The EU Generalised System Of Preferences and Tropical Timber

1. Background

In May 1998, the General Affairs Council adopted a proposal ⁱ for a new Regulation setting up 'positive, development-oriented incentives' ⁱⁱ to reward developing countries which comply with international social and environmental standards. The Regulation will grant additional trade preferences to developing countries already benefitting from the EC Generalised System of Preferences (GSP) ⁱⁱⁱ and which can demonstrate that they are putting into effect certain international norms.

The GSP (see Box I) applies to developing countries which are not in the Africa, Caribbean and Pacific (ACP) group or Least Developed Countries. ^iv In practice, the Regulation's special incentive arrangements will apply only to the products of tropical timber processing, because the only internationally recognised environmental standards are at present the International Tropical Timber Organization (ITTO) criteria and indicators for sustainable forest management. ^v

2. Environmental management encouraged

The Commission characterises the new Regulation as 'a sort of second generation GSP'. The first objective of the GSP is to foster economic development in the developing world; the second objective, put into effect by the new Regulation, is to improve the social and environmental quality of that development.

Environmentally sound development is encouraged by a system of special incentive arrangements, by which compliance with international standards is rewarded. Exporting countries performing well socially, in accordance with International Labour Organization (ILO) standards, ^vii or environmentally, in accordance with ITTO standards, would be rewarded with lower tariffs or no tariffs at all.

Box I: The Generalized System of Preferences

The Generalized System of Preferences (GSP) was established by the United Nations Conference on Trade and Development (UNCTAD) in 1970. On 1 July 1971 the European Community introduced its first scheme of generalized tariff preferences designed to give effect to principles laid down by UNCTAD. The Community GSP Scheme has been regularly extended, with revisions every 10 years. The 1998 revision regards only certain industrial and agricultural products from developing countries, and their relation to labour rights and environmental protection. However, in relation to forests this is important since wood products are characterized as industrial products.

The GSP makes use of the most conventional tool of trade policy, the tariff, by according developing countries a margin of advantage against industrialized countries in the form of preferential (low-tariff) access to the Community market for their exports. Since successive GATT negotiations have lowered the overall level of tariff protection, the preferential margin offered to the developing countries has been steadily eroded.

3. Who is affected and how?

The new Regulation applies only to processed wood, since unprocessed timber and sawnwood are tariff-free at present. Most timber products will have 30% tariff cuts. These include plywood, particle board, fibreboard, some furniture, joinery, wood panels and wood marquetry. On the basis of current import patterns, Indonesia would be the main beneficiary as it exports a lot of plywood to the EU. Other potential beneficiaries would be the Philippines, Malaysia and Brazil. ^vii The consequences of these tariff cuts for the EU is estimated to be ECU 787.8 million in lost revenue. ^viii

4. Requirements: ITTO standards

The Regulation affects developing countries which already benefit from the GSP. Special tariff cuts will only be granted if a written application is submitted to the Commission. Countries must provide details of their domestic legislation incorporating 'the substance' of ITTO standards (together with the full text of such legislation, translated into a Community language), as well as details of the measures being taken to implement these provisions. ^ix

Requests for special incentives will be published in the Official Journal, stating that any interested person may submit relevant useful information to the Commission within a given period.

The ITTO is in the process of adopting a new set of criteria and indicators for sustainable management of natural tropical forests. These criteria are expected to be approved at the next International Tropical Timber Council in Gabon (May 1998). They will then replace the current ITTO criteria as requirements for granting tariff reductions.

5. Determining compliance

The Commission will engage in a two-stage verification procedure of requesting country information. In the first stage, the Commission will check the information submitted to it and any additional information it has asked for. The Commission may also visit the country in question, and consult organisations such as the ILO, ITTO or NGOs for help with its research.

The second stage of this procedure will consist of the usual procedures for issuing and verification of origin certificates. These are intended to include on-the-spot checks by recipient countries as to whether exporters are in fact complying with standards.

However, Recital 13 of the Regulation notes that 'international criteria for the preservation of tropical forests cannot be used to monitor logging operations' and that it is therefore preferable 'to vet countries thoroughly in advance'. This point is discussed in further detail in the Explanatory Memorandum to the Regulation, which refers to how difficult it has been to establish monitoring systems for individual exporters.

