Technical paper

FLEGT VPAS: making forest sector governance visible

Executive summary

Illegal logging skews markets, prices and competition. It causes environmental destruction, revenue loss and has negative social consequences. Illegal logging, forest destruction and corruption in the sector have left their mark: people have negative perceptions of forestry and consequently the products that the sector promotes. Mounting pressure to combat illegal logging has pushed change in the sector. The result has been a mixture of market-driven initiatives, government policies and vigilant public pressure, which have led to an increasingly selective markets for wood products. 

Stricter legislation, government purchasing policies, and company codes have emerged in response to illegal logging. These initiatives and policies are forcing the sector to adapt and respond in order to maintain market access. They generally require evidence of legality and good practice in forest management, social benefits and environmental protection. Governments, financial institutions, timber federations, timber companies, purchasers, consumers and the general public want evidence that wood on the market does not contribute to illegal logging, environmental destruction, negative social impacts or infringement of traditional use rights. In other words, they want evidence of good forest sector governance.

Evidence must be based on reliable information. In a sector where negative perceptions run deep, ‘reliable information’ means more than public statements or assurances of good practices. It requires consistent, robust, independently verified forest data that give markets confidence that adequate standards have been met. Where it cannot be clearly demonstrated where wood was produced, how it was produced or that it was controlled by a credible system, wood products will be scrutinised and questioned. Many companies have turned to private certification and corporate codes to highlight their high standards. Governments are challenged to demonstrate credible operating systems, effective enforcement, reliable data and social commitments, which are all elements that markets increasingly demand to ensure legal compliance. The demand for verified legal and sustainably sourced timber has become an irreversible market trend.  

This VPA Information Note explains what information is needed and how Voluntary Partnership Agreements (VPA) can help countries respond to these demands.

FLEGT VPAs help countries demonstrate how they govern their forest sector and the standards they oblige the sector to uphold. Transparent systems, clarity about the roles and responsibilities of different agencies, reliable reconciled data, legislative cohesion, and third party audits make governance visible and credible. The consultation processes to achieve a VPA demand multistakeholder input, building trust among national governments, forest operators, communities and the wider public. Such transparency greatly enhances credibility and confidence in a country’s forest sector. International markets increasingly want evidence that wood reflects sound forest management, community consultation, worker health and safety, environmental management and economic transparency. Countries that do not offer such confidence risk being excluded from the market place.

The first section of this VPA Information Note highlights the challenges facing the forest sector. These include public perceptions of the sector, illegal logging’s influence on the market, new requirements demanded by emerging policies and standards, and the increasing importance of demonstrating credibility in the market. The second section explains how VPAs can respond to such challenges through their processes, structures and outputs.

1. More selective forest sector markets

Perceptions of the forest sector

The forest sector has an image problem. Corruption, illegal logging, poverty and deforestation have dominated the sector’s image for several decades. The forest industry is opaque in many countries and has a reputation for systemic corruption. Companies and government agencies have been heavily criticised for unsustainable forest exploitation, disregarding social and environmental impacts on surrounding communities and ecosystems, and disregard for workers’ and communities’ rights. Logging is often seen to benefit elites rather than society as a whole.

Complex and contradictory laws confuse what is legal. The more confusing the regulation, the more difficult it is to monitor and enforce. Likewise, the more confusing the legislative environment, the more difficult it is for good companies to comply with the law. Inadequate regulatory institutions and unreliable judiciaries are often perceived to be the norm. Where forest regulatory processes, company requirements and government responsibilities are unclear, it is difficult to pinpoint where corruption is taking place. A lack of law enforcement feeds people’s perceptions that illegal logging is accepted, implying that many governments are unwilling to fight corruption. This impacts not only the forest sector, but a country’s general rule of law.

Media attention continues to focus on these issues, highlighting the destructive impacts and loss of revenue illegal logging has on countries, governments and societies. Such attention affects consumers’, investors’ and buyers’ confidence in the industry. It makes stakeholders mistrustful of any new initiative to reform the sector and leaves governments challenged to gain the political support needed to implement change.

Markets are therefore seeking ways to distinguish responsible timber products and businesses, and to support those that are committed to rule of law rather than those operating outside it. By making processes public, sharing decisions and disclosing information, public oversight is invited. This promotes accountability, minimises opportunities for corruption and demonstrates a commitment to good forest governance. As the role of forests in fighting climate change gains ground, the need to demonstrate well managed forests, strong governance of the sector, and legally verified wood products intensifies even further. 

Teak furniture, Yangon, Myanmar

Teak furniture, Yangon, Myanmar

Source: EU FLEGT Facility

Teak furniture, Yangon, Myanmar

Source: EU FLEGT Facility

Different responses emerge

Wood markets are becoming increasingly selective and consumers want reassurance that trade is not fostering illegal logging. Many involved in the sector are asking for proof that forest operations and management promote legal trade. As a result, several measures, policies and legislative actions have emerged to directly address illegal logging and restore confidence in the sector.

