Commission staff working document accompanying the proposal for a regulation of the European Parliament and of the Council determining the obligations of operators who make timber and timber products available on the market - Impact Assessment - Report on additional options to combat illegal logging {COM(2008) 644 final} {SEC(2008) 2616}
Date: 2008-10-17
Institutions: European Commission
Subjects: exploitation of resources, international trade, pulp and paper industry, sustainable development, trading operation, wood industry

EN 

EN 

   EN 

 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 17.10.2008 
SEC(2008) 2615 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

determining the obligations of operators who make timber and timber products 
available on the market  

Impact Assessment 

Report on additional options to combat illegal logging 

{COM(2008) 644 final} 
{SEC(2008) 2616} 

EN 

   EN 

 
 
  
 
 
 
 
 
 
 
DG ENV 
Lead DG: 
Other involved services: 

DEV,  AGRI,  ENTR, 

SJ, 

SG,  TRADE,  MARKT 

Agenda planning: 2007/ENV+/023 

The report commits only the Commission's services involved in the preparation and the text is 
prepared as a basis for comment and does not prejudice the final form of any decision to be 
taken by the Commission 

EN 

2 

   EN 

 
 
TABLE OF CONTENTS 

1. 

2. 

EXECUTIVE SUMMARY 

PROCEDURAL ISSUES 

2.1. 

Overview 

2.2. 

Inter-Service Steering Group 

2.3. 

Public consultation 

2.4. 

Ad hoc consultations 

2.5. 

National studies 

2.6. 

Consultations with third countries 

2.7. 

Study 

2.8. 

Impact Assessment Board 

3. 

PROBLEM DEFINITION 

3.1. 

Problems of illegal logging 

3.2. 

Production and trade in timber 

3.3. 

Perspectives (international and EU policy addressing illegal timber trade) 

3.4. 

Subsidiarity/necessity tests 

4. 

5. 

6. 

OBJECTIVES 

MAJOR POLICY OPTIONS 

ANALYSIS OF IMPACTS 

6.1. 

General remarks 

6.1.1. 

Impact on illegal logging 

6.1.2.  Environmental impacts 

6.1.3.  Social impacts 

6.1.4.  Economic impacts 

6.1.5.  Risks 

6.2. 

Baseline scenario 

6.2.1. 

Impact on illegal logging 

EN 

3 

   EN 

6.2.2.  Environmental impacts 

6.2.3.  Social impacts 

6.2.4.  Economic impacts 

6.2.5.  Risks 

6.3. 

OPTION 1 Expansion of the FLEGT VPA approach 

6.3.1. 

Impact on illegal logging 

6.3.2.  Environmental impacts 

6.3.3.  Social impacts 

6.3.4.  Economic impacts 

6.3.5.  Risks 

6.4. 

OPTION 2 Voluntary measures by the private sector furthered developed 

6.4.1. 

Impact on illegal logging 

6.4.2.  Environmental impacts 

6.4.3.  Social impacts 

6.4.4.  Economic impacts 

6.4.5.  Risks 

6.5. 

OPTION 3: Border measures to prevent the importation of illegally harvested timber 

6.5.1. 

Impact on illegal logging 

6.5.2.  Environmental impacts 

6.5.3.  Social impacts 

6.5.4.  Economic impacts 

6.5.5.  Risks 

6.6. 

OPTION  4A:  Legislation  which  prohibits  the  trading  and  possession  of  timber  and 
timber products harvested in breach of the laws of the country of origin 

6.6.1. 

Impact on illegal logging 

6.6.2.  Environmental impacts 

6.6.3.  Social impacts 

EN 

4 

   EN 

6.6.4.  Economic impacts 

6.6.5.  Risks 

6.7. 

OPTION  4B:  Legislation  which  requires  that  only  legally  harvested  timber  and 
timber products be placed on the market 

6.7.1. 

Impact on illegal logging 

6.7.2.  Environmental impacts 

6.7.3.  Social impacts 

6.7.4.  Economic impacts 

6.7.5.  Risks 

6.8. 

OPTION 5: Legislation requiring companies placing timber and timber products on 
the market to exercise due diligence in ascertaining that the products are legal 

6.8.1. 

Impact on illegal logging 

6.8.2.  Environmental impacts 

6.8.3.  Social impacts 

6.8.4.  Economic impacts 

6.8.5.  Risks 

7. 

COMPARING OPTIONS 

7.1. 

Illegal logging 

7.2. 

Environmental impact 

7.3. 

Social impact 

7.4. 

Economic impacts 

7.5. 

Overall comparison of options 

8. 

MONITORING AND EVALUATION 

EN 

5 

   EN 

EXECUTIVE SUMMARY 

This report presents possible options with respect to further policy or legislative options for 
measures  to  address  the  introduction  of  timber  and  timber  products  to  the  EU  market 
originating from illegal logging.  

The European Community policy regarding illegal logging and related trade was set out in the 
Forest  Law  Enforcement,  Governance  and  Trade  (FLEGT)  Action  Plan  which  includes  a 
number of measures to ensure that timber and wood products imported into the EU have been 
legally harvested or manufactured from legally harvested timber.  

One of the key measures proposed by the Action Plan is a licensing scheme for the prevention 
of  illegal  logging  and  related  trade  coming  into  the  European  Union  (EU).  The  licensing 
scheme  would  be  implemented  as  part  of  the  Voluntary  Partnership  Agreements  (VPAs), 
which are being negotiated with a number of countries. 

The VPA approach is considered promising but it is recognized that it may have limitations. 
The  EU  FLEGT  Action  Plan  therefore  makes  provisions  for  an  analysis  of  additional 
measures,  which  could  enhance  the  EU’s  efforts  to  eliminate  imports  of  illegally  harvested 
timber  and  timber  products  to  the  EU  market.  A  total  of  five  options  have  been  identified, 
compared to the "baseline" scenario (continuation present FLEGT VPA approach). 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

(7) 

Expansion of the FLEGT VPA approach  

Voluntary measures by the private sector further developed  

Border measures to prevent the importation of illegally harvested timber  

Prohibition on the placing on the EU market of illegally harvested timber  

Sub-option 4A: Legislation which prohibits the trading and possession of timber and 
timber  products  harvested  in  breach  of  the  laws  of  the  country  of  origin  (i.e.  where 
trees harvested) 

Sub-option  4B:  Legislation  which  requires  that  only  legally  harvested  timber  and 
timber products be placed on the market  

Legislation which requires due diligence by all timber traders to ensure that they trade 
in legally harvested timber 

The  report  defines  the  problem  of  illegal  logging  and  the  important  economic  (loss  of 
revenues for third countries or unfair competition to the industry), social and environmental 
damage (loss of forests and biodiversity, other environmental impacts). It furthermore gives 
an overview of the production of timber and timber products globally and within the EU as 
well  trade  figures  globally  and  imports  into  the  EU.  Estimates  have  been  made  on  the 
proportion  of  illegally  harvested  timber  (being  not  harvested  in  accordance  with  the 
applicable legislation) and the associated trade.  

EN 

6 

   EN 

 
The  impact  of  all  policy  options  on  the  reduction  in  illegal  logging  in  the  EU  and  non-EU 
countries have been assessed as well as the economic impacts (in particular regulatory costs 
involved for the government sector), costs for the private sector and trade impacts in both EU 
and  non-EU  countries)  and  social  (employment,  other  social  factors)  and  environmental 
impacts.  

The  largest  impact  on  a  reduction  in  illegal  logging,  assuming  that  the  measures  are 
implemented  effectively,  can  be  found  in  options  4A,  4B  and  5.  The  unit  costs  of  legality 
control  (in  Euro/m3)  are  rather  low  in  all  options,  the  differences  are  attributable  to  the 
variation  in  implementation  arrangements  (e.g.  third-party  verification  may  be  included  or 
excluded). Option 4b prohibiting the placing of illegal timber on the EU market involves in 
particular high costs for the private sector, while the regulatory costs are the highest in option 
3.  

The  report  indicates  that  the  latest  option  5  "due  diligence",  developed  by  combining  the 
positive  elements  of  option  2  (voluntary  measures  by  the  private  sector)  and  option  4B 
(enforceability through the need for burden of proof) would be most effective of the options 
assessed. It would result  in a  reduction in illegal logging without the introduction of a high 
cost  systematic  control  system  and  considerable  enforcement  problems  which  might  be 
expected  under  several  other  options  (in  particular  options  4A  and  4B).  A  separate  cost 
assessment was made for option five and is contained in Annex II. The main findings are that 
the costs to the EU private sector of the proposed due diligence approach appear limited and 
are expected to shift demand from high-risk to low-risk timber.  

It  will  serve  as  well  as  an  incentive  for  sourcing  of  timber  from  countries  with  FLEGT 
Voluntary  Partnership  Agreements  or  for  timber  covered  by  valid  CITES  (Convention  on 
International Trade in Endangered Species) permits, since this would provide a high degree of 
certainty for operators and exporting countries involved. 

PROCEDURAL ISSUES 

1.1. 

Overview 

The EU Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT) adopted 
by the Commission in May 2003, sets out a process and a package of measures by which the 
European Commission proposes to address the growing problem of illegal logging and related 
trade.  

One of the key measures proposed is a licensing scheme for the prevention of illegal logging 
and  related  trade  coming  EU.  The  licensing  scheme  would  be  implemented  as  part  of  the 
Voluntary  Partnership  Agreements  (VPAs),  which  are  being  negotiated  with  a  number  of 
countries.  The  VPA  approach  is  considered  promising  but  it  is  recognized  that  it  may  have 
limitations.  

The  EU  FLEGT  Action  Plan  therefore  makes  provision  for  an  analysis  of  additional 
measures,  which  could  enhance  the  EU’s  efforts  to  eliminate  imports  of  illegally  harvested 
timber and timber products to the EU market. 

Following  on  from  that  commitment  the  Commission  has  explored  a  number  of  options 
including options for legislative measures addressing the importation or marketing of timber 
products derived from illegally harvested timber. 

EN 

7 

   EN 

The proposal with additional measures and this impact assessment are part of the Commission 
agenda planning 2007/ENV+/023. 

1.2. 

Inter-Service Steering Group 

A Commission Inter-Service Steering Group on the Impact Assessment was established. The 
Group  was  led  by  DG  Environment  with  the  participation  of  the  following  Commission 
Directorate  Generals  and  Services:  Agriculture  and  Rural  Development,  Enterprise, 
Development, Trade, and Taxation & Customs Union. Other services were also invited to join 
but  did  not  respond  to  the  call.  Following  the  last  stakeholder  meeting  that  took  place  in 
Brussels  the  group  met  to  discuss  the  draft  final  study  carried  out  by  a  consultancy  firm 
(section 2.7). A second meeting took place to discuss options  in light of the findings  of the 
impact assessment process. Members of the group were also consulted on an ad hoc basis to 
provide input on particular items.  

1.3. 

Public consultation 

introduced 

As  part  of  the  impact  assessment  process  the  Commission  held  a  web-based  public 
consultation  in  early  2007.  The  consultation  sought  views  on  the  need  for,  appropriateness 
and  feasibility  of  EU  policy  measures  to  address  the  problem  of  illegal  timber  and  timber 
products  being 
the  European  market.  The  substantive  response  (93 
contributions)  was  not  large  in  terms  of  numbers.  In  terms  of  contents  and  variety  of 
perspectives provided it however met  the Commission’s expectations. Most responses  came 
from  within  the  EU.  Forty  respondents  were  individuals,  thirty  one  (31)  from  the  private 
sector, nigh teen (19) from NGOs and three from national authorities in EU Member States. In 
addition, 7.161 e-mails were received through the 'Ban illegal timber' campaign launched by 
Greenpeace.  

to 

Most of the respondents felt that the bilateral FLEGT approach was insufficient to address the 
problem of illegal logging. They also felt that further private sector voluntary schemes could 
only  play  a  complimentary  role  to  a  robust  binding  framework.  However  some  respondents 
felt that combining these approaches could allow targeting of those areas with highest risk of 
illegal logging. A significant proportion of the respondents firmly expressed a wish for the EU 
to put an end to ‘business as usual’ and in particular address possible loopholes in the system 
under  FLEGT  VPAs.  In  general  these  responses  favoured  a  legislative  approach.  Often  the 
positions  expressed  did  not  clearly  favour  a  specific  option,  or  supported  more  than  one 
option. 

Many  respondents  considered  an  import  ban  on  illegally  harvested  timber  to  be  the  most 
problematic of the options and were concerned that in designing legally binding measures it 
would  be  hard  to  overcome  discriminatory  impacts  of  such  a  measure.  The  option  which 
would  require  that  only  legally  harvested  timber  and  timber  products  are  placed  on  the  EU 
market  attracted  a  lot  of  positive  attention.  However  respondents,  whether  in  favour  or  not, 
did  not  seem  to  understand  fully  the  distinction  between  the  sub-options  included  in  the 
broader framework – an option that would ‘prohibit the trading and possession of timber and 
timber  products  harvested  in  breach  of  the  laws  of  the  country  of  origin’  or  one  that  would 
‘require  that  only  legally  harvested  timber  and  timber  products  be  placed  on  the  market’. 
These  were  generally  treated  as  equivalent  in  terms  of  effectiveness  and  the  impact  on  the 
forest sector -inside and outside the EU- and on the governance problems. 

EN 

8 

   EN 

Many  respondents  considered  that  development  cooperation  and  capacity-building  are  an 
essential  element  for  halting  illegal  logging  and  felt  that  this  had  not  been  adequately 
addressed  in  the  consultation.  There  were  widely  differing  views  on  the  need  for,  and 
practicability,  of  a  common  definition  of  legality  in  the  context  of  the  timber  trade, 
highlighting  the  fact  that  illegal  logging  has  deep-rooted  and  complex  causes,  thus  halting 
illegal logging requires a full understanding of the root causes. To be effective any measures 
should also contribute to addressing the root causes and not just the symptoms. 

The  synthesis 
http://www.cc.cec/dgintranet/env/i/e2/doc/pdf_docs/forests/AddlOptionsSynthFinal.pdf 

the  consultation  can  be  consulted 

results  of 

report  of 

the 

in 

1.4. 

Ad hoc consultations 

Stakeholders were consulted in workshops and through interviews of individual stakeholders 
1.  The  consultations  were  conducted  both  in  EU  Member  States  as  well  as  in  non-EU 
countries that would potentially be involved in the implementation of additional options or be 
indirectly affected by them. The consultation was based on a questionnaire but stakeholders 
could express their views verbally during the workshops or in writing.  

The  participants  were  asked  to  rank  the  additional  options  from  best  to  worst.  At  that  time 
though, only 4 options were available. Option 5 was developed on the basis of the findings of 
the impact assessment. The way in which the question was put caused some ambiguity in the 
identification of the best option; the results can be interpreted in two ways. On one hand, the 
most  preferred  option  or  combination  of  options  across  the  EU  are  options  1  and  4b,  and 
option 4b followed by option 1+2 and option 2.Another possible ranking was done based on 
how  many  times  each  option  was  indicated  either  as  the  best  option  or  was  included  it  the 
favourite  combination  of  options.  Ranked  in  this  manner,  option  1  was  referred  to  by  37 
respondents  or  about  half  of  all  respondents.  The  second  most  frequently  mentioned  option 
was option 2 with 31 references. Option 4b ranked third with 24 indications and options 3 and 
4 were mentioned by 13 respondents each. 

1.5. 

National Studies 

In  its  conclusions  the  Council  called  on  the  Member  States  to  supply  the  Commission  with 
“relevant  information”  over  the  extent  to  which  existing  national  legislation  can  be  used  to 
stop the trade in illegally produced and traded wood. In response to that request several MS 
including  the  Netherlands,  the  UK,  Spain,  Estonia,  Italy  and  Germany  carried  out  that 
analysis. 

1.6. 

Consultations with third countries 

Consultations  were  held  with  several  international  partners.  High  level  meetings  were  held 
with other major timber importers e.g. China, Japan and USA. Meetings were organised with 
FLEGT  VPA  countries  (e.g.  Malaysia,  Indonesia,  Ghana,  and  Cameroon)  as  well  as  certain 
other  timber  exporting  countries  (Russia,  Brazil)  and  countries  that  have  shown  interest  in 
discussing VPAs with the EU.  

1 

Assessment  of  the  Impact  of  potential  further  measures  to  prevent  the  importation  or  placing  on  the 
market  of  illegally  harvested  timber  or  derived  products,  Technical  Report  3  Stakeholder  Report 
Indufor, Finland, 2007.  

EN 

9 

   EN 

                                                 
1.7. 

Study 

In  the  context  of  the  impact  assessment  process  the  Commission  contracted  a  consultancy 
firm  to  conduct  an  impact  assessment  study.  The  study  provided  an  assessment  of  the 
environmental, economic and social impacts of the different policy options identified at that 
stage, within and outside the EU, as set out in the terms of reference2.  

1.8. 

Impact Assessment Board 

The  draft  Impact  Assessment  was  submitted  to  the  Board  on  the  11th  of  March  2008  and 
discussed at the Board meeting of the 2nd of April 2008. The Board issued its final opinion on 
7  April  2008.  It  included  a  number  of  recommendations  for  the  improvement  of  the  impact 
assessment  report,  which  were  largely  taken  into  account  prior  to  the  submission  of  the 
Commission proposal. 

The  key  amendments  made  to  the  impact  assessment  following  the  issuing  of  the  Board 
opinion are: 

•  Further  clarification  how  the  additional  measures  fit  in  the  current  political  context  and 
commitments  and  link  to  ongoing  policy  developments  (FLEGT  action  plan  being 
implemented), including international agreements. 

•  Including  more  focused  objectives  and  indicating  more  clearly  and  earlier  in  the  report 
which  options  had  been  discarded  on  feasibility  grounds,  although  the  full  set  of  options 
and the assessment have been retained in the report for comparison purpose. 

•  Further  clarification  how  the  preferred  option  combines  the  positive  elements  of  a  self-
regulatory  and  enforcement  approach  by  explaining  further  the  pros  and  cons  of  this 
options. 

•  Strengthened  assessment  by 

to  market 
developments and trade impacts of the different options and their risks with regard to these 
aspects (regulatory costs, compliance effectiveness and trade diversion) 

inclusion  of  further  details  with  regard 

PROBLEM DEFINITION 

1.9. 

