This item deals with our decision to scrutinise COM (2004) 515, a proposal for a voluntary licensing scheme for importing timber to the European Union. Members have been circulated with a copy of the Commission document, together with the original and updated briefing material. The licensing scheme was referred to us by the Sub-Committee on EU Scrutiny in September 2004 which recommended that we give it further scrutiny. This committee agreed at its meeting on 21 October 2004 to consider the document once further information on developments on the proposal was received. Updated briefing material has since been made available. It was agreed at our meeting on 11 January that we should invite officials from the Department of Agriculture and Food to make a presentation and answer questions. I, therefore, welcome Mr. Damien Allen, assistant principal officer, forest service, and Mr. Gerard Long, executive officer, forest service, and thank them for attending. Before the presentation commences, I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I ask Mr. Allen to commence the presentation.
Scrutiny of EU Proposals.
Mr. Damien Allen
I will begin by making a brief presentation on Regulation No. 2173/2005 which established a FLEGT licensing scheme for the import of timber into the European Community. The acronym FLEGT stands for forest law enforcement, governance and trade. I hope to provide the committee with information on the objectives of the regulation, background information on the regulation, its potential impact on timber prices; details of the consultation process carried out by the Department, a brief explanation of how the voluntary licensing scheme will work and voluntary partnership agreements.
Council Regulation No. 2173/2005 established a Community set of rules which provide for the introduction of a licensing scheme which requires that the import of certain timber products from partner countries into the European Union be subject to a system of checks and controls seeking to guarantee their legality. Under the scheme, certain timber products exported from a partner country to the European Union must be covered by a licence issued by that country. This licence will state the timber products have been produced from domestic timber legally harvested or from timber legally imported into that partner country in accordance with national laws. The timber products to which the voluntary licensing scheme applies are wood in the rough, wood railway or tramway sleepers, wood sawn or chopped and of a thickness exceeding 6 mm, sheets for veneering for plywood or other similar laminated wood of a thickness not exceeding 6 mm, as well as plywood, veneered panels and similar laminated wood.
This is a voluntary licensing scheme which will only apply to timber imports from producer countries which have expressed an interest in and reached agreement with the European Commission. In the main, only countries which have a problem with illegal logging will be interested in entering into the scheme. Some countries may choose not to enter into the scheme. Trade with these countries will be unaffected by the scheme. The Commission is still in negotiations with a number of countries and no agreements have been concluded. The regulation was published in the Official Journal on 30 of December 2005.
The voluntary licensing scheme is the first measure in a package of measures set out in the EU action plan on forest law enforcement, governance and trade, FLEGT. The action plan which was drawn up in May 2003 sets out how the European Commission proposes to address the growing problem of illegal logging and related trade. In addition to the licensing scheme, other measures are outlined in the plan, including development co-operation, guidelines for public procurement of timber, private sector initiatives, as well as financing and investment safeguards
Illegal logging and associated trade undermine the competitiveness of legitimate forest industry operations in both exporting and importing countries. In so doing, this limits the ability of these industries to conduct operations that foster sustainable forest management, SFM, and sustainable development generally. Estimates suggest illegal logging costs timber producing countries between €10 and €15 billion per year in lost revenues. The benefits of illegal logging are often temporary because the harvesting levels are unsustainable and cannot continue indefinitely. Illegal logging also contributes to environmental damage, loss of biodiversity, climate change implications and human rights abuses and has a long-term negative effect on the livelihoods of forest dependent peoples, many of whom are among the world's poorest. Consumer countries, notably the European Union as a significant importer and consumer of wood products, have an important role to play in combating the problem of illegally harvested timber.