Consumers

Consumers are becoming more selective and increasingly demand information to aid their purchasing decisions – and information is more and more accessible. Consumer interest in legal, sustainable and socially responsible products is intensifying. ‘Green’ has become mainstream as shown by the analysis of consumer preferences, The Green Revolution. However, ‘green’ can mean different things to different people and may include anything from minimising environmental impact, climate neutrality to socially responsible management. Consumers are not well-informed about the social and environmental benefits of many products but are increasingly seeking information.

…green shoppers are still on a learning curve. They do not always understand the social and environmental benefits and they need help at the point of purchase. They are continuing to be educated by the media and the product information that is available to them…the rate of green purchase was very sensitive to the use of in-store communication and information [1].

The market has responded and is providing information to educate consumers about their purchasing decisions. User-friendly, creative guides, websites, instant messaging, scorecards, indices, product brochures and barometers are just a few of the tools offered to consumers to differentiate products across all sectors. For example, the organisation Climate Counts uses simple icons to make it easy for consumers to differentiate companies and products at a glance, rating company commitments to fight global warming in 16 different sectors. They cover everything from airlines, home and office furniture to commercial banking industries:

Business has the power to change the world - and you have the power to change business. Is your favorite company STUCK, STARTING, or STRIDING? The race is on to address climate change. Look for our simple icons to help you support companies that reflect your values.

Companies are learning to share information about their operations, social policies and environmental footprint to avoid being wrongly categorised by outside groups. Some companies see a market advantage in transparency that demonstrates that their product ensures quality and provides social, economic and ecological benefits that cheaper products cannot guarantee.

The South West Handline Fishermen’s Association (SWHFA) in the United Kingdom is one such example. SWHFA promises lower environmental impacts, better quality and sustainability through their traditional handline fishing technique. The SWHFA tags guarantee ‘hook to plate’ traceability, linking the hook to a specific fisherman.

When you buy line caught Bass you can be assured that the fish has been caught using the sustainable traditional fishing method of hook and line. This method has minimal environmental impact and as all fish are caught live it ensures the fish are in top condition before being stored in ice. So if top quality sustainably caught fish is what you’re after then line caught is the best option – insist on it from your fish supplier.

As consumers become better educated about the products they purchase, sustainability, accountability, and social responsibility increase in importance. The Fisherman’s Association relies on their marketing campaign to educate the public to reject products that cannot guarantee sustainability. In the fisheries sector, the number of marine certification systems such as the Marine Stewardship Council, salmon friendly and Monterey Bay Aquarium Seafood Watch demonstrate market trends towards assurance of sustainable harvesting practices.

The forest sector is no different. The CEO of Canada’s Forest Products Association, which represents 75% of the Canadian forest industry sees environmental credentials as the key to securing future market opportunities in timber. As in the fisheries example, many expect future forest product markets to prefer products that can demonstrate good sector governance through legality, accountability, sustainability, and social responsibility.

A two-by-four that comes from certified land where there's no illegal logging and the forests are regenerated, and there's no waste, and the greenhouse gases have been taken care of is not the same product as a two-by-four that comes from a place where they have illegal logging and no certification.[2]

Guides, websites and instant alerts help consumers differentiate wood and paper products from sources that damage the environment or negatively impact communities from those that are sustainable, green, or eco-friendly. Conservation groups, timber associations and individual companies are putting information in the public domain to help consumers choose ‘friendly paper products’, timber from legal and sustainable sources, and toilet paper that is the best for the environment.  

Timber federations

Timber federations want assurances that their supply chains do not contribute to illegal logging, both to minimise reputational risk and to promote legal trade. They have increased requirements on their members through Responsible Purchasing Policies (RPPs), Codes of Conduct and Corporate Social Responsibility policies to minimise the risk and promote better governance. These policies require members to ensure legal purchasing using such tools as supply chain risk assessments and independently verified audits. Timber Federations want to consolidate the legal supply, reduce their supply from high-risk companies and countries, provide evidence to the public of legal products, and demonstrate socially and environmentally responsible policies.

The UK Timber Trade Federation, the official voice of the UK timber trade, has developed a Responsible Purchasing Policy. This demands that members perform risk assessments on all suppliers to ensure timber comes from legal sources. Other commitments include:

  • Purchase all timber from legal sources and seek evidence of compliance from suppliers that they are operating in accordance with the laws of their country.
  • Perform a risk assessment on all suppliers, identifying sources of raw material used in the manufacture of wood products.
  • Accept or use labels or certificates if they are supported by publicly available standards drawn up in a fully participatory, transparent and objective manner, and are backed by independent inspection.
  • Report annually to the appointed auditors. The auditors will assess and verify the company’s progress and compliance under the policy.
  • A copy of the company’s Responsible Purchasing Policy and Company Commitments will be available to all stakeholders on request.

