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Global Human Technology EC Ad Hoc Meeting Illegal Logging: Forest Law Enforcement, Governance and Trade Results of the SIA on the Forest Sector Marko Katila Savcor Indufor April 12, 2005 Brussels Savcor Indufor Oy 2005 1 Global Human Technology Presentation Focus Main conclusions from the SIA on the forest sector overview of assessment of M & E measures, including measures to deal with increases in illegal logging and trade Important to recognize that: SIA on forest sector focuses on assessment of incremental economic, social & env. impacts of possible further trade liberalisation under Doha M&E measures analysed in this context and only as one part of a comprehensive study How to promote SFM and reduce illegal trade in forest products not primary study objectives Study not yet complete and reviewed by EC and the Civil Society Savcor Indufor Oy 2005 2 Global Human Technology General Impacts Further reduction of tariffs unlikely to have significant aggregate impacts on production and consumption; impacts larger on trade Incremental impacts in wood harvesting small in aggregate Accentuation of negative existing trends such as illegal logging and trade Accentuation of other trends such as decliningg trade in logs, increasing trade in value-added products, increasing South-toSouth and intra-regional trade Considerable variations in impacts depending on the product, and economic, social, and sustainability context; producer vs. exporter, etc. Savcor Indufor Oy 2005 3 Global Human Technology Overview of Economic Impacts Net economic impacts positive Global roundwood production is predicted to increase only 0.5% Impacts on harvesting volumes not be uniform; aggregate figure hides variation from –2.7 to 5.8% Aggregate trade is predicted to increase by about 2% Employment impacts would vary depending on the industry and the location Savcor Indufor Oy 2005 4 Global Human Technology Overview of Environmental Impacts Net effect on environment ambiguous; trade liberalisation as a magnifier of existing problems such as illegal logging In developed countries impacts likely small; Russia and some accession countries may be exceptions In some cases increased illegal logging would cause negative impacts on biodiversity and soil erosion Some developing and transitional economies may face environmental costs exceeding economic gains Negative impacts include increased pollution due to int’l transport and risk of introducing alien insects and fungi Savcor Indufor Oy 2005 5 Global Human Technology Overview of Social Impacts Impacts ambiguous Consumers in most countries to gain in welfare due to lower import prices Increased illegal logging may cause social conflicts and infringe on indigenous people’s rights Likely negative impacts on equity in a number of countries; benefits to accrue to large companies Producers in countries with limited forest resources exports may succumb to increased competition from imports-->reduced domestic production and closure of especially small millsunemployment Savcor Indufor Oy 2005 6 Global Human Technology Affected Countries and Products Canada, USA, Finland, Sweden and New Zealand amongst major beneficiaries in paper products Wooden furniture, SPWPs, plywood and veneer industry to face increasing competition in EU New EU members and accession countries as well as the CIS and other CEEC countries are likely to increase sawnwood production Indonesia, Malaysia, Brazil, Chile, are also likely to benefit in economic terms; wood-based panels and sawnwood and some paper products would be exported increasingly Production and exports of wooden furniture and secondary processed wood products (SPWPs) would increase from countries such as China, Malaysia, Thailand, Vietnam and Brazil Savcor Indufor Oy 2005 7 Global Human Technology Non-tariff Measures Legitimate NTMs aimed at meeting environmental and safety objectives not major constraints to trade; improve access to markets based on environmentally sound practices Elimination of log export bans and prohibitive log export taxes would result in increased trade in roundwood and in economic gains Despite economic inefficiency, a (temporary) ban on log exports may be justified on environmental grounds in an environment, where control of corruption and illegal logging is difficult Developing countries, small producers and communities are often disadvantaged when it comes e.g. to benefiting from forest certification Savcor Indufor Oy 2005 8 Global Human Technology Cross-cutting Issues Env. and social impacts of agricultural trade liberalisation may be larger than effects resulting from forest products trade liberalisation Case studies indicate negtaive impacts related to oil palm expansion e.g. in Indonesia, and cattle production and soybean in Brazil Products of greatest concern: - edible oils (oil palm, soy bean) - beef and associated animal feed - cocoa and coffee Savcor Indufor Oy 2005 9 Global Human Technology Key M&E Measures Analyzed Trade-related M&E measures covered as part of the TOR: Unilateral preferential tariff treatment Introduction of a licensing scheme (e.g. FLEGT) Log export bans and prohibitive export taxes Unilateral ban on exports not verified as coming from a sustainably managed source Unilateral ban on exports not verified as coming from a legal source A multilateral Kimberley-like ban on all timber from specified areas at risk to illegal logging Others: certification, government procurement, sanitary