Download the role of the forest sector in trade policy

'THE ROLE OF THE FOREST SECTOR IN TRADE POLICY'
Keynote speech by Mr. Pekka Huhtaniemi, Under-Secretary of State,
Ministry for Foreign Affairs of Finland
in European Economic and Social Committee Conference
in Joensuu on 23 September 2009
GREETING AND INTRODUCTION
Mr. Chairman, Ladies and Gentlemen, it gives me great pleasure to address this conference
today.
'Facing the challenge - change in forests and forest sector' is a very topical theme for
Finland due to the still large significance of forest industry to our economy.
However the topicality is by no means restricted to our country. We're talking about a
global issue which cuts accross a large number of elements from trade and investment to
energy and environment, and even to recreation.
Some of the key themes occupying us today are transformation of paper industry, shift
towards biofuels, fight againts global warming, protection of woods against illegal logging
and so on. All of these involve forests in one way or another, and they all bear significant
implications to trade and investment, and to the trade policy.
The strong emergence of the new issues issues has put tremendous pressure on the sector
itself, and at the same time caused a re-emergence of forest-related issues in the trade policy
agenda over the past few years. Global economic crisis has significantly added the pressure.
With regard to policy level, under these demanding circumstances any trade or investment
policy decisions we take here in Finland must be carefully scrutinized in order to respond to
the challenges in a way which benefits both Finland and Finnish forest sector in the longterm.
FOREST SECTOR AND THE FINNISH ECONOMY
Ladies and Gentlemen,
Forest sector may not be the same cornerstone of our economy it used to be but it remains a
very important part of our economy nevertheless.
In a large sense of the word, forest sector is still an important source of employment as well
as a significant generator of export revenues and growth in Finland. In 2008 forest cluster
employed directly or indirectly 200 000 people in our country; 63 000 of them in forest
industry and 20 000 in forestry.
The picture is even clearer when one focuses on industrial production and exports: in 2007
the value of our forest cluster exports amounted to appr. 21% of our total exports of goods,
and forest cluster production to roughly 16% of our total industrial production
.../...
-2-
These figures are in decline, and they certainly pale in comparison to the situation two
decades ago, when the share of forest products amounted to over half of Finland's total
export revenues, and almost ¼ of total production, but despite the downward trajectory, the
sector still plays an important role in our wellbeing.
FOREST SECTOR AND TRADE POLICY
Finland has traditionally not only produced and utilized but also traded wood and other
products of forest-based industries. Therefore, paper, pulp and wood in its various forms
have been among our priority sectors in trade negotiations since decades.
Guaranteeing market access for our forest sector products was for a long time a yardstick
that helped us to estimate how well we had succeeded in international trade negotiations. In
many important ways we did rather well.
To look back at the previous highlights, Finland's gradual integration with our European
partners from the early 70's onwards gave our companies open market access to many of
their main markets. Subsequently we worked successfully for a sectoral agreement on paper
and pulp under the GATT Uruguay Round negotiations which opened markets further.
The other side of the coin was of course that these agreements exposed our own industry to
increased competition from abroad, but as we all know Finnish operators emerged winners
from the competition and eventually became world leaders in many product groups with
wide international networks and "globalized" production patterns.
"RENAISSANCE" OF FOREST SECTOR IN THE TRADE POLICY AGENDA
For a period of time, it seemed that there was not much exciting happening in the forestbased industries' trade policy agenda. However, what was bubbling under surface was
about to change this very drastically.
First, the industry started thinking more globally about production chains which led to new
investments abroad. Concepts of investment environment and political risk became
embedded in the industry agenda. Metsä-Botnia's difficulties in South America were
symptomatic of this.
At the same time significant investments were made also at home and the increase in
production capacity led to increased imports of raw materials. Before long, Finland was
importing approximately 20% of its raw wood needs from Russia; a state of affairs which
was of no trouble as long as import prices were competitive.
Secondly, while access to export markets had gradually improved, the lowering of duties
made increasingly obvious problems that relate to discriminatory and disproportionate
technical requirements and other non-tariff barriers or NTB's. Indeed, many Finnish
companies have come to find that NTB's can be even more difficult to pass than fairly
straightforward import tariffs, or at least that they may raise costs as much.
