Executive Summary
Reports that a substantial proportion of wood raw materials, used by Chinese and Vietnamese manufacturers, are from illegal sources have drawn concern from major consumer countries who recently implemented timber legality regulations. These regulations, which include the Japanese ‘Goho-wood’ policy, the U.S. Lacey Act, the EU Timber Regulation and the Australian Illegal Logging Prohibition Act restrict the import of illegally harvested wood and are expected to have a direct impact on major wood processing countries, such as China and Vietnam.
 
This study focused specifically on the wood products industry and business practices in these two processing countries, targeting individual furniture and flooring manufacturers and wood products traders, as a way to clarify and evaluate the effects of timber legality regulations.
 
Surveys were conducted at trade shows in Ho Chi Minh, Shanghai and Guangzhou in 2013 and 2014 to assess how these regulations influence attitudes and perceptions regarding regulations, firms’ use of chain of custody certification, and impacts on the material sourcing and export market decisions of industry managers. Survey responses were evaluated using descriptive statistics, regression analyses, cluster analysis, non-metric multidimensional scaling and analysis of similarity.
 
The analysis showed that as firms increase in size they reduce domestic sales and show increased awareness and support for regulation, and that firms’ awareness of timber legality regulations plays a significant role in whether a firm decides to obtain certification. Analyses showed that Vietnamese firms have lower awareness of regulations while being more supportive of regulations. Chinese firms have higher awareness while having a more negative attitude towards regulations. The findings also highlighted a split between firms with a domestic focus and firms which export to foreign markets suggesting a split in the market which may reduce the impact of regulations. This segmenting of the Chinese market and to a lesser extent the Vietnamese market supports the idea that regulatory leakage is taking place, wherein sales of wood products from suspicious sources are shifting away from regulated markets and towards unregulated markets which are experiencing rapid increases in demand for wood products.
 

​Executive Summary
The overall goal of this study was to develop a better understanding of US residential homebuilders’ and remodelers’ perceptions and use of Green Building Programs (GBPs), Environmentally Certified Wood Products (ECWPs), construction materials (i.e., wood, steel and concrete), and other innovative green technology and products.
Green building refers to a structure built using a process that is environmentally responsible and resource efficient throughout its life-cycle: from design and siting, to construction, operation, maintenance, renovation, and demolition. Since it is difficult to assess the sustainability of houses, a number of organizations have developed standards, codes and rating systems that let regulators, building professionals and consumers embrace green building concepts and practices with confidence. Collectively, these rating systems and standards are known as green building programs (GBPs). In the US, the National Association of Homebuilders’ National Green Building Standard (NGBS) and the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) for Homes have become the two major competing GBPs at the national level.
Each GBP employs a different rating system to award compliance for the use of sustainable materials, building products, and technology. As green building practices in residential housing become more popular in the US, the influence of LEED for Homes and NGBS on the choice of materials by construction professionals is of fundamental interest for forest resource professionals. Since a large volume of wood is consumed by the US building industry, it is important to understand the adoption of green products and technologies by US homebuilders and remodelers.
A survey targeting US homebuilders and remodelers was developed and the probability sampling frame was carefully designed in order to ensure reliable and valid statistical inferences. The results of the survey suggest that a great majority of homebuilding professionals are aware of GBPs in the US. Although less than a quarter of homebuilders had actually used either LEED for Homes or/and NGBS, many non-users were planning to use one of the programs in the future. The main reasons why homebuilders adopted GBPs were: to differentiate their homes in the market, the home buyer specified that they wanted a green house, and there is strong demand for homes built using a GBP. Those builders who have used a GBP favored the NGBS program over the LEED for Homes program, because they perceived NGBS as being less expensive and easier to use than LEED for Homes, although LEED for Homes was rated as being superior in terms of brand recognition and effectiveness in helping to sell homes.
Wood is a renewable natural resource with a smaller carbon footprint than other construction materials, such as steel or concrete. Wood products from responsibly managed forests should be an ideal fit for most GBPs. In order to communicate to consumers that a wood product comes from forests managed in accordance with environmental and social standards, some organizations have launched forest certification systems.
Environmentally certified wood products (ECWPs) are usually associated with eco-labeling and chain-of- custody programs that are designed to ensure that wood products are harvested from sustainably managed certified forests. There are a number of forest certification programs around the world, but several major certification programs in the US have become the de facto standard, including the Forest Steward Council (FSC) and the programs endorsed by PEFC (the Sustainable Forestry Initiative (SFI) and the American Tree Farm System (ATFS)). ECWPs certified by FSC and SFI are considered rival products in the market place. The LEED for Homes GBP has accepted FSC for the forest certification credit, but has not recognized SFI or ATFS. In contrast, the NGBS GBP allows the use of any third party certified wood. Consequently, forestry

experts, government officials and environmental NGOs are interested in how the two major GBPs might influence the demand for certified wood.
The survey results show that only about 10% of homebuilders used environmentally certified wood products (ECWPs) on a regular basis while another quarter of homebuilders used ECWPs occasionally. When asked to compare the two major certification programs, a great majority of ECWP users did not differentiate between FSC and SFI. Roughly 30% of homebuilders were still unaware of major wood certification programs.
As a result of increased interest in green building practices and GBPs, companies continually evaluate a wide variety of new green building products and technologies, including ECWPs. However, the US residential construction industry has long been criticized for being slow to adopt new products and technologies. A variety of attributes can influence a builder’s adoption of green building products and technology. The survey results show that the most important attributes for influencing product specification are the economic or technical performance of the products including, price, availability, durability, low maintenance, ease of installation, energy efficiency and consumer demand. On the other hand, the less important attributes tend to be those related to the environmental performance of the product. Finally, the survey shows that wood is clearly viewed by residential construction professionals as being the most environmentally friendly building material when compared to either steel or concrete across a wide range of performance attributes.
This study offers the first detailed look at residential construction professionals’ perceptions and use of a variety of environmentally oriented building programs and products in the US. It establishes a baseline for the use of GBPs and ECWPs by US homebuilders and remodelers. While the current awareness and use of these programs and products is often low, the results suggest that their use will increase in the future as the awareness of both construction professionals and consumers increases.

​Executive Summary
Despite international efforts, illegal logging and its associated social, ecological, and economic effects continue on a scale that is of global concern, with significant amounts of illegally-harvested wood and the resulting wood products entering into international trade flows. Recently, major importers of forest products have begun to implement legislation, such as the U.S. Lacey Act amendment of 2008, prohibiting the possession and/or importation of wood and wood products that are of illegal origin. To date, no studies have systematically investigated the effects of the 2008 Lacey Act amendment on the international trade of forest products. Drawing on bilateral trade data and using a quantitative, regression-based comparative case study methodology, the effects of the 2008 Lacey Act amendment on the international trade in forest products were evaluated. A data-driven method was used to create aggregate control groups for comparisons with countries affected by the policy. If the policy has been effective in reducing the amount of forest products of illegal origin being imported into the U.S., we would expect to see some unique differences in post-policy U.S. imports of wood and wood products from areas with high levels of suspicious wood in their supplies. Results from these analyses show few significant differences in post-policy U.S. imports of wood products of suspicious origins although there was a substantial decline in US imports of primary wood products from suspicious origins.
However, the policy may be affecting the suspicious wood imports of major exporters of finished wood products to the U.S. The results did suggest that Vietnamese imports of wood from suspicious sources have declined significantly in the post Lacey Act period. Our analysis also suggests that leakage of suspicious wood may be occurring whereby wood from suspicious origins may be redirected from markets where timber legality legislation has been adopted (e.g., the US, the EU and Australia) towards less environmentally sensitive markets (e.g., the domestic Chinese market, the Middle Eastern markets and India). In the case of Vietnam, wood furniture exports to the U.S. accounted for 55% of all wood furniture exports in 2012 (by value), and the domestic market for high-value finished wood products is limited. Overall, Vietnam is more dependent on the U.S. market for their finished products and therefore more likely to evidence a large-scale response to the 2008 Lacey Act policy. On the other hand, China’s more diversified markets (both export markets and the domestic market) for finished wood products allows for greater leakage of products sourced from suspicious wood to markets that do not distinguish between legal and illegal wood. This evidence, if corroborated by further analysis, provides some support for the success of the 2008 Lacey Act amendment in reducing suspicious wood imports at an aggregate level.
The apparent reductions in U.S imports of suspicious primary wood products, along with increased imports of finished products from suspicious countries (wood furniture), support the conclusion that an import ban on illegal wood may be more effective at reducing suspicious imports of primary products, which tend to be easier to identify and trace back to source. As discussed in Section 2, the few major enforcement actions for violations of the amended Lacey Act have focused on primary products (raw wood and wood flooring).
Finished products such as wood furniture, on the other hand, often contain a mixture of a variety wood products from different origins. The U.S. import trends show that U.S. law enforcement agencies may need to identify and pursue methods for establishing the legality of mixed-source products, such as finished products, as U.S. importers and businesses reduce their risk of violating the policy by reducing imports of suspicious primary products.

​Executive Summary
Since 1970, Japan has increasing relied on imports to meet its domestic demand for wood products. This reliance on imported wood has always caused a certain tension in Japan where forests cover two-thirds of the country. This tension is caused by the fact that along with the plentiful supply of wood, there is an extensive sawmill industry in Japan. Despite the closure of more than 13,000 sawmills over the past twenty five years (from 20,256 in 1983 to 5,927 in 2012), the Japanese sawmill industry remains uncompetitive and plagued by small, inefficient sawmills located in rural areas far from the main demand markets. High production and transportation costs have made both domestic logs and lumber uncompetitive within the domestic market and, as a result, lower cost imported wood products have become the primary source of supply within Japan. 
 
Over the years, the Japanese government and the forest products industry have proposed a number of subsidies and policies designed to improve the competitive position of domestic wood products as well as the forestry and sawmill sectors.  A recent regulatory initiative, the Forest and Forestry Revitalization Plan, proposes to develop an extensive system of subsidies and regulations designed to increase the volume of timber harvested from domestic forests while promoting the expanded use of domestic wood over imported wood in the construction of both public buildings and residential homes. Clearly any program designed to raise the market share of domestic wood in Japan will adversely impact the competitiveness of imported wood and would have serious implications for forest products manufacturers in the Pacific Northwest, many of whom are located in rural, timber-dependent communities which were particularly hard hit by the recent economic crisis.  With the US economy still feeling the effects of the housing crisis, and housing starts remaining at historically low levels, export markets have been the one bright spot in an otherwise dismal economic landscape for the forest products industry.  Total US forest products exports have increased by 46% since 2009, rising from $5.2 billion in 2009 to $7.5 billion in 2012.   Japan is the third largest destination for US wood exports, with exports of wood products increasing from $517 million in 2010 to approximately $730 million in 2012. With the introduction of the new Forest and Forestry Revitalization Plan in Japan it is critical that the US undertake research to better understand the potential implications of the subsidy programs on the competitiveness of US wood products in Japan.
 
This research project was designed to gain a better understanding of how the newly implemented Forest and Forestry Revitalization Plan would impact the overall demand for wood products in Japan in general and the competitiveness of US wood products specifically.  The objectives of the proposed research include the following:  1) describe the forest resource in Japan and assess the factors that influence the supply and demand of domestic wood products in Japan;  2)  provide an overview of the major wood industries in Japan (lumber, plywood and glue laminated lumber);  3) provide an overview of the housing sector;  4)  assess the changing demographics in Japan;  5)  assess the broad range of forestry and wood subsidies and support programs in Japan  and 6) assess the potential impact of the domestic wood policies and programs on wood use in Japan and the demand for imported wood products from the US.

