IISD/MOFCOM Project on Global Forest Product Chains:

Identifying Challenges and Opportunities for China Through A Global

Commodity Chain Sustainability Analysis

International Team: Steve Bass, et. al.

China Team: Changjin Sun (Team Leader)

Liqiao Chen, Lijun Chen, Lu Han

China—From Acting Global to Thinking Global

• Chinese trade policy objectives– Market access

– Market access plus resource access

• WTO, trade surplus and disputes (market access)

• International criticism and country image (resource access)

• Linkages between trade policy, fiscal policy and industry policy

• Needs for information, balanced holistic picture, and practical policy options

Project Objectives

• To increase knowledge and awareness of the sustainability impacts of production, consumption and trade in forest products which involve China and its major trading partner countries

• To make the case for the Chinese government to take strategic actions for minimizing the negative environmental and social impacts of production, consumption and trade in the forestry sector

• To identify promising mechanisms for reducing the environmental impacts of Chinese wood consumption, production and trade, based where possible on shared responsibility for global product chain management

Project Features

• Coordinated by IISD and MOFCOM

• Work in progress, to be completed by end of 2007

• Includes four subsectors– Forestry– Cotton and Textile– E waste– General trade and development

Project Arrangements

• GCC Sustainability Analysis – Beyond trade

– Globalized resource allocation

– Production in timber rich countries, remanufacturing in China and re-exporting to developed countries

• International Team: UK, Russia and Mozambique, with two case studies

• Domestic Team• Synthesis and Steering Committee Critique

Where Does Chinese Trade Stand?

• China is leading a commercial process which, when completed, would reshape the global forest landscape– buying wood from over 80 countries;

– Chinese imports from 40 to 134 million m3 1990--2005;

– = over 50% of Chinese industrial wood use;

– 1 million ha of mature commercial forests harvested each year

Figure 3 A Generic Wood Products Commodity Chain with Remanufacturing Base in China

• Timber Producer Country-- Primary wood productsForest Cultivation（ Stumpage ）

Logging and Log Collection（ logs ）Transport and Export（ logs or sawn wood ）

• China-- Secondary manufacturingImport（ logs or sawn wood ）

Distribution（ logs or sawn wood ）Manufacturing（ wood based panels etc. ）

Secondary manufacturing（ furniture, building materials etc. ）Re-export

• Consumer Country--end consumptionImporting（ plywood, furniture and building materials ）

Distribution

Retailing

The Good News• Wastepaper in China

– Annually 30% growth in imported wastepaper in China– Wastepaper accounting for 1/3 of Chinese fiber supply– 27 million tons of wood from forest saved– 58% imported pulp certified

(Forest Trends, forthcoming)

• Importing from NZ, USA SE… – sustainable supply• Consumer surplus • Potentials to be fully realized in producer countries

– Local econ development (tax and employment)– Raising timberland productivity & asset value – Forest products industrial upgrading

Russia-Mozambique Logging Impacts

• Rapid resource depletion• Illegal logging-

– Illegal timber often “washed” before entering China

– caused by bad governance

– Made more severe by Chinese demand

• Small local share in logging income• Road destruction• Lack of forest regeneration

Russia

• Timberland: all publicly owned• Concession length: 1-49 yrs• Timber rents in Khabarovskiy Krai in 2006

– Calculated 6 to 10 US$/m3; – Real average payment 1.7 US$/m3

• Forest regeneration arrangements: finance and responsibility division unclear

• Minimal Processing • High incidence of waste: loss of 33-50% of logs harvest

ed • Intermediate cutting to finance forestry admin costs

Russia-Mozambiquethe Road to Industrial Upgrading?

• Convert admin rents to resource rents: buyer-driven to producer-driven chains– Raise stumpage fees instead of log export tariff

– Branding: market natural forest timber as superior fiber

– Channel revenue back to forests

– Regulate resource availability or flow volume

• Processing: smart positioning– Better use of waste wood

– Avoid labor-intensive/higher tech remanufacturing

Item Old Tariff Rate（%）

New Tariff Rate（%）

Reduction（%）

Logs, sawn wood 0 0 0Veneer 8 5.2 35Wood-based panels, small wood products

15 11.7 22

Furniture 22 11 50Wood Pulp 0 0 0Paper and paperboards 18.6 12 35Paper products 6 3.5 42Rattan, grass, bamboo and their products

10 10 0

Resin 12 10 17

Chinese Import Tariff Rates

Tax Orientations

• VAT rebate for exports-2006– No refunding VAT for railway ties and coke products– Refunding rates reduced from 13% to 11% for plywood,

laminated flooring, wood windows, doors and furniture– New 10% export tariff on chips, solid wood flooring and

one-off chopsticks • Processing Trade-2006

– Not applicable to sawn wood and furniture made from domestically produced timber.

• Corporate Income Tax– foreign forestry firms 10 year additional grace period

General Observations

• There is nothing inherently “bad” or “evil” with the new game of global forest products commodity chains: legitimate market demand from both developed and developing countries

• Producer countries should continue to participate in the commodity chains: cutting off from international trade linkages is no solution

• Producer countries should generally pursue industrial upgrading by seeking resource rent instead of market rent (valued added processing, service activities or capital/tech intensive activities)

• There are win-win arrangements for all players in the game and China should assume a set of minimum producer responsibility

Fields of policy options for China

1. Chinese trade & taxation policies distortions

2. sustainable trade: log tracking, fair timber trade

3. proactive actions in major international processes

4. long-term Chinese investment in forestry overseas

5. aid for forest institutional development overseas

6. Chinese corporate accountability