And finally, environmental considerations, particularly the pressure to work against illegal
logging has generated a whole new set of issues bringing forest sector back to the limelight
in the trade policy agenda.
.../...
-3-
Let me briefly explain how we are tackling these challenges today.
GOALS OF THE FINNISH TRADE POLICY VIS-A-VIS FOREST INDUSTRY
The starting point for our policy and our activities is simple: use all necessary trade policy
tools to lay ground for Finland's forest-based industries to succeed in a sustainable manner
under the changing landscape.
This calls for opening of new markets and setting up such regimes, in the WTO and in the
context of free trade negotiations between the EU and its trading partners, that address not
only tariffs but also non-tariff barriers. Particularly technical barriers to trade and
discriminatory government procurement policies are targeted. We believe in
competitiveness of our companies when the playing field is level. Through trade policy we
seek to guarantee this.
In addition to exports it is increasingly important to pay attention to smooth flow of imports.
One of the most central challenges today relates to raw materials, in our case at the moment
particularly to imported wood. As you well know Finnish forests are not growing
sufficiently fast and even during normal times there is a shortage of birch pulpwood, in
particular. The main question for us in this respect has become the availability of Russian
wood.
Russia is applying export duties on raw wood and has had plans to increase them to
unsustainable levels. Already with the current duty levels of € 15/m3, the imports have
plummeted. This has led to shutdowns on both sides of the border and Russia has been
unable to get new investments, even if the objective of the duties was to attract new paper
and pulp plants. This is an important aspect, since Finland, Russia and other countries in the
Baltic region are, or should be natural partners in developing forest-based industries. For
this cooperation to work, all barriers to trade and investment should be abolished. Export
duties fit very badly in this picture.
Finland, certain other EU member states and the European Commission are working
actively to find a solution to this problem. The central forum for these efforts remains
Russia's WTO accession negotiations, even if that process is not advancing as quickly as we
would have wished. Availability of raw materials and the reduction of export duties has also
been discussed more generally in the WTO and the European Commission is working
towards a comprehensive strategy on raw materials. Finland supports this work very
actively.
Finally, the question of illegal logging has emerged as one of the more controversial issues
in the forest sector's trade policy agenda. Controlling international trade in illegally logged
timber has been considered an essential part of international efforts to reduce illegal
logging, and consumer countries are taking a range of measures to exclude illegal timber
from their markets. To date these steps include the EU`s FLEGT (Forest Law Enforcement,
Governance and Trade) import licensing scheme and proposed due diligence regulation, the
US Lacey Act and public procurement policies.
While paying attention to the legitimate purpose of the regimes, Finland seeks to assure,
that they are implemented in the least trade restrictive manner. Should this not turn out to be
so, we run the risk of added bureacracy that punishes legitimate operators while illegitimate
.../...
-4-
ones continue their activities outside the reach of these regimes. And all this ends up hurting
Finnish forest interests.
CONCLUSION
Ladies and Gentlemen,
As you can see, forest sector has experienced a revival in the international trade policy
agenda. This is only natural given the fast pace of structural change in the sector itself and
the emergence of environment-related issues. My feeling is that with the new forest-based
products and usages, shift towards biofuels and issues such as emission rights and forests as
carbon sinks in the fight against global warming, forest-related questions will increase
rather than decrease in the trade policy agenda in the future. In this sense the "renaissance"
may have just begun.
With regard to Finland and forest sector, the economic significance of the sector to our
country may have diminished, but it is still an important building block of our economy.
With innovation and sound business decisions it should be possible to reform the industry
and re-envigorate it again. The sector will not in the future look the same as it does today,
but with the entry of new ideas, products and usages it should be possible to turn the tide.
On the basis of our vast knowhow and long traditions we should be able to carry out this
renewal and restructuring.
The responsibility for the turnaround remains with the companies. However, in the
Government we're committed to use all trade policy means available to enhance the
prospects of the Finnish forest industry and the forest sector at large for the benefit of our
country. This, we take, is important also in the European perspective. The EU needs a
vibrant forest sector, and we in Finland believe that we have much to contribute to this
aspiration.
Thank you for your attention!