Avoiding legality: Timber producers’ strategies and motivations under FLEGT in Ghana and Indonesia

Forest Policy and Economics 111 (2020) 102047

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Avoiding legality: Timber producers’ strategies and motivations under FLEGT in Ghana and Indonesia

T

Emmanuel Acheamponga,*, Ahmad Maryudib,** a b

Department of Silviculture and Forest Management, Faculty of Renewable Natural Resources, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana Faculty of Forestry, Universitas Gadjah Mada, Yogyakarta, Indonesia

A R T I C LE I N FO

A B S T R A C T

Keywords: Illegal logging FLEGT Timber legality verification Compliance Ghana Indonesia

Large-scale illegal logging and associated trade in illegally sourced wood products are recognized as pervasive drivers of deforestation and forest degradation in many developing countries. To address the problems, the European Union (EU) adopted the Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan in 2003 with the Voluntary Partnership Agreements (VPAs) and the EU Timber Regulation (EUTR) as key components. Following the introduction of these initiatives, concerns have been raised about the potential of timber producers to avoid the new legality requirements. Based on interviews with timber actors in Ghana and Indonesia, this paper explores the practices of timber producers, identifying various strategies they undertake to circumvent timber legality requirements. It also explores their motivations for doing so. The study found that timber legality verification presents challenges to timber producers in Ghana and Indonesia. They therefore engage in a number of practices to avoid timber legality. These practices entail a range of actions that bypass EU market legality requirements and/or domestic laws. Motivations included instrumental, normative and contextual factors, such as the costs associated with complying with the legality requirements, and the perception that the new regulations are overly burdensome. Moreover, for many operators, there is the feeling that timber legality as it is unfolding in the countries is an imposition that fails to take into account local realities; as such, evading legality becomes a legitimate response. Through their focus on legal formalisation and strengthened enforcement, the VPA and EUTR implicitly stipulate an instrumental perspective to compliance. The paper, therefore, contends that, for the FLEGT Action Plan to achieve its objective of addressing illegal logging and, ultimately, deforestation and forest degradation in developing countries, FLEGT policy makers and implementers must also pay attention to the normative and contextual factors of compliance.

1. Introduction The past few decades has seen high levels of forest loss and degradation and, largely, this has been attributed to 'illegal' logging. The European Union (EU), recognizing that it is a significant player on the global timber market since its imports of timber and wood products often come from the countries with widespread illegal forest activities (Hoare, 2015; Ramcilovic-Suominen et al., 2010; Turner et al., 2007), adopted the Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan in 2003 with the aim of combating illegal logging and trade of illegal timber products in global markets to help address (tropical) deforestation and forest degradation (Brack, 2013). A key component of the FLEGT Action Plan is the negotiation of bilateral Voluntary Partnership Agreements (VPAs) between the EU and tropical timber

producing countries. Under a VPA, the partner country is expected to develop a Timber Legality Assurance System (TLAS) which specifies the definition of legal timber and incorporates a timber tracking system and a licensing scheme designed to ensure that only legal timber products are exported to the EU from those countries (Jonsson et al., 2015; Hoare, 2015; Brack, 2013; Maryudi, 2016). Thus, under the VPAs only timber licensed as legal (that is, with a FLEGT licence) can be imported into Europe from partner countries (Hoare, 2015). By the end of 2018, VPAs had been concluded with Cameroon, Ghana, Republic of Congo, Central African Republic, Indonesia, Liberia, Honduras, and Vietnam. Côte d’Ivoire, Democratic Republic of Congo, Gabon, Laos, Myanmar, Guyana, and Thailand are still in negotiations (FERN, 2018). Of the countries that have signed the VPAs, only Indonesia has started issuing FLEGT export licenses on 15 November 2016 (EU FLEGT Facility, 2018;

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Corresponding author at: Department of Silviculture and Forest Management, Faculty of Renewable Natural Resources, KNUST, University Post Office, Kumasi, Ghana. ⁎⁎ Corresponding author. E-mail addresses: [email protected] (E. Acheampong), [email protected] (A. Maryudi). https://doi.org/10.1016/j.forpol.2019.102047 Received 23 September 2018; Received in revised form 9 October 2019; Accepted 21 October 2019 1389-9341/ © 2019 Published by Elsevier B.V.

