House of Commons - Environmental Audit

Select Committee on Environmental Audit Minutes of Evidence

Memorandum from Mr Duncan Brack, Royal Institute of International Affairs (Chatham House)

PUBLIC PROCUREMENT OF TIMBER

EU MEMBER STATE INITIATIVES FOR SOURCING LEGAL AND SUSTAINABLE TIMBER

SUMMARY

Chatham House is one of the world's leading organisations for the analysis of international issues, aiming to help individuals and organisations to be at the forefront of developments in an ever-changing and increasingly complex world. The Sustainable Development Programme, the largest of Chatham House's 10 research programmes, works with business, government, academic and NGO experts to carry out and publish research and stimulate debate on international issues in four focus areas: energy, environment, climate change, and corporate responsibility.

Illegal logging and the control of trade in illegal timber has been a major area of work for the Programme since 2000. We run a series of discussion and consultation meetings, maintain an independent website (www.illegal-logging.info), publish a series of research reports and provide research support and advice to the UK government, European Commission and EU member states.

This submission to the Environmental Audit Committee builds on work originally carried out for a workshop on procurement policies organised in Copenhagen by the Danish and Dutch governments in September 2004. The paper that follows, however, has not been published elsewhere in this form—it updates the 2004 paper to take account of recent developments, and adds a set of conclusions (Section Four).

To summarise, timber procurement policy aimed at sourcing legal and sustainable timber can be highly effective in helping to control illegal logging and the trade in illegal timber products. To increase its impact, the European Commission and UK and other EU member state governments should:

— Assess how existing procurement policies—at regional and local as well as central levels—may already affect the market for legal and sustainable timber.

— Create a central information point for suppliers outside the EU. Procurement policies vary, sometimes quite substantially, country by country, making it more rather than less difficult for producer countries to sell into these markets.

— Make available more widely the kind of work the UK Central Point of Expertise on Timber (CPET) is carrying out, assessing certification schemes and "alternative documentation" for the extent to which they meet sustainability and legality criteria.

— Encourage the widest possible spread of timber procurement policies within the EU. It is disappointing that twenty out of twenty-five national governments appear to be taking no steps whatsoever to adopt such policies.

— Explore some degree of harmonisation within the single market, such as intra-EU agreement on definitions—"legal", "sustainable", intermediate steps, and so on.

1. INTRODUCTION

1. The issue of illegal logging has been attracting increasing attention since the late 1990s. It featured as one component of the G8 Action Plan on Forests of 1998-2002, and led to a series of Forest Law Enforcement and Governance (FLEG) conferences coordinated by the World Bank, including those in East Asia (Bali, September 2001) and Africa (Yaoundé, October 2003); others are planned for Russia and North Asia (St Petersburg, November 2005) and possibly Latin America. Most recently, the G8 Environment and Development ministers, meeting in Derby in March 2005, featured illegal logging as one of their two priority areas.

2. Each of these initiatives has included a focus on the role of consumers in world markets in fuelling the demand for timber and thereby potentially contributing to illegal logging. One of the actions agreed by the G8 countries in 1998 was an assessment of their internal measures, including public procurement policies, aimed at controlling illegal logging and the international trade in illegally logged timber. Ministers at the Bali FLEG conference agreed to "explore ways in which the export and import of illegally harvested timber can be eliminated".[28]

3. Spurred by the Bali conference, in April 2002 the European Commission hosted a workshop in Brussels designed to identify options for the EU in helping to control illegal logging in general and the import of illegally logged timber into the EU in particular. Much of the discussion focused on means of identifying legal timber and excluding imports not identified as legal, but the topic of government procurement was also raised as an important way of guaranteeing markets for legal—and possibly sustainable—products.

4. The topic was particularly relevant because a number of EU member states were already using procurement policy to encourage the use of sustainable and legal timber and wood products. As long ago as the 1970s, Germany legislated to require sustainable tropical timber for federal building projects, and more recently, several German authorities, at federal, state and municipal levels, have brought in public procurement policies that allow the use of tropical timber products only if they are certified as originating from well-managed forests. In 1997, the UK government issued voluntary guidance advising government departments to purchase timber and timber products from sustainable and legal sources, and in July 2000 announced that this was to become a binding commitment. In 2003 Denmark published voluntary guidelines for public procurement of tropical timber.

