Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - The state of the competitiveness of the EU forest-based and related industries
Date: 1999-10-05
Institutions: European Commission
Subjects: competitiveness, single market, wood industry

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  5.10.1999 
COM(1999) 457  final 

COMMUNICATION FROM THE  COMMISSION 

TO THE COUNCIL, THE EUROPEAN  PARLIAMENT, 
THE ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 

THE  STATE  OF THE  COMPETITIVENESS  OF 
THE  EU FOREST-BASED  AND RELATED  INDUSTRIES 

THE STATE OF THE COMPETITIVENESS  OF 
THE EU FOREST-BASED AND RELATED  INDUSTRIES 
: Communication to the Council, the European Parliament, 

the Economic and Social Committee and 
the Committee of the Regions 

TABLE  OF  CONTENTS 

0. INTRODUCTION 

1.  KEY FEATURES AND COMPETITIVENESS  FACTORS OF  THE 

FOREST-BASED  AND RELATED  INDUSTRIES  (FB-IND) 

1.1  KEY FEATURES 

1.2  COMPETITIVENESS  FACTORS  OF THE EU FB-IND 

•  TANGIBLE  FACTORS 
• 

INTANGIBLE  FACTORS 

2. THE MAIN CHALLENGES  AND AREAS OF ACTION FOR THE  EU 

FOREST- BASED AND RELATED  INDUSTRIES 

2.1  THE GROWING  IMPACT  OF GLOBALISATION 

2.2  THE ENLARGEMENT  OF THE  EU 
2.3  AN INCREASED  SENSITWITY TOWARDS ENVmONMENT 

AND ENERGY 

2.4  THE ACCELERATED  TECHNOLOGICAL  EVOLUTION  AND 

ITS IMPLICATIONS ON THE HUMAN RESOURCES 

-  TECHNOLOGY, INNOVATION  AND R & T D 
-  DEVELOPMENT  OF HUMAN  RESOURCES 

2.5  THE EVOLVING  INTERNATIONAL  AND EU  REGULATORY 

AND ECONOMIC  FRAMEWORK 

2.6  THE GROWING  IMPORTANCE  OF  COMMUNICATING 

A GOOD IMAGE  TO  SOCIETY 

3. CONCLUSIONS 

Page 

1 

2 

2 

5 

5 
7 

7 

8 

9 
9 

11 

13 

14 

15 

Annex: 
Summary  of the results  of the 'SWOT'  evaluation  carried  out in collaboration  within 
dependent  experts  and  representatives  of the  FB-IND 
References  and  Sources 

Ux 

0. INTRODUCTION 

The adhesion of Austria,  Finland  and  Sweden to the European  Union  (EU)  in  1995 considerably 
affected  the  structure  and  the  importance  of  the  EU  Forest  Based  and  Related  Industries  (FB-
IND),  which  is  now  one  of  the  largest  industrial  sectors  in  the  EU.  EU  exploitable  forest 
resources  doubled,  pulp  production  tripled,  paper  and  board  production  increased  by  50%, 
mechanical  woodworking  output  went  up  by  30%  and  the  printing  and  publishing  industries 
expanded by  10-15%. Nonetheless, the FB-IND activities are not concentrated  in certain  areas of 
the European Union but are present  in all the EU Member States. 

While  these  industries  generally  maintain  a good  competitive  position  in  relation  to their  main 
international  trading  partners/competitors,  they  increasingly  face 
important  challenges  in 
different  areas  (amongst  others,  globalisation  of  markets  and  technologies,  environmental 
sensitivity,  competition  from  other  materials  and  media).  Unless these  challenges  are dealt  with 
successfully,  the medium to long-term future  of the EU FB-IND might look less positive. 

The  socio-economic  importance  of  the  EU  FB-IND  and  the  presence  of  these  competitive 
challenges  have prompted,  for  the  first  time  in  15 years, a rather  comprehensive  analysis  by the 
Commission  Services and the preparation  of this communication.  It involved  a wide exchange of 
views  with  independent  experts,  the  main  representatives  of  the  EU  FB-IND  and  other 
stakeholders. 

