RAFT Story of Change:

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1 RAFT Story of Change: On the Trail of Responsible Timber H ow can you know if your dining room table is legal and truly green? One major furniture retailer found the answer by going to China to meet its suppliers and tracing the factories timber supplies all the way back to the forest. This is one example emerging from the era of responsibility in forestry and timber trade. For years, the global timber supply chain has too often been a liability for forests, making it easy for importers and manufacturers to overlook their enormous and often very destructive footprint in faraway tropical forests. Focused on short-term profits, companies lacked motivation to ask hard questions about the source of wood used in furniture and flooring, and the links in the chain along which their products traveled. Today it is different. Consumer demand for socially and ecologically responsible timber products and policies in Washington and Brussels are creating changes in forests from West Kalimantan to Luang Prabang. An international supply chain requires an equally transnational response from conservationists, and the Responsible Asia Forestry and Trade (RAFT) program offers such a response. Active across eight countries in the region from communities in Lao PDR to factories in China RAFT has worked to bring transparency to the global timber supply chain, along with legal and sustainable management to the forests of Asia and the Pacific. This includes: strengthening laws to prohibit imports of illegal timber; helping companies and governments to design and use chain of custody systems to track forest-product exports all the way back to the forest; and fostering business-to-business learning about why it is important to clean up a timber supply chain and how to actually do it. Sawn wood labeled to be tracked and verified as legal at CV. Citra Jepara factory, Central Java, Indonesia. Aji Wihardandi/TNC.

2 Responsible Asia Forestry and Trade Logs labeled with yellow to show that they meet the responsible sourcing criteria of RAFT-partner The Forest Trust (TFT) at CV. Citra Jepara factory, Central Java, Indonesia. Aji Wihardandi/TNC. Before you can sleep soundly in a legally and sustainably produced bed, you have to ask a lot of questions; from the forest, to a port piled high with timber, to an overseas factory, and so on, until a showroom or retailer on the other side of the world. There are many places along the timber supply chain where things can go wrong. Or, where they can go decidedly right. Today, not asking those questions can get a company into a lot of trouble. Furniture and flooring retailers face new incentives to both clean and green their timber supply chains. New laws in consumer markets, such as the 2008 Amendments to the Lacey Act in the United States (US) and the European Union s (EU) Timber Regulation, hold importers accountable for the pedigree of the raw materials that go into the products they sell. In the US, companies that cannot demonstrate the source and the legality of the wood they import can be fined US $500,000, face jail time of up to five years and have their shipment seized. At the same time, as global attention turns to the role of forests in combating climate change, major institutions like the World Bank are increasingly looking to commodity supply chains as a way to influence reductions of carbon dioxide emissions from agriculture and forestry practices. RAFT targets the most critical links along the timber supply chain to further improved forest management on the ground and the accompanying reductions in carbon emissions. It does this using a three-pronged approach: First, partnerships. It is important to avoid reinventing the wheel. RAFT brings together some of the leading organizations on supply chain management to build on existing relationships and work portfolios. Second, supply chains. RAFT recognizes the need to work with regulators, retail buyers, manufacturers and forest managers to change behavior up and down the timber products supply chain. And third, RAFT connects policy and practice. RAFT helps ground policy in practical realities, while working with factory and forest managers to translate good policy into good practice. RAFT Story of Change

