In summarising the impacts on the forest and forest industries sector of changes in direction of the policies dealt with in this study, sub-section 3.1.5 presented a kind of “what …, if …?” scenario: what might be the impact on the FFI sector, if certain policy changes occurred? This section is an exploratory exercise in replacing the “ifs” by the authors' personal ideas of what may actually happen and then pencilling in the likely “whats”. As such, it may serve, amongst other purposes, as a benchmark against which to test the more scientifically-based findings in several chapters of the FAO/ECE study, ETTS V.
At least in democratic societies, politics, and consequently policy-making, is the art of the possible, involving elements of compromise. In looking in the crystal ball for future directions of policy-making, therefore, it is better to avoid excessive idealism and naivety, on the one hand, and excessive pessimism and cynicism, on the other. This risks making the scenario appear unduly bland and unimaginative. Nevertheless, the final years of the twentieth century are turning out to be a period of considerable upheaval and change, in Europe and other parts of the world, and it is reasonable to imagine that further marked shifts are going to occur in several policy areas affecting the FFI sector. Therefore, the base scenario presented below tends to err more on the side of boldness and, in some instances of optimism, than of caution.
To the extent possible, the base scenario should deal with the policy changes and their impact on the FFI sector, and not attempt to forecast actual developments. Nonetheless, it is not easy to separate policies from developments, so we start with some assumptions about major developments over the next decade or two. Before doing so, however, it should be stated that what follows assumes that there will be no cataclysmic event, such as a largescale war or major health or environmental disaster, that would invalidate the scenario. In the current climate of political and social instability in parts of Europe, such an eventuality cannot be entirely ruled out.
For the base scenario, some of the main developments that are assumed to take place over the next 10 to 20 years are itemised below. The basis for the assumptions was provided in earlier parts of the study, so is not repeated here.
In Europe, the population will grow very slowly; the main exception will be Turkey;
Mainly as a result of much stronger growth in other parts of the world, Europe's share of world population, GDP and trade will shrink. Of the other regions, Asia in particular will increase its share of world GDP and trade;
Western Europe's economy will recover from the recession of the early 1990s, but the average rate of growth of GDP between 1995 and 2010 will remain below the average of the 1980s;
International competition will intensify further, with industrial producers particularly in Asia exerting ever-increasing pressure on world markets. At the same time, the emerging (post-developing) countries of Asia and Latin America will greatly enlarge their markets for capital and consumer goods;
The growing globalisation of industry and commerce will be accompanied by greater specialisation for certain products and services, for which Europe will be quite successful in exploiting market niches. Nevertheless, the virtual disappearance of some traditional (“sunset”) industries in Europe will have some painful social consequences;
The positive outcome of the GATT Uruguay Round negotiations will help to stimulate world trade and economic growth in the years following the application of the new trading rules by the GATT signatory countries. Some protectionism will remain, however, not least in agriculture;
The substantial lowering of trade barriers resulting from (f) will help to stimulate direct foreign investment in industries in countries with favourable human and natural resource (including energy) situations;
With regard to economic integration, several EFTA countries will have joined the European Union before 2000. Some other countries, including a few countries with economies in transition (CITs), will join before 2010. The European Economic Space will be gradually enlarged to cover virtually the whole of Europe by 2010, making the region an area largely without trading barriers;
The trend towards international integration will be occurring at the same time as that of decentralisation of government authority continues within many countries, partly in response to political pressures and demands for greater autonomy at the sub-national level, and partly as a component in strategies for regional development;
Through increased taxation and/or control on public expenditure, most European countries will stabilise the levels of their public debt, but not make much progress in reducing it;
Despite government efforts to solve them, a number of social problems will persist in most European countries:
Migration from the countryside will continue in the southern and to some extent in the eastern parts of Europe. In order to maintain rural employment and living standards and environmental stability, however, measures to support sufficient levels of population and activities in those areas will become increasingly important everywhere, including the north and west of Europe where the drift from the countryside will be more or less halted;
The countries of central and eastern Europe with economies in transition (CITs) will gradually establish the foundations for renewed economic growth based on market economy principles. Wage levels will remain well below those in the west, however, allowing the CITs to maintain a competitive advantage;