Companies selling paper, office supplies, home improvement and other wood products have also begun to develop purchasing policies, with public commitments to purchase wood products from legal or sustainable sources. Office Depot, a global supplier of office products and services, has developed an Environmental Paper and Procurement policy which aims to promote the purchase of environmentally friendly products. Details include:

  • Preference for products made of wood fibre sourced from operations that have been certified as being well managed by an independent, third party
  • Phase out paper products derived from non-preferred sources
  • Advance responsible forest management
  • Not knowingly promote products in contravention of a country's laws
  • Be committed to working with stakeholders to phase-out the use of illegal wood fibre
  • Not knowingly promote products derived from forests where management practices endanger the ecological resilience and long-term sustainability of the natural forest, regardless of the sustainability of the fibre supply.
Teak furniture production, Yangon, Myanmar

Teak furniture production, Yangon, Myanmar

Source: EU FLEGT Facility

Teak furniture production, Yangon, Myanmar

Source: EU FLEGT Facility

Financial institutions

Financial institutions see increasing levels of risk associated with forest sector financing. They have therefore increased the rigour of lending criteria for forest sector financing. Banks, credit institutes and loan agencies have become more selective of business partners and clients in the forest sector and oblige them to provide proof of legality and compliance with certain social and environmental criteria. Risk comes in many forms and if companies cannot provide the necessary information they will face greater difficulty in securing credit opportunities.

Export credit agencies and financial institutions such as the International Finance Corporation (IFC), World Bank and a growing number of private banks, credit institutes and loan associations have signed the Equator Principles. These are ‘a financial industry benchmark for determining, assessing and managing social and environmental risk in project financing’. The standards outlined in the Equator Principles provide a way of reducing investment risk. Signatory institutions will not provide loans to projects ‘where the borrower will not or is unable to comply with respective social and environmental policies and procedures’.

In addition, many banks have developed forest sector specific lending policies. For example, HSBC has developed a Forest Land and Forest Products Sector Policy that requires third party verification of legality and sustainable forest management (SFM). Their SFM requirements include:

  • minimise harm to ecosystems
  • maintain forest productivity
  • ensure forest ecosystem health and vitality
  • safeguard the traditional or customary rights of forest dwelling communities (including protection of the rights of indigenous peoples, maintenance of community relations, benefits for local communities, protection of workers’ rights and mechanisms for dispute resolution)
  • reflect a balanced participation of economic, environmental and social interests.

Banks label forest companies and governments as high risk when they cannot demonstrate compliance with these criteria. They represent a risk to the bank’s reputation and ability to recoup their investment. Demonstrating responsible business operations and forest management are becoming crucial prerequisites for credit.

Governments

Governments in both producer and consumer countries worldwide are acting to address the problem of illegal logging. Various initiatives, action plans, policies and new legislation aim to assure the public that the government is pursuing solutions to illegal logging. Some of these actions make it a crime to trade in illegal wood and demand supply chain transparency.

In 2008 the United States amended the US Lacey Act legislation making it a crime to be involved in the trade of illegal wood products, knowingly or unknowingly. It applies along the entire supply chain from supplier to consumer and can result in jail time, seizure of product and financial penalties. Anyone can bring forward evidence that a company, individual or organisation does not comply with Lacey Act requirements. Accusations are investigated by the US Authorities. One of the goals of the amended Lacey Act is to promote supply chain transparency and legality through declaration requirements. This makes it obligatory for importers to declare the scientific name and the country of harvest for any plant constituents of their imported product. This information is used to target enforcement actions and to better understand how US market demand for wood products is affecting forests[3].

US Lacey Act 

  1. Prohibits all trade in plant and plant products (e.g., furniture, paper, or lumber) that are illegally sourced from any U.S. state or any foreign country. 
  2. Requires importers to declare the country of origin of harvest and species name of all plants contained in their products. 
  3. Establishes penalties for violation of the Act, including forfeiture of goods and vessels, fines and jail time. 

Two components to a violation of the Lacey Act: 

  1. A plant must be taken, harvested, possessed, transported, sold or exported in violation of an underlying law in any foreign country or the U.S. This constitutes an illegally sourced plant. 
  2. A person or company must trade this illegally-sourced plant in U.S. interstate or foreign commerce —one must “import, export, transport, sell, receive, acquire, or purchase.” It is only this second transaction that triggers a violation of the Lacey Act 

(US Lacey Act: Frequently Asked Questions about the World’s Ban on Trade in Illegal Wood; http://www.eia-global.org/lacey/ P6.EIA. LaceyReport.pdf)

In 2003, the European Union developed the Forest Law Enforcement Governance and Trade Action plan. Objectives, principles, and actions were developed to address illegal logging, including Voluntary Partnership Agreements (VPAs) and the EU Timber Regulation. This legislation prohibits the sale of illegal wood or wood products in the European Union. It obliges operators who place timber on the EU market for the first time to exercise due diligence in their systems to exclude illegal wood products from their supplies. The systems must be able to trace wood back to the country of harvest and forest of origin. Due diligence can be demonstrated through risk assessments, traceability, monitoring and enforcement systems. To do this, operators can either establish their own control systems or make use of a recognised system. FLEGT licensed timber is recognised as demonstrating due diligence so would not be subject to further requirements. The EU Timber Regulation was accepted by the European Council at the end of 2010 making it obligatory and law. The legislation is expected to be applied in early 2013.