The FB-IND regroup a diverse range of activities, but their common  and renewable raw material, 
wood,  as  well  as  their  close  inter-sectoral  links  through  semi-finished  and  finished  products, 
wood  residues  and  the  recycling  and  recovery  activities, justify  a common  approach  for  the EU 
FB-IND.  This  communication  focuses  on  the  common  features  shared  by  these  sectors,  thus 
leaving  the  detailed  and  specific  analyses  outside  its  scope. Equally,  forest  and  forestry-related 
issues  are  not  covered  since  they  were  included  in  the  recent  Communication  on  a  Forestry 
strategy for  the European  Union.1 The Council  of the EU has acknowledged  the benefits  of such 
a  strategy  through  the  Council  Resolution  of  15 December  1998  on  a Forestry  Strategy  for  the 
European Union (OJ C56 of 26.2.1999) and has emphasized the importance of the  multifuntional 
role of forests  and  SFM based  on their  social, economic,  environmental,  ecological  and  cultural 
functions  for the development of society and, in particular rural areas. 

The  objective  of  this  communication  is  to  propose  a  set  of  actions  to  be  undertaken  and/or 
pursued  by  the  main  stakeholders  of  these  industries,  in  order  to  strengthen  the  global  and 
sustainable  competitiveness  of  FB-IND  in  the  EU  (ref.  Articles  2,  6,  157  and  174  of  the  EC 
Treaty). It follows  the  integration  process  launched  at the  Cardiff  European  Council,  as  well  as 
the  conclusions  of  the  last  Industry  Council  of  29  April  1999,  which  promote  an  integrated 
approach  to  sustainable  development,  taking  into  account  the  objectives  of  environmental 
protection,  competitive  economic  development  and  social  development.  For  this  purpose,  the 
communication: 

• 
• 

• 

describes the key socio-economic  features  of these industries  in the EU (Chapter  1.1); 
analyses the main factors  (tangible and  intangible) affecting  their competitiveness  in relation 
to their principal  international  competitors (Chapter  1.2 and Annex 1); 
identifies  the  key  challenges  for  the  EU  FB-IND  and  the  areas  of  actions  which  could 
contribute  to  their  sustainable  development  taking  equally  into  account  their  economic 
competitiveness,  as  well  as  environment,  employment  and  social  welfare  considerations 
(Chapter 2). 

This  communication,  in  the  preparation  of  which  the  main  elements  were  discussed  in  a 
Conference  open  to  all  stakeholders  that  took  place  in  Helsinki  on  July  1999,  has  to  be 
considered  as  the  first  step  towards  an  open  dialogue.  This  dialogue  should  be  pursued  in  the 
framework  of  the  Forum  proposed  in Chapter  3, in  order  to  deepen  the  analysis  of  some  of  the 
less well-known  issues, to define  the  priorities  for  the proposed  or newly  identified  actions  and 
to follow-up  their  implementation. 

lb 

1. KEY FEATURES AND COMPETITIVENESS FACTORS OF THE EU FB-IND 

1.1 KEY FEATURES 

SCOPE  AND  USES 
The  EU  FB-IND  comprise  five  main  sectors:  woodworking;  pulp,  paper  &  board  production; 
paper  and  board  converting  and  packaging;  printing;  and  publishing.  They  are  interlinked 
through their  use of common  raw materials and the employment  of similar  product  recovery  and 
recycling  processes. 

Woodworking  industries  supply  basic  products  such  as  sawn  goods,  wood-based  panels  and 
builders' carpentry for construction,  internal decoration and furniture.  Wooden packaging is used 
for  transport,  while  in  many  cases  sports  equipment,  musical  instruments  and  artistic  products 
have wood as their raw material. 