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behaviour to respond to changes in the tangible, immediate incentives and penalties associated with following the law - to judgments about the personal gains and losses resulting from different kinds of behaviour” (Tyler, 1990, p. 3). Winter and May (2001) have also referred to it as calculated motivations for compliance. The instrumental perspective is based on the rational choice theory and posits that people behave rationally to maximize their utility and would comply with a given regulation when they establish that the benefits of doing so exceed the costs (Becker, 1968; Stigler, 1970). This model focuses primarily on the fear of detection, the certainty or likelihood of sanctions and sanction severity as key determinants of compliance (Thornton et al., 2009; Sutinen and Kuperan, 1999; Harrison, 1995; Tacconi et al., 2019). It emphasizes the role of deterrence and coercive measures in ensuring regulatory compliance. Actors comply with regulations when they realize there is a cost of violating a regulation. Hence, compliance is high when cost of violation is high (Ramcilovic-suominen and Epstein, 2012; Winter and May, 2001). Compliance is thus evoked mainly through enforcement (i.e. detection and punishment/sanctions) (Sutinen and Kuperan, 1999; Honneland, 1999), and ensuring more severe sanctions for noncompliance relative to the illegal gains. Young (1979) asserts that compliance may also be ensured through inducement i.e. providing incentives for compliance or making compliance rewarding, e.g. through lower compliance costs or higher benefits for compliance. The normative perspective postulates that people comply with laws based on normative reasons, such as personal values, principles and norms (Ramcilovic-suominen, 2012). These factors make people perceive the laws as fair and legitimate, which in turn leads to an internal moral obligation to obey the laws (Tyler and Jost, 2007, cited in Ramcilovic-suominen et al., 2012). The normative perspective “is concerned with the influence of what people regard as just and moral as opposed to what is in their self-interest” (Tyler, 1990, p. 3). The normative perspective thus emphasizes the role of personal morality (what people consider as the right thing to do), the legitimacy of the authority making (or enforcing) the rule and the reasonableness of rules and regulations in shaping regulated actors’ compliance behaviour (Sutinen and Kuperan, 1999; Tyler and Jost, 2007; Tyler, 1990). Personal morality describes one’s own instincts, which directs him/her to do what is right or wrong. It refers to an internal obligation to follow one's own sense of what is right or wrong (Tyler, 1990). Here, the internalized values of the regulated actor, rather than material rewards or costbenefit calculations, forms the basis of compliance. Winter and May (2001) have argued that legal norms that resonate with one's personal beliefs and values are more likely to be complied with than those that are not. Legitimacy of authorities refers to the general feeling and acceptance of the relevant authority’s right to dictate behaviour through enactment and enforcement of laws and regulations (Tyler, 1990). It is about the support given to political authority or authorities to direct behaviour, to enact and implement laws, decisions and regulations (Ramcilovic-Suominen et al., 2012). Sutinen and Kuperan (1999) view legitimacy as a hoard or stock of loyalty that regulatory bodies can depend on to ensure compliance. Tyler (1990) reports that most people obey rules made or enforced by authorities and institutions they trust. Thus, compliance based on legitimacy means obeying a law because one feels that the authority enforcing the law has the right to dictate behaviour and this is dependent on regulated actors being satisfied with the law-making processes, and the content and outcomes of the decisions made by the regulatory authorities (Honneland, 1999; Tyler, 1990). When the process involves participation, openness and accountability, it makes the contents and outcomes of decisions made by the authorities acceptable to regulated entities, which improves the application of the law. Measures such as procedural fairness, joint or comanagement, negotiation and other forms of cooperation between regulators and regulated actors can improve legitimacy and compliance with regulations (Honneland, 1999; Tyler, 1990).

Maryudi et al., 2017a). The second significant development of the FLEGT Action Plan is the introduction of the EU Timber Regulation (EUTR) which, from March 2013, prohibits the placing of illegally harvested timber and timber products on the EU market, and requires operators to implement ‘due diligence’ systems in order to minimize the risk of doing so (Brack, 2013). Following the introduction of the FLEGT VPA and EUTR, concerns have been raised about the potential of timber producers circumventing and/or avoiding the legality requirements of the VPA and the EUTR, particularly in relation to shifting to sale in non-EU markets with less stringent legality verification. For example, a Chatham House study on tackling illegal logging and related trade (Hoare, 2015) revealed that efforts to tackle illegal logging have been eclipsed by new markets for timber and these have diluted the impact of policies introduced by some developed countries. The study found that half of all the trade in illegal wood-based products is now destined for China, the largest consumer as well as a major processing hub while at the same time, domestic demand for timber has been rising in producer countries, providing a market for both legal and illegal timber (Hoare, 2015). The study reported that, in 2013 volumes of illegal wood-based products imported by the US fell by one-third compared with their peak in 2006 and, in the case of the three EU countries (France, the Netherlands, the UK) included in the assessment, volumes halved over the same period. Meanwhile, the quantity of illegal products imported by the emerging economies of China, India and Vietnam increased by over 50 %. The study asserts that, this shift renders the policies of the EU and the US (so-called ‘sensitive’ markets) less influential (Hoare, 2015). Notwithstanding these concerns, inadequate attention has been given to the strategies employed by timber producers to evade timber legality and especially, their motivations for doing so. The aim of this paper is to redress this knowledge gap, drawing from the VPA countries of Ghana and Indonesia. The investigations were guided by two main research questions: (1) how do timber producers avoid or evade the legality requirements of the VPA and the EUTR, (2) why do some timber producers try to avoid or evade legality? The focus was on the legality requirements of the VPA and EUTR. The paper is structured as follows. The next section discusses the underlying theories that underpinned the study. The subsequent section focuses on the study areas and methods used for data collection and analysis. Next, the results of the study are presented. The discussion section synthesizes the findings, relates them to the theories of compliance and presents their implications for the VPA and EUTR. The concluding section highlights policy recommendations that can help improve the design and implementation of timber legality verification. 2. Theoretical considerations To put this study which examines how and why timber producers avoid or circumvent timber legality in Ghana and Indonesia in a broader perspective, it is useful to review the underlying theories that generally explain why people comply or violate rules and regulations. The compliance literature reveal two main perspectives: the instrumental and normative (Zaelke et al., 2005; Kagan et al., 2011; Winter and May, 2001; Tyler, 1990; Sutinen and Kuperan, 1999). In their work on analytical framework for forest law compliance, Ramcilovic-suominen and Epstein (2012) confirmed the two perspectives by reporting that scholars investigating rule compliance tend to emphasize three major factors or models: the instrumental (or economic) model and two normative models (i.e. social rules and norms, and legitimacy of authorities). Norms and legitimacy are thus placed under the normative perspective of compliance. Other studies (such as Boakye, 2018; Ramcilovic-suominen et al., 2012; Ramcilovic-suominen, 2012; and Hansen, 2011) also mention the instrumental and normative theories as two perspectives that influence regulated actors’ compliance behaviour. According to Tyler (1990), the instrumental perspective is the basis of the deterrence model in which “people are viewed as shaping their 2