It is difficult to quantify the impact of the voluntary licensing scheme on future timber prices in Ireland. The impact is dependent on a number of factors such as the participation of partner countries in the voluntary partnership agreement; a sufficient supply of legal timber and the coverage of timber products. An increase in the timber product range covered by the regulation would result in an increase in potential impacts; the cost of establishing and operating timber tracking and verification systems. Timber tracking and verification systems result in a direct economic cost to partner countries. However, increased revenue from taxes and duties should exceed the costs associated with running these systems. The European Union will also prioritise development assistance for FLEGT related support measures. Will traders in illegal timber find it more advantageous to legalise their goods? The European Union is considered a more lucrative market than alternative destinations and it is possible that illegal timber traders would find it more advantageous to legalise their goods rather than direct them to alternative, financially less attractive markets. European forest owners would benefit from any fall in the supply of timber as a result of the licensing scheme and their own timber output would become more competitive.
On balance, any impact on timber prices in Ireland is likely to be minimal due to the following factors: all the structural timber used in Ireland in house construction is produced in Ireland or imported from elsewhere in the European Union. Approximately 40% of the structural timber used in house construction is produced in Ireland. The remainder is imported from EU member states such as Finland, Sweden, Latvia, Estonia, Northern Ireland and Great Britain. Timbers such as oak, beech and other temperate hardwoods which are used in joinery and furniture manufacturing are imported from elsewhere in the European Union and North America. One aspect of world trade in timber products is that much of this trade is within regions. This trend is clearly illustrated by timber import figures for Ireland for 2003 and 2004 for the products covered in the voluntary licensing scheme — 69% and 72%, respectively, of total timber imports to Ireland for this period were from EU member states. The European Commission contracted a firm of consultants to analyse the economic, environmental and social impacts and the legal and institutional implications of the proposed voluntary licensing scheme both in the European Union and potential partner countries. The report found that the overall impact of the voluntary FLEGT licensing scheme within the European Union was expected to be relatively modest and localised, due to the small proportion of tropical timber consumed as a percentage of total timber demand, and the ready availability of substitute products in the event that imports to the European Union should fall as a result of the licensing scheme. Timber prices compare favourably with other alternatives such as steel and aluminium, which can be partly attributed to the higher energy requirements for the production of steel and aluminium when compared to the energy requirements for timber production.
The forest service has carried out consultations with a number of Departments on both the FLEGT EU action plan and the regulation for a voluntary licensing scheme. The following Departments-Offices were consulted: the Department of the Environment, Heritage and Local Government; the Revenue Commissioners — customs and excise branch; the Department of Justice, Equality and Law Reform, the Department of Finance and the Department of Enterprise, Trade and Employment.
A number of comments were received. Development Cooperation Ireland emphasised the role of the licensing scheme in tackling illegal logging and supporting efforts by developing countries to strengthen governance. The Department of the Environment, Heritage and Local Government's national parks and wildlife service supported the proposal as a positive initiative and was of the opinion that Europe should be seen to be actively committed to combating the problems of illegal logging and trade in timber and wood products. The voluntary licensing scheme would help to ensure only legal timber products entered the European Union. The customs and excise branch of Revenue commented that the restriction on imports of timber from partner countries would be implemented by customs through the introduction of necessary procedures.
In September 2004, ahead of discussions at the Council working party meeting on forests, the forest service also consulted IBEC; Irish Forestry Industry Chain, IFIC, the representative body for the entire sector which is affiliated to IBEC; the Irish Timber Council; Just Forests; Comhar; An Taisce; the Irish Business and Employers Federation; the Irish Timber Trade Association; and the National Council of Forest Research and Development, COFORD.
Comments were provided by IFIC and the customs and excise branch. While IFIC was generally supportive of the regulation, it was disappointed that it did not embrace sustainable forest management. The European Commission, DG Development, has also held a number of stakeholder consultation meetings in Brussels with environmental and economic non-governmental organisations.
I will outline how the voluntary licensing scheme will work. A timber producing country experiencing problems with illegal logging will approach the European Commission with the intention of entering into partnership negotiations, the successful outcome of which will result in the signing of a voluntary partnership agreement. This will be an agreement with the European Union and a timber producing country through which a partner country and the Union will commit themselves to work together in support of the FLEGT action plan and implement the voluntary licensing scheme. The partner country will designate a competent authority which will certify the legality of wood products and issue FLEGT licenses. The partner country will designate an independent monitor and set out a transparent settlement mechanism.