There will be growing awareness throughout Europe that there are limits to market liberalisation and the operation of a market economy, and that there is need for a specified role for the public sector in view of the complexities of post-industrial and sustainable development. In other words, the pendulum, currently moving towards reduced state involvement, will begin to swing the other way;
Nevertheless, the process of privatisation will still continue in both western Europe and the CITs, but at a decelerating pace, partly because the possibilities for further privatisation become more limited, partly because of increasing concern about the social impacts of the process;
Energy will become somewhat more expensive (less cheap) over the next one to two decades. Either there will be a new energy price shock as a result of a major political or environmental event, or governments will collectively find the political will to price energy, e.g. through carbon taxes, at a level which better reflects the social and environmental costs of fossil fuels;
The pattern of energy supply will continue to shift in favour of environmentally benign and sustainably produced alternative fuels. The acceptability of the burning of biomass for heat and power generation, including the use of wood and waste paper, as being environmentally benign and neutral as regards CO2 emission, will become better reflected in legislation. There will also be further marked technological developments in this field;
International pressure, supported by public opinion, for greater environmental protection will be maintained and policies further strengthened, although lapses will occur in some countries, where it has to be temporarily over-ruled by other more immediate priorities;
International agreements will be reached on regulating the trade and utilisation of environmentally sensitive products;
Production of food in Europe will level off. Under the impact of biotechnological developments in particular, the pattern of output will change considerably, with an increasing proportion coming from large industry-type farming enterprises, supplemented by specialised producers of quality products. Resistance on environmental grounds to these trends may grow, and in some areas, agriculture may even become more extensive, including organic farming, agro-tourism and agroforestry;
The principal effect of (t), as well as other developments, will be to accelerate the rate of withdrawal of agricultural land from food production. More extensive forms of farming (e.g. agroforestry) will only occur in certain areas where supported by government measures;
In the CITs, restructuring of agriculture will gradually bear fruit, allowing those countries to raise production and exports;
The trend towards a rising proportion of investment in construction going into repairs, renovation, etc. in Europe will accelerate. Both renovation and new building will be boosted in the CITs.
With increasing leisure time and disposable incomes, tourism will continue to increase its share of total GDP, and to be an important factor in rural development.
The above list is not intended to be comprehensive, but indicative of some of the main developments that might occur in the coming decade or two. Some of the developments are virtual certainties, such as the slow growth in population and the increasing globalisation of industry and commerce. Others depicted here are far less certain and probably controversial, such as the extent of economic integration in Europe, the rise in energy prices and the slowing down in the process of privatisation. Whether controversial or not, all of them are presented as a basis for discussion and not as firm forecasts. They also are the basis for the alternative scenarios presented below.
The assumptions made above about the main developments to take place over the next 10 to 20 years were discussed by the FAO/ECE meeting in June 1994 on the policy context for ETTS V, which had the following comments to make about them:
For this exercise, seven issues have been selected on which policies are being assumed to change direction or at least to become more accentuated: stimulus to the economy; energy; the environment; agriculture; trade; the economies of countries in transition; and the role of the public sector. For each of them, two alternative scenarios are offered. These are not at opposite ends of a range of possible scenarios but are felt to be within the limits of possibility given likely constraints. Consequently, they may not even be in contradiction with each other, but may reflect different degrees of policy change. After the two alternatives have been presented for each issue, one of them is selected to be a component of an overall base scenario, and the reasons for that choice are set out as a basis for further discussion.
This part of the Advance Version of the study received particular attention at the above-mentioned meeting in June 1994, in view of the meeting's mandate to draw up a base scenario for use in ETTS V. The meeting's comments on the proposed choice of scenario have therefore been added for each of the seven issues presented below.
Alternative A -“Steady-as-she-goes”: Following measures already taken to pull their economies out of the recession of the early 1990s, west European governments decide not to introduce further major measures to stimulate their economies, apart from some fine-tuning. This is in consideration partly of the risks of a renewed “boom-and-bust” cycle and a resurgence of inflation, partly of the need to continue efforts to bring public expenditure down to more manageable levels and to control the level of national debt.
