Connecting Policy and Corporate Practice

Business and government both have a role to play in promoting “green” and legal trade. Sometimes companies lead the way in the interest of maintaining a sustainable business, or to stand out from the competition. Sometimes it is policy that sparks change across a supply chain. The Lacey Act Amendments in the United States, the European Union’s Timber Regulation, Indonesia’s new timber legality assurance system are all examples of the recent strengthening of policy signals designed to promote sustainable timber production and transparent trade. China is now developing its own national timber legality verification system, and Lacey-style legislation is expected in Australia as well. Businesses across Asia are responding to these signals and in doing so putting more pressure on forest concessions to ensure that the products flowing into their supply chains are from legal and sustainably harvested sources.

This interview will take a closer look at the interface between business and government when it comes to promoting responsible forestry and trade, and why strong linkages between policy and corporate practice are needed in order to translate good intentions into a sustainable forestry sector that balances demand for timber with the imperative of providing for future generations.   

Experts Interviewed:

• Jack Hurd, Chief of Party, Responsible Asia Forestry and Trade (RAFT)
• Nengwen Liu, President, Timber Value Promotion and Sustainable Development Center
• Benjamin Cashore, Professor, Environmental Governance & Political Science, Yale University’s School of Forestry and Environmental Studies
  
  
  

QUESTION: For those who are less familiar with your organizations, please provide a short description of your organization and current activities in China (or Asia-Pacific region).

Jack Hurd: 

 The Responsible Asia Forestry and Trade (RAFT) Program, funded by USAID’s Regional Development Mission for Asia, is a regional program designed to influence the development and implementation of the public policies and corporate practices needed to improve forest management and bring transparency to the timber trade in Asia and the Pacific, thereby reducing carbon dioxide emissions from forests. RAFT is managed by The Nature Conservancy and implemented by a catalytic group of NGO partners.

In China specifically, RAFT’s focus has been 3-fold:

• Facilitating cooperation between the China, Indonesia and the United States under a series bilateral MoUs concerning cooperation in combating illegal trade of forest products.
• Building industry awareness of and capacity to comply with policy and market requirements for legal and sustainable products.
• Working with the Beijing-based Asia Pacific Network for Sustainable Forest Management and Rehabilitation (APFNet) to develop and launch a long-term strategy to strengthen human resources and institutional capacity in forest management and the governance of the forest products industry throughout Asia-Pacific.

Nengwen Liu:

 Timber Value Promotion and Sustainable Development Center was established in 1983. CWP was established in 1983 with an aim to provide technical services of timber conservation and substitution. The association has been recently expanded in its business scope to include sectors of treated wood, wood frame houses, engineered wood products and timber distributions. Its testing lab is responsible for providing quality testing services to its members and has the authority to issue certificates recognized by China National Certification and Accreditation Administration.

The Center has participated in several industry standards drafting and policy research projects. It also supported capacity building projects to train professionals on treated wood standards through its publications, website and conferences. The association has been working closely with research institutes and associations in Australia, US, New Zealand, and Canada to develop and improve Chinese industry standards. In 2009, it hosted International Wood Preservation Society annual meeting in Beijing.

Benjamin Cashore:

I am a professor of environmental governance and political science at Yale University’s School of Forestry and Environmental Studies. I am Director of the Program on Forest Policy and Governance, housed within the Global Institute of Sustainable Forestry.

I have spent a great deal of time researching market mechanisms to promote sustainable forestry, including forest certification. I am curious about how such market mechanisms might create broad global coalitions united around new forms of governance, or new synergies across different levels of governance from international, national, local and private systems. A key component of my recent research is to understand the role of legality verification in united what were previously quite fragmented efforts to promote “good forest governance”. We are curious about the role of legality verification and supply chain tracking of such assurances as providing the “glue” with which to foster durable coalitions that reinforce domestic sovereignty while creating global norms regarding transparency and sustainability.

QUESTION: For those who are less familiar with your organizations, please provide a short description of your organization and current activities in China (or Asia-Pacific region).

The changes we have seen over the last decade mean a lot for wood products manufacturers in China that want to remain globally competitive or expand to global markets. Basically what we have seen is a full recognition by consumer markets of their responsibility to run a clean business – to know where their wood is coming from and whether it is legal – in order to help tropical countries get illegal logging and rampant deforestation under control. As the world’s largest wood processing hub, China is key link in many companies’ timber supply chains. Chinese manufacturers that are not able to demonstrate to their buyers that the wood they import is legal will increasingly find themselves with fewer and fewer customers to choose from in high value markets.

The changing policies especially those in the major exporting markets of China e.g. Europe and USA are of significance to the forest products companies in China, including: 

Firstly, it means the elevation of market access threshold, which has been a focus concerned by Chinese companies, industrial associations and various related conferences when relevant policies of the international market were to be issued. Products not in compliance with corresponding regulations will not only enter the target market but also will be strictly punished and thus the company will suffer a big loss. Therefore, the export-based companies will make their products more environment-friendly to meet the market demands. 

