The EU and TROPICAL FORESTS:

on a new track

INTRODUCTION

EU Trade and Aid

The EU is a political-economical bulwark. Looking at it historically, beginning in 1949, you see that the EU was created with the vision to avoid war between the Member States by uniting them both economically as well as politically: trade relations around coal, steel and agricultural products were the beginnings of the EU. To start of with, EC aid in the form of special trade advantages to the previous colonies. In later years, aid was still, in many cases, part of a trade package. Even today, trade and aid, are strongly interwoven.

In recent years, EC aid has come under increasing criticism. Various internal and external evaluations show that EC aid has a bad record in the social and environmental arenas. There are many reasons why this is the case and this report will go into them in more detail..

Tropical Forests

Every year around 15 million hectares of tropical forests disappears [2]. For the EU, the preservation of tropical forests is a priority. Globally, the EU finances one third of all tropical forest projects. Since 1992, aid to tropical forests increased significantly to approximately 100 million Euro per year indicating the importance of tropical forests. To a great extent this is thanks to the European Parliament.

With this report, the Netherlands Committee for IUCN and Fern, would like to provide Euro Parliamentarians and NGOs a manual of how EU assistance can be improved. In spite of the ties between aid and trade, this report will focus on aid.

II EU Policy and the Tropical Forests

General Environment and Development Policy

Since the Maastricht Treaty, "sustainable development" has become a central goal of EU Development Policy. Sustainable development, along with the integration of developing countries into the world economy, poverty reduction and support for human rights and democratisation are goals in the Treaty. The Amsterdam Treaty has reiterated and expanded on these goals.

This policy, as it is rewritten in the Treaty, confirms what was already laid down in the Lome IV Convention[3] which spoke in favour of:

“sustainable balance between its economic objectives, the rational management of the environment and the enhancement of natural and human resources” (Article 4).

The Maastricht Treaty even went so far as to make clear that environment policy should be integrated into all EC policy, particularly on the international level. The Treaty of Amsterdam developed this even further.

Lomé IV likewise expands on two articles on environmental protection:

“the protection and the enhancement of the environment and natural resources, stopping the deterioration of land and forests, the restoration of ecological balances, the preservation of natural resources and their rational exploitation are basic objectives”. (Articles 33 to 41)

Although there is no real flaw with the texts, there is with the implementation. In the first place, the EC has still not given a clear implementation of the term ‘sustainable development’. This can be seen in two of many relevant studies on EC aid and sustainable development.

" Sustainable development is an overriding goal within the Lomé agreement. However in practice the European Commission acknowledges that it still "lacks a clear strategy and a sense of purpose to make environmental management operationally viable".[4]

“Understanding the Community’s strategic approach to integrating the environmental dimension remains an exercise in piecing together many different pieces of a policy jigsaw. This makes it difficult to communicate and implement the policy internally, share responsibility for environmental sustainability performance and enter into dialogue about environmental performance with external stakeholders”.[5]

In the second place, there is a clear unwillingness within the subdivisions of the Commission and in the Council to integrate environment in other EC policies such as Article 74 of the Agreement. This too is underlined in various studies. There are two concrete examples with regards to forests:

1.      During the establishment of the European Forest Strategy DG VI (Agriculture) suggested that the Commission did not have the competence to deal with 'forests and the environment' and that therefore, the Forest Strategy was principally geared towards the 'production function' of the forest.

2.      In a similar case, the Council judged that the two regulations for forest protection - one against air pollution and one against forest fires - fell under 'Agriculture' and not under 'Environment'. The Parliament fought this position and won. See Box below.

Tropical Forest Policy

Current Policy

All EC policies on tropical forests[6] must fall within the general goals of development and environment mentioned above. In the second half of the 1980's, as a result of the public outcry around the dramatic decline of tropical forests and actions calling for a decrease in the use of tropical wood, as well as public criticism of the contribution of developmental aid projects' to deforestation, tropical forests came high onto the political agenda. Within the EC, the European Parliament was very active in introducing resolutions and reports that touched on the problems of deforestation.