Alternative B - Further stimuli: Further measures to reinforce the economies of western Europe, and to mitigate some of the social impacts (high unemployment) of high-tech developments and structural changes, are taken. Among them are further lowering of interest rates, easing of lending restrictions and the increased allocation of public funds for certain activities. Among the sectors targeted are construction, including public works and improvements to the housing stock, notably for energy conservation, conversion for special groups of the population such as the elderly, small families, etc., and regional development, including infrastructure, tourism, establishment of rural industries and agencies, especially in poorer and more remote areas.
Choice of scenario and discussion. Alternative B is selected, mainly on the premise that governments will find that political pressure to deal with problems of unemployment and structural change proves greater during the 1990s than their will to maintain strict monetary rectitude. The implications of this choice are that economic growth in the short-to-medium term may be higher than it would otherwise have been, and that unemployment in western Europe will be eased. Also on the positive side, progress will have been made on tackling some of the important social issues in both urban and rural areas. On the other hand, little progress will be achieved in reducing the fluctuations in the business cycles, and the seeds will have been sown for a renewed inflationary spiral, probably before the end of the 1990s. While these policies might be successful in stimulating growth during the period covered by ETTS V, it is less sure whether they will offer stronger growth on a sustainable basis. Furthermore, the problem of lowering the public debt will not have been tackled.
The impact on the FFI sector would be chiefly in generating stronger demand for forest products, particularly those used in the construction industry. Support for rural economies could also be reflected in assistance in establishing and modernising forest industries and in forestry in areas targeted for such assistance.
The June 1994 meeting felt that how governments would react to the demand to stimulate the economy was a point of great uncertainty. The pressures to reduce unemployment (fear of social unrest and political extremism) are strong, but governments have less margin for manoeuvre than before due to international factors (multi-national firms, commitments e.g. in the context of the EU, pressures of currency markets), and in some cases strong domestic constraints regarding public budget deficits. It was agreed to maintain the proposed scenario (Alternative B - Further stimuli), with some words of caution, and to explore in ETTS V the consequences of a lack of public stimulus, by the use of sensitivity analysis.
Alternative A - Continued ample supply inhibits policy changes. No political or environmental disturbances occur, within Europe or elsewhere, of sufficient scale to disrupt or threaten the supply of oil and gas and hence the price of energy. Governments take some steps to raise taxes on the use of fossil fuels (carbon tax or similar), but the level of this taxation is not sufficient to accelerate significantly the trend towards energy conservation, use of alternative fuels, etc. New oil and gas reserves are discovered, but in increasingly expensive locations to exploit, raising the likelihood of steadily rising energy costs in the longer term.
Alternative B - A third energy price shock or firm government action or both. Sooner or later - and in this scenario within the next 15 years - another energy price shock will occur. The cause of this shock might be either a political upheaval in one of the main producing areas which will cause a more than temporary disruption of supplies; or a major environmental disaster, such as another “Chernobyl”, which will lead to decisions to close down much of the nuclear generating capacity within a given period. Such events will trigger off strong government policy responses to conserve energy and switch to alternative supplies. Even without a major shock or catastrophe, this scenario could envisage strong measures being taken by governments in concert in response to evidence of serious threats to the planetary ecosystem from climate change, with consequent sharp rises in energy prices which, unlike the aftermath of the first two energy shocks, would persist.
Choice of scenario and discussion. Alternative A is selected, although it is felt that Alternative B is not as unlikely as might be thought at first sight. Reserves of fossil fuels are ample for the foreseeable future, especially of coal, and assuming historical patterns are repeated, exploration for oil and gas will be stepped up again when proven reserves fall below a certain level. Despite concern about climate change and environmental protection, governments may not be able to summon up the political will to introduce and finance the strong measures that would be needed to reduce the dependence on fossil fuels faster than has been occurring in the past two decades. Such a development would also not be in the interests of the powerful multinational energy companies. Significantly faster progress towards the use of alternative energy sources is probably unrealistic without at least a doubling in the present price of oil. This may eventually happen, but in this scenario, not within the ETTS V timeframe.