Executive Summary
Japan has been one of the largest importers of wood products in the world. However, a large area of domestic plantation forests has matured, and the Japanese government has adopted several policy measures aimed at increasing the supply of, and demand for, domestic wood. The Forest and Forestry Revitalization Plan aims to increase the domestic wood supply and increase Japan’s wood self-sufficiency rate to 50% by 2020. The potential effect of the Revitalization Plan on the Japanese wood market, should be understood based on the competitive situation and substitutability of domestic and imported wood.
This study examined the existence of a cointegration relationship between domestic and imported wood using sawlog and lumber price data. If both woods compete in a single Japanese market, then the law of one price, the necessary condition for substitution between imported and domestic wood to occur, must hold. Markets are said to be integrated if, at equilibrium, the law of one price (LOP) holds and no arbitrage opportunity exists as a necessary condition for price efficiency. If the LOP is upheld then trade models that assume price equilibrium among homogenous products can be used to study the effects that the Revitalization Plan would have on the volume of domestic and imported wood consumed in Japan. On the other hand, if the LOP does not hold to be true, then the assumption of these trade models is violated, and any results yielded by those trade models may not be correct.
Using Johansen’s multivariate cointegration tests, it was revealed that the domestic wood market and the imported wood market had no cointegrating relationships. It was concluded that the market for domestic wood and that of imported wood are not closely connected through price arbitrage and that a price change for one wood product would not necessarily affect the prices of other wood products directly. Thus, the Revitalization Plan might not have a direct effect on the demand for imported wood products. However, in the case where the demand for wood remains constant or declining (as is the case in Japan), it is likely that a substantial increase in the demand for domestic wood would necessarily result in a corresponding decrease in the demand for imported wood.
Perhaps more importantly, the combined impact of the subsidy programs targeted towards the forestry and wood products sectors in Japan will likely adversely impact the demand for imported wood. In this regard, several issues have to be pointed out. First, Japanese housing starts have been decreasing and they are not expected to dramatically increase given that the Japanese population is aging and shrinking. Since lumber demand is highly dependent on the housing industry, the declining trend of housing starts will reduce the total demand for wood in Japan. Given the emphasis of the Revitalization Plan on doubling the supply of domestic wood by 2020, this will inevitably lead to a reduced demand for imported wood.
Second, as log imports decline, domestic sawmills and plywood mills have been switching from imported to domestic logs. This trend is strengthened by the government subsidy programs that support the expansion and modernization of domestic sawmills and plywood mills to replace older processing equipment with newer,

more efficient processing technology that can utilize smaller diameter domestic logs. Thus, the share of imported logs used in domestic sawmills and plywood mills is likely to decline.
Third, Japanese macroeconomic policy affects wood imports. Recent monetary-easing measures have impacted the exchange rate by depreciating the value of the yen by almost 50% since Prime Minister Abe’s election in December 2012. The depreciation of the yen as a result of Japan’s change in monetary policy is likely to lead to a decline in total wood imports into Japan.
Finally, and potentially most importantly, other government subsidy programs targeted to expand the use of domestic wood may distort the market relationships found in this study. In early 2013, MAFF announced a plan to introduce the “Wood Use Points Program (WUPP)” which provides a substantial subsidy to homebuilders who use domestic wood in place of imported wood in the homes they build. If this program is successful, then the huge subsidies provided by the program would effectively expand the demand for domestic wood and the adverse impact of the WUPP Program on the demand for imported wood could be tremendous.

​Executive Summary
This study explores China’s forest sector through the lens of three interconnected issues: production efficiency, foreign direct investment, and trade and illegal logging. China’s forest sector is now inextricably linked to markets all over the world and this research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products.
First, efficiency metrics were calculated to understand how efficiently Chinese wood-processing enterprises operate, given a set of inputs. Using data collected through an enterprise survey, a stochastic frontier production function was estimated and used to measure technical efficiency for Chinese enterprises. The coefficients for the material and labor inputs proved to be significant, and a mean efficiency score of .70 indicated significant room for efficiency improvements among almost all enterprises.
Second, the location choice of foreign investment in Chinese wood-processing enterprises was examined to understand whether or not the same factors that have been shown to motivate foreign investment in manufacturing as a whole within China also apply to the wood-processing subsector, and to assess the effect of roundwood availability on foreign investment in the wood-processing sector. This was done by employing two estimation methods: tobit and negative binomial. Two variables were found to have an impact on investment: the number of specially-designated economic zones and roundwood production.
The last study examined the effects of the removal of illegally logged resources from China’s imports originating in five of China’s primary source countries for logs on China’s domestic production, consumption, and trade flows. This was performed through the use of a spatial equilibrium approach by modifying the CINTRAFOR Global Trade Model (CGTM). This was performed both by applying a graduated tariff and by changing the supply elasticities in China’s primary log source countries. China was evaluated using supply elasticities that simulated the current harvest quota system, and a system that becomes more self-sufficient through increased log production. The results demonstrated large losses in producer surplus resulting from the imposition of a tariff as compared to methods that approach adjusting supply by a change in the cost structure.
In an increasingly globalized world, these issues are fundamental to the long-term sustainable management and provision of, as well as trade in natural resources and environmental services. This research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products.

Executive Summary
After the Kobe earthquake in 1995, the Japanese Government introduced a series of changes to improve the integrity of new homes. Part of the changes included a rating system designed to indicate the potential for formaldehyde off-gassing by a variety of primary and value-added wood products. Excessive off-gassing of formaldehyde has been identified as a contributor to a phenomenon known as “Sick House Syndrome” that has resulted in a large number of home owners having to leave their houses. Referred to as the F Four Star system (F****), the program was designed to cover much more than interior air quality and was not targeted at any particular product or building system. However, it is the interior air quality provision that concerns North American firms looking to export laminated products into Japan.
Products covered by the F**** regulation include:

• kitchen cabinets,
• bathroom cabinets,
• finished wood flooring,
• engineered wood flooring,
• wooden doors,
• wall and ceiling paneling,
• fixed shelving in cabinets,
• wooden stair treads and risers,
• wooden countertops and
• edge-glued panels.

The regulation does not apply to the following products:

• lineal wood moulding and millwork,
• door and window casings,
• wooden windows,
• wooden furniture,
• removable wood shelving,
• wooden stair railings, banisters and stringers,
• unfinished solid wood flooring and
• finger-jointed lumber.

There are three ways to ensure that wood products have been approved for sale in Japan:

• the product is on the exempt list shown above;
• use only raw materials in a product that are rated F****; or
• submit a product for Ministerial Approval in Japan after testing it in the US.

Of the two methods related to products that are not listed as being exempt, using F**** raw materials in the manufacture of a product is the easiest and cheapest route for value-added manufacturers to follow. Obtaining Ministerial Approval can cost up to US$5,000.
Value-added wood products manufacturers should ensure they comply with the provisions of this regulation to protect and maintain market access.

