declining EU imports from China? BD Holz

19. EU28 long-term trend in timberimports from China BD Holz

20. EUTR short-term trend in timber imports from China EU28 monthly imports of product 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 AHEC Convention Budapest 2013

21. EU manufacturing competitiveness rising relative to China? BD Holz

22. Will EUTR lead to diversion of trade to EU Member States with weak sanctions? BD Holz

23. EU Member State imports from “very high risk” countries No clear evidence yet of switching of high risk imports to other EU Member States….. ….unless Belgium is seen as a soft touch AHEC Convention Budapest 2013 “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.

24. Will EUTR lead to substitution of wood for non-wood products? BD Holz

25. EU28 annual imports of furniture by material type 2005-2013 BD Holz

26. 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 BD Holz

27. Thank you! BD Holz Rupert Oliver rjwoliver@btinternet.com or rupert@forestindustries.info www.forestindustries.info