3 Navigating a Shifting Legal Landscape Terry Tang of Eastwin and Susfor-Oasis Wood and George Zhao of B&Q China announce their participation in GFTN- China together with GFTN-China Head Jin Zhonghao, Shanghai, China. IWCS. Before the training in Shenzhen, we didn t know anything about GFTN-China or FSC certification. Now, we are open to working with NGOs, and see FSC as an important tool to promote sustainable forest management in all of our operations. Terry Tang, Eastwin and Susfor-Oasis Wood. A lot has changed since 2001, when governments from major wood producing and consuming countries recognized a shared responsibility to deal with the problem of illegal logging in the forests of Southeast Asia. One important change was the 2008 Amendments to the US Lacey Act, the country s oldest wildlife protection law, to include plant products such as wood, and anything made from it. This was the first law of its kind, designed to support trading partners in their efforts to combat illegal logging. Since then the EU, Switzerland, and more recently Australia, have also taken big legislative steps to ensure that consumer markets are not creating demand for illegal wood. With these new laws, suppliers that are unable to demonstrate the legality of the products they export will find it much harder to stay in business. The introduction of these laws in consumer markets created an opportunity for RAFT partners to help translate legislation in buyer markets into much needed action in Asia s flooring and furniture factories and, ultimately, in forests. In 2010, RAFT Partners WWF s Global Forest & Trade Network (GFTN) and TRAFFIC developed Exporting in a Shifting Legal Landscape, a guide to help companies assess their own performance in meeting the needs of their US and EU buyers. The guide was used in a series of legality trainings held in four countries China, Indonesia, Malaysia and Vietnam. The training combined TRAFFIC s research and training abilities and GFTN s extensive industry networks. Experts from the US Government and the European Forest Institute s EU FLEGT Asia Programme introduced more than 950 wood manufacturers to the requirements of the new legislation in both markets. Beyond information about new legislation in consumer markets the guide includes all relevant laws in producer and processor countries that suppliers must demonstrate their compliance with in order to keep selling their products to the US and the EU. Lacey says you can t violate laws in producing and processing countries, but it doesn t say what those laws are, explains TRAFFIC s Chen Hin Keong. For the first time, the guide explains to major producing and processing countries what in our opinion Lacey should mean for them. Increased awareness among Chinese companies of what export markets require is also being felt in China s fast-growing domestic market for wood products. For example, B&Q China part of Kingfisher Group, the world s third largest home improvement retailer attended one of RAFT s legality trainings in Shanghai. Kingfisher has since strengthened the implementation of its responsible timber policy in China by announcing its participation in GFTN-China s program to work towards the ultimate goal of sourcing 100% Forest Stewardship Council (FSC) certified timber. With hundreds of buyers abroad and at home, B&Q China is one example of how RAFT s efforts are having an impact beyond companies sending their products overseas, and reaching one of the fastest growing consumer markets in the world. Another example of how the trainings are sending ripples throughout the industry are wood product companies East Win and Susfor-Oasis Wood. RAFT s legality training in Shenzhen introduced management to the new requirements of international markets, ultimately leading both companies to participate in GFTN-China and adopt FSC certification as company policy both for the forests they source from as far away as Brazil and Bolivia, to their saw mills and factories in China. In 2011, Susfor-Oasis Wood held its own event for buyers and other partners in China to raise awareness of FSC certification and the work they are doing to source responsibly. In 2011, legality trainings were held in Thailand, Lao PDR and again in China, where the demand is high. Together the events attracted nearly 1000 industry representatives. The large number of people we were able to train and inform about the Lacey Act and the resources we were able to produce have left a legacy of information where there was once a vacuum, says GFTN Head George White. Now we see companies taking that information and making decisions that are leading them down the path to responsible trade. On the Trail of Responsible Timber

4 Checking the Boxes of Responsible Sourcing The term supply chain signifies how raw materials and products make their way through a number of countries and stages in the production process, ultimately ending up as everyday items in offices and homes all over the world. For most products however, the journey from forest to final destination is more a game of connect the dots than a chain. Pieces and parts move in multiple directions, from one country to another and back again, driven by the hard economics of supply and demand. For the first time in history, connecting those dots can now determine whether companies stay in business. This connecting process is called chain of custody (CoC), a paper trail that follows a product from the forest, through transpor tation and processing, to final market. CoC cer tification, like that offered by the Forest Stewardship Council (FSC), is increasingly critical because wood that begins its journey from an FSC-cer tified forest cannot maintain that status as it moves through the production process without CoC cer tification. RAFT has helped 20 factories achieve FSC CoC cer tification, including the first two cer tificates in Lao PDR. Timber Traceability Checklist Once a company has developed a responsible sourcing policy and trained their staff to carry it forward, traceability must be established by placing sources in one of the following six environmental status categories: recycled; known source; known licensed source; progressing to certification source; or, credibly certified source. Establishing a CoC system that traces and tracks sources flowing into a company s supply chain is an important step in a company s journey to responsible sourcing. RAFT partners work with wood manufacturers to eliminate unwanted sources and increase the quantity of known licensed, and ultimately credibly certified, sources in their supply chains. START RECYCLED Recycled Yes Recycled? Full traceabillity? Unknow or Unwanted KNOW SOURCE and UNWANTED SOURCE Complies with policy? Know No Licensed source? Licensed KNOW LICENSED SOURCE High Risk? Complies with policy? No Verified legal timber Progressing to Certification? PROGRESSING TO CERTIFICATION SOURCE Progressing Continued Progressing? No CREDIBLY CERTIFIED SOURCE Credibly Certified FINISH This diagram is provided by GFTN s online Guide to Legal and Responsible Sourcing. For more information: RAFT Story of Change

