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FINLAND

1. GENERAL ECONOMIC SITUATION - 2002

In 2002, the Finnish economy recovered from the previous poor year. According to preliminary data, a 1.7 percent growth was recorded. Private consumption, with an increase of 2.5 percent, supported growth. Exports grew by 1.6 percent. Private investment decreased by 3 percent due to low capacity utilization and weak demand on export markets. Industrial production increased by 2 percent.

Imports decreased by 1 percent. With growing exports, the current account surplus increased to 7 percent of GDP. Inflation went down to 1.7 percent from 2.6 percent in 2001. Wages rose less than in 2001 but slightly more than in competing countries. Unemployment remained at a high level of 9.2 percent.

2. PERFORMANCE OF THE PAPER AND WOOD INDUSTRY - 2002

a. Consumption, production and trade

Operating rate low in paper production

Slowdown in the Western economies kept the demand for most wood and paper products on a low level in 2002 causing the industry to take downtime throughout the year. As a result, in 2002 the operating rate of the paper industry in Finland was 88 percent, far below the long term average. A marginal improvement was achieved in the latter half of the year. Total paper and paperboard production increased by 2 percent to 12.8 million tonnes in 2002.

Demand for different paper grades varied considerably: two newsprint machines were closed while production of coated woodfree papers continued to grow.

Despite the tight market situation, chemical pulp production increased by 9 percent to 7.1 million tonnes. Mechanical pulp production, on the other hand, was 4.6 million tonnes, slightly below the 2001 level.

Total forest industry production in Finland grew 3.5 percent in 2002.

Sawn timber production increased

Production of sawn timber increased by almost 5 percent to 13.3 million cubic metres. Plywood production also increased by 8 percent due to new capacity.

Improved export volumes

In volume, exports of forest industry products from Finland increased by 4 percent in 2002. A 20 percent increase in pulp exports was recorded. Exports of paper and paperboard increased only by 2 percent. Exports of newsprint were down by 30 percent whereas the export volumes of uncoated magazine papers and coated fine papers increased rapidly. Exports of sawn timber remained at the previous year's level, whereas plywood exports increased by 10 percent.

Prices down

Export prices were down by 7 percent with the largest drop being in pulp and newsprint. There was a slight improvement in sawn wood prices. Total value of forest industry exports dropped by 3 percent. Of total exports from Finland, forest industry products accounted for 26 percent.

b. Financial performance

In spite of low operating rates and lower prices, Finnish companies still made a profit.

c. Outlook for the future

Hopes are put on the year 2003 although the prospects for global economy are still uncertain and geopolitical unrest is expected.

As the demand for wood and paper products is strongly dependant on general economic growth, uncertainty is also reflected in this sector.

According to the latest forecasts, the first half of 2003 will show a relatively low growth while weak signs of recovery can be seen for the second half.

3. ISSUES OF PARTICULAR INTEREST

a. Illegal logging

Illegal logging18 is a problem which demands a joint response from wood consuming and wood producing countries. In addition to the other problems it causes, the illegally obtained wood distorts competition and adversely affects the public image of the entire industry.

The Finnish Forest Industries Federation supports action to eradicate illegal logging.

The forest industry currently applies all means at its disposal to eradicate illegal logging. There are two ways in which the forest industry can promote legal operations. Firstly by giving expert help to the public administration system in various countries, and secondly by developing company-specific guidelines and actions. The Finnish forest industry has been active on both fronts. For example, companies operating abroad have developed chain-of-custody systems in order to verify the originality and legality of procured wood.

b. Environmental aspects

Recently, attention around the Kyoto Protocol has been focused on emissions trading to be introduced in the EU in 2005. The costs of emissions trading heavily depend on the price of emission allowances. The Finnish forest industry favours a global scheme as it would be more just for companies which compete on global markets. This would also be more in line with the provisions of the Kyoto Protocol as the aim of the Protocol is to reduce global emissions.

In Finland, the National Climate Change Strategy, which was introduced in 2001, includes measures with which the national Kyoto target will be met. These measures include energy saving agreements and increased use of biofuels. In the use of biofuels the pulp and paper industry plays a major role in Finland and will continue to do so in the future. However, this increased use of biomass for energy should not threaten the use of wood as a raw material.

Carbon sinks in standing forests have to be seen as only one part of the potential to use the sequestration capacity of the forest biomass to reduce CO2 emissions. Once a tree is cut the challenge is to enhance the useful life of the forest products made from it and to recycle them as much as possible, in order to keep carbon fixed in the product.

Material substitution is calculated to have a bigger effect on greenhouse gas emissions than wood product sinks themselves especially in the harvested wood products. Material substitution brings several benefits: i) energy savings in production (compared to other materials like steel), ii) carbon storing in wood-based products, iii) material recycling (points 2 and 3 increase the length of the carbon sink in products), and iv) energy recovery (source of renewable energy and often replaces fossil fuels).

c. Progress in sustainable forest management and certification

Forest certification is an integral part of forestry in Finland today. The Finnish Forest Certification System (FFCS), which is endorsed by the PEFC Council, covers 22 million ha or 95 percent of the forests. Chain-of-custody certification has also spread in forest industries. The origin of wood can be verified through certified chain-of-custody systems in more than 90 percent of wood procurement. Chain-of-custody certification is also widely used in production of forest products and PEFC label usage rights are common in the industry.

The FFCS standard was finalized in 1997 and its revision is under way. The revision is based on the experience gained and new knowledge.

The `Metso' Committee was established two years ago to consider the forest protection situation in Southern Finland and completed its work during the summer of 2002. The Committee proposed that the protection of forest biodiversity in Southern Finland should concentrate on areas with particular conservation values. The proposed protection measures are based on the voluntary participation of forest owners. Extensive protection areas and a high percentage share of protected areas would not be efficient objectives. The government accepted the committee's work.

18 The Finnish Forest Industries Federation considers logging to be illegal when timber is harvested in violation of national laws. This can include logging without the appropriate permit or right, or the acquisition of such rights or permits by malpractice or bribery.

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