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International trade in forest products and the environment

I.J. Bourke

Ian James Bourke is Senior Forestry Officer (Trade Analysis) in the Forest Products Division of FAO's Forestry Department.

Ways in which trade in forest products is affected by and affects environmental issues.

In recent years there has been increasing concern for the relationship between forestry and the environment. This is primarily because of the increased awareness both among the public and policy-makers of the multiplicity and importance of the benefits that forests provide which are being lost or are at great risk. Additionally, however, this is because many forestry activities are perceived as potentially or actually damaging to the environment.

Negative impacts of forestry on the environment occur at two levels. The first effects are seen at the forest level - destruction or damage caused by poorly planned and executed silviculture or excessive harvesting and the potential consequences on biological diversity, local communities, global climate change, etc. At the second level are the effects of transport, processing and consumption, including pollution from processing plants; the use of polluting materials in the production of forest products; energy requirements for processing; excessive or uncontrolled consumption; and waste disposal.

Concern about these negative impacts has both directly and indirectly spilled over on to trade, particularly international trade, since many of the issues have most significance when the interests and actions of one country affect those of another. Complex issues are involved and there are conflicting views and interests. The issues flow in two directions - international trade has effects on the environment, and environmental action affects trade.

Harvesting methods have an impact on the trade-environment relationship

This article does not seek to provide comprehensive coverage of the many issues involved but rather discusses selected areas of interaction between trade and the environment. The article focuses on international trade which has been the subject of intense debate in relation to environmental issues and the causes of deforestation. After a broad discussion of some key concepts, four areas are discussed where environmental concerns have resulted, or are resulting, in actions affecting trade in forest products: recycling of fibre content; recovery and reuse requirements; technical regulations and standards for product and processing methods; and certification.


The links between trade and the environment are numerous and complex and there are many differing views of these linkages. At one extreme is the view that the pressure generated by markets, including excessive consumption, is a major cause of damage to or even loss of forests. At the other extreme is the view that international trade in forest products has no effect on the environment and therefore should not be singled out by those seeking solutions to environmental problems.

As usual, the truth lies somewhere in the middle. Trade is not a dominant factor in environmental problems but neither is it blameless. It is clear that international trade is not a major cause of the factors that underlie deforestation of the world's forests - population pressure, poverty and problems with land tenure. Trade measures have their most direct impact on cross-border product flows and prices while most serious environmental problems are not the result of any cross-border movement of products. Changes in international trade flows will thus have little influence on the problems. Nevertheless, trade policies and practices do have consequences for the environment; these can be both positive and negative and can be found at all stages from the forest to the final consumer - in the forest, during processing, in the distribution of the raw material and the products, and even after consumption itself.

Of the problems that can be directly linked to trade and trade practices, many are the result of market and intervention failures rather than the actual process of meeting market demands. The market is often unable to value the full range of benefits correctly or to internalize environmental costs because of policy distortions and the failure to set in place the conditions that would enable producers to take proper account of the costs of sustainable resource use and their impacts on other goods and services provided by the forest. The result is that environmental costs are not recognized or fully accounted for by those who should bear them, leading to insufficient attention being given to the environment during harvesting, processing and marketing; excessive consumption; and inadequate provision being made for environmental issues in government policies.

The appropriate policy response to address such failures is to internalize the costs through regulations and systems to ensure compliance with standards set or, alternatively, through the use of market-based economic instruments. In this regard, many governments have introduced an extensive range of policies and regulations relating to issues such as air quality, atmospheric conditions, water, waste management and toxic chemicals and the preservation of endangered species. Moreover, they range from local to global actions. Global initiatives of special relevance to forestry trade include the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

In each type of policy a number of different techniques are used; often more than one is used at any one time, giving even greater impact. They include taxes and subsidies, licences, prohibitions and various types of sanctions or incentives which may be placed at any point in the chain from production to consumption. Each has different impacts on trade - either direct or indirect. The most common forms of environmental regulations that have international trade impacts range from those which ban imports or products to those which restrict selling and exporting. They can be regulations on the method of production or processing (PPM regulations), or product standards relating to the characteristics of the good.