A joint implementation committee will be established for each partnership agreement which will facilitate and monitor its implementation. This committee will comprise representatives of a partner country, member states and the Commission and confirm that the proposed systems and mechanisms established constitute a credible system to verify that timber has been legally harvested. A FLEGT licence will be issued by a partner country for legally harvested timber which will allow the timber to be exported. Customs authorities in EU member states will verify that there is a valid FLEGT licence covering the timber products being imported from a partner country. The timber will then be released for circulation.
For the voluntary licensing scheme to work, the European Union and timber producing countries will have to commit to work together to reduce illegal logging. This will be achieved through voluntary partnership agreements. The aim of the agreement is to reinforce the ability of partner countries to control illegal timber production and offer a mechanism to exclude illegal timber from EU markets. Each agreement will vary to take into account the different conditions affecting forest governance and law enforcement in each prospective partner country. However, there are specific matters that will be addressed in all partnership agreements. These include the conditions in the partner countries, social safeguards to minimise adverse impacts on local communities and stakeholder involvement. Partnership agreements will encourage partner countries to provide for consultations with stakeholders during development of the agreements. There will be dialogue. Each agreement should provide for the establishment of the joint implementation committee, to which I referred. There will be development assistance. Partnership agreements should identify areas in which there is a need for technical and financial assistance to implement each partnership agreement. Priority for EU development assistance will be given to FLEGT-related measures. It is considered an incentive for partner countries to enter into agreements.
Other aspects which must be included are products covered, the definition of legally produced timber, the licensing authority, verification of legality and licensing. Partner countries will be expected to prepare terms of reference for and assign responsibility to a licensing authority. There will be transparency and independent monitoring. Each agreement must provide sufficient transparency so that it can be monitored. There will be an EU import regime. Under the licensing scheme, certain timber products exported from a partner country to the European Union will have to be covered by a licence issued by that partner country. The agreements will set out clearly defined time-bound actions for improving forest sector governance and implementing the voluntary licensing scheme.
This regulation is a positive step towards assisting developing and emerging market countries to control illegal logging, and in helping to reduce the trade in illegal timber products between these countries and the EU.
I will be happy to answer further questions the Deputies may have on the presentation and the regulation.
I thank Mr. Allen for his useful and informative presentation. Has consideration been given to the impact of the proposal on the price of timber?
Mr. Allen
I should have said in my presentation that the consultants were taken on by the EU to examine the impact on each member state as a result of the regulation coming into force. While a complex analysis was carried out, the conclusion was that the impact on timber prices would be minimal. This is due to the fact that the opportunities for alternatives are quite limited in certain circumstances. We do not expect to see a huge impact on the price of timber.
It is difficult to gauge what the overall impact might be because of the many variables involved and the difficulty in finding out what proportion of timber has been legally or illegally logged. By virtue of its nature, it is difficult to know accurately what volumes of timber have come from illegal sources.
I thank the delegation for its presentation. It appears that between €10 billion and €15 billion a year is forgone in lost revenue, which is a huge amount of money. How can we ensure that the introduction of licences will eliminate this aspect, because I believe people will find other ways of getting the timber in through the licensing mechanism? Given that a significant amount of money is involved, these people will not disappear overnight.
Mr. Allen
It amounts to approximately 10% of the global trade in timber, which the World Bank estimated amounts to €150 billion. It is probably important to examine the licensing scheme in the context of the overall FLEGT action plan. It is just one part of a whole series of measures under the action plan, including public procurement and multilateral agreements, whereby the EU has been engaged in dialogue with representatives from Japan, the US and other regions involved in the timber trade to ensure that the problem of leakage is kept to a minimum. This is the primary means by which we hope to ensure it is not moved from one area, namely, the EU, to other global trading areas through multilateral agreements between the EU and these sectors.
