Are demand-side policies like the Lacey Act and EUTR bad for tropical forests?

The Lacey Act and European Timber Regulation (EUTR) are demand-side regulations that govern the inter-state trade of wood products in the United States and the European Union. They hold domestic companies liable for wood that has been illegally harvested, processed, transported or traded even if the crime occurred by foreign entities in foreign countries.

What’s unique about these laws is that they are being used to punish companies that have not been proven to trade in illegal wood products, but fail to demonstrate adequate due diligence procedures during procurement (adequate as interpreted by a court).

For example, in 2018 a British company imported FSC-certified timber that was not proven to be illegal. However, the company was prosecuted for not collecting adequate information with regards to the origin of the material.

Cases like this suggest that the recent enforcement of these laws is not prioritizing the legality (or sustainability) of wood materials, but instead is more heavily focused on increasing the cost of doing business in the tropical wood products industry.

In some instances, it even appears that the institutions championing these laws are creating niche industries by promoting regulations and then selling certification and other services around these regulations.

Additionally, there is no empirical evidence that these laws reduce illegal logging or deforestation. What they definitively do, however, is transfer the costs of forest governance to private enterprises in ways that are immeasurable.

By increasing the costs of doing business in ways that are immeasurable (what is adequate due diligence?), laws such as The Lacey Act and the EUTR risk creating a scenario where investments in forests and forest-based enterprises are perceived as riskier and less profitable than non-forest land uses, primarily agricultural land uses.

A fundamental economic principle of forest conservation is forest net present value (NPV). The basic concept of NPV is this… the decision to manage a unit of land as forest, or other land-use, depends on which land-use generates more cash.

There is a real possibility that the current application of laws such as the Lacey Act and EUTR are destroying demand for tropical wood products, and thus diminishing the net present value of tropical forests.

In order to avoid a scenario where excessive demand-side regulation destroys demand to the point where it significantly reduces the net present value of tropical forests, three main courses of action should be considered:

1. Instead of creating additional costs, efforts to conserve tropical forests should focus on lowering the costs of doing business for licit forest-based enterprises.

2. Analysis of the effects of demand-side regulations like the Lacey Act and EUTR on tropical forest-cover should be required before further punitive measures are taken against companies that have not been proven to trade in illegal wood.

3. Links between policymakers, NGOs, and funding sources should be made transparent so that civil society can better understand the money flows and potential conflicts of interest with regards to the recent application of these laws.

Not enough is known about the effects of recent applications of demand-side regulations like The Lacey Act and EUTR on tropical forest-cover. But many of the professionals involved in forest management or the commercialization of forest products have witnessed the negative effects that these policies are having on tropical forest product demand and, in turn, tropical forest values.

Maybe it’s time that the organizations guiding the recent applications of these demand-side laws demonstrate their own due diligence practices with respect to the effects that their actions are having on tropical forests? Have they identified and considered the risks of negative externalities like demand destruction on forest values? Do they have strategies in place to mitigate such risks? Is there documentation of such processes?

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Point of Harvest is an open source publication. If you’d like to suggest edits to this document or to submit your own, contact us.

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