In addition, many governments have established public procurement policies to keep illegal wood out of their government purchasing. These policies require government purchasers to provide evidence that wood came from legal and/or sustainable sources. Several policies require consultation with surrounding communities, as well as specific social and environmental requirements. Six European countries (Belgium, Denmark, France, Germany, the Netherlands and the UK) are implementing public procurement policies for wood products, as are Japan and New Zealand. Eight other European countries are in the process of developing a public procurement policy for wood products. Discussions are underway to determine how FLEGT timber will be integrated with these policies. Some policies, such as the UK Public Procurement policy, integrates FLEGT licensed timber:

Central government departments, their executive agencies and non-departmental public bodies are now required to procure timber and wood-derived products originating from either legal and sustainable or FLEGT-licensed or equivalent sources.

Governments of natural resource producing countries are taking steps to secure revenues, improve resource governance, and advocate for better enforcement and more transparency. Some governments have signed voluntary initiatives such as the Extractive Industries Transparency Initiative (EITI) and the Kimberley Process to improve resource governance in the oil and mining sectors. These initiatives aim to expose opaque processes, make revenue payment streams evident, and promote discourse with stakeholders. Producer governments see transparency as a tool to address corruption, improve revenue capture, and expose contract obligations which in turn brings more confidence and credibility to the sector.

Producer country governments are also voluntarily turning to VPAs as a tool to help them improve enforcement and transparency in their forest sectors with the objective of visibly demonstrating legal wood supply. Through transparent oversight and control structures such as chain of custody systems and verification procedures, VPAs help make a country’s forest sector governance structures more visible.

Private sector

Timber companies are under pressure to make responsible practices visible in order to maintain market access, and reduce reputational risk. Public procurement policies, construction standards, building codes, and company policies increasingly require guarantees of legality and other standards in the products they cover. For wood products, private certification systems that incorporate robust social and environmental standards, multistakeholder input in the development of the standard, and third party verification have provided that evidence.

Companies are therefore investing in private forest certification systems and verification processes. These include Forest Stewardship Council (FSC), Program for the Endorsement of Forest Certification (PEFC), Sustainable Forestry Initiative (SFI), as well as Chain of Custody, Legal Origin, and/or Legal Compliance certification. These offer a credible tool to communicate legal compliance as well as environmental, social and economic performance of their forest operations.

European Timber Retail Coalition:

Four leading European Retailers - Carrefour, Kingfisher, IKEA and Marks & Spencer - set up the Timber Retail Coalition (TRC) in 2010. The coalition is a vehicle for ‘like-minded companies’ to argue for current proposals to build on existing voluntary measures and ‘send a clear message that illegally-harvested timber is not acceptable’. Ian Cheshire, group chief executive officer of Kingfisher said: ‘The TRC's ultimate aim is to provide our customers with the reassurance that every single wood product they buy has been legally sourced. We now need Brussels to take action necessary to achieve this.’

http://www.timberinconstruction.co.uk/news/timber-retail-coalition-formed-04680

Illegal wood represents unfair competition because illegal operators are free from paying taxes and fees, and have no obligation to invest in proper management. These illegal operators can ask for a much lower selling price, pushing lower priced wood that does not reflect full operating costs onto the market. This leads to skewed prices and markets. Many companies that are operating legally and want to see a level playing field have become active to push for further legislation and standards to secure their own investments. The European Timber Coalition and timber/furniture companies lobbying the Australian government both demonstrate how companies are coming together to influence legislation and government policies to curb illegal logging. Companies are more vocal about ensuring their investment in certification reaps the intended benefits: legal companies want illegal logs and wood products off the market.

Import Ban a Hollow Promise: Timber alliance: The (Australian) Federal Government has been accused of failing to deliver on its election promise to stop the importation of illegal timber. A joint statement by some of the country's biggest timber and furniture companies has called on the Federal Government to fulfil its election promise to stop the importation of illegal timber. The joint statement has been signed by Ikea, Bunnings, Timber Queensland and now A3P, the national body representing Australian plantation growers, wood and paper manufacturers.

Furthermore, companies have made significant financial savings by implementing certification requirements: the management and tracking systems and internal policies have resulted in cost efficiencies. Companies are able to optimise equipment use, collaboration, personnel and logistics on the ground by improving the efficiency of operations such as inventory, community collaboration, information gathering and by identifying operational weak points. In addition, transparent processes help protect companies against corrupt officials, claims of impropriety, and accusations that they do not adhere to contractual obligations. If this information is not public, it is difficult to fight such claims.

Civil society  

Civil society wants transparency and clarity in legislation and use rights to secure local populations and indigenous peoples’ rights to forest access, forest benefits, and ultimately, their livelihoods. The impacts of illegal logging on communities have sometimes led to violence, demonstrating how it can cause instability and degrade the overall rule of law. Many societies and communities have been promised forest sector reform, but time and again were disappointed to learn that no change occurred, despite external funding to implement reforms. Civil society wants action and wants to be involved to have the confidence that any new measure, policy, or initiative will result in effective change. Civil society has increased political pressure for their involvement using local and international campaigns and information networks. This pressure has stopped shipments of wood in ports, forest operations in the field, and has put in question company reputations. Businesses and investors are increasingly examining whether proposed forestry operations have community support, or whether they risk local conflict, delays and bad press.

