International trade of forest products: Why to study tradeflows?

By Jaana Korhonen

 

International trade analysis might sound a bit boring, but it is not. There are several reasons why we should pay even more attention what is going on in the global, and especially forest product, markets.

The first reason is in parallel with globalizations, the volume of international trade has rapidly increased during the past few decades. The second reason is that consumption of forest products has direct implications on nature. Concerns regarding environmental and social impact of increased international trade have risen. This has caused an emergence of a number of policies trying to tackle the negative impacts associated with the increased international trade. This on the other hand, has been followed up by somewhat “heated” discussions on the economic impacts and effectiveness of the regulations. Despite this, we have relatively little empirical research studying the actual (economic or environmental) impacts of the policies.

The European Union Timber Regulation 995 (EUTR) and the 2008 amendments to the U.S. Lacey Act mandate importers to assure that imported products are legally produced. Prestemon (2015) showed that the policies emphasizing consumer responsibility are likely to affect competitiveness of different supplier countries in international trade, and especially those countries that are suspected to have high percentage of illegal fiber sourcing. To my understanding, there are no previous studies quantitatively estimating the potential impacts of legality assurance in the European Union. In the EU markets, the forest certification is a primary tool of legality assurance because it align with the requirements of due diligence. Forest certification can be also seen as a risk reduction technique for imported timber to fulfill the requirements of the 2008 amendments to the U.S. Lacey Act.

European timber regulation or Lacey act do not require forest certification per se, but it is reasonable to assume they will increase interest toward forest certification[1] in exporting countries. Forest certification schemes are market driven mechanisms. Recycling policies are another example of policies under scrutiny as nations seek to enhance resource use efficiency and promote transforming production systems from linear to circular, wherein the raw materials are collected and reused more efficiently. Policies aiming for increasing recycled fiber utilization will affect also manufacturing process of forest products and can cause market preference for products based on recycled paper.

In our study, we explore what is the relative importance of relative price, general economic activity, and environmental indicators in German and the U.S paper and paperboard import markets. More specifically, we investigate whether percentage of certified forest area of industrial forest area or utilization rate of recycled paper in supplier countries impact the demand from these countries. Despite all the structural changes in the markets, these countries are still among the largest importers of paper and paperboard, and therefore selected for this study. The study period covered years from 2000 to 2010.

The economic determinants are more significant than sustainability indicators for market flows to German and the U.S. paper and paperboard import markets. The sustainability indicators have a significant, although still rather weak, impact on the market flows during the period of study. Our results show that the preference for different forest certification schemes Forest stewardship Council (FSC) vs The Programme for the endorsement of forest certification (PEFC) varies between the markets. The U.S markets show more preference for PEFC, whereas in German markets PEFC is less preferred.  However, one need to keep in mind that the areas of certified areas have greatly expanded and the interplay between different certification schemes might already be different.

Our study also depicts negative impact of high rate of paper recycling in the demand of paper and paperboard. This is probably because many of the largest exporters base their production on the utilization of virgin fibers. Policies mandating high recycled content may force some supplier countries to start importing used materials from other countries, and the intended environmental benefits may evade. Utilization of recycled fiber has also quality implications and obviously is not suitable for all products. Analysis based on more disaggregated categories would be needed to understand the dynamics of circular markets in more detail. At the moment, none really understands what the evolution of circularity will mean for the markets of biobased products and how the increase of recycled material will interact with current markets dynamics.

Perhaps the most important take home message of our study is, that the adaptation of sustainability indicators can be used for market differentiation, and the preference for different sustainability indicators varies between different importing markets.

 

JaanaKorhonen

Jaana Korhonen  works as a postdoc in the research group Forest bioeconomy, business and sustainability at the University of Helsinki. This commentary article is based on the following articles:

 

References

Korhonen, J., Toppinen, A., Kuuluvainen, J., Prestemon, JP., and Cubbage, F. 2017.  Recycling, Certification, and International Trade of Paper and Paperboard: Demand in Germany and the United States. Forest Sci. In press. DOI: 10.5849/FS-2016-073

Prestemon, J.P. 2015.The impacts of the Lacey Act Amendment of 2008 on U.S. hardwood lumber and hardwood plywood imports. For. Pol. Econ. 50:31–44. doi:10.1016/j.forpol.2014.10.002