The  pulp,  paper  and  board  manufacturing  and  converting  industries  form  another  important 
sector meeting demand  from  individuals and society. Paper  is a necessity for  almost  all forms  of 
activity,  such  as  in  communications  and  advertising  (newspapers,  magazines,  directories), 
education  (books,  writing  paper,  etc.),  business  (security  papers,  forms,  labels,  copy  paper), 
commerce  (bank  notes,  cheques,  postage  stamps),  culture  (photography,  art-work),  hygiene 
(kitchen  rolls,  napkins,  diapers),  medicine  (dressings,  swabs),  food  and  beverage  packaging 
(coffee  filters,  paper  crockery  & cutlery,  liquid  carton  board,  folding  box-board),  transport  and 
protection  (tachographs, bags, sacks, paperboard  packaging). 

The printing and publishing  industries  are end-users of paper & board  industries' products. They 
are  among  the  largest  consumers  of  paper  products  and  serve  all  sectors  of  the  economy 
including public authorities,  financial  services, distributive  services  and  manufacturing  industry. 
Their products range from  newspapers, magazines, books, catalogues  and  packaging to a variety 
of  other  products,  e.g.  postcards,  calendars,  maps,  banknotes  and  security  printing  products, 
programmes  and  tickets.  Printing  and  publishing  are  therefore  relevant  from  both  goods  and 
services perspectives. 

MAIN  SOCIO-ECONOMIC  PARAMETERS 
The  EU  FB-IND  constitutes  one  of  the  largest  industrial  sectors  in  the  EU.  In  1997,  it  had  a 
production  value  of  319 Billion  Euro  (B€), a value  added  of  112 B€  and  directly  employed  2,4 
million  people.  It  represented  10%  of  production,  added  value  and  employment  of  the  EU 
manufacturing  industries.2 

In  1998, according to EU  statistics  (see table overleaf),  the EU FB-IND  accounted  for  a total  of 
around  63.000  companies3,  ranging  from  a considerable  number  of  SMEs  to  a small  number  of 
large global corporations. The biggest companies of the EU/FB-IND are to be found  in the pulp, 
paper  & board  and  publishing  sectors  in which there  is the  greatest  concentration  of  activity. In 
these  sectors,  the  20  largest  companies  account  for  60%  of  the  total  turnover.  It  is  worth 
mentioning that tens of thousands of SMEs with fewer  than 20 employees  in the FB-IND are not 
included  in  the  above  figures,  leading  to  a  significant  underestimation  of  the  socio-economic 
importance  of  the  sector  in  the  EU.  The  EU  FB-IND  is,  furthermore,  supplied  by  12  million 
private EU forest  owners. 

The  FB-IND  are  not  only  found  in  certain  areas  of  the  European  Union  but  are  present 
throughout the Member  States. FB-IND are not only present  in high population  density areas but 
also  are  often  situated  in  remote  areas,  close  to  their  raw  material  source,  contributing  to 
maintaining  economic  activity,  employment  and  infrastructure,  as  well  as  sustaining  living 
conditions  in these remote  areas  of the EU.  Their  presence  in these  areas  of Europe  adds to  the 
overall economic convergence of all regions and to social  cohesion. 

The printing and  publishing  industries,  uphold  also a centuries-old  function,  that  of enabling  art 
and  literature,  politics  and  free  expression  to  exist  and  expand,  which  is  at  the  centre  of 
European  culture  and  democracy:  they  are  important  users  of  paper  and  board  and  they 
participate  in the recycling chain, but they also have issues of specific  concern (competition  with 
electronic media, content legislation etc.). 

The  EU  FB-IND  is  also  the  focus  of,  and  is  mutually  interdependent  on,  a  Forest  Industries 
Cluster  (FIC). The Cluster  industries provide  goods and  services to, or  purchase  them  from,  the 
EU FB-IND. Additionally, the quality of the Cluster  industries  influences  the competitiveness  of 
the  EU  FB-IND.  The  Cluster  industries  cover  sector-specific  machinery  &  equipment,  process 
control  systems,  chemicals,  furniture  and  wooden  construction  elements  for  building  purposes, 
and consulting  dedicated  to  serve the  FB-IND. The  production  value  of the  FIC  is  estimated  as 
being up to 450 B€. 