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suominen and Epstein (2012) also group the sources of non-compliance in forestry into eleven main categories: regulatory constraints, capacity of political and legislative authorities, corruption, property rights, markets and trade, economic incentives and disincentives, fairness of legislation, forest culture (e.g. tradition of forest management and protection), transparency and accountability, forest conflicts, and poverty and livelihood needs. They indicated that “these groups of sources of non-compliance reveal a complex, yet highly interconnected set of variables that influence compliance decisions in the forest sector” (p. 329). Ramcilovic-suominen and Epstein (2012) observed that “many of these variables, such as markets and trade, property rights and regulatory constraints, are not specifically related to individual-level motivations. Instead these variables provide a context that may emphasize short-term economic interests over long-term societal interests” (p. 329). Thus, most of these variables influence compliance behaviour indirectly, by influencing the individual motivational factors. This paper explores the strategies employed by timber producers to avoid/ circumvent timber legality and their motivations, and relate them to the existing compliance literature with the view to understanding timber producers’ noncompliance behaviour.

The reasonableness or sensibleness of laws, rules and regulations is another dimension of the normative perspective that influences regulated actors’ compliance behaviour (Boakye, 2018). Studies have shown that people comply with rules they perceive to be reasonable even when the rules offer them no direct material benefits (Levi et al., 2009). For example, Tyler (1990) asserts that non-compliance is a result of regulated actors’ disagreement with regulations they regard as arbitrary and unreasonable. Similarly, in a study of Danish fishers’ acceptance of fisheries regulations, Nielsen and Mathiesen (2003) found that fishers were unwilling to comply with regulations they perceived as unreasonable. Thus, regulatory authorities must ensure that laws, policies, rules and regulations are reasonable in order to improve their compliance (Sutinen and Kuperan, 1999). In addition to the theory-based perspectives of compliance discussed above, the compliance literature document context-specific or contextual factors that influence the compliance-violation behaviour of regulated actors. Examples of such factors include poverty, scarcity of resources, livelihood insecurity, crisis situations, nepotism, corruption, political patronage, ineffective state institutions, increasing product prices and ownership rights to resources (Ostermann, 2016; ContrerasHermosilla and Peter, 2005; Sutinen et al., 1990; Ramcilovic-Suominen et al., 2012). These factors may increase the incentive for non-compliance. For example, in a study of regulations on fuelwood collection in conservation parks in India, Ostermann (2016) found poverty as the principal driver for noncompliance. A similar study on compliance with community-based natural resource conservation bylaws for the management of the Wechiau Community Hippopotamus Sanctuary in the Wa West District of Ghana also found poverty as a key factor of noncompliance (Tang, 2018). Ramcilovic-suominen (2012) notes that, while factors of compliance emphasised in the theories of law compliance are related to individual-level motivations for compliance (e.g. costs, benefits, norms and personal values), the contextual factors appear to be associated with higher structural levels, going beyond individual, to include factors associated to a group, community, state, and ultimately the globe. Most of the contextual factors influence compliance behaviour indirectly, by influencing the individual motivational factors, i.e. instrumental incentives, norms and legitimacy (Ramcilovicsuominen and Epstein, 2012). In the area of forestry, Contreras-Hermosilla and Peter (2005) identified, among others, corruption in the private sector and in government, flawed policy and legal framework, low law enforcement capacity, insufficient data and information about forest resources and illegal operations, and high demand for timber as some of the factors leading to noncompliance with laws in the forest sector. They argued that strategies to improve law compliance in the forest sector must be based on assessment of the underlying causes of illegal acts and, without comprehensive political will to improve forest law compliance, any measures taken have only a limited chance of success. Ramcilovic-

3. Study sites and methods The paper is based on research undertaking in Ghana and Indonesia under the ‘ProdJus’ Project1, which focused on understanding justice issues in global timber production networks in relation to the FLEGT. In particular, the study sought to determine the effect of FLEGT on justice issues in the governance of tropical forests and understand the justice claims that different actors make and how their notions of justice are shaped. The selection of the two countries was based on their varying positions in relation to their VPAs at the start of the research in 2016. Both countries had signed the VPA with the EU but were at different levels of implementation, with Indonesia nearing the issuance of FLEGT licenses. We conducted in-depth interviews with 330 timber actors (Table 1) from the wood production networks at both local and national levels across Ghana (160 interviews) and Indonesia (170 interviews). In Ghana, the village level interviews were conducted in three forest districts (Nkawie, Goaso and Sefwi Wiawso Forest Districts) in the High Forest Zone of Ghana. The village forest users included farmers, chainsaw millers/operators and their supporters (such as lumber carriers and tree spotters), members of Community Forest Committees (CFCs) and workers of local timber mills. The wood processors and traders interviews were conducted mainly in the Ashanti and Greater Accra Regions. The timber exporters, timber associations and forestryrelated NGOs and civil society groups were drawn from across the country while the national government actors (policy makers and implementers) were mainly from the Ministry of Lands and Natural Resources and the Forestry Commission of Ghana. The research team also attended workshops on timber legality and independent forest monitoring, organized by ProForest and Civic Response respectively, to interact with timber exporters, civil society organizations and policy makers. To complement data obtained through the stakeholder interviews, a desk study was undertaken to review Ghana Forestry Commission’s reports on export of timber and timber products in order to understand trends in timber exports from Ghana and to confirm certain assertions made by our respondents. In Indonesia, we interviewed timber product (mainly furniture) manufacturers, intermediaries and exporters from three main furniture producing regions in Java Island: Jepara District, the Greater of

