Russia in the Context of Global Trade in Wood-Based Products and Illegal Timber Presented by James...

Russia in the Context ofGlobal Trade in Wood-Based Products

and Illegal Timber

Presented by James Hewitt

Taiga Rescue Network Annual Conference (2008)

• Wood-based products are a small % of all exports

• Indirect exports are significant; chain of custody / certification to assure market access

• China is increasingly dominant in eastern Russia, logging frontier moving west

• The EU accounts for only a quarter of Russia’s wood, pulp and paper exports

• Russia is a High Risk country concerning the supply of Illegal Timber – but there are regional differences (Northwest ▼, East ▲, South ?) and some FSC

• Russia’s export potential are << than some vested interests claim (location, quality)

• Internationally, progress against trade in Illegal Timber is slow; sustainability is more important

• Russia’s timber exports in steep decline since 2007 (recession√, prices√, tariffs?)

Summary

• Wood-based products: almost insignificant (3%), increasing rapidly (10%pa)

0

50

100

150

200

250

300

350

1999 2000 2001 2002 2003 2004 2005 2006 1999 2000 2001 2002 2003 2004 2005 2006

Tra

de

va

lue

(US

$ b

illio

n, fo

b o

r ci

f, n

om

ina

l)

Wood-based products Iron and steel Fuels Nuclear plantElectronics/Electrical VehiclesUnspecified Others

ImportsExports

Source:Comtrade

Russia - trade value, by commodity exports

• Very vulnerable to world fuel market

Strong(?) negotiating position of EU given the balance of trade

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1999 2000 2001 2002 2003 2004 2005 2006 1999 2000 2001 2002 2003 2004 2005 2006

Tra

de

va

lue

(US

$ b

illio

n, fo

b o

r ci

f, n

om

ina

l)

USA Japan + Korea China EU-27 E.Europe / W.Asia Others

ImportsExports

Source:Comtrade

Russia - trade value, by destination or source

Increased exports & GDP but increased revenue & spending on society & environment?

Production & consumption of wood-based products (Source: OECD)

• “High Risk” = supplies from countries whose exports (of some products) should be screened for Illegal Timber

• Most of Russia’s High Risk production enters end-use in Russia

• SE Asia, China and Russia supply most trade in High Risk wood-based products

• China, Japan, EU and USA are destinations for most of those supplies

Trade in wood-based products from High Risk countries (Source: OECD)

• Particular need to assess legality along the supply chain back to forest stump – breaks in supply chain through China imply illegality

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199920002001200220032004200520062007

199920002001200220032004200520062007

199920002001200220032004200520062007

199920002001200220032004200520062007

Tra

de

va

lue

(US

$ b

illio

n, fo

b o

r ci

f, n

om

ina

l)

EU-27 E.Europe / W.Asia China Japan Rest of World

ExportsImports

Source:Comtrade

Russian wood-based products -trade value, by commodity exports

WoodPulp & paper Pulp & paper Sector

Wood

• Pulp & paper: exports = imports

• China: large and increasingly negative(?) trade balance; #1 destination (T and P&P)

• EU: the main supplier; destination for only 20% (P&P) and 30% (T); declining share for P&P exports, trade balance = nil

• EE/WA: large and increasing trade; might “follow” EU & China(!) concerning certification

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Est

ima

ted

RW

E v

olu

me

(mill

ion

cubi

c m

etre

s)

Rest of World

Turkic Republics

Japan

Egypt

China

Other EU-27

Finland

Logs Sawn wood Plywood Other wood

Russia - timber exports

Source:based on UN Comtrade

• China: predominantly logs - little (but increasing) interest in adding value within Russia

• Exports to the EU: logs declining, plywood increasing

• Exports of sawn wood to Egypt, Ukraine and Turkic Republics increasing rapidly, the share of the latter is likely to rise (oil rich, so immune from recession)

• Japan: declining direct imports; increasing imports, via China, but no chain of custody

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Timbersector

Papersector

Timbersector

Papersector

Timbersector

Papersector

Est

ima

ted

RW

E v

olu

me

(mill

ion

cubi

c m

etre

s) OthersSouth KoreaJapanTurkic RepublicsOther EU-27ChinaSwedenFinlandBaltic StatesRussiaOthersSouth KoreaJapanTurkic RepublicsOther EU-27ChinaSwedenFinlandBaltic StatesRussia

Sources: UNECE (Production)UN Comtrade (Imports & Exports -

converted to RWE volume )Production Imports Exports

Russia (2007)

Production + Imports - Exports ≠ End-use

• End-usage in Russia’s timber sector probably >> implied by these statistics

• If declared Production + Imports – Exports > End-use, is the excess illegal? Probably not.

