7.1 Influences on the Trade and Forest Management Relationship
(to be expanded and revised after review and comments)
This chapter presents conclusions on the impacts of changes in trade patterns and trade policies, in particular trade liberalisation, on aspects of forest management. It covers the trade factors beyond the forest sector that influence whether forest management is even an option, then goes on to consider how expansion of trade affects environmental, economic and social aspects of forest management. Conclusions are then made on the impacts of trade on forest governance. Finally, we identify some of the key approaches to understanding and improving trade impacts on forestry which deserve attention in future.
Before jumping to such conclusions, however, it is necessary to highlight a few provisos - concerns, qualifications and potential sources of confusion - in making definitive statements about trade impacts.
Disagreements over trade impacts are at least as frequently based on people talking at cross-purposes as they are based on disagreements of substance. The following areas of confusion often creep, unrecognised, into trade and forestry debates:
Two-way causality between trade and forest governance. Policies and institutions determine and influence patterns of trade, whilst the scale and dynamics of trade can influence the nature and quality of forest governance - we suggest that in most situations both forms of causality can be expected
Level of aggregation at which to assess trade impacts on forest management - we suggest that it is necessary to focus on the landscape level. A trade effect on forest degradation at one or more forest stands tells us little, and is often counteracted by positive effects at others
Regional differences in trade trends and their impacts. In a fundamental sense, all contexts are different and conclusions need to be made specific to particular places and times. However, a certain level of generalisation about trends and impacts is valid - we suggest that it is crucial to distinguish between regions, particularly in terms of growing conditions, commercial richness and accessibility of forests
Stage of market development plays a critical role in defining the type of forest activities that prevail and the impact of trade on the economic viability of these activities. With the same proviso as above about context-specificity - we suggest the need to distinguish, at minimum, between three stages of market development: new forest frontier, developing frontier and mature frontier.
But there is a more fundamental confusion in many disputes over the impact of trade on forests. For the same trade-forest interaction, there may be categorically different but equally legitimate perceptions of the problem and the desired solution. Trade impacts may thus have different explanations. This is illustrated in table10.1.
Table 7.1 Different explanations of what to do about a particular impact of trade liberalisation
Perception of Problem |
Response |
1. The theory espousing benefits from free trade is wrong |
A complete rethink of trade liberalisation |
|
2. Trade is not sufficiently free, nor markets sufficiently perfect to generate predicted benefits |
Remove remaining trade restrictions and distortions, and implement measures to counter market imperfections (e.g. internalise externalities, break monopolies) |
3. There are benefits at an aggregate level but not sufficient to compensate disadvantaged groups |
Remove remaining trade restrictions and distortions, implement measures to counter market imperfections, and introduce compensation mechanisms to ease adjustment for those who lose |
4. Economic benefits of trade liberalisation are outweighed by social and environmental costs |
Restrict trade in order to protect social or environmental values. |
The above table illustrates an important fact that, when discussing impacts of trade, differences in opinion are to be expected. “Who is right?” ultimately is a less important question for understanding outcomes than “who matters?” The outcome of trade debates is currently decided more by the relative power of interest groups than by the strength of their arguments.
The areas of confusion described above have been unpacked in preceding chapters. The point in reiterating them here is to qualify the conclusions made in the following sub-sections. In short, each of the following conclusions is only as strong as the degree to which the above areas of confusion are sorted out.
The impacts on forests of trade in non-forest sectors are dealt with here. This is a huge subject and our conclusions are limited to a consideration of the extent to which such extra-sectoral trade reduces or enhances the prospects of beneficial forest trade.
Macro-economic stability is crucial. This is necessary for the long-term outlooks and investment fundamental to trade based on sustainable forest management
Costs of agriculture and property rights are fundamental. Different regions have different propensities towards sustainable forest management. The comparative value of forestry and agricultural alternatives and the cost of enforcing property rights, are crucial in determining this. Tropical forests of Latin America and some other regions are particularly disadvantaged in this regard
Liberalisation of agricultural trade has effects that dwarf those of liberalisation in the forest sector. Where agricultural intensification accompanies shifts in agricultural production, the net effects on sustainable forestry can be positive.
Forests and forest-based livelihoods are also strongly affected by the serious inequities which prevail in international institutions governing market structure and competition, trade rules, barriers and disputes in the many sectors which compete with or involve forestry. Because of this, we conclude that the theory behind mutual benefits to trading partners is unlikely to be predictive for less powerful interest groups or forest types within many tropical nations.