Table 1 Actor groups and distribution of interviews. Actor types

Timber products manufacturers and exporters NGOs and civil society groups Forest/timber trade associations Government actors (policy makers and implementers) Wood processors (mainly informal) Wood traders Village forest users Researchers Verification bodies/Certifiers Donors Total

Number of interviewees Ghana

Indonesia

35 14 6 9

72 6 5 16

24 22 50 – – – 160

15 15 28 2 8 3 170

The ‘ProdJus’ Project is an acronym for “Supranational Forest Governance in an Era of Globalizing Wood Production and Justice Politics” Project. ProdJus is jointly implemented by the University of East Anglia, UK; Gadjah Mada University, Indonesia; Vietnam Academy of Social Sciences; and the Kwame Nkrumah University of Science and Technology, Ghana. See: prodjus.eu. 1

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from our interviews. Trade to other African countries was also found to be important to Ghana's export of wood products, and is one of the means by which Ghanaian timber exporters try to avoid legality verification. Our research found that overland export of wood products from Ghana to neighbouring countries such as Burkina Faso, Mali, Nigeria and Niger is on the rise with many exporters now shifting attention from Europe to these countries. The TIDD data on timber export from Ghana to other African countries (Table 2) depicts a declining trend since 2012. However, our interviews found that large volumes of timber products are exported to these countries and therefore the data captured by the TIDD may not be a true reflection of the actual volumes of overland export. A study of the overland trade in wood and wood products conducted by the Forestry Research Institute of Ghana (FORIG) estimated the volume of wood exported annually across the northern borders of Ghana alone to be 250,000 m3 which is equivalent to some 825,083 m3 of round logs (TBI, 2015). The study found the main markets for these overland exports to be Niger, Mali, Burkina Faso and Nigeria. Our study uncovered several reasons motivating timber producers to shift their exports from Europe to Asia and other African countries. These included (1) a feeling of imposition of the timber legality verification, (2) low legitimacy of the FC to dictate behaviour because of perceived high level of corruption in the institution (3) the cumbersome and bureaucratic nature of the EUTR process, (4) cost of going through the due diligence process of the EUTR, (5) the high standards for wood quality demanded by European importers, and (6) species preference of the Asian market. The timber exporters we interacted with expressed a general feeling that the timber legality verification processes of the FLEGT VPA and EUTR is an imposition without considering local realities, thus, avoiding it is a legitimate response to that imposition. The feeling was that the timber industry has been sidelined in the FLEGT processes. A low legitimacy of the FC of Ghana to dictate behaviour because of perceived high level of corruption also came up as a factor motivating timber producers to avoid timber legality verification. The timber exporters questioned the legitimacy of the FC to enforce timber legality standards while the institution itself is beset with high level of corruption. They maintained that the FC has no moral right to enforce legality when they themselves are involved in many illegalities. Some of the corruption allegations levelled against the Commission include conniving with illegal loggers, particularly chainsaw operators, bribery in timber rights allocation, taking bribes from illegal chainsaw operators, taking bribes from loggers during forest monitoring activities, and bribery associated with timber yield allocation. The forestry sector of Ghana has traditionally faced many corruption challenges and this has led to a high perception of corruption in the sector. For example, a study of stakeholder perspectives on corruption risks in Ghana’s REDD + (Asante and Acheampong, 2016) revealed that forest law enforcement, timber harvesting operations, permitting (timber rights allocation), and monitoring of forestry activities are the critical areas where corruption is widespread in the forestry sector (see also Hansen, 2011). The cumbersome and bureaucratic procedure of the due diligence required under the EUTR also came up as an important factor causing timber producers to shift attention from the EU market. The exporters complained about the complicated documentation requirements. These included certificate of business registration, tax identification number, tax clearance certificate, social security and national insurance trust clearance certificate, timber utilization contract, proof of payment of forest levies, tree information form (TIF), log information form (LIF), export contract, export permit, log measurement and conveyance certificate (LMCC), phytosanitary certificate, among others. They maintained that the documentation difficulties and the burdensome nature of the EUTR due diligence process increase the cost of export and thereby affects the returns to exporters. These difficulties make it financially unattractive to export to the EU. Another factor that motivates the timber exporters to divert their exports from Europe to the