• Different sources and scope of official data; inaccurate RWE conversion factors; uncertain quantity of waste from timber mills used in other wood-based products


Sources: Production (UNECE)Imports & Exports (based on

Eurostat, UN Comtrade & others)

• China’s imports during last two years: 50% increase in sawn wood; small decline in logs

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25

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2006

2007

2006

2007

Est

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ted

RW

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(mill

ion

cubi

c m

etre

s)

Sawn wood

Logs

Source: based onChina Customs & Japan CustomsChina Japan

China and Japan - timber imports from Russia Twelve month totals

• Decrease in Japan’s imports during year to 31/07/2008: 60% (logs) 40% sawn wood)

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2005

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2005

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Plywood

Sawn wood

Other logs

Pulp logs

Source: based onEurostatOther EUFinland

EU - timber imports from Russia Twelve month totals

• Decline in imports mainly by Estonia, Germany, Latvia, Sweden & UK

• Strong, sustained increase in area certified – but no data on volumes produced or traded

• Mainly for Russian pulp mills; most of China’s imports of Russian pulp are FSC-certified

• IFC support for mills not conditional on legality or sustainability - Kronostar

• Promote FSC-certified Russian birch plywood – a discrete segment of the market; plywood accounts for 85% of USA’s imports of Russian timber (Lacey Act)

FSC certification

• A few companies account for much of Russia’s logging – Ilim Group 7.5 million m3/year (some certified)

Area certified in Russia Area certified worldwide

Illegal Timber (i)

• ENA FLEG, led by the World Bank, seems to have failed (lack of interest?)

• World Bank seems to have abandoned its forest strategy – which seeks to reduce by half before 2011(?) the US$5bi plus US$10 bi (?US$15 bi) annual losses which it estimates (without indicating how or where) are attributable to Illegal Timber

• Estimates endorsed by the World Bank, its consultants and one major NGO ignore change, choice, variation between products and regions, and the numerous factors which determine legality – thereby tending to mislead and thereby delay remedies.

• USA – has overtaken EU by amending its Lacey Act (illegal to trade Illegal Timber)

• China only recognises a consignment of timber as being illegal if the government of the country from which it has been supplied specifically requests China to do so

• EU – industry wants to prohibit Illegal imports, but ambiguous new policy merely requires improved “due diligence”; FLEGT - good initial progress; little interest in minimising Illegal Timber production within EU

• Japan’s procurement policy requires importers to trust their suppliers’ documentation

• China’s (excellent) code of conduct for Chinese enterprises overseas only applies to the plantation sector not to forests (and is probably not being implemented)

Illegal Timber (ii)

• Value of trade in Illegal Timber 2007 >> 2004 due to increased exports (of increasingly illegal?) milled products from China

Source of both charts: http//www.globaltimber.org.uk/IllegalTimber.htm

Illegal Timber (iii)

• Allocation of logging rights – major financial flows

• Implementation of credible forest management plan - an indicator of sustainability

• In 2001, “Operation Forest” (the Federal Service of the Russian Fiscal Police) found that about 21 million m3 (i.e. 50%) of Russia’s exports of logs (value US$ 1 billion) were illegal due to (export) tax evasion – but >>50% in eastern Russia and <<50% in NW Russia?

• China’s imports from Russia: rapid increase (initially to offset NFPP) probably dependent on increased illegality; illegality likely to increase - export tariffs and recession – until China’s export markets demand legal timber (but only 20% exported – 2004)

• Most of China’s exports of flooring made with Russian hardwood are probably illegal

• CITES: start with a “flagship” species – Korean Pine

• Enterprises from Fujian distribute most of the timber which China imports from Russia and (overland) Burma, also Rimbunan Hijau and Asia Pulp and Paper

• If the intent of export tariffs is to increase the investment in milling, this might backfire -new mills might put old ones out of business (if there is a level playing field); new, capital intensive pulp mills are risky investments, so, little impact on export of pulp logs

China

• The government has little idea how much industrial roundwood is produced in China, for pulp, panels, or solid wood

• Initial increase in imports from Russia offset the NFPP (logging ban) – not exports.