The consequences for trade of many of the policies are difficult to assess with any degree of accuracy, especially since one major impact of environmental regulations is on competition. Regulations generally work by requiring actions that raise the costs of doing business or make it more difficult to trade. It can be very difficult to judge the extent to which any competitive disadvantage producers face is a result of the environmental policies.

Many environmental actions have substantial trade impacts and many can be considered to be trade barriers which go against internationally agreed trade rules seeking to liberalize world trade in forest products. One important issue is whether actions that are taken for environmental reasons and which act as trade barriers are legitimate within internationally agreed trade rules, such as those of GATT/WTO. In this, an area receiving attention at present is the question of where responsibility lies for trade issues that arise from clauses in the growing number of Multilateral Environmental Agreements (MEAs).

As a result of the many trade/environment issues involving international trade, the subject has become of considerable importance in GATT/WTO. Following on from the recently concluded Uruguay Round, the World Trade Organization (WTO), which superseded GATT in 1995, is continuing to focus attention on the subject through its Committee on Trade and the Environment; an indication of some of the international trade/environment issues that exist can be seen in its agenda (see Box).


With this background to the trade and the environment issue, there are four areas where trade in forest products is either being affected by environment-motivated decision or is seen as a means of addressing environmental concerns.

Recycling and recovery of waste paper

Waste disposal is a major and increasing challenge for many countries, both in terms of cost and because of the physical difficulties of disposing of increasing volumes. This has led to calls for increased recycling and reutilization of waste paper (which accounts for about one-third of the solid waste of industrialized countries). Because collecting, sorting and recycling waste paper has associated costs that can reduce profitability, it has been unattractive for private interests to engage in appropriate action. Therefore, it has been necessary for governments to introduce regulations or financial incentives.

One approach has been to promote the increased use of waste paper in the manufacture of newsprint and paperboard. In some countries, voluntary requirements have been introduced by industry associations; in others, local and national policies make a certain recycled content mandatory.

These actions have beneficial environmental effects in terms of reducing solid waste accumulation and, under certain conditions, may also be an economically attractive option. In Japan, for example, the use of waste paper has been promoted for more than 30 years and recovery of waste paper there is now one of the highest in the world, at 53 percent. In part, Japan's waste paper recovery programme is aimed at reducing solid waste problems, but it can also be seen in connection with the country's heavy dependence on imported raw material for its paper industry - Japan imports 3 million tonnes of pulp annually (about one-third of its requirements). Recycling, therefore, is a policy which may also have financial advantages for the trade balance of the country and for industry.

Between 1990 and 1993, recovery rates for waste paper in Western Europe rose from 37.9 to 40.8 percent; in Japan from 50.1 to 52.1 percent; and in the United States from 32.0 to 37.2 percent. Worldwide, recycled paper has accounted for much of the fibre needed for increased paper production, with world consumption of waste paper increasing by almost 5.3 percent per year since 1980 and exports by almost 9 percent per year. Major importers of waste paper include China (Province of Taiwan), the Republic of Korea, Mexico, the Netherlands, Italy, France and Japan, while the largest exporters are the United States (50 percent of world exports), Germany, the Netherlands, France, Hong Kong and Belgium.

Nevertheless, in addition to their beneficial effects, policies promoting the recycling of waste paper can also create unforeseen difficulties and problems. They may have other environmental impacts, have unintended effects on forest management, affect trade patterns, alter the economics of various products, provoke changes in the location of industries and affect relative consumption levels.

Canada, for example, is a major producer of newsprint (9 million tonnes in 1992) and a major exporter to the United States (76 percent of its total exports of 8.6 million tonnes). In 1989, about 56 percent of all newsprint consumed in the United States was supplied by Canada, but by 1992 the figure had declined to 50 percent, influenced by United States' legislation (both federal and state) setting minimum levels for recycled fibre content in newsprint, typically 40 percent. In addition, programmes to stimulate market demand for recycled paper have been introduced, as well as various tax incentives for companies installing recycling technologies.