Surakarta (Solo, Klaten and Sukoharjo Districts), and Special Region of Yogyakarta (Sleman, Gunungkidul, Yogyakarta and Bantul Districts), with some additional interviews in the timber producing region of Blora. Interviews at the village level were conducted in both Java Island and Outer Islands. In Java, the village level interviews were conducted in both regions with rich state-owned teak plantations (Blora and Rembang) where the occurrence of illegal cutting is high, and regions where smallholder teak plantations are rapidly expanding (mainly Gunungkidul). In those regions, interviews were also conducted with sub-national government apparatus. The interviews in Outer Islands were with a range of actors: village timber actors (including tree growers, timber loggers, and timber sellers), indigenous communities, timber concession holders, timber manufacturers, and sub-national government officials. In each interview, we focussed on timber actors’ experiences with, and expectations of, FLEGT VPAs and the EUTR. For market actors (timber and timber products manufacturers, exporters and wood traders), we also asked about how they operate, the challenges they face, the market conditions (e.g. sales), and changes, if any, before and after the implementation of legality verification. We also asked about their views on the legality verification requirements and their responses to them. Each interview was fully transcribed and the notes were imported into Dedoose, a web-based qualitative data analysis software package similar to NVIVO. The data were then coded according to our strategic data coding framework, entailing the development of a ‘coding and categorizing protocol’ in which the rules for coding were described, the use of a single coder to code all transcripts in order to ensure uniformity, and a second coder to do spot checks to improve coding reliability. We then analysed the data using primarily co-occurrence nodes and content analysis. 4. Strategies and motivations for avoiding or circumventing timber legality This section presents our empirical findings on strategies adopted by timber producers to avoid timber legality and their motivations for engaging in such practices. The discussion centres around five main strategies, namely shifting exports to non-EU markets with less stringent monitoring, renting timber legality documents in order to export timber, focusing more on the local market, combining timber with other materials in production in order to avoid legality verification, and quitting the timber business altogether. 4.1. Shifting timber exports to non-EU markets with less stringent legality verification Our research in Ghana found several timber exporters who were hitherto exporting to countries in Europe but now diverting attention to timber markets in Asia. Some of these exporters serve both the European and Asian markets but others confirmed that they mainly serve the Asian market. The study found China, India and Vietnam as the major destinations of timber from Ghana. An official of a timber trade association in Kumasi reported of timber exporters complaining about difficulties when exporting to EU countries and maintained that this has resulted in several timber exporters diverting their exports to Asian countries. To verify the narratives by our interviewees, we used official reported export data from the Timber Industry Development Division (TIDD) of the Forestry Commission (FC) of Ghana. Table 2 presents data compiled from the TIDD’s reports on the direction of Ghana’s timber and wood products exports from 2008 to 2018. The 2018 data covers the period January to May. The figures show that the percentage of total volume of wood products exported from Ghana to Europe has declined consistently from 30.72 % in 2013 when the EUTR came into force to 10.91 % in 2018, while exports to Asia/Far East countries has risen from 24.09 % to 75.55 % in the same period (TIDD, 2018; see also ITTO, 2018). This trend clearly confirms the findings 4

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Table 2 Major markets of Ghana’s wood products exports.2008–2018. Market regions

2008

2009

2010

2011

2012

Asia/Far East Europe Africa Middle East America Oceania Total Volume Exported (m3) x 1000

20.25 33.17 31.71 5.92 8.40 0.54 545.92

23.10 19.51 47.03 5.80 4.19 0.31 426.22

20.31 21.15 47.47 6.09 4.49 0.49 403.25

16.08 19.98 50.87 9.12 3.91 0.04 319.84

8.88 20.70 55.8 10.2 4.42 – 251.25

2013 2014 % of Total Volume 24.09 30.72 35.82 3.53 5.71 0.14 271.77

49.80 19.29 23.23 2.85 4.83 0.02 356.02

2015

2016

2017

2018*

58.23 13.88 19.34 2.92 5.62 0.02 267.379

72.46 11.00 11.32 1.86 3.37 – 264.885

75.43 11.14 7.63 2.71 3.09 0.01 339.227

75.55 10.91 8.23 1.81 3.49 – 144.300

* The 2018 data covers the period, January to May. Source: Compiled from Timber Industry Development Division (TIDD) of the Forestry Commission (FC) of Ghana Reports on Export of Timber and Wood products, 2008 – 2018. http://www.fcghana.org/library_info.php?doc=56&publication:Report%20on%20Export%20of %20Wood%20Products%20(Timber%20Industry%20Development%20Division)&id=16 (accessed 20/06/2018).

involved in legality verification, and (2) the cost of acquiring the legality certificates (see also Susilawati et al., 2019; Maryudi et al., 2016, 2017b; Maryudi and Myers, 2018). Timber legality verification in Indonesia involves technical and administrative complexities, requiring firms to register their businesses and obtain several documents including Building Construction Permit, Deed of Establishment, Trading Business Permit or Industrial Registration Number, Environmental Disturbance Permit, Company Registration Number, Taxpayer Identification Number, Environmental Impact Analysis and Monitoring Activities, and Industrial Raw Material Fulfilment Planning. The process thus involves additional costs that are sometimes beyond the capacity of some timber products manufacturers, particularly smaller furniture manufacturing operators. Our research revealed that, due to the burdensome nature of the legality processes, some small producers spend huge sums of money to engage the services of ‘timber legality consultants’ to facilitate their legality verification requirements, which adds to their cost of production. In response to the multiple challenges presented by legality requirements, especially for small manufacturers, certain producers have resorted to bypassing legality procedures by renting V-Legal and/or FLEGT-License certificates. They see this practice as a survival strategy for dealing with the administrative complexities of legality verification, trading regulations, and the associated costs.