Problems of illegal logging 

Illegal  logging  activities  include  the  harvest,  transportation,  purchase  or  sale  of  timber  in 
violation  of  national  laws.  The  harvesting  procedure  itself  may  be  illegal,  including  using 
corrupt  means  to  gain  access  to  forests;  extraction  without  permission  or  from  a  protected 
area; the cutting of protected species; or the extraction of timber in  excess of agreed limits. 
Illegalities may also occur during transport, such as illegal processing and export; fraudulent 
declaration to customs; and the avoidance of taxes and other charges. The impacts of illegal 
logging are multiple3.  

2 

3 

Assessment  of  the  Impact  of  potential  further  measures  to  prevent  the  importation  or  placing  on  the 
market of illegally harvested timber or products derived from such timber, Indufor, Finland, 2007. 
As  reflected  in  Extended  Impact  Assessment  concerning  the  establishment  of  a  voluntary  FLEGT 
licensing scheme for imports of timber into the European Community (SEC(2004)977) 

EN 

10 

   EN 

                                                 
The  clandestine  nature  of  illegal  logging  makes  its  scale  and  value  difficult  to  estimate  in 
relation  to  the  global  trade  in  forest  products  (estimated  by  the  OECD  to  be  worth  over 
€150bn per year), but strong  evidence suggests that it is a substantial and growing problem. In 
many  countries,  illegal  logging  is  similar  in  size  to  legal  production  or  it  exceeds  legal 
logging  by  a  substantial  margin  (see  also  chapter  3.2).  It  has  been  also  indicated  that  more 
than  half  of  all  logging  activities  in  particularly  vulnerable  regions  –  the  Amazon  Basin, 
Central  Africa,  Southeast  Asia,  the  Russian  Federation  and  some  of  the  Baltic  states  –  is 
illegal. 

The  illegal  exploitation  of  natural  resources,  including  forests,  is  closely  associated  with 
corruption  and  organised  crime.  In  some  forest-rich  countries,  the  corruption  fuelled  by 
profits from illegal logging has grown to such an extent that it is undermining the rule of law, 
principles of democratic governance and respect for human rights. In some cases the illegal 
exploitation  of  forests  is  also  associated  with  violent  conflict.  Profits  from  the  illegal 
exploitation  of  forests  (and  of  other  natural  resources)  are  often  used  to  fund  and  prolong 
these conflicts.  

Illegal  logging  and  associated  trade  undermines  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 and 
sustainable  development  generally.  Illegal  logging  also  costs  governments  vast  sums  of 
money. Estimates suggest that illegal logging costs timber-producing countries €10-15 billion 
per  year  in  lost  revenues,  which  could  otherwise  be  spent  on  the  provision  of  better 
healthcare, education and other public services, as well as the implementation of sustainable 
forest management. 

The  social  impact  of  illegal  logging  is  less  well  acknowledged.  However,  serious  human 
rights  abuses  have  been  documented,  particularly  where  local  communities  or  concerned 
citizens  have  attempted  to  stand  up  to  powerful  logging  interests.  Illegal  logging  also 
provokes conflict over land and access to resources; and where laws are unjust, local people 
using  forest  resources  to  meet  their  basic  needs  are  forced  into  illegal  behaviour  through  a 
lack of alternative means to earn a living. Illegal logging does also provide rural employment, 
which has a positive social impact, but this employment is often short-term in nature as the 
resource  is  not  managed  on  a  sustainable  basis.  Illegal  logging  also  causes  enormous 
environmental  damage  and  loss  of  biodiversity,  for  instance  through  logging  of  national 
parks, and can facilitate the illegal exploitation of wildlife. It can be a contributory factor to 
the  process  of  deforestation,  and  can  increase  the  vulnerability  of  forests  to  fires  –  both  of 
which  have  climate  change  implications.  It  undermines  sustainable  forest  management  and 
has a long term negative impact on the livelihoods of forest-dependent people, many of whom 
are amongst the world’s poorest and most marginalised people. 

Underlying motives and forces  

Corruption  is  considered  the  most  important  and  deep-rooted  cause  of  forest  degradation. 
Corruption in forestry has many manifestations, ranging from give-away logging concessions, 
log  smuggling,  and  illegal  logging  operations,  to  fraud  and  tax  evasion  schemes.  Such 
corruption  reflects  the  lack  of  accountability  of  corporations,  governments,  and  other  actors 
involved  in  the  forestry  sector.  Corruption  undermines  the  rule  of  law  and  renders  most 
regulations  and  control  mechanisms  worthless.  These  factors  in  developing  and  emerging 

EN 

11 

   EN 

market  countries  compounded  by  strong  international  demand  for  timber  provide  incentives 
for illegal behaviour and logging at large scales.  

Who is affected by illegal logging? 

A range of actors are affected by illegal logging. Governments in afflicted countries lose large 
potential  revenues;  citizens  lose  a  valuable  productive  resource.  Citizens  of  the  EU  are 
affected  through  the  impact  illegal  logging  has  on  global  public  goods,  such  as  lost 
biodiversity  and  the  long  term  impact  of  forest  loss  on  climate  change.  The  EU  is  also 
affected  by  illegal  logging  in  a  more  direct  way,  since  EU  donors  contribute  aid  to  badly 
affected  countries,  while  at  the  same  time  a  valuable  productive  resource  is  looted  and  the 
profits generated are lost to the state. High-level scandals relating to imports of illegal timber 
into the EU have shaken the consumer's confidence in EU timber purchasing policies. Illegal 
logging also undermines many essential elements of the EC’s development objectives: public 
sector financing for development targeted at the poor, peace, security, good governance, the 
fight against corruption, and sustainable environmental management.  

1.10. 

Production and trade in timber 

The estimated global production of industrial roundwood in 2005 was 1 709 million m3. This 
is  divided  in  production  from  countries/regions  with  a  high  or  moderate  risk  for  illegal 
logging of 615 million m3; from countries/regions with low-risk for illegal logging of ca. 726 
million m3 and internal EU production of ca. 370 million m3 (table 3.1 and figure 7.1).  

The available estimates on the extent of production, imports and exports of illegal timber are 
also indicated in table 3.1. It has to be realised however that the figures are highly indicative 
due to the very nature of illegal activities and are to be considered more than indications of 
their order of magnitude. The main production of illegal timber stems from countries/regions 
with a high or moderate risk for illegal logging and is estimated at 139 million m3 in 2005. 
There are four broad regions where the risk of illegal logging was considered high or at least 
moderate.  Among  them,  the  proportion  of  illegal  production  is  estimated  to  be  highest  in 
Africa  (excl.  South  Africa)  and  Asia  (excl.  Japan),  around  30  %.  In  Latin  America,  the 
estimated  share  of  illegal  production  is  15  %  and  the  average  for  Russia,  former  Union  of 
Soviet  Socialist  Republics  (USSR)  countries  and  the  Balkans  is  put  at  17  %  of  the  total. 
Illegal logging is not a real problem within the EU and other low risk countries. The risk is 
considered as low, although according to some statistic information in the study, it does exist 
and is estimated at around 3 million m3 in the EU in 2005.  

All  imports  of  wood  products  to  the  EU  in  2005  were  about  142 million  m3  (Figure  3.2). 
Roundwood,  sawnwood,  plywood  and  veneer  accounted  for  50  %  of  the  total.  Boards  and 
panels,  manufactured  wood,  and  wood  furniture  accounted  for  1,  3  and  4  %,  respectively. 
Imports of wood pulp contributed to 26 % and those of paper and 16 % to the total imports of 
wood products to the EU in 2005. Exports from the EU comprised 107 million m3. In 2005, 
the principal EU Member States in terms of importing wood and wood products (RWE) were 
Italy, Germany, the UK and Finland, which together accounted for more than one half. Other 
significant importers include France, Spain, Belgium and the Netherlands. 

EN 

12 

   EN 

Table 3.1 

Estimated roundwood production and illegal production in 2005 

Region 

Production of 
industrial roundwood 

million m3/y 

Estimated production 
of illegal industrial 
roundwood 
million m3/y  % of 
total 

High or moderate risk countries/regions 

Africa excl. South Africa 

Asia excluding Japan 

Latin America 

Russia, Former USSR & Balkans 

Sub-total 

45 

221 

187 

162 

615 

Low risk countries/regions 

Norway and Switzerland 

South Africa 

Japan 

USA and Canada 

Australia and New Zealand 

Sub-total 

EU-27 

Sub-total 

Total World 

13 

18 

16 

632 

46 

726 

EU27 

368 

368 

1 709 

14 

66 

28 

28 

136 

- 

- 

- 

- 

- 

- 

3 

3 

139 

30 

30 

15 

17 

22 

- 

- 

- 

- 

- 

0 

1 

1 

8 

EN 

13 

   EN 

 
 
Figure 3.2 

Imports of all wood products to the EU by country of origin in 2005 (RWE) 

)

E
W
R

(

s
r
e
t
e
m
c
b
u
c

i

40.000.000

35.000.000

30.000.000

25.000.000

20.000.000

15.000.000

10.000.000

5.000.000

0

Considering  only  the  imports  of  roundwood,  sawnwood,  plywood  and  veneer,  the 
estimated  imports  of  illegal  products  from  high/moderate  risk  countries  was  14 
million  m3  (RWE)  in  2005.  If  all  wood  products  except  pulp  and  paper  were 
considered, the amount in 2005 would have been 16 million m3 (RWE)  

In 2005, the total volume of timber placed on the EU market reached 512 million m3 
consisting  of  imports,  142  million  m3  (RWE),  and  EU  roundwood  production, 
370 million  m3.  Imports  of  illegal  timber  amounting  to  16  million  m3  (excluding 
pulp & paper products) accounted for about 3 % of the total.  

1.11. 

Perspectives  (International  policy  and  EU  policy  addressing  illegal  timber 
trade) 

International Options 

The EU and its Member States have put a great effort in reaching international arrangements 
with  regard  to  sustainable  forest  policies  and  control  of  legality  of  timber  in  international 
trade. 

While a number of countries have been fairly open to discuss the control of illegal logging in 
the international forest policy arena, negotiations on a multilateral framework, which started 
more  than  20  years  ago  (FAO  and  following  UN  forest  panels  and  forest  fora),  have  only 
known  very  limited  progress.  The  United  Nations  Forum  on  Forests  (UNFF)  has  recently 
(2007) however made progress towards a non-legally binding instrument on forests, but it is  

EN 

14 

   EN 

 
 
unlikely  that  in  this  forum  a  multilateral  agreement  on  trade  in  forest  products  could  be 
established  in  the  foreseeable  future.  Many  governments,  including  some  key  forest  rich 
countries like Brazil continue to oppose such an idea. They in particular insist that legislation 
and law enforcement are issues of national sovereignty. 

While  progress  on  multilateral  forest  policy  level  has  been  very  limited,  the  European 
Community has invested heavily into discussing illegal timber trade with other main timber 
importers  (USA,  Japan,  China)  in  order  to  seek  a  common  approach  in  Forest  Law 
Enforcement and Governance policies. Discussions with those countries are ongoing in order 
to share experience and combine efforts, where appropriate. 

At the international /multilateral level, the Convention on International Trade in Endangered 
Species  of  Wild  Fauna  &  Flora  (CITES)  is  a  relevant  instrument  and  implemented  in  the 
Community by the EU Wildlife trade regulations. Its aim is to ensure that international trade 
in specimens of wild animals and plants does not threaten their survival and it has proved to 
be  effective  international  agreement.  Since  CITES  sets  both  legality  and  sustainability 
conditions,  shipments  covered  by  CITES  permits  do  not  require  additional  FLEGT  licenses 
under the Community legislation. The CITES scope in timber is so far however limited to a 
few tree species although the Convention allows also for exporting countries to voluntarily list 
species which are protected by national law in order to control the trade internationally. With 
the species specific approach however, it is not realistic to suggest that CITES could be used 
to control all timber trade, although further listings of certain priority species on the CITES 
Appendices will contribute to the regulation of legal and sustainable trade which is supported 
by the Community. 

Despite its high profile, illegal logging has not been specifically addressed in the international 
legal frameworks concerning the fight against crime. 

Community Legislation 

The  EU  FLEGT  Action  Plan,  adopted  in  2003  by  the  European  Commission  sets  out  a 
package  of  measures  to  address  the  problem  of  illegal  logging  and  related  trade.  The 
European Parliament and the Council have adopted formal resolutions and conclusions. The 
centre-piece of the EU FLEGT Action Plan was the FLEGT licensing scheme, under which 
exports  of  timber  from  participating  countries  to  the  EU  would  be  covered  by  a  (FLEGT) 
licence  attesting  that  the  timber  has  been  harvested  in  conformity  with  relevant  national 
legislation.  The  licensing  scheme  would  be  implemented  through  the  development  of 
Voluntary Partnership Agreements (FLEGT VPAs). In parallel, the Council adopted in 2005 
the  FLEGT  Regulation  which  establishes  the  legal  framework  for  the  imports  of  timber 
originating in partner countries into the EU.  

There  is  however  currently  no  overall  Community  legislation  dealing  with  the  import  and 
marketing of timber and timber products produced illegally.  

National Legislation 

In  the  Action  Plan  the  Commission  invited  the  Member  States  to  identify  relevant  national 
legislation which could be applied to address the illegal logging issue (Section 6). In response 
to  that  call,  studies  carried  out  by  some  Member  State  have  concluded  that  there  is  some 
potential  in  addressing  illegal  logging  through  national  legislation  such  as  that  concerning 

EN 

15 

   EN 

theft and trafficking of stolen goods, money-laundering or smuggling. However, in practice it 
is  very  difficult  to  establish  a  link  a  link  between  an  alleged  illegal  activity  and  a  specific 
piece or shipment of timber.  

Possible evolution of the problem 

The  FLEGT  VPAs  are  considered  by  most  stakeholders  as the most effective way  to  tackle 
illegal logging as they put particular emphasis on governance and combine trade requirements 
with capacity building. Although, it seems logical that VPAs should be allowed to prove its 
effectiveness  and  efficiency  before  considering taking  further  steps,  certain  limitations  have 
outweighed  that  argument.  To  this  day  only  four  countries  have  formally  engaged  in  that 
process, with some others having also expressed an interest, although not amongst the major 
timber-producing countries. Furthermore, the negotiations towards concluding a VPA are for 
a  variety  of  reasons  proceeding  more  slowly  than  initially  envisaged.  In  the  meantime, 
countries  have  been  raising  in  the  VPA  negotiations  the  circumvention  risk  and  its 
ramifications for the FLEGT-licensed timber.  

The circumvention risk was already identified in the FLEGT Action Plan. The Commission 
thus, committed to 'review options for, and the impact of, further measures, including in the 
absence  of  multilateral  progress,  the  feasibility  of  legislation  to  control  imports  of  illegally 
harvested timber into the EU' (Section 4.2.4). The Council and the European Parliament have 
recalled that commitment.  

The strong international demand for timber has provided a strong incentive for illegal logging. 
Although the EU is not a huge market, it is an important player in the international arena and 
putting  forward  requirements  for  trading  in  timber  would  send  a  clear  signal  regarding  its 
commitment to support the fight against illegal logging. In a statement issued in 2006 several 
companies  including  IKEA,  B&Q  and  Carrefour  have  called  on  the  Commission  to  set 
common rules in timber trade to ensure fair competition and sustainable markets 4.  

Under a “no policy change” scenario illegally harvested timber will continue to enter the EU 
market  and  illegal  logging  would  thus  continue  unchecked,  exacerbating  the  impacts 
identified  in  chapter  3.1.  It  is  therefore  evident  that  other  complementary  measures  at  the 
Community level would be required if fast progress is to be made at eliminating the access of 
illegally harvested timber and timber products to the EU market. 

1.12. 

Subsidiarity/necessity test 

There  is  a  clear  need  for  Community-level  action  to  address  the  demand-side  of  illegal 
logging  and  associated  trade,  since  all  the  proposed  policy  instruments  fall  under  the 
competences of the Community. As regards the regulatory approach described under options 
3, 4 and 5 Articles 133 or 95 of the Treaty would provide the appropriate legal basis as the 
primary  objective  of  the  instrument  would  be  the  functioning  either  of  the  common 
commercial policy or of the internal market.  

The  subsidiarity  principle  applies  insofar  as  the  proposal  does  not  fall  under  the  exclusive 
competence of the Community, as in the case of option 3. 

4 

http://www.greenpeace.org/raw/content/international/press/reports/FLEGTIndustry.pdf 

EN 

16 

   EN 

                                                 
At  the  core  of  the  Community  action  under  options  4A,  4B  and  5  lies  the  establishment  of 
common rules for the placing on the Community market of timber products. Experience has 
shown  that  the  smooth  functioning  of  the  internal  market  is  best  safeguarded  through 
harmonised action across the EU Member States. As regards the marketing of timber products 
it  is  considered  that  action  at  the  EU  level  would  deliver  better  results  than  a  series  of 
individual  actions  by  Member  States.  A  harmonised  approach  would  simplify  the 
requirements  for  the  operators  and  therefore  stimulate  competitiveness,  while  consumers 
would  be  better  informed  on  the  applicable  standards.  The  system  would  also  provide  the 
legal certainty and clarity, necessary for the proper functioning of the market. In the absence 
of  a  harmonised  approach,  measures  restricting  internal  trade  would  be  taken  by  several 
Member  States,  hence  disrupting  the  functioning  of  the  internal  market.  This  would  have  a 
serious  impact  on  the  functioning  of  the  EU  market,  jeopardize  the  ability  of  European 
Operators  to  source  timber  products  necessary  for  their  economic  activities  as  well  as 
jeopardizing thee credibility of EU measures.  

loss  of  biodiversity,  undermines 

The  clandestine  nature  of  illegal  logging  globally  makes  its  scale  and  value  difficult  to 
estimate  but  strong  evidence  suggests  that  it  is  a  substantial  and  growing  problem  which 
causes  enormous  environmental  damage  and 
the 
competitiveness  of  legitimate  forest  industry  operations  while  is  closely  associated  with 
corruption,  organised  crime  and  violent  conflict.  Despite  the  limited  occurrence  of  illegal 
logging incidents within the EU this proposal puts forward internal market  measures  with a 
view  to  address  the  problem  in  a  holistic  manner  and  to  avoid  constraints  posed  by  the 
international trade rules. Given that the release for free circulation into the community confers 
on  imported  products  the  status  of  Community  goods,  rules  governing  the  placing  on  the 
market also applies on imported products. It has been argued that measures affecting imports 
of timber products would only shift trade to non-demanding markets. However, the EU is a 
major player in the international arena and with such an initiative it would send a clear signal 
on  its  commitment  in  the  combat  against  illegal  logging  and  possibly  provoke  similar 
reactions from other major consuming countries. The potential impact on the placing on the 
market  of  manufactured  timber  products  would  also  greatly  enhance  its  impact,  as  not  only 
primary producers would be affected. 