The Commission responded, after several internal attempts, with “The Conservation of Tropical Forests: the Role of the Community (1989)[7]”. For the first time, this Communication made it clear that the EC saw its role in the context of conserving the tropical forests. ITTO and TFAP were seen as important instruments to tackle the problem. ‘Land reform’ and ‘correcting inappropriate policy incentives within and outside the forestry sector’ were seen as good solutions for tackling the issues. The EC named 6 points as most important for an EC Strategy: 1) development aid, 2) actions with reference to timber trade (within which was the establishment of a code of conduct for European logging companies!), 3) inclusion of a few protected (tree) species in CITES, 4) increase of funds for tropical forests, 5) debt for conserva­tion strategies and 6) research.

The Communication was followed by the 1990 Council Resolution: “Tropical Forests: development aspects”[8]. This resolution supported the Communication which saw TFAP as the most important framework for action and urged an increase in funds for the forest industry.

The Parliament, as the political organ most in contact with society, pushed for further action leading to the establishment in 1991 of the Tropical Forest Budget Line[9]. In 1995, this budget line was given a legal basis with the Regulation “Operations to promote tropical forests”[10], which ends this year (1999). By accepting the Regulation, the trade aspect of the Communication was 'translated' as the 'defining and development of a certification system'. It was the first time attention was given to ‘capacity building’ and ‘provision of information to forest peoples’.

Besides these documents that are specifically geared towards the tropical forests, there are a number of other texts which refer to tropical forests. The ODI Source Book ­ see the literature list -gives an overview of all relevant papers. The two most important ones are the Regulations for Asia and Latin America and the Lomé Convention's Forest Protocol:

·        The Regulation for Asia and Latin America (ALA Regulation[11]) says that:

“Protection of the environment and natural resources, and sustainable development shall be long term priorities: 10% being the weighted average of the necessary financial resources of the aid, for the period 1991 to 1995, shall be set aside for projects specifically aimed at protecting the environment, in particular tropical forests”

·        In 1995, a Forest Protocol was added to the Lomé Convention (Protocol No 10). This Protocol requests, among other things, support to assist ACP countries develop sustainable forest management, and stresses the need to get wood from sustainably managed forests onto the market.

During a period of around 5 years, numerous policy documents were developed and adopted. However, a cohesive vision with goals, strategies and activities upon which to establish an apparatus to implement the policies was absent. In 1996, DGVIII's  tropical forest expert, attempted to some extent, to make up for this deficiency by developing the ‘Guidelines for Forest Sector Development Co-operation’, a two part manual which linked EC policy to EC procedures. However, according to an evaluation of tropical forest projects by the Consultants ECO (1998):

"Policy statements are scattered and are not consistent in terms of terminology, objectives and priorities. There is a gap between the policy statements and the actual activities of the EC development co-operation and no means of ensuring that stated policy is actually carried out via the financial instruments, particularly for the geographical instruments (EDF ALA)". (ECO 1998)

Lack of strategy and a strong emphasis on the 'distribution' of large sums of money -with ALA and EDF[12] funds - as well as bad co-ordination has led to the financing of a scramble of projects. Some good, but many bad.

This lack of vision and strategy was strongly recognised within the subdivisions of the Commission, especially in the departments of DGIB[13] and DG VIII[14] who were directly working on the forests Budget Line.[15]. A lack of staff is partly to blame. The departments of DGIB and DG VIII responsible for the ALA and EDF funds, have insufficient expertise in tropical forests as well as in social and environmental issues. As a result, the few good and motivated officers are completely overburdened. 

Higher up in the EC's hierarchy there is little regard for tropical forests, environment and human rights. Looking at the history of the structure and the political situation it is obvious that environment and development policy were always overshadowed by the larger ‘EU-issues’ of security, a common market and increasing free trade. The eastern enlargement of the EU and the political instability in the Magreb region and Russia also contributed to the ever  increasing movement of funds to that region. At present, 1/4 of the development budget, not including EDF funds, goes to Eastern Europe and almost 20% to the Magreb region.[16]. 

Over the last several months it has become increasingly evident that in the higher echelons of DGI and DG VIII[17], in the context of "streamlining", all horizontal[18] budget lines (under which all the budget lines which finance tropical forests are found) will slowly but surely be allowed to disappear. As much as streamlining is needed (see Chapter IV), it seems, according to evaluations of European Community aid as well as what can be seen from the first steps of the 'streamlining' process, that the baby is being thrown out with the bath water.

