Business

Conflict wood: will the law “On the Timber Market” help Ukraine and the EU find common ground?

The Parliamentary Committee on Economic Development, having taken into account more than 100 MPs’ proposals, recommended that the Verkhovna Rada adopt the draft Law of Ukraine “On the Timber Market” (4229-IX) in the second reading and as a whole. This is reported on the parliament’s website, Komersant ukrainskyi reports.

The story of the parliamentary wanderings of this project began in September 2021 and now has a chance to be successfully completed. A historic chance, as the European Business Association emphasizes in its statement.

What does the revised draft law provide for?

The draft law defines the legal, economic and organizational framework for the sale of unprocessed timber and fuelwood on the basis of transparent competition and the reasonable use of forest resources.

Among the key changes that should have a positive impact on the industry, experts say

– establishing the powers of government agencies in market regulation,

– inclusion of domestic woodworking enterprises in the relevant state register,

– legislative consolidation of the formula for determining the starting price of timber (the calculation will be carried out by the State Forestry Agency),

– regulation of timber alienation for the needs of the Armed Forces of Ukraine, public procurement customers, as well as retail sales to individuals to meet social needs.

The Draft Law, in particular, proposes to

– introduce mandatory submission and publicity of information on the volume, sale price and buyers of wood and wood products as an important natural resource owned by the people of Ukraine

– make information on the sale of wood and wood products public and provide access to it for all market participants, which will ensure equal competitive conditions for all buyers to access wood;

– to introduce documentation by all timber market participants of the forestry and product supply system processes through the mechanism of declarations on timber transactions, etc.

Business supports the adoption of this law

The European Business Association states that the revised draft Law “On the Timber Market” takes into account the main proposals of business, in particular

– the principle of cascading exchange auctions, which provides for both an increase and decrease in the starting price, promoting fair competition

– the priority right of Ukrainian processing companies to purchase timber at exchange auctions, which will protect them from abuse by other market participants,

– extension of the moratorium on the export of unprocessed timber, which will facilitate investment in domestic production, job creation and increase tax revenues.

As noted in the EBA statement, global practice shows that countries are increasingly introducing duties to protect domestic producers and stimulate their own production, and that is why business calls for the adoption of this draft law, which will strengthen the potential of the Ukrainian woodworking industry and promote the export of quality finished products to the EU.

“Conflict wood” and its protection

In April 2015, the Verkhovna Rada passed a law that temporarily banned the export of unprocessed timber. On November 1, 2015, this began to apply to wood species other than pine, and on January 1, 2017, it was extended to this coniferous species. At the same time, the European Union demanded that this moratorium be lifted. on June 20, 2019, the EU initiated a dispute resolution procedure through arbitration.

In December 2020, the European arbitration tribunal issued its decision. As Taras Kachka, Deputy Minister of Economy, explained at the time, the arbitrators recognized that Ukraine can and does have the right to restrict timber exports under certain circumstances.

“The 2015 ban should be adjusted to take into account Ukraine’s full right to regulate this area of activity in accordance with Articles 290 and 293 of the Association Agreement. Adjustment measures should be taken in cooperation with the EU. This is understandable, since the predatory demand from EU companies is the driver of unbalanced timber exports,” emphasized Taras Kachka.

According to him, the cornerstone of the arbitration award will be the creation of a normal market within Ukraine, and the first step should be the approval of the Law of Ukraine “On Timber Market”, which should create a civilized market based on the successful government experiment of selling timber at auctions.

The moment of truth in a long-standing dispute is approaching

The explanatory note to the draft law explicitly states that “in pursuance of the recommendations of the arbitration on the dispute between Ukraine and the EU on the ban on the export of unprocessed timber (roundwood), which recognized that Ukraine has the right to restrict timber exports under certain circumstances, but noted that such a ban should be adjusted in accordance with Articles 290 and 293 of the Association Agreement, the draft law “On the Timber Market” has been supplemented with a new section on guarantees of the sustainability of international circulation of unprocessed timber. This section proposes to regulate some issues related to the ban on the export of timber and certain products made of rare wood species, to determine the list of necessary documents for obtaining the right to export unprocessed timber and timber products.”

The draft law sets out conditions that should protect the environment, improve law enforcement and governance in the forestry sector, and facilitate trade, which will be possible, for example, if the following documents are obtained

– certificate of origin of wood;

– a certificate of origin of wood from an area where the protective forest cover is not less than the established standards;

– a certificate confirming the absence of species listed in the Red Book of Ukraine in the areas where the timber was harvested.

These and other conditions set out in the document are intended not only to protect the environment and forests from uncontrolled logging and other abuses, but also to ensure that unprocessed timber can be exported in accordance with Ukraine’s international obligations.