5. The European Commission published its Action Plan on Forest Law Enforcement, Governance and Trade (FLEGT) in May 2003; Council conclusions were issued in October 2003, with an invitation to the Commission to undertake various follow-up steps. The heart of the Action Plan is the establishment of a licensing system to identify legal products in partner countries and license them for import to the EU; unlicensed products will be denied entry. However, the Action Plan also discusses the issue of government procurement and "draws the attention of Member State governments to the fact that illegal logging can be addressed through the adoption of procurement policies".[29]

6. As indicated above, a number of EU member states were already beginning to use public procurement policies to purchase timber and wood products from legal and sustainable sources and, following the publication of the Action Plan, others began to consider adopting similar policies. At the same time, the EU's public procurement directives were under revision, and issues surrounding legal and sustainable timber were explicitly mentioned in the Commission's draft Handbook on Environmental Public Procurement.

7. Public procurement policy clearly has an important role to play in the EU's attempts to control imports of illegal timber. Spending by EU public authorities is estimated to account for 16-18% of GDP, representing a very substantial source of demand for timber and wood products. Unlike the FLEGT licensing scheme, individual member states can adopt procurement policies without needing further EU legislation and without having to negotiate agreements with producer countries outside the EU. And since the eventual legality license may possibly also act as proof of legality for procurement purposes, procurement policy ought to provide a powerful incentive for producer countries to adopt the licensing system.

8. Precisely since procurement policies are being developed country by country, however, there is a danger that they will diverge so much in details and coverage that they will make it more rather than less difficult for producer countries to sell into European markets, even if the timber in question is actually produced both legally and sustainably. Accordingly, this paper provides a concise comparison of developing procurement policy in five EU member states: Denmark, France, Germany, Netherlands and UK, together with some preliminary conclusions about possible future developments. EU procurement legislation and WTO procurement agreements are also analysed.

9. It should be noted that this paper represents the author's views on and analysis of procurement policies, and is not necessarily endorsed by the governments concerned. It is intended that the paper will be updated at regular intervals as procurement policies develop.

2. COMPARISON OF MEMBER STATE PROCUREMENT POLICIES

10. Timber procurement policies in all of the five states analysed here have either only recently been introduced or are still under development:

— In Denmark, the parliament agreed in June 2001 that central government should adjust public procurement policies in order to ensure that purchases of tropical timber would be based only on legal and sustainable sources. Voluntary guidelines for purchasers were published in June 2003, and a review process is now under way.

— In France, the government decided in 2002 to develop timber procurement policy to favour FSC or equivalent systems, originally for tropical timber but now for all timber; a guidance note for timber purchasers was published in April 2005.

— In Germany, the federal government introduced legislation in the 1970s requiring tropical timber used in federal building projects to be certified as sustainable. Work on revising and extending this approach began in 2003, and new regulations are expected to be ready by the end of 2005.

— Netherlands has possessed criteria for what qualifies as "sustainable" timber for some time and has targets for the proportion of timber in the Dutch market which should be sustainable. Work is currently under way on the definition of "sustainable".

— In the UK, voluntary guidance advising government departments to purchase timber and timber products from sustainable and legal sources was issued in 1997. In 2000 this became a binding commitment, and in November 2004 the outcome of the first phase of work of the "Central Point of Expertise on Timber" was announced (see further below).

11. All of the five EU states which do have timber procurement policies have developed them in slightly different ways, though there are many similarities between them. Rather than describe them one by one, therefore, the remainder of this section provides a comparative analysis. It should be remembered that this is a snapshot of policies as at autumn 2005; it is likely that some details will change, perhaps significantly, over the coming months and years.

Criteria: legal, sustainable and social

12. France, Germany and Netherlands possess or are developing policies aimed primarily at sourcing sustainable timber (for definitions, see below); such timber should of course be legal, but this is a side-effect rather than the main aim.

