What Does Brexit Mean for Illegal Logging and the Global Timber Trade? (Updated)

The Prime Minister of the United Kingdom (UK), Theresa May, today confirmed that the country will leave the European Single Market[1] in what has become known as a “Hard Brexit”. While the future shape of the UK’s relationship with the EU and other trade partners is still not entirely clear, the announcement rules out a number of possible scenarios. It also has implications for the UK’s position on forests and the EU Timber Regulation (EUTR), transposed into UK law as the Timber and Timber Products (Placing on the Market) Regulation.

1. Will the UK Still Implement the EUTR?

Until the process of leaving the European Union (EU) is completed, all EU law, including the EUTR, remains in force in the UK. According to the current timetable, the UK will leave the EU two years after the UK formally notifies the European Council of a decision to leave, and that notification is expected by March 31, 2017.

According to today’s statement, the UK plans to exit the single market; however, the Prime Minister was clear that a tariff-free trade of products, under the auspices of a Free Trade Agreement and a Customs Agreement, rather than full membership of the European Customs Union, were two of the 12 priorities for future EU-UK negotiations. Both of these priorities make it reasonable to expect that the UK will maintain the same environmental standards as the remaining Members of the EU, particularly for products which are traded in significant volumes with EU member states, as timber and forest products are. It is therefore highly likely that the EUTR’s requirements for “Due Diligence” and prohibition on the import of illegal wood will not change, although it will be known by its UK name, the Timber and Timber Products (Placing on the Market) Regulation.

2. Will the UK Draft New Regulations and If So, How Long Would It Take?

The UK Timber and Timber Products (Placing on the Market) Regulation of 2013 derives its power from the European Communities Act of 1972. In order to leave the EU, the UK Prime Minister today committed to repealing that Act and replacing it with equivalent primary legislation that will convert the body of existing EU law into British law, rather than replacing each individual regulation. Furthermore, the Prime Minister stated, “This will give the country maximum certainty as we leave the EU. The same rules and laws will apply on the day after Brexit as they did before.”[2]

It is therefore clear that the requirement for Due Diligence and the prohibition on the import of illegal wood will be maintained. The UK has been among the leaders in implementing the EUTR, and all available information from the government, national NGOs, and the UK Timber Trade Federation suggests that the country remains fully committed to it.

3. Does the UK Leaving the EU Risk a Weakening of EUTR Implementation in the Remaining 27 Member States?

Implementation of the EUTR in remaining EU Members States will not be affected by the UK’s departure from the EU. At the end of last year, the EU Council adopted conclusions from the recent evaluation of the EU’s overall strategy to tackle illegal timber, known as the Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan. Those conclusions emphasize the positive contribution that the EUTR has made toward reducing the market for illegal timber and calling upon Member States to do even more to address the global trade in illegal wood. They also reaffirm the mandate of the European Commission to support consistent implementation across the EU.

The UK has and will continue to coordinate enforcement approaches with EU Member States, just as non-EU countries Norway and Switzerland have been doing, along with the US, Canada, and Australia, in an informal government process known as the Timber Regulation Enforcement Exchange (TREE) facilitated by Forest Trends.

4. Economists Are Forecasting a UK Recession of Uncertain Magnitude. How Would that Recession Affect Imports of Wood Products?

A weakened British Pound coupled with a UK-wide recession could reduce the demand for all goods, but it’s difficult to predict how Brexit will affect the demand specifically for wood imports. It is safe to say that the impacts of a devalued pound are already being felt by exporters of forest products to the UK. However, the likelihood of a recession is less well-understood. The UK was the fastest-growing among all advanced economies in 2016 according to the IMF, and forecasts for 2017 have been revised upward since the Brexit vote. It should be noted, however, that the UK has not yet left the single market, and it is therefore impossible to predict how the change will impact on its economy.

Should Brexit lead to a recession, the timing of a possible impact on wood importers would depend on a number of factors. For example, since the UK plans to leave the single market, it is likely to import less from EU furniture-manufacturing centers in Poland and Romania – opening the door for non-EU manufacturers to become more competitive in the UK market. However, it should be noted that the UK aim of negotiating an Agreement of tariff-free trade with the EU — as well as a Customs Agreement, which would likely necessitate equivalent import tariffs for trade with non-EU countries — makes such a shift less certain.

5. How Will Brexit Impact Wood Production within the EU Itself?

Brexit will have no impact on the capacity of forest owners and wood producers in the remaining EU27 to produce and export wood. If the Euro is weakened by the departure of the UK from the EU, wood sourced within the Eurozone may be cheaper for those outside the Eurozone.

6. Will There Be Any Change in Legality Requirements for EU Wood Products – either Those Exported Directly to the UK, or European Wood Processed by Another country (e.g., China or Vietnam) and Re-exported to the UK?

Theoretically, once the UK has left EU, the country could enforce its national “Timber Regulation” against buyers of products made from any wood that was illegally harvested inside the EU, for example in Romania. Any dynamic like this would take at least three years to play out. The safest way for UK importers to avoid this risk is to buy certified or otherwise third-party audited wood.

[1] The term “Single Market” refers to the EU as one territory without any internal borders or other regulatory obstacles to the free movement of goods and services.
[2] Full transcript available here.