1. 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

2. 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

3. 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

4. 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

5. 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

7. 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

8. Figure 3 A Generic Wood Products Commodity Chain with Remanufacturing Base in China Timber Producer Country-- Primary wood products Forest Cultivation （ Stumpage ） Logging and Log Collection （ logs ） Transport and Export （ logs or sawn wood ） China-- Secondary manufacturing Import （ 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 consumption Importing （ plywood, furniture and building materials ） Distribution Retailing

9. 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

10. 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

11. 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 harvested Intermediate cutting to finance forestry admin costs

12. Russia-Mozambique the 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

13. Item Old Tariff Rate （ % ） New Tariff Rate （ % ） Reduction （ % ） Logs, sawn wood 000 Veneer 85.235 Wood-based panels, small wood products 1511.722 Furniture 221150 Wood Pulp 000 Paper and paperboards 18.61235 Paper products 63.542 Rattan, grass, bamboo and their products 10 0 Resin 121017 Chinese Import Tariff Rates

14. 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

15. 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

16. 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