13. Denmark and the UK have both adopted systems to procure legal and sustainable timber, recognising that while sustainable timber is desirable, it may not always be available in sufficient quantities, and therefore a minimum standard of proof of legality should be required for all purchases. Both systems use a step-wise approach, with three levels: legal, legal and progressing towards sustainable, and legal and sustainable.

14. The question of including social criteria over and above those legislated for in the producer country itself—for example, international health and safety standards amongst the logging workforce, or land tenure rights of indigenous communities—is controversial. Some of these criteria are reflected in the FSC certification scheme, widely accepted as proof of sustainable production, and Denmark, Germany and Netherlands all encourage or allow the use of social criteria in some way. Denmark, for example, recommends that some social criteria should be included as an integral element of—and precondition for—sustainable forest management (equivalent to "sustainably produced").

15. UK public procurement policy, however, does not allow timber purchasers to specify criteria that are not directly related to the subject matter of the contract. Permitted criteria include the production and process methods of the timber and timber products, but not social or ethical issues which, with rare exceptions, have no discernible effect on product quality or performance. Unless such issues are covered by law, therefore—which would include health and safety legislation in the country of production—they cannot be included in contract specification, selection of suppliers or award of contracts. This is also the UK's interpretation of EU procurement directives (see further below), indicating a slight difference compared to the interpretation in other member states. France has not adopted any position on social criteria.

Coverage: sources and products

16. Danish and German procurement policy applies only to tropical timber, though the next version of German policy will apply to all sources. French policy originated in an action plan on tropical forests, but the new procurement policy applies to all sources, as does British and Dutch policy.

17. Both WTO and EU procurement rules rest on principles of non-discrimination (against products deriving from parties to the WTO Government Procurement Agreement (GPA), and from other EU member states, respectively). In theory this could give rise to a WTO challenge to procurement policies covering only tropical timber, though not many tropical countries are signatories to the GPA. Since Denmark's policy is voluntary rather than mandatory, however, it could survive a WTO challenge.

18. Existing German policy applies to all tropical timber and timber products, and the new legislation seems likely to apply to all timber and paper products, as does British policy. French policy covers all categories, but with slightly stricter criteria for logs, sawnwood, veneers and plywood than for other processed products, paper and engineered wood. Danish policy excludes paper. The coverage of the developing Dutch policy has not yet been decided, but may be those categories specified in the EU FLEGT draft regulation, ie raw timber, sawnwood and plywood, but not processed products (such as furniture) or paper.

Implementation: definitions and verification

19. The problem of defining what exactly is meant by "legal", "sustainable" and "progressing to sustainable"—and how to prove it—is probably the most difficult task facing those drawing up timber procurement policies and guidance.

20. As noted above, only the British and Danish policies need to define "legal", which in both cases essentially means compliance with laws in the country of origin of the products. The Danish guidelines consider bilateral agreements with the producer country in question as the best base for definitions of legality. Where this is not available, it suggests including the following requirements at a minimum: possession of the necessary rights and permits, fulfilment of all relevant national legislation in the producer country, and payment of all taxes and dues.

21. Definitions of sustainability vary substantially. The Danish approach is the simplest, deriving from the Forest Principles agreed at the "Earth Summit" in Rio in 1992 and requiring that management standards have been developed for seven specified sustainability criteria. A key requirement in the Danish approach is that the specific standards have been developed in a consultative process, open to participation by all affected parties, including financial, environmental and social stakeholders. FSC certification is considered a credible guarantee for sustainable forest management (and MTCC certification for legal and progressing to sustainable). It is recommended that alternative documentation should be "submitted for assessment to an impartial third party" but recognises that "there are, as yet, no established systems for doing this".[30]

22. The Dutch policy will rest on its own certification system, probably similar in principle to FSC (FSC itself is regarded as not sufficiently independent from NGOs and some companies). On an interim basis, procurement authorities are to rely on the Keurhout[31] and FSC criteria for guidance.

23. The French scheme specifies five types of certificate for logs, sawnwood, veneer and plywood, including licenses of legality, sustainable forestry management certificates, and codes of good conduct; equivalent documentation is also allowed. The key common factor is that they must all be verified by an independent body.