Secondly, it means the loss of international market share to some companies. The increase of production costs is associated with the improvement of environmental performance. Some less risk-resistant companies cannot meet the needs of the target market in a short period or they are forced to increase the costs, so they may give up part of the shares of the target market and turn to the domestic market or other regional markets.

Thirdly, every coin has two sides. Due to the retreat of some companies, the others will be stronger and take more market shares, which will speed up the development of larger-scale corporate groups in China and thus accelerate the industrial agglomeration. 

Last but not the least, as the policy environment changes, the sustainable supply chain will be attached attention from more and more Chinese companies. At the beginning, they will improve the supply chain passively and ensure the legality of timber sources, but gradually they will become active in improving the supply chain and establishing sustainable sourcing policies to better adapt to the changes of policy environment in the international market.

These recent initiatives create significant opportunities for Wood products manufacturers in China. They will be better able to ascertain whether the wood they are importing from countries such as Indonesia are derived from legal sources, and with that, they will be able to access US, European and other markets that are now requiring legality assurance. To be sure, challenges will also exist as Chinese manufacturers address both important and export demands for legality, but for those who do, the working hypothesis is that they will either see greater market access in the EU and Europe and/or, reduced competition from firms who relied in less expensive illegal products.

QUESTION: How can better policies help businesses stay competitive in the global forest products market?

In many countries outdated and sometimes conflicting policies, combined with multiple and overlapping levels of authority can make it very difficult for even the most determined businesses to be sure of all of the regulations they need to comply with in order to be legal. The difficulties that many governments have faced in dealing with rampant and well-publicized illegal logging have also earned tropical hardwood a dubious reputation. Countries that take the lead in clarifying forestry and trade laws, strengthening human and institutional capacity to manage forestlands sustainably and developing transparent systems to hold companies accountable when they break the law can help reverse negative perceptions about the legality of the products they export. Better policies can also take the burden off of companies that want to market themselves as responsible businesses by laying a clear path to legality.

After the issuance of related policies, the Chinese companies will gradually improve the supply chain or the quality of their products to meet the demands of the target markets, and those intending to enter these markets will also pay attention to the changes of environment policies and make efforts to meet the needs of the target markets. As the environment policies become increasingly prominent, the Chinese companies will need to keep an eye on the changes of related policies on the international market and readjust their development planning on time, which means an upgrade for the companies.

The idea behind market based governance is to “embed” in markets social and environmental responsibilities. This means that market governance works best to the extent that there are clear signals to firms that adopting such practices will render a competitive advantage, versus a competitive disadvantage. This means that it is up to the entire community promoting efforts to improve governance through some type of market mechanisms to work to ensure that that the competitive incentives exist. Such an effort requires simultaneously collective efforts to promote tracking of wood products, and the development of standards/approaches consistent with market signals. Of course, this does not take pressure off of other traditional mechanisms such as regulating forest practices. In fact, government policies that regulate forestry practices may assist firms in achieving legality, and may also themselves be reinforced as markets begin to recognize these efforts.

QUESTION: How can businesses help strengthen government policy to promote sustainability?

Although regulations are often seen as hurdles to thriving business, in the forestry sector, a growing number of businesses are looking to regulators for the answers they need to demonstrate to their customers that they are legal. And it is by asking these questions and opening dialogues that businesses can help move policy-makers in the right direction. They do this by sending the message that there are businesses out there that are willing and able to follow all of the rules, provided they know what they are. Inquiring companies can also help build regulators’ own understanding and awareness of complex and often neglected legal frameworks, leading to improved enforcement.

First of all, the companies are specific implementers of related policies issued by the state. Only effective implementation can practically bring the policies into effect. Secondly, generally, related national policies or criteria will be made with consideration to the average of an industry. Some large-scale companies with strengths can do better with higher self-standards during the policy implementation in order to stand out among and space out with common companies with their advantages and advertise their competitiveness, which in return will enhance the policy effectiveness to a great extent.

Businesses can work with governments to promote supply chain tracking. This will require public private cooperation so as to develop the most efficient and effective efforts to do so. While businesses will always have an interest in ensuring that regulations are consistent with their business model, tracking products to markets that are requiring legality would allow firms involved to take relatively progressive positions on environmental and social regulations, if and when the market rewarded them for doing so.

QUESTION: What is the role of businesses in promoting responsible forestry and trade, what is the role of government, and how are these connected?

At the end of the day, it the actions of individual forest concession and processing factories that will determine whether or not forest products are being produced and traded responsibly. Businesses have a responsibility to act, to respond to incentives that promote sustainable practices and to conduct their business legally while minimizing negative impacts on the environment. Governments have a responsibility to develop, implement and enforce policies and laws that reflect reality, reward businesses that follow the rules, and penalize those that do not. Responsible businesses need government to set the parameters of acceptable practice and to communicate and enforce those parameters across an entire industry. At the same time, governments need businesses to respond and to actually do what is outlined in policy. Without a coherent regulatory framework, businesses have no benchmark to measure their practices against and no means to demonstrate legality to international buyers. Without responsible businesses, good policies remain largely on paper and are unlikely to bring about the kind of industry-wide transformation needed to maintain and enhance the functioning of healthy forests and of a thriving forest products industry for future generations.