• Imports from Russia - unit import values rising rapidly (particularly logs)

• Exports >Imports – China does not need more, it has excess capacity & seeks profit

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J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A

Ind

ex

of u

nit

imp

ort

va

lue

(US

$ pe

r cu

bic

met

re R

WE

vol

ume)

2006 2007 2008Source: based on

China Customs

Logs

Sawn wood

Unit import value of China's timber imports from Russia

Source: http//www.globaltimber.org.uk/china.htm

Source: http//www.globaltimber.org.uk/ChinaIllegalImpExp.htm

Indirect Imports

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2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Est

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(mill

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cubi

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s)Paper sector:

PaperPulp

Pulplogs

Wood chips

Timber sector:Other wood

Other panels

Plywood

Sawn woodOther logs

Source:based on Eurostat

Estonia - wood-based product imports from Russia

Timber sector Paper sector

• Primarily logs for the Timber Sector and sawn wood

• Timber Sector: rapid increase 2002-2006, steep decline during 2008

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Timbersector

Papersector

Timbersector

Papersector

Timbersector

Papersector

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OthersUKSwedenFinlandBaltic StatesRussiaEstoniaOthersUKSwedenFinlandBaltic StatesRussiaEstonia

Production Imports Exports

Estonia (2007)



Eurostat, UN Comtrade & others)

• Imports from Russia account for much of the RWE volume used in Estonia’s mills

• Which exports are from FSC-certified state forest in Estonia?

• Which exports are from Russia with no chain of custody?



Eurostat,)

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2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Est

ima

ted

RW

E v

olu

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(mill

ion

cubi

c m

etre

s)Paper sector:

PaperPulp

Pulplogs

Wood chips


Other panels

Plywood

Sawn woodOther logs


Finland - wood-based product imports from Russia


• Decline in imports of logs (other than pulp logs) continued during H1 2008

• Impact of increased export tariffs? Increased effort to minimise Illegal Timber? Importance of maximising utilisation of pulp mill capacity

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Timbersector

Papersector

Timbersector

Papersector

Timbersector

Papersector

Est

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ion

cubi

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OthersUnspecifiedUSAUKSpainJapanGermanyFranceChinaSwedenBaltic StatesRussiaFinlandOthersUnspecifiedUSAUKSpainJapanGermanyFranceChinaSwedenBaltic StatesRussiaFinland

Sources: UNECE (Production)Eurostat (Imports & Exports - converted to RWE volume )Production Imports Exports

Finland (2007)


• Imports from Russia account for about 15% of RWE volume used in mills (on average)

• Exports “contaminated” by Illegal Timber from Russia? Some export-oriented mills do not use Russian wood as raw material; some which do, take much greater care to avoid Illegal Timber than others (?for 100% of their output)


The apparent excess of exports over log production

and imports in the Paper Sector is irrelevant to this assessment (and might be

partly attributable to the use of timber mill waste and the adoption of inappropriate factors when estimating

RWE volume from weight )

Sources: Production (UNECE)Imports & Exports (based on Eurostat,)

• Russia directly accounts for a small proportion of the wood used in Sweden’s mills

• Imports from the Baltic States (almost all pulpwood) = 10% of Production + Imports, but from where? Russia?, FSC certified?, both?, neither? Answer: mainly Latvia.

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Timbersector

Papersector

Timbersector

Papersector

Timbersector

Papersector

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OthersUKSpainNorwayNetherlandsJapanItalyGermanyFranceDenmarkChinaFinlandBaltic StatesRussiaSwedenOthersUKSpainNorwayNetherlandsJapanItalyGermanyFranceDenmarkChinaFinlandBaltic StatesRussiaSweden

Sources: UNECE (Production)Eurostat (Imports & Exports - converted to RWE volume )Production Imports Exports

Sweden (2007)


NB 12 mi m3 of waste from timber mills was

used in 2006 to make pulp (and panels)


Sources: Production (UNECE)Imports & Exports (based on Eurostat,)

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2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Est

ima

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(mill

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cubi

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s)Paper sector:

PaperPulp

Pulplogs

Wood chips


Other panels

Plywood

Sawn woodOther logs


Latvia - wood-based product imports from Russia


• Timber sector exports used to be at risk – rapid decline in imports from Russia since late 2007

ChinaEU-27

Rest of World

E.Europe/W.Asia

Russia Source: based onUN Comtrade

Kazakhstan - imports (2006)Wood

Estimated RWE volume: 3.5 mi m3

• Several countries depend heavily on Russia for much, if not most of their timber imports

• Egypt is probably supplied mainly via the Baltic and Barents seas, Kazakhstan is probably supplied overland

China

EU-27

Russia

Rest of World

E.Europe/W.Asia

North America

(esp. Finland,Romania, Sweden)

Egypt - imports (2007)

WoodEstimated RWE volume: 7 mi m3

Source: based onUN Comtrade

Two pies before lunch?

Thank you for interest

Russia in the Context of Global Trade in Wood-Based Products and Illegal Timber Presented by James...

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