The main result of Alternative A would be to prevent or at least delay the potential for biomass as a source of energy to be realised within the ETTS V timeframe. For the FFI sector, this would have serious consequences, inter alia: 1. the problem of finding outlets for the large quantities of small-sized and lower quality wood in Europe's forests and industry residues would be difficult to solve; 2. there would be less incentive for the development of energy plantations, which could have been one interesting alternative use of surplus agricultural land; and 3. the use of urban waste, including waste paper, for energy generation would be less attractive, which would add to the problems of the competition between waste paper and lower quality roundwood and residues as industrial raw material.
The choice of Alternative A (Continued ample supply of energy inhibits policy change) was endorsed by the June 1994 meeting, and considered realistic. It was pointed out that, as land fill is increasingly unacceptable, burning of urban waste should be seen essentially as a means of waste disposal. The choice between different means of waste disposal depended on their relative costs, for which the energy price was only one of several factors.
Alternative A - Laissez faire. Quite far-reaching measures have already been introduced to protect the environment, promote sustainable development, etc. This scenario foresees governments not adding greatly to the volume of legislation, apart from fine-tuning of the existing, and introducting some new, legislation in a few areas. Among the constraints to further changes in policies will be lack of international consensus on standards for environmental protection and on the concept of sustainable development and strategies for putting it into practice. Governments and the private sector will baulk at the cost of applying stricter rules and of providing increased environmental services, which they will see as inhibiting economic development.
Alternative B - Substantial progress on the environmental front. Public opinion and the international political climate continue to support the concepts relating to sustainable development, bio-diversity, climate change, etc. arising from UNCED and other fora, and to push for implementation of Agenda 21. This is reflected in further strengthening of legislation in such areas as the management and use of natural resources, land use planning, protection of nature, bio-diversity and the reduction and recycling of waste. Governments place increasing emphasis in their policies on improving the quality of life of people rather than just their material well-being.
Choice of scenario and discussion. Alternative B is chosen, mainly on the assumption that UNCED and the political climate concerning all aspects of the environment have generated sufficient momentum that it will be difficult to bring the movement to a stop. Whether policy changes will go as far or as fast as demanded by the environmental lobby is doubtful, however, because of the many institutional and other obstacles to be overcome, of which the costs involved in applying stricter environmental regulations may be the most intractable.
With regard to the impact on the FFI sector, the most significant developments will be the enforcement of sustainable management principles and the acceptance, either as a public charge or by internalisation, of the costs involved. Some areas of productive forest will be transferred to wholly or largely non-wood functions, including nature reserves, National Parks, etc.; and increasingly severe measures will be applied to the reduction and recycling of waste. Regarding the former, the loss of revenue from wood production will require the management costs of the transferred forests, whether public or private, to be partly covered by subsidies, although it can be expected that revenue from tourism, hunting licences, etc. will provide an increasing share.
The properties of wood, as a renewable raw material coming from a sustainable resource and environmentally benign in its processing and utilisation, will be increasingly recognised, and certain wood products will be able to maintain and even strengthen their market position on the basis of these qualities.
Concerning waste, the possible inconsistency of this scenario with that chosen for energy in section 3.2.4 above will be considered later. This scenario for the environment implies greater emphasis on waste management, including recycling, as an important aspect of sustainability. Without an appreciable increase in the use of biomass waste, such as waste paper, for energy, problems of disposal could arise, as indicated earlier.
In endorsing the choice of Alternative B (Substantial progress on environment), the June 1994 meeting noted the importance of questions of ecolabelling and certification for the forestry and forest products sector. It is clear that there is a strong demand from consumers and the public at large, at least in northern and central Europe, that wood should be from sustainable sources and that they should be able to exercise their consumer choice on the basis of reliable information. If (when?) accepted systems to do this were put in place, there would be multiple consequences for the sector, which could include changes in the total level of demand, of wood's competitive position as regards other materials, of some suppliers vis-à-vis others, or of some products (hardwoods vs. softwoods). There is also the question of whether a higher price may be expected for certified timber. These consequences should be explored in detail in ETTS V.