Businesses play a role of implementer in promoting the sustainable development. Only by unfolding outwards from inside and from the very basis can the sustainable development be authentically promoted. Meanwhile, businesses provide basic data for the development of national sustainable development policies to ensure their rationality and maneuverability.

Government plays roles of initiator, demander, supervisor and judger for the sustainable development. It initiates that consumers and producers should make their own efforts for the sustainable development, monitors and judges the implementation by the producers and actualizes rewards and punishments to push forward the sustainable development. Business and government are connected through interactions.

As above, the logic of market based governance is that they are connected. In the case of legality verification the first cooperative project must be the building of supply chain tracking in efficient and effective ways. This will pave the way for ensuring that responsible firms who follow government regulations/rules and promote sustainability will be rewarded in the market place, rather than put at a competitive disadvantage. This can only be accomplished through synergies and partnerships that offer the promise of contributing to competiveness of firms while realizing government/societal objectives.

QUESTION: Lastly, tell us more about what your organization/program is doing to help businesses and government play their respective parts in greening the global timber products trade?

Connecting policy and practice is a central pillar of the Responsible Asia Forestry and Trade (RAFT) Program’s approach. A great example of this is our work in Indonesia, where we have supported the Ministry of Forestry in the development of its new timber legality assurance system, and are now helping to roll out the new standard through trainings of concession staff from across the country. This new system, developed in consultation with government, business and civil society, enables responsible forest and factory managers to provide assurance to their buyers and to regulators that the wood they export comes from legal sources, and has been logged, processed and transported legally.  We have also facilitated discussions between China, Indonesia and the United States to catalyze implementation of a series of bilateral agreements signed to reduce illegal logging and promote sustainable forestry. Just last month, a Chinese delegation travelled to Indonesia to learn more about the process to develop the country’s new timber legality assurance system, and the lessons and challenges emerging from implementation. RAFT has helped wood manufacturers in Asia respond to policy signals like the US Lacey Act by training 800 wood manufacturers in China and 5 other countries to maintain compliance with domestic laws and source timber that is legal in its country of origin. Through activities like these and many others, RAFT is informing policy-making with experiences from the ground, and translating good policies into good practices through trainings and demonstration of sustainable forestry and supply chain management techniques. For more information: www.responsibleasia.org

Our Center is assisting in communicating and extending the international timber legality in collaboration with WWF and Chinawood Network. It is a necessary trend for the wood industry to develop a green wood industry under the vigorous promotion of low-carbon and environment-friendly concepts by the state. Meanwhile, the Chinese government has attached great importance to forest protection and efficient wood utilization by making efforts in vigorously promoting re/afforestation and tree-planting, launching the program on natural forest conservation, advancing wood conservation and substitution and improving the integrated uses of wood. 

(1) The center initiated the China Wood Sustainable Development Action Plan – Green Wood Initiative in 2009 in collaboration with WWF and Chinawood international network. It aims to call on wood and wood products companies to be committed to and fulfilling social responsibilities, raise the governmental and public awareness of forest resources protection and promote the sustainable development of China wood industry, in order to actively address the current global climate change, pay more attention to the forest conservation and strengthen the reasonable exploitation and efficient utilization of wood. 

Our focus is on understating better, both through developing theory/hypotheses, and through empirical testing/assessing, the conditions through which legality verification might create broad global coalitions promoting good forest governance and sustainability. We are curious about the evolutionary potential of legality verification to trigger a pathway that might achieve goals identified at Rio and global certification efforts over 20 years ago, which, while well intended, did not achieve their desired results. We hypothesize that single “one shot” efforts are not likely to succeed, and that a focus on “legality” verification that reinforces sovereignty while simultaneously building global coalitions might hold promise in promoting global forest governance. As a result, we have developed hypotheses about what strategists would need to do to foster legality verification, and then, what the evolutionary potential of such choices might be in developing durable institutions of global forest governance. Some of our arguments/results are counterintuitive. We hypothesize, for instance, that legality verification is more likely to succeed when standards/definitions are kept relatively modest and when sovereignty over policy decisions is maintained. We also hypothesize if legality is defined by individual governments, there might be pressure on some governments to reduce policies on their books so as to gain market access. We therefore hypothesize that while legality verification should respect national sovereignty, it should not cover all government always, but rather an agreed upon set of standards that most, if not all governments, would agree. We hypothesize that supply chain tracking is more likely to advance if strategic decisions are taken consistent with these hypotheses, and less likely to advance if not the case. We further hypothesize that once supply chain tracking is in place, standards can then be incrementally advanced in ways that reward, rather than punish, participating firms as costs of compliance will be borne by consumers. We are in the middle of conducting empirical work in Southeast Asia, especially Indonesia and Malaysia, and in the US and EU over their approaches to legality verification.

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