As a result, much more emphasis has been placed on community involvement, participation and consultation. Forest certification programmes, financial institutions, public procurement officials and responsible purchasers demand evidence that companies have consulted with affected communities and addressed potential conflict. Financial institutions refer to Equator Principle number 5 which requires:

The government, borrower or third party expert has consulted with project affected communities in a structured and culturally appropriate manner and the process will ensure their free, prior and informed consultation and facilitate their informed participation as a means to establish, to the satisfaction of the EPFI, whether a project has adequately incorporated affected communities’ concerns.

The Dutch Timber Public Procurement Policy has two Consultation and Permission requirements that must be fulfilled in order for the wood to be eligible for government purchase.

Requirement (C2.2) Effective communication with and consultation and participation of stakeholders take place regarding the management of the forests.

Guidance: A plan and reports on how and when communication with stakeholders takes place are considered to be indicators of effective communication.

Requirement (C 2.3). The local population and indigenous peoples have a say in forest management on the basis of free and informed consent, and hold the right to grant or withhold permission and, if relevant, receive compensation where their property/use rights are at stake

Guidance: Free and informed consent is interpreted in the sense that the activity will not be undertaken before the relevant consent is given.

Guidance: The local population and indigenous peoples can only prevent activities through withholding their consent where their property/use rights are at stake.

Consulation in Central African Republic

Consulation in Central African Republic

Source: EU FLEGT Facility

Consulation in Central African Republic

Source: EU FLEGT Facility

What markets want

Wood markets want reassurance that their trade is not fostering illegal logging and all the consequences that come with it; therefore, many involved in the sector are asking for proof that forest operations, transactions, management and products promote legal trade and strengthen forest governance. The result is that markets for forest products are becoming more and more selective, requiring evidence of legality and/or implementation of practices, standards and processes to ensure forest products come from legal and/or sustainable sources.

Specific information is often required to provide such proof. Legislative clarity, forest management, community involvement, use rights, worker health and safety, environmental management and economic transparency have emerged as elements for which proof of standards are requested. The challenge is to convince markets and stakeholders that standards are being upheld, actions are being implemented and function as intended, operations are legal, and information is reliable.

Reliable, consistent information is needed to build confidence and credibility to fulfil market demands. This must be information that can be independently verified and cross-checked, and which provides a strong degree of confidence. If information is only based on the word of a government, company or organisation without independent verification, it is less credible and is open to speculation.

National systems that have capacity to control, enforce, and manage the resource build confidence and promote a country’s entire wood sector. They open up market opportunities for products and encourage investment and partnership. When a country’s forest governance is questionable, it risks being labelled as high risk and one that responsible investors, suppliers and businesses should avoid. Given the already critical perceptions of the forest sector, such an image is hard to overcome. It could also be detrimental for businesses that already demonstrate good practice in the country. 

2. VPA processes and outputs build evidence, credibility and visibility

The growing trend for legal and sustainable products has focused attention on national systems for governing countries’ forest sectors. What evidence can they provide that their wood products are legal? What standards govern the sector? Do they have the necessary capacity, systems and transparency to ensure credibility?

Markets, stakeholders and the wider public want to see good forest sector governance, both at the forest site and beyond. They want assurances that legislation and the sector wide framework are governing the sector and can demonstrate legal compliance.

Timber companies and timber federations have responded through private certification schemes and codes of conduct, verified by third parties, to articulate that their practices meet national legislation and additional social, economic and environmental standards. These systems focus on the company and their immediate operations and have greatly encouraged better practices in forest operations and management. However, these private certification systems have limited ability to ensure governance beyond a specific forest management unit. They cannot demonstrate that systems governing the sector are functioning and accountable, clarify legislation, encourage reform, or promote a level playing field by legally obliging all companies to follow the same rules and standards. Government leadership is needed to achieve these objectives.

Many governments find it challenging to demonstrate a well-governed forest sector with systems that can keep illegal products out of supply chains, make visible the standards guiding the sector, and provide credible evidence that wood products are legal. In fact, there is little opportunity for governments to provide the same type of confidence seen with private certification systems because national reform often lacks the visibility, transparency or credibility needed to change perceptions of the forest sector.

This makes it difficult for governments to build confidence in their forest sectors as many government systems are perceived to be inefficient, ineffective, lacking qualified personnel, political will and/or resources to ensure legal compliance. Overlapping jurisdictions between national, regional and local level forest departments or between different ministries or traditional authorities can lead to a lack of clarity on who is responsible and what is being controlled.

The FLEGT VPA can help governments demonstrate robust systems and provide the quality to build support and credibility needed for today’s wood markets. The clarity, transparency, oversight and enforcement required in the VPA can help articulate and provide:

  • tangible evidence of legality
  • a clear, transparent, legally enforceable definition of timber legality
  • country standards and requirements for forest management, production and export
  • demonstration that social and environmental obligations are being met
  • public information about the control systems and agencies responsible for ensuring enforcement and accountability
  • credible oversight of the system through third party, independent audits.

Evidence of supply chain control and governance

At the heart of every VPA is a national timber legality assurance system (TLAS) which frames the way in which a producer country will ensure all timber and timber products destined for the EU or other markets originate from legal sources. National TLAS systems involve specific procedures, processes, technology and interagency coordination to track, control, verify and license the timber supply. This ensures that timber harvested, processed, and exported abides by national laws. It is the combination of the different elements within the national TLAS that provide a comprehensive, credible approach to verifying legality of timber products.