The Commission concludes that the only workable approach, given the fact that no general monitoring system for compliance by individual firms with ITTO rules is in effect, is to monitor country compliance - or efforts at compliance - with ITTO directives. Such an approach would 'focus on dialogue and progress towards achieving standards rather than prior compliance by individual businesses.'

This provides cause for concern. It will basically be up to individual beneficiary countries to develop appropriate monitoring arrangements and to guarantee that all exporters comply with ITTO standards. Yet problems of meagre human and financial resources, immature administrative systems and corruption make it unlikely that many beneficiary countries will be able to make such guarantees.

6. NGO comments

• A step in the right direction: NGOs have considered it unfair that the EU had no tariffs for logs and sawnwood while having tariffs on imports for processed wood, thereby protecting European industry from industry in tropical areas. This new regulation could be seen as a first step towards rectifying that injustice.
• However, the effect on developing country exports is limited: Firstly, the plan is restricted to a limited number of wood products. Secondly, the effects of the tariff cuts are minor in relation to other non-tariff barriers to tropical timber products, especially various quota systems applied within the EU. Thirdly, tariff rates on wood products have declined across the board as an effect of successive GATT rounds. As a result, tropical-timber-exporting developing countries which benefit from tariff-free access or lower tariff rates under GSP now compete on a more or less even footing with developed country exporters.
• More logging?: It is unclear if the new proposal will cause more logging. This is not considered in the Regulation.
• ITTO standards not representative: The best way to prevent more logging is strict ITTO criteria for what will be accepted as environmentally sound management of forests. However, ITTO standards have not been developed with full participation from civil society or major interest groups and therefore cannot be seen as generally internationally recognised standards.
• Other standards better?: It is interesting that while some Member States of the EU have developed their own criteria as to what comprises sustainable management of forests, the new Regulation seems to ignore these developments.
• National monitoring likely to be ineffective: It will not be realistic to monitor at the national level, as the forest certification debate has demonstrated that different parts of the same country can have widely differing systems of forest management. (A stringent national control system would, for example, mean that Malaysia would always be judged ineligible for GSP on the basis of bad practices in Sarawak.) There is concern that national monitoring will either result in ITTO criteria being watered down, or in a system so stringent that there are no GSP applicants.

What is Fern?

Fern is an NGO which was created by the World Rainforest Movement. Fern advocates changes in EU activities in order to achieve:

• Conservation and sustainable management of forests,
  
• Respect for the rights of forest peoples,
  
• Greater transparency in EU aid to tropical forest countries.
  
  Fern briefing notes aim to inform NGOs, MEPs and European Commission officials about key forest related issues.
  
  Fern Briefing Notes
  
  

Fern Contacts

Saskia Ozinga,
Fern/WRM
1C Fosseway Business Park
Stratford Road Moreton-in-Marsh
UK - GL 56 9NQ
Tel: 44 1608 652 895
Fax: 44 1608 652 878
Saskia@gn.apc.org Chantal Marijnissen & Susan,
Fern
20 Av des Celtes 1040
Brussels
Belgium
Tel: 32 2 742 24 36
Fax: 32 2 736 80 54
Fern@arcadis.be

i) Commission proposal for a Council Regulation (EC) applying the special incentive arrangements concerning labour rights and environmental protection provided for in Articles 7 and 8 of Council Regulations (EC) Nos 3281/94 and 1256/96 applying the scheme of generalised tariff preferences in respect of certain industrial and agricultural products originating in developing countries.  

ii) Ibid., Recital 2  

iii) Council Regulation 3281/94, whose Article 8 sets out the basis for special incentive arrangements.  

iv) The trade relations between ACP and the EU are governed by the Lomé Convention, which grants duty free access for virtually all manufactured products.
 

v) COM(97) 534, final, Recital 12  

vi) The standards concerned are ILO 138 (child labour), and ILO 87/98 (the right to organise and bargain collectively)  

vii) It is estimated that Indonesia would benefit the most under the new scheme, with its ECU 467 million worth of trade flows (mainly plywood). Most EU imports (ECU 136 million) from the Philippines would also benefit from the scheme. Eligible EU imports from Malaysia and Brazil amount to respectively ECU 135 M and ECU 99 M; Figures from "Identification and analysis of measures and instruments concerning trade in tropical wood", Report submitted to the Commission of the European Communities by Environmental Strategies Europe (ESE), September 1992.  

viii) COM (97) 534 final, p. 19 (financial statement)