The proposal aims at closing the EU market to timber and timber products harvested illegally 
through  a  set  of  rules  governing  the  placing  on  the  market  of  timber  and  timber  products. 
While  setting  clearly  the  principles  to  be  taken  into  account  when  ascertaining  legality, 
operators will be allowed to choose the mechanisms to deliver the required result.  

In  light  of  these  elements,  EU  action  is  justified  as  it  is  clear  that  Member  States  can  not 
achieve this satisfactorily and that the EU can do it better and more efficiently.  

OBJECTIVES 

The  aim  of  this  proposal  is  in  line  with  the  Commissions'  strategic  objectives  and  better 
regulation principles notably to provide effective and efficient measures, ensure a high level 
of legal certainty across the EU, enable operators to be more dynamic without increasing the 
burden and thus help to strengthen the Community's credibility in the eyes of its citizens. The 
objectives  have  been  also  considered  within  the  context  of  the  Sustainable  Development 
strategy  agreed  by  the  European  Council  in  June  2006  via  its  focus  on  the  protection  of 
natural resources. They are also in line with the Community’s overall policy objective in the 
forest sector, which is to achieve sustainable forest management.  

EN 

17 

   EN 

Although  legality  and  sustainability  are  distinct  and  different  concepts,  in  many  countries 
forest legislation is based on the premise of sustainable forest management, and so better law 
enforcement  will  in  general  lead  to  more  sustainable  forest  management.  Better  forest 
governance  is  therefore  an  important  step  on  the  path  to  sustainable  development,  and  the 
Action  Plan  should  thus  be  placed  in  the  context  of  the  overall  efforts  of  the  European 
Community to achieve sustainable forest management5. 

The main overarching objectives of this proposal are to: 

•  Support the international fight against illegal logging and related trade  

•  Address the weaknesses entailed in the current framework i.e. circumvention, laundering, 
rerouting  etc.  due  to  its  bilateral,  voluntary  and  geographically  limited  nature  without 
nevertheless compromising its implementation 

•  Reinforce EU consumers' confidence in timber 

•  Improve forest governance and law enforcement in timber-producing countries 

Taking these objectives into account the following specific objectives have been established: 

•  Close the EU market to illegally harvested timber 

•  Ensure  consistency  and  legal  clarity  in  terms  of  the  requirements  for  placing  timber  and 

timber products in the EU market 

•  Avoid trade disputes and reciprocal measures that will devaluate the measures 

•  Reward existing good practices for timber purchasing policies  

•  Avoid creating a burdensome and expensive system 

•  Establish a level playing field and foster a pro-competitive market environment 

•  Facilitate smooth functioning of the internal market 

•  Avoid impeding trade with low-risk countries  

By means of: 

•  Laying down concrete rules for placing timber and timber products in the EU market 

•  Endorsing  existing  schemes  that  comply  with  specific  requirements  in  terms  of 

demonstrating legality  

•  Introducing a risk-sensitive approach  

MAJOR POLICY OPTIONS 

5 

As  reflected  in  Extended  Impact  Assessment  concerning  the  establishment  of  a  voluntary  FLEGT 
licensing scheme for imports of timber into the European Community (SEC(2004)977), section 3.2. 

EN 

18 

   EN 

                                                 
To  address  the  problems  identified  and  described  under  chapter  3,  different  policy  options 
have  been  considered  and  were  the  subject  of  this  impact  assessment.  As  regards  the 
multilateral  option  the  situation  has  not  evolved  much  since  the  adoption  of  the  EU  Action 
Plan  and  the  FLEGT  Regulation.  As  stated  in  the  Impact  Assessment  carried  out  for  the 
purposes of the latter, 'given the pattern of trade in wood products, a multilateral framework 
to regulate the international trade in timber would be the most comprehensive way to tackle 
the issue. Progress in the international dialogue on forest policy has been slow, however, and 
there is clearly little prospect of arriving at a multilateral agreement to address the trade in 
illegal  timber'.  A  solution  based  on  voluntary  co-operation  with  other  major  consuming 
markets offers better prospects was identified as the best option to combat illegal logging and 
associated  trade  and  in  line  with  the  FLEGT  Action  Plan's  objectives.  As  regards  unilateral 
measures,  the  Impact  Assessment  concluded  that  the  Community  could  introduce  such 
legislation  which  would  have  the  advantage  of  being  a  strong  and  direct  response  to  the 
problem, and would address an intuitive shortcoming in the legislative framework6. 

The  options  were  assessed  against  their  relevance  in  respect  of  achieving  the  objectives 
identified in section 4. 

Baseline "no additional EU action" 

The  baseline  scenario  for  comparing  the  impacts  of  the  different  option  is  that  VPAs'  are 
concluded  between  the  EU  and  six  timber  producing  countries  where  negotiations  are 
currently  underway  or  expected  to  start  in  the  near  future  (Indonesia,  Malaysia,  Ghana, 
Cameroon, Gabon and Congo Brazzaville). This option relies on the willingness of these third 
countries to conclude such VPAs. It's assumed for this report that this baseline option will be 
implemented and all following "additional options" are measures in addition ("top on") to the 
baseline. 

Additional  Option  1:  Expanded  coverage  of  the  bilateral  approach  through  FLEGT 
Voluntary Partnership Agreements.  

This  option  is  an  expansion  of  the  baseline  option.  In  terms  of  geographical  coverage,  the 
Voluntary  Partnership  Agreements  are  expanded  with  6  additional  countries  (Brazil,  China, 
Vietnam,  Russia,  Belarus  and  Ukraine)  which  have  been  selected  for  illustrative  purposes 
only.  No  formal  discussions  regarding  potential  Voluntary  Partnership  Agreements  are  yet 
underway  with  these  countries  and  this  would  rely  as  well  on  the  willingness  of  third 
countries to conclude such VPAs. 

Under  this  option,  the  Community  instead  of  launching  new  initiatives  which  could  just 
undermine  the  current  approach  would  give  priority  to  reinforce  the  implementation  of  the 
current  framework  designed  to  address  the  root  causes  of  illegal  logging  through  a 
collaborative approach and use all existing means to this end.  

Additional Option 2: Voluntary measures by the private sector further developed 

The key element of this option is to support the development of private sector measures such 
as  codes  of  conduct  as  well  as  forest  certification  schemes.  Codes  of  conduct  have  been 
introduced by timber trade federations and bodies who develop and advice their members on 

6 

As  reflected  in  Extended  Impact  Assessment  concerning  the  establishment  of  a  voluntary  FLEGT 
licensing scheme for imports of timber into the European Community (SEC(2004)977), section 4.3. 

EN 

19 

   EN 

                                                 
responsible  purchasing  policies.  Private  certification  schemes  have  been  set  up  to  set  forest 
management standards and accredit forests, products and or managers against those standards. 
Although  these  initiatives  have  merits  including  their  flexibility,  powerful  motivation  and 
good cost/efficiency balance, their voluntary nature, lack of policing over implementation and 
lack  of  sanctions  for  non-compliance  challenged  over  the  years  their  credibility  and 
sustainability.  

Under  this  option,  the  Community  would  encourage  the  strengthening  of  such  codes  of 
conduct  and  private  certification  schemes  in  terms  of  their  performance,  reliability  and 
enforceability  by  e.g.  recognising  them  in  the  FLEGT  VPAs,  making  membership  in  the 
federations  mandatory  and  by  supporting  measures  such  as  consistent  public  and  private 
timber procurement policies and financial or regulatory incentives.  

Additional Option 3: Border measures to prevent the importation of illegally harvested 
timber 

This option would consist in declaring illegal under Community law the importation of timber 
products  stemming  from  illegal  logging  and  making  imports  of  timber  into  the  Community 
conditional  upon  proving  legality.  The  prohibition  and  the  requirement  would  apply  to  all 
countries  regardless  of  the  level  of  risk  in  trading  in  illegally  harvested  timber.  The 
compliance check would take place at the border on the basis of documentation ascertaining 
the legality of the timber.  

Under this option, the Community would rely on  the  assumption that illegal logging occurs 
only outside the EU and therefore trade measures have an important role to play in the combat 
against  illegal  logging.  Despite  the  concerns  and  difficulties  in  terms  of  the  WTO-
compatibility  and  its  proportionality  this  option  has  been  retained  for  consideration  for 
transparency purposes and because it attracted a lot of attention by several NGOs. 

Additional Option 4: Prohibition on the placing on the EU market of illegally harvested 
timber 

Under this option new community legislation will be developed making it illegal to place on 
the  EU  market  illegally  harvested  timber  or  products  derived  from  such  timber.  The  option 
would apply both to imported forest products and to those produced in the EU. It appreciates 
the international aspect of illegal logging and accepts that an efficient strategy should aim at 
improving internal market standards and avoid implications as regards the international trade 
rules.  

Two alternative approaches could be followed: 

•  Additional  Option  4A:  Legislation  which  prohibits  the  trading  and  possession  of  timber 

and timber products harvested in breach of the laws of the country of origin. 

This option would make it be unlawful to place on the EU market illegally harvested timber. 
The  key  feature  of  such  legislation  is  that  the  one  who  claims  illegality  should  prove  that 
claim. Effectively what should be proven is both the underlying –harvesting in breach of the 
laws of the country of origin- and the overlying violation –trading in and possession although 
the actions need not be carried out by the same person. Illegality would be determined on the 
basis of the legal framework of the country concerned. An investigation would be triggered 

EN 

20 

   EN 

through information provided from within the administration or by NGOs, companies, foreign 
governments, the news media or private individuals.  

Under  this  option,  operators  would  be  compelled  to  ensure  that  they  are  dealing  in  legal 
products  but  only  when  proven  otherwise  would  they  be  asked  to  demonstrate  compliance 
with this requirement. The focus of this option would effectively be on high-risk cases and it 
would  thus  provide  operators  with  an  incentive  to  source  timber  with  adequate  guarantees 
regarding its legality.  

This option is similar to the US Lacey Act which makes it unlawful to trade in fish or wildlife 
harvested in violation of any foreign law. Despite the implementation challenges and the legal 
constraints detected from the start the option has been retained for consideration in light of the 
current discussions in the US legislature to expand the scope of the Lacey Act to timber.  

•  Additional  Option  4B:  Legislation  which  requires  that  only  legally  harvested  timber  and 

timber products be placed on the market. 

To a certain extent this option would rely on an approach similar to the one described under 
option 3. Operators would be required to provide proof of legality of the timber they place on 
the  EU  market,  regardless  of  the  origin.  Such proof  would  be  provided either  on  request  or 
systematically  and  for  enforcement  purposes  it  should  take  the  form  of  documentation 
ascertaining legality. Failure to deliver would result in refusing the marketing of the timber in 
question  while  falsification  of  the  documentation  constitutes  a  self-standing  offence  under 
national laws and would thus be treated accordingly.  

Additional  Option  5:  Legislation  which  requires  due  diligence  by  all  timber  traders  to 
ensure that they trade in legally harvested timber 

This  option  requires  operators  placing  timber  on  the  Community  market  to  act  in  due 
diligence  that  enables  reasonable  assurance  that  the  timber  they  trade  in  have  been  legally 
harvesting. Operators would thus employ systems and procedures to ensure the legality of the 
products and bring to light facts that would speak against the marketing of certain products.  

Legality should be determined on the basis of the laws and regulations of the country of origin 
and  should  be  ensured  throughout  the  supply  chain.  Recognising  that  the  risk  of  timber 
harvested in breach of the applicable legislation entering the EU market is not the same in all 
cases, the due diligence procedure would rely on a risk-based approach to measure, monitor 
and control the risks in trading in illegal products. Under this option failing would constitute 
an offence.  

This  option  has  common  denominators  with  the  self-regulatory  approach  in  option  2 
(voluntary measures by the private sector) and enforcement approach in  options 4A and 4B 
(prohibition  of  placing  on  the  EU  market  illegally  harvested  timber).  It  relies  on  the 
fundamental principle that an efficient strategy should address the need to implement robust 
systems to eliminate illegally harvested timber  from  the  supply chain rather than requesting 
legality to be demonstrated for individual products.  

Existing private sector schemes (option 2) is a highly useful intervention but it is more of a 
complementary  measure  rather  than  a  stand-alone  approach.  Their  voluntary  nature,  lack  of 
sanctions  for  non-compliance,  incoherence  between  standards/schemes  combined  with 
enforcement  problems  challenges  the  credibility  and  sustainability  of  those  initiatives.  The 

EN 

21 

   EN 

lack  of  control  over  the  content  of  the  codes  undermines  initiatives  such  as  the  FLEGT 
licensing scheme. Option 5 appreciates that private sectors' schemes are a valuable instrument 
that  will  facilitate  implementation  and  ensure  uniformity  in  terms  of  the  concepts  and 
standards and thus provides for their recognition on the basis of a system that will assess them 
against concrete criteria.  

Option 4A implicitly imposes a requirement for due care on importers but in fact it condemns 
the  latter  for  violations  falling  outside  his  control  or  intent.  In  addition,  the  compliance 
mechanism is triggered upon challenge while both the underlying and the overlying violation 
would  have  to  be  proven  to  secure  condemnation.  Option  5  is  building  on  the  due  care 
element but it effectively imposes it on all traders while tying condemnation to the failure to 
ensure that illegally harvested timber does not enter their supply chain.  

Option  4B  applies  the  requirement  for  certification  of  legality  to  all  market  operations  for 
timber products. The absence of an internationally agreed definition of legality and the issue 
of what would constitute a credible proof of it would represent a considerable challenge for 
the design  of  such  an approach  as we  would run  the risk  of accepting “legality”  documents 
from countries with serious credibility issues such as human rights abuses. Furthermore, the 
cost  of  the  establishment  and  operation  of  the  necessary  legality  assurance  systems  was 
estimated  as  at  least  a  hundred  million  (100M)  Euros  per  annum  within  the  EU.  Option  5 
maintains  the  principle  that  the  burden  of  proof  should  lie  with  the  trader  but  rather  than 
condemning  him  for  specific  shipments  of  illegal  timber  it  induces  systemic  changes  in  the 
timber market and makes traders falling within their control.  

ANALYSIS OF IMPACTS 

1.13.  General remarks 

This  Impact  Assessment  combines  quantitative  and  qualitative  approaches  to  ensure  that 
adequate consideration is given to a broad range of direct and indirect economic, social and 
environmental  impacts.  The  analysis  is  based  on  the  results  of  the  consultations,  including 
data  supplied  in  the  study  and  provided  by  third  countries  competent  authorities,  industries, 
NGOs  and  other  stakeholders  affected.  A  comparative  table  of  the  impacts  of  all  options  is 
included in Annex I. 

1.13.1.  Impacts and data limitations and difficulties encountered  

In order to compare the different options in the impact assessment study, the product range in 
the  study  was  limited  to  roundwood,  sawnwood,  plywood  and  veneer  as  presently  are  the 
items  covered  by  the  FLEGT  Regulation  and  VPA  negotiations.  Costs  and  impacts  were 
furthermore  estimated  assuming  a  broad  definition  of  legality  incorporating  a  fairly 
comprehensive  range  of  core  legislation  to  be  covered  (e.g.  forestry,  environment,  labour, 
land, fiscal, etc.).  

1.13.2.  Economic and costs impacts 

For the economic and cost impacts the following elements were considered and assumptions 
were made for the assessments: 

•  Legality control system – the costs of the legality control system (where applicable under 
the different options) were assessed through a theoretical country case examining the costs 

EN 

22 

   EN 

of the licensing system under the VPA in the baseline countries. It estimates the average 
costs  of  legally  control  in  the  entire  sector  (incl.  cost  incurred  by  the  private  sector  and 
government  (referred  to  as  "regulatory  costs")  in  a  situation  where  the  supply  chain 
consists of threes stages, including roundwood harvesting, sawmill processing and further 
processing.  Furthermore  two  possible  systems  are  considered:  consignment-based  or 
operator-based.  
Illegal logging is not easy to be monitored and even more reported and accounted for. The 
information presented in this report is the best available one and due to the issue treated, 
the Standard Cost model has not been followed closely, as reported information and costs 
are  not  available.  The  regulatory  and  private  sector  costs  in  the  timber  supply  chain  are 
analyzed as reported back by stakeholders (companies, NGOs and administrations) as these 
are the experts from providing the information. 

•  Trade impact: The potential shifts of trade flows from one region to another and the impact 
on prices of wood and wood products were analyzed using the EFI-GTM (European Forest 
Institute  -  Global  Forest  Sector  Model)  model  and  assumptions  have  been  made  with 
regard to reduced trade flows of illegally harvested timber under the different options. This 
trade model is a regional global partial equilibrium model for forestry and forest industries, 
covering production and trade between 60 world regions7. A central feature of the model is 
that it stimulates the market mechanism under the assumption of perfect markets. Changes 
in demand and supply, as well as economic factors such as production and transport costs, 
are the key variables. Factors such as price premiums for FLEGT licensed timber, impact 
of substitute products etc could not be considered because of poor data and the absence of 
models.  
existing 

The  model  was  used  to  assess  the  overall  trade  impacts  of  the  options  based  on  the 
assumptions that illegal harvested timber entering the EU market is effectively restricted in 
accordance with the measures under the various options. The trade model has furthermore 
some limitations which should be taken into consideration when interpreting the results, in 
particular  that  products  made  from  tropical  and  non-tropical  tree  species  are  not 
distinguished in trade routes and that it does not differentiate between prices for legal and 
illegal timber. However, a qualitative assessment suggests that in most cases the price for 
legal wood increases while the prices of illegal ones decreases. 

•  Market  development:  The  key  market  developments  and  mechanisms  behind  them  have 

been assessed based on the most salient features related to supply and demand. 