Socio-economic  impact of Forest-based and Related Industries in the EU in 1998 

Production 
value 

% 

Million 
EURO 

Value added 
at factory 
cost 
Million 
EURO 

Number of 
enterprises 
(1995) 

Number of 
persons 
employed 

60.158,6 

19 

18.760,7 

29.113 

526.679 

55.223,5 

17 

16.066,2 

930 

217.175 

55.738,4 

18 

18.070,0 

5.009 

381.582 

61.184,1 
86.362,4 

318.667,0 
68.598,6 
64.624,0 

19 
27 

100 

26.429,8 
32.258,6 

111.585,3 
23.731,3 
24.841,8 

20.606 
7.488 

63.146 
19.409 
6.761 

626.098 
627.409 

2.378.943 
675.793 
617.149 

451.889,6 

160.158,3 

89.316 

3.671.885 

Mechanical 
woodworking 
excl.  furniture 
Pulp, paper and 
board 
manufacturing 
Paper and board 
converting 
Printing 
Publishing 

Total FB-IND 
Furniture 
Machinery, 
equipment, 
chemical 
Total FB-IND 
cluster 

Source: Eurostat 
Enterprises with less than 20 employees not included 

TRADE 
Out  of  the  total  EU  production  of  319  B€  of  FB-IND  products,  only  53  B€  (16%)  is  traded 
between  the  Member  States  and  25  B€  (7%)  is  exported  outside  the  EU.  The  EU  FB-IND  is 
therefore  predominantly  a domestic  industry. 

The EU's  main trading partners  in order of importance  are North America (especially the USA), 
the  Central  and  Eastern  European  countries  (CEEC)  and  Asia.  Extra-EU  trade  has  in  general 
been  positive  since  1995, with  the  exception  of North  America.  In  1997,  EU  product  imports 
from  North  America  (US,  Canada)  amounted  to  7,5  B€  involving  a  wide  range  of  products 
without  any  specific  focus.  EU  exports  to  these  markets  (mostly  paper  and  board  and  printed 
products) were worth 3,2 B€, leaving a trade deficit  of 4,3 B€. From Asia and the CEEC, the EU 
imports mostly mechanical  woodworking  industry products  such as sawn wood,  round wood  and 

panels  and  it  exports  mostly  paper  and  board  products.  The  trade  balance  with  Asia  has  been 
positive (+3,7 B€) until  1997, and trade with the CEEC has been in balance. 

Of the FB-IND  intra-EU trade, paper  and  board  and  graphics  products  represent  approximately 
70% and mechanical woodworking products 20%. 

The  EU  is  highly  dependent  on  the  imports  of  plywood,  so  called  sawn  hardwood,  and  pulp, 
while  the  extra  EU-markets  are  particularly  important  for  the  export  of  certain  printing  paper 
grades and sack paper. These imports represent 30-60% of EU consumption  levels, depending on 
the product,  and  the  exports  represent  similar  percentages  of EU  production  levels.  Since  1995, 
the trade balance  has been  continually  negative  in mechanical  woodworking  products  and  pulp, 
but positive  in paper and board and graphic products. 

GROWTH 
In  general,  the  FB-IND  growth  is  steady  and  close  to  the  average  growth  rates  for  industry.5 
Between  1989  and  1996,  the  EU  FB-IND  grew  annually  by  2,2%  compared  to  the  EU  total 
manufacturing  industries'  growth  of  2,4%.  However,  the  printing  and  publishing  sectors  have 
above average growth rates, while the wood and paper sectors remain  slightly under them. 

The  demand  for  woodworking  industry  products  is  driven  primarily  by the  construction  sector. 
Other  significant  demand  sectors  for  woodworking  industry  products  are  the  furniture  and 
packaging sectors, whose requirements are related to private  consumption. 