These policies and programmes have had an impact on Canada's international trade. Because Canada has a relatively small and dispersed population, consumption of newsprint is small relative to production. The availability of waste paper is limited and collection is expensive. To meet the United States' waste paper content requirements, Canadian newsprint producers have had to import waste paper - from the United States. In 1992, Canada imported over 700 000 tonnes of recovered paper from the United States. Thus, increased volumes of waste paper are now transported from the United States to Canada in addition to the reverse flow of the final product. Although waste disposal problems in the United States (a clear environmental problem) have been alleviated, in the process other less obvious environmental effects have been created. For example, there is a greater use of fossil fuels in the increased transport of raw materials and products. Another effect is that some industries have been relocated from sites close to the forests to those near the point of consumption, with implications for the volumes of wood that are transported long distances; and the economic costs associated with such moves.

From the trade point of view, therefore, recycling policies have important implications both for individual companies, for the economy itself and, indirectly, for the environment - both positively and negatively.

Two general points are worth mentioning. First, controls instituted to provide environmental benefits also have associated costs, both direct and indirect. Second, in the absence of an analysis of total impacts - both positive and negative, direct and indirect - there is only limited evidence on the net effect of these environment-motivated regulations. They may, in fact, have altered rather than solved an environmental problem.

In the paper recycling example, while the primary environmental problem being addressed is waste disposal, there is also less pressure on the forests to supply virgin wood. The increased use of recycled fibre, therefore, has positive effects on forests. Nevertheless, there can also be associated negative effects. The reduced requirement for wood could also reduce the demand for small logs and thinning, in turn reducing the economic viability of forest management and the willingness, or ability, to implement desirable forest management practices.

Therefore, mandatory product policies have wide and complicated impacts which range from improving a perceived environmental challenge to forcing higher production costs, changing production locations, modifying market relationships, etc. While having direct environmental benefits, all too often environment-motivated policies fail to account fully for the costs of new regulations compared with anticipated benefits or to assess the influence on the forest resource itself.

Recycling paper and paper products is an area where trade policies can have an environmental impact

Packaging and reuse requirements

Closely allied to the issue of waste paper recovery is that concerning extending the use of materials both through reuse and conversion to other products. In terms of packing and packaging, regulations are increasingly being introduced that specify the type of material packaging can be made of, reuse and recycling targets and systems of recovery or return that must be followed.

For example, legislation has been introduced by national, regional and municipal governments in many Western European countries concerning packaging materials: Germany and Austria have ordinances on avoidance of packaging waste; Belgium has a controversial Ecotax; France has an Eco-Emballage Act; and the United Kingdom has an Environmental Protection Act. All contain aspects related to the recovery and recycling of packaging waste. The European Commission is also involved in efforts to harmonize national acts in the European Union by 1995 (see Box).

Similarly, Japan promotes the recycling not only of paper, but also of logging residues and residues of dismantled houses. A new product has been developed, superposed strand timber (SST), which can be made from small logs and residues from logging sites and from housing sites - material which would otherwise be wasted. Efforts are being made to increase the number of times sheets of plywood are used for concrete-forming before being discarded and used concrete-forming material is also employed in particleboard manufacture.

As with recycling, regulations concerning packaging materials have the potential to affect competitiveness, particularly of more distant foreign suppliers. Imports may be disadvantaged in a number of ways, resulting in barriers that cause trade distortions. Overseas suppliers may have to meet a variety of different requirements in different markets; simply keeping informed of regulations and requirements may be a major hurdle. This is especially true with regard to regulations covering the recovery of packaging and the return of transport materials, as well as obligations such as take-back, deposit and refund systems. Moreover, long distances between overseas suppliers and their markets can make the cost of returning packaging material such as pallets prohibitive.

Technical regulations and standards for product and processing methods

A third area involves technical regulations and standards, many of which are environmentally motivated. Some address the physical characteristics of products and the materials used in their manufacture; others concern the production process itself. Environmental issues include those related to protection of animal and plant life from pests and diseases; human health and safety; and maintenance of air, water and land quality.

Standards and regulations can mean considerable adjustment and readjustment in terms of trade. Differences between countries can cause changes in trade patterns as relative costs and comparative advantages are altered by incentives and penalties. If applied fairly, these regulations can address important environmental concerns, but sometimes they are really disguised trade barriers whose aim is to protect domestic producers from overseas competition.

