The Effects of the 2008 Lacey Act Amendment on Chinese Companies in the Forest Products Industry

Abstract

Illegal logging is a prevalent problem that threatens forest conservation around the world, and thus has come into the spotlight of global forest policy. The 2008 US Lacey Act Amendment is one of the most important consumer country timber legality regulation initiatives to tackle illegal logging in global forest product trade. It requires that timber imports be sourced from legally harvested wood, and could have profound impacts on China's re-exports of manufactured wood products to the US. This study aims to assess the effect of the Lacey Act Amendment on Chinese companies and illuminate how it exerts the effect empirically. The first phase of this study examines how Chinese wood manufacturer's sales to the US have changed in response to the Lacey Act Amendment with a standard ordered probit model. The second phase of this study examines the effect of the US Lacey Act Amendment 2008 amendment on Chinese companies' export cost to US with a zero-inflated ordered probit model, including in the analysis the Chinese companies' characteristics and sourcing behaviors. A sample of 225 Chinese wood manufacturers was drawn from two trade shows in Shanghai, China, in 2013. Chinese companies' familiarity with the Lacey Act Amendment may affect their ability to control their cost to export to the US, and the results reveal that Chinese companies' awareness of the Lacey Act Amendment has played an important role in their decision to export to the US over the last 5 years. The smaller Chinese companies were more likely to withdraw from the US market in the aftermath of the Lacey Act Amendment as compared to their larger counterparts. The Chinese companies who have increased their imports of raw materials from the US were found to have increased their sales to the US market over the last 5 years. The more the company is familiar with the Lacey Act Amendment, the more likely that they will increase their exports to the US market. The US Lacey Act Amendment has also had an impact on Chinese companies' export costs by changing their sourcing behaviors. Chinese companies have been encouraged by the Lacey Act Amendment to adopt more COC certified raw materials, as well as more reliable temperate softwood raw materials instead of risky tropical hardwood raw materials.