​Executive Summary
Green or sustainable building programs incorporate the environment, the economy, and human aspects into the design and construction of a building. Green buildings are created through an integrated process where the site, the building design, the construction, the materials, the operation, the maintenance, and the deconstruction and disposal of a building are all seen as being inter-related with the environment.  As a result of this integrated process, it is thought that buildings can be made more environmentally friendly, more cost-effective and more resource and energy efficient, while providing a healthier living and working environment.  Green building programs are slowly but surely emerging around the world in developed countries.  The focus of this report is on the green building programs in Japan and China.  The Japanese green building program is called CASBEE-Sumai (House) and the green building program in China is the Chinese Evaluation Standard for Green Building (also called the Three Star System).  In addition, two other programs that have the potential to influence materials use in residential housing (the 200 Year House program and the Eco-Points program) have been adopted in Japan.  This report provides an overview of these programs, explains the sections of the programs that relate to wooden building materials, and discusses how these programs could affect the use of wooden building materials in Japan and China.
To better understand builder’s, architect’s and design professional’s perceptions and attitudes towards green building programs in China and Japan, surveys were conducted in both countries.  A total of 406 surveys were collected in Japan and 150 surveys were collected in China.  In addition, a series of informal interviews with building professionals were carried out in each country.  These results of the surveys and interviews are summarized in the following report.
Japan
While Japanese housing starts declined substantially in 2009, they exceeded those in the US for the second year in a row.  With approximately half of its housing starts being constructed from wood, Japan remains an attractive market for US manufacturers and exporters of wooden building materials.  The recent adoption of the CASBEE green building program provides an opportunity to increase exports of wooden building materials from the US to Japan, particularly those that improve energy efficiency.  However, the results of this research suggest that Japanese builders remain reluctant to use the CASBEE program as they perceive that there is little market demand for environmentally friendly houses and even less desire on the part of homebuyers to pay a premium for them, particularly given the slow economy that prevails in Japan.  In contrast, Japanese builders expressed much more optimism about two other programs that could increase the demand for US value-added wood products in Japan, the 200 Year House program and the Eco-Points program.
The results of the survey clearly show that Japanese building professionals perceive wood to be the most environmentally friendly structural building material across all six of the environmental performance measure included in the survey.  In contrast, steel is perceived as being the least environmentally friendly structural building material across most of the environmental performance measures.  Energy efficiency of the house was found to be the most importance environmental attribute and it was rated as being significantly more important than all of the other attributes.  Using water saving appliances and fixtures was found to be the second most important environmental attribute.  Based on the results of this research, it appears that the various green building programs in Japan could provide new market opportunities for a variety of US value-added wooden building materials, including environmentally certified wood, energy efficient windows, water saving plumbing fixtures and insulation materials.
Finally, US government agencies and industry associations should be wary of the potential for CASBEE-Sumai to act as a non-tariff trade barrier by providing preferential treatment for domestic wood products.  For example, the CASBEE program provides preferential points for domestic wood materials while both the national government and an increasing number of prefectural governments provide subsidies to home buyers and home builders for homes built using domestic wood.  These Japanese programs undermine the environmental benefits of wood by promoting an agenda designed to increase the demand for domestic wood relative to imported wood.  In doing so, they ignore the environmental superiority of wood relative to non-wood building materials as clearly demonstrated by a life cycle analysis.  In effect, these programs promote a myopic strategy that pits domestic wood against imported wood in a fight for market share within a fixed market segment.  In contrast, the goal of the wood industries in both countries should be to expand the demand for all wooden building materials by promoting their environmental superiority relative to steel and concrete; an approach which would effectively increase the total market for wood products to the benefit of both domestic and foreign suppliers of wooden building materials.
China
With nearly twice the total floor space of the US and more than four times as much as Western Europe, China was expected to overtake Japan in 2009 to become the second largest construction market in the world. Yet green building in China’s expanding building market is comparatively rare. The China Greentech Initiative, for example, estimates that certified green floor space constituted less that one percent of the new built environment in 2009. Recognizing the benefits of sustainable building, China’s government has set ambitious targets and guidelines for green building, and developers, designers and builders are increasing their use of green materials and building principles.
Set against the backdrop of the global economic downturn, the Chinese housing sector has shown some encouraging signs of recovery. China’s construction industry has grown at an average annual rate of 20% since 1990. Housing markets in major cities have recently started to pick up again thanks in part to the government’s 4-trillion yuan stimulus package. According to China Data Center, investment in new construction between January and May 2009 reached over 2.5 trillion yuan, an increase of 43% compared to the same period last year.
Since 2006, the Chinese government has been working to promote its “4-savings and 1-environmental” housing ideology, which stands for: energy-saving, land-saving, water-saving, raw material-saving and less pollution. The Center for Housing Industrialization was founded in 1998. Since then, it has initiated several key national projects and drafted guidelines for improving productivity of construction and improving the “healthy” and “environmental” properties of residential buildings in urban areas. According to the 11th five-year plan initiated by the Ministry of Housing and Urban-Rural Development (previously, the Ministry of Construction), by the end of 2017 the level of industrialization of the Chinese housing sector will reach 30% from the current 7-8%,  and the average service life of residences will  increase from 50 to 100 years. China has started to develop 10 demonstration housing projects, 10 experimental cities, and 10 model construction enterprises. Currently, most construction in China is concrete and brick, while the market for wood frame construction has been growing very slowly due in large part to the government’s tight restrictions on land use in urban areas. After the Sichuan earthquake last May, the Canadian Wood Association participated in the region’s reconstruction projects and donated $8 million to help build wood frame houses for local residents. This has been reported widely in China and in turn has helped wood frame house win wider market recognition.
The new green building program in China, the Three Star System, has the potential to increase the demand for wooden building materials (both primary and secondary wood products) used in residential construction.  The extent of its impact on demand in China will be influenced by the degree to which it is accepted and utilized by developers, builders, architects and home buyers.  However, the Chinese green building program makes no specific mention of wood as a material of choice, suggesting that the US government and industry groups need to continue working with the Chinese government to encourage the use of life cycle analysis as the basis for future revisions to the green building program.
Despite this shortcoming of the Chinese Green Building Program, green building materials (particularly those related to energy-saving) will be increasingly in demand in China, led by public/commercial buildings and high-end residential projects in major cities such as Beijing, Shanghai and Guangzhou.  These opportunities include energy efficient wood windows for high end apartments and condominiums.  In particular, wood windows with either vinyl or fiberglass cladding on the exterior have strong potential because of their lower maintenance requirements.  Other value-added wood products with strong market potential in China include cellulose insulation, environmentally certified wood, and high quality wood cabinets and flooring produced from certified wood targeted towards high–end apartments, condominiums and detached homes.
In China, almost 95% of respondents have heard of the green building program, a third planned to use the program and just over ten percent have used the green building program.  Chinese builders report that the most important material attribute is using energy efficient products and materials, followed closely by using renewable materials.  Both of these observations suggest that opportunities exist to market energy efficient wood products (e.g., wood windows and cellulose insulation) for use in multi-story, multi-family condominium and apartment buildings.  The survey results obtained for the relative environmental performance of wood, concrete and steel clearly show that Chinese construction professionals perceive that wood and wooden structures provide superior environmental performance across a variety of environmental measures spanning the life cycle of a material.  This trend is similar to the trend observed in Japan.
Finally, it should be noted that the US, Japan and the EU have all passed legislation requiring that importers of wooden products must be able to demonstrate that these products do not contain illegally harvested wood materials.  As a result, we can expect to see the demand for certified wood in China continue to increase, particularly if the Russian government carries through on its intention of increasing its log export tax to 80% in January 2012.
Wood frame houses have increasingly been accepted into the Chinese market. In February 2009, the Shanghai government approved a B.C.-designed roofing system as part of a plan to renovate 10,000 city apartment buildings in the lead-up to the World Expo 2010 in Shanghai. As China moves to develop more and more “green” houses, experts predict that timber structures will continue to gain recognition by the government and construction sectors in China and open up new opportunities for green building materials and engineered wood products. Also, the projects being promoted by the Canadian Wood Association in Sichuan suggest that wood frame houses could be successful in the rural areas of China where land use is less regulated by local governments.
Strategic Recommendations
A number of programs (including green building programs) focused on improving the environmental performance and energy efficiency of homes have been adopted in China and Japan.  At the same time, builders, architects and design professionals in both countries perceive wood to be the most environmentally friendly building material. They also believe that homes built from wood are more energy efficient than homes built from steel or concrete.  These trends set the stage for promoting wood as a superior building technology as well as for promoting the superior environmental performance of value-added wood building materials such as wood windows and doors.  For example, the Eco-Points program in Japan provides a unique opportunity to promote energy efficient US wood windows in both new home construction as well as the growing repair and remodel sector of the housing market (although wood windows must still gain approval under the Japanese fire code to be used within urban fire and quasi-fire zones). 
The results of this research project clearly show that there are a variety of market opportunities for expanding US exports of value-added wooden building materials into both Japan and China.  Perhaps the best market opportunity exists for increasing exports of wood windows given the emphasis in both countries on increasing the energy efficiency of new buildings.  This will be easier to accomplish in China than in Japan where restrictive fire codes require the certification of wood windows used in fire and quasi-fire zones.  In addition, the green building programs in Japan and China provide a good market opportunity to expand exports of cellulosic insulation, structural insulated panels, environmentally certified wood and value-added wood products used in interior applications that are made from certified wood (e.g., wood cabinets and flooring).  Finally, good opportunities exist to increase exports of certified structural wood products such as glue-laminated beams, metric sized lumber, dimension lumber and treated lumber using the new generation of less toxic wood preservatives.
In order to increase the exposure of US value-added wood products among building professionals in Japan and China, US exporters should strongly consider participating in the wide variety of trade shows and trade missions by joining industry associations that are active in international markets and have a proven track record of providing access to qualified buyers in these countries.  For example, the Evergreen Building Products Association offers trade missions to Japan and China several times a year.  Similarly, the State of Washington sponsors trade missions for wood products manufacturers in Japan.  Finally, industry associations such as the Softwood Export Council and the American Hardwood Export Council provide opportunities for US companies to rent booth space within the US Pavilion at trade shows in Japan and China.  All of these associations provide tremendous logistical support for US exporters and manufacturers of wood building materials, allowing them to focus their energy on meeting potential customers for their products (a list of upcoming trade shows and missions is included in Appendix D).

Executive Summary
This study presents exploratory research about the transitional Japanese home building industry. The Japanese housing industry changed significantly during and since the “lost decade” of the 1990s because the business environment changed dramatically. The main goal of this study is to classify Japanese builders by their business strategies and business behaviors in order to provide a useful market segmentation strategy for forest products exporters targeting Japanese markets. In order to do so, we first collected extensive secondary information on the background of the Japanese housing industry. Then we surveyed Japanese large builders and analyzed the data.
After its bubble economy burst in the early 1990s, Japan experienced a serious economic slump that lasted over a decade. This period is called the “lost decade” in Japan. During the lost decade, Japan experienced deflationary pressure on land prices, securities, and consumer goods. The Bank of Japan set the interest rate essentially to zero in order to stimulate the economy, and the overnight call rate is still very low. In the past, Japan practiced unique business customs including keiretsu and interdependent collusion between politicians and business, which undermined competition. In order to recover from the economic slump, it was necessary to reform inefficient business practices in Japan. Although political uncertainty between reformists and anti- reformists within and outside the Liberal Democratic Party remains, Prime Minister Koizumi was able to reform some business practices and influence the vertical keiretsu structure, which has been weakening. As the market continues to liberalize, there should be fair competition for all participants, including small- to mid- size enterprises and foreigners, in the Japanese market. These socio-economic changes have contributed to the reform of the Japanese building industry and, as a result, some small- to mid-size builders have grown quickly.
The Japanese residential housing market underwent substantial change during the lost decade as well. The Kobe Earthquake in 1995 led to major changes in the Building Standards Law (BSL), which accelerated the adoption of pre-cut lumber. Pre-cut lumber allowed mid-size builders to lower the cost of post and beam (P&B) construction through labor efficiencies and reduced waste. Many mid-size builders contracted with komuten (small builders) or independent carpenters to expand their businesses. Demographic changes have also played a huge role in the changing housing market in Japan. For example, Japanese Echo baby boomers started buying their first homes, and some mid-size builders targeted their homes to this large population.
Deflationary pressure on land values allowed builders to acquire large parcels of land in suburban Tokyo. Builders then subdivided these parcels and built tract spec P&B houses. Those builders were called “power builders,” and many small- and mid-size builders all over Japan have adopted their business strategy to survive.
The survey results show that many mid-size builders call themselves power builders, but we failed to find statistical significance of a common business strategy among power builders. Over the last few years, many small- and mid-size builders have tried to imitate the business strategies of the original power builders and to emulate one another in order to survive. However, it is not always possible to copy an entire business strategy from other firms. The power builder strategy is currently little more than a marketing slogan used by many firms to attract price-sensitive customers. Yet builders who build a lot of tract houses and have grown quickly in terms of the number of houses that they build still tend to refer to themselves as power builders.
The most important success factor of builders between 2001 and 2005 in Japan was how many tract houses they built. Interestingly, the prices of the homes were not significantly different from those of fast-growing builders and other builders. Tract house builders service a significantly higher percentage of first-time home buyers and tend to build smaller houses than do custom house builders. Other characteristics of tract house

builders are that most prefer to use glulam lumber, and that they do not have a defined land acquisition strategy, tending to acquire any available land in suburban areas.
Since the original power builders’ success in the industry has attracted many imitators and undermined the old market traditions of the housing industry in Japan, it is not useful to focus on the traditional builders categories when developing a marketing strategy. The traditional categories were: 1) national home builders, 2) regional builders, and 3) komuten. In order to reflect the changing nature of the industry, we propose four new strategic groups of Japanese builders: 1) premium big builders, 2) economy big builders, 3) mid-size regional builders, and 4) komuten (independent carpenters).
Firms in the same strategic groups have similar business models, so their supply channel choices can also be expected to be similar. For example, Komuten or independent builders typically construct only a couple of houses a year, and our survey did not cover them. Mid-size regional builders construct between 25 and 100 houses per year and prefer domestic lumber such as sugi or hinoki. They are focused on a local market and usually build post and beam houses. Economy big builders tend to pursue a low-end pricing strategy and this segment of the market increased at an average annual rate of 10.4% between 2001 and 2005. Economy big builders usually build post and beam houses and tend not to import lumber or building materials directly from foreign countries. Finally, premium big builders tend to build value-added houses; they are interested in adopting a marketing strategy based on design differentiation and prominent advertising. Generally, premium big builders sell their houses at a premium price, although their growth rate is less than that of the economy big builders. Some of the premium big builders directly import lumber and building materials from foreign suppliers.
Currently, economy big builders have a strong market share, and this market has grown very quickly. However, they will face substantial difficulties in the near future. The industry is currently going through a period of consolidation, since many builders have attempted to imitate the power builders’ business models. In addition, many echo baby boomers have already purchased their own houses, so this market segment has begun to shrink. Further, the high volatility of the foreign exchange rate creates uncertainties regarding the supply of raw materials. Builders need to re-create their business strategies and adapt to this changing market environment. Their success in changing their business strategies will depend on their management capabilities. U.S. forest products exporters may be able to inspire them, thus enjoying mutual benefits.
Our exploratory research has derived the following strategies for U.S. forest products and building materials exporters:

• U.S. exporters should target economy, big builders.
• U.S. exporters need to approach pre-cutters as well as builders.
• U.S. exporters need to promote the structural performance characteristics of U.S. forest products.
• U.S. exporters need to ensure the reliability of supply to their Japanese customers.
• U.S. exporters should take advantage of the weak U.S. Dollar versus the Japanese Yen to offset slowing lumber demand in the U.S.
• US exporters always need to keep in mind that the business environment is dynamic.

