The Producer Responsibility Obligations (Packaging Waste) Regulations 1997 are more than three years old but are still far from perfect. Firstly, the regime looks set to fail in its main objective of securing UK compliance with the relevant European directive. Secondly, the regulations were designed to ensure that all sizeable businesses bore a proportion of the cost of compliance – but many companies have still not registered. Finally, new – and bizarre – interpretations are still being given by the Environment Agency.

The timber industry is unfortunate as it has a number of characteristics which give rise to confusion. These include a potentially complex chain of ownership on packaged timber entering the country and a wide range of suppliers across the globe, each of which uses a different system of packaging. Consequently, there are a number of frequently recurring problem issues.

The regulations apply to businesses that handle more than 50 tonnes of packaging per year and have an annual turnover of more than £2m. Groups of companies are treated as a single enterprise for the purpose of the regulations. Thus, if group turnover and packaging handled are above the thresholds, all parts of the group become obligated.

Packaging which is commonly ‘handled’ by the timber industry includes:

  • Packaging on goods your company has imported – where you are the first UK owner.

  • Materials such as timber that are used to make packaging, eg pallets or crates.

  • Packaging used on goods out.
  • For the purposes of these regulations, the packaging supply chain is split into four parts, each of which incurs a percentage activity obligation. Where more than one company performs an activity, it is the last performer of the activity that picks up the obligation.

    Packaging is not deemed to be ‘handled’ if your company is the end-user, receives it from a UK source and does not pass it on to another stage in the packaging chain. Thus, a UK timber company would incur no obligation on the packaging around a shipment of timber from a UK source which it unwraps and processes.

    Where the packaging is received from an overseas source and the timber company is the first UK owner, an obligation would be incurred. The timber industry has a confusing number of ownership arrangements by which timber may arrive in the country. For the purpose of the regulations it is important that individuals such as importers, shippers, agents and merchants understand who is the first UK owner of the packaged shipment of timber.

    The Timber Trade Federation (TTF) recently agreed three common ownership scenarios with the Environment Agency under which the indicator of ownership is who pays the VAT:

  • Agent/importer relationship: importer is the owner.

  • Selling principal/importer relationship: selling principal is the owner.

  • Overseas supplier/importer relationship: importer is the owner.
  • Timber importing scenarios

    Timber company X imports a shipment of oak direct from the US. It unwraps the timber for processing. Company X will be obligated for 100% of the packaging.

    The company imports a second shipment of oak, sells to merchant Y who in turn sells to company Z in the original packaging. Company Y is the seller to the end-user (incurring a 48% obligation), while company X picks up the remaining 52% obligation.

    Timber company Z buys a shipment of oak from UK merchant Y, unwraps and uses it. There will be no obligation on company Z in respect of this packaging.

    Dunnage is a recurring area of difficulty. In 1997, a written interpretation was provided by the Environment Agency stating that dunnage was not classifiable as packaging – largely because of the demand that existed for it and its reusable nature. However, this interpretation has been challenged by some Agency officers. Consequently, the TTF recently discussed this issue with the Agency. The Agency now seems to consider bearers as packaging which, therefore, attract an obligation the first time they are used. However, dunnage (which in the Agency’s view means natural materials used to protect goods in the holds of ships) is regarded as performing a packaging function but not incurring an obligation.

    Many timber companies have been confused by the classification of ‘timber’ packaging. When the regime started, there was a requirement to report all packaging handled but a recovery and recycling obligation only had to be met for paper, plastic, glass, steel and aluminium packaging. Actual recovery of timber packaging had to be undertaken only from the start of 2000. However, timber packaging has had to be included in ‘packaging handled’ since 1997 – and therefore, it has always counted towards the 50 tonnes threshold.

    A further example of an Agency change of mind has been experienced by some furniture manufacturers that use off-cuts of timber to pack out their flat-pack product or protect the base of their three-dimensional items. Originally some regulators deemed the off-cuts to not count as packaging as the material was a waste product from a production process which was being put to a constructive use. However, the interpretation has now been brought more in line with the letter of the law rather than the spirit – with off-cuts counting as packaging material.