Environmental impacts
In general terms, forest trade benefits the environment of the importing region whilst the exporting region environment is degraded. However such effects are ambiguous, both in the sense that they may cancel each other out in terms of overall sustainability, and to the extent that within each region there are often areas with positive impacts and areas with negative impacts at the same time. Some of these impacts can be summarised as follows:
Different forest types - different effects. Different forest types and their relative competitiveness are affected by trade changes in different ways. In regions with natural advantages in location, forest composition and growing environment higher export prices raise forest land values against agricultural alternatives and the cost of enforcing property rights and make SFM more economically viable. For regions without such advantages the converse may be true.
Accessible forests first. Changing patterns of trade will affect valuable and accessible resources first, although the longer-term impacts on other types of forest resource may be equally profound.
Growth in production in exporting regions. Trade stimulates production for export which may result in more forest degradation in natural forest areas or more profitable managed forest or both, depending on the stage(s) of market development of that region.
Reduced forest harvesting in importing regions. Trade reduces harvesting in importing countries although net forest degradation may increase if there is displacement of former forest employees to subsistence alternatives.
Trade does little for biodiversity hot-spots. International trade alone is unlikely to protect or foster sustainability in isolated natural forest areas with the greatest biodiversity.
Plantations increasingly favoured by trade. International trade is accelerating the shift in supply from less competitive natural forests to intensive plantations (led by Asia) with high production per unit area. This shift may reduce both the total area of forest and the remaining area of natural forest.
Carbon markets unhelpful for SFM in natural forest. International agreements surrounding markets involving carbon storage currently favour plantations over natural forests in the provision of the Clean Development Mechanism and this will further undermine the economic viability of SFM in natural forests.
Whilst the impacts of trade on the forest environment are highly dependent on context, it can be further concluded that it is the wealthier countries that are able to gain positive environmental impacts from trade - by importing forest products from poorer countries and externalising he environmental consequences ('stamping their ecological footprint').
Impacts on economic aspects of forest management
Economically, the net effect of trade is always beneficial - it is the distribution of benefits and the way different benefits are accorded value by different interests that determine impacts in a given location. These impacts include:
Comparative land use value determines impact. International trade impacts forests most when it leads to changes in the value of forest goods and services relative to other land uses - for example as international competition drives forest product prices down or raises the value of alternative export crops like soybean in exporting nations.
Comparative advantage is declining in tropical regions. International trade has resulted in a general deterioration of the forest trade balance, and comparative forest values for tropical regions over time. Trade expansion is occurring in highly processed sectors where the scale and speed of investment in technology and information are more important competitive assets than available land and labour.
Domestic trade emphasises quantity, international trade influences quality. For all regions and most countries, especially in the tropics, domestic trade is still more important in volume terms than international trade. International trade therefore drive qualitative changes - processing standards, product designs and the like - more than production volumes in many countries.
Mature stages of market development favour SFM. Trade based on SFM is most likely to be economically viable, in areas in mature stages of market development and in plantations rather than natural forests. Trade derived from natural forest frontiers is inherently less sustainable than trade based on managed forests close to markets due to costs of enforcing property rights in such isolated areas.
Some industrial consolidation may favour SFM. Excess capacity in processing and low profitability can work against SFM, particularly in natural forest. Rationalisation of the industry may enable a more competitive sector based on SFM.
The economics of SFM in natural tropical forests is a much-debated subject. In the sense of producing a sustained yield of timber, SFM in the tropics is not only less profitable than other uses to which the land may be put; it is less profitable than tropical plantations or the sustainable management of temperate forests. The challenge in future for remaining tropical natural forests will be to find the economically sustainable ways in which trade can enable timber to be managed as an accumulating capital asset alongside other forest values.
Social Impacts
As for environmental sustainability, trade's net effect on social sustainability is always ambiguous and is usually positive in some areas and negative in others at the same time. Some of these impacts can be summarised as follows:
Balance of employment favours exporting nations. Increased trade causes growth in production and employment in the exporting region, which may result in social benefits depending on the quality of that employment.
Consumer welfare improved in the importing region. Importing regions gain in consumer welfare with trade, but may lose forest production and employment.
Smaller and weaker producers marginalised. International trade pits localities and enterprises against each other. Large companies that can exploit economies of scale can benefit from market expansion. . Small-medium and less powerful enterprises - which are often vital for local livelihoods through employment and local economic multipliers - tend to lose out.
Social irresponsibility and illegality thrive in low wage contexts. Poor social and environmental practice predominate amongst exporters in countries where wages are lower and labour is the largest component of logging costs - primarily because the return to such activities is greater than the opportunity costs or the risks of apprehension.
One of the major advances in understanding about SFM in recent years is the importance of engagement in decision making of all those who have a practical stake in, or influence over, the future of the forests. On balance, trade tends to concentrate decision making over forest management, rather than spreading it amongst these interests, which threatens prospects for long-term sustainability. This takes us towards forests governance - to which we now turn.
