Ipe tree in Brazil

Withdrawal of Ipe CITES proposal #49 from CoP18 – more risk for buyers?

As recent as December 2018, Brazil proposed that the group of tree species commercially referred to as “Ipe” (Handroanthus spp., Tabebuia spp. and Roseodendron spp.) be added to the CITES species list.

Reasons for this as stated in Brazil’s Ipe CITES proposal #49  included:

  • high levels of illegal trade;
  • trade in illegally sourced Ipe remains unrecognized in importing countries; and
  • a decrease of population size and geographic range in several range States;

Despite the proposal being included in the CITES Notification to the Parties March 15, the proposal was withdrawn in late March. (At time of publication, all other specie proposals remain, including Pterocarpus tinctorius.)

Ipe withdrawn from CITES proposal list

At first glance, the sudden withdrawal of proposal #49 would seem to send the message that the trade in Ipe wood products will continue as business-as-usual. This, however, is unlikely – especially for Ipe buyers in importing countries.

A Different Kind of Ipe Trade Disruption Ahead

While avoiding a massive disruption to Ipe and Brazilian timber markets in the short-term, the proposal and subsequent withdrawal of Ipe from CoP18 by Brazil may result in a new kind of disruption, one that has significant unintended consequences for Ipe importers in the short-term.

Here’s why:

  1. The withdrawal of the Ipe CITES proposal does not change the fact that the risk of illegal Ipe entering supply chains in Brazil is extremely high.
  2. Where there is a real and/or perceived absence of forest law enforcement, environmental NGO’s tend to fill the vacuum.
  3. This is likely to lead to an increase in monitoring and scrutiny of Ipe wood shipments from Brazil by environmental NGOs.
  4. While a CITES species listing would have required more regulation in Brazil, the withdrawal shifts more of the risk to Ipe importers and distributors.

Risk of Illegal Ipe Remains High

While it’s possible to buy legal, even sustainably harvested Ipe, there is no lack of evidence suggesting that large volumes of Ipe enter global supply chains illegally from Brazil.

A study in the Brazilian state of Pará found that in all of the forest management areas studied, the Ipe timber volume reported on the Document of Forest Origin could not have been produced legally.

In November of 2018, an IBAMA operation targeting an alleged illegal Ipe trading cartel resulted in the seizure of about 150 truckload equivalents of logs, most of them Ipe.

More recently, a report claims that 60% of forest areas harvested in the major Ipe producing state of Pará did not have authorization during the period August 2016 – July 2017.

Absence of Forest Governance Attracts Environmental NGOs

Regardless of the reasons why the Ipe CITES proposal was suddenly withdrawn, the withdrawal could be interpreted as part of a broader belief among environmental organizations that the current Brazilian administration is reducing resources and policy frameworks necessary for adequate forest governance in the country.

Brazil is the 7th largest member state contributor of the CITES Trust Fund

The real and/or perceived absence of legitimate and effective forest governance tends to attract the attention of environmental NGOs who take it upon themselves to try and fill what they perceive as a forest governance vacuum.

Monitoring of Ipe Supply Chains and Shipments Likely to Increase

While Ipe is no stranger to the spotlight of environmental NGOs, their methods have evolved beyond a name-and-shame approach to one that seeks law enforcement action.

This typically involves the undercover investigation of supply chains (that can last years), and communications with government agencies in importing countries before an importer or distributor is aware they are under investigation.

The withdrawal of the Ipe CITES proposal increases the likelihood that environmental NGOs take it upon themselves to regulate the trade of Ipe through the enforcement of timber trade regulations such as The Lacey Act, EU Timber Regulation, and others.

How the Ipe CITES Withdrawal Shifts Risk to Buyers

In this context, the withdrawal of the Ipe CITES proposal #49 reduces the liability of illegal harvest and trade of Ipe for countries of origin, and transfers it to buyers in importing countries.

Here is how tropical timber trade-regulation risk typically manifests for importing companies….

Illegality at origin + absence of law enforcement = international environmental NGO engagement —> undercover investigations by eNGOs —> communication of alleged violations of trade laws with government agencies of importing countries —> public investigations of importer and downstream buyers

The costs to buyers from being caught in this process, whether guilty or not, can be hard to recover from.

Not only does this process produce direct costs such as demurrage fees, loss of inventory, missed sales, and legal penalties; the reputational cost can easily exceed all of these, greatly reducing the future earnings potential of a company.

While due diligence is a minor operational cost, the risk of failing to practice adequate due diligence can be catastrophic for a company.

The withdrawal of Ipe CITES proposal #49 from the CoP18, especially when perceived as politically motivated, could very well provide the second ingredient needed to spark environmental NGO scrutiny of Ipe supply chains with much more elevated risk than past campaigns.

Conclusion

  • The risk environment for buyers of Ipe in importing countries has likely changed with the withdrawal of the Ipe CITES proposal #49.
  • Regardless of why it was withdrawn, the withdrawal is perceived as political.
  • This is likely to attract the attention of environmental NGOs who will try and regulate the trade of Ipe outside of the exporting country jurisdictions.
  • This shifts more of the growing legal risk surrounding Ipe to buyers.

Now more than ever, importers, and downstream buyers of Ipe will need to ensure that they are doing all that they can to mitigate the risk of illegal Ipe entering their supply chain.

Built by timber traders for timber traders, TIMBERCHECK™ helps you stay informed of risks in your supply chains. Join TIMBERCHECK™

Header photo: Valdemar Vieira

 

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