Tropical Forests: new policy

At this moment the EC tropical forest policy is being revised. ITTO and TFAP, the two most important vehicles in the 1989 Communication are in the process of dying out and there are no other organs from which much can be expected. The 1989 Communication is thus under revision.

The Tropical Forest Budget Line Directive runs out at the end of 1999 and is being revised at this moment. The Lome Convention runs out in 2000 and will be revised. The ALA Budget Line, which has each year been extended,  is currently also under revision. The ECO evaluation of the tropical forest project gives the following recommendation:

"A process of consultation be set in motion through which a single policy paper is prepared which is applicable to all financial instruments. The paper would state the principles to be followed, set out strategic priorities and give general guidelines for forest development co-operation. This would constitute, in effect, the basis for an EC Tropical Forestry programme which would be of global scope and would be a reference for the EC and the Member States".

The time is thus ripe for a new strategy. After at least two earlier attempts by DG XI (in 1994) and DG VIII (in 1997) there is now a Discussion Paper “Forests and development: the EC Approach”, by DG VII and DG IB circulating which is to form the basis of a new Communication. In spite of there being a lot of value in the paper, environment and development NGOs, including the Netherlands Committee for IUCN and Fern, have stated that:

"The paper contains much merit particularly in the analysis. However, the main problem is that the proposed actions do not address the problems identified in the analysis. Furthermore the lack of prioritisation gives the impression of a 'wish-list' rather than of a strategic policy paper"[19].

Unless the Discussion Paper gets a clear focus, the danger remains that EC aid to tropical forests will be trapped by a vague vision, unclear goals and a lack of an implementation plan. In other words, no noteworthy improvements would have resulted.

At this moment it is unclear when the Discussion Paper will be transformed into a Communication. Even though in February 1999 the Commission verbally, through Mr. J Houtman (Director General A ­ sustainable development strategies ­ DG VIII) indicated that a Communication would come out within  a few weeks, nothing more has come of it.

The new Directive for the Tropical Forest Budget Line, which has to be put to the Council and the Parliament by 2000, is on schedule. The original proposal from the Commission was amended by the European Parliament by more than 30 changes which have been accepted since Parliament’s May 99 Session in Strasbourg. The amendments were directed at the need for better environmental and social impact assessments and increased accessibility to funds for NGOs and indigenous peoples. The Netherlands Committee for IUCN and Fern are to a great extent satisfied with the present proposal.[20].  However, it is clear that in order to for structural problems like those mentioned in Chapter IV must first be resolved if the Budget Line is to be properly implemented.

It is to be hoped that the proposals of the ECO evaluation to finally come out with a clear policy notice will be taken to heart and that such a notice will still come to light this year. Obviously this kind of notice must be seen within the bigger picture of EC development aid. The impact on tropical forests of general EC aid and trade policies must be central to any effective action plan to come.

Complementarity of EC aid and aid from Member States

As formulated in the Treaty of Amsterdam, EC policy must be complementary to the policy of Member States. In other words, the EC must carry out policy which the Member States can not or do not want to carry out themselves. Whatever the case, EC policy must be properly attuned to the policies of Member States. Evaluations[21] appear time and time again showing that this complementarity is not yet adequate. Also time and again, such evaluations suggest that there is a lack of political will, both in the EC as well as in the Member States, for better co-ordination.

The co-ordination of the Tropical Forest Policy can mainly be found within the European Tropical Forests Advisory Group (ETFAG). Even though ETFAG is a worthwhile group within which information on tropical forest projects is exchanged on an informal basis, it does not have an overview of non-tropical forest projects in tropical forest regions that often have a large negative impact on the forests. Neither does EFTAG have sufficient mandate to develop a vision and policy strategy nor the time to monitor, evaluate and moderate EC aid to tropical forests. Furthermore, many Member States are not represented in the EFTAG

EC Trade Policy

EC trade policy has a direct and indirect impact on tropical forests. In the context of this report, there are two issues that require special attention.

