Sustainable Forest Finance Toolkit - PwC

Legality issue briefing note2 of 5New Application HOMEUnderstanding legality in a forestry context• Legality is not an issue in every country. A pragmaticapproach may be to begin by identifying regions/countries athigher risk, and then focusing efforts on aspects of concernwithin those areas (e.g. corruption, lack of law enforcement,social conflict, etc).• Legality issues vary in severity. Lack of compliance withminor administrative regulations may not have a significantimpact on sustainability. It is desirable, but difficult, to focuson significant infractions.• There are also cases when the law is not seen by everyoneas equitable or fair (e.g. people with traditional claims to theland). Conversely, in some places, laws protectingcustomary rights are not enforced or are ignored.• Verification of compliance with all national laws can beimpossible. A pragmatic way to address this is to look forcitations and fines to establish whether violations are merelyoversights or form a pattern of major violations with seriousimpacts on sustainability.• It is difficult to prove legality beyond good title because legalsystems document non-compliance (i.e. citations, fines), notcompliance. Transfer of title, however, is commonlydocumented through bills of lading and other negotiableinstruments. Even for title, however, the risk of forgeddocuments can be significant in some places. At a minimum,documents should carry all appropriate stamps and sealsfrom the relevant governmental agencies.Illegal logging is a fundamental problem in certain nationssuffering from corruption or weak governance. Internationaltrade is one of the few sources of influence sufficient to createthe political will to make improvements. Several internationalprocesses have taken up this issue, and national efforts havestarted to appear as a result. During the last five to 10 years,illegal logging and illegal trade have risen to the top of theinternational forestry agenda.Illegal logging of wood and paper-based products entails acomplex set of legal, political, social, and economic issues.Poverty, lack of education, financial issues, population growth,and weak governance are all enabling factors for illegal activity.Illegal activity has many drivers that make it challenging toaddress this issue. These drivers are often associated with arange of items from short-term economic gain to local andnational actors, including communities and governments:• Local (and often national) governments may receive higherrevenues as a result of illegal land conversion andincreased timber production.• Because illegally logged wood can be sold at lower prices, itdepresses the profitability of legally harvested wood whileimproving the competitiveness of industries that use illegalwood.• Many people may derive an income from illegal forestactivities.Illegal logging and illegal trade can create serious problems:• Government revenue losses – the World Bank estimatesthat governments lose revenue equivalent to about US$ 5billion a year (World Bank, 2002A).• Unfair competition – market distortion and reduction ofprofitability for legal goods; the World Bank puts this cost atmore than US$ 10 billion a year (World Bank, 2002A).• Increased poverty – occurs indirectly when governmentslose revenues.• Support and funding of national and regional conflicts.• Unplanned, uncontrolled and unsustainable forestmanagement.• Destruction – areas important for biological conservation,ecosystem services, and local livelihoods.Page 24pwc