​Executive Summary
OverviewThe demand for decking and fencing materials is driven by several factors, including the macroeconomic environment, demographics, construction expenditures, and the repair and remodel sector. In addition, competition within the decking and fencing markets has recently been significantly altered by regulatory constraints on the forest products industry that have restricted harvest levels, by increasing imports of softwood lumber and by expanding competition from non-wood substitute materials. These last two factors are likely to have the greatest impact on the specification and use of decking and fencing materials in the mid to long term as the markets adjust to the changing regulatory environment and changing consumer perceptions and preferences. This report will explore the extant literature related to the demand for decking and fencing materials in the residential, non-residential, public and non-building segments of the construction industry.
US Decking MarketThe demand for decking products is projected to increase from 4.7 billion board feet (bbf) in 2000 to 5.6 bbf in 2010, a 19.3% increase over the ten year period. This market expansion will not be distributed evenly across the three major types of deck materials, however. Whereas wood-plastic composite decking (WPC) is expected to increase by an astronomical 491% and plastic decking by a healthy 152%, the demand for wood decking is expected to decline by 8.5%. Further, the demand for redwood is projected to decline by over 15% between 2000-2010, although the decline in the demand for redwood lumber is attributed to supply constraints rather than declining demand. These demand outlooks are driven by two fundamental end-user attributes: durability (long-deck life) and low maintenance. Very little consideration was paid to price and price sensitivity of either new home builders or home owners. As a result, these demand estimates are more heavily weighted towards the higher priced substitute materials than the actual market situation might otherwise justify, particularly in the 2005-2010 period.
The primary construction application for decking is repair and remodel (approximately 86%) followed by new home construction (approximately 14%). While the demand for decking products in new construction is expected to experience strong growth between 2000 and 2010, the sheer size of the repair and remodel market make it a much more attractive market segment for producers. In addition, new home builders are a much more price sensitive set of buyers compared to home owners given the nature of the project expenditures. In addition, decks on new homes tend to be smaller than repair and replacement deck projects.
Residential construction is the primary market for decking materials, followed by non-building projects (docks, marinas, park structures, etc.) and non-residential construction. The demand for decking materials in the residential market is expected to grow by 24.3% between 2000 and 2010 while demand is expected to grow by just 6.9% in the non-building market. Again, contractors in the non-building segment are much more price sensitive given the nature of the bidding process in these types of projects.
Almost 80% of decking material is installed by professionals as opposed to homeowners (DIY). While demand is expected to grow substantially in both segments, the highest growth is projected to occur within the DIY segment (27.7%) rather than the professional segment (15.9%). Given the profit constraints facing most professional installers, this segment of the market tends to be more price sensitive than the DIY segment.

Finally, the deck market can be segmented into deck platforms versus rails and accessories (benches, stairs, planters, etc). It is important to note that only 59% of the total demand for decking materials is derived from the construction of deck platforms. The remaining demand can be attributed to deck rails and accessories, suggesting that overall demand for a specific product may be influenced to a substantial degree by the availability of rails and accessory products manufactured from the same material. Growth in both of these market segments is expected to be strong.
The projections indicate that the largest demand region for decking products is the US south while the US west is the smallest demand region. Interestingly, the largest growth in demand for decking materials is expected to come from these two regions.

Executive Summary
OverviewThe demand for decking materials is driven by several factors, including the macroeconomic environment, demographics, construction expenditures, and the repair and remodel sector. In addition, competition within the decking market has recently been significantly altered by regulatory constraints on the forest products industry that have restricted harvest levels, by increasing imports of softwood lumber and by expanding competition from non-wood substitute materials. These last two factors are likely to have the greatest impact on the specification and use of decking materials in the mid to long term as the markets adjust to the changing regulatory environment and changing consumer perceptions and preferences. CINTRAFOR has been collecting market information on the material usage trend in the U.S. deck building industry since 1995. This report will present an analysis of the material usage trends and practices in the decking materials market.
Further this report will provide a comprehensive product positioning and marketing analysis of the major decking materials in the US.
An interactive web-based survey was used to collect the data and information presented in the report. Sufficient care was given to ensure that the respondents of the survey had significant deck building experience, hence, only those deck builders who had built more that 5 decks over the past two years were allowed to take the survey. A total of 372 qualified respondents completed the survey, representing 44 states and providing representation across all regions of the US. The number of residential decks built by the respondents in 2008 ranged from 1 to 250, with more than 60% of the respondents building between 3 to 8 decks. A substantial number of respondents (12% of the respondents) indicated that they built more than 20 decks in 2008.
US Decking MarketWith the decline in US housing starts in 2007 and 2008 the focus of the deck building industry has shifted away from new decks for new houses. This study shows that the primary revenue generator for the US decking industry in 2008 was repair and remodel (approximately 44%) closely followed by building new decks on existing houses (approximately 42%). Under the present scenario, constructing new decks in new homes only marginally contributes (approximately 14%) to the overall revenue of the US decking industry. This trend is more or less consistent across all the regions of the country with the repair and remodeling projects and deck construction in existing houses strongly dominating the industry’s revenue generation. This result confirms that when homeowners live in their houses longer they tend to invest in remodeling their houses; remodeling existing decks or installing new decks has traditionally been important aspects of renovating and remodeling houses. Moreover, such a trend also indicates that the deck building industry is at least partially insulated from the housing downturn.
The survey results reveal that the size of the decks built in the US have not changed significantly since a previous survey conducted by CINTRAFOR in 2003, averaging 438 square feet. However, the average unit construction cost of decks built in the US has increased substantially from $13.50 per square feet in 2003 to
$18.62 in 2008. Regional differences in the unit construction cost were also observed in the study. The average unit construction costs of decks built in the Northeastern and Western regions were approximately $20 per square feet, whereas, the average unit construction costs of decks built in the Southern region of the country were approximately $16 per square feet. Finally, the average cost of decks built in the Western region (approximately $9,533) was significantly higher than the national average ($7,319).

Decking Material Usage TrendsThe market for residential decking materials in North America has become increasingly competitive over the past decade. Past studies have indicated that wood plastic composite decking (WPC) and plastic lumber (PVC) are increasingly replacing treated softwood lumber and naturally durable timber species (i.e., redwood, western red cedar and tropical hardwoods) in deck building applications. Our 2009 survey results indicate that this trend of gradual market displacement of naturally durable timber species and treated softwood lumber decking materials has continued. Over 66% of the respondents surveyed indicated that they have increased their usage of WPC and 37% of the respondents increased their usage of PVC between 2006 and 2008, with less than 10% reporting that they had decreased their use of WPC and PVC. In contrast, a high percentage of respondents indicated that they have decreased their usage of pressure treated lumber (31%), western red cedar (36%) and redwood (35%) while less than 20% reported increasing their use of these materials.
The deck market can be segmented into the three main end-use applications; deck substructure, deck surface, and rails/accessories (benches, stairs, planters, etc). It is important to note that only 59% of the total demand for decking materials (based on value) is derived from the construction of the primary substructure and deck surface. The remaining demand can be attributed to deck rails and accessories, suggesting that overall demand for a specific decking material may be influenced to a substantial degree by the availability of rails and accessory products manufactured from the same material. Growth in both of these market segments is expected to be strong. While pressure treated lumber (PTL) remains the dominant material used in substructure applications, with a market share over 80%, PTL only has a 30% share of the national deck surface market.
WPC is now the market leader in deck surface applications across all regions of the US, with the exception of the South where almost 40% of deck surfaces were still built using PTL. In contrast, only about 10% of the deck surfaces built in the western US used PTL and WPC has emerged as the market leader with a 34% market share. The western US is also the region with the greatest use of naturally durable wood decking, perhaps reflecting the greater availability of these products. Plastic decking made its greatest inroad in the northeast where almost 18% of deck builders reported using this product.
 
 

​Executive Summary
 
The purpose of this project was to perform a comparative assessment of the US and Japanese 2x4 construction technologies, evaluate Japanese builders perceptions of US value-added wood building materials and identify opportunities to increase the use of US wood building materials within the Japanese 2x4 construction sector.
 
In 2008, housing starts in the US and Japan totaled 906,200 and 1.05 million units, respectively. Two by four housing starts in Japan totaled 107,747 (up 9.3% from 2007) and reached a record market share of 21.3% of total wooden housing starts and 9.8% of total housing starts. Approximately half of the prefectures in Japan had a ratio of 2x4 housing starts above the national average of 20.8%. However, in many of these prefectures, the total number of 2x4 housing starts is relatively small. The prefectures where the adoption of the 2x4 construction technology is well established, as well as where the housing market is relatively large, include Saitama, Tokyo, Hyogo, Kanagawa, Chiba, Hokkaido, Fukuoka and Aichi. These 8 prefectures represented 51.7% of 2x4 housing starts in Japan in 2008.
 
While the global economy performed poorly in 2008, exports of wood products from the US to Japan increased substantially. Total wood exports from both the US and Washington to Japan, which had been declining since 2004, recorded increases in 2008, with US wood exports growing by 6.6% while Washington exports rose by 5.2%. Softwood logs and lumber remain the primary wood products exported to Japan, although exports of OSB and veneer sheets increased significantly in 2008. Exports of value-added wood products from Washington to Japan were dominated by prefabricated buildings (25.3% of total value-added wood exports), builder’s joinery (44.8%), wooden windows (16.9%) and wooden doors (6.4%).
 
Despite the success of the 2x4 construction system in Japan, imports of US wooden building materials are constrained due to the fact that there is a Japanese version of the 2x4 construction technology that co-exists with the North American-style.  The primary difference between the two systems relates to the size of the basic construction module used in the construction process. The Japanese-style 2x4 system utilizes a 3’x6’ panel size which is based on the size of a traditional tatami mat, whereas the North American-style 2x4 system employs 4’x8’ panels in the construction process. Another difference between the two construction systems is the spacing of studs and joists; 17.9 inches (455 mm) on center in the Japanese system versus 16 inches (405 mm) on center in the North American system. In addition, the Japanese system tends to use more wood in the construction process (particularly in the structural framing) and thus tends to have higher material and labor costs, making the Japanese system less cost effective. Finally there is less labor specialization and efficient scheduling of construction tasks with specialist crews; significantly slowing down the construction process, reducing housing quality and increasing labor costs.
 
Despite the fact that most builders interviewed in this project recognize the cost effectiveness of the North American-style 2x4 construction system, relatively few Japanese builders have adopted it. Discussions with Japanese 2x4 home builders point to a broad range of factors that influence this decision. Perhaps the most important factor is that home builders in Japan are not customer-oriented in the sense that they work closely

with their customers to maximize customer satisfaction and reduce overall cost. Another factor which contributes to the widespread use of the 3x6 module relates to the strong relationship that exists between Japanese 2x4 builders and Japanese manufacturers of wooden building materials, particularly commodity wood products. Home builders interviewed during this study universally emphasized that reliability of supply and just-in-time delivery of building materials to the construction site are very important to them. Domestic manufacturers of structural panels and wood products are willing to provide this service for them whereas few foreign suppliers will.
 
This same bias is somewhat less evident in the use of value-added wood products such as wood windows, door and cabinets. In this case, we found that 2x4 home builders were much more willing to use imported building materials.  However, the biggest concern for them when specifying these products is that they should be readily available in Japan and they must be able to obtain spare parts and installation support in a timely manner. For example, some home builders indicated that they do not use US wood windows because they have difficulty obtaining spare parts and replacement windows in a timely manner and because technical support in Japan is generally not available (although some US wood window manufacturers do have representatives in Japan to handle product and installation issues quickly).
 