1.13.3.  Impact on illegal logging 

The  impact  on  illegal  logging  is  considered  to  be  proportionate  to  the  volume  of 
exports  of  illegal  timber  to  the  EU  or,  where  applicable  under  the  options,  derived 
illegally  within  the  EU.  The  introduction  of  additional  options  will  cause  an  initial 
decline in roundwood harvesting in countries exporting to the EU as illegal products 
no  longer  enter  the  EU  market.  However,  this  decline  will  eventually  recovered  as 

7

European 

Assessment of the Impact of potential further measures to prevent the importation or placing on the market of illegally harvested 
timber 
2007; 
Kallio, A.M.IO., A. Moiseyes & B Solber, 2004. The global forest model EFI-GTM – the model structure. Technical report 15,  

products 

Finland, 

Indufor, 

derived 

timber, 

from 

such 

or 

Finland. 
Kallio, A.M.IO.,  A. Moiseyes & B  Solber, 2006. Economic impacts of increased forest conservation in Europa: a forest sector 
analysis. Env. Science and Policy 491:9-18. 

Institute, 

Joenssu, 

Forest 

EN 

23 

   EN 

 
                                                 
 
exporters and their suppliers adjust to the new situation and increase their supply of 
legal good to the EU market. The actual reduction of illegal logging depends on the 
adjustment strategies adopted by the various market players for which the following 
optional scenarios could take place: 

•  Increased supply of legal roundwood becomes available from resources that were unused 
either  because  of  low  demand  or  because  low-cost  illegal  timber  made  their  utilization 
uneconomical 

•  Suppliers evading the payment of royalty fees and/or taxes choose compliance to maintain 
access to the EU market; exports of illegal timber are "transformed" into exports of legal 
timber. 

•  Trade flows are re-shuffled so that legal goods are shipped to the EU and illegal good to 
other, less discerning markets which would reduce the effect on illegal logging (please note 
that a few countries for which VPA negotiations are underway  have  expressed that  VPA 
licensing scheme might be applied to all their exports).  

In assessing the options, the probability of these scenarios materializing is difficult to 
evaluate in quantitative terms, but some indicative projections are given based on a 
qualitative assessment. 

1.13.4.  Environmental impacts 

The change in the volume of illegal logging is also the key variable determining the 
environmental impact. With the reduction in illegal logging, the negative impacts on 
the  forest  resource  base  are  also  reduced  (and  subsequent  pressure  on  remaining 
intact forests). It will result in a reduction in erosion, degradation of land and water 
resources and negative impacts on climate change. It will also reduce the conversion 
of forest  areas  into  agricultural lands by  rural  populations and  illegal wildlife trade 
following  the  construction  of  (illegal)  new  roads.  Impacts  depend  however  on  the 
definition of legality to be agreed in the VPAs' (where applicable under the options). 
In  general  terms,  a  broader  definition  (ensuring  more  elements  of  sustainability  in 
forest management) has a stronger positive impact. This is in particularly relevant for 
the  options  with  VPA's  where  partner  countries  have  expressed  that  the  VPA 
licensing  scheme  might  be  applied  to  all  their  exports  and  therefore  reduce  both 
illegal logging and the negative environmental impacts without a risk that trade flows 
of  illegal  goods  are  simply  re-shuffled  to  other  parts  of  the  world  (as  identified  as 
risks for some other additional options without VPS's). 

1.13.5.  Social impacts 

The social impacts in the timber exporting countries/regions depend on the extent to 
which social provisions have been incorporated in the definition of legality under the 
different options. A broader definition of legality would often have a major positive 
impact, however, legal compliance can seldom be considered to guarantee the social 
sustainability  of  forest  management  but  better  observance  of  existing  provisions 
would nevertheless result in several positive impacts. For instance compliance with 
existing laws in the six VPA countries involved would in many cases result in better 
security of tenure and access to land for indigenous communities, increased income 

EN 

24 

   EN 

to  the  poor,  improved  working  conditions  for  forest  workers,  respect  for  human 
rights etc. although is some cases the legal frameworks can be considered flawed and 
could actually work against the poor (e.g. by excluding local people from access to 
forest resources in existing forest laws in some countries) 

The projected changes for employment in forest industries and other social impacts 
(in exporting countries and EU) will be identified under the relevant options (where 
applicable).  

It  is  considered  that  social  aspects  relating  to  equal  opportunities,  private  life  and 
access to social welfare systems will not be affected by the implementation of any of 
the options so these aspects are not considered separately during the analysis of each 
of the policy issues.  

1.14.  Baseline scenario 

1.14.1.  Impact on illegal logging 

With VPAs concluded between the EU and the six countries for which negotiations 
are  underway  or  expected  to  start  in  the  near  future,  the  maximum  reduction  of 
illegal logging in those 6 countries would be 2.4 million m3. It's assumed in this case 
that the licensing scheme from the timber exporting country only applies to exports 
going to the EU.  

Accordingly, the elimination of exports of illegal timber to the EU would curb up to 
11 per cent of the total estimated production of illegal timber, or 4 percent of the total 
production  of  industrial  roundwood  in  the  countries  involved.  Compared  to  the 
estimated global volume of illegal industrial roundwood production, 139 million m3 
in  2005,  the  maximum  reduction  of  illegal  logging  in  the  baseline  countries  would 
represent about 2 percent of the global total. 

The  actual  impact  depends  however  on  how  market  players  respond  to  the  new 
requirements.  The  reduction  of  illegal  logging  would  be  significant  in  the  four 
African  VPA  countries  (since  domestic  markets  are  small  and  the  EU  is  the  main 
export market) but in Indonesia (through the large number of actors and reshuffling 
of trade flows to other markets) and Malaysia (low exports to EU and share of illegal 
timber  also  limited)  the  impact  could  be  substantially  less  than  the  estimated 
maximum. 

Under  the  VPAs,  the  countries  will  be  supported  by  the  EU  in  their  efforts  to 
improve law enforcement and remove the root causes of illegal logging. This impact 
will  be  significant,  considering  that  the  VPA  approach  benefits  from  the 
implementation  of  the  licensing  scheme  which  provides  strong  support  to  more 
conventional  law  enforcement  If  all  exports  (to  EU  and  non-EU)  of  illegal  timber 
were eliminated from the six countries, the only alternative outlet for illegal timber 
would  be  the  domestic  market,  which  is  small  in  nearly  all  baseline  countries. 
Accordingly,  a  very  strong  reduction  of  illegal  logging  could  be  achieved  fairly 
quickly in the countries concerned. 

EN 

25 

   EN 

 
1.14.2.  Environmental impacts 

The VPA licensing scheme is expected to lead to a reduced volume of illegal logging 
in  the  six  countries  involved.  This  will  have  positive  environmental  impacts  as 
outlined  in  chapter  6.1.4.  The  environmental  impact  in  EU  Member  States  is 
expected to be limited. 

1.14.3.  Social impacts 

The general social impacts as indicated in chapter 6.1.5 applies. The establishment of 
VPA's  with  the  six  VPA  countries  will  have  positive  social  impacts,  depending  on 
the  extent  to  which  social  provisions  have  been  incorporated  in  the  definition  of 
legality.  

The  introduction  of  VPA  is  projected  to  result  in  a  reduction  in  the  production  of 
forest  industries  and  employment  in  the  six  countries  involved.  The  decline  is  still 
moderate  in  the  period  2009-2015  but  will  accelerate  between  2016-2020,  as  law 
enforcement takes effect reducing the supply of illegal timber. In other regions, the 
changes  are  expected  to  be  marginal.  In  the  EU  the  projected  changes  for 
employment in forest industries are very small. 

1.14.4.  Economic impacts  

Costs 

Introducing systems in order to check the legality of timber on the market will lead to costs 
for governments and the private sector in the exporting countries in particular. The licensing 
system  under  the  VPA  is  built  on  existing  systems  combining  manual  work  phases  and 
limited use of information technology. The costs of the system assuring legality consist of (i) 
control  of  forest  operations,  (ii)  control  of  wood  supply  chain,  (iii)  verification  of  forest 
operations and wood supply chain, (iv) licensing and (v) third-party monitoring of the whole 
Legality Assurance System (LAS). The costs are assessed for the following options: 

•  Consignment-based system 

•  Operator-based system 

The  verifications  of  forest  operations  and  wood  supply  chain  under  the  consignment-based 
system  will  largely  be  run  by  government  agencies,  whereas  in  the  operator  based  system, 
verification  relies  on  the  private  sector’s  own  management  systems  and  external  checks.  In 
both systems, however, private and public sector participation is needed. 

The regulatory cost consists mainly of expenses related to verification and licensing as well as 
independent  monitoring.  Table  6.1  presents  the  LAS  costs  for  the  EU  exports  under  both 
consignment-based and operator-based systems, assuming that there is no significant variation 
in the unit costs between the baseline countries. The private sector costs are expected to be of 
the same order of magnitude irrespective of the country or product to be monitored. 

Table  6.1  Estimated  regulatory  (government)  costs  and  private  sector  costs  for  all  6  VPA 
countries 

EN 

26 

   EN 

 
Countries 

Exports 
the EU 

to 

Cost  of  consignment  based 
system 

Cost  of  operator  based 
system 

Million m3/y  EUR/m3 

Total 
MEUR/y 

EUR/m3 

Total 
MEUR/y 

Regulatory 
costs 

Private  sector 
costs 

7.0 m3/y 

0.17 

7.0 m3/y 

0.05 

1.2 

0.4 

0.09 

0.25 

0.6 

1.8 

In  the  consignment-based  system,  the  government  covers  the  system  implementation  costs, 
including purchase of hardware and software. The lower government costs are due to the fact 
that the companies take responsibility for demonstrating the legal compliance and respective 
expenses. The cost of the LAS for the private sector will be ca. EUR 0.05-0.25/m3 (up to 1.6 
m/3 for state-of-the-art advanced information systems in certain high risk countries), which is 
a  minor  factor  and  not  considered  a  constraint  for  legal  trade.  Compared  to  the  price  of 
tropical logs, which habitually reach levels beyond EUR 75/m3 at the mill gate, the additional 
cost is insignificant. The introduction of the licensing scheme in the baseline countries would 
eliminate the unfair advantage enjoyed by illegal operators within the country. 

SMEs' in developing countries 

The  small  and  medium-scale  forest  enterprises8  represent  the  clear  majority  of  forest 
enterprises  in  developing  countries,  but  it's  unclear  to  which  extent  they  are  involved  in 
timber exports and would participate in the VPA licensing system. Timber exports tend to be 
the domain of large enterprises, but smaller enterprises are often suppliers to larger ones thus 
becoming subject to obligations of the licensing scheme.  

Since the scale of operations by enterprises affects the costs for the legality assurance systems 
(LAS),  the  smallest  enterprises  may  have  difficulties  in  shouldering  the  cost  of  the  initial 
investment in the LAS. Regarding operator-based systems, the annual cost increases sharply 
below an annual processing of 25.000 m3 of roundwood. While the smallest enterprises have 
never  been  major  contributors  to  export  trade,  the  risk  is  that  the  introduction  of  the  LAS, 
especially operator based systems, reinforces the pattern or that it encourages to co-operation 
between SMEs' in order to share the investment costs. 

Market development 

The VPA's in the baseline option will as an immediate impact lead to a decline in demand and 
prices for wood products in the six VPA countries. As illegal wood products are barred entry 
into  the  EU  market,  the  total  demand  for  wood  products  in  all  non-EU  countries  declines 
which lead to falling prices and reduced harvesting and processing of wood products. A part 
of the illegal supply is re-directed to non-EU markets. At the same time, the total supply on 

8 

In the context of the study and this Impact Assessment Report, SMEs' in developing countries are meant 
to be interpreted as forest based enterprises which employ limited numbers of workers (typically less 
than 100), are locally owned and managed, rely on financing from ownership, have limited influence 
over the marketplace and lack scale efficiencies. 

EN 

27 

   EN 

                                                 
the  EU  market  declines,  as  illegal  wood  products  are  no  longer  entering  the  markets  which 
will lead to higher prices. However, after adjustments on the market following the effective 
implementation of the measures, in non-EU countries production bounces back as the export 
of legal wood products to the EU increases due to the higher prices on the market as well as 
higher prices for legal good on the domestic market in those countries. On the EU market, the 
production of wood products and prices of wood products stay above the level assumed in the 
"business as usual" scenario without VPA's, because of the declining supply from the six VPA 
countries.  Supply  from  "low  risk"  forest  product exporters could to some extent replace the 
declining supply from the "high risk" baseline-countries. 

It is expected that the VPA's in the baseline scenario will lead to a declining value added in 
the  forestry  and  forest  industry  sector  compared  to  a  "business  as  usual"  scenario  without 
VPA's.  Improved  law  enforcement  is  expected  to  gradually  eliminate  all  illegal  logging. 
Lower supply of roundwood, as well as diminished industrial processing, bring value added 
below the level projected in a "business as usual" scenario. The change in value in baseline 
countries is expected to be -6,5% (2009-2015), but the projected decline in production volume 
is, to a large extent, compensated with higher prices (annex I). Other countries with high and 
moderate  risk  of  illegal  logging  are  expected  to  increase  their  value  added  by  2,5%  in  the 
period 2016-2020, mainly caused by higher prices on the market. The impacts on the EU and 
the low risk countries is very modest or negligible.  

1.14.5.  Risks 

Key risks for the VPA in the baseline option are: 

•  Delays in the establishment of the licensing system hindering legal exports to the EU. 

•  Efficient  implementation  and  sustainability  of  the  system  require  capacity  building  and 

technical assistance in the least developed countries. 

•  In  the  case  that  the  government  in  partner  countries  wish  to  implement  the  LAS  using 
advanced information technology, funding the initial investment may become a bottleneck 
in the least developed countries. 

•  Uncertain market demand for FLEGT timber. 

•  Ultimately the success is determined by the government’s capacity to tackle the root causes 
of illegal logging such as ineffective governance, poverty, and excessive timber processing 
capacity. 

1.15.  OPTION 1 Expansion of the FLEGT VPA approach  

1.15.1.  Impact on illegal logging 

The  maximum  volume  of  illegal  logging  that  could  be  eliminated  in  the  6  additional  VPA 
countries is estimated at 9 million m3. Elimination of exports of illegal timber to the EU could 
curb up to 13 per cent of the estimated production of illegal timber, or 13 percent of the total 
production  of  industrial  roundwood  in  the  involved  countries.  Compared  to  the  estimated 
global  volume  of  illegal  industrial  roundwood  production,  139  million  m3  in  2005,  the 
maximum  reduction  of  illegal  logging  in  the  involved  countries  would  represent  about  7 
percent of the global total. 

EN 

28 

   EN 

The reduction of illegal logging would be significant in Russia, and possibly also in Belarus 
and  Ukraine.  The  EU  is  the  main  export  market  and  traders  in  illegal  timber  have  limited 
options  due  to  lack  of  local  processing  capacity  and  high  cost  of  transport  to  alternative 
markets.  In  Russia,  however,  the  rapidly  developing  domestic  market  could  eventually 
provide an outlet for illegal timber and enable a reshuffle of trade flows. In Brazil (where the 
domestic market would be able to absorb a large portion of the illegal) and China (diversion 
to other markets and increased outlet on domestic market) the impact would probably be less 
than  the  estimated  maximum.  The  impact  in  Vietnam  is  negligible  due  to  the  very  small 
export volume of roundwood, sawnwood, plywood and veneer.  

Regarding  the  impact  of  capacity  building  supported  by  the  EU,  the  assessment  made  in 
chapter 6.2.1 with respect to the six baseline countries applies.  

1.15.2.  Environmental impacts 

The assessments made in chapter 6.1 on environmental impacts through the decline in illegal 
logging applies as well in these 6 additional VPA countries. The environmental impact in the 
EU Member States is expected to remain limited, even though the harvesting volumes in the 
EU  are  expected  to  increase  more  than  with  the  baseline  scenario.  Increasing  harvesting 
volumes  would  increase  the  pressure  on  the  environment  but  the  change  will  be  moderate 
since the regulatory systems in the EU Member States are generally robust and able to contain 
the potential threat to the environment. 

1.15.3.  Social impacts 

As in the baseline scenario, this option 1 is projected to result in reduced production 
of forest industries and employment. The change in the additional six VPA countries 
is however more moderate than in the six baseline scenario countries. The reason is 
that the level of illegal logging in the additional six VPA countries is lower and the 
countries are less dependant on exports to the EU. 

Furthermore the assessment with regard to the impact of the legality definition and 
the risks of applying existing legislation on social impacts in the additional six VPA 
countries apply as outlined in chapter 6.1.5.  

1.15.4.  Economic impacts 

Costs 

In  the  six  countries  included  in  this  option  2  with  geographically  expanded  VPA,  the 
regulatory costs of the Legality Assurance System per unit are largely similar to those in the 
six baseline countries. Since their export quantities to the EU are more than fivefold compared 
to the baseline countries, the cost effect in absolute terms is manifold (Table 6.2). 

Table  6.2:  Estimated  regulatory  (government)  costs  and  private  sector  costs  for  all  six 
expanded VPA countries 

Countries 

Exports 
the EU 

to 

Cost  of  consignment  based 
system 

Cost  of  operator  based 
system 

Million m3/y  EUR/m3 

Total 

EUR/m3 

Total 

EN 

29 

   EN 

Regulatory 
costs  

43.8 

0.17 

Private  sector 
costs 

43.8 

0.05 

MEUR/y 

MEUR/y 

7.4 

2.2 

0.09 

0.19 

4.0 

8.4 

As  in  the  baseline  scenario  (chapter  6.2.4)  the  cost  of  the  LAS  for  the  private  sector  was 
estimated  at  EUR  0.05-0.25/m3  (up  to  1.6  m/3  for  state-of-the-art  advanced  information 
systems in certain high risk countries), which is a minor factor and not considered a constraint 
for legal trade. Compared to the price of tropical logs, which habitually reach levels beyond 
EUR  75/m3  at  the  mill  gate,  the  additional  cost  is  insignificant.  The  introduction  of  the 
licensing  scheme  in  expanded  six  VPA  countries  would  eliminate  the  unfair  advantage 
enjoyed by illegal operators within the country. 

For  imports  from  Russia,  the  paper-based  approach  under  the  Legality  Assessment  System 
would  cost  an  additional  EUR  0.2  –  0.4/  m3  which  is  not  significant  even  for  pulpwood, 
compared to prices ranging from EUR 40-65/m3. The cost of an advanced LAS is estimated 
at EUR 1.2-1.6 m3 could affect the trade of low cost pulpwood. 