Impacts of Trade on Forest Governance
Cause and effect in trade, governance and environment relationships are notoriously interwoven (see below). However some conclusions are possible. Here we focus primarily on trade impacts on governance in developing and transition economies, although some conclusions have validity across industrialised economies also:
Impacts of trade policies on forest governance are generally indirect, often weak and sometimes perverse. There is little solid empirical evidence to support arguments that trade liberalisation directly reinforces or undermines forest governance. In general, non-trade factors appear to have more influence on the quality of forest governance.
Trade is a magnifier of existing governance strengths and weaknesses. Both freer trade and trade restrictions can make things worse if underlying policy and institutional failures are not tackled. But trade liberalisation can stimulate a 'virtuous cycle' if the regulatory framework is robust and externalities are internalised. This highlights the two-way relationship between trade and governance changes - trade changes governance, which changes trade, which changes governance.
Impacts depend on interactions with other items in the reform “package”. Typical forest sector “reforms” that often accompany trade policy changes include competitive tendering of timber concessions, higher forest taxation, decentralisation, privatisation and deregulation, etc. The way in which trade policies interact with these changes determine whether they improve or reduce governance capability.
Liberalisation on a weak regulatory base foments trouble. Trade liberalisation can have significant adverse impacts where the regulatory capacity to monitor and enforce compliance, including protection of property rights, is weak. For example, stumpage prices may rise or fall in the wake of trade liberalisation, but in either case there may be increased risk of illegal logging where regulatory capacity is weak; higher prices increase the returns to illegal logging, while falling prices make firms more inclined to cheat in order to cut costs and maintain revenues.
Liberalisation on a sound regulatory base 'shakes up' governance usefully. Trade liberalisation has forced government and other stakeholders in several countries with reasonably strong regulatory capabilities to focus attention on addressing some underlying problems (e.g. inefficiency/over-capacity in industry). Even in weaker governance situations this effect can be positive - liberalisation has stimulated the rise in profile and capability of the private sector and civil society to engage on forest trade (the former in general to seize opportunities, the latter in general to protest at abuses) - although a period of sub-optimal, incoherent and mutually conflicting actions can be expected before effective negotiated improvements amongst these stakeholders emerges.
'Green' measures may shift governance problems to domestic and non-discriminating markets. International green market pressures and moves to prevent imports of illegal logs, may divert current exports towards the domestic market and/or less discriminating markets. Governance problems associated with lower-value domestic product markets are often more pronounced than for export markets and, in many countries, domestic markets are far more important in volume/value terms than exports.
Good news for one country may lead to bad news for another. Governance improvements in one country, especially if it is a net-importer, can increase pressures on forests and may even undermine governance in exporting countries (this impact is strongly felt in Southeast Asia in recent years).
More trade by trans-national companies may help or hinder governance. Generation of wealth from increased trade generated by TNCs may provide the basis for improved capacity for thinking about and shaping forest trade to a country's benefit. But greater involvement of TNCs as a result of trade liberalisation may lead to a greater handover of governance decision-making to TNCs which constrains the development of national capability. Furthermore the subservience of governments to rules effectively set by TNCs may prevent them from carrying out reforms such as land tenure which could provide far greater national wealth.
It can further be concluded that, as a means to improve forest governance, attempting to shape trade per se may be a relatively weak approach compared with actions such as strengthening democratic processes, sorting out tenure and creating equal access to forest markets. We now turn to such ways forward.
Ways forward to better understand trade impacts
A major collaborative effort by a wide range of institutions is going to be needed to carry out the analysis, assessment and knowledge management required to improve and spread understanding about trade impacts on forest management. More specifically we recommend:
Participation in trade impact assessments. Changes wrought by trade in the multiple benefits of multiple land use systems across multiple interest groups demand pluralistic and participative approach to their assessment.
More sophistication. Assessment of trade impacts needs to become more sophisticated - to differentiate between impacts on different forest types, the relative competitiveness of those types in different stages of market development, and the distribution of impact costs and benefits.
Landscape-level approaches. Better practical methods are needed to assess trade impacts at landscape level - which is crucial to avoid misleading assessments based on stand-level assessments alone.
Consider impact on competing land uses. Trade analysis should accommodate the impact of trade on comparative land use values - the values of different types of forest land use and alternative non-forest land uses.
Focus on the disadvantaged. Studies of trade impact should give particular attention to contexts with least natural propensity for SFM as it is these areas which suffer the brunt of negative consequences.
Analysis of institutional equity and process in trade decision-making. Trade analysis need to focus more on understanding the relative strengths of different players and the influence of different types of information in the working of institutions and processes at national and international levels which define the rules of the trade game.
