Due Diligence And Certification For Furniture Exporters

by Michael Buckley MPhil FIWSc

The start of Chain of Custody

There are many interpretations of Due Diligence (DD). In its purest form in law DD simply means a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential. In trade, in voluntary practice today, DD means in general taking a measure of prudence, responsibility and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.

In March 2013 the European Union, in adopting its EU Timber Regulations (EUTR), incorporated a legal framework to ban the trade in illegal wood and wood products including furniture, while creating a loose requirement for reasonable due diligence by the timber trade and wooden furniture traders. It aimed “to stop the circulation of illegally logged wood in the European Union and applies to wood and wood products being placed for the first time on the EU market.” It affects manufacturers in Asia insofar as European customers demand documentation and transparency as a condition of doing business.

These messages were everywhere at IFEX in 2016

PEFC Certified Plywood from Malaysia. photo credit MTCC
According to the EU the three key elements of the “due diligence system” are

1. Information: The operator must have access to information describing the timber and timber products, country of harvest, species, quantity, details of the supplier and information on compliance with national legislation.

2. Risk assessment: The operator should assess the risk of illegal timber in his supply chain, based on the information identified above and taking into account criteria set out in the regulation.

3. Risk mitigation: When the assessment shows that there is a risk of illegal timber in the supply chain that risk can be mitigated by requiring additional information and verification from the supplier.

In February 2017 the EU published that all but one (Slovakia) of the 28 member states had fulfilled their obligation to implement the necessary facilities required to enforce the law.

It’s fair to say that, even with all the advice on offer, there remains some confusion in Asia. Consultants and NGOs as well as industry and trade associations all offer slightly differing advice and DD systems (DDS). Even in Europe countries such as Spain through their trade associations give their own individual advice to importers. And one of the key questions which frequently arises is whether certification, by FSC or PEFC for example, is sufficient to satisfy EUTR in full. The EU does not answer yes to this as, from the out-set, it has refused to accept certification as the sole and comprehensive DD tool. The certification schemes rightly suggest that the use of certified timber goes most of, if not all of, the way to satisfy DD.

The EU says certification can be used where it meets and delivers the EUTR DD requirements – however the EU is not about to name certification systems in documentation like regulations as the requirements of the said scheme might change over time and no longer meet the requirements. So both PEFC and FSC insist that their CoC certification including DD meet and exceed the EUTR requirements – but the EU will not confirm or deny this. So the onus is on the company to ensure its DDS meets the requirements. PEFC, for example, believes PEFC CoC certification does just that – not only for certified material but also for the uncertified material which passes the DD requirements of PEFC. The use of certification gives a company an extra layer of confidence as an independent accredited third party (the certification body) has verified the company’s procedures and claims within the scope of the chain of custody certification.

DD for furniture manufacturers can be very complex. Consider a table on a local rubberwood frame, with an American hardwood veneered top on MDF from Thailand and a drawer with Malaysian plywood bottom and Chinese poplar drawer sides. Even with a single species things can go wrong. Sweden’s court recently ruled that a certificate issued by the Myanmar Forest Products Merchant’s Federation (MFPMF) did not provide adequate proof that a shipment of teak imported into Sweden had been legally harvested. The ruling was based on a judgement that the collection of MFPMF paperwork does not represent adequate DD. The absence of a clear chain of custody from point of harvest allows for potentially illegal wood to be laundered into a legal supply chain.

It may not always be possible to use exclusively certified wood material but at least with Chain of Custody (CoC) certification and the bulk of the material certified, DD surely becomes less difficult. In order to provide assurances that wood and wood-based products originate from sustainably managed forests, schemes such as PEFC promote CoC certification which outlines requirements for tracking certified material from the forest to the final product to ensure that the wood contained in the product or product line originates from certified forests. For a product to qualify for certification, all entities along the supply chain must possess a CoC certificate. PEFC makes the point however that COC is also applicable for non-certified wood sources and the DD system requirements integrated in the PEFC CoC can also support supply chains not using certified wood.

For more on EUTR: http://ec.europa.eu/environment/ forests/timber_regulation.htm