·        The Generalised System of Preferences. Last May the Council adopted a new Directive within the Generalised System of Preferences [22] to provide a tariff reduction on imports from those countries with good environmental policy. Good environmental policy is described as the implementation of sustainable forest management according to ITTO criteria. The Generalised System of Preferences is only for the Asian and Latin American countries[23] with special emphasis on the less developed countries in the region for which no tariffs exist.  The largest tropical forest exporting countries that could used this directive are Indonesia and Malaysia. The Netherlands Committee for IUCN and Fern are of the belief that the ITTO criteria are not sufficient to discern whether the forests are being sustainably managed. Sustainable forest management is definitely not the case in Indonesia and Malaysia. In both countries the exploitation of forests goes hand in hand with human rights abuses. The EC would be sending the wrong signal to these countries if it would be rewarding their forest management practices with tariff reductions.

·        The World Trade Organisation (WTO). The WTO will probably begin a new round of trade liberalisation talks in 2000. This will be the first trade round since the Uruguay round. At this time, there are discussions about putting the reduction of import tariffs on forest products and other products such as oil seeds on the agenda. A study by Jaako Poyry[24] suggested that a further tariff reduction on wood could result in an increase of 3 to 4% in wood trade. It is certain that a further liberalisation of agriculture will be on the agenda by the time of the Ministerial meeting in Seattle (November 1999). The EC will also be pushing to have a newly formulated proposal on the liberalisation of investment ­ the Multilateral Agreement on Investment (MAI) ­ on the agenda. There is insufficient research on the consequences of further trade liberalisation, including that of agricultural products, on forests. The EC has committed itself to undertaking an environmental impact assessment of the proposed free trade proposals. It is important that environment, development and human rights organisations are consulted when the EC develops its negotiating position in the next few months leading up to the conference in Seattle.

III EC Aid

General EC Aid

The European Union ­ the EC and the Member States - is from a purely financial perspective ­ the world’s largest donor and makes up for almost half of all developmental aid. In this report we focus on EC aid: aid that is administered by the European Commission. This aid accounted for approximately 9 million ECU in 1997.

Table 1: Overview of the distribution of EC aid: InfoFinance 1997. European Commission

The EC aid organ consists of two parts. The legal basis of the first component is the Lomé Convention (see footnote 6) which runs out in 2000. At the moment negotiations are under way on a 'new' Lomé, which will be geared more towards trade than aid. The financial protocol which is linked to the Lomé Convention is the European Development Fund. Over a period of 5 years, the EDF has given out around 15 billion Euro to the ACP countries but since the Member States put their money directly into the EDF funds the EDF falls outside of the budget. In this way, the EU Parliament has no say in the expenditure of EDF funds.

The legal basis of the second component is laid down in approximately 80 directives that form the legal basis of around 70 different Budget Lines. In 1996 the total EC aid budget was approximately 6 billion ECU.

EC aid to Tropical Forests

Tropical Forest Projects

The Tropical Forest Budget Line (TFBL), the Environment and Development Budget Line (EDC), the Asian and Latin American Budget Line (ALA Budget Line) and the NGO-Budget Line are the main organs for tropical forests. Funds also go to tropical forest projects through the EDF. Since 1995 there have been various attempts to arrange EC aid to tropical forest projects into one Database. The statistics below come from the most recent database established by  Planistat (see  literature list).

From 1992 until 1996 the EC gave 470 million ECU to tropical forests. The total number of projects was 510 which means on average, 0.9 million ECU per project. However, 78 of the 510 projects received more than the average amount. The countries that received most of the EC aid between 1992 and 1996 were, in order of importance: Indonesia, Brazil, the Philippines, Vietnam, Colombia, Nigeria and Peru.[25]

More than a quarter of all available funds went to nature conservation projects[26] (27%), a fifth (20%) to research, 15% to sustainable forest management[27] and 11% to training.  Less than 1% of funds went to the other five priorities that were established in the Directive for the Tropical Forest Budget Line: 1) development of buffer zones, 2) certification systems, 3) capacity building, 4) information activities in forest communities en 5) development of forest management plans.