SMEs' in developing countries 

The observations in chapter 6.2.4 apply. The role of SMEs' is important in Russia where about 
20 000 SMEs' operate in the forest sector, many of them engaged in the export trade. 

Market development 

Similar type of impacts (prices / added value in forest sector) are expected as reflected in the 
baseline scenario in chapter 6.2.4, including the adjustments to the new market situation with 
replacement,  to  some  extent,  of  timber  supply  from  "high-risk"  countries  by  "low  risk" 
countries.  The  introduction  of  VPA's  in  the  additional  six  VPA  countries  in  this  option  is 
expected  to  cause  a  decline  in  the  generation  of  value  added  in  those  countries  as  well, 
compared to the "business as usual" scenario, but the change is less significant than in the six 
baseline countries because illegal logging in the "new" VPA countries is less widespread than 
in the baseline countries. 

Similarly to the previous option (Chapter 6.2.4; annex I) other high/moderate countries stand 
to gain from the reduced production in the VPA countries (with 5,8% increase in added value 
in 2016-2020). The impact on the EU is positive but still very modest. 

1.15.5.  Risks 

It  is  very  doubtful,  as  expressed  by  many  stakeholders,  that  the  countries  included  in  this 
analysis as potential VPA Partner Countries (e.g. China, Brazil etc) would actually enter into 
the VPAs. Political and technical constraints were cited as possible reasons for the countries’ 
reluctance  to  join  the  scheme.  It  was  also  pointed  out  that  the  negotiation  process  would 
inevitably be quite lengthy. A number of other countries in Central Africa (e.g. Cote d’Ivoire, 
Congo Democratic Republic) and the Andean region in Latin America (e.g. Ecuador, Bolivia) 
were  identified  as  more  willing  potential  candidates  to  engage  in  VPAs.  However,  if  this 
would  materialize,  the  impacts  of  the  geographically  expanded  VPA  would  be  insignificant 

EN 

30 

   EN 

compared to those identified in the present assessment, especially with respect to the impacts 
on  the  EU.  Some  effects  would  be  felt  in  the  Central  African  countries  but  timber  trade 
between  the  EU  and  the  Andean  countries  is  so  limited  that  the  impacts  attributable  to  the 
licensing scheme would be negligible. 

1.16.  OPTION 2: Voluntary measures by the private sector further developed 

1.16.1.  Impact on illegal logging 

The expansion of the voluntary private sector schemes with respect to exports to the EU will 
gradually reduce the space for illegal enterprises operating and supplying illegal timber to the 
market. It is also possible that companies with multiple export destinations expand the good 
practice  to  exports  going  to  other  destinations  than  the  EU.  However,  full  elimination  of 
illegal logging is challenging when relying only on private sector schemes. As long as there is 
demand for illegal wood products in the EU markets, and there are no effective instruments to 
prevent  their  entry  to  the  EU  market,  suppliers  of  illegal  products  will  have  a  niche. 
Convincing them to give up illegal practices will be much harder. 

Governance 

To  the  extent  that  the  expansion  of  voluntary  private  sector  schemes  encourages  illegal 
suppliers  to  comply  with  regulations  concerning  tax  and  royalty  payments,  government 
revenue  will  increase,  potentially  enabling  investments  in  improved  governance.  The 
expansion of the legal supply would also reduce opportunities for corruption. 

The present concept for the development of voluntary private sector schemes does not include 
EU-supported capacity building.  

1.16.2.  Environmental impacts 

To the extent that the private sector schemes reduce illegal logging and increase legal supply, 
the assessment made in chapter 6.1 applies. 

1.16.3.  Social impacts 

The  assessment  made  in  chapter  6.1.5  applies.  The  social  impacts  outside  the  six 
VPA  countries  will  depend  on  the  extent  to  which  social  provisions  have  been 
incorporated in the definition of legality in the private sector schemes.  

1.16.4.  Economic impacts 

Costs 

The development of private sector schemes would focus on countries with high or moderate 
risk of illegal logging. To enable cost comparisons with other options, it is assumed that full 
coverage can be achieved.  

Option 2 is not considered to bring about costs for the government of the exporting country. 
The additional costs for the private sector depend on the share of EU exports covered by the 
control systems and the quality of these systems (fully adequate systems and systems in need 
of  improvement,  or  no  system).  The  estimate  on  the  cost  of  legality  control  is  based  on  the 

EN 

31 

   EN 

theoretical assumption that full coverage would be reached in countries with high or moderate 
risk  of  illegal  logging.  Table  6.3  summarizes  the  estimated  costs  effects  by  countries  with 
high or moderate risks of illegal logging. 

Table 6.3 Cost of private sector control systems for countries with high or moderate risks of 
illegal logging 

Countries 

Exports  to  the 
EU 

Cost of control system 

Million m3/y 

EUR/m3 

Total MEUR/y 

Private sector costs  

61.2 

0.27 

16.5 

All  high  and  moderate 
risk countries 

SMEs' 

The  development  of  private  sector  schemes  is  likely  to  concentrate  in  larger  companies. 
SMEs'  do  not  have  the  incentives  to  develop  voluntary  schemes  and  they  may  also  be 
disadvantaged in terms of costs. 

Market development 

The  impacts  of  the  voluntary  private  sector  measures  could  not  be  assessed  using  the  trade 
models.  The  price  and  added  value  of  products  will  depend  further  on  the  demand  and  the 
potential market for these products. 

1.16.5.  Risks 

Imports from other countries are covered only to a very limited extent by voluntary schemes, 
and  reaching  full  coverage  does  not  appear  possible  in  the  short  or  even  medium  terms, 
despite  the  fact  that  in  some  countries  the  trade  sector  has  ambitious  plans.  On  the  whole, 
however,  stakeholder  consultations  with  importing  companies  and  trade  federations  suggest 
that the expansion of the voluntary private sector schemes will take place at a moderate rate.  

The future expansion of the voluntary private sector schemes may be hindered by the fact that 
their development is demand driven and the potential market for verified legal products may 
be small and even reaching saturation.  

Furthermore,  the  varying  degree  of  rigor  and  effectiveness  in  the  voluntary  private  sector 
schemes  poses  a  risk  to  their  credibility.  Without  a  general  and  harmonized  framework 
incorporating an independent assessment of the effectiveness of the voluntary schemes, there 
is a risk that the schemes are abused to serve mainly commercial purposes. There are attempts 
to  move  towards  the  harmonization  of  various  voluntary  frameworks,  but  reaching  full 
transparency  is  challenging.  The  Confederation  of  European  Paper  Industries  (CEPI)  has 
developed a mandatory code of conduct for its members. The CEPI code of conduct does not 
entail  third  party  verification  but  there  is  a  sanction  mechanism  for  non-complying 
companies.  The  effectiveness  of  this  arrangement  could  not  be  assessed  as  it  is  still  under 
development. 

EN 

32 

   EN 

1.17.  OPTION  3:  Border  measures  to  prevent  the  importation  of  illegally  harvested 

timber 

The  border  measures  constitute  an  import  ban  for  illegal  timber.  The  responsibility  for 
providing  evidence  on  legality  rests  with  the  authorities  in  the  exporting  country.  The 
proposed  legality  control  system  for  governmental  agencies  draws  on  low-tech  information 
technology. The system covers the following elements:  

•  Field verification of forest operations and supply chain 

•  Data  management  (e.g.  transmission  of  data  between  the  private  sector  and  the  state 
authorities,  reconciliation  of  quantities  in  the  prior  and  subsequent  stages  in  the  supply 
chain) 

•  Issuance of a legality certificate  

For assessing the impacts (costs, effectiveness), it is assumed that the competent authorities of 
the  EU  Member  States  check  the  legality  of  ca.  1%  of  the  imported  consignments 
systematically.  The  check  is  based  on  the  control  of  documents  and  communication  to  the 
authorities in producer countries.  

1.17.1.  Impact on illegal logging 

In 2005, illegal wood and wood product exports to the EU from countries where the risk of 
illegal  logging  is  high  or  moderate  were  about  14  million  m3.  Provided  that  the 
implementation of border measures is effective, the scheme would curtail up to 10 % of the 
estimated production of illegal timber or 2 % of the total production of industrial roundwood 
in these countries. Compared to the estimated global volume of illegal industrial roundwood 
production,  139  million  m3  in  2005,  the  maximum  reduction  of  illegal  logging  would 
represent about 10 % of the global total. 

Significant  reduction  of  illegal  logging  is  expected  to  take  place  in  Central  and  Western 
Africa and Russia. In other major countries exporting wood products to the EU, the reduction 
of illegal logging is likely to be less than the estimated maximum. Effectively implemented 
border  measures  (option  3)  prevent  circumvention,  i.e.  shipping  illegal  timber  to  the  EU 
through  third  countries  from  the  countries  of  origin,  which  is  an  important  intervention  in 
terms of levelling the playing field in the enterprise sector. It should be noted, however, that it 
does not necessarily have a major impact on illegal logging in the countries of origin, unless 
the  opportunities  to  divert  trade  to  other  markets  is  eliminated.  If  the  illegal  timber  shipped 
countries such as China is barred entry to the EU market, there are a large number of other 
markets including the Chinese domestic market where the illegal goods can be placed. 

1.17.2.  Environmental impacts 

The observations made in chapter 6.1 concerning the overall environmental impact of illegal 
logging apply to all countries with high or moderate risk of illegal logging. It is expected that 
there will initially be a slight decline in the overall timber price in the baseline countries. This 
would increase the relative profitability of other land uses and could lead to increased forest 
conversion, especially in tropical countries. This, in turn, could have negative environmental 
consequences.  Another  factor  is  that  lax  law  enforcement  in  exporting  countries  might 
continue as no special measures have been taken to improve it, as envisaged under the VPA's. 

EN 

33 

   EN 

Illegal  harvested  timber  might  therefore  be  diverted  to  other  markets  which  will  reduce  the 
overall effect on the reduction of illegal logging and the negative environmental impacts. 

1.17.3.  Social impacts 

This  option  is  expected  to  have  only  a  modest  impact  on  employment.  The  reason  is  that 
changes  in  production  volume  of  forest  industries  are  expected  to  be  very  modest.  There  is 
almost no impact on the employment in forest industries in the EU. 

The  general  observations  made  in  chapter  6.1.5  apply.  If  the  definition  of  legality  does  not 
include  (or  is  narrowed  down  to  exclude)  social  considerations,  there  could  potentially  be 
negative  impacts  on  forest-dependent  people,  forest  workers  and  other  socially  vulnerable 
groups. 

1.17.4.  Economic impacts 

Costs 

Based  on  the  assumption  that  government  in  the  producer  countries  controls  and  provide 
evidence  on  legality  before  exports  take  place  (and  issue  a  certificate  of  legality)  the 
government  on  the  producer  countries  shoulder  these  costs.  These  concern  both  high  and 
moderate  risk  countries  as  well  as  low-risk  countries.  The  estimated  regulatory  costs  in  the 
countries  of  export  total  about  16.0  MEUR  annually  (table  6.4).  In  addition,  the  legality 
checks to be conducted by the competent authorities in the EU are estimated to cost less than 
EUR  0.01/m3  assuming  that  1%  of  the  imported  consignments  are  checked  systematically 
(documents and communication to the authorities in producer countries).  

There  are  no  costs  for  the  private  sector  in  this  option  (but  indirect  costs  as  slowness  of 
procedures,  issuance  of  documents  or  new  opportunities  for  corruption  might  be  a  risk).  If 
implemented  effectively, 
the  possibility  of 
circumvention as well as the cost advantage enjoyed by illegal goods on the market. 

the  border  measures  would  eliminate 

Table  6.4  Cost  of  border  control  measures  preventing  importation  of  illegally  harvested 
timber. 

Countries 

Exports  to  the 
EU 

Cost of control system 

Million m3/y 

EUR/m3 

Total MEUR/y 

Regulatory costs  

72.9 

0.22 

16.0 

All non-EU countries 

Regulatory costs 

72,9 

< 0.01 

<0.7 

EU 

SMEs' 

The impact is neutral because the costs are borne by the government sector. 

EN 

34 

   EN 

Market development 

As in the baseline scenario and option 1, the immediate impact on the timber market in non-
EU  countries  will  be  a  decline  in  demand  and  prices  for  wood  products  as  illegal  wood  is 
barred entry in the EU. At the same time, the price in the EU will increase.  

After  adjustment  of  the  markets  to  the  new  situation  however,  the  production  in  non-EU 
countries bounces back as the export of legal wood products to the EU increases encouraged 
by higher prices on the EU market. Because legal goods are in higher demand on the domestic 
market,  they  benefit  from  a  price  increase,  while  the  price  of  illegal  goods  declines  due  to 
weaker demand. On the EU market itself, with the gradual recovery of supply from non-EU 
countries, the production and prices of wood products start falling back towards the levels in a 
"business as usual" scenario. 

Based  on  these  market  developments,  the  implementation  of  this  option  is  projected  to 
modestly  reduce  value  added  in  all  high  and  moderate  risk  countries.  The  difference  to  the 
baseline  scenario  and  option  1,  where  the  decline  was  substantial  in  the  VPA  countries 
concerned, is that the playing field is levelled for all countries exporting to the EU. Another 
factor is that lax law enforcement might continue, as no special measures (as envisaged under 
the VPA's) have been taken to improve it. As a result, illegal logging might recover from the 
decline in exports to the EU as illegal traders find other markets for illegal timber.  

The impact on the generation of value added in the EU is modest but positive. The increase in 
value added is expected to be around one percent in relation to the business as usual scenario. 

1.17.5.  Risks  

In  order  to  implement  this  option,  the  EU  will  impose  border  measures  unilaterally  which 
might lead to trade disputes in the context of the WTO since its unclear whether forests fall 
under  the  exemption  of  'exhaustible  natural  resources'  of  Article  XX  (g)  of  the  GATT 
Agreement. . It may however lead to problems in the establishment of common standards and 
procedures in a situation where the cooperation with the authorities in the country of origin is 
limited,  for  instance  in  the  application  of  a  common  definition  of  legality.  In  order  to  find 
common  ground  with  as  many  governments  as  possible,  it  might  be  necessary  to  adopt  a 
rather  narrow  definition  of  legality  which  could  in  turn  put  the  social  and  environmental 
benefits at risk. 

Furthermore  the  type  of  assurance  on  legality  control  that  can  be  considered  sufficient  may 
vary  from  one  country  to  another  and  it's  unclear  whether  it  would  be  possible  for  the  EU 
separate  imports  from  different  exporting  countries  for  legal  and  practical  reasons. 
Government  agencies  are  not  usually  subject  to  independent  auditing  either  and  without 
independent control there is a risk that the credibility of the system is undermined. 

The  establishment  of  border  measures  could  also  bring  other  non-EU  countries  to  impose 
similar requirements on EU exports which could lead to high costs for control on exports by 
EU  countries  (EU  exports  of  36  million  m3  with  total  cost  estimated  at  about  EUR  11 
million/y;  if  all  wood  products  including  pulp  and  paper  were  considered  the  cost  would 
nearly triple). 

The practical arrangement to verify legality could become an obstacle for exports to the EU. 
In  practice,  it  would  be  necessary  to  decide  prior  to  each  harvesting  operation  whether  the 

EN 

35 

   EN 

logs to be harvested or products made thereof are destined for EU exports. If this is not known 
at  the  time  of  harvesting  and  no  checks  are  done,  the  EU  market  would  be  excluded  as  an 
export destination for the logs harvested. 

With  regard  to  enforcement  in  the  EU,  Custom  offices  would  control  the  legality 
documentation.  Since  several  other  products  are  controlled  in  a  similar  manner,  the  scheme 
seems feasible if verification is based on documentation and the procedures are incorporated 
in to the existing computerized systems. However, concerns have been expressed by Custom 
officers  that  resources  are  limited  and  they  have  no  capacity  or  authority  for  follow  up 
investigations in the country of origin.  

1.18.  OPTION  4A  Legislation  which  prohibits  the  trading  and  possession  of  timber 

and timber products harvested in breach of the laws of the country of origin 

1.18.1.  Impact on illegal logging 

In 2005,  illegal  wood  and  wood  product exports to  the  EU  from  all  non-EU  countries  were 
estimated  at  14  million  m3.  The  volume  of  illegal  logging  in  EU  Member  States  was 
estimated  at  3  million  m3.  In  total,  the  maximum  reduction  of  illegal  logging  would  be  17 
million m3/y. Provided that the elimination of exports of illegal timber to the EU and illegal 
roundwood  production  in  the  EU  are  effective,  these  measures  would  curb  up  to  12%  of 
estimated  production  of  illegal  timber  or  1  percent  of  all  global  production  of  industrial 
roundwood.  

As  for  option  3  (chapter  6.5.1)  significant  reduction  of  illegal  logging  is  expected  to  take 
place  in  Central  and  Western  Africa,  and  Russia.  In  other  major  countries  exporting  wood 
products  to  the  EU  the  reduction  of  illegal  logging  is  likely  to  be  less  than  the  estimated 
maximum.  The  extent  to  which  illegal  logging  in  EU  Member  States  will  be  eliminated 
depends on the effectiveness of criminal investigations. 

Effectively implemented this option prevents circumvention, i.e. shipping illegal timber to the 
EU through third countries from the countries of origin. It should be noted, however, that it 
does not necessarily have a major impact on illegal logging in the countries of origin, unless 
the  opportunities  to  divert  trade  to  other  markets  is  eliminated.  If  the  illegal  timber  shipped 
countries such as China is barred entry to the EU market, there are a large number of other 
markets including the Chinese domestic market where the illegal goods can be placed.  

1.18.2.  Environmental impacts 

The assessment made in chapter 6.1 and 6.5.2 (option 3) concerning the environmental impact 
applies.  In  addition,  the  positive  impacts  of  eliminating  illegal  logging  extend  to  those  EU 
Member States where illegal logging occurs. 

1.18.3.  Social impacts 

The  impact  on  employment  is  projected  to  be  very  modest.  The  reason  is  that  changes  in 
production volume of forest industries are expected to be very limited. Similarly the changes 
in EU employment are very small. 