The national TLAS improves a country’s decision-making processes and ability to respond to information demands by providing reliable, systematic forest information. This can be used to inform markets, civil society, private sector and government decision makers.

Legality definition

The ability to differentiate between legal and illegal timber is fundamental to the TLAS. As part of the Agreement each country must clearly describe what is legal timber based on its national legislation.

The overarching demand of the market is to prove that wood and wood products are legal. Legislation such as Due Diligence and the Lacey Act, government procurement policies, financial institutions’ forest policies, private certification schemes and sector standards, such as building and construction codes, all require proof of legality.

Complex, vague, and contradictory legislation makes enforcement difficult. It is open to interpretation and exposes the system to inefficiency, misinterpretation and corruption. More and more investors, suppliers, buyers and companies do not want to risk their reputation, business and possible criminal proceedings on wood sources that cannot credibly demonstrate legality in the country of harvest.

A FLEGT VPA legality definition defines the legislative and regulatory requirements that must be met and systematically verified before a FLEGT licence can be issued in a country.

The FLEGT VPA legality definition is a result of national stakeholder consultations where stakeholders come together to discuss priorities, perspectives and concerns. The aim is to agree on requirements that are clear and that address key priorities. These different perspectives and experiences provide a Definition that is more applicable on the ground and supported by those that will be most affected or involved in applying the legislation. Such involvement and consensus building helps prevent local conflict. It results in agreement and legal clarity rather than misinterpretation or disagreement later. Whereas private forest certification systems are only able to interpret current legislation with all its ambiguities, legality definitions must contain clear requirements so that no interpretation is necessary. The FLEGT VPA legality definition helps make a country’s law more transparent and easier to understand. This reduces opportunities to circumvent the law, facilitates compliance and enforcement across all companies, and establishes a level playing field.

Logs with tracking marks, Ghana

Logs with tracking marks, Ghana

Source: EU FLEGT Facility

Logs with tracking marks, Ghana

Source: EU FLEGT Facility

Wood tracking system

A reliable wood tracking system is another required element of the TLAS. A robust wood tracking system is an essential tool to identify product origin and ensure that no wood from unknown sources enters the production chain. The information system generates up-to-date information that strengthens monitoring and forest planning efforts and minimises the possibility of criminal activity.

A wood tracking system provides accurate information on timber origin and movements of timber throughout the timber production chain, starting from point of harvest, including log landings, transport routes, storage facilities, processing facilities and finally to point of sale or export of the product. Standing timber at point of harvest is given a unique identification (ID) number on a product label. This can be done using a variety of techniques such as bar codes, plastic tags or paint. The ID number can be traced and transferred as the product moves along the chain through transport routes, storage facilities and  transformation into planks or finished product. The product ID number is collected at each stage in the production chain and transferred to a database that is part of a larger information management system. The ID number links a finished product, log or plank back to the original tree that was harvested. Time and date, log measurements, transport documents are collected at each point in the supply chain. This information is reconciled digitally with other information such as forest inventories, operational plans and company information to ensure 1) there are no discrepancies in the information, 2) wood comes from an area for which harvesting rights were allocated, and 3) the original product has not been mixed with unknown sources.

This information helps improve a country’s ability to provide consistent information and a real time overview of what is happening on the ground at any time or location. The system collects and reconciles data throughout the supply chain, ensuring that inputs and outputs, and product specifications correspond. Such a system is necessary to ensure the product origin is known and that all wood sources can be identified and controlled throughout the chain.

For a government, this information improves their ability to:

  • prevent illegally harvested timber from entering a country’s supply chains and markets
  • produce reliable, real time and consistent timber production, processing and trade information
  • capture total volumes being harvested, exported and imported
  • capture forest related taxes and other charges from logs harvested and export duties
  • increase transparency and credibility of the forest sector
  • monitor timber flow at any time in country
  • monitor company capacities and projections in forest plans/inventories.

For a company, this information:

  • gives a better understanding of where their product is at any time
  • helps prevent log theft
  • Improves control of stocks, supplies and material losses
  • provides a list of species and volumes for buyers prior to harvest
  • improves efficiency of their operations through oversight of logistical operations, quality control, saving the company money and time
  • improves forest planning and forest harvesting projections
  • demonstrates product origin for markets and suppliers
  • fulfils some criteria for private forest certification schemes. 

Verification procedures

The VPA Agreement describes the government (and non-governmental) institutions involved in verification, how verification takes place, and how to ensure control along the entire production chain. The TLAS describes roles, responsibilities, and jurisdictions that explain oversight, control and coordination to verify legal compliance of forest permit holders. Clear legislation and a traceable timber supply are fundamental elements of improved forest governance and are required as part of the VPA. If these are not regularly checked and monitored for compliance, they will have limited or no value.

Vague and overlapping authorities open the system to misinterpretation, which undermines its effectiveness and credibility. Clearly outlining the institutions involved, their responsibilities and how they coordinate with each other strengthens the system’s accountability and effectiveness. The system requires government coordination and document exchange, so transparency not only helps outsiders to comply, but also improves internal understanding.