Asian market is the high standards for wood quality demanded by European importers compared with importers in Asia. This is in relation to the timber grade (European importers normally demand grade 1), moisture content, etc. Again, the European buyers normally look for kiln-dried lumber but most Ghanaian firms do not have facilities for kiln-drying and so resort to air-drying. The air-dried wood are therefore exported to Asian countries where there is less emphasis on kiln-dried wood. Species preference of the Asian market is another motivational factor. The exporters reported that their direction of trade is influenced by the species preferences of the market. They maintained that species such as teak, rosewood, papao, senya, denya, potrodom and gmelina are sought after species in the Asian market while species such as wawa, odum, sapele, ofram, mahogany, and emire are preferred by the European market. Although not mentioned by our respondents, it is important to acknowledge the possible contribution of the growing/expanding economies of Asian countries such as China, India and Vietnam to the growing share of Ghanaian timber exports to Asia/Far East. The expanding economies may increase the demand for wood products, which attracts exporters from Ghana to respond to the increasing demand.

4.2. Renting legality documents Indonesia has implemented its timber legality assurance system, locally referred to as Sistem Verifikasi Legalitas Kayu (SVLK) since 2009 (Susilawati et al., 2019). The country became the first VPA country to issue a FLEGT License on 15 November 2016. With this, Indonesian timber products freely enter EU markets, as they automatically meet EUTR requirements (EU-Commission, 2016). Exports from Indonesia to countries other than the EU member countries use V-Legal Documents (licenses or certificates) which are Indonesian export licences attesting legality. Under Indonesian law, SVLK certification and V-Legal Documents constitute proof of legality for Indonesian timber products (Maryudi and Myers, 2018). Our research in Indonesia discovered that the practice of renting legality certificates (V-Legal documents and/or FLEGT licenses) in order to export timber and timber products appears quite prevalent in the country (see also Maryudi and Myers, 2018). Some timber exporters also use certificates/documents of their verified suppliers to cover products from their non-SVLK suppliers for export while some use certificates owned by inactive companies to export their products (see also Susilawati et al., 2019). Even though perpetrators of this practice risk potential sanctions such as fines, suspension and withdrawal of legality licenses, they go around the risk by drawing from pre-existing patronage relations. They also appear to find the risk worthwhile, as the practice offers financial gain and a new form of control over the market (Maryudi and Myers, 2018). Our Indonesian respondents cited two main reasons as their motivation for engaging in the practice of renting legality. These included (1) the bureaucratic processes and the administrative complexities

4.3. Focusing more on the local market In both Ghana and Indonesia, a number of timber producers reported that they now do business locally by focusing more on the domestic market rather than the export market. They maintained that the domestic timber market is quite lucrative due to the high demand for timber domestically. Again, domestic customers care less about the origin of timber and whether the timber is legal or not. In Indonesia, some manufacturers claimed that their timber sale in the domestic market had increased and that their businesses and financial condition had improved since they decided to focus on the domestic market. In Ghana, some timber firms reported that they used to export to Europe but have now shifted their focus to the domestic market. We also found others who serve both the European and the domestic markets but maintained that the volumes that are sold domestically are increasing. A number of factors explain the motivations for timber producers focusing more on the local market. The Indonesian respondents mentioned the administrative complexities involved in acquiring V-legal documents and FLEGT licenses, the cost involved in acquiring legality licenses, and the high demand for timber products on the domestic market as key reasons motivating them to concentrate on the domestic market. The former two factors are the same as those given by respondents for renting legality, suggesting that they are key in shaping Indonesian timber producers’ compliance with timber legality verification requirements. The factors mentioned by the Ghanaian respondents were not very different; they included difficulties in meeting 5

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The study identified several factors motivating timber producers to engage in various strategies and practices to avoid timber legality verification. Synthesizing the factors from the two countries, the motivation factors may thus be summed up as (1) perception that the timber legality verification regulations are overly burdensome, (2) a feeling of imposition of timber legality verification, (3) low legitimacy of the regulatory institution implementing legality verification because of perceived high level of corruption, (4) costs associated with complying with the legality requirements, (5) the availability of domestic market for timber and timber products, (6) the difficulty in meeting the standards for wood quality demanded by European importers (7) difficulties in getting timber supplies, and (8) species preference of the Asian market. These factors clearly indicate that a combination of instrumental, normative and contextual factors, as suggested in the literature (see Boakye, 2018; Ramcilovic-suominen et al., 2012; Ramcilovic-suominen, 2012; Hansen, 2011), shape timber producers’ compliance with timber legality requirements in Ghana and Indonesia. In interpreting and relating the identified motivations to the theories of compliance, we were guided by Ramcilovic-suominen and Epstein’s analytical framework for forest law compliance (Ramcilovic-suominen and Epstein, 2012, p. 332). Ramcilovic-suominen (2012) notes that, while factors of compliance emphasised in the theories of law compliance are related to individual-level motivations for compliance (e.g. costs, benefits, norms, personal values, and legitimacy), contextual factors appear to be associated with higher structural levels, going beyond individual, to include factors associated to a group, community, state, and ultimately the globe. Most contextual factors influence compliance behaviour indirectly, by influencing the individual motivational factors, i.e. instrumental incentives, norms and legitimacy (Ramcilovic-suominen and Epstein, 2012). The timber producers’ feeling that the new timber legality verification is an imposition without considering local realities is concerned with the timber producers’ assessment of the reasonableness of the timber legality verification regulations and whether they are fair or just. People comply with rules they perceive to be reasonable and just even when the rules offer them no direct material benefits (Levi et al., 2009). This is consistent with the findings of Nielsen and Mathiesen (2003) in their study of Danish fisheries regulations in which fishers were reluctant to comply with regulations they perceived as unreasonable. Thus, non-compliance stems from regulated actors’ disagreement with regulations they regard as arbitrary and unreasonable (Tyler, 1990). The feeling of imposition of timber legality verification may also relate to the enforcement style of the implementing institution, which is clearly a legitimacy issue. In Ghana where this factor was mentioned, there is a general feeling amongst timber producers that the VPA process has been hijacked by the FC and their views are not considered (see Hansen et al., 2018). Most timber exporters think that the process has not been participatory. These feelings drive them to circumvent timber legality. The low legitimacy of the regulatory institution implementing legality verification as a factor motivating timber producers to avoid legality in Ghana (see also Hansen, 2011) is premised on the fact that there is a high level of mistrust in the FC of Ghana due to a perceived high level of corruption and, as such, many timber producers believe that the FC has no moral right to dictate behaviour and are therefore unwilling to obey rules made and/or implemented by them. This finding corroborates the assertion by Tyler (1990) that most people obey rules made or enforced by authorities and institutions they trust. The feeling of imposition of legality verification and the low legitimacy of the regulatory institution implementing legality verification factors are thus related to the normative theory of compliance. The costs associated with complying with the legality requirements and the availability of domestic market for timber and timber products, relate to the instrumental theory of compliance. Here, timber producers would consider the personal gains and losses resulting from timber legality verification and would comply with the new regulations only when they estimate that the benefits outweigh the costs (Boakye, 2018;

