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FLEGT and TRADE What Will the Impacts Be?

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FLEGT and TRADE What Will the Impacts Be? FLEGT AND TRADE What will the impacts be? by Emily Fripp, Consultant (ERM) Environmental Resources Management (ERM) 8 Cavendish Square, London, W1G 0ER www.erm.com [email protected] Published by: Sustainable Development Programme Chatham House 10 St James Square, London SW1Y 4LE, UK www.chathamhouse.org.uk/sustainabledevelopment November 2004 © Royal Institute of International Affairs 2004 This material is offered free of charge for personal and non-commercial use, provided the source is acknowledged. For commercial or any other use, prior written permission must be obtained from the Royal Institute of International Affairs. In no case may this material be altered, sold or rented. Credit: © Royal Institute of International Affairs 2004 FLEGT and Trade: What will the impacts be? Contents SUMMARY ................................................................................................................................................................... 3 1 INTRODUCTION ................................................................................................................................................. 6 1.1 PURPOSE OF THE STUDY ............................................................................................................................. 6 1.2 THE OBJECTIVES OF THE EU’S FLEGT ACTION PLAN ............................................................................. 6 1.3 COMPONENTS OF THE ACTION PLAN ......................................................................................................... 6 1.4 APPROACH OF THIS STUDY ......................................................................................................................... 7 1.5 LAYOUT OF THE REPORT ............................................................................................................................ 8 2 TRADE REGULATIONS AND STANDARDS – LESSONS FOR THE TIMBER TRADE ................... 9 2.1 LOG EXPORT BANS...................................................................................................................................... 9 2.2 THE CATCH DOCUMENT SCHEME............................................................................................................ 11 3 REGIONAL AND NATIONAL INITIATIVES............................................................................................. 12 3.1 REGIONAL INITIATIVES .............................................................................................................................. 12 3.2 NATIONAL INITIATIVES.............................................................................................................................. 13 4 GLOBAL TRADE – PATTERNS AND TRENDS ........................................................................................ 15 4.1 TRENDS IN THE GLOBAL WOOD BASED PRODUCTS TRADE ...................................................................... 15 4.2 KEY GLOBAL MARKETS ............................................................................................................................ 17 4.3 POTENTIAL IMPACTS OF THE LEGALITY LICENCE SCHEME ON GLOBAL TRADE ...................................... 21 5 CASE STUDY PRODUCER COUNTRIES AND POTENTIAL IMPACTS............................................ 23 5.1 BRAZIL ...................................................................................................................................................... 23 5.2 INDONESIA ................................................................................................................................................ 24 5.3 CAMEROON ............................................................................................................................................... 26 5.4 CONCLUSIONS & POTENTIAL IMPACTS .................................................................................................... 27 6 GENERIC POTENTIAL IMPACTS ON TRADE PATTERNS................................................................. 29 6.1 POTENTIAL IMPACTS.................................................................................................................................. 29 6.2 FACTORS INFLUENCING THE POTENTIAL SIGNIFICANCE OF IMPACTS ...................................................... 32 ANNEX I: GLOBAL TRENDS – SUPPORTING GRAPHS..........................(AVAILABLE SEPARATELY) Page 2 FLEGT and Trade: What will the impacts be? Summary The purpose of this study is to assess the potential impact of the EU FLEGT Action Plan on the trade in wood-based products between the EU and the partner producer countries. To reiterate, the overall aim of the Action Plan is to influence trade in illegal wood-based products and to reduce the amount of illegal wood-based products consumed and the scale and significance of the associated illegal activities in the producer countries. The study takes the approach of a standard impact assessment, comparing the business-as-usual scenario with the situation that would result under the Action Plan, in particular the implementation of the legality licence scheme, through Voluntary Partnership Agreements. The assessment considers lessons from other trade-based regulations, current global trends, other market drivers affecting production, consumption and trade and a number of interviews held with a range of stakeholders actively involved in the trade of wood-based products. The study considers the potential impact with regard to three case-study countries: Indonesia, Brazil and Cameroon. Two trade-based regulations with lessons of relevance to the implementation of the legality licensing scheme are log export bans and the CCAMLR Catch Document Scheme. Log export bans are introduced for normally one of two reasons: either to encourage domestic processing and value- adding, or as an environmental tool, e.g. to reduce the amount of deforestation and over-logging. The impact of such bans has varied but includes an increase in the supply of logs to the domestic market, leading to a fall in market price, in effect providing subsidised raw material to the processing industry. Unless government enforcement is adequate there is a risk that log production will increase. However, the experience of the CCAMLR Catch Document Scheme shows that where the harvest area is defined and fish stocks are sufficiently reduced, with demand constant, prices for legally caught fish will increase. A price premium has emerged in the market place for legal toothfish. There are a number of other drivers (in addition to the EU FLEGT Action Plan) influencing the trade in wood-based products; these include regional FLEG processes and trade action plans, public procurement policies of EU member states, and a range of private sector and NGO initiatives such as supply chain management, business-to-business initiatives, producer and buyer groups, procurement policies and guidelines. Before assessing what the possible impacts may be, a review of the current trends in the market place provides a baseline, or business-as-usual, scenario. Key global trends include: the increasing demand for processed and engineered products such as paper; global consolidation of the industry; and increasing ownership and responsibility for supply chain issues. Globally Japan, China, the US and EU are the main markets for wood-based products and this trade is dominated by processed products. For two of the case-study countries, Indonesia and Brazil, the EU market is a smaller export market than that of Japan, China and the US, but it remains a desirable and higher value market. Although most of this trade is in processed products, such as pulp and paper and plywood, for the third case- study country, Cameroon, exports are predominantly logs and sawnwood and the EU is a key market destination; China, however, is becoming increasingly important. In particular in Brazil, with more than 80 per cent of tropical products being consumed domestically and only a small share of production exported, the majority of exports going to the EU are processed – plywood and pulp and paper and some sawnwood – the legality licence in its initial form will only have a limited impact on both production and trade patterns. Page 3 FLEGT and Trade: What will the impacts be? In Indonesia, the legality licence is likely to have a limited impact in its initial form (logs and sawnwood only) on trade between the EU and Indonesia and may even cause a distortion in trade patterns away from the EU towards other less stringent markets, where strong trade partnerships already exists, for example to China and Japan. With a log export ban in place and excess demand in the domestic market a switch from export to domestic markets is also a possibility. Between 70 and 80 per cent of Cameroon’s exports go to the EU, accounting for almost all sawnwood exports and 50 per cent of the log exports. China is the other main buyer of Cameroon’s logs. Strong vertical linkages and traditional buying relationships exist between producers in Cameroon and buyers in the EU, especially in southern Europe. With a WWF GFTN Producer Group, a working group for certification, an independent observer, significant donor presence and private sector initiatives such as the UK TTF and SGS programmes, the legality licensing scheme will potentially have a significant impact. It will support and be supported by the existing trade and timber production initiatives currently in place. Generic potential impacts Potential generic impacts, as identified by stakeholders interviewed
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