EN 

36 

   EN 

The general observations made in chapter 6.1.5 apply. If the definition of legality in the laws 
of  the  country  of  origin  excludes  social  considerations,  there  will  be  no  positive  effects  on 
forest-dependent people, forest workers and other socially vulnerable groups. 

1.18.4.  Economic impacts 

Costs 

There are costs involved related to investigations conducted by the EU police force or other 
enforcement authorities. However, the total costs for such investigations are difficult to assess 
and  depend  on  the  number  of  cases  identified  and  ultimately  prosecuted  (depending  on 
compliance level by the sector as well), co-operation with the exporting country, priorities set 
by enforcement agencies etc. Since criminal investigations are also part of the regular work 
routine  of  enforcement  agencies,  only  a  pro  memorie  (p.m.)  post  has  been  included  in  the 
overall cost table. There are no other additional regulatory costs foreseen. 

As  the  prohibition  to  trade  or  possess  illegal  timber  does  not  oblige  private  companies  to 
make  investments  in  tracking  systems,  there  is  no  direct  impact  on  them.  However, 
enterprises operating in countries where illegal logging is a common problem may choose to 
establish necessary systems to protect themselves against unwarranted claims. The costs and 
impacts of such voluntary schemes are assessed in chapter 6.4.4. (Maximum 0,27 EUR/m3 or 
16,5 MEUR total). Some of the private sector representatives interviewed expressed concern 
over the potentially high cost of litigation which companies may be obliged to shoulder even 
if they are cleared of criminal allegations. If the prohibition of trade and possession of illegal 
timber could be implemented effectively, it would eliminate the possibility of circumvention 
and unfair competition by illegal operators in EU and non-EU countries.  

SMEs' 

The impact is neutral. 

Market development 

The impacts (prices and added value in forestry sector and forest industries) are very similar 
to  option  3.  The  impact  is  quite  neutral  because  all  exporters  are  in  a  similar  position  with 
respect to exports to the EU. There is modest but positive impact on the generation of valued 
added  in  the  EU.  The  projected  increase  is  more than one percent in relation to business as 
usual scenario. 

1.18.5.  Risks 

There is a major risk that enforcement will not be effective. This option requires that illegality 
is proven, regardless of the fact that the violation of law could have taken place outside the 
EU. Enforcement agencies would have to conduct investigations to obtain evidence of the (il) 
legality of timber products being placed on the EU market. This would be difficult in case of 
complex supply chains or where part or all of the research would have to be carried out in a 
foreign  country.  Investigations  would  be  time  consuming  as  each  case  would  have  to  be 
tackled  separately.  Law  enforcement  agencies  will  also  have  limitations  to  their  capacity  to 
deal  with  illegal  timber  as  tackling  it  is  not  considered  a  priority.  Finally,  European  courts 
would be empowered to adjudicate on the basis of foreign laws on violations falling outside 

EN 

37 

   EN 

 
the  territorial  scope  of  Community  or  MS  law.  Given  the  general  reluctance  of  European 
states  to  accommodate  an  extraterritorial  legislative  and  judicial  jurisdiction  it  should  be 
expected that legislation which is founded on extra-jurisdictional empowerment would not be 
easy  to  implement.  In  the  interest  of  ensuring  equal  treatment  and  consistency  in 
jurisprudence  the  scope  of  legality  should  be  defined.  However,  a  definition  needs  to  be 
interpreted  in  the  country  context  as  the  legal  frameworks  in  non-EU  countries  can  vary 
technically as well as with respect to their scope. To ensure a coherent approach, it might be 
necessary  to  identify  the  relevant  laws  separately  for  each  country  however  the  national 
governments may consider it an infringement of their sovereignty, if the identification is done 
by a foreign government in an official context.  

1.19.  OPTION 4B: Legislation which requires that only legally harvested timber and 

timber products be placed on the market 

1.19.1.  Impact on illegal logging 

A similar impact on illegal logging is expected as in option 4A (chapter 6.6.1).  

1.19.2.  Environmental impacts 

Similar impacts expected as described in chapter 6.6.2 for option 4A.  

1.19.3.  Social impacts 

Similar impacts expected as described in chapter 6.6.3 for option 4A.  

1.19.4.  Economic impacts 

Costs 

It is assumed that the suppliers are  responsible for the costs of internal control systems and 
third-party certification. The governments of the EU Member  States fund  the  inspections of 
consignments  held  by  timber  buyers/parties  placing  timber  on  the  market.  The  control 
procedure is based on a low-tech "paper system". 

The  regulatory  costs  relate  to  sample  checking  of  timber  consignments  that  have  been 
imported or originate from EU Member States. The unit cost of inspection is assumed to be 
the  same  irrespective  of  the  origin  of  the  consignment.  However,  in  terms  of  total  cost,  the 
control  of  EU  roundwood  production  requires  much  larger  resources  than  the  control  of 
imports.  The  total  regulatory  cost  for  the  EU  Member  States  is  estimated  at  approximately 
EUR 2.2 million/y. 

The additional costs for the private sector depend on how much of the timber supply to the 
EU  market  is  covered  by  control  systems  and  the  quality  of  these  systems  (fully  adequate 
systems, systems in need of improvements and no system). The cost in non-EU countries is 
assumed to be the same as when developing voluntary private sector schemes (Option 2, ref. 
Chapter 6.5). Table 6.5 presents the estimated costs in selected countries outside and within 
the EU. 

EN 

38 

   EN 

Table 6.5: Estimated regulatory and private sector costs  

Countries 

Imports (non-EU) 

EU roundwood production 
(EU) 

Total costs 

Volume 

Costs 
MEUR/y 

Million m3/y 

Costs 
MEUR/y 

Total 
MEUR/y 

72.9 

0.36 

370.2 

1.85 

2.2 

72.9 

20.4 

370.2 

96.7 

117.1 

Regulatory 
costs 

Private  sector 
costs 

The  cost  of  legality  control  is  estimated  to  be  approximately  the  same  as  the  cost  of  legal 
assurance  in  baseline  countries  and  the  countries  selected  for  the  geographically  expanded 
VPA  in  option  2.  Therefore,  the  assessments  made  in  chapters  6.2.4  and  6.3.4  apply.  On 
average,  the  cost  of  legality  verification  using  a  low  tech  approach  is  considered  a  minor 
factor in legal trade. However, the impact on SMEs in the EU may be more significant. 

The  cost  of  high  tech  solutions  is  substantially  higher  and  it  could  affect  trade  in  some 
Member States where the demand for pulpwood is low (e.g. in selected Member States in the 
eastern part of the EU). Furthermore, the systematic legality control systems might place an 
additional burden on trade flows and slow the timber business.  

If the requirement to place only legally harvested timber and timber products on the market 
could  be  implemented  effectively,  it  would  eliminate  the  possibility  of  circumvention  and 
unfair competition by illegal operators in EU and non-EU countries. The cost advantage can 
be significant.  

SMEs' 

In the EU, SMEs are defined as enterprises employing less than 250 persons. In the forest and 
wood  industries  99.0-99.5  of  all  enterprises  fall  into  this  group.  In  a  more  detailed  EU 
classification, the SMEs are divided into micro (1-9 employees), small (10-49 employees) and 
medium (50-249 employees) enterprises.  

The  annual  volume  of  roundwood  processed  by  a  forest  enterprise  has  been  established  at 
75 000  m3/y.  It  is  estimated  that  this  amount  corresponds  roughly  to  the  annual  volume  of 
roundwood processed by “small” SMEs. With the scale of operations affecting the costs, the 
study reveals that costs start gradually rising as the volume of annually processed roundwood 
goes  below  75  000  m3.  The  cost  of  legality  control  could  therefore  be  significant  for  the 
“micro” SMEs at the lower end of the scale. 

Market development 

The impacts (prices and added value in forestry sector and forest industries) are very similar 
to option 3 and 4A.  

EN 

39 

   EN 

1.19.5.  Risks 

The requirement of traceability increases the potential for detecting illegal activities. The risks 
related  to  the  implementation  of  this  option  relate  mainly  to  law  enforcement  and  the 
authorities’ capacity to produce evidence on criminal cases. 

The assessment of the cost of legality control is based on the assumption on that a third party 
certificate is required. However, it should be noted that a certificate is merely an indication of 
the overall quality of the management system, it does not attest to the legality of individual 
consignments.  Therefore,  if  irregularities  surface,  the  certifying  party  cannot  be  considered 
legally  liable.  The  legal  responsibility  rests  always  with  the  party  placing  goods  on  the 
market. This notion has the implication that in criminal investigations the supply chain would 
have  to  be  traced  back  to  the  point  where  the  alleged  criminal  act  took  place.  Obviously, 
investigations can be quite complex, especially, if the crime took place in non-EU countries. 
Besides the probability of detection and conviction, deterrence is  determined by the penalty 
regime. This is subject to interpretation by courts in various Member States and there may be 
variation among them.  

Many  stakeholders  in  the  EU  questioned  the  appropriateness  of  the  principle  that  it  is 
necessary to prove the legality of goods. It was considered to be in conflict with basic legal 
principles  in  that  it  implies  that  goods  are  illegal  unless  proven  legal.  Using  third  party 
auditors  to  verify  legality  may  be  in  conflict  with  the  mandate  that  national  governments 
traditionally  are  responsible  for.  If  the  national  governments  opt  for  an  approach  where 
national  institutions  issue  legality  certificates,  the  risks  that  are  associated  with  the 
introduction  of  border  measures  (option  3)  become  relevant.  In  particular,  the  credibility  of 
the certificates could  easily  be  put  in  doubt if the national arrangements for  legality control 
are not subject to independent audits. 

1.20.  OPTION  5:  Legislation  requiring  companies  placing  timber  on  the  market  to 

exercise due diligence in ascertaining that the products are legal 

1.20.1.  Impact on illegal logging 

A  similar  impact  on  illegal  logging  is  expected  as  in  option  4A  and  4B  (chapter  6.6.1).  In 
total, the maximum reduction of illegal logging would be 17 million m3/a (14 million from 
non-EU countries and 3 million from illegal logging in EU Member States), provided that the 
measures are implemented effectively. 

As  for  option  3  and  4A  and  4B  (chapter  6.5.1)  significant  reduction  of  illegal  logging  is 
expected  to  take  place  in  Central  and  Western  Africa,  and  Russia.  In  other  major  countries 
exporting wood products to the EU the reduction of illegal logging is likely to be less than the 
estimated  maximum.  The  effect  on  illegal  logging  in  EU  Member  States  depends  on  the 
effectiveness of the risk management tools. 

Like in option 3, 4A and 4B effective implementation of option 5 prevents circumvention, i.e. 
shipping illegal timber to the EU through third countries from the countries of origin, which is 
an  important  intervention  in  terms  of  levelling  the  playing  field  in  the  enterprise  sector.  It 
should be noted, however, that it does not necessarily have a major impact on illegal logging 
in  the  countries  of  origin,  unless  the  opportunities  to  divert  trade  to  other  markets  is 
eliminated.  

EN 

40 

   EN 

1.20.2.  Environmental impacts 

Similar impacts expected as described in chapter 6.6.2 for option 4A and 4B.  

1.20.3.  Social impacts 

Similar impacts expected as described in chapter 6.6.3 for option 4A and 4B.  

1.20.4.  Economic impacts 

Costs 

The  regulatory  costs  will  be  considerable  lower  compared  with  the  "control  activities"  by 
government  authorities  under  option  4B.  The  focus  of  compliance  and  enforcement  is  not 
directed  at  sample  checking  of  timber  consignments,  but  merely  on  verification  whether 
effective  systems  have  been  put  in  place  by  operators  for  ascertaining  that  the  products  are 
legal. The regulatory costs in the EU are therefore estimated at 1 MEuro (Table 6.6). 

The additional costs for the private sector are considerable, although not as high compared to 
option 4B. Due diligence procedures will be adapted to risk levels with regard to importation 
of  illegal  timber.  Therefore  the  cost  of  control  systems  in  high  and  moderate  risk  countries 
will be comparable with the cost level in option 4B but less stringent for lower risk countries 
including the EU Member States. Therefore the costs for non-EU countries are estimated at 14 
MEuro and ca. 2 MEuro in the EU. The costs are therefore comparable with the private sector 
costs in option 2 for all high and medium risk countries (Table 6.6). 

Table 6.6: Estimated regulatory and private sector costs  

Countries 

Imports (non-EU) 

EU roundwood production 
(EU) 

Total costs 

Volume 

Costs million 
EUR/y 

Million m3/a  Costs million 

EURya 

Total million 
EUR/y 

72.9 

72.9 

0.9 

14 

370 

370 

0.1 

2 

1 

16 

Regulatory 
costs 

Private  sector 
costs 

SMEs 

SMEs in the EU placing timber on the market will be obliged to put "due diligence" systems 
in  place.  This  will  concern  a  high  number  of  operators  in  the  EU  and  might  give  a 
considerable  impact.  However  it  is  expected  that  in  a  chain  of  custody  assurance  will  be 
requested from suppliers in order to be assured of obtaining products from legal origin only. 
In  order  to  develop  common  risk  management  tools,  traders  in  the  chain  of  custody  might 
develop  common  systems  to  reduce  implementation  costs  and  creating  common  standards. 
The costs and effect of the systems could therefore be significant for smaller SMEs' but can 
be  reduced  considerably  by  co-operating  in  the  development  of  common  risk  management 
systems. 

EN 

41 

   EN 

Market development 

The impacts (prices and added value in forestry sector and forest industries) are expected to 
be comparable with the impacts in option 3, 4A and 4B. 

1.20.5.  Risks 

The  risks  related  to  the  implementation  of  this  option  relate  mainly  to  the  challenges  for 
individual  operators  to  have  the  required  measures  and  procedures  in  place  and  that 
government authorities can ensure compliance with these provisions. 

Risk  management  tools  have  gained  considerably  in  significance  in  several  and  some  are 
already  being  employed  by  some  European  timber  federations  reducing  the  risk  of  illegal 
timber  in  their  supply  chains.  A  number  of  factors  are  considered  in  assessing  the  risk 
including, inter alia, the country of origin, business relationship, and type of product and size 
of transaction. This option therefore focuses on a shift of attitude by the timber operators.  

The development of such schemes can therefore be based on such experience of federations. It 
is  furthermore  expected  that  in  a  chain  of  custody  operators  will  seek  assurance  from 
suppliers  for  obtaining  products  from  legal  origin  only  and  will  therefore  develop  common 
risk  management  tools  and  create  common  standards.  This  will  reduce  the  administrative 
burden for individual operators considerably with less disturbances of regular trade flows and 
contribute to more transparency in the chain of custody.  

Government  authorities  will  have  to  enforce  the  regulation  by  performing  checks  and 
investigations at the operators. The development of common standards by operators will also 
serve as an effective instrument to proof compliance with the regulations.  

The approach under this option will create the highest degree of certainty for operators, based 
on  their  systems  being  put  in  place  (compared  to  options  4).  It  will  furthermore  address 
imports  and  trade  of  wood  products  from  other  third  countries  ("transformation"  countries), 
where  timber  originating  from  other  source  countries  have  been  processed  before  being 
exported  to  the  EU.  The  requirement  for  'due  diligence'  systems  will  furthermore  be  an 
incentive  for  traders  and  exporting  countries  to  establish  VPA  arrangements  and/or  list 
appropriate species on the appendices of the CITES Convention, since FLEGT and/or CITES 
permits will serve as a recognised instruments in reducing the risks of obtaining illegal timber 
in the supply chains.  

2. 

COMPARING THE OPTIONS 

2.1. 

Illegal logging 

The  largest  impact  on  illegal  logging,  assuming  that  the  measures  are  implemented 
effectively, are found in options 4A, 4B and 5 (potentially 17 million m3; figure 7.1, table 7.2 
and annex I with overview of all impacts), since these options cover all imports of timber (or 
placing  on  the  market)  in  the  EU.  Option  1,  the  geographically  expanded  VPA  has  a 
considerable impact as well with its focus on high risk countries where most illegal logging 
takes  place.  All  these  options  have  a  considerable  higher  impact  in  comparison  with  the 
baseline option. The impact on illegal logging in option 2 is unsure. 

EN 

42 

   EN 

Option  1,  a  geographically  expanded  VPA,  would  have  a  significant  impact  (potentially  10 
million  m3),  if  all  countries  selected  for  the  theoretical  analysis  would  actually  join  the 
scheme. However, this is highly uncertain since governments in many of these countries have 
indicated  their  objections  or  reservations.  The  potential  effectiveness  of  this  option  is  quite 
significant, but the likelihood of achieving sufficient coverage very uncertain. 

Option  4A  prohibiting  the  trade  and  possession  of  illegal  timber  would  be  difficult  to 
implement because of the difficulty to prove that a timber shipment was linked to an illegal 
act,  possibly  in  a  country  thousands  of  kilometres  away.  The  principal  intervention  is  the 
introduction of an improved legislative framework but it is doubtful whether this is sufficient 
to secure the effectiveness of law enforcement and actually reduces the illegal logging. 

Figure 7.1: Volume of trade (in million. m3 RWE) covered by the policy options 

WE)
R
yr
m3/
n 
o
mi
me 

i
l
l

(

u
ol
v

1800

1600

1400

1200

1000

800

600

400

200

0

baseline

368

368

368

726

726

726

726

total production timber in
EU

total production timber in
countries concerned
(non EU)low risk 

total production timber in
countries concerned
(non EU) high-moderate
risk 
total illegal harvested
timber in countries
concerned

illegal import/trade in EU

dd

d

297

40
19.6
2.4

68
10

479

476

476

476

122

14

122

17

122

17

122

17

option 1

option 2

option 3

option 4A

option 4B

option 5

In general terms, most additional options attempt to discourage illegal logging through trade-
related measures. Accordingly the impact of these measures is proportionate to the volume of 
imports  to  the  EU  from  the  involved  countries.  It  is  estimated  that,  globally,  the  additional 
options have the potential to curtail illegal logging by up to 12 % (17 million m3 compared 
with  a  total  of  ca.  139  million  m3  of  estimated  illegal  logging  globally).  If  traders  take 
advantage of various loopholes the impact could be less but it is likely that there would be a 
significant impact in selected countries of Africa as well as in northwest Russia, which is the 
main source of imports to the EU. The impact on illegal logging could be substantially higher 
in countries entering into VPAs (option 1) when the VPA licensing system were extended to 
all exports from those countries.  