and phytosanitary (SPS) measures a number of non-trade-related measures Savcor Indufor Oy 2005 10 Global Human Technology Introduction of a Licensing Scheme/FLEGT (1) Potential impact determined by: prevalence of illegal logging, significance of exports and share of EU in exports potential expansion to other products and markets a way to enhance potential impact Effectiveness (and actual impact in a given country depend on): clarification of concept of illegal logging reliable estimation of volume of illegal logging and trade governance capacity and traditions Main risks are: leakage through third countries and further processing in third countries and/or the country of origin corruption in the process of granting the licence itself Savcor Indufor Oy 2005 11 Global Human Technology Introduction of a Licensing Scheme/FLEGT (2) Short term impacts likely limited; possibly significant local impacts (negative and positive) in both the partner countries and the EU In the longer term there may be considerable impacts through: elevating the issue to high level political dialogue providing a concrete model for a country-wide TLS potential company-wide impacts EU FLEGT partnerships could act as groundbreakers for similar partnerships by other countries (Japan, China, etc.) Savcor Indufor Oy 2005 12 Global Human Technology Unilateral Ban on Imports of Logs and Wood Products Not Verified As Coming From a Sustainably Managed Source Positive env. impacts; would increase areas under forest certification and thus promote SFM Positive environmental impacts enhanced with broader product coverage Implementation of the scheme technically feasible but cost implications in raising the level of forest management and implementing certification in developing countries huge Higher wood production costs and disruptions in forest product markets; negative impacts on importing country consumers and producers At least in short and medium term negative equity impacts: would favour developed countries and temperate zones, may favour larger companies and plantations in developing countries Risks: divertion to third countries, may not provide financial incentives to adopt SFM; are consumers ready to pay a premium for certified products Savcor Indufor Oy 2005 13 Global Human Technology Unilateral Ban…. Not Verified As Coming From a Legal Source Positive env. impacts; would increase areas under forest certification and thus promote SFM; would improve forest goverance in general and enhance domestic revenue collection and rent capture because of improved wood pricing Positive environmental impacts enhanced with broader product coverage Impact on SFM not as clear as with verification of sustainability, because difficulties in establishing legality in many countries; legality doesno imply sustainability Would add to production costs, which may not be covered by buyers Scheme would require a national system of issuing a legality license, a log-tracking system and third-party legal verification Risks: may lower the standard for legality, technical difficulties in tracing fibre origin Savcor Indufor Oy 2005 14 Global Human Technology Conclusions & Recommendations (1) Trade liberalisation will increase illegal logging and trade in forest products in some contextsM&E measures required A mix of both non-trade and trade-related M&E measures needed; non-trade measures often crucial because they can address directly root causes of forest degradation and deforestation Domestic measures include improving policy & legal framework with emphasis on clarifying legal framework concerning illegal acts in forestry and control of illegal logging, and improving land tenure arrangements supporting NFPs improving incentive framework for SFM through more efficient pricing and transparent log sales aimed at reducing corruption and collusion eliminating macro and extra-sectoral policies (e.g. in agriculture) that cause negative sustainability impacts in forest sector Savcor Indufor Oy 2005 15 Global Human Technology Conclusions & Recommendations (2) Al identified trade-related measures have positive sustainability impacts, but their effectiveness would depend on conditions and adoption of complementary measures Voluntary forest certification is one tool that can directly link trade and env. objectives to provide incentives for SFM Voluntary licensing schemes can become more effective with a broader scope of agreements in terms of country and product coverage, complemented by voluntary third-party legal verification schemes at national level Consideration of “ban options” should be based on an in-depth IAmore attention to analysis of economic and trade impacts using trade or CGEmodels and impacts on equity Consider phasing trade liberalisation (in selected countries) to provide enough time for building up forest governance, management and control systems in vulnerable countries e.g. through various FLEGT measures and bilateral and multilateral assistance Savcor Indufor Oy 2005 16 Global Human Technology Trade and SFM Underlying cause Immediate cause Trade liberalisation Domestic forest policy Forest products markets Direct sources of change Outcomes Savcor Indufor Oy 2005 Agricultural crop and pasture expansion Extrasectoral policies Agricultural markets Economic development Technological change Commercial and subsistence logging MEAs and voluntary environmental measures Population Institutions and resource allocation Infrastructure development SFM (deforestation/ degradation) 17