Tropical timber trade policies : what impact will eco-labeling have?

About 20 percent of the total production of tropical timber is traded internationally. But for Indonesia, Malaysia, Papua New Guinea, and some countries in West-Central Africa, tropical timber trade accounts for more than 50 percent of production. Although the tropical timber trade has often been blamed for deforestation, the authors find that it contributes much less to deforestation than do poor policies for the production of tropical timber. Lack of tenure rights, short and uncertain logging concessions, low stumpage values, and inadequate monitoring of logging activities are among the major policy failures that help deplete the tropical forests. Trade policies, often identified as an instrument for enforcing environmental objectives internationally, are inefficient instruments for correcting domestic distortions, and in the case of tropical timber trade, may affect the environment perversely. Export and import restrictions ultimately depress the value of an already underpriced resource - the forest. Restrictions on log exports, for example, encourage wasteful processing of logs. Unless sound forest management policies are enforced domestically, the net effect could even be an increase in the rate of deforestation. Import restrictions may have a marginal impact, since trade accounts for less than 20 percent of production and most of the tropical timber is imported in Asia, where such restrictions currently do not exist. Even if import restrictions had a significant impact, it would be in a reduction in value of tropical logs that would make alternative uses of the forest lands more profitable - so the rate of deforestation might not be reduced. Eco-labeling's main strength is its capacity to discriminate (through market signals) in favor of timber produced under sound environmental practices. By contrast, bans and boycotts have an indiscriminate, perverse impact. But if eco-labeling is imposed unilaterally by a subset of countries, its effectiveness will be doubtful. It will lead to trade diversion and potentially perverse environmental results, not to mention an increase in GATT trade disputes. Even if eco-labeling is adopted by all importing countries, there could still be trade diversion in tropical timber products because some consumers may not prefer certified timber, given its higher price. Eco-labeling programs should be designed so that producers see them not as a nontariff barrier but as an instrument for capturing the rents associated with prevailing environmental concerns in the developed world. Consumer education is important to the success of such programs, and eco-labeling programs should be designed accordingly.