Posted on Tue, Nov. 15, 2011
last updated: November 15, 2011 05:16:47 PM
WASHINGTON — A fight between the Obama administration and iconic guitar manufacturer Gibson has reignited debate about just how much a U.S. company must know about its foreign trade partners and how much control it must exert over those from whom it buys.
The fight involves enforcement of recently amended U.S. environmental laws, and it's taken on greater dimensions as tea party activists and GOP presidential candidates have made it a rally cry. They cite the case as an example of excessive regulation by the Obama administration.
At issue is whether Gibson — whose name is to guitars what Cadillac is to cars — should've known about potential wrongdoing by its suppliers and whether U.S. companies must enforce the environmental laws of other countries.
Flooring manufacturers and their distributors, such as Home Depot, have been the focus of attention about the sourcing of their tropical hardwood products. But the music manufacturing industry hasn't received as much attention. It's smaller but still a big business, with the National Association of Music Merchants reporting that U.S. sales of fretted products — primarily guitars but also other stringed instruments — exceeded $1 billion in 2010.
Gibson has not been indicted or charged. But an affidavit filed in support of raids on Gibson operations in Tennessee — which resulted in the seizure of computers and more than $500,000 worth of Indian rosewood fret boards for guitars — suggested that the company failed to exercise sufficient control over the middlemen who supply the guitar maker and the suppliers of those middlemen.
The middleman in this case was the Theodor Nagel GmbH, a German company in Hamburg that was founded in 1837. In late September, about a month after the Gibson raid, Theodor Nagel filed for bankruptcy protection from creditors. That company is tied to Luthiers Mercantile, the U.S. company that imported the wood from Germany on behalf of Gibson.
The Aug. 24 raid was only possible because of amendments in 2008 to the Lacey Act, which was first enacted in 1900 by President William McKinley. Back then the law was designed to limit commercial hunting that threatened wild game species. The act has been amended repeatedly over the years, most recently in 2008 to broaden the range of plants and trees that are protected under it.
The recent amendments require that American companies or individual importers of forest products ensure that the wood was obtained legally in the country of origin. In other words, U.S. companies are now responsible for compliance with laws in exporting countries, and they are liable for wrongdoing of their suppliers or middlemen. This to end the practice of companies blaming intermediaries for bad practices, arguing they have no control over the behavior of their suppliers.
"It is one of the laws, and there are more and more laws going on the books, that can make you guilty without intent. I don't have to know that there is anything wrong, nor do I have to do anything wrong to be guilty," Henry Juszkiewicz, Gibson's CEO, told McClatchy in a lengthy interview.
Juszkiewicz feels singled out.
"Everybody basically buys through intermediaries in the wood market," the Gibson CEO said, adding that "our business is the guitar business, so we depend on intermediaries. You buy from somebody that you buy from on a regular basis and you trust them to do good stuff. There aren't that many people who do guitar woods, so virtually everybody uses the same guy some of the time."
Soon after the August raid by the U.S. Fish and Wildlife Service, Juszkiewicz went on offense, appearing on Fox News and becoming an instant celebrity in conservative circles. He attended President Barack Obama's Sept. 8 jobs speech to Congress, invited by Tennessee Republican Rep. Marsha Blackburn. House Speaker John Boehner, R-Ohio, mentioned the Gibson case in his Sept. 15 speech that was an answer to Obama's address a week earlier.
The Fish and Wildlife Service referred requests for comment to an old blog on the agency's website about the action. Spokesman Chris Tollefson later would only say, "Because this is an ongoing investigation, we are unable to respond to questions at this time. When it is appropriate, we will provide more information."
Wyn Hornbuckle, a Justice Department spokesman, added, "Because it's an ongoing investigation I am going to decline to comment."
Environmental groups are watching the case closely, in part because Gibson has been supportive of efforts to promote sustainable logging.
"What's tricky about this particular case, or what's hard for people to understand, is that the wood in question wasn't necessarily illegally harvested. It was exported in (alleged) violation of an export ban," said Anne Middleton, a forest campaign researcher for the Environmental Investigation Agency, a conservation group known for its use of investigation to combat illicit trade.
Gibson argues that it has since certified with the Indian government that it hasn't violated Indian laws, and it has said the wood in question was a controlled wood that had the stamp of approval from the Forest Stewardship Council, which certifies wood products as having been sustainably harvested. The EIA issued a statement in September cautioning that Gibson does not use only certified woods.
The influential environmental group thinks the matter is bound for the courts.
"The Fish and Wildlife Service is not going to get search warrants of this magnitude unless they're quite certain that there's provable evidence of illegality going on," said Middleton.
The August raid comes after similar action in 2009 against Gibson for questions surrounding its import of ebony products from Madagascar. That case remains unresolved and is causing harm to Gibson's reputation. Gibson can't pursue legal remedies normally afforded under due process because it was subjected to high-profile seizures, but no charges have been filed. Gibson pursued civil litigation, insisting the exported wood in that case was also certified by the Madagascar government as legal.
"I'm with the law, I like the Lacey Act," said Juszkiewicz. "I would like not only to fix the problem we're having with the uncertainty it creates for other businesses ... but also the conservation end."
One Gibson competitor isn't sympathetic. Bob Taylor, founder and CEO of Taylor Guitars, maker of popular high-end acoustic guitars, came out strongly in favor of Lacey Act enforcement after the raids.
"We saw Brazilian rosewood disappear from our grasp. Then Malagasy species like ebony and rosewood. Mahogany has been saved just in the nick of time. It seems our last large spruce trees can be counted on one hand," Taylor wrote in a letter published by the Forest Legality Alliance, a joint effort by the EIA and the World Resources Institute. "Why would any of us think that without a change of action our African ebony, Indian rosewood, and the like, last indefinitely? The time for action is now, whether we like it or not."
Once commonly used by guitar makers, Brazilian rosewood became so scarce that it was put on a global endangered species list, its export from Brazil banned since 1991. Malagasy ebony from Madagascar has been subjected to export bans since 2009, but a crisis in 2009 prompted large-scale illegal logging and threatened the hardwood known for its fine grains.
The legal changes against Gibson have forced Taylor Guitars to do a better job of investigating the source of the wood it buys and the chain of custody, Taylor said.
In an interview with McClatchy, the company's supply chain manager, Charlie Redden, said the new rules require a bit more paperwork but are manageable. His team spends about 30 percent of its time on the road, visiting every forest in every country where Taylor does business.
"We're kind of involved from the very beginning. We start on the ground in the forest and we work through the supply chain to U.S. Customs," Redden said, adding that involves visiting mills that cut and shape the original trees to getting to know the operations of distributors. "There have been times when we've come across really nice wood ... but they didn't meet the grade when it came to legality and chain of custody, and we decided not to buy it."
Both Taylor and Gibson actively fund projects that promote sustainable harvesting of woods, especially in Central America. Gibson, however, is much larger, with a number of other brands under its corporate banner. That means a much bigger supply chain, since it offers everything from Asian-made starter instruments for a few hundred dollars to high-end, made-in-the-USA models of electric and acoustic guitars worth thousands.
Both are members of the National Association of Music Merchants, which has been lobbying against the Lacey Act amendments since they were adopted.
"Our work has been ongoing, but the Gibson activity certainly raised the visibility and the urgency," said Mary Luehrsen, the group's government affairs chief, noting NAMM is neutral on Gibson's problems. "Time will tell if this is an enforcement overreach. I just don't know."
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