The meeting also considered it necessary to inform the public in general and specifiers in particular of the environmental benefits of the use of wood. Many people are unfortunately still not aware that wood is a renewable raw material, which stores carbon over long periods of time if used in a durable manner. The situation as regards the internalisation of the costs of providing environmental benefits to society varied between regions. In the Nordic countries subsidies were not expected to play an important role, while in central Europe various systems are in place to compensate forest owners for the extra management costs.
Alternative A - Sharply reduced levels of agricultural support. In both scenarios it is assumed that considerable areas of agricultural land will be withdrawn from food production over the coming two decades. The difference in the scenarios lies in the policies towards such land. In this alternative, policies to reduce public expenditure take precedence over others, with the result that government support is sufficient to allow only a relatively small part of the surplus agricultural land to be transferred to alternative uses. The rest is abandoned, most of it in the more remote areas of Europe.
Alternative B - Active policies to promote alternative uses for agricultural land. While determined to reduce levels of financial support per hectare from present levels provided for food production, governments are committed to maintaining employment and standards of living in rural areas and to raise those in the poorer ones. They therefore actively seek viable alternatives to food production, including some that require public financing, although less than at present.
Choice of scenario and discussion. Alternative B is chosen. The social cost of Alternative A is found to be unacceptably high, not least for its negative impact on the well-being of rural populations. From the FFI sector's point of view, some of the abandoned agricultural land will be afforested, and a lot more will be gradually recolonised by shrub and eventually tree cover as a consequence of Alternative A, which will at least be positive in respect of environmental and biodiversity benefits, even if negative in social and economic respects.
Given the underlying objectives of Alternative B, forestry will be a sound option where it could be undertaken with a view to creating employment opportunities in the short-to-medium term and offering either reasonable economic returns or social and environmental services in the medium-to-long term. Afforestation for wood production holds limited appeal, given the foreseeable supply/demand situation in many countries (there may be some exceptions); therefore, alternative objectives need to be examined, including landscape enhancement, leisure and tourism, hunting, soil protection, carbon fixation, and so on. In some cases some of these may eventually bring a financial return, but more often they will be services that will have to be paid for out of the public purse.
Establishment of energy plantations on agricultural land will offer an economic return only if the price of energy rises markedly or if they are subsidised. If the energy scenario chosen earlier is to be accepted, this would seem to exclude self-financing energy plantations, at least on a large scale. Some public support of energy plantations could be envisaged, however, on well selected sites, more on an experimental than truly commercial basis; they would at least be useful in building up expertise for a change in the energy situation sometime in the more distant future.
One other possibility exists, namely decisions taken by countries on a collective basis to address the threat of climate change. One initiative would be the widescale planting of forests as carbon sinks. Alternative B assumes that this, combined with the social and environmental functions mentioned above, gives governments the necessary justification to provide substantial support for the afforestation of quite large areas of surplus agricultural land.
The June 1994 meeting endorsed the choice of Alternative B. It agreed there would be active policies to promote alternative (non-food) uses for agricultural land, including afforestation, although the position as regards subsidies for establishment of energy plantations was doubtful in many countries.
There are two separate issues concerning trade: (1) The impact on Europe's FFI sector of measures to regulate trade in environmentally sensitive products; and (2) the impact on Europe's FFI sector of changing patterns in the world economy and trade.
(1) Measures to regulate trade in environmentally-sensitive products
Alternative A - Little progress in regulating trade in environmentally sensitive products. In both
Alternatives A and B, it is assumed that the agreements reached in the GATT Uruguay Round
negotiations are ratified by the signatory parties. This will stimulate international trade in the medium-to-long
term, as well as economic growth through increased competition and lower prices, and foreign direct
investment. At the same time, however, some barriers to free trade persist, partly with a view to protecting
existing industrial structures and employment. The difference between the two scenarios concerns mainly
the extent to which trade policies incorporate legislation on environmentally sensitive products. In this
scenario differences persist, not so much on the principle of restricting trade in products that do not come
from sustainably managed natural resources or are produced in an environmentally benign way or in
endangered species of fauna and flora, but on how policies could be enacted and enforced on the basis
of internationally agreed definitions and criteria. Such problems as the possible use of environmental
protection as a trade barrier, and reaching agreement and setting up systems for checking that the
conditions set in ecolabelling legislation, prove intractable, at least within the ETTS V timeframe.