Such a system depends upon:

  • audits and checks done at regular intervals, both through documentation and field visits
  • reconciliation of data at different stages to ensure no illegal product has been laundered into the legal supply chain
  • well qualified personnel to implement the system, who have no conflict of interest with companies or government agencies involved in the sector
  • strong coordination ensuring the different departments and agencies involved are sharing the necessary information to verify the entire supply chain and legal requirements
  • independence from forest implementing departments and political influences
  • clear, credible data
  • clear description of agency roles and responsibilities
  • well-documented, consistent record of inspections and checks.

Clarifying responsibility will help the agencies that enforce the system to better understand their role and activities. Making the framework and verifiers known will help those who have to comply with the system to better understand the evidence used to check legal compliance and the responsible agencies. Articulating the regulatory framework and how it will be enforced to the wider public gives visibility to the country’s forest sector. The VPA process and resulting framework strengthens a country’s ability to oversee and ensure legal compliance.

FLEGT licences

Each national Legality Assurance System contains a licensing process that provides a FLEGT licence for each shipment of legal wood bound for Europe. The FLEGT licence provides assurance that the products associated with that licence have been produced, transported, processed and exported according to the laws and regulations in country. It identifies country of harvest which in turn helps companies respond to markets asking for product origin and legality. It provides tangible evidence, which is easy for customs agents in Europe and businesses to use to demonstrate legality and product origin.

The transparency of the Legality Assurance System strengthens the value of the FLEGT licence among the wider public. Knowing that each product shipment with a FLEGT licence went through a robust, well-documented system from pre-harvest activities to point of export gives credibility to the licence. If the systems are not described and are left to interpretation, it is very hard to assure an already critical public that the licence can guarantee legality. Knowing that each FLEGT licensed product is scrutinised by VPA partners (European Commission and the producer country government), local stakeholders and independent auditors assures the public and business interests of external oversight.

Credibility

Multi stakeholder processes 

Businesses want to demonstrate legal compliance to secure market access. They want to know that local stakeholders support the legislation and are therefore less likely to block forest operations because forest use rights are unclear. However, the process of integrating stakeholders in forest sector dialogue has proven challenging for governments, forest operators, and communities. Legislation outlining social requirements is often vague or difficult to verify. This leaves both communities and forest operators frustrated as they have to interpret the law to understand company obligations.

The VPA legality definition is developed through a multistakeholder process. Dialogue occurs among stakeholders who bring different perspectives on the requirements that will be part of a country’s legality definition. VPAs provide the opportunity for affected populations, including indigenous peoples, forest dependent communities and forest workers, to voice their concerns and provide input into the process. The resulting VPA legality definition makes it clear what social, economic and environmental obligations a company or permit holder must fulfil to demonstrate legal compliance. This legal clarity can prevent local conflict because stakeholder concerns are addressed during the development of the legality definition, avoiding misinterpretation or conflict later. Multistakeholder processes and community consultations are often required as part of private certification systems, public procurement, lending and company policies, and timber federation codes. By establishing a structure for discussion and addressing potential conflict areas between companies and communities, FLEGT stakeholder consultation can help companies meet these requirements.

Local stakeholders, international donors, investors and consumers will not view a national TLAS as credible if its development did not reflect the interests of all forest stakeholders. An agreed legality definition signals that stakeholders support the TLAS and that their concerns and rights were addressed during dialogue and design.

Independent audits

A VPA requires that the TLAS is independently audited against international auditing standards. The Terms of Reference for the independent audit are developed during VPA negotiations and are clearly set out in the Agreement. The independent audits are systematic assessments of the entire national TLAS. While some countries have implemented their own tracking systems without independent checks, internationally these have met with limited success. The systems may be competent and reliable, but without qualified independent verification and transparent documentation, it doesn’t matter. Independence gives confidence to the results. Most certification systems, timber federation codes of conduct, purchasing policies and financial lending institutions also want to work with companies that use independent verification.

Some countries have engaged independent forest monitors or observers to oversee forest operations or specific processes such as permit allocation. The independent audit in the VPA is different because the audit targets the functioning of the TLAS itself. It is a systemic audit ensuring the entire national TLAS is being implemented as intended and that it functions at every stage. Forest monitors’ or observers’ activities and reports can provide useful information for the independent audit, but they are not the same thing.

Joint Implementation Committee

Each VPA has a joint implementation committee (JIC) comprising representatives from the two Parties (European Union and Partner country) to oversee and make decisions related to implementation, monitoring and impacts. The JIC publishes an annual report detailing the activities and progress surrounding the Agreement. JIC Annual reports provide an opportunity to create awareness about the Agreement and its implementation, which strengthens stakeholder confidence. Through its updates, the JIC is able to keep the public informed at the local, national and international levels, even before FLEGT licences are issued. The reports provide a mechanism for stakeholders and the wider public to start a dialogue, raise concerns and provide more information, keeping the VPA and its outputs accountable, interactive and open.

