International Team: Steve Bass, et. al. China Team: Changjin Sun (Team Leader)

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 importsfrom 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-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

13. 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 • Chinese trade & taxation policies distortions • sustainable trade: log tracking, fair timber trade • proactive actions in major international processes • long-term Chinese investment in forestry overseas • aid for forest institutional development overseas • Chinese corporate accountability