Alternative B - Substantial progress on environmentally-related trade issues. The impetus provided by UNCED and the inclusion of an article on the environment in the GATT agreement is followed up by further negotiations which lead to a workable and enforceable agreement on the principles to be incorporated in national trade legislation relating to trade in environmentally sensitive products, including provisions for international systems for checking and control, as well as for compensation for loss in revenues. Current efforts to introduce schemes for the certification of forest products being traded and sold that originate from sustainably managed sources will be successful, although whether they will be operated by governmental (or inter-governmental) or non-governmental organisations remains to be seen.
Choice of scenario and discussion. Alternatives B is chosen, for much the same reasons as the more positive scenario was selected earlier for the environment, namely public opinion, pushed by environmental groups, provides the backing for governments to reach international agreement on traderelated environmental legislation and to act on it.
Forest products have been an important element in environment-related trade negotiations, mainly on the issue of exports of wood and its products from natural and old growth forests in the tropics and some temperate and boreal areas. The withdrawal of part of these forests from exploitation and their designation as protected areas, such as nature reserves and National Parks, together with the careful application of rules concerning the harvesting and export of wood from forests managed on a sustainable basis, will substantially reduce the volumes of trade, especially of certain more valuable species and qualities. On the other hand, unit values of these assortments are likely to rise considerably, stimulating the search for alternatives, either wood or non-wood.
Another impact will be on the use, return and recycling of packaging materials in which goods are shipped. In the first place, the quantities of packaging materials used, including paper and paperboard, as well as sawnwood and panels and pallets, will be reduced. Secondly, a still higher proportion of these materials will have to be returned and recycled, with consequences for the forestry as well as the industry parts of the FFI sector.
The June 1994 meeting endorsed the choice of Alternative B. Examples of the developments and policy changes in other regions that will affect Europe's FFI sector include logging bans in S-E Asia and cutting restrictions on Pacific Northwest forests of the USA: these should be fully taken into account in ETTS V.
(2) Changing patterns in the world economy and trade
Alternative A - Negative impact of economically-emerging countries on Europe's competitivity.
Europe's share of the world's economy and trade will decline in both scenarios, but in this one faster than in
Alternative B on the assumption that the dynamic growth in certain countries, notably in south-east Asia,
will be maintained and extended to other countries, notably China and possibly India. Given their huge
populations, strong industrial growth in these countries will transform the pattern of world trade quite
quickly, with the already industrialised countries losing their predominance in some product areas.
Alternative B - Europe adapts to changing structure of world economy and trade. In this scenario the reported high growth rates of China's economy in recent years prove not to be sustainable. For this and other reasons, such as strongly rising demand in the economically-emerging countries themselves, structural changes in the pattern of the world's economy and trade occur more slowly than suggested in Alternative A. This gives more time for European industry, especially in areas where it can maintain its technological advantage, to adapt to the changes and to some extent take advantage of them.
Choice of scenario and discussion. Alternative B is chosen. While acknowledging the immense strides forward that the Chinese economy is making, and the further potential in the already economically-emerging countries as well as in India and some others, there are some reasons to expect that growth in those regions cannot be maintained indefinitely at the present momentum, and that Europe will be able to defend its competitive position reasonably well.
With regard to Europe's place in the global market in the light of developments in the economically-emerging countries, notably China, even under Alternative B its share and that of other industrialised countries will decline. With increasing prosperity and purchasing power, the former will compete more powerfully for the available supplies of commodities, including wood and its derivatives, on the international market. Depending on how quickly new sources of wood raw material and new forest industries are established in other regions, Europe with its existing forest resources, still under-utilised, and relatively efficient industries will find itself able not only to supply a larger part of its own requirements but also export more forest products to other regions. This would be possible if world prices rise to a level that will make sustainable harvesting of increased volumes of wood in Europe economically viable. Europe will at the same time become an even more important source of technological know-how and manufacturing equipment (capital goods) for the FFI sector in other regions.
The June 1994 meeting endorsed the choice of Alternative B. The prospects for consumption of forest products in China were considered uncertain: it was better to refer to the Pacific Rim as a whole, especially south-east Asia. There are developments and policy changes in other regions which will strongly affect the outlook for the European FFI sector, including the decline in removals in the Russian Federation. ETTS V should take these fully into account, either in the policy context or the trade chapters.