Another issue that affects the use of US wood building materials is Japanese home builders’ perception that US manufacturers and exporters are not committed to the Japanese market for the long-term. The perception that US exporters are ‘inners and outers’ is problematic and must be overcome in order to make greater inroads in Japan.
 
This project included a survey of Japanese 2x4 builders, with survey respondents representing 62.1% of total 2x4 housing starts in 2007. Not surprisingly, given the design of the sample frame, almost 85% of the houses built by respondents were 2x4 houses with the remaining houses being post and beam. Virtually all of the P&B builders reported that they used the 3’x6’ module. While over a third of the 2x4 builders reported that they have used the 4’x8’ module, the number of houses that they build using the 4x8 module was less than 5% of the total houses they built in 2008.
 
With respect to the specification and sourcing of value-added wooden building materials, the survey found that home owners specified these products between 17% and 30% of the time, depending on the type of product.
The survey also found that 2x4 homebuilders are quite willing to use imported value-added wood building materials, with their use of these products ranging from 20% in the case of kitchen and bathroom cabinets to almost 50% for hardwood flooring and wood windows. Japanese 2x4 builder’s use of US value-added wood products was highest for hardwood flooring (18.4% of total use), interior doors (16%), wood windows (16%) and exterior doors (14%). It was lowest for kitchen cabinets (4%), bathroom cabinets (6%) and softwood flooring (7%).
 
Survey respondents reported that the most important product attributes for them were high quality (6.6 rating out of 7), reliability of supply (6.4) and low price (6.2). In terms of product quality, they reported that US value-added wood products were perceived as having only average quality. Interestingly, small builders rated the quality of US value-added building materials much higher than did large builders. Respondents also reported that US suppliers provide below average levels of products support, although small builders again reported substantially higher ratings than did large builders.
 
The survey results clearly show that the large, national 2x4 builders have a poor perception of US value-added wooden building materials, both in terms of quality and service, relative to small and medium-sized local builders. This suggests that US manufacturers and exporters should focus their marketing efforts on small and medium-sized 2x4 builders in the short-term. However, long-term success in Japan will require that US manufacturers and exporters understand and address those factors that adversely affect large builder’s perceptions of US value-added wood building materials. This should provide the basis for additional research in the future.

One product for which there is strong market potential is dimension lumber. Many of the 2x4 home builders reported that they were having trouble sourcing 2x8 and 2x10 joist material, as well as most other sizes of dimension lumber. More 2x4 home builders are now willing to accept a “home center” grade of lumber rather than the traditional higher quality J grade. This suggests that now may be a good time for dimension sawmills in Washington to reenter the Japanese market.
 
In summary, the struggling domestic housing market in the US combined with the relatively weak US dollar and strong Japanese yen provide a unique for manufacturers and exporters of wood building materials increase their presence in Japan. However, they must demonstrate a long-term commitment to the Japanese market in order to be successful.
 
The Japanese 2x4 market continues to represent a good opportunity for US manufacturers and exporters of wood products who are confronted with the worst US housing market since 1945. However, re-establishing US wood products in the Japanese market will require substantial effort on the part of manufacturers and exporters, especially those who abandoned the market during the period 1996-2006. US manufacturers and exporters who are returning to the Japanese market or who are new to this market will need to demonstrate a long-term commitment to their Japanese customers if they are going to be successful. They also need to develop a strategy for providing after sales support for their products in a variety of areas, including: timely claims evaluations, assistance with installation questions and providing spare parts and replace

​Executive Summary
 
Investment by value-adding wood industries is critical to sustaining forestland ownership. An increasingly complex array of forest owners and investors suggests a business climate that views forests as a financial, rather than an industrial, asset. However, maintaining the ecological, environmental and economic health of the forests in Washington requires a vibrant and competitive forest products industry. The lack of a diversified and competitive forest products industry to process the logs, small diameter timber and thinnings removed from the forest undermines the ability to manage forests in Washington in a sustainable manner and reduces the range of management options available to forest managers in the state.  The lack of competitive markets for intermediate forest products derived from forest management operations undermines the economic rationale of forest management, adversely affects forest health and ultimately results in increased fire risks. At the same time, the forestry and forest products industries make significant contributions to the economy of Washington State, particularly in rural, timber dependent communities.
 
The analysis of the economic data suggests that the forestry and wood products manufacturing sectors have played an increasingly important role in the economy of Washington State since 2001. Not only did this sector provide over 45,000 jobs in 2005 but it also generated approximately $16 billion in gross business revenue, paid out over $2 billion in wages and over $100 million in tax receipts. As a result, the forestry and wood products sector of the state economy employed 1.43% of the workers in the private sector in Washington, accounted for 1.8% of the total wages paid within the private sector and generated 3.2% of the gross business income within the private sector.
 
The sawmill industry in Washington state suffered through a tough period between 1987 and 1993, much of which can be attributed to the 1990-1991 recession and the loss of federal timber as a result of the listing of the spotted owl as an endangered species in 1989. Between 1987 and 1993 softwood lumber production in Washington decreased by 23.5% as 45 sawmills closed and almost 1,400 jobs were lost.  Industry consolidation ensued throughout much of the past decade and by 2005 the number of sawmills had declined from 217 (in 1994) to 128. Much of this decline in sawmills can be attributed to the closure of older, inefficient sawmills that relied on the large, old-growth logs coming from the federal forests. Despite the huge drop in sawmills, employment in the sawmill sector actually increased from 7,721 to 8,565 between 1994 and 2005 as larger more efficient sawmills were built to replace the older mills being closed.
 
The plywood industry in Washington, previously one of the largest in the US, has been in decline since 1962. The number of plywood mills has dropped from 35 to 8 during this period although plywood production has only declined from 1.8 billion square feet (3/8 inch basis) to 1.1 billion square feet (3/8 inch basis). As seen in the sawmill industry, the closure of smaller, inefficient mills has been offset to a degree by the establishment of larger, more efficient plywood mills. Annual production per mill in 1962 was just 52 million square feet whereas this has jumped to 137 million square feet in 2005. It is important to note that as the end-use market transitions from plywood to oriented strand board (OSB), there are no OSB mills located in the state of Washington. The challenge for the structural panel industry is to successfully make the transition from plywood to OSB.

The Washington pulp and paper sector is the second largest following wood products manufacturing. In addition to its importance within the economy, this sector also plays an important demand role within the forest products industry. Pulp and paper companies are important consumers of lower quality pulp logs as well as providing a demand for by-products from other forest products industries such as sawdust and planer shavings from the sawmill industry. Given the cost structure of the sawmill industry, lumber manufacturers often break even at best with their lumber production and it is the sales of their by-products that provide them with an operating profit. Thus this industry segment is particularly important to the health of the sawmill and logging sectors. From a strategic industry perspective, it is extremely important that this industry remain healthy and viable within the state of Washington.
 
The regional inter-industry econometric model called the Washington Projection and Simulation Model (WPSM) has been used to estimate that in 1992 there were 7.7 direct jobs and 32.3 indirect jobs linked to each million board feet of timber harvest in Washington. In 1994, it was further estimated that 29.7 Washington jobs would be lost for every $1 million in tax increases to replace lost trust revenue from reduction in timber harvests from the state forestlands. Further public benefits derived from DNR timber sales through the generation of state and local, and federal tax revenues were calculated to be 11% and 19% respectively, of the Gross State Product, in 1996.
 

​Executive Summary
With the U.S. housing market at a seventeen year low, it is becoming increasingly important to find global markets for U.S. forest products. One market that values Alaska forest products and offers tremendous opportunity is Japan.  However, due to a previously strong U.S. Dollar, increased competition from Europe, and other factors, Alaska forest products have lost significant market share in Japan.  The purpose of this research project was to examine recent trends that affect Japan’s forest products market and present potential opportunities for Alaska forest products. Data was collected from government and industry organizations and industry experts were interviewed. The research identified five major trends affecting Japan’s forest products market:

• Changing Building Regulations – The Building Standards Law was revised in 2007 requiring certification of the structural integrity of new residential buildings by qualified architects or structural engineers. This revision was in response to a recent building scandal where some architects falsified structural strength documents required by the Japanese government. As a result, a number of buildings in the Tokyo area were declared unable to withstand a moderate earthquake and condemned.
• Changing Timber Supply – Overall, Japan’s lumber and log imports from North America have decreased. In contrast, lumber and log supplies from Europe, Russia, China, and within Japan have increased. However, several recent occurrences are constricting Japan’s timber supply including a Russian log export tariff and increased demand from other regions. Many of the industry experts interviewed pointed out that mills are looking for new suppliers to hedge against disruptions in their traditional timber supply.
• Increasing Green Building and Green Procurement Policies – Japan has developed a green building certification program called the Comprehensive Assessment System for Building Environmental Efficiency (CASBEE). This system consists of various green building criteria. Additionally, the Japanese government has announced a public procurement program that requires all forest products purchased by the government to come from legally harvested timber.
• Changing Exchange Rates – The U.S. Dollar has depreciated approximately 6 percent against the Japanese Yen in the past two years. This makes Alaska and other U.S. forest products more price competitive in the Japanese market.
• Changing Demographics – Two of the most important demographic segments in Japan are the Baby Boomers and the children of the baby boomers or Eco Baby Boomers. The Baby Boomers are retiring and many are looking to improve their houses. Eco Baby Boomers are having families of their own and many are choosing to purchase value priced houses rather than condominiums or renting apartments.

Based on the analysis of Japan’s forest products market, the researchers offered the following recommendations:

