Teak Trader Prosecuted for Failure to Perform Adequate Due Diligence

Part 1 in Series: Do regulations such as the Lacey Act and EUTR encourage tropical deforestation? The purpose of this series is to explore whether timber trade regulations are driving investment out of forestry and into non-forest activities that convert forests to other land uses.

A Swedish court recently ruled that a small trading company was in violation of the European Union Timber Regulation (EUTR), not because the Teak in question was proven to be illegal, but because the Swedish company could not demonstrate who in Myanmar logged the timber, or from what stand, prior to it’s purchase from the state-owned Myanmar Timber Enterprise (MTE).

The company was fined roughly US$ 1,700 and banned from selling Teak of Myanmar origin until it complies with the EUTR due diligence requirement. Although a relatively small cash punishment, the precedent of this ruling has large implications for the tropical timber industry. The trading company was not proven to be trading illegal timber, but instead was held accountable for shortcomings in the governance and transparency of a foreign country. Basically, the ruling transfers the costs of forest governance to individual enterprise.

Environmental organizations concerned with the conservation of tropical forests have applauded this ruling. But is this ruling truly good for tropical forests? Or does it encourage deforestation? When forests managed for timber are profitable, they can be more effective at preventing deforestation than protected areas. But if the cost of forest governance is transferred to individual enterprise, does it become more profitable for forest-based enterprises to raise cattle or grow crops instead? These questions will be explored in depth in the following articles.

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