24. The German approach is rather looser. Existing German policy simply specifies that the certification proving sustainability must be credible, and in practice a wide range of certificates and eco-labels have been accepted by purchasers. The criteria for the new regulations are not yet available, but one report states that they will use the FSC certificate as a benchmark. [32]

25. UK policy originally used FSC, or equivalent, as an example of sustainability, but the UK has now established a comprehensive means of defining and verifying sustainability and legality—aimed partly at assessing existing certification schemes, but also at meeting the problem identified by the Danish guidelines, that of verifying alternative documentation. A Central Point of Expertise on Timber (CPET) was set up in June 2004, and its work is proceeding in phases. [33]

26. Phase One was aimed to establish robust contract definitions for legal and sustainable timber, assess how well the five major certification schemes covering the bulk of UK imports provided assurance to customers, and revise previous guidance. The results of this work were announced in November 2004; two of the five schemes (FSC and the Canadian Standards Association (CSA)) were found to guarantee legal and sustainable timber, and the remaining three (Programme for the Endorsement of Forest Certification Schemes (PEFC), the North American Sustainable Forestry Initiative (SFI) and the Malaysian Timber Certification Council (MTCC)) to guarantee legal, but not sustainable, timber. Subsequently, PEFC and SFI changed elements of their processes and in August 2005 it was announced that they met the UK criteria for legal and sustainable timber.

27. Phase Two was also announced in August 2005. The UK consultancy ProForest was commissioned to operate an interactive helpline service, facilitate consultations with stakeholders and develop education and training. It will also continue the process of assessing forest certification schemes and, crucially, willdevise a methodology for assessing alternative forms of evidence. It is also intended that it will monitor how successfully government departments are implementing the timber procurement policy and how effectively CPET assists the process. It is envisaged that in due course CPET will be used by the entire UK public sector and its suppliers.

28. Both the Danish and British approaches originally envisaged the possibility of so-called "variant bids", in which different levels of bid could be invited, and/or made, for the same contract—for example, bids providing baseline legal timber, and higher quality bids providing sustainable timber. UK policy clearly states that bids of higher quality will be preferred provided that they offer clear value for money.

29. As noted above, both approaches also envisage the possibility of a middle category, of "legal and progressing to sustainable", though some doubts have been expressed in the UK about the feasibility of measuring it, so this step is not being implemented in Britain, at least initially. The Danish guidelines suggest the Malaysian Timber Certification Council (MTCC) as proof of "legal and progressing to sustainable".

Implementation: the broader framework

30. As noted above, the Danish policy is voluntary, and applies equally to all public institutions. In contrast, all the other four countries' policies are, or will be, mandatory at central (federal) level. None of them are mandatory for regional or local governments, but in all countries at least some authorities at these levels have adopted similar policies, and in some cases have based their approaches explicitly on those of central government. (In other cases the policies vary, for example in acceptable certification; no comprehensive survey is available.)

31. In general, environment ministries have taken the lead in developing and overseeing these timber procurement policies (the exception being Germany, where the lead has been taken by the Ministry of Consumer Protection, Food and Agriculture, though with considerable input from the Environment Ministry).

32. In Denmark, Netherlands and UK the development of timber procurement policy has taken place against a background of a general "greening"' of procurement policy more broadly, but in each case there has been a much sharper focus on timber—due to the rapid development of the wider debate around illegal logging, described above. NGO activities and parliamentary interest seem to have been important drivers in all five countries. They have also fed off each other; the initial proposal to the Danish parliament seems to have been modelled on the British approach announced a year earlier (which may explain the several similarities between them).

33. Two countries have adopted targets. The French aim to meet the objectives of 50% of publicly purchased timber being legal and sustainable in 2007 and 100% in 2010 (though it should be noted that they use a fairly loose definition). In June 2004 the Dutch government announced that all governmental organisations should commit themselves to buying sustainable timber as much as possible and in due course completely.