I join my colleagues in welcoming the officials from the Department of Agriculture and Food. Deforestation is a global problem because it has implications for climate change and so on. What countries are involved in illegal logging and where are the big problems? Are these countries willing to take part in these voluntary agreements because, if not, the agreements will not work? Is there a profile of the types of timbers on which this agreement will impact? I suspect it will have an impact on tropical hardwoods.
Mr. Allen
Illegal logging tends to be a problem in countries in the developing world, including sub-Saharan Africa, south-east Asia and parts of South America.
On whether countries are willing to take part in the voluntary agreements, advanced negotiations are taking place with Malaysia, Indonesia, Cameroon and Ghana. An ad hoc committee under the EU forestry working group meets approximately every six weeks to review how matters are progressing. The last report of the meeting revealed that discussions with these countries are going well and it is expected to conclude agreements with them shortly, particularly with Indonesia. Many member states which have a historical relationship with some of these countries have been championing the regulation in these countries, which is why these four countries are coming forward. The regulation will not become law until we see the first signed agreement, therefore, it is important to get at least one of the four to sign up to the regulation at an early date.
The Deputy is correct in that the types of timber that would be affected are mainly tropical hardwoods. In terms of coniferous timber, it is relevant to north-west Russia where it has been acknowledged there is a problem with illegal logging. However, reports on the scale of this illegal logging vary significantly from being quite insignificant to being a major problem. A large amount of timber is imported into the EU from north-west Russia, largely into Finland. Approximately 51% of Finland's timber is imported from north-west Russia. These are the categories of timber that are involved.
The people who are engaged in this type of illegal activity are generally not people one would find in a gentleman's club. If restrictions are imposed on illegal logging, have there been discussions with security services in terms of the backwash from this and the safety of the people who must enforce the regulation? I welcome the proposal. It is good that it is to be implemented as the developed world should not benefit from illegal activity that is bad for the environment. It is not enough for the European Union to simply say it will clean up its act and have a licensing system and partnership arrangement. Somebody must enforce it in north-east Russia, Indonesia and Latin American countries and in physical conditions and environments that are not very pleasant. What consideration has been given to how this will operate? Will assistance be provided for states that must deal with it?
Mr. Allen
Assistance will be provided. The targeted development aid to which I referred is part of that solution. It has been agreed that when a country signs up to a voluntary partnership agreement with the European Union, this will act as a catalyst for targeted development aid. I referred earlier to the context in which the licensing scheme takes place, the overall FLEGT action plan. One of the expressed objectives of the action plan is policy reform assistance in the countries that have signed up to the agreement. Officials from the Union who have been mandated to act on behalf of member states will provide support right down the chain, from the exporter to the grower, and to the governments of the countries that have entered into agreements to assist them in the various areas such as security, traceability, record keeping and, perhaps, legislative reform, if necessary.
I am worried about the enforceability of the measure. I note the Department of Foreign Affairs observed rather drily that these measures would support efforts by developing countries to strengthen governance. This is more interesting in what it does not say than in what it says. I note also that the partner country will designate the competent authority and an independent monitor. I do not envy the independent monitor his or her job. Given that illegal logging is worth from €10 billion to €15 billion a year, I am concerned that the actions of the partner country will be one of the weaker links in the chain. Has Mr. Allen confidence in the ability of the partner countries to deliver in a transparent and open way on their side of what is proposed?
Mr. Allen
We see this regulation as a first step in improving global trade in timber. As the Deputy knows, there have been difficulties in terms of international agreement on what sustainable forest management means. Most people agree that legality is an important element of sustainable forest management. The FLEGT licensing scheme is very much a first step in seeing how the situation develops from this point. I accept the Deputy's point. The type of backup support the EU will provide for these countries will be critical if the scheme is to have any real value.
I thank Mr. Allen and Mr. Long for their presentation. Is it agreed that this proposal has been sufficiently scrutinised and that we ask the departmental officials to keep us briefed on developments that arise in the future? Agreed. The clerk will prepare the report of the joint committee on the matter for laying before the Houses.