5 In many countries, outdated and sometimes conflicting policies combined with multiple and overlapping levels of authority, make it very difficult for even the most determined businesses to be sure of all of the rules they must follow in order to be legal. RAFT has helped address this problem by working with the Association of Southeast Asian Nations (ASEAN) to develop regional CoC guidelines for legal and sustainable timber. At the national level, the Department of Forest Inspection (DOFI) in Lao PDR has used these regional guidelines to develop the country s first national CoC system that tracks timber from the forest to the point of export. By 2015, all ASEAN Member States will be required to do the same. A good national CoC system lays a clear path to legality for all companies to follow and helps level the playing field for responsible businesses by setting the baseline. A clear national CoC system endorsed by senior decision makers can also help enforcement and customs officials to do their jobs. For any globally traded commodity there are many links along the supply chain, each carrying the risk of tainting the entire chain with illegal activity. There is one thing that all legally traded products have in common customs. Customs is the only agency that monitors all products that leave and enter the country, says TRAFFIC s Chen Hin Keong. However, customs agents need support from experts in the different product categories to understand a product and how it is traded, to help them control its trade. RAFT s work to strengthen collaboration between China and Indonesia on promoting responsible forestry and trade offers one example of how such support could play out at a bilateral level. Through exchanges with Indonesia, Chinese forestry, customs and trade officials have learned about the requirements for legal timber export on Indonesia s side. This knowledge enables China, as an importer, to support Indonesia s efforts to combat illegal logging and trade at home. The European Union s Voluntary Partnership Agreements (VPAs), like the one signed with Indonesia in May 2011, offer a similar approach whereby a licensing system is agreed upon between the EU and the exporting country. The license then becomes one of the documents required by customs for a shipment to enter the EU. Paper chain of custody system for tracking timber sources at CV. Citra Jepara factory, Central Java, Indonesia. Aji Wihardandi/TNC. On the Trail of Responsible Timber

6 From Competitor to Colleague markets if we can t demonstrate that we conform with requirements. In June 2011, Hiep Long and NTC met with 20 colleagues and competitors to discuss what they have done in their factories, the steps involved in building a transparent timber supply chain and what they have learned. This unique business-to-business approach has brought a credibility to RAFT s supply chain support work that only fellow factories can provide, and offers a much more practical case for change than the same information coming from governments or NGOs. However, the line between cooperation and competition is a fine one, and TFT has struck the right balance. Businesses learn best from other businesses, says TFT s Ho Van Cu. The challenge is to capture and share the knowledge without compromising businesses competitive advantage. Above and below: People working at a furniture factory, Ho Chi Minh City, Vietnam. TFT. Demonstrating due care and due diligence is easy if you are sourcing legal wood. Nguyen Thanh Binh, Nguyen Thanh Furniture Company (NTC). In 2010, Vietnam sent more than US $3.4 billion in wood products to 120 countries, making it Southeast Asia s largest wood products exporter. The US and the EU are the dominant markets, representing 45 and 30 percent of the total exports respectively. In 2010, RAFT s regional timber legality training series came to Vietnam. After learning the basics of the amended US Lacey Act and the EU Timber Regulation, factory operators in Vietnam wanted to know more about what legality requirements in their main markets mean for their day-to-day operations. Two furniture factories in Ho Chi Minh City are answering this question, for the benefit of their businesses, and for the benefit of Vietnam s forest products sector at large. With the help of RAFT partner The Forest Trust (TFT), the two factories Hiep Long and Nguyen Thanh Furniture Company (NTC) have taken the leap from theory to practice by putting in place a responsible sourcing system that allows them to demonstrate the legality of the wood they use back to the forest it came from. I ve been to many workshops and conferences, and read a lot of various information on Lacey and EU, says Nguyen Thanh Binh of NTC, but we didn t understand what it means practically for our business. We now understand the main risk is not necessarily litigation but the loss of TFT has used this hands-on learning to develop a practical steps manual to share the benefit of Hiep Long and NTC s experience, walking factories through the process of cleaning and greening their supply chains in order to protect their access to major markets. This work is part of an agreement signed between TFT and the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA). With its high profile and respected status, HAWA has provided the perfect platform for sharing this practical guidance with its 350 members. We don t expect the businesses to open their doors to competitors, Ho adds, but all factories have a common interest in building a stronger more respected Vietnamese wood-product export industry. RAFT Story of Change