Alternative A - Hesitant transition to a market economy. After the revolutions of 1989/90 all the central and eastern European countries which had centrally-planned economies committed themselves to a process of change to pluralistic political systems and forms of market economy. Some have been attempting the “fast-track” or “shock therapy” approach, others a gradual one. Both have proved painful, especially in terms of reduced standards of living, inflationary pressures, increased unemployment, closure of industries and so on, but at least in the short term the shock therapy approach proved the harder one for the population. In this scenario governments will be elected in several countries that seek to modify the transition process in ways that reduce the adverse social impacts, for example by continuing to subsidise state-owned industries, even if loss-making, and slowing down the pace of privatisation. The scenario also assumes that foreign investors, whether government or private, remain cautious about committing funds in the transition countries, which continue to lack the large investments needed for all parts of the modernisation process.
Alternative B - Confidence re-established in the transition process. Governments in the CITs continue to make steady, if unspectacular, progress in reforming their economies, including the process of privatisation and the building up of the institutional, economic and physical infrastructure necessary for the efficient functioning of a market economy. With increasing political and economic stability, and growing recognition of the potential of a relatively low-cost but skilled workforce and of considerable latent market demand, foreign investors become much more willing to enter the CITs, and the funds made available are sufficient to set them firmly on the road to recovery and renewed expansion.
Choice of scenario and discussion. At the time of writing, there appears little prospect of resolving the problems in parts of former Yugoslavia, while the aftermath of the recent election in the Russian Federation (a CIT but not directly covered in this study) raises some uncertainties about future developments there and, by association, in other CITs. Nevertheless, Scenario B is chosen. Reform in the Czech Republic, Hungary and Poland is beginning to bear fruit, and confidence in their future prospects is growing. The process in other countries may be slower. Mechanisms have been set up for the transfer of funds from the west, for example through the EBRD, the World Bank, UNDP and the European Union, and the number of private initiatives, such as joint ventures and other forms of co-operation, is growing steadily. Agreements have been reached or are under negotiation for easing the access of goods produced in the CITs to western markets. Some CITs will probably become members of the EEA, if not the European Union itself, within a decade or two.
Among the implications of this scenario for the FFI sector is the expectation of a substantial recovery and then expansion of consumption of forest products in the CITs, notably of those that were held back under previous regimes, such as paper and paperboard. Initially, some of this demand will have to be met by imports, but in the longer term, the CITs as a whole have adequate forest resources to remain more or less in balance in their trade in forest products (some will be net exporters, others net importers). Installation of modern technology in privately owned, partly or wholly foreign financed industries will make them competitive with industries elsewhere.
The June 1994 meeting accepted Alternative B (Confidence re-established in the transition process), but stressed the great uncertainty about the pace of the process and the speed and strength of recovery, and the differences between CITs.
Alternative A - Reduced public sector involvement. Changing demographic and social patterns and inadequate budgetary control in the past forces governments to adopt more stringent fiscal and monetary policies and, despite strong opposition, to shift more of the burden of supporting social services onto the private sector. Public spending is cut back across the board, including welfare services, housing, defence, agriculture and so on. Public financial support is more carefully targeted to the most needy social sectors, including the alleviation of unemployment and support for the social fabric in backward areas. The process of privatisation is pursued throughout Europe, although it may slow down as it approaches its finite limits.
Alternative B - Swing of the pendulum back towards more public involvement. Social difficulties accumulate to the point where governments are forced to restore some of the public powers which they had been shedding. This will involve maintaining levels of public expenditure at or near present levels and either allowing the national debt to rise further or increasing taxes. The former will store up more problems for the future, but because the latter would be politically unpopular and probably slow down the economy, will be preferred as the lesser of two evils.
Choice of scenario and discussion. Alternative A is selected, even though it is partly inconsistent with the choice of scenario made earlier for stimulus to the economy (“Further stimuli”). This underlines the dilemma in which governments find themselves at the present time. It may be argued that ways could be found to stimulate the economy without increasing the level of public involvement, for example by accelerating the pace of privatisation and by transferring more of the existing burdens from the public to the private sector, neither of which may be politically popular.