• Identify Alaska forest products companies interested in exporting to Japan. The first step to promote Alaska forest products in Japan is to identify companies interested in and qualified to export to Japan. These companies need to have the production capacity to do container load volumes and the commitment of management to pursue the Japanese market. Once these companies are identified, a directory should be created in Japanese to distribute to Japanese forest products buyers. These companies should also be encouraged to participate in the Japan Home Show and trade mission described below.
• Utilize trade organizations to increase awareness of Alaska forest products. Alaska’s presence in the Japanese market has dwindled and needs to be rebuilt. This can be done at a relatively low cost through utilizing resources that are already in place. There are two organizations that the authors recommend Alaska’s forest products industry utilize in Japan. The first is the Softwood Export Council headquartered in Portland, OR and with a Japan office in Tokyo. The University of Alaska is active with the Softwood Export Council and can assist with making connections. The second is the State of Alaska’s Japan Office located in Tokyo. Both of these organizations participate in forest products events held in Japan. The Alaska forest products industry should work closely with both these organizations. The contact information for these organizations is provided in Appendix A.
• Promote WWPA Alaska forest products’ labels in Japan. A coordinated marketing effort should be organized to promote the three WWPA registered labels in Japan: Alaska Hem, Alaska Yellow Cedar, and Alaska Spruce. Each of these should be promoted as a brand with unique attributes. The goal should be to build brand recognition for Alaska species in Japan by promoting these species and their unique attributes. Literature should be developed in Japanese explaining each species, their unique attributes, and the end usage for which they are suitable. It would also be beneficial to include contact information for Alaska forest products companies that can supply each of these species.
• Promote the structural values of Alaska lumber in Japan. The revised Building Standards Law requires builders to certify the structural integrity of their buildings by approved architects. In order to do this, architects will need access to the structural values of members used for structural support. Therefore, the results of the in grade testing program conducted by the Ketchikan Wood Technology Center should be translated into Japanese. Japanese architects responsible for certifying building plans will need access to modulus of elasticity and bending strength calculations for Alaska yellow cedar, hemlock, and Sitka spruce.
• Target the glulam beam industry. One expected outcome of the revision to the Building Standards Law is an increase in market share for glulam beams. Mr. Miyazawa (Miyazawa 2007), of the Japan Housing Newspaper, emphasized the revision to the Building Standards Law will favor glulam beams over solid sawn lumber because the exact structural values are written on each glulam beam. The opportunity for Alaska forest products manufacturers is to target the glulam beam industry with lamstock. Japan’s glulam beam industry has shown strong growth and there are opportunities for Alaska yellow cedar, hemlock, and Sitka spruce (CINTRAFOR 2008).
• Develop a certificate of harvest origin program for Alaska forest products. The Japanese government is starting to require all forest products purchased by government agencies to provide proof that the wood originated from legally harvested timber. This procurement program is still in the initial stages but what is clear is that some documentation will be required. As of now, the Japanese government is being very flexible with the documentation. At the GOHO Wood (Legal Wood) Conference in Japan, the Japanese official explained that companies can develop their own certificate and attach supporting documents such as timber sale receipts. Exporters should work closely with their Japanese customers and make sure that proper documentation is provided.
• Create an Alaska forest products display for the Japan Home Show held annually in November. One of the main conclusions to be drawn from this research is that Japan’s forest products manufacturers are becoming very concerned with the stability of their raw materials supply. Their concern centers on what will happen in the future to Russian and European supply and so Japanese buyers are looking for new suppliers. However, in order for this to benefit Alaska forest products companies, Japanese companies need to be informed of what products exist and how to get them. An excellent venue to meet Japanese buyers and educate them about Alaska forest products is the Japan Home Show. The Japan Home Show is held in November in Tokyo. The Softwood Export Council has a booth each year and allows members to display products. An Alaska forest products display should be designed to display product samples, product literature, and copies of the Alaska Forest Products Directory. 
• Organize a Japan Trade Mission for Alaska forest products companies. As a follow up to the Japan Home show, a Japan trade mission should be organized for Alaska forest products companies interested in the Japanese market. The primary purpose of this trade mission would be to introduce Alaska forest products companies to potential Japanese buyers. The secondary purpose of the mission would be to educate Alaska forest products companies about the Japanese market and the types of forest products used in the market. This trade mission should include Japanese mill visits, a seminar given by an Alaska representative explaining to potential Japanese buyers about Alaska forest products, and a reception to bring Alaska companies together with potential Japanese buyers. The visit should also include a visit to pre-cut lumber mills, laminators, and post and beam construction sites.  This trade mission should be organized in cooperation with the Alaska Department of Trade, the University of Alaska, and the Softwood Export Council.

Invite potential Japanese customers to Alaska for an Alaska mill tour.  This would be a way to introduce Alaska mill owners to Japanese forest products buyers. Additionally, it would allow the Japanese forest product buyers to educate Alaska mills about what products the Japanese market demands and their product specifications.

​Executive Summary
Lumber manufacturing remains an economically important industry in the State of Washington. The sector has added value to Washington’s timberlands and continues to generate the majority of regional timber demand. Lumber production contributes to rural economic development and employment. Lumber manufacturing has remained particularly viable in western Washington, despite macroeconomic uncertainty, regulatory constraint, and competition from foreign and other domestic producers. The last economic assessment of the western Washington lumber industry was performed in 1991 (Stevens).
This study applied classical economic techniques to provide insight into how lumber manufacturers in western Washington responded to market conditions from 1972 to 2002. Lumber manufacturing activities were investigated using a three-input Cobb-Douglas and a transcendental logarithmic (translog) cost function.
Analyses were performed using a panel data set with biennial time series observations from 1972 to 2002 for sixteen western Washington counties. The measures used to assess economic performance were economies of scale, Allen and Morishima partial elasticities of substitution, own- and cross-price factor demand elasticities, and technical change. These measures were investigated at regional, biennial, and county level scales.
This study shows the western Washington lumber manufacturing sector can be modeled with nonconstant returns to scale, nonunitary elasticity of substitution, and biased technical change among the inputs capital, labor, and logs. Substantial substitution possibilities between factors of lumber production exist, and a fixed- proportion functional form like the Cobb-Douglas is inappropriate to model the lumber industry structure. The estimated translog cost function was well-behaved and an appropriate choice of functional form for the western Washington lumber industry.
Lumber production costs are most sensitive to the price of logs, followed by the price of labor and least impacted by the price of capital. Mean cost share values for logs, labor and capital are 58, 24 and 18 percent, respectively. At the regional level, sawmills have captured economies of scale in the production of lumber. A 10 percent increase in output resulted in a 0.418 percent reduction in costs. Economies of scale values jumped during the 1980s recession as firms produced radically less output and faced higher input costs; values subsequently declined as firms exhausted scale economies during times of harvest level reductions in the 1990s.
At the regional level, Allen and Morishima partial elasticities of substitution agreed that all inputs were inelastic substitutes with the greatest substitutability between capital and labor and least substitutability between logs and labor. Capital demand was the most own-price responsive and log demand the least. Cross- price demand elasticity was greatest between capital and labor; cross-price elasticities for all input combinations including logs were near zero. Demand for logs was highly inelastic with respect to own-price and the price of other inputs. This pattern was relatively consistent across time and across counties, although at finer scales greater evidence of complementary between inputs was noted.
Expansion of lumber production and capacity over time primarily occurred in Lewis, Pierce, Clallam, and Cowlitz Counties owing to new sawmill infrastructure. Gains in Cowlitz County were primarily made from investments in existing mills. Lewis gained one large mill in 1998, increasing the total number of large mills to seven, but additions in existing sawmills contributed to increase capacity. The number of large mills in

Pierce County remained constant from 1996 to 2002; capacity investments in existing mills led to increased lumber output. Although capacity in Snohomish County sawmills rose, the loss of three large mills between 1998 and 2002 caused an overall decline in lumber production. Results point to processing capacity centers developing in two areas, Clallam County on the Olympic Peninsula and counties along the I-5 corridor south of King County. Restructuring of log export markets, proximity to Interstate-5, and port access seem to be factors in industrial expansion, but the magnitude is unknown.
 
 

​Executive Summary
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports.  In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine.
Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future.
The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered:
1.  Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market.
2.  Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market.
3.  Organize a trade mission to visit glulam manufacturers in Japan.
4.  Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo.
5.  Invite potential Japanese customers to visit sawmills in Alaska.
6.  Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam.
7.  In addition to lamstock, lamstock blanks could also be considered for export to Japan.
 

Executive Summary
Japan is a timber deficit country that requires substantial volumes of imported timber to meet its domestic demand for wood. To a large degree, wood demand in Japan is tied to housing starts where approximately 43% of new homes are framed with wood. This reliance on imported wood has always caused a tension in Japan where forests cover two-thirds of the country and there is an extensive sawmill industry skewed heavily to small, rural sawmills using out-dated technology. A high cost structure has made both the forestry and sawmill industries uncompetitive on a global scale and, as a result, imported softwood lumber has come to dominate the Japanese market. Over the years, the Japanese government and the forest products industry have tried a number of strategies to improve the competitiveness of the forestry and sawmill sectors. Despite the closure of more than 10,000 sawmills over the past twenty years, the Japanese sawmill industry remains uncompetitive and plagued by small, inefficient sawmills located in rural areas far from the main demand markets. It is against this backdrop that the most recent regulatory initiatives to protect the domestic sawmill industry from international competition must be viewed. These regulatory initiatives include: 1) providing preferential treatment for domestic timber within the proposed CASBEE-Sumai green home building program, 2) using subsidies at the prefectural level to increase the share of domestic timber used in post and beam wooden homes to at least 50% and 3) and using subsidies at the national level to target an increase in the market share of domestic timber used in the post and beam industry from the current 30% to 60% by 2015.
Concerns about global warming and the environment and their commitments under the Kyoto Protocol have led the Japanese to develop a green building program, called CASBEE, to reduce the environmental footprint of commercial and residential buildings (CASBEE is the acronym for Comprehensive Assessment System for Building Environmental Efficiency). As part of its commitment as a signatory of the Kyoto Protocol, Japan is committed to reduce its emissions of greenhouse gases through a variety of strategies. The Kyoto Protocol was negotiated in Kyoto , Japan in December 1997 and came into force on February 16, 2005 following ratification by Russia on November 18, 2004. The Kyoto Protocol is an agreement under which industrialized countries commit to reducing their collective emissions of greenhouse gases by an average of 5.2% over the five year period 2008-2012 relative to the year 1990 (Wikipedia 2007). Japan , which became the 73 rd signatory to the Kyoto Protocol on May 31 st , 2002, has a target reduction of greenhouse gas emissions of 6% over the five year period. As part of its strategy to reduce greenhouse gas emissions, Japan has mandated that new commercial buildings incorporate energy efficiency in their design and operation.
The Japanese government has moved to improve the environmental performance of residential buildings with the drafting of the CASBEE-Sumai (Home) green building program. While the aim of the CASBEE-Sumai green building program is to reduce the environmental footprint of new homes, the program suffers from a weakness in that it is not based on a comprehensive Life-Cycle Inventory of the construction materials used to build Japanese homes. Additionally, the CASBEE-Sumai program has incorporated criteria which arbitrarily place imported wood at a competitive disadvantage by implying that wood harvested from Japanese forests is environmentally preferable to imported wood. These weaknesses of the draft program could be a source of confusion to architects and home builders regarding the overall environmental superiority of wood relative to other structural building materials. The two specific features of concern with the CASBEE-Sumai draft green building program are: 1) the specification of locally sourced wood (obtained from within a specific, but as yet undefined, distance from the building site) as being preferable to imported wood and 2) the determination that