7 Moving Forward Taking Timber Legality Deeper. Lesson: The Lacey Act and the EU Timber Regulation are changing the timber trade. Companies are paying attention to legality and are genuinely concerned about what they must do to stay competitive. Awareness of the laws and requirements is spreading rapidly. What is needed, by small and medium-sized companies in particular, is a better understanding of the specific steps they must take in order to comply. Action: More sector- and product-specific training in responsible sourcing is needed, including handson support to develop legality verification systems as case studies and demonstrations to guide other companies down the same path. This work should be organized in collaboration with industry associations in both consumer and supplier countries with supporting materials in national languages. Connecting with Customs. Lesson: Under current implementation of the US Lacey Act and planned implementation of the EU Timber Regulation, customs agencies are not being used to the full potential of their authority and ability, creating unnecessary loopholes that allow for illegal trade. Under the EU Timber Regulation for example, monitoring bodies that will verify the legality of timber products imports will operate independently of customs authorities. The ability of customs authorities to play their part is also seriously limited by the absence of any mechanism for regular communication with counterparts in trading partner countries. Action: Conduct consultations and a gap analysis to determine specific loopholes and the appropriate steps to reinforce customs agencies authority and capacity to strengthen enforcement of the US Lacey Act and EU Timber Regulation. This could be done as part of a regular series of dialogues involving forestry and customs officials and other relevant regional and international bodies. Growing Markets for Certified Wood. Lesson: While the number of FSC CoC certificates in Asia has risen steadily over the last five years, there remain many FSC CoC certified factories that continue to source uncertified wood alongside their FSC orders, due to insufficient demand for FSC certified products. Within the industry, there are also concerns that illegal sources continue to be mixed with wood used by competitors in products labeled as FSC certified. Action: Strengthen monitoring and marketing of responsible wood products to support strong environmentally and socially responsible purchasing policies and increase demand for FSC certified products. Tougher monitoring will ensure that the wood used is in fact coming from a well-managed forest. This intelligence can provide the basis for a stronger effort to educate consumers about the benefits of buying responsible products. There are many examples of how NGOs and companies are already working together to do this. These should be expanded. FSC certified timber ready for export at Malaysia Timber Industry Board (MTIB) warehouse, Peninsular Malaysia. Allison Bleaney/RAFT. On the Trail of Responsible Timber

8 The Responsible Asia Forestry and Trade (RAFT) Program, funded by USAID s Regional Development Mission for Asia, influences the development and implementation of the public policies and corporate practices needed to improve forest management and bring transparency to the timber trade in Asia, thereby reducing carbon emissions from deforestation and forest degradation. RAFT is managed by The Nature Conservancy and implemented in partnership with IUCN, RECOFTC The Center for People and Forests, The Forest Trust, the Tropical Forest Foundation, TRAFFIC the Wildlife Trade Monitoring Network and WWF s Global Forest & Trade Network. In addition to these core implementing partners, RAFT works with government, industry, inter-governmental organizations and academic institutions from across the globe. RAFT works in eight countries in Asia and the Pacific: Cambodia, China, Lao PDR, Indonesia, Malaysia, Papua New Guinea, Thailand and Vietnam. Contact: Jack Hurd, Asia Pacific Forest Program Director The Nature Conservancy jhurd@tnc.org This publication is made possible by the generous support of the American people through USAID. The contents are the responsibility of the Responsible Asia Forestry and Trade program and do not necessarily reflect the views of USAID or the United States Government. RAFT Story of Change