EN 

43 

   EN 

 
 
One of the main risks is that traders divert illegal timber to other markets than the EU. The 
risk  is  present  with  all  options  and  in  all  regions  perhaps  with  the  exception  of  northwest 
Russia  where  the  availability  of  alternative  markets  is  restricted  due  to  high  transportation 
costs and the limited absorption capacity of the domestic market.  

2.2. 

Environmental impact 

The main environmental impacts are the benefits resulting from reduced illegal logging and 
improved  adherence  to  environmental  regulations.  The  impact  is  dependent  on  how 
effectively  the  various  additional  options  are  able  to  contribute  to  these  objectives,  as 
indicated in 7.1 (and annex I). 

2.3. 

Social impact 

All additional options are expected to have a minor impact on the employment in the forest 
industries in the EU Member States. In non-EU countries, where illegal logging occurs on a 
significant scale, the social benefits depend on whether social provisions have been included 
in  the  legality  definition  and  whether  they  are  adequately  taken  into  consideration  when 
implementing the additional options.  

2.4. 

Economic impacts 

The unit costs of legality control are rather low in all options, the differences are attributable 
to the variation in implementation arrangements (e.g. third-party verification may be included 
or excluded). Assuming a low-tech approach to data management is considered, the total costs 
range between EUR 0.22-0.34/m3 which represents only a fraction of the log prices ranging 
from EUR 40/m3 to more than EUR 100/m3 at the mill gate (table 7.2). 

Option  4B  prohibiting  the  placing  of  illegal  timber  on  the  EU  market  including  requiring 
control of all timber sourced from within the EU could cause significant additional costs as 
well as considerable burden for small and medium-sized enterprises in the EU.  

The main difference between the additional options is how costs are distributed between the 
private  sector  and  the  government  administration.  The  regulatory  costs  are  the  highest  in 
option 3, where border measures are implemented to prevent the entry of illegal timber into 
the  EU.  A  consignment-based  approach  to  legal  assurance  under  the  VPA  (baseline  and 
option  1)  also  carries  rather  high  regulatory  costs.  The  regulatory  costs  are  lowest  and, 
conversely, the private sector costs are highest in the approach where it is prohibited to place 
illegal  goods  on  the  EU  market  (option  4B)  and,  to  some  extent,  where  operators  have  to 
proof  "due  diligence"  (option  5).  At  the  same  time,  these  are  the  only  options  causing 
regulatory costs in the EU. 

In  absolute  terms,  the  most  significant  cost,  altogether  EUR  117  million/y,  would  be 
shouldered by the private sector under option 4B prohibiting the placing of illegal timber on 
the  EU  market  (option  4B).  Differing  from  the  other  options,  it  includes  the  obligation  to 
provide  evidence  on  the  legality  of  all  timber  materials  placed  on  the  EU  market  including 
those sourced from the EU.  

Provided that the additional options are implemented effectively and they substantially reduce 
the imports of illegally harvested timber, there would be a moderate increase in the price and 
production of timber and timber products in relation to the business as usual scenario. 

EN 

44 

   EN 

Under option 1 the production and prices of timber products on the EU market stay above the 
level assumed in the business as usual scenario because of the declining supply from non-EU 
countries. Supply from “low risk” forest product exporters could to some extent replace the 
declining supply from the “high risk” baseline countries. Under options 3, 4A, 4B and 5, with 
the  gradual  recovery  of  supply  from  non-EU  countries,  the  production  and  prices  of  wood 
products would start falling back towards the level assumed in the business as usual scenario. 
In relative terms, roundwood prices remain higher above the business as usual scenario than 
the prices for processed forest products due to the way in which the market mechanism works. 

As regards the coverage of the reported costs for the governments of the Member States there 
should not be any financial implications for the EU budget.  

Table  7.2:  comparison  of  costs  for  legality  control  and  impact  on  illegal  logging  in  policy 
options 

Baseline  
VPA 

Option 1 
Geographicall
y expanded 
VPA 

Option 2
Voluntary 
private 
sector 
schemes 

Option 
3 
Border 
measur
es 

Option 4a 
Prohibition to 
possess and 
trade illegal 
timber 

Option 4b
Prohibitio
n to place 
illegal 
timber on 
the 
market 

Option 
5 

Due 
diligenc
e 

Regions covered 

6 countries 

In the 6 extra 
countries 

All non-
EU 

All non-EU + 
EU 

All non-
EU + EU 

All non-
Eu + EU 

All high/ 
moderate 
risk 
countries 

Legality Control 

Average 
annual 
cost (EUR million) 

consig
nment 

oper
ator 

consig
nment 

operat
or 

Private sector 

 - Non-EU timber 

0.4 

1.8 

2.2 

8.4 

16.5 

 - EU timber 

Government 

 - Non-EU -gov 

1.2 

0.6 

7.4 

4.0 

 - EU -gov 

- 

- 

- 

- 

- 

- 

- 

Impact  on  Illegal 
Logging 

-  Volume  (million 
m3) 

2.4 - 22 

10 - 78 

Some 

- In region (%) 

11 - 100 

13 - 100 

Some 

- Globally (%) 

2 - 16 

7 - 56 

Some 

- 

- 

16.0 

<0..7 

14 

10 

10 

Max 16.5 

p.m 
(enforcement 
investigations) 

17 

12 

12 

20.4 

96,7 

- 

2.2 

17 

12 

12 

14 

2 

1 

17 

12 

12 

EN 

45 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.5. 

Overall comparison of options 

In  light  of  the  findings  of  the  impact  assessment  process  for  the  proposed  options  certain 
conclusions  can  be  drawn  in  terms  of  their  effectiveness,  efficiency  (both  as  regards  the 
entailed costs and the implementation), proportionality and consistency with the principles of 
simplification  and  better  regulation.  Another  key  issue  is  whether  they  can  compliment 
effectively the existing framework (FLEGT VPAs).  

Option 1 

The key benefit of continuing with the VPA approach is that it offers broad context-specific 
solutions at country level and is thus compatible with the EU Development Policy applicable 
to the developing countries.  

This approach however, would have a significant impact only if all major producing, transit 
and  processing  countries  that  present  high  risks  of  illegal  logging  would  enter  into  FLEGT 
VPAs or if this would evolve into a multilateral initiative. The former is widely considered to 
be an impossible task while the latter appears highly unlikely (e.g. Brazil has clearly stated its 
opposition to VPA).  

Option 2 

Industry self-regulation can be a valuable, complementary measure, which could inspire and 
underpin a robust legally binding framework. It cannot though, be a self-standing option due 
to its voluntary nature and related weakness of enforcement as well as wide variations in the 
rigour of the controls and implementation.  

Option 3 

While being conceptually simple, this option has important political and practical downsides 
and  hurdles  against  effective  implementation.  It  would  be  extremely  difficult  to  introduce 
such a measure and at the same time comply with international trade rules. It has been argued 
that  an  import  ban  adopted  under  the  exception  stipulated  in  Article  XX  (g)  of  the  GATT 
Agreement–relating  to  the  conservation  of  exhaustible  natural  resources-  could  be 
successfully  defended  on  the  basis  that  forests  are  accepted  as  an  'exhaustible  natural 
resources'. It is an open question whether this is a valid assumption and whether application of 
such  an  exemption  would  comply  with  the  chapeau  requirements  of  Article  XX.  A  ban  on 
imports could not only provoke trade disputes but reciprocal measures by countries importing 
timber from the EU. If trading partners introduced reciprocal measures the forest sector within 
the  EU  would  probably  have  to  face  additional  implementation  costs.  Another  key  issue  is 
whether such measures would go beyond what is necessary to achieve the ultimate objective.  

Option 4A  

Option  4A  being  similar  to  the  US  Lacey  Act  -which  outlaws  trade  in  fish  or  wildlife 
harvested, taken or produced illegally- has attracted a lot of attention. It is easily understood 
and  would  give  a  visible  signal  to  the  market.  However,  itis  based  upon  rather  unclear 
principles  and  administrative  procedures  and  would  have  significant  difficulties  in  its 
implementation. Defining illegality might not be necessary; however the scope of legislation 

EN 

46 

   EN 

 
would  need  to  be  identified.  Demonstrating  the  underlying  illegality  would  not  be  a 
straightforward  task  particularly  in  the  absence  of  cooperation  of  foreign  enforcement 
agencies, the general lack of availability of foreign law materials and experts opinion. Timber 
products  have  complicated  supply  chains,  stretching  through  several  countries  which  would 
also  complicate  the  detection  and  demonstration  of  illegality.  Apart  from  the  practical 
difficulties  in  its  implementation  it  also  would  probably  not  provide  the  legal  certainty 
necessary for the proper functioning of the market.  

Option 4B 

Option  4B  would  set  clearer  compliance  standards.  This  model  would  be  based  upon  the 
FLEGT-licence  idea  but  apply  certification  of  legality  to  all  market  operations  for  timber 
products in Europe, regardless of their origin. It risks creating a burdensome, expensive and 
trade disruptive system. It would in particular create additional burden for low-risk countries 
while  creating  difficulties  for  the  forest  sector  of  many  developing  countries,  which  are 
vulnerable  to  market  access  requirements.  Bearing  in  mind  that  illegal  logging  essentially 
happens  outside  the  EU  we  should  expect  significant  resistance  from  the  downstream 
European forest sector. This approach goes against the principles of simplification and better 
regulation while it also risks being disproportionate. The absence of an internationally agreed 
definition and the issue of what would constitute credible proof of legality would complicate 
further the design of the policy. Furthermore, it could provoke reciprocal policy responses by 
countries importing EU timber.  

Option 5 

Those conclusions have led us to reflect on the possibility of combining elements of Options 
2, 4A and 4B in a way that would address the objectives pursued and work with, rather than 
try  to  change  current  practices  in  the  timber  trade.  This  approach  would  require  operators 
placing  timber  on  the  market  to  exercise  due  diligence  in  ascertaining  that  the  products  are 
legal. The due diligence procedure would include a risk-based approach to measure, monitor 
and control the risks in trading in illegal products.  

A  balance  has  to  be  sought  between  the  provision  of  sufficient  detail  in  the  legislation 
concerning  the  requirements  to  be  met  -  thereby  providing  legal  certainty  -  and  the  need  to 
give  operators  flexibility  in  implementing  systems  to  ensure  they  are  sourcing  legal  timber. 
The legislation would not directly address placing on the market of individual illegal timber 
shipments  but  rather  the  failure  to  implement  systems  to  avoid  such  timber  entering  the 
supply chain.  

A  'due  diligence'  approach  would  avoid  the  introduction  of  a  high  cost,  systematic  control 
system  and  would  allow  a  greater  focus  to  be  put  on  areas  that  present  a  clear  risk.  By 
building  on  existing  mechanisms  in  the  timber  trade  it  facilitates  implementation  while 
addressing a key weakness of many private sector schemes – their enforceability. Simplified 
systems or exemptions are taken for small businesses. A major benefit is that it would tend to 
favour  sourcing  from  countries  with  FLEGT  Voluntary  Partnership  Agreements,  since  the 
FLEGT licence would provide a high degree of certainty for operators. 

Conclusion 

Option  5  builds  on  the  positive  elements  of  options  2,  4A  and  4B  while  avoiding  their  key 
weaknesses  and  thus  supports  the  most  efficient  strategy  for  the  future  Community  policy 

EN 

47 

   EN 

against illegal logging and related trade. Although not exempt from risk this approach would 
bring  a  sufficient  and  proportionate  reply  to  the  vulnerability  of  the  Community  market 
against illegally harvested timber. As regards the legal instrument ‘Regulation’ is considered 
the  most  appropriate  because  it  is  necessary  to  ensure  the  highest  level  of  harmonization  to 
avoid the coexistence of different standards between Member States which would undermine 
the fundamental principle of free movement of goods embedded in the Treaties.  

3. 

MONITORING AND EVALUATION 

Monitoring 

The  Commission  shall  ensure  that  the  Member  States  will  implement  efficiently  the 
requirements of the proposed legislation. The monitoring would be done by the Commission 
and Member States. Reporting obligations will be foreseen that will enable the evaluation of 
the extent to which the measures have been adopted and implemented. The Commission will 
inform  the  European  Parliament  and  Council  regularly  on  the  implementation  of  the  new 
initiative.  

Benchmarks/indicators  for  assessing  efficiency  of  the  system  (comparison  before  and  after 
implementation of the additional measures): 

•  Estimation of level of illegal logging occurring within and outside Community  

•  Variation of trade flows of timber and timber products from third countries  

•  Number  of  FLEGT  VPAs  concluded compared to  the number before the adoption of the 

measures 

•  Development opportunities in timber-producing countries 

•  Working and living conditions of the forest-dependant communities 

•  Adoption  of  measures  against  illegal  logging  and  related  trade  by  other  consuming 

countries  

•  Number of Member States with adequate policy and means for an effective enforcement of 

Community rules and sanctioning non-compliance 

•  Number of sanctions pronounced by MS further to serious infringements  

•  Use of immediate enforcement measures (where/if available) 

•  The economic situation of the Community forest-based industry 

Evaluation 

The Commission should undertake an intermediate evaluation of its new initiative within six 
years of its adoption assessing the extent to which its results are consistent with the objectives 
set.  The  evaluation  results  will  be  used  for  decision-making  needs  on  the  future  of  and 

EN 

48 

   EN 

amendments to the regulatory framework if appropriate. The Commission will communicate 
the evaluation results to the European Parliament and the Council. 

EN 

49 

   EN 

Annex I: Full table with key impacts of additional options 

(NB! Impacts  are projected  assuming effective implementation; risks of failure are assessed 
separately;  
*estimates  for  option  5  only  partially  available  or  based  on  comparable  impacts  in  other 
options) 

Baseline  
VPA 

Option 1 
Geographically 
expanded VPA 

Regions covered 

6 countries 

6 countries 

Option 2 
Voluntary 
private sector 
schemes 

All high/ 
moderate risk 
countries 

Option 3 
Border measures 

Option 4
Prohibition
possess an
trade illeg
timber

All non-EU 

All non-EU +

Legality Control 

Unit cost (EUR/m3) 

Private sector 

 - Non-EU 

 - EU 

Government 

 - Non-EU 

 - EU 

Average  annual  cost  (EUR 
million) 

Private sector 

 - Non-EU 

 - EU 

Government (regulatory costs) 

 - Non-EU 

 - EU 

Trade impact 

Change  in  forest  sector  value 
added 2009-2015 (%) 

Consign-
ment 

Opera-
tor 

Consign-
ment 

Opera-
tor 

0.05 

0.25 

0.05 

0.25 

0.27 

- 

- 

- 

- 

0.17 

0.09 

0.17 

0.09 

- 

- 

- 

- 

- 

- 

- 

0.4 

1.8 

2.2 

8.4 

16.5 

1.2 

- 

0.6 

- 

7.4 

- 

4.0 

- 

- 

- 

- 

- 

- Baseline countries 

- Countries in expanded VPA 

- 6.5 

0.3 

- 6.8 

-1.7 

EN 

50 

- 

- 

0.22 

- 

- 

- 

16.0 

<0.7 

0.1 

- 0.8 

- 

- 

Max 16.5

- 

- 

p.m (enforcem
investigatio

0.0 

- 0.8 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Baseline  
VPA 

Option 1 
Geographically 
expanded VPA 

Option 2 
Voluntary 
private sector 
schemes 

Option 3 
Border measures 

Option 4
Prohibition
possess an
trade illeg
timber

-  All  high  and  moderate  risk 
countries 

0.5 

1.3 

- 0.2 

- 0.9 

EN 

51 

   EN 

 
 
Baseline  
VPA 

Option 1 
Geographically 
expanded VPA 

Option 2 
Voluntary 
private sector 
schemes 

Option 3 
Border measures 

Option 4
Prohibition
possess an
trade illeg
timber

- EU-27 

- MS Nordic  

- MS Central/West 

- Other MS 

- USA 

Impact on Illegal Logging 

0.2 

0.4 

0.1 

0.2 

0.1 

1.1 

- 0.1 

1.4 

2.3 

0.9 

Maximum  decline  of 
logging  

illegal 

Lower 
potential 
licensing scheme 

bound: 
impact  of 

Lower 
potential 
licensing scheme 

bound: 
impact  of 

Upper bound: potential 
impact 
law 
enforcement 

of 

Upper bound: potential 
impact 
law 
enforcement 

of 

- Volume (million m3) 

- In region (%) 

- Globally (%) 

2.4 - 22 

11 - 100 

2 - 16 

10 - 78 

13 - 100 

7 - 56 

-  Area  of  strong  impact,  if 
implementation is effective 

Initially Central & 
West Africa, later all 
involved countries 

Initially Russia, later 
all involved countries 

Some 

Some 

Some 

- 

1,1 

0.1 

1.4 

2.4 

0.4 

14 

10 

10 

1.3 

0.2 

1.6 

2.5 

0.4 

17 

12 

12 

Central and West 
Africa, Russia 

Central and W
Africa, Rus

EU 

High 

- Law 
Enforceme

- Trade Diver

- Level of risk/main causes 

Moderate 

High 

High 

High 

- Lacking Interest to 
Join the Scheme 

- Non-binding 
Measure 

- Credibility 

- Trade Diversion 

- Law Enforcement  

- Trade Diversion 

- Trade Diversion 

- Circumvention 

- Law Enforcement 

Benefits from reduced 
illegal logging + 
improved legal 
compliance 

See baseline 

See baseline 

See baseline 

See baselin

- 

- 

- 

- 

Benefits fro
reduced ille
logging +
improved le
complianc

52 

   EN 

Environmental Impact 

- Non-EU 

- EU 

EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Social Impact  

Change  in  employment  2009-
2016 (%) 

- Baseline countries 

- Countries in expanded VPA 

-  All  high  and  moderate  risk 
countries 

EU 27 

 - MS Nordic  

 - MS Central/West 

 - Other MS 

Other 

Baseline  
VPA 

Option 1 
Geographically 
expanded VPA 

Option 2 
Voluntary 
private sector 
schemes 

Option 3 
Border measures 

Option 4
Prohibition
possess an
trade illeg
timber

-2.0 

0.2 

-0.1 

0.0 

0.1 

0.3 

0.0 

-2.4 

-0.8 

0.5 

0.0 

- 0.1 

0.0 

0.3 

0.2 

-0.4 

-0.4 

0.0 

0.0 

0.0 

0.2 

0.1 

-0.4 

-0.4 

0.0 

0.3 

- 0.1 

0.2 

Benefits from 
improved adherence to 
social provisions in 
legal frameworks 

see baseline 

See baseline 

Risk of applying 
narrow definitions 
of legality 

See baselin

EN 

53 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX II  

Cost Impacts of the Commission proposal for a Regulation determining the 
obligations of operators who make timber and timber products available on 
the Market  

1. Introduction 

The proposal for a Regulation determining the obligations of operators who make timber and 
timber  products  available  on  the  Market  has  been  further  refined  following  the  approval  of 
the  impact  assessment.  In  light  of  a  number  of  changes  in  the  proposal  since  then,  ENV 
reviewed  the  available  data  on  the  cost  impact  of  the  proposed  approach  and  reviewed  the 
available literature. 