Impacts

34. It is in general too soon to judge the impacts of these policies. The Danish, British and French policies are all relatively new, and to a certain extent still evolving, and the German and Dutch policies have not even been implemented yet, or have applied only to a relatively small proportion of the market (for example, Germany, where tropical timber is not extensively used in building projects).

35. Having said that, the UK, however, which has been implementing at least voluntary guidance since 1997, believes that it has already observed a major shift in suppliers' attitudes, with most suppliers now fully understanding and appreciating the objectives of the policy. It is difficult to disentangle the impacts on corporate behaviour of the many initiatives now under way in the general area of illegal logging and the control of trade in illegally logged timber—including a wide range of conferences and consultation meetings, targeted direct action by NGOs, the EU FLEGT action plan, and so on—but procurement policy is commonly cited by industry in Britain as a major driver for change in its own behaviour. Chatham House is currently preparing a study of actual and probable impacts of all the various initiatives designed to control illegal logging, including government procurement policy.

3. CONSTRAINTS: EU AND WTO PUBLIC PROCUREMENT FRAMEWORKS

36. Public procurement policies in EU member states are governed by the general principles established by EU and, to a lesser extent, WTO rules. The two frameworks are described below, but the key principles they establish are that procurement policies should:

— Be non-discriminatory (eg between products of different countries).

— Ensure value for money for taxpayers and consumers of public services.

— Ensure equal treatment of suppliers.

— Operate in a transparent way.

EU procurement rules

37. Until early 2004, EU legislation in the field of public procurement was covered by four different Directives dealing with services, supplies, works and utilities; some of it dated back to the early 1970s. On 31 March 2004, these four Directives were replaced by two new ones: Directive 2004/18, on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (the "classical" directive) and Directive 2004/17, on the coordination of procurement procedures of entities operating in the water, energy, transport and postal services sector (the "special sectors" directive). Member states have until 31 January 2006 to transpose these Directives into national law.

38. The application of the old Directives to "green procurement" was disputed. It was always clear that some environmental criteria could be included in the technical specifications of a tender when it was drawn up, but the Commission argued that such criteria could not be considered at the award stage, as they did not necessarily bring an economic advantage that directly benefited the public authority. However, in September 2002, in the Concordia bus case (which covered the purchase of low-emission buses by the City of Helsinki), the European Court of Justice ruled that non-economic factors (such as noise levels or pollution) could be taken into account at the award stage, so long as they satisfied a number of criteria, such as being linked to the subject matter of the contract, and being applied transparently and in a manner that did not amount to discrimination against any other member state of the EU.

39. This effect of this ruling has made its way into the new directives, but their exact application is of course as yet unknown. However, the Commission's website[34] summarises the position as follows:

— Technical specifications: both environmental product characteristics and production methods can be specified, though the methods must be relevant to the product being purchased.

— Variants: the contracting authority may specify a base set of technical specifications, and a (specific) green variant; companies can submit bids for either.

— Selection criteria: may be included in the contract; covers issues like exclusion criteria (eg convictions for an environmental offence, non-payment of taxes, etc) and technical capacity criteria (does the bidder have the necessary capacity and experience for the contract?).

— Award: environmental factors, such as emission levels, or energy consumption levels, can be used in the award of the contract, and they do not have to bring a direct advantage to the contracting authority itself.

— Contract performance: specifications such as delivery of products in bulk rather that separate containers can be included, but must always be clearly specified and related to the execution of the contract.

40. The Commission's publication Buying green! A handbook on environmental public procurement, published in August 2004, [35]recognises the current debate around legal and sustainable timber and contains a section specifically on the topic. It concludes:

Some useful technical specifications for timber purchase

For example, the following criteria can be used in the technical specifications of a contract that is sustainable in environmental terms:

— The assurance that the rate of harvesting of timber does not exceed levels that can be permanently sustained.

— Use of environmentally friendly non-chemical methods of pest control, and the avoidance of use of chemical pesticides.

As with all technical specifications, you can only include those specifications which are related to the subject matter of the contract. So you cannot include specifications of a scheme on, for example, the protection of forest-dependent people.