Because of the heightened awareness in recent years of these problems, forest industries in many countries are recognizing their responsibility and responding positively - and even proactively through the spontaneous development and adoption of codes of good practices without the need for legislation. On the other hand, many countries have introduced strict laws and regulations to reduce water, air and land pollution caused by processing plants. Forest product processing plants, particularly pulp and paper plants, have been the focus of much attention. In economic terms, the solutions to this type of direct pollution problem are relatively straightforward - ensuring that the full costs are borne and that the principle of "user pays" is enforced. In practice, however, this becomes a very complex issue.

Plants in some countries face higher costs and possibly higher standards than in other countries, thus affecting competition. The fear of producers in countries with high environmental standards is that they will face unfair competition from producers in countries with lower standards and, hence, lower costs. This can lead to attempts to try to force other countries to adopt equivalent standards by setting restrictive import controls. As a result, there is often doubt or dispute over this type of control.

Other current environment-oriented regulations that have serious effects on trade include the increasing restrictions on trade in wood panels using formaldehyde glue, a glue with human health risks; regulations banning or controlling certain timber preservation processes and materials; and controls on processing methods - for example, in the bleaching of pulp, where there have been widespread moves to encourage or force companies to replace chlorine, which produces extremely toxic by-products, with other more environment-friendly bleaching agents.

Another example of treatment regulations is the trade dispute between Europe and North America over European requirements that coniferous timber be treated prior to importation because of fears of pinewood nematode infestation. The dispute centres on the risk posed by this nematode as well as on the appropriate way to protect importing countries against it.


A fourth area with strong environment and trade linkages that is receiving considerable attention is that of forest products certification, which attempts to link international trade to the sustainable management of the forest resource by encouraging users to purchase only products made from timber from sustainably managed forests. Although the main emphasis to date has been on timber and timber products, attention has recently expanded to include pulp and paper. There are also suggestions that the certification of non-wood forest products should be considered [Ed. note: see articles by Baharuddin, and Cabarle and Ramos de Freitas, which focus directly on certification].

There are still many different views on this subject and a number of basic questions relating to trade aspects that have not yet been satisfactorily answered. Some of the unresolved questions relating to trade include:

What are the benefits to the producer countries of undertaking and/or encouraging certification?

One of the basic issues at stake here, which is very much an open question at present, is whether consumers are concerned enough to make the purchase decision that the promoters of certification believe they should (and will).

Are buyers willing to pay more for products from sustainably managed sources and thus meet (part of) the costs?

There is little reliable evidence that consumers will pay higher prices for certified products, and therefore there is concern by producers that the costs involved in sustainable management will have to be borne by them.

To what extent may certification pose an impediment to trade?

There are concerns that certification will, in fact, act as a barrier to trade by discriminating either intentionally or unintentionally against those unable or unwilling to achieve the required forest management standards.

Even though most schemes would be voluntary, there are fears that certification will in reality be compulsory, since retailers may be unwilling to carry uncertified products, and even that consumers may switch to substitute products not made from wood (as is already occurring in some countries to a limited extent). There is also concern that certification may give consumers the impression that unlabelled products have bad environmental characteristics whether or not the product has been assessed.

Are certification schemes discriminatory, especially against producers in developing countries?

Certification schemes may favour industrialized countries where, at least at present, forest management practices tend to be closer to sustainability goals. Moreover, unless there is a degree of international harmonization, producers may be faced with different requirements in each market.

How can the "chain of custody" from the forest to downstream processing and retail outlets in producing and importing countries be effectively monitored?


From the preceding discussion, it is clear that the relationship between trade in forest products and the environment, particularly at the international level, is a complex, multifaceted subject. It is also one where the issues are two-way - from trade to the environment and from the environment to trade.

Trade is not a major cause of environmental problems but policies that affect trade can have important implications in selected areas. If properly developed, there can be beneficial effects for the environment. However, most environmental problems are multifaceted and attempts to resolve them exclusively through trade actions can have unexpected, and often undesirable, consequences elsewhere. In cases where trade is seen as a means of addressing environmental problems there is therefore a need for both a clear understanding of all the issues involved and adjustments to trade as well as environmental policies. Without these, it is likely that many of the proposed "cures" may be worse than the "disease" they are attempting to address.

For trade-related activities aimed at environmental benefits to have a potential for success, they must be based on:

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