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Good Intentions Gone Wrong? Lacey Act Lessons from the Gibson Guitar Raid
Hardwood Review offers lessons to the hardwood industry coming from the recent Gibson Guitar raids and the concerns being raised about the Lacey Act.
By Dan Meyer
Date Posted: 11/1/2011
Since late August the media and the Internet have been abuzz with stories and comments about the raid on Gibson Guitar Company facilities in Nashville and Memphis by Homeland Security and Fish and Wildlife Service (FWS) agents. The August 24 raid—the second in less than two years on Gibson—was purportedly in response to suspected violations of the Lacey Act, though many have read into it ulterior motives and even political undertones.
The Lacey Act is a 100-year old law designed to prevent trafficking in “illegal” species. It was amended in 2008 to ban importation into the U.S. of illegal timber, wood and wood products. While championed as a solution to the price-dampening effects of illegal logging, the Lacey Act has in these past few weeks come to symbolize big government overreach, job-killing regulation, and misplaced priorities. These criticisms have only been amplified by the fact that the current allegations against Gibson have nothing directly to do with illegal logging or endangered species protection.
Be clear that we are not asserting that the Lacey Act is a bad law; only that its overzealous enforcement could sweep up well-intentioned, well-respected companies along with the bad.
To be certain, there are many unknowns about this case. Gibson hasn’t been charged with anything. In fact, charges have yet to be filed as a result of the first raid on Gibson, though the government still refuses to return the confiscated materials—which Gibson says include $1 million worth of imported Madagascar ebony and rosewood.
More details will come out over time and will reveal whether Gibson acted 1) willfully in violation of the Lacey Act; 2) unknowingly in violation of the Act; or 3) without violating the Act at all. Even without all the facts, however, there are concrete and alarming lessons that every forest products importer, manufacturer and distributor need to learn from these events.
Lesson #1: Green “partnerships” may be only skin deep
By most accounts, Gibson Guitar Company is an outstanding corporate andenvironmental citizen and a recognized leader in the certified wood community. In the wake of the latest raid, however, many of Gibson’s environmental partners have gone eerily silent.
Gibson’s philanthropic division has sponsored Natural Resources Defense Council events for years, and Gibson even produced a custom guitar to raise funds for the NRDC’s campaign to end strip mining. As of this writing, NRDC has not issued a statement in “defense” of Gibson since the raid.
Gibson joined forces with Greenpeace and other guitar manufacturers to launch the Music Wood Campaign, an effort to increase the supply of FSC-certified tonewoods. Greenpeace was apparently still smitten with Gibson’s environmental performance in June 21, 2011—two months before the latest raid—when it posted online a video documentary about the efforts of Gibson and other manufacturers to protect Alaska’s Sitka Spruce forest. Yet, in response to the raid, a Wall Street Journal article said a Greenpeace official in New York would only say “We have no idea” whether Gibson did everything possible to avoid buying wood from dubious sources.
Immediately after the latest raid, the Forest Stewardship Council (FSC) stated, “While Gibson has shown important sector leadership by stimulating demand for FSC-certified wood, the federal investigation addresses the wood they use that is not FSC certified. Unless 100% of the wood used is FSC certified, other mechanisms [of due care] are required. In this instance, it is the non-certified wood that is being questioned.” We studied the entire 31-page search warrant affidavit, however, and there is no reference in it to FSC or non-certified wood. Further, Gibson says the seized wood is from an FSC-certified supplier and was FSC Controlled (which, by FSC’s definition, means it must be legally harvested and sourced). Ironically, only 8 years ago, the FSC-US Board of Directors toured Gibson’s Nashville factory and proudly declared that “Gibson USA is in tune with FSC.”
Gibson still has at least one environmental friend in the Rainforest Alliance. Gibson CEO Henry Juszkiewicz sat on the board of Rainforest Alliance, helped start its SmartWood program, and has manufactured a “SmartWood” guitar since 1996. While the Rainforest Alliance issued a statement after the raid re-confirming its strong support for the Lacey Act, it also explained in detail those efforts Gibson has taken in recent years to source wood responsibly, many in partnership with the Rainforest Alliance and FSC.
Lesson #2: Things are not always as they seem
In May of 2010, the Environmental Investigation Agency (EIA) launched the Forest Legality Alliance in partnership with the World Resources Institute and USAID—and with the backing of the American Forest & Paper Association, the Hardwood Federation, the International Wood Products Association and others—for the purpose of “reducing illegal logging through supporting the supply of legal forest products.” Collectively, alliance members targeted passage of the U.S. Lacey Act amendment and the parallel EU Timber Regulation.
Fast forward several months and we now find the EIA defending the Gibson raid as an important step in the fight against illegal logging, even though there have been no allegations that Gibson’s imported Indian rosewood and ebony were illegally harvested. “Nobody [at EIA] wants this law to founder on unintended consequences,” said Andrea Johnson, director of forest programs for EIA, on a National Public Radio interview, “because everybody understands the intent here is to reduce illegal logging and send a signal to the markets. This is the new normal.”
Lesson #3: Lacey is not about endangered species
The Lacey Act, while officially concerned with all facets of “illegal” trade, has most often been utilized to stop trade in endangered species. The latest Gibson raid underscores that upholding endangered species laws is but one concern of the “new” Lacey Act.