For the FFI sector, Alternative A decreases the likelihood that substantial public support will be given to such activities as afforestation (for whatever purpose) or management of new protected forest areas. Compared with pressing social needs, such as alleviating unemployment and maintaining rural structures, forestry may have a fairly low priority, unless it can be shown to contribute substantially to these objectives. Similarly, unless or until a major environmental or energy crisis occurs, the argument for afforestation for energy or as a carbon sink may not carry great weight.
The June 1994 meeting endorsed the choice of Alternative A - Reduced public sector involvement, although it considered that sector involvement will be increased in some areas, for instance for afforestation in some countries. Likewise, there would be increasing importance attached to the efficiency of use of public funds, and on devising more specific and targeted ways of achieving society's objectives efficiently and without distorting the economy. Forest funds were one method, which was being applied also in the CITs.
The chosen alternatives to constitute the base scenario of policy changes are:
Readers may well have different opinions from those of the authors in at least three respects. Firstly, they may consider that the list of policy areas contains some that are not of major significance for the FFI sector and misses out others that are. Secondly, they may find the two alternatives offered for each policy area are not the most appropriate. And thirdly, they may disagree about the choice of alternatives to include in the base scenario. It would be interesting and useful if opportunities arose for detailed exchanges of opinion on these matters. Maybe a Delphi-type base scenario would emerge on the basis of widely-based expertise, which could be used, inter alia, in the ETTS V long-term study.
The selection of the alternatives in the seven areas was made as far as possible independently on the basis of the arguments deployed for each of them separately. The consistency or inconsistency between the chosen alternatives was not taken into account at that stage. Of the eight scenario selections (including the two for trade), six are on the side of substantial change in policies; and two on the side of little or no change from present policy directions. This balance in favour of change reflects the personal views of the authors that Europe has been passing through a period of fundamental change, and the momentum already generated will allow governments to introduce further far-reaching policy changes in the next decade or two. This is assumed to be the case especially with regard to economic growth, including developments in the CITs, the environment and rural land use. The areas where it is suggested that policy change may be inhibited are energy and the role of the public sector.
Regarding the consistency of the eight scenarios, there would appear to be a fairly high degree of compatibility except in two major respects, namely the more conservative alternatives on energy and the role of the public sector when set against the others. The issues can be summarised as follows: (1) without major incentives that would come from a substantial rise in energy prices, the possibilities to let biomass in general, and wood and waste paper in particular, play a larger role as an alternative to fossil fuels will be limited; and (2) inability or reluctance to make available large amounts of public funds will make it difficult to achieve such objectives as fuller employment, development of alternative uses of agricultural land and greater provision of environmental and social services.
Trying to reconcile the conflicting elements in the scenarios could involve, firstly, placing emphasis on raising the rate of economic growth which would in turn bring in increased tax revenue to the public exchequer; and secondly, seeking to shift more responsibility for financing and carrying out the new policies in the energy, environmental and social fields to the private sector. With regard to energy, much will depend on how the public debates on sustainable development and climate change develop and are reflected in policies. The follow-up process to UNCED is moving forward; if the momentum is maintained, ways and means will have to be found to overcome the budgetary problems that would otherwise inhibit the implementation of the policy changes being suggested in this base scenario.
The implications for the FFI sector of the proposed base scenario are mixed. Several elements imply stronger growth in demand for forest products. Some imply an increased role for forestry, not so much in its wood-producing function as for social and environmental services. Some imply and increased area of afforested land but at the same time the transfer of some productive forest to protective or social functions. Perhaps the most significant implication is that, without a major change in the energy field, for example a large rise in energy prices or strong policies to promote alternative fuels, a number of key problems in the FFI sector, such as finding outlets for small-sized and low quality wood raw material and recycling of waste paper, will remain acute. Lastly, as concerns trade, the implications are on the one hand for the virtual elimination of trade in forest products originating from non-sustainably managed natural forests; on the other hand, increasing opportunities for European producers to improve their international trading positions through import substitution or even to export more to other regions.