Processed timber at factory, Sefwi Wiawso, Ghana

Processed timber at factory, Sefwi Wiawso, Ghana

Source: EU FLEGT Facility

Processed timber at factory, Sefwi Wiawso, Ghana

Source: EU FLEGT Facility

Visibility helps change perceptions

Improving transparency for markets and the public

The public wants to know how a government manages its forest resources, the requirements and opportunities for those wanting to engage in the forest sector, and the benefits forest resources bring to society. Elements of the TLAS help a government provide this information. The legality definition outlines the requirements to be met; the verification procedures set out roles and responsibilities to ensure legal compliance occurs; and the TLAS information management system generates a diverse set of reports on concessions, contracts, volumes and species harvested, and controls. Actively sharing this information helps build confidence with stakeholders, government agencies, investors and the wider public. A closed sector lacks public trust and can signal unaccountable, inefficient practices that are likely to foster illegality and corruption.

VPAs provide an opportunity to state clearly what information will be put in public domain and how that information will be shared. Several Agreements contain an annex of public information, so that countries can make visible all the documents that are in public domain relating to the forest sector. They use the VPA to advertise what information is available and how to access it. This approach gives each country the opportunity to demonstrate all the documents they have put in public domain. These could include financial transactions between a company and the government, receipts paid to communities, management plans, concession ownership, and records of non-compliances.

Visible processes garner support

Formal and informal discussions with the EU encourage the VPA process to involve a number of government agencies, a diverse set of stakeholders, and to attract media attention both nationally and internationally. This brings visibility that encourages broad participation and understanding of the process and government commitments. Regular reports on progress and open information sessions help educate the public about the Agreement, raise the profile for reforms and reaffirm the VPA’s objective to be open and transparent. Such a visible process helps promote the political support needed to implement forest reform and to encourage investment in the country.

Accountability through timelines

Action items with defined timelines drive the VPA process, both during negotiation and implementation. A process that promotes general reforms, without identifying specific targets, risks being too broad to encourage the stakeholder support needed to implement change. It may not be taken seriously if outputs, timelines and political commitment cannot be demonstrated. The VPA negotiation process follows a concrete agenda and framework with targeted outputs. This helps manage diverse interests and structure multistakeholder dialogues in-country. VPA discussions focus on issues such as:

  • Products and permits/titles to be covered in the Agreement
  • Legality definition requirements
  • Verifiers to demonstrate legal compliance
  • Timber tracking system to be used to control the supply chain
  • Government verification procedures and agencies involved
  • Information management system to be used
  • Government procedure and agencies involved to license FLEGT timber
  • Export and import issues involved with FLEGT licences
  • Independent audit terms of reference
  • List of information and documentation that will be put in the public domain
  • Stakeholder involvement during implementation
  • Communication strategy to articulate the VPA nationally and internationally
  • Joint implementation committee structure
  • Road map assigning timelines and deadlines to outputs and implementation

Focused thematic areas help target discussions among the large number of diverse stakeholders. An obligatory road map sets timelines and deadlines for negotiation and implementation, so progress can be monitored. These commitments help inform all involved about what needs to be achieved and by when. This guides not only country negotiation teams and the EU, but also stakeholders who provide inputs to the process.

Conclusion

Illegal logging continues to plague the forest sector. It costs countries billions of dollars every year; it destroys forest habitats and people’s livelihoods; and it is a destructive force against a country’s rule of law, generating conflict and destabilisation. This destruction has influenced people’s perceptions of the sector and the products it promotes.

New policies, codes and legislation in both producer and consumer countries are quickly changing the way the sector operates. New requirements and standards, tougher penalties and greater scrutiny have emerged. Purchasers and investors, governments, financial institutions and consumers are more risk averse. They scrutinise their supply chains, clients and the products they purchase for proof of legality, or proof that environmental and social standards have been met. They want accurate, up-to-date information to assess sector capacity and governance, in order to support investment, purchasing and planning decisions.

This scrutiny has focused attention on the systems and institutions governing forest products and trade. People’s perceptions and their willingness to purchase timber are influenced by a country’s governance structures. This includes institutions, legislative framework, enforcement capacity and oversight. Purchasers want assurance and credible proof that they are buying a legal product. If governments cannot make clear the legislation guiding the sector, demonstrate the systems to ensure legal compliance, and provide adequate information, those countries risk losing market opportunities for their products.

FLEGT VPAs can help countries develop the necessary systems to ensure legal compliance and make the forest sector more transparent, interactive and accountable. A VPA TLAS ensures legal compliance all along the supply chain. It clarifies standards, processes, procedures and legislation; it generates regular forest information demanded by stakeholders and markets; and it requires independent verification. The TLAS is developed step-by-step and allows a country to build the necessary capacity. In changing markets, VPAs can help governments and operators respond to new requirements, information demands and increasing scrutiny. 

Timber mill representative explains how timber is tracked, Kumasi, Ghana

Timber mill representative explains how timber is tracked, Kumasi, Ghana

Source: EU FLEGT Facility

Timber mill representative explains how timber is tracked, Kumasi, Ghana

Source: EU FLEGT Facility

Endnotes

  • 1 Finding the Green in Today’s Shoppers: Sustainability Trends and New Shopper Insights; GMA and Deloitte. p.4.
  • 2 Sustainable production key to future forestry successes – Canwest News Service March 6, 2009 written by Bill Mah
  • 3 EIA PR –FurnitureNowDeclareLacey- March10.