    One of the more bizarre Environment Agency decisions surrounds the use of board material as packaging. A recent suggestion has been made that this should be classed as ‘paper’ rather than ‘timber’ as the paper cate-gory includes fibreboard. If this interpretation is followed, board material will incur both recovery and recycling obligations rather than just the recovery obligation attracted by timber.

    Recovery includes composting, recycling and incineration with heat recovery. Recycling specifically refers to reprocessing for reuse and is typically the most expensive option. Therefore, for the five main packaging materials, a minimum level of recycling must be achieved with the balance of recovery achieved in any material.

    An interesting area of interpretation is presented by cover boards. These fall within the definition of packaging which includes ‘all products made of any materials of any nature to be used for the containment, protection, handling, delivery and presentation of goods from raw materials to processed goods, from the producer to the user or the consumer’.

    However, the receivers of cover boards often use them as raw material for production processes. Thus, a timber supplier might send a pack of 20 boards to a furniture manufacturer with a cover board on the top and bottom. If all 22 boards end up in the furniture, the timber merchant could argue the cover boards are not packaging but part of the product.

    However, if the furniture manufacturer scraps the two cover boards or uses them for packaging, this argument would not be valid.

    One of the most troublesome issues for many timber companies remains how can the amount of packaging handled be accurately recorded when goods are received from a multitude of sources with ever changing packing?

    Such calculations are relatively straightforward in more ‘typical’ sectors such as furniture making. The bulk of obligations are incurred through the use of packaging on goods-out. Suppliers of this packaging are typically UK-based companies with databases that can provide a breakdown of the weights of all packaging supplied during the year.

    Unfortunately for many timber businesses, the majority of obligations will be incurred on imported packaging upon goods-in. These suppliers are not subject to the UK regime and are unlikely to have any measurements of packaging weights. In addition, they may be lacking in packaging discipline – using what-ever materials are spare at the time – leading to a great variety of pack weights during the year.

    Consequently, a £15m timber business could need a full-time person to deal with the packaging regulations if the company were to try to record a completely accurate picture.

    Under the regulations, the onus is on the obligated business to ensure that data submissions are ‘as accurate as reasonably possible’. Unfortunately, the exact meaning of this phrase will depend upon the interpretation of the local regulator, which in turn is likely to depend upon mood, work load etc.

    As a result, all businesses will need to make assumptions upon which their calculations will be based. The important thing is to ensure that these assumptions are logical and reasonable.

    At this relatively early stage in the regulations, companies are highly unlikely to be prosecuted for making reasonable data calculation assumptions. However, businesses are very likely to be prosecuted if no effort appears to have been made to register and provide data.

    Non-registered companies are being identified through an analysis of declared turnovers. Those above £2m turnover, with no record of packaging regime registration, are being sent letters asking them to confirm how much packaging they handle. Those that fail to provide a reasonable breakdown will be visited.

    In addition, the Environment Agency has suggested that all obligated businesses will receive a minimum of one visit every three years to ensure that calculations are accurate.

    It should be noted that the TTF agreed a set of standard packaging weights with the Agency at the start of the regulations in 1997. The TTF is proposing to update these figures through a membership survey – reflecting the need to move towards greater data accuracy.

    One of the more recent developments has been the issuing of a consultation paper on the regime in August. This proposes the upward revision of the UK targets for recovery (from 52% to 58%) and recycling (from 16% to 18%) in 2001. The DETR says this is necessary to ensure the UK meets the EU directive targets for 2001 of 50% recovery and 15% recycling.

    If the UK targets are revised in line with the proposals, obligated businesses are likely to see a 30% increase in their packaging recovery note (PRN) costs in 2001. This rise may be exaggerated by an increase in the average cost per PRN reflecting the greater demand from industry and a rise in the scarcity value.

    Further pressure on prices may result from companies that have failed to register in previous years and are entering the PRN market for the first time. The Environment Agency has successfully prosecuted around 20 companies – a timber business was recently fined £1,500 for failing to register. The largest fine imposed on a single company so far has been £10,500.

    As ever, honesty is the best policy. Any timber companies that have not registered would be advised to hold up their hands as soon as possible. There is likely to be greater leniency for those that come forward rather than being discovered by the Environment Agency.