1. Sustainable Development – China and Global Markets IISD-IIED-IDDRI Study for China Ministry of Commerce Progress note for RIIA 10.07.2007

2. Approach Aim:  Integrate sus devt into Chinese trade/economic policies Analysis:  Assess China’s social/env impacts on 3x commodity chains:  Forestry (IIED); Cotton (IDDRI); E-products (IISD) + Chinese teams  Using existing data (e.g. Forest Trends); sample chain studies Recommendation:  Options to improve sustainable practice along 3x chains  Potentials for an overall China sus trade strategy Study governance:  Multi-stakeholder China/international Steering Comm  MofComm chairs: v influential in trade, investment and aid

3. Progress  1 st Steering Comm 2006 – defensive: ‘problems shaped by supplier/buyer countries, China an intermediary; little illegal’  Supply chains mapped – top 10 supplier & buyer countries secondary data; Russia F.E. and Mozambique in detail  ‘Best international practice’ in supply chain governance mapped – to engage China, little involved in these to date  Chinese ‘good news’ identified – plantation investment guidelines, waste paper processing 1/3 fibre supply, pulp imports 60% certified… to encourage ‘can-do’  2 nd Steering Comm 2007 – more open: ‘problems shared; China a force for good or a cancer; suggest ways forward’

4. Mozambique – Cabo Delgado supply to China

5. Mozambique 1. Forestry challenges  Forestry is important for MZ – high quality hardwoods (for furniture); legal trade 4 th biggest export  Illegal forest trade – approx same volume as legal trade – destroys a key MZ asset:  Economic: taking ‘best’ species; wasting wood; no processing  Env: deforestation; damaging regeneration; flooding…  Social: abusing workers (Chinese/MZ) and local communities  Caused by bad MZ governance – absent state, ‘gold rush’  However, some best practice – isolated FSC certificates

6. Mozambique 2. Chinese involvement  Chinese take 80+% MZ forest exports, run most sawmills, offer credit to many MZ operators (small and medium)  Chinese entrepreneurship reveals weak MZ governance:  Most Chinese operators are small-scale, anonymous, language problems, discrimination by MZ media  Chinese operators do not directly cause problems – but…  ‘Totally absent corporate responsibility’ of Chinese operators…  who get no support/scrutiny from Chinese banks/govt/embassy

7. Mozambique 3. Chinese demand, skills, investment could be a ‘force for good’ Develop MZ-China agreement (with aid) to:  Discuss vision for a sustainable NR-based economy with MZ  Improve MZ national forest governance goals/system  Identify good forestry practices in MZ (inc social, env)  Develop c-of-c, certification, potential of underused species…  Develop MZ forestry/export manual and training  Chinese investment in MZ forestry  Chinese import of legal (SFM) timber only

8. MofCom starting to accept that:  Rapidly growing Chinese trade (80+ countries) drives a global process reshaping forests  China is associated with ‘10% bad’ practice globally  i.e. exacerbating poor governance/capacity in LDCs  China is less associated with ‘10% good’ practice globally  every supplier country has some good practice to support  China could do much to improve ‘80% run-of-mill’ forestry  China’s security risks (fibre/market/foreign relations) of current path  Shared problem: requires a joint response Challenge: identify 2-3 responses which MofCom can ‘own’

9. For discussion How best to frame promising/tactical options for MofCom? 1. Chinese Government procurement policy (legal/SFM)  Chinese forest ‘footprint’ baseline/monitoring?  +/- bilateral agreements on illegal logging (VPA-type)? 2. China forest product corporate responsibility standard  Focus on Chinese factories cf. itinerant forestry co’s?  Campaign to improve China’s forest product ‘brand’? 3. China engaging/shaping int’l forestry initiatives  +/- Chinese aid for LDC forest governance and capacity?  +/- incentives for Chinese SFM investment abroad? 4. An overall sustainable trade strategy  ‘sunset’/promising industries for SD; soc/env/econ trade-offs