Legal base	Article 175EC; co-decision; QMV
Document originated	17 October 2008
Deposited in Parliament	24 October 2008
Department	Environment, Food and Rural Affairs
Basis of consideration	EM of 31 October 2008 and SEM of 14 April 2009
Previous Committee Report	None but see footnotes 23 and 24
To be discussed in Council	Before the end of 2009
Committee's assessment	Politically important
Committee's decision	Not cleared; further information awaited

Background

4.1 According to the Commission, there is strong evidence that illegal logging is a substantial and growing problem, closely associated with organised crime, which undermines the competitiveness of legitimate forest operations, leads to significant revenue losses, and causes enormous environmental damage and loss of biodiversity. It also believes that, although the supply side of the problem lies in timber-producing countries, it is encouraged by strong international demand. It therefore put forward in May 2003 a Communication[23] setting out the measures which the Community, as a major consumer of timber products, could take to direct demand towards legally harvested timber. These included entering into negotiations for Forest Law Enforcement, Governance and Trade (FLEGT) Partnerships with timber-producing countries, and presenting a Regulation setting up a voluntary licensing system, under which only timber with a valid certificate of origin, indicating that it has been logged legally, would be allowed to enter the Community.

4.2 As our predecessors noted in their Report of 2 July 2003, the Government broadly supported the proposed Action Plan, and said that it would support the negotiation of voluntary partnership agreements and the setting up of a voluntary licensing scheme, so long as these were compatible with World Trade Organisation (WTO) rules, and took into account (among other things) the need to explore carefully ways of addressing wood and wood products coming from countries which did not sign up to the proposed licensing scheme; the detail and practicality of the regulation and licensing scheme; and the legal basis for the voluntary partnership agreements.

4.3 The Commission duly brought forward in July 2004 a draft proposal[24] — subsequently adopted as Council Regulation (EC) No 2173/2005[25] — to give legislative effect within the Community to such a licensing scheme. The scheme prohibits the import of specified timber products from countries which have entered into Partnership Agreements with the Community unless shipments are accompanied by a licence issued by the partner country indicating that the timber has been legally harvested. The scheme also contains provisions enabling the addition or removal of products and countries, as appropriate, and requires importing Member States to verify that each shipment is covered by a valid licence before it can be released for free circulation within the Community. Member States must also establish sanctions for infringements.

4.4 Although the UK believed that Article 175 (rather than Article 133, as proposed by the Commission) was the appropriate legal base, it was content that the proposal — which the it said had widespread support from both non-governmental organisations and industry bodies — was WTO-compatible, and would have no impact on domestic forestry. It also concluded that the proposed licensing scheme represented the most effective approach currently available in practice, and that the costs involved would be modest.

The current proposal

4.5 However, it was also recognised that the effectiveness of the scheme would depend upon how many countries were prepared to enter into Partnership Agreements,[26] and that a number of important timber-producing countries might choose not to do so. The Commission has therefore considered whether additional measures are needed, and, after assessing a range of options, it put forward in October 2008 this draft Regulation, which would prevent the importation into the Community of timber and timber products harvested illegally, through the adoption of a set of rules applicable to those who first place timber on the Community market. In particular, they would be required to exercise due diligence in establishing to the best of their ability that the products in question had been legally harvested, either by establishing a system of their own for obtaining information on the products concerned, or by making use of a similar system operated by a recognised monitoring organisation.

4.6 In order to comply with WTO rules, the measure would apply to the entire trade, including European timber producers, and would be implemented in the light of further measures to be adopted by the Commission (though it would be for Member States to establish their own compliance and enforcement systems, as well as the level of any penalties applicable to infringements). However, there would be a presumption that products from countries listed under Council Regulation (EC) No 2173/2005, or imported under licence in compliance with Regulation(EC) No 338/97 giving effect to the Convention on International Trade of Endangered Species of Fauna and Flora (CITES), should be considered as complying with this requirement.