domestic timber is de-facto defined as being sustainable and harvested from sustainably managed forests without independent third-party verification of forest management practices.
The de-facto declaration that all domestic (Japanese) softwood is assumed to be derived from sustainably managed forests runs completely counter to the fundamental premise of sustainable certification: transparency in certification programs, third-party verification and certification based on objective science. The lack of credible third-party verification of sustainability and legality also undermines consumer confidence since there is no guarantee that the wood being used is, in fact, legal or sourced from a sustainably managed forest. For example, a recent report in the Kyodo News (2008) on illegal logging in the Akan National Park in Hokkaido , Japan , illustrates the need for independent third-party certification programs, even in Japan . The decision to define domestic wood as sustainable violates the principal of reciprocity and places imported wood at a cost disadvantage in the marketplace since domestic lumber producers will not have to pay for the cost of certification for their lumber.
The fundamental reason for the preference of domestic wood over imported wood within the CASBEE-Sumai program appears to be to provide regulatory support for domestic wood processors whose lumber products are uncompetitive against imported wood. However, the blame for this lack of competitiveness cannot be placed at the feet of foreign manufacturers but rather at the reluctance of the domestic sawmill industry to implement the measures and investments required to achieve consolidation and modernization within an overly large and technically inefficient industry. For example, the pre-cutting industry, which manufactures the structural components for over 80% of the post and beam houses built in Japan , requires kiln dried lumber that is straight and machined to highly accurate tolerances as a raw material input to their manufacturing process. In response, most imported lumber now arrives in Japan kiln-dried and cut to the demanding specifications required by pre-cut manufacturers. However, despite this change in material specifications within the largest demand segment for structural lumber, the domestic Japanese sawmill industry has been extremely slow to invest in new kiln drying capacity. In fact, by 2007, less than one-quarter of the structural softwood lumber produced in Japan was kiln-dried (22.6%) and only 16.5% of Japanese sawmills had invested in kiln drying facilities. Examples such as this clearly show that Japanese sawmills remain reluctant to invest in manufacturing technology to improve their competitiveness, preferring instead to rely on government regulation and subsidies to provide protection from more efficient foreign producers.
Some organizations in Japan have advocated using the CASBEE-Sumai program to provide preferential consideration for domestically manufactured wood products under the rationale that the increased carbon emitted during the international transport of lumber to Japan increases the carbon footprint of imported lumber, thereby making domestic softwood lumber a more environmentally preferable material. However, this argument overlooks the fact that most container ships carrying lumber products are returning to Japan on a backhaul leg after having delivered Japanese exports to their foreign destination. In addition, the argument for local wood further ignores the fact that ocean transport is an extremely efficient mode of transportation given the large size of the bulk ships used to transport logs and the container ships used to transport lumber. As a result, the amount of carbon emissions for these two transport modes (on a cubic meter per kilometer basis) are just 2.7% and 5.9%, respectively, of the carbon emissions generated from transporting lumber by truck in Japan. Thus, transporting the volume of structural lumber used in the typical Japanese post and beam house (14 m 3 ) from North America (either Seattle or Vancouver, BC) to Tokyo generates the same amount of CO 2 as shipping this volume of lumber just 112 km by truck in Japan. This analysis suggests that the international transportation of softwood lumber, at least from North America to Japan , might well produce less of an environmental footprint than transporting domestic lumber given the increase in transportation distance resulting from the widespread acceptance of precut lumber within the post and beam industry. A more detailed analysis of the distribution channels for domestic wood from forest to sawmill to wholesaler to precutting facility to building site should be performed to better understand the carbon trade-offs during transportation between domestic wood and imported wood.
Quantitative Impact of Domestic Wood Programs
There are two programs that could adversely affect the value of US softwood log and lumber exports to Japan . The first relates to the favorable consideration of domestic wood while the second relates to a program being supported by MAFF that aims to increase the market share of domestic wood use in the P&B industry from its current 30% to 60% by 2015. An economic analysis of these scenarios demonstrates that favoring the use of

domestic lumber would not only impact the demand for imported lumber, but the demand for imported logs as well. Since the US is a large supplier of logs to Japan (approximately 2/3 of which are Douglas-fir logs), this would adversely impact both log and lumber imports from the US . The estimated impact of the domestic wood programs being proposed on the value of US lumber exports to Japan over the 2007-2015 period ranges from $84.5 million to $95.6 million. In the case of logs, the value of US exports could potentially drop by between $196 and $735 million over the period 2007-2015. The total impact on US softwood log and lumber exports to Japan ranges from $84.5 million and $735 million, depending on the success of these programs in promoting the increased use of domestic wood in place of imported lumber and the extent to which imported logs are replaced by smaller, lower quality domestic logs. Considering the current constraints on the ability of domestic timber to substitute for imported timber (e.g., timber supply, lower timber quality and lower mechanical strength properties, among others), it is more likely that the lower estimate of the reduction in the value of US log and lumber exports to Japan ($84.5 million) is more accurate. While this analysis is sensitive to a number of assumptions, it clearly shows that a program targeted towards substituting domestic wood for imported wood could have a substantial adverse impact on the US forest products industry.
Strategic Implications
The myopic strategy of protecting the inefficient and uncompetitive forestry and sawmill sectors in Japan through preferential regulatory policies (such as the de-facto specification of domestic wood as being sustainable managed) or by providing subsidies to achieve an arbitrary market share for domestic lumber within the post and beam construction sector ignores the superior environmental performance of wood relative to non-wood building materials. More importantly, these types of preferential programs have been specifically targeted to the post and beam market segment; a shrinking segment of the residential construction industry. As a result, these policies distract attention from opportunities to expand the demand for wood products in non- traditional market segments such as wood multi-family housing, hybrid construction and low-rise commercial construction. Housing start statistics clearly show that whereas the ratio of P&B housing starts has been declining over time, the ratio of housing starts in the multi-family (both mansion and apartments) sectors, where steel and concrete dominate, has been increasing.
If the Japanese forest products industry is truly interested in promoting the environmental benefits of wood, encouraging the adoption of a green building program and expanding the demand for domestically produced structural lumber, then they would do well to consider a strategy that grows the overall demand for structural lumber by promoting the increased use of structural lumber in non-traditional sectors of the market rather than encouraging an artificial competition between domestic wood and imported wood within the shrinking P&B segment of the residential construction industry. This promotional effort would utilize LCI data to document the superior environmental performance of wood frame multi-family and commercial (including hybrid) structures relative to non-wood structures. To support this effort, preliminary research should be done to identify: 1) the relative market shares of steel and concrete structural materials within these non-traditional market segments, 2) the material selection process used by architects and builders and 3) the factors that influence the material selection process.
Given the agenda of promoting domestic wood over imported wood, it is important for US wood products associations to maintain open communication with the CASBEE-Sumai committee to reinforce the message that the CASBEE-Sumai program should focus on rewarding the use of any wood over less environmentally friendly building materials. This should be reinforced by the message that wood houses use a broad range of sizes, qualities and wood species in their construction based on specific structural end-use requirements.
Limiting the material selection to only locally produced lumber severely restricts the material options available to builders and may encourage them to use less environmentally friendly non-wood materials in place of other “non-local” wood products so that they can still meet the 50% local building material requirement and therefore qualify for prefectural subsidies. The bottom line is that these subsidy and regulatory programs distort the market and could encourage architects and builders to make material choices based not on the environmental performance of a specific material but on a set of artificial proxies that reflect a political agenda rather than objective scientific environmental data.

Executive Summary
Forest certification is becoming an important issue within the forest products industry and also a new trend in forest products markets. Although forest certification was initiated to confront the severe deforestation of tropical rain forests, certified forests are unbalanced in geographical locations, with 60% of certified forests being located in North America and 36% in Europe in 2006. The end markets for certified forest products, especially certified wood products, are also concentrated in European countries (particularly the United Kingdom, Germany, Belgium and the Netherlands) and North America, because the price premium for environmentally friendly products is only available in these mature and value-added markets. In manufacturing, countries such as Germany, Italy, the Netherlands, Poland, United States, Brazil, Japan and China are competitive in the area of certified wood products.
China is attracting more attention for its increased use of certified timber in wood products manufacturing. In accordance with its leading status in traditional labor intensive manufacturing industries, the Chinese forest products industry has an advantage in low cost labor, convenient infrastructure, and favorable export trading policies. The number of Chain-of-Custody (CoC) certified companies, mostly wood products manufacturers, soared between 2004 and 2006, reaching 200 by the end of 2006. Certification of forest farms in China , however, has been relatively slow and difficult, with only four forests (less than 1% of all the FSC certified forest area in the world) having obtained Forest Management (FM) certification by 2006, representing a total area of 439,630 ha.
This study consists of two sections: a case study of a certified state-owned forest farm and its downstream wood products manufacturers located in Northeast China, and an email survey of all FM/CoC and CoC certified companies in China , including manufacturers, forest farms with wood mills, and traders. Unless mentioned specifically, FSC is the default forest certification program in China because of its widespread use within the country (to the virtual exclusion of all other certification programs).
Case StudyYouhao Forest Bureau is currently the largest certified forest farm in China with two associated certified furniture manufacturers, Hualong and Huali factories, mainly supplying solid wood furniture for IKEA. The certification of Youhao's forest farms and the Hualong and Huali factories helped to maintain product orders from IKEA, which has committed itself to sourcing its wood materials from certified forests through the four steps of the IKEA Forest Action Plan (FAP). Although the high cost of certification determines that profits from certified wood products are often lower than non-certified wood products, both the forest farms and manufacturers view certification as a new trend in the forest products industry, and hope the niche market for certified wood products will grow in the future, assuring a higher price premium.
Governmental administration played an important role in the certification of Youhao through administrative commands and favorable policies. As a country with diverse forest resources, China 's central and local governments actively initiated forest certification, took part in the process of certifying two important state-owned forest farms, organized training projects on forest certification in several more state-owned forest farms after Youhao and Baihe's certification, and drafted the “Criteria and Principles of Forest Certification for China ”.
While these actions made certification favorable for state-owned forests, complicated forestry property rights reform and unstable tenure length represent significant obstacles to the certification of privately owned forests.

Survey ResultsA survey of all the FSC (CoC) certified companies in China was conducted to investigate the basic issues related to forest and chain-of-custody certification and their influence on the international trade of forest products in China. Although there are only 200 certified companies, a general pattern on this new trend within the industry was obtained. Out of the population of 200 companies, 41 usable responses formed the sample of certified companies, including 2 forest farms with wood mills, 31 wood products manufacturers, and 8 trading companies. Most of the certified companies in China are located along the eastern and southern coast of China , from Guangdong Province to Jiangsu Province . Nearly half of the companies (46.3%) are domestic private companies, and 29.3% are wholly foreign-owned enterprises. More than half of the companies (53.7%) have over 500 employees, indicating a labor intensive production process. Evaluated by annual sales, more than half of the companies (51.2%) achieved annual sales of more than US$13 million (RMB ? 100 million) in 2006, which can be viewed as medium to large sized companies.
Product mix of certified wood products
The mix of certified wood products made by survey respondents can be divided into ten major categories: indoor furniture and accessories, craft products, stationeries and toys, outdoor furniture and accessories, wood material, garden and BBQ tools, flooring, doors and windows, logs, pulp and paper, and others. Most of the certified wood products are small piece, uni-material, finished products. This is natural as large, mutil-material, semi-finished products would increase the complexity of production, management and the percentage calculation according to CoC requirements.
End markets for certified wood products
The two biggest export markets for certified wood products were Europe and the United States , accounting for 54.6% and 29.8% of exports respectively. The giant DIY chain stores such as Home Depot and B&Q are important retail markets for certified wood products. Furniture retailers, pulp and paper companies, public procurement by governments, and other users form a niche market for these products. A recent report showed that from 1999 to 2000, annual sales of all certified wood products by retailers in Britain increased from £351 million (1.8% of total forest products annual sales) to £629 million (3.4% of total forest products sales). No similar data was found for the United States .
Certified wood raw materials
The US is currently the most important source of certified wood raw materials for wood products manufacturers in China , with 24.9% of certified wood originating from the US . Other countries supplying certified wood raw materials are New Zealand (with 18.5%), Brazil (12.4%), and European countries (10.8%). Domestic forest farms in China supply about 14.5% of the raw material mix for domestic manufacturers. The species of certified wood is almost evenly distributed among conifer species, tropical broadleaf species and semitropical/temperate broadleaf species. More than half (56.4%) of the companies in China indicated that they are now facing a shortage of supply for certified wood raw materials.
Cost and benefit analysis
The costs and benefits of using certified wood products is inevitably the critical problem confronting all certified companies. The issue of profitability can be viewed from several different perspectives: the market share of certified wood products; the market growth rate; the increased cost of certified wood; the small price premium obtained for certified wood products; and the lower profit margin for certified wood products relative to non- certified wood products. The profitability of certified wood products will influence both the short-term and long- term marketing strategies of companies considering selling certified wood products.
The market for certified wood products in the world is relatively small, and the total sales of these products by all the certified companies in China were estimated to be around US$697 million. The market for certified wood products is growing, with nearly 39% of the sampled companies reporting that their sales increased about 22.7% between 2005 and 2006, while just 2.4% of companies' reported that their sales decreased. There are increased costs that contribute to the higher price of certified raw materials, including the cost of certification (both the initial evaluation and a semiannual audit fee) and the cost of production updating and management adjustment for certification. The increased cost of using certified raw materials is the most significant cost factor, with the