The Indian rosewood (Dalbergia latifolia) and Indian ebony (Diospyros ebenum) seized in the August raid are not listed by CITES as protected species, nor did the FWS present any evidence that the Indian government considers these species threatened or endangered. CITES—the Convention on International Trade in Endangered Species of Wild Fauna and Flora—lists 28,000 species of plants it says are threatened with extinction by international trade. In fact, Gibson switched its ebony and rosewood sourcing to India in response to concerns about the legality of Madagascar supplies.
Lesson #4: Green certifications don’t satisfy Lacey
FSC, PEFC and SFI are voluntary, private, third-party certifications of sustainable forest management and/or chain-of-custody transmission of sustainably harvested wood products to the marketplace. Compliance with the federal Lacey Act is mandatory, and is only concerned with the legality of the harvest and distribution of products. As Gibson is now fully aware, becoming FSC-certified and sourcing from FSC supply chains does not satisfy Lacey Act requirements for legality verification from the stump to the stevedore. Which begs the question: What does it take to satisfy the Lacey Act’s requirement?
Lesson #5: “Due care” under Lacey is in the eye of the ‘E. Holder’
The Lacey Act requires importers and manufacturers to take due care to insure the wood they buy and use meets all international laws. What constitutes “due care,” however, is highly subjective and ultimately up to the interpretation of the U.S. Attorney General Eric Holder. The EIA website quotes Senate Report 97-123, which says due care means “that degree of care which a reasonably prudent person would exercise under the same or similar circumstances. As a result, it is applied differently to different categories of persons with varying degrees of knowledge and responsibility.”
The EIA goes on to say, “Given the lack of certainty around how a court might view due care, it would be prudent for companies to avail themselves of the wide array of tools, technologies and resources available for assessing and eliminating illegal wood…including bar-code or other tracing systems; legality verifications; and certification under third-party schemes.” Seems Gibson did at least some of those things.
Nor does taking due care exempt a company from penalty. Companies that unknowingly engage in prohibited conduct under the Lacey Act, even if the government grants that they practiced due care to avoid doing so, are still subject to civil fines and forfeiture of goods. Any way you slice it, importing wood is now very risky business.
Lesson #6: HS codes matter…a lot
The FWS claims in its search warrant affidavit that Gibson 1) improperly filed Customs declarations, and 2) imported Indian rosewood guitar backs and ebony fretboard blanks under the wrong Harmonized Tariff Schedule (HS) codes. These shipments allegedly left India as “finished parts for musical instruments” (HS 9902) and arrived in the U.S. classified as “veneer” (HS 4408), but should have been classified as “lumber” (HS 4407) all along. Indian law allows the exportation of HS 9902 items of rosewood and ebony, but not lumber (HS 4407) of the same species, unless sawn from imported logs.
Under the Lacey Act, the burden falls on the importer of record to ensure that everyone in the supply chain classifies the products correctly. In this case, Gibson is on the hook for misclassifications by the shipper, the broker, and the receiving company—whether or not Gibson had any role in or knowledge of those misclassifications. Not knowing is no excuse.
With the Lacey Act amendment in place, a “knowingly” misclassified shipment could result in jail time and fines of up to $250,000. “Unknowing” misclassifications carry less significant penalties, but what importer or manufacturer can afford to defend a position of ignorance of proper codes? As such, proper HS classification ought to be of primary concern to everyone in the trade from this day forward. Improper codes may be the “broken taillight” that gives officials probable cause to pull companies over and search for more serious violations.
Lesson #7: You must uphold other countries’ laws, even if they don’t
We were able to verify that India has banned exports of some lumber species since at least 2009, including Indian ebony and rosewood. However, there is anecdotal and possibly some tangible evidence that India doesn’t enforce these bans very strictly, if at all. Over the last three years, U.S. International Trade Commission trade data show, for example, after correcting for errors, that India shipped to the U.S. an average of 10 containers of “hardwood lumber” every month. Further, India’s Department of Commerce actually reports in its own trade data export volumes of HS 4407 items that it officially bans from export!
Neither of these facts are irrefutable evidence that India knowingly allowed the export of banned items, but they leave us with just two possibilities: 1) all of this lumber was produced from imported logs, and was thus exempt from the ban, or 2) Indian officials have allowed (and recorded) at least some shipments of contraband lumber.
If Gibson can demonstrate that Indian officials are lax in their enforcement or routinely ignore their own law, and the U.S. Department of Justice still decides to prosecute the case, it will be mandating that U.S. firms uphold foreign laws that foreign countries themselves don’t uphold.
Lesson #8: You could be next!
Why Gibson? The fact that a single, iconic American manufacturer and a recognized environmental leader has been singled out for possible prosecution under the Lacey Act is worrisome. The EIA is correct that the Lacey Act raids on Gibson have sent a signal to the industry. The problem is that nobody seems to know how to interpret the signal. If Gibson can get caught up in Lacey Act violations, who will be next? To be certain, other guitar manufacturers who purchase the same woods from the same supply chain are nervous. As should be any firm that utilizes or distributes imported wood and wood products. The question to ask is not “Why Gibson?”, but “What can I do to ensure it isn’t me next?”
This article was reprinted with permission from Hardwood Review Weekly (www.hardwoodreview.com), 704/543-4408.