Table 2. Different sources of financing for tropical forest projects. Compiled on the basis of Planistat statistics

As of 1994, the distribution of funds to tropical forest projects decreased systematically from 130 million in 1994 to 80 million in 1996. This decrease continued in 1997 and 1998. Precise figures are still not known. The decrease is due to the big reduction in tropical forest projects within the EDF (from 146 million ECU to 59 million ECU), and to the decrease in contributions from the Tropical and NGO Budget Lines. This decrease has to be seen within the context of increasing deforestation. In the meantime, it became known that in Brazil twice as much rainforest had disappeared as was previously thought.[28]

It is expected that contributions will sink even further. In response to questions to parliamentarians in internal notices[29] it appears that the higher echelons of both DG1 and DG VIII actually want to get rid of the Tropical Forest Budget Line as well as other horizontal budget lines in the framework of ‘streamlining’. Unless the Parliament takes action the chance that the financing of tropical forest projects decreases is significant.

It must be noted that the Commission is lacking a system with which to categorise projects according to issues as opposed to countries. It is therefore basically impossible to get an actual overview of all projects with a tropical forest, human rights, gender or an indigenous peoples component. A lack of such a monitoring system is forcing the Parliament to create new budget lines in order to ensure that there are funds being given to the issues which it considers important.

EC aid to tropical forest regions

There is much more money going to projects in tropical forest countries with direct or indirect impacts on the state of tropical forests than to actual tropical forest projects. This is done in the context of 'infrastructure' within the framework of agricultural and mining projects. However, an overview of this type of project in tropical forest countries doesn’t exist. It is therefore difficult to guess the number of projects, the amount of money, as well as the impacts, of these projects. The Rainforest Foundation[30] states that in Africa at least twice as much is given out to projects in tropical forest regions than to tropical forest projects.

A 1994 ODI study shows that more than 50% of the EDF expenditure went to transport and rural development projects. The building of roads is one of the most serious underlying causes of deforestation ­ so much so that it was even mentioned by CIFOR[31]. A significant portion of EDF money goes to tropical forest countries. It is therefore of utmost importance that it is properly monitored for the environmental and social impacts.  Unfortunately, this is not the case ­ see Chapter IV. EDF projects score the worst on environment and social levels in virtually all the studies conducted on EC aid. This is mainly the case for Stabex- en Sysmin projects[32] in which there is basically no control over the environment and social effects of planned and implemented projects.

IV The problems with EC Aid

The Quality

EC aid is considered by the bank to be of lacking in quality. This is actually the case for more donors than just the EC[33]. It is clear that at present EC aid is under a great deal of pressure. Various studies, some commissioned by the European Commission, and others by independent sources, have concluded that there are significant problems with the quality of EC aid[34]. At present the outcome of a study on EC aid, initiated by the Council in 1995 and spoken about in their meeting in May 1999, is being awaited.

Three parts of the study have already been published: the section on aid to ALA, ACP and MED countries. The Commission’s response to the ACP study has also been published. The conclusion of the ALA study shows that a proper evaluation is not really possible because insufficient information exists on the various projects.

" The choice of countries and projects to be evaluated was affected by the scarcity of documents about EC activities in ALA countries. In mid July 1997, the EC was able to deliver less than 100 evaluation studies for the ALA countries, of which only 45 contained sufficient information for evaluation in the Field Study. Yet EC aid to ALA countries had financed approximately 2000 projects in 33 countries for 20 years".

In addition, the study on aid to ACP countries was not positive, stating that:

"the Commission has focused  not on achieving results - on poverty reduction - but on administrative procedures and levels of disbursement. Constraints are imposed on the Commission such as lack of clear objectives, insufficient operational flexibility, inadequate monitoring of EC aid results by policy makers".

Earlier studies by ERM, IIED and others have all underlined that EC environment and development policy, as formulated in the Amsterdam Treaty, was given no teeth and above all that much of the already adopted document is not being implemented.

Virtually all studies make it clear that there is a significant lack of co-ordination between the various EC aid programmes and between EC aid and aid from Member States. Proper implementation such as three “c”s described in the Treaty: "co-ordination, complementarity and co-operation", is still far from reality.

It is clear that the EC is running seriously behind other donors such as the World Bank, both in the formulation of policy as in its implementation. Appendix 1 provides an overview of this. Seeing as the EC is the largest multilateral donor after the World Bank this is extremely worrying.