the due diligence requirements of the EUTR, the high cost of exporting to the EU due to the EUTR, the difficulty in meeting the wood quality standards of European importers, and the local high demand for timber. 4.4. Combining timber with other materials to manufacture products in order to avoid legality verification Another clever and innovative strategy for avoiding timber legality discovered in Indonesia is the practice of mixing timber with other products such as bamboo, rattan, or metals to produce furniture with the view of making the furniture a non-wood product and therefore not requiring FLEGT licensing. Indonesia’s timber legality assurance system (SVLK) does not apply to bamboo and rattan (non-wooden materials). Products made from these materials therefore do not receive FLEGT licences when exported to the EU (EU FLEGT Facility, 2016). Such products are classified under HS codes (Harmonised System Classification of Goods) that do not fall under the product scope of the VPA (EU FLEGT Facility, 2016). The Indonesian respondents maintained that by combining wood and other products like bamboo and rattan in certain proportions in furniture making, they are able to avoid timber legality verification on the products. A legality auditor in Java acknowledged the practice, reporting that he had observed this strategy by some furniture manufacturers during his legality audits. Similar to the strategies of renting legality and focusing more on the local market, the timber producers’ motivations for avoiding legality verification by mixing wood with other materials in furniture production were the burdensome nature and the administrative complexities involved in legality verification and the associated costs as well as the availability of markets for furniture that have been designed using wood and other materials. 4.5. Quitting the timber business In Ghana, our research documented several reports of timber processing firms and exporters going out of business, with the owners finding other businesses. Similarly, in Indonesia, our research found several timber product manufacturers simply quitting the timber business. In Ghana, the trend was attributed primarily to unavailability of timber resources to feed the processing firms. For the Indonesian respondents, the motivations for quitting the timber business were primarily difficulties in getting timber supplies for their business, the many rules and regulations that timber producers need to contend with, the administrative complexities involved in acquiring timber legality verification documents and the high cost of legality verification. They see the verification process as complicated and costly with no significant benefits to them. They maintained that there were more promising businesses with less complicated procedures and requirements compared with the timber business. 5. Discussion This study has revealed a number of strategies adopted by timber producers to avoid timber legality verification and their motivations for engaging in such practices. While some of these strategies are a perpetuation of business as usual, albeit being taken up by an increasing number of operators, others, such as renting legality, are new tools in the toolbox in response to the new FLEGT/TLAS regime. It is essential to distinguish ‘legal avoiding’ and ‘illegal avoiding’ in relation to the practice of avoiding timber legality. Some of the legality avoidance mechanisms, such as focussing more on the local market, may be a legitimate means by timber producers to protect their businesses. However, others such as renting legality can be classified as illegal means to avoid legality. Thus, avoiding legality entails a range of legal and illegal strategies/practices undertaken by timber operators to maximize their benefits under the new legality regime introduced by FLEGT VPA and TLAS. 6

