Paul R. Baker* & Loan Le**[1]

“By incorporating sustainability criteria into trade agreements, countries aim to incentivise responsible forestry practices, deter illegal logging, and combat deforestation”

Forests cover around one-third of all land on Earth and provide food and fuel for over 2.6 billion people, including many Indigenous communities. Forests are also home to over 80% of terrestrial biodiversity, including 80% of amphibians, 75% of birds and 68% of mammals.[2] Deforestation, therefore, is heavily linked to the loss of livelihood and habitat for a substantial proportion of people and living creatures on earth.

Global trade contributes to deforestation and associated environmental damage through the exchange of ‘forest-risk’ commodities that require the clearing of trees for space to produce goods. In addition to timber products, other forest-risk commodities may include rubber, palm oil, beef (cattle rearing), soybeans, coffee, and cocoa.[3] Furthermore, investments in industries like agriculture, mining, and infrastructure also often lead to deforestation.[4]  Considering the flow of forest-risk goods in international trade, deforestation should be considered a trans-bordered issue, as reduced deforestation in one geography may be due to the outsourcing of forest-risk commodity production and deforestation to other countries and ecosystems. As noted in the 2023 Forest Declaration Assessment report, “In a globalised economy, all countries bear the responsibility of addressing continued forest loss.” [5]

While efforts have been made to ensure the environmental sustainability of international trade through environment-related trade measures, it is not easy for a large number of countries to reach a consensus on highly binding rules, considering each country’s specific socio-economic condition and stage of development. Instead, initiatives have been made at the plurilateral, regional, and national levels, creating a patchwork that may cause controversies and even polarisation in the international trade landscape.

Trade policy instruments targeting deforestation take shape through both unilateral and bilateral mechanisms, including sustainable forest management provisions within free trade agreements, voluntary partnership agreements, and domestic anti-deforestation policies. Without a coordinated framework, global trade may face the risk of polarising in terms of forest-related trade policies, whereby some countries adopting restrictive measures drive trade to countries with laxer regulations. In such a polarised scenario, forest conservation efforts could be rendered incapacitated due to trade diversion. Of greatest concern is that unilateral measures, such as those adopted by the EU and being considered by the US, could lead to two parallel trading systems, one with significantly lower forestry sustainability at its core. Without coordinated and committed policies among countries, tariffs on deforestation would largely be ineffective due to the leakage of trade on forest-risk commodities to countries without regulation.[6]

By incorporating sustainability criteria into trade agreements, countries aim to incentivise responsible forestry practices, deter illegal logging, and combat deforestation. The adoption of such measures reflects a broader commitment to align trade activities with global sustainability goals, emphasising the interconnectedness of economic development and environmental protection. We propose six priority measures to encourage anti-deforestation trade practices, based on the core principles of setting rules in an inclusive manner, adopting common but differentiated responsibility principles, and using rules based regional or multilateral frameworks to encourage compliance with sustainable forestry management policies (Figure 1).

Figure 1. Recommened trade related measures to promote sustainable forestry practices

Source: Baker & Le (2024)[7]


Footnotes
[1] Article based on a recent policy brief published Trade Miisters G20 Meeting in Brazil. See: Baker, P.R. & Le, L. The Linkages between Anti-Deforestation with Trade and Investment and Policy Implications for G20 Countries. Policy Brief. TF4. T20-G20 Brazil (2024)

2 *: Chairman, International Economics Consulting Group; Chairman of African Trade Foundation and| Visiting Professor at the College of Europe; **: Managing Director, International Economics Consulting (Viet Nam)

3 FAO. The State of the World’s Forests 2022. Rome: FAO, 2022.

4 Raza, Werner, Bernhard Tröster, Bernhard Wolfslehner, and Markus Krajewski. How can international trade contribute to sustainable forestry and the preservation of the world’s forests through the Green Deal? Belgium: European Union, 2020.

5 World Wide Fund (WWF). “Deforestation and Forest Degradation”, accessed 30 March 2024, https://www.worldwildlife.org/threats/deforestation-and-forest-degradation

6 Climate Focus. “Off Track and Falling Behind: Tracking progress on 2030 forest goals.” Forest Declaration Assessment, October 2023

7 Hsiao, Allan. Coordination and commitment in international climate action: evidence from palm oil. Work. Pap. Chicago: Univ. Chicago, 2022; Dominguez-Iino, Tomas. Efficiency and redistribution in environmental policy: an equilibrium analysis of agricultural supply chains. Work. Pap. Washington, DC: US Fed. Reserve Board, 2023; Balboni, Clare, Aaron Berman, Robin Burgess, and Benjamin A. Olken. “The Economics of Tropical Deforestation,” Annual Review of Economics, Vol. 15 (2023): 723-754.

8 Baker, P.R. & Le, L. The Linkages between Anti-Deforestation with Trade and Investment and Policy Implications for G20 Countries. Policy Brief. TF4. T20-G20 Brazil (2024)

[1] *: Chairman, International Economics Consulting Group; Chairman of African Trade Foundation and| Visiting Professor at the College of Europe; **: Managing Director, International Economics Consulting (Viet Nam)

[2] FAO. The State of the World’s Forests 2022. Rome: FAO, 2022.

[3] Raza, Werner, Bernhard Tröster, Bernhard Wolfslehner, and Markus Krajewski. How can international trade contribute to sustainable forestry and the preservation of the world’s forests through the Green Deal? Belgium: European Union, 2020.

[4] World Wide Fund (WWF). “Deforestation and Forest Degradation”, accessed 30 March 2024, https://www.worldwildlife.org/threats/deforestation-and-forest-degradation

[5] Climate Focus. “Off Track and Falling Behind: Tracking progress on 2030 forest goals.” Forest Declaration Assessment, October 2023

[6] Hsiao, Allan. Coordination and commitment in international climate action: evidence from palm oil. Work. Pap. Chicago: Univ. Chicago, 2022; Dominguez-Iino, Tomas. Efficiency and redistribution in environmental policy: an equilibrium analysis of agricultural supply chains. Work. Pap. Washington, DC: US Fed. Reserve Board, 2023; Balboni, Clare, Aaron Berman, Robin Burgess, and Benjamin A. Olken. “The Economics of Tropical Deforestation,” Annual Review of Economics, Vol. 15 (2023): 723-754.

[7] Baker, P.R. & Le, L. The Linkages between Anti-Deforestation with Trade and Investment and Policy Implications for G20 Countries. Policy Brief. TF4. T20-G20 Brazil (2024)