TIMBERCHECK™

Will US hardwood lumber be considered high-risk under the new EU Deforestation Regulation?

There is a strong case that US hardwood lumber will be classified as high-risk for violation of the Regulation considering:

• the criteria that the European Commission (EC) will use to classify products and their origin by risk,
• recent U.S. trends in deforestation and forest degradation,
• that only 10% of US hardwood lumber production is feasibly traceable back to its point of harvest (Source: AHEC),
• and that there is virtually no enforcement in the U.S. of the law governing the interstate trade of illegal wood products (the Lacey Act),

If US hardwood lumber is labeled high-risk by the EUDR benchmarking system, the US forest products industry could lose market share to other producers.

The new EU Deforestation Regulation

The new EU Deforestation Regulation (EUDR), effective June 29, 2023, prohibits the import of wood products into the European Union from deforestation or forest gradation. The law obligates buyers to conduct due diligence about the origin of their products. This includes the GPS coordinates of each single real estate property from which a product originated. This data must show no risk (“or negligible risk”) that a product originated from land that was deforested or its forest degraded.

EUDR will discriminate by country-level risk

Under the EUDR not all supply chains will be treated equally. In terms of monitoring, there is almost a “green lane” or “free pass” for products from countries labeled “low-risk”, creating a very uneven playing field.

Products from countries labeled “low-risk” will receive near zero scrutiny. Compliance checks will be made on only 1% of buyers of these products, and the law makes no mention of checking actual products (Article 16-10). Products from low-risk origins will require fewer obligations on the part of the buyer – reducing their compliance costs and administrative burden. Buyers will be allowed to conduct a “simplified due diligence”. This means they won’t be required to conduct and document annual risk assessments and mitigation measures.

On the other hand, products from high-risk countries will receive increased scrutiny by authorities. Authorities in the EU will be required to check 9% of the volume of products produced in countries labeled high-risk (Article 16-9). They will also be required to check 9% of the operators (i.e. importers) annually. (3% of operators bringing in products from countries labeled standard risk will be checked.)

So, how will country-level risk for products be decided?

Risk decided by EUDR country benchmarking system

By December 30, 2024 – when enforcement of the EUDR begins – the European Commission is required to publish a list of countries classified as low or high risk. Countries that do not fall in low or high risk will remain classified as standard-risk.

This process of risk classification is supposed to be “based on an objective and transparent assessment by the Commission, taking into account the latest scientific evidence and internationally recognised sources” (Article 29-3).

The risk classification will be based primarily on the following criteria:

• rate of deforestation and forest degradation;
• rate of expansion of agriculture land for relevant commodities;
• production trends of relevant commodities and of relevant products

Additionally, other factors may be taken into account. Factors relevant to US hardwood lumber production include:

• whether the country takes effective enforcement measures to tackle deforestation and forest degradation,
• whether the country concerned makes relevant data available transparently;

With regards to the criteria that the European Commission will use to classify commodity origin risk, US hardwood lumber performs poorly.

US hardwood performs relatively poor in EUDR risk criteria

The EUDR defines forest degradation as “structural changes to forest cover, taking the form of the conversion of primary forests or naturally regenerating forests into plantation forests or into other wooded land, or primary forests into planted forests” (Article 2-7).

The US Southeast lost more of its natural forest in 2022 than did Brazil

In 2022, the U.S. southeast lost 0.84% of its natural forest area. Brazil lost 0.66% and other “deforestation hotspots”, Indonesia and Cameroon, lost 0.25% and 0.48% respectively. 

U.S. had fourth largest loss of tree cover in the world 2001-2021

Between 2001 and 2021, the U.S. had the fourth largest loss of tree cover in the world at 44.3 million hectares. This was more than Indonesia, and the Democratic Republic of Congo and exceeded only by Russia, Brazil, and Canada.

Limited traceability: Roughly 90% of US hardwood lumber supply chains cannot be traced back to the point of harvest

In eastern states, which accounted for 98% of all U.S. hardwood harvested in 2012, there were 9.75 million forest owners. Each of these forest owners holding an average of 15 hectares. Because of this fragmented forest ownership, the American Hardwood Export Council estimates that about 90% of US hardwood lumber production cannot be traced back to the property from which it was harvested. This means (1) except for the 10% of large industrial and state owned forestland, lumber and other value-added hardwood products from the U.S. cannot be determined to be free of deforestation or forest degradation; and (2), only 10% of product from the U.S. could meet the EUDR due diligence requirement of geolocation (origin GPS coordinates).

Ineffective law enforcement: Laws governing the illegal trade of forest products, like the Lacey Act, are rarely enforced in the U.S.

Due to the fragmented nature of US hardwood forests, many crimes related to timber theft and trespass in the region are underreported and/or are small in volume. That does not mean “illegal logging” does not occur at scale in the region. For example, a pilot study estimated that 120 incidents of timber theft occur annually in just a 20 county area along Virginia’s southwest border.

But even where there are known cases of timber theft, including transport of the product across state lines (See: Whiskey barrels and illegal White Oak timber), laws prohibiting this, specifically the Lacey Act are almost never enforced. In fact, at last count, there have only be two cases of Lacey Act enforcement in wood supply chains originating in the U.S. See: Lacey Act violations for wood products originating in U.S. forests

Conclusion: EUDR US hardwood lumber risk

The new EU Deforestation Regulation will prohibit the import of wood products into the EU from deforestation or forests that have been degraded. The law requires that buyers know, document, and report the GPS coordinates from each individual real estate property where the product originated.

But the EUDR will not be enforced equally. It discriminates between high and low risk origins. Buyers of products coming from countries deemed to be at high-risk will face increased scrutiny by authorities. Nine percent of operators buying product from high-risk countries will be checked, as will 9% of the volume, vs. just 1% of operators buying product from low-risk countries (and no volume checked). Buyers of product from high-risk countries will also be required to conduct more due diligence measures.

The EUDR risk classification process by the European Commission will take place between June 29, 2023 and December 29, 2024.

Based on the criteria that the Commission will use to assess risk, US hardwood lumber appears comparatively risky, even when comparing to places like Brazil and Indonesia.

• Forest degradation: North Carolina lost more of its natural forest in 2021 than did Brazil – Source: TimberCheck | Data: Global Forest Watch
• Forest degradation: US had the 4th largest tree loss in the world between 2001-2021, even more than Indonesia – Source: Global Forest Watch
• Limited traceability: Only about 10% of US hardwood lumber will meet the requirement of geolocation – Source; American Hardwood Export Council
• Ineffective law enforcement: Only 2 cases of Lacey Act being enforced in wood product supply chains originating in the U.S.

If the Commission truly classifies risk “based on an objective and transparent assessment by the Commission, taking into account the latest scientific evidence and internationally recognised sources”; then the data suggests that US hardwood lumber products, and other products made from them, very well could be classified as high risk of being in violation of the EUDR.

This means US hardwood products will face higher compliance costs, more administrative burden, and more risk of financial losses relative to products from other countries of origin. This would create higher costs for US hardwood producers and more risk for their buyers.

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Last updated August 4, 2023