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timber exports to markets with less stringent legality verification, renting timber legality documents, focusing more on the local market, combining timber with other materials in production in order to avoid legality verification, and quitting the timber business altogether. The study finds that a combination of factors, both instrumental and normative as well as contextual, influence timber producers’ compliance with timber legality verification. It is therefore imperative for FLEGT policy makers to rethink the conceptualization, design and implementation of timber legality verification and address the factors that motivate timber producers to avoid timber legality. Even though FLEGT has a good intention of saving forests and stimulating good forest governance, a focus on legality and enforcement without holistically addressing issues such as the justness of the regulations, legitimacy of the regulatory institutions, bureaucracy and administrative complexities and context-specific factors - is not likely to yield ‘good’ outcomes on timber legality verification. There is the need to promote a regulation that, to a large degree, will be supported by timber producers through improving voluntary compliance behaviour. The more directly involved timber producers are in designing and enforcing timber legality regulations, the more the regulations will be accepted as legitimate. The bureaucracy and administrative complexities involved in legality verification and the associated costs may be addressed by simplifying the processes timber producers must go through to legally verify their timber. This will make timber legality verification less burdensome and less costly, thus ensuring that timber producers do not engage in practices to circumvent legality. Policy makers may also consider using inducement, such as tax incentives, to ensure compliance with the new timber regulations or make compliance rewarding, e.g. through price premiums for legally verified timber. In relation to the feeling of imposition of timber legality, a key policy issue is the VPAs design and implementation approach; externally moulded and introduced from outside. This raises questions about whether development interventions should be externally driven or internally led. Many commentators have raised serious concerns about the implications of externally driven development interventions, suggesting that many fail because of their failure to be responsive to locally formulated needs (Jordhus-Lier et al., 2009). McAuslan (2011) believes that states can only be built on strong foundations of social capital and indigenous beliefs and approaches. Durable institutions can only be built through processes of decision-making characterised by informed discourse among the people of the society concerned. Attempting to develop new institutions on the basis of international best practice may exclude the mobilising of public consent, with internal actors disempowered by the presence and capacity of external actors. There is the need to indigenize the VPAs design and implementation; the rules, policies and priorities needed to have come from inside, not imposed from outside. Ignoring local dynamics of resource governance might fail to deliver the desired levels of control to regional, national and international bodies. Development partners and governance interventions such as the FLEGT-VPA, EUTR and others promoting timber legality can learn important lessons from this study.

Ramcilovic-suominen, 2012; Hansen, 2011). The perception that the timber legality verification regulations are overly burdensome, and the difficulty in meeting the standards for wood quality demanded by European importers, relate to a regulatory constraint (see Ramcilovicsuominen and Epstein, 2012) and are therefore external context-specific variables of compliance. Similarly, the difficulties in getting timber supplies and species preference of the Asian market factors are clearly contextual since they appear to be associated with higher structural levels, going beyond the individual, and unrelated to the individuallevel motivations for compliance (ibid.). In Ghana and Indonesia, studies on compliance-violation behaviour of actors in the forest sector point to low level of compliance with forest regulations and instrumental, normative and context-specific factors as shaping compliance behaviour. For example, in a study of compliance of smallholder timber value chains in East Java with Indonesia's timber legality verification system, Susilawati et al. (2019) found that none of the blockboard or plywood products originating from the case study value chains was SVLK-compliant. Among other things, the study attributed the high non-compliance to limitations of the SVLK architecture in relation to smallholder value chains. A study of motivations for violation of illegal chainsaw milling regulations in Ghana found low deterrence, economic gains, high patronage of chainsaw milled lumber, lack of social sanctions for violators, weak morals of the actors involved, perceived unreasonableness of the regulations, low legitimacy of the regulators, poverty and political support as factors that have contributed to the violation of the chainsaw milling regulations (Boakye, 2018). Ramcilovic-suominen (2012) also found that, farmers’ compliance with forest rules in Ghana is determined by a myriad of factors, including the perceived fairness and legitimacy of the rules and ruling authorities, social and cultural norms, fear of sanctions, and the need for resources for their livelihoods and for domestic use. In a similar study of forest law compliance and enforcement in Ghana using on-farm timber extraction as a case, Hansen (2011) found a low level of compliance with forest regulations and attributed this to, among other things, a legal framework and enforcement that is biased towards elites, and major financial incentives for non-compliance for both farmers and timber operators. Consistent with the above studies, we find that eliciting compliance with timber legality verification requires consideration of both instrumental and normative perspectives as well as context-specific factors. This finding has far-reaching implications for the success of the new timber legality regulations under FLEGT. This is because the TLAS of the VPA and the EUTR implicitly stipulate an instrumental perspective to compliance due to their focus on legal formalisation and strengthened enforcement (Hansen, 2011; Hirons et al., 2018). As Tyler puts it, “when policymakers think about how to obtain compliance, they often adopt implicitly an instrumental perspective” (Tyler, 1990, p.3). Based on our results, however, we argue that such an instrumentalist approach is unlikely to be successful since we find in this study that compliance with the new legality regulations is shaped by both instrumental and normative as well as contextual factors. Relying on instrumental factors such as costs, benefits, sanctions and strengthened enforcement without paying attention to the normative and contextspecific factors will make compliance difficult to achieve. Timber producers will always look for opportunities to avoid or bypass legality verification. There is therefore the need to address the timber producers’ motivations for avoiding legality in the FLEGT VPA and EUTR design and implementation, a subject we now turn to in the concluding section.

Acknowledgements This paper is an output of the ProdJus (Supranational Forest Governance in an Era of Globalising Wood Production and Justice Politics) Project, a partnership of the University of East Anglia, UK; Kwame Nkrumah University of Science and Technology, Ghana; Universitas Gadjah Mada, Indonesia; and Vietnam Academy of Social Sciences, Vietnam. ProdJus is funded by the Europe and Global Challenges initiative of Riksbankens Jubileumsfond in partnership with The Wellcome Trust and VolkswagenStiftung. We acknowledge the foundational project leadership of Professor Thomas Sikor. We also extend our thanks to Dr. Constance L. McDermott, Dr. Rebecca L. Rutt, Dr. Rodd Myers and Dr. Cam Hoang for their constructive comments on

6. Conclusion This study reveals that timber legality verification, as it is unfolding in Ghana and Indonesia, presents some challenges to timber producers in meeting the legality requirements. They therefore engage in a number of practices to avoid or circumvent timber legality: shifting 7

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an earlier draft.

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