The Government's view

4.7 We received an Explanatory Memorandum of 31 October 2008 from the Minister for the Natural and Marine Environment, Wildlife and Rural Affairs at the Department for Environment, Food and Rural Affairs (Mr Huw Irranca-Davies), which pointed out that the UK had persistently supported efforts to tackle illegal logging and the associated trade in timber, including additional legislation to support the FLEGHT initiative, in order to support sustainable use of natural resources and alleviate poverty.

4.8 He commented that the systematic approach taken by the proposal would require the whole trade to put in place the necessary systems, but that this would be consistent with existing market-based systems for ensuring legality and sustainability of timber, its effectiveness depending upon the systems used and the strength of the sanctions for non-compliance. He added that other Member States were likely to raise concerns about the additional burden for businesses and the proportionality of the measures, given the low risk of illegality in the European trade, but pointed out that the responsible trade in the UK is already implementing due diligence, with benefits for the credibility and competitiveness of the sector. He also believed that the risk-based approach suggested by the Commission was critical in ensuring that efforts are focussed on the most likely sources of illegal timber. The Minister concluded by noting that the Commission's impact assessment had put the cost of the measure to the industry at around €40 million (or about 6p per m² timber product), but added that the UK would be providing in the New Year its own assessment of the financial implications.

4.9 We have now received from the Minister a supplementary Explanatory Memorandum of 14 April 2009, incorporating such an Assessment, which has been prepared as part of the Government's current consultations on the measure. The Assessment points out the difficulty in making an accurate estimate of the likely costs involved, due to the complexity of the supply chains involved and the lack of information on the extent to which the companies involved already use some kind of due diligence system and the proportion of operators involved in the first placing of timber on the Community market. It does, however, draw up three scenarios according to the level of reliance put on self-declaration and the extent of third party verification and/or auditing, suggesting that, as a broad indication, these might (in addition to certain one-off costs) give rise to annual costs of £11.9 million, £161-188 million, and £256 million respectively. In each case, the average annual benefits are put at between £212 and 425 million, though these would accrue, not within the UK, but internationally as a result of the consequent reduction in illegal logging.

4.10 The Minister says that the Government is also seeking views on the proposition that there might be a prohibition on the first placing of illegal timber on the market, as well as on the amendments being considered by the European Parliament (though he does not indicate what the latter are, or their significance).

Conclusion

4.11 Given that the Government has recently launched a consultation exercise, it would clearly be sensible to await the outcome of that before considering the document further. We are therefore holding the document under scrutiny, and we look forward to hearing from the Minister again in due course, and in particular to receiving information on the reactions of the industry, as regards both the concepts involved and the Government's cost estimates.

4.12 In the meantime, we have two observations on the documents we have seen so far. First, the Minister suggests that, irrespective of the scenario chosen, the proposal would provide net benefits. That may well be the case, although we note that his supplementary Explanatory Memorandum appears to contrast annual costs with net benefits calculated over a three year period, and hence to risk over-stating the relative significance of the latter. More importantly, however, the costs in question would fall within the UK (and, where applicable, other importing Member States), whereas the benefits would be felt internationally. We recognise that, despite this, there may well be sound environmental and other reasons for proceeding with the measure, but we think it important that this point should be registered and clearly understood.

4.13 Secondly, whilst we accept that World Trade Organisation rules may well prohibit any measure which applies only to imports, we note that there would be a presumption of compliance where timber is imported from a country with which the Community has a Voluntary Partnership Agreement or on the basis of a licence issued under the Convention on International Trade of Endangered Species of Fauna and Flora. Again, we have no problem in principle with such an approach, but it does seem to us that it could in practice result in timber produced within Europe being treated less favourably than that imported from a third country. We would therefore welcome clarification of the position of the European timber trade.

24   (25872) 11656/04: see HC 38-ix (2004-05), chapter 3 (23 February 2005). Back

25   OJ No. L 347, 30.12.05, p.1. Back

26   By September 2008, only Ghana had done so, but Indonesia, Malaysia, Cameroon, Congo Brazzaville and Liberia were in the process of negotiating an Agreement. Back