However, you can, as a purchasing authority, indicate in the contract notice or tender documents that a forest certification scheme will be accepted as a possible means of proof of fulfilment of these requirements. You must, of course, accept equivalent means of proof too.

The WTO Government Procurement Agreement

41. Government procurement measures are also subject to the WTO Government Procurement Agreement (GPA). Unlike most WTO agreement, this is a plurilateral agreement, to which not all WTO members are parties—in fact, only the EU (and all its member states) and 12 other countries are parties. Only three developing countries, none of them major timber producers—Hong Kong China, Korea and Singapore—are parties.

42. Its basis rests on the core WTO principles of non-discrimination between like products from foreign and domestic suppliers. The GPA's definition of technical specifications is very similar to that of the EU, stressing "performance" rather than "design or descriptive characteristics", though its definition of award criteria is rather looser. In addition, Article XXIII of the GPA includes exceptions to its obligations for reasons of public morals or protection of human, animal and plant life. Given these wordings, it seems highly unlikely that the GPA is of much relevance to EU member states in this area—EU procurement directives are much more detailed and in key respects more restrictive, and are therefore the key determinant of member state legislation.

4. POLICY OPTIONS

43. This last section considers what options might be feasible for the further development of EU action to promote procurement policies for legal and/or sustainable timber.

Provision of information

44. The most basic level of action possible would be to assess how existing procurement policies—at regional and local as well as central levels—may already affect the market for legal and sustainable timber. There is little information available on this at present, given the relatively recent introduction of such policies in the five EU member states, but their impacts should be closely monitored. (As mentioned above, Chatham House is currently conducting a study on this topic.)

45. A development of this fairly basic approach would be to create a central information point for suppliers. As can be seen from the analysis above, procurement policies vary, sometimes quite substantially, country by country, making it more rather than less difficult for producer countries to sell into these markets. It would seem sensible for the Commission to maintain information on procurement policies, probably through a single website, so that suppliers can obtain the information they need more easily.

46. Developing this approach further, it would be useful if the kind of work the UK CPET is carrying out, assessing certification schemes and "alternative documentation" for the extent to which they meet sustainability and legality criteria, could be made available more widely. This is information which any procurement authority concerned about such issues should find useful. CPET could, of course, simply sell its advice to any procurement authority, or even private sector body.

Development of procurement policies

47. Beyond the simple provision of information, it would obviously be desirable if all EU countries developed their procurement policies to source legal and sustainable timber. Frameworks for green procurement in general appear to be in existence in many EU countries, and there are plenty of models now available as to how procurement policy can source legal and sustainable timber.

48. Given this, and also the fact that the FLEGT Action Plan, approved by all EU member states, explicitly encouraged the wider adoption of timber procurement policies, it is disappointing that twenty out of 25 national governments appear to be taking no steps whatsoever to adopt such policies. The timber licensing scheme to be introduced under the Action Plan will be a key step in the exclusion of illegal timber from EU markets, but it seems unlikely to come into full operation until some time in 2006 at the very earliest, and in any case will be restricted to those timber-producing countries which sign up to partnership agreements, and also to a limited range of timber products. Procurement policy, however, can apply quite easily to all products and must apply to timber from all countries—and can be introduced fairly quickly. The wider adoption of timber procurement policies within the EU would undoubtedly have a beneficial effect on controlling illegal logging and the trade in illegal products.

49. In an ideal world, some degree of harmonisation would also be desirable within the single internal market. The simplest form would be intra-EU agreement on definitions—"legal", "sustainable", intermediate steps, and so on—while the purchasing authorities retain the right to use them differently in terms of targets. A supplier with timber certified as "sustainable" under an internationally accepted scheme would then have the confidence of being able to meet the criteria in all EU countries which required it, without having to proceed through different accreditation procedures for different countries.

50. The next step up is complete harmonisation of procurement policies, with all countries requiring the same standards of legal and sustainable timber and timber products. This does not seem politically feasible within the EU, at least in the short- or medium-term. Nevertheless, any of the other steps outlined above would assist substantially in building markets for legal and sustainable timber and excluding illegal timber from EU markets.

September 2005