Ways forward to improve trade impacts
A range of measures in policy and practice can be identified as priorities for improving the impact of trade on forest management. We put forward the following recommendations as an agenda for debate. These recommendations will only become realistic ways forward when thrashed out and modified in specific contexts:
Improve engagement of “under-powered” groups in trade policy decision-making. Trade decisions should be based on active initiatives to circumvent 'natural' institutional pecking orders and barriers in increasing understanding between trade governance and forest governance players at national level. Forest management and forest livelihood expertise should be installed in relevant trade delegations. Public interest groups should be encouraged and assisted access information and monitor the impacts of trade policy.
Get the sequencing right. Trade liberalisation should be preceded rather than followed by institutional strengthening, in order to forestall the potential adverse impacts of production increases, technological shifts or other changes induced by increased trade.
Get the package right. Trade liberalisation should be integrated with, and generally follow, moves to make property rights more secure, to 'internalise' environmental and social externalities, to foster regulatory capacity, and to make civil society engagement effective and routine.
Sharpen the focus on governance of domestic markets. Given that export demand for tropical timber is generally falling while domestic demand continues to increase in producer countries, and given that domestic forest governance challenges are often greater that those in export governance in producer countries, efforts to improve the contents and processes of domestic market governance should receive priority - and can integrate the export component.
Support national forest programmes that are widely negotiated, well-prioritised and genuinely owned by capable local institutions can provide the framework and process for the other governance improvements highlighted here and aimed at ensuring that trade is derived from SFM.
Link trade to improved property rights. Protecting the rights and access of indigenous groups and the rural poor should be a complementary policy to trade liberalisation (through land delimitation, functional decentralisation and local management). Promoting more secure land tenure for these and other credible forest managers is likely to be the single most positive step towards ensuring that trade promotes sustainable forest management.
Install policies for equitable and efficient allocation of forest land. Such policies, which include transparent and competitive bidding, need to provide for the incentives and regulations that promote accountability and favour responsible enterprises in forest management.
Develop graded incentives for value-added processing which are more closely linked to SFM. Policies with some subtlety in increasing context-specific forms of value-addition can be more effective in promoting trade from sustainably managed forests than blanket measures such as log-export bans.
Prevent tariff escalation on processed products. Such escalation is directly contrary to the aims of trade based on sustainable forest management. It drives trade away from value added products and thereby diminishes the economic viability of sustainable forest management.
Develop credit schemes linked to SFM. When linked to evidence of a company's sustainability (e.g. through certification) the provision of credit can provide a very powerful incentive for production and trade based on SFM.
Install forest sustainability and livelihoods thinking in agreements on trade in environmental services. Agreements on environmental services should pay greater attention to the functional needs of SFM and forest-based livelihoods - e.g. CDM provisions should cover forest management of natural forests, if the competitiveness of those forests is to be maintained in comparison with other land uses, and should rise in technological sophistication to be able to deal with mixed-landscape farm and community forestry.
Scale up certification and other demand-side voluntary initiatives to change markets as well as minds. Initiatives such as certification and labelling, supply chain management and product campaigns have enabled a relatively small number of trade players to improve already good forest management but require a major push to achieve substantial positive impacts on mainstream trade flows.
Find incentives for regional action. Given that governance improvements in one country often affect governance changes in other, often neighbouring, countries - regional approaches to improving forest governance are essential. The trick is to find the levers for genuine regional level negotiation. The Forest Law Enforcement, Governance and Trade (FLEGT) processes based on government-to-government agreements to tackle illegal logging and trade, are a potentially good model. As these processes evolve support will be needed for them to engage with some of the vital governance complements to law enforcement - they should also involve fundamental rights, institutional roles, policy sticks-and-carrots, and systems by which decisions are actually put into action and monitored.
Consider the case for protection to achieve the social component of sustainability. There are strong social and environmental externality arguments for protecting community forestry sectors and local-livelihoods oriented enterprise against external trade pressures.
Foster foreign investment in SFM in tropical natural forest to promote responsible business and trade. Development finance institutions and investment guarantee agencies need to proactively support good practice in tropical forestry and not avoid the sector altogether.
Considerable resources and creative support will be needed to address the kind of agenda spelled out above. Forest governance initiatives in weaker governance situations in particular will need substantial support to make the necessary transition to decision-making content and process that ensures trade supports sustainable forest management. We call on potential supporters to collaborate on this.
Best of all, of course, would be to find the ways in which development in countries north and south keeps pace with expanding trade. The ingredients required for this such as the reduction in huge northern agricultural subsidies, investment in technology etc. lie far beyond the power of actors in the forest sector, or indeed beyond the world of trade policy. However, experience suggests that when actors within a couple of 'sectors' get together and push for the kinds of changes highlighted above, they can surprise themselves with what can be achieved.