Following an outline of the proposal in cost terms, this annex provides a cost estimate of the 
proposed regulation on a per cubic metre basis. A separate box provides information on the 
UK Timber Trade Federation which is operating such a system as a mandatory requirement 
for membership. In addition, it provides an overview of the impacts of combating the trade in 
illegally harvested timber on the production of EU timber as indicated by the modelling work 
done by the American Forest Products Association. 

1.1 Outline of the proposal 

The proposed regulation puts in place a system designed to prevent illegally harvested timber 
and derived products from being traded on the Community Market. The proposal relies on the 
due diligence principle and requires EU traders in timber products to exercise sufficient care 
in  order  to  provide  reasonable  assurance  that  they  only  place  products  derived  from  legally 
harvested timber on the market. Legality is defined on the basis of the applicable legislation in 
the country of harvesting.  

In costs terms the most important elements to be taken on board are: 

•  The proposed regulation requires all EU timber traders to have in place basic due diligence 

systems that ensure the legality of the traded timber products; 

•  The proposed regulation covers the placing on the Community market of almost all timber 

products, including pulp and paper and furniture. 

•  A key element of the due diligence system is the ability to trace timber through the supply 

chain back to the country of harvesting.  

•  Traders  are  required  to  ascertain  that  the  timber  was  produced  in  accordance  with  the 

prevailing legislation in the country of production. 

•  In  ascertaining  legality  traders  are  invited  to  use  a  risk-management  approach,  i.e.  to 
intensify controls in high-risk environments while using lighter controls in situations with 
strong institutional oversight. 

EN 

54 

   EN 

•  The exact shape and stringency of these controls is subject to a Comitology procedure. As 
a result the associated costs can only be estimated on the basic of a number of assumptions. 

1.2 An example: the costs of due diligence by the UK Timber Trade Federation 

Due  diligence  in  the  timber  trade  is  not  a  new  concept.  The  UK  Timber  Trade  Federation 
(TTF) has for a number of years advised its members to voluntarily implement a responsible 
purchasing policy which aims to reduce that risk that TTF member trade in illegally harvested 
timber.  From  this  year  onwards  implementing  a  due  diligence  system  has  been  made  pre-
condition  for  TTF  membership.  The  TTF  due  diligence  system  ultimately  acts  as  an 
improvement of similar systems such as the ISO 9000 system in that it provides for a set of 
procedures that reduce the risk of trading in timber from high risk sources. The system itself, 
like  the  proposed  due  diligence  regulation  does  not  provide  a  guarantee  of  product 
integrity/legality.  

Key requirements for companies operating the TTF due diligence system are: 

•  To designate a person responsible for due diligence; 

•  To put in place a stock control system that records information on purchases and sales; 

•  To have a procedure to review suppliers and products at least annually in order to assess 

the risk of trading in illegally sourced products; 

•  To  record  the  changes  in  purchasing  policy  in  order  to  chart  the  improvement  in  timber 

supplies in an annual management report; 

•  To communicate on due diligence requirements with suppliers and customers. 

According to the TTF the costs associated with the system fall apart in two categories: 

1) Development Costs borne by the Federation, mainly associated with having one full-time 
staff member developing the system, administrating the system and supporting the members 
in its implementation; 

2) Implementing Costs which are borne by the company in the form of staff time and which 
can be highly variable as they depend on a) the size of the company; b) the extent to which 
chain  of  custody,  IT  stock  control  systems  and/or  ISO  systems  are  already  in  place;  c)  the 
number of product lines and suppliers and d) the level of risk associated with these products 
and their sources. (Personal communication Mrs Rachel Butler) 

2. The Costs of the Proposed Regulation 

2. 1 Basic data for assessing the private sector costs of the proposed regulation 

The four options assessed in the Indufor impact assessment focused on the imports of a subset 
of four timber products covered by FLEGT regulation (round wood, sawn wood, veneer and 
panels). The proposed regulation, however, covers trade in all timber products including pulp 
and paper. In addition the regulation covers both EU imports and EU production.  

In  this  light  the  following  trade  data  from  the  Indufor  constitute  the  basis  for  this  cost 
assessment: 

EN 

55 

   EN 

(1) 

(2) 

In 2005, the total volume of timber products including pulp and paper placed on the 
EU  market  was  512  million  m3.  This  figure  consisted  of  142  million  m3  (RWE)  of 
imports into the EU and an EU wood production of 370 million m3 (RWE).9 

Of the 142 million m3 (RWE) of imports 95 million (RWE) is derived from non-EU 
countries  with  a  moderate  to  high  risk  profile.  47  million  is  imported  from-non  EU 
low-risk countries (Indufor report table 6.3 page 17).  

With the proposed regulation taking a risk-management approach especially high-risk timber 
is the target of the 'due diligence' approach.  

A distinction needs to be made between the costs imposed on the private sector in producer 
countries and the costs imposed on the EU private sector.  

As  the  brunt  of  controls  will  need  to  be  implemented  in  high-risk  environments  where 
production takes place the highest per unit costs associated with these controls will be borne 
by  the  private  sector  and  governments  of  VPA  partner  countries.  The  FLEGT  action  plan 
provides both for technical assistance to put control systems in place in VPA partner countries 
and  the  development  of  incentives  to  enable  FLEGT  partners  to  benefit  from  the  trade  in 
legally harvested timber with the EU. 

3. Private sector costs 

Direct  costs  of  the  due  diligence  approach  to  the  private  sector  fall  apart  in  four  broad 
categories:  

(1) 

(2) 

(3) 

(4) 

Costs  to  operators  trading  timber  products  from  moderate  to  high-risk  non-EU 
environments;  

Costs to operators trading timber products from low-risk non-EU environments;  

Costs to EU operators trading in imported timber products; and  

Costs to EU operators trading in EU-produced timber.  

These categories of the timber trade have differential trade volumes and unit costs and need to 
be calculated separately. 

3.1 Costs to the private sector in moderate to high risk non- EU environments 

Under option 2 Indufor estimates the costs of private sector legality verification in moderate 
to  high  risk  environments  at  €  0.27  m3 /annum  for  logs,  roundwood,  veneer  and  plywood. 
(Indufor report table 10.1).10 This estimate is likely to be on the higher end of the scale for 
several reasons:  

9 

10 

These import volumes exclude wooden furniture which is not captured under a separate HS code and which was 
not part of the TOR provided for the INDUFOR impact assessment. The proposed regulation however, intends to 
cover the placing of wooden furniture on the EU market. 
This  is  based  on  the  use  of  low-tech  tracking  and  tracing  system.  The  Indufor  report  suggests  that  high-tech 
systems may cost up to five times as much (Indufor page 44 and annex 1). Helveta, a private company specializing 
in  COC  systems  suggests  that  operating  a  fully  GPS  based  mapping,  barcode-based  tracking  and  tracing  and 
computerised data reconciliation system can be operated for about € 0.80 per m3 (personal communication 16 June 
2008). 

EN 

56 

   EN 

                                                 
(1) 

(2) 

Indufor  based  its  cost  estimate  on  the  VPA  sub-set  of  timber  products.  Total  EU 
imports consist for 42% of pulpwood and paper which as bulk goods have much lower 
per  unit  verification  costs  (Indufor  figure  6.1).  That  said,  legality  verification  of 
composite products such as furniture may have higher per unit costs. 

Exporters  from  FLEGT  partner  countries  currently  regarded  as  high  risk  and  thus 
facing high costs, will see their per unit verification costs drop to about € 0,05 per m3 
(Indufor  table  9.2  page  37)  when  their  Governments  start  operating  the  legality 
assurance scheme established under its Voluntary Partnership Agreement with the EU.  

(3)  Where  traders  already  export  timber  of  well-known  certification  and  legality 

verification schemes they will not be required to make additional verification costs.  

The  costs  associated  with  'due  diligence'  are  largely  associated  with  establishing  a  closed 
chain of custody within a weak institutional environment. These costs may vary widely. The 
Indufor  data  appear  not  too  far  out  of  line  with  World  Bank  and  SGS  estimates  from 
Indonesia  which  depending  on  logistics,  the  scale  of  operations  and  the  level  of  throughput 
suggest COC costs of between € 0,18 and € 0,7 8 per m3 (Bennett 1997). Similarly a study by 
ITTO into the costs of certification notes that ' the costs of Chain of Custody certification are 
generally  only  a  fraction  of  the  costs  of  forest  management'.  In  its  five  certification  case 
studies it shows that the costs of full sustainability certification range from U$ 0.04 to U$ 10 
per m3 (ITTO 2004). 

3.2 Costs to the private sector in low-risk non-EU environments 

Indufor  does  not  provide  cost  estimates  for  verifying  legality  in  low-risk  non-EU 
environments with a well established regulatory framework. These are provisionally estimated 
at  a  third  of  the  costs  of  assessing  legality  in  a  high  risk  environment  and  set  at  €  0.9  per 
m3/annum. Controls are likely to largely consist of establishing a paper trail with regard to the 
timber products imported and the production unit of origin. 

3.3 Costs to EU operators trading in timber and timber products 

The costs of meeting due diligence requirements within the EU fall apart in two categories: 
Controls on imported timber and controls on timber produced in the EU.  

The controls on imported timber are likely to be light given that they largely dependent on the 
chain of custody established in the country of origin. Additional costs are set at a level of € 
0,05 per m3/annum which is equivalent to the estimate made by Indufor for the private sector 
costs  associated  with  importing  VPA  timber.  This  cost  is  applied  to  all  timber  products 
imported into the EU.  

For  the  purposes  of  controlling  EU  produced  timber,  which  includes  an  assessment  of  the 
legality  of  the  production  process  the  same  level  of  costs  as  estimated  for  low  risk 
environments was used, setting it at € 0,09 per m3. This  cost is applied to all timber products 
produced in the EU.  

4. Conclusions on Costs 

The available data, based on estimates for per unit costs per category of timber are separated out 
between costs to the non-EU and the EU private sector and presented below.  

EN 

57 

   EN 

Table 1: Estimated costs of for the non-EU private sector of ' due diligence' option 5 

Category of timber 

Volume 
(millions  of  m3 
RWE) 

Unit cost 
(€ /m3 RWE) 

Total cost 
(€  millions  per 
annum) 

Imports from moderate-high risk environments 

95 

Imports from low risk non-EU environments 

47 

0,27 

0,09 

Total costs to the non-EU private sector 

142 

0,21* 

* weighted average unit cost for the non-EU private sector 

25,7 

4,2 

29,9 

This table allows for the conclusion that the weighted unit costs of the proposed regulation lie 
around  an  average  of  €  0.21  per  m3  to  the  priv ate  sector  of  non-EU  environments.  At  the 
current  level  of  imports  total  costs  to  the  non-EU  timber  industry  stands  at  €  29.9  million 
annually.  

Table 2: Estimated costs for the EU private sector of ' due diligence' option 5 

Category of timber 

Volume 
(millions  of  m3 
RWE) 

Unit cost 
(€ /m3 RWE) 

Total cost 
(€  millions  per 
annum) 

Control on imports by EU private sector 

Control on EU production by EU traders 

Total costs to the EU private sector 

142 

370 

512 

0,05 

0,09 

0,08* 

7,1 

33,3 

40,4 

* weighted average unit cost for the EU private sector 

Costs  amounting  to  the  EU  private  sector  fall  apart  in  control  costs  on  imports  and  control 
costs on EU timber production and amount to €  40,4 million annually at a unit cost of € 0.08 
per m3. 

Important to note is that the sum of all costs of € 70,3 million on th e EU and non-EU timber 
trade is not the same as the additional cost imposed by the proposed regulation. Many high-
volume timber product importers and producers such as Stora Enso, Carrefour, IKEA, UPM 
Kymmene,  the  pulp  and  paper  sector,  but  also  tropical  timber  traders  organised  in  member 
state trade federations have due diligence requirements and systems in place and are already 
carrying out the checks and supply chain controls that the proposed regulation aims to make 
mandatory (see box on UK Timber Trade Federation).  

Also important to note is that the level of controls required on the part of EU importers and 
producers  under  the  proposed  regulation  is  relatively  light  when  compared  to  other  options 
investigated in the Indufor impact assessment. The proposed regulation broadly resembles a 
combination  of  Option  2  (voluntary  private  sector  schemes)  and  Option  4B  (legislation  that 
requires that only legally harvested timber is placed on the EU market).  

EN 

58 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
When the INDUFOR figures for total private sector costs are recalculated for the trade in all 
EU  timber  imports  and  production  at  512  million  m3  the  following  results  are  achieved: 
Option  2  will  cost  €  71.6  million  per  annum,  wh ich  is  very  close  to  the  due  diligence 
proposal, while the costs of implementing Option 4B will stand at an estimated € 136 million 
per annum. 

5. The economic benefits to the EU of addressing illegal logging 

No study has been conducted on the impact of illegal logging on the competitiveness of the 
EU  forest  sector.  However  in  the  US  the  American  Forest  Products  Association 
commissioned a comprehensive study on this topic in 2004 11. The conclusions can, to a large 
degree, be applied to the EU.  

The study includes Russia as a “high risk” country and estimates that between 12 – 17% of 
timber  entering  international  trade  is  “suspicious”.  The  proportion  is  greater  for  hardwoods 
than  softwoods  (conifers).  Using  global  forest  trade  models  it  estimated  that  illegal  logging 
depresses world prices by 7% to 16%, depending on product categories.  

Table  11  of  page  24  from  the  report  reproduced  below  shows  the  estimates  of  production 
increase or decrease if illegal logging were to be eliminated. It can be seen that for the EU an 
increase in domestic production of roundwood of 5% would occur.  

The increased volume of roundwood produced in the EU would amount to 16 million cubic 
metres.  Average  prices  per  cubic  metre  of  roundwood  (logs)  of  softwoods  and  hardwoods 
respectively  are  about  €70  and  €200  respectively.  Assuming  two  thirds  of  timber  used  is 
softwood  and  one  third  hardwood  an  average  price  would  be  €113.  The  increased  EU 
production  would  therefore  be  worth  €1.8  bi llion.  The  increased  production  would  not 
threaten  the  sustainability  of  EU  harvesting  as  only  about  70%  of  tree  growth  is  currently 
harvested.  

Table 3: Summary of Simulated Effects of Eliminating Suspicious Roundwood Production  

% Change 

Roundwood 
19% 

Sawnwood 
7% 

Panels 
16% 

3
Volume Change (000 m

)  

Roundwood 

Sawnwood 

Panels 

5%  
13%  
1%  
8%  
-2%  
-23%  
-23%  
-33%  

5% 
7% 
1% 
-2% 
-2% 
-10% 
-28% 
-31% 

0% 
2% 
2% 
1% 
-2% 
-9% 
2% 
-32% 

16,673 
4,042 
5,386 
2,060 
-2,069 
-18,455 
-6,362 
-24,356 

4,679  
988  
911  
-110  
-482  
-818  
-1,353  
-2,490  

162 
103 
874 
48 
-143 
-3185 
23 
-5,162 

Change in:  
average 
world prices 

Production:  
EU-15  
Japan  
U.S.  
Malaysia  
Brazil  
China  
W/C Africa  
Indonesia  

11 

Illegal logging and global wood markets: the competitiveness impacts on the US wood products industry. Seneca 
Creek Associates and Wood Resources International, Nov 2004 

EN 

59 

   EN 

 
 
 
  
 
                                                 
Russia  

-16%  

-32% 

5% 

-25,102 

-7,685  

294 

Exports:  
U.S.  
EU-15  
Brazil  
Malaysia  
W/C Africa  
Indonesia  
Russia  

Imports:  
EU-15  

0%  
4%  
0%  
48%  
-39%  
-44%  
-19%  

49% 
12% 
-1% 
-1% 
-51% 
-55% 
-57% 

35% 
5% 
4% 
5% 
10% 
-51% 
30% 

0 
919 
0 
1,809 
-2,492 
-318 
-11,867 

1,332  
5,164  
-27  
-27  
-1,063  
-1,451  
-7,097  

777 
1,456 
98 
390 
64 
-4,199 
488 

-9%  

0% 

0% 

-5,704 

30  

-61 

There are a number of assumptions behind these figures e.g. they assume that illegal logging 
is completely eliminated. Furthermore the actions of consumer nations can only have an effect 
proportional  to  their  trade  with  “high  risk”  environments.  Nevertheless  they  provide  an 
estimate for the order of magnitude of the impact of illegal logging on global forest trade and 
how it undermines the competitiveness of EU forest industry.  

6. Summary of expected impacts on the due diligence regulation 

While  Option  4B  of  placing  the  full  burden  of  proof  on  the  trader  is  thought  to  be  too 
burdensome for the EU industry and especially small and medium enterprises, Option 2 has 
the problem that it remains voluntary. The proposed due diligence regulation strikes a balance 
between these two considerations with as its main impacts that it will: 

1)  Require  all  EU  traders  to  meet  basic  due  diligence  requirements  with  regard  to  timber 
legality. This creates a level playing field between those companies that are trying to address 
illegality  and  those  that  are  currently  undercutting  the  market  by  selling  cheaper  illegally-
harvested timber products;  

2) Provide an incentive to traders to buy and sell low-risk timber rather than high-risk timber, 
thereby reducing the use of illegally harvested timber by EU consumers.  

3)  Provide  an  incentive  to  producer  countries  to  conclude  FLEGT  Voluntary  Partnership 
Agreements with the EU as well as to exporters in non-VPA countries to put in place timber 
tracking and legality verification schemes. 

EN 

60 

   EN