average price of certified wood being 22.3% higher than non-certified wood. The cost of certification varies dramatically between forest farms gaining forest management certification and wood products manufacturers obtaining CoC certification. The cost of certification for forest farms was reported to be about ten times higher than the cost of certification for manufacturers. The average cost of certification for all certified companies including the two forest farms was about $9,037 per year, while the average cost of certification without the forest farms was around $5,912 per year. However, it is important to note that the annual cost CoC certification is likely to decline over time as the initial adjustments in management and manufacturing practices that are required for certification are implemented and they become part of the routine operating procedures for the companies.
Certified companies obtained an average 6.3% price premium for certified wood products in European markets, a 5.1% price premium in the United States and a 1.5% price premium in Canada . About 24.4% of the companies reported that the profit margin for certified wood products was 6.7% higher than for non-certified wood products, while 39.0% of the companies reported a loss of about 5.6%. The profit margin for certified wood products is highly dependent on the price premium companies can achieve. A simple linear regression model was developed to estimate the profit margin based on the price premium. The regression model results suggest that as long as the price premium obtained for certified wood products exceeds 11% (relative to non-certified wood products), the profit margin for certified wood products will exceed that of non-certified wood products.
Attitudinal evaluation on certification
Certified companies expressed a positive attitude towards most of the survey statements regarding forest certification and its influence on the industry. Statements viewed positively included the belief that certification can help companies enter new markets (especially markets in Europe and North America); certification can help maintain a company's existing markets if new requirements on environmental issues are implemented; certification is helpful in enhancing the competitiveness and public image of companies; and companies were optimistic about the increased market share and profits that would be generated from selling certified wood products over the next two years.
This study focused on FSC certification in China because there were only four companies that had received certification from programs other than FSC (i.e. PEFC). Therefore, FSC is currently the dominant certification program in China for the forest products industry. The survey respondents were asked an open-ended question about their reasons for choosing FSC certification, and their reasons can be summarized into three main categories: specific requirements dictated by their buyers; specific strategies companies took for entry into new markets; and FSC's highly credible reputation.
Current problems
Some common problems that certified companies in China face relate to the cost and supply of certified wood raw materials. Lacking domestic accredited certification bodies not only increases the cost of certification, but also hinders the improved communication and training among foresters and manufacturers about certification issues.
Due to the supply shortage of certified wood, companies have to communicate with importers more efficiently to obtain reliable information about the origin and supply of certified wood from foreign countries. Although domestic forest farms are in the process of being certified, which may alleviate the dependence on imported raw materials to some extent, the complexity and ambiguity of the forestry property rights reforms being considered and implemented in China will slow the privatization and consolidation of local forests, and further impede the process of certifying private forests.

Executive Summary
For fifteen years between 1989 and 2004, US exports of softwood lumber were mired in decline. During this period, the volume of US softwood lumber exports plunged from approximately 8 million m 3 to less than 2 million m 3 . This trend was a reflection of the relatively strong dollar which undermined the competitiveness of US softwood lumber, coupled with regulatory changes in major export markets (particularly Japan ) and a strong housing market in the US . This combination of adverse factors influenced many US softwood lumber manufacturers to abandon their traditional export markets. This was especially evident in Japan where US exports of softwood lumber dropped from 3.5 million m 3 in 1989 to just 115,000 m 3 by 2005.
Recent years have seen a rapid reversal in some of the macroeconomic factors affecting the US softwood lumber industry. The US dollar has weakened considerably against both the Canadian dollar and the euro, greatly increasing the competitiveness of US wood products in export markets. Since 2002 the US dollar has weakened by 33.7% against the Canadian dollar (and is now almost at par with the Canadian currency) and by 34.1% against the euro. This alone has substantially increased the competitiveness of US softwood lumber in most markets.
At the same time, demand for softwood lumber in the US has fallen substantially as a result of the weak housing market. Since 2005, housing starts in the US have declined by 12.8% from 2.06 million starts in 2005 to 1.8 million starts in 2006. Housing starts are projected to drop further in 2007 to between 1.5-1.6 million. In response to the weak housing market, demand for softwood lumber in the US dropped by 6.4%, from 64.3 bbf in 2005 to
60.1 bbf in 2006. More worrying is the fact that US softwood lumber demand is projected to drop to 54.2 bbf in 2007 before recovering only slightly in 2008 to 56.7 bbf.
With prices low and demand weak in the US market, many softwood lumber manufacturers have begun looking offshore again. Between 2004 and 2006, the volume of US softwood lumber exports grew by 18.6% to reach 2.2 million m 3 . More importantly, the value of softwood lumber exports has jumped by 35.5% to reach $592 million. Softwood lumber exports have remained strong during the first four months of 2007, with exports increasing by 14.5% in terms of volume and 25.7% in terms of value. Encouragingly, the strong export performance of softwood lumber has not been confined to a small group of traditional softwood lumber export markets but has occurred across a broad range of markets. In the UK , softwood lumber exports are up by 675% in the four months of 2007, propelling the UK from the 14 th largest market to the third largest market for US softwood lumber.
Douglas-fir (DF) lumber used for beam applications ( hirakaku ) continues to enjoy success in Japan . This success can largely be attributed to the superior performance (with respect to strength, straightness, dimensional stability, and visual appearance) of DF relative to other timber species. Thus, DF maintains a reputation as the premier timber species for hirakaku applications. Yet despite its strong reputation, DF has seen its market share slowly eroded by alternative lumber products such as European whitewood and European redwood glulam lumber. The primary basis for this trend has been the shift towards pre-cut housing components as well as the price sensitivity of Japanese home builders and pre-cutting manufacturers.
The objective of this research was to evaluate the use and specification of structural lumber within the Japanese post and beam construction market, particularly with respect to Douglas-fir lumber in beam applications. In addition, this project follows up on the recommendation of an earlier marketing report recommending that US Douglas-fir manufacturers consider the feasibility of developing and introducing branded DF hirakaku lumber in

Japan . In order to develop a better understanding of the potential opportunity for branded DF hirakaku lumber, two focus groups sessions were held with home builders in Japan . The focus group sessions were supplemented by personal interviews with Japanese post and beam home builders and pre-cutters, the two major end-users of DF hirakaku. Finally, visits were conducted to the major DF sawmills in Japan to develop a better understanding of the competitive role of Japanese DF lumber producers in the market and to explore the role of branding in the marketing of domestically sawn Japanese DF lumber.
Material use in the residential construction industry has been affected by several regulatory changes in Japan . In May, 1998 the Building Standard Law of Japan (BSL) received its first major revision since 1950. To a large degree these revisions were in response to the widespread devastation caused by the Kobe earthquake in 1995 and the perception that the structural performance of wooden post and beam homes, as well as the regulation of construction practices, needed to be improved to ensure the safety of homeowners in Japan . However, the single most important factor affecting the use and specification of structural softwood lumber for use in residential construction in Japan has been the Housing Quality Assurance Act (HQAA). The HQAA was promulgated to improve the quality and performance of new homes and provide homebuyers with specific safeguards and rights when purchasing a new home. The HQAA was developed partially in response to the poor performance of post and beam houses in the Kobe earthquake, but also in response to increasing complaints from home buyers about construction defects and the lack of responsiveness on the part of home builders in correcting those defects.
Japan 's domestic lumber industry presents a contrast to the overall low level of timber self-sufficiency. Whereas over 80% of Japan 's total timber supply is derived from imports, only about 40% of Japan 's softwood lumber demand is provided by imports. Despite Japan 's relatively high level of self-sufficiency in softwood lumber, the domestic lumber industry is characterized by declining production levels as smaller, less efficient sawmills have closed down. The domestic sawmill industry was particularly hard hit by the Asian economic crisis, with the number of sawmills declining from 14,028 in 1996 to 12,810 in 2001. These sawmill closures resulted in large declines in productive capacity from 1997 to 1998. Over the past five years, domestic lumber production has declined from 25 million m 3 to less than 14 million m 3 (and the number of sawmills in 2006 has declined to 8,590), while lumber imports have increased to approximately 9 million m 3 . The combination of declining domestic lumber production and slowly increasing import volumes means that self-sufficiency dropped from 74% in 1991 to the current 60%.
Recent developments in Japan and the US have favorably affected the competitive position of US softwood lumber in Japan and renewed US exporters interest in the Japanese market. The weakening of the US dollar relative to its major competitors in Japan , a weak US housing market and the announced export tariffs on Russian logs all bode well for US lumber in Japan . Therefore, it is in the US forest products industry's best interest to work to work with their Japanese customers to convince Japanese home builders and home buyers that using DF hirakaku is worth the small price premium it commands in the market. For example, a promotional campaign emphasizing the strength, durability and natural beauty of Douglas-fir structural lumber could be very helpful in Japan . In the absence of this type of promotional effort, DF hirakaku products can be expected to continue losing market share in the long-term. One recent estimate derived from interviews with pre-cutters and lumber wholesalers suggests that between 2000 and 2010 the market share for DF hirakaku could shrink from 83% in 2000 to 70% in 2010.
There are a number of factors that constrain the competitiveness of solid sawn US DF hirakaku in Japan, including: high cost of kiln drying large size DF hirakaku, the difficulty in shipping green hirakaku to Japan without developing surface mold and discoloration, the difficulty in maintaining a stable moisture content for kiln dried DF hirakaku during the shipping period to Japan, price fluctuations, reluctance to cut to the lengths required by pre-cutters, the size of the domestic Japanese DF sawmill industry, the high cost of maintaining inventory in Japan, the ready availability of lower cost hirakaku products from domestic DF sawmills and foreign glulam suppliers, the extremely large number of hirakaku size combinations that require a huge number of different hirakaku product sizes (approximately 140 size combinations) and the attendant high inventory costs, and the difficulty in establishing an effective distribution system in Japan
Given the serious constraints associated with establishing and maintaining an adequate supply of imported DF hirakaku in Japan , we would recommend that the US industry not develop a branding program for DF hirakaku in Japan . This decision is further supported by the fact that there is currently a large, well established domestic DF

sawmill industry in Japan . The fact that Japanese DF sawmills have already developed branded hirakaku products further supports this recommendation. It is difficult to see where US sawmills would have a competitive advantage over Japanese sawmills producing branded products, particularly considering the well established distribution channels that the Japanese sawmills have already developed within the pre-cutting and home building industries. Despite this, there are substantial opportunities for US DF sawmills to establish direct supply relationships with medium-sized regional homebuilders and larger national homebuilders. These homebuilders have become extremely cost conscious in the past decade and many expressed interest in purchasing building materials directly from US sawmills as a way to reduce distribution channel costs and improve product quality.
In addition, there is a good opportunity to export kiln dried DF glulam lamina to glulam manufacturers in Japan . This is particularly true if the US industry were to promote DF glulam hirakaku as a superior product to either European whitewood or redwood glulam. However, it would be important for US lamstock producers to resolve the forward pricing issue that currently provides European glulam manufacturers with a competitive advantage. There is also an opportunity to export lamstock produced from other species as well. For example, Alaska yellow cedar lamstock for glulam sill plates ( dodai ) and Sitka spruce for glulam hirakaku. Further research would be required to develop a better assessment of the potential for exporting lamstock to Japanese glulam manufacturers.