In the  paper  and  board  sector  the  demand  for  packaging  grades  is related  to  GDP  growth  rates. 
The  demand  for  graphic  and  household  paper  is  on  the  other  hand  related  to  advertising  and 
private  consumption.  The  printing  and  publishing  sectors  for  their  part  are  to  a  large  extent 
dependent on the demand for advertising and promotional material. 

Despite  its  steady  growth,  the  EU  FB-IND  is  characterised  by  high  cyclically  and  variable 
earnings, being subject  to factors  such as over-capacity, regional  imbalances  outside the EU, and 
speculative  forces. 

FOREST  RESOURCES  AND  ENVIRONMENT 
Together, the forest  and the products from  forest-based  industries form  an eco-cycle not yet  fully 
integrated.  The  sun  drives  this  eco-cycle:  with  water,  nutrients  and  carbon  dioxide, 
photosynthesis  transforms  solar energy  into wood  fibers  in growing trees. The cyclical  nature  of 
this process means that the forest  is a renewable source of raw material that provides wood  fibres 
for the production  of timber products, pulp and paper, as well as energy. In harvesting wood  and 
regenerating forests, the FB-IND stimulate the growth of forests  and, by producing durable wood 
based  products  which  act  as  carbon  stores  (C02  being  essential  for  the  growth  of  wood),  they 
reinforce  this cycle. Forests and their products have the capacity to store vast  amounts of carbon 
(1 ton  of C02  in  1 cubic  metre  of timber)6, and thus  play  a significant  role  in the  global  carbon 
balance.  Forestry  offers  a  large  potential  for  the  mitigation  of  green  house  gases  (GHG)  at 
modest cost, low risk and with a number of environmental  and socio-economic  benefits. 

Although  a number  of  actors  of the EU FB-IND participate  in a significant  way  in the  recovery 
activities  of  their  products,  all  actors  are  encouraged  to  improve  their  participation.  Recovery 
starts  from  the  beginning  of  the  industrial  process,  debarking,  through  the  different  process 
stages  where  wood  residues,  wooden  chips,  black  liquor,  and  other  leftovers  from  each 
processing  stage  are  either  reinserted  into  the  production  process  or  used  in  energy  generation. 
At later stages of secondary processing e.g. printing & publishing, carpentry  and joinery or at the 
retail  business  and  final  consumer  level,  the  recovery  and  recycling  of  FB-IND  products  is 
organised  at  industry  and  household  levels,  having  developed  rather  competitive  recovery  and 
recycling  actions,  which  have  steadily  increased  the  rate  of  recovery  of  used  paper  and  wood 
since  the  1970s. Today,  paper  and  board  have  high  recovery  rates  with  a  recorded  36  million 
tons for  1998  in the EU. The collection  rate of recovered  paper  is close to  50% in Europe, with 

significant  variations  between  Member  States  and  local  areas,  compared  with  25% in the  USA 
and Asia.7 

Incineration  of  FB-IND  products  can  be  combined  with  techniques  such  as  co-generation  to 
produce  energy  from  renewable  resources.  Through  more  efficient  production  processes, 
preventive  strategies, cleaner  production technologies and processes throughout  the product  life-
cycle, industry and economic operators can play a major role in reducing impacts on resourse use 
and environment. Those techniques have also the advantage of emitting into the atmosphere only 
the C02  once trapped  in the product. Thus, it does not generate  a net  increase  in the  atmospheric 
C02 balance. 

1.2 COMPETITIVENESS FACTORS OF THE EU FB-IND 

Various  localised  factors  such  as  European  climatic  conditions,  often  difficult  working 
conditions,  as well  as  the  EU's  high  living  standards,  have  contributed  to  the  present  relatively 
high production  costs  under which  the EU FB-IND operate. They  also helped  to account  for  the 
high  level  of  knowledge,  know-how  and  productivity  that  has  enabled  the  FB-IND  to  find 
compensation  for  high  input  costs  and  to  become  world  leaders  in  value  added  and  quality 
products. 

The  competitiveness  of  the  EU  FB-IND,  as  for  any  other  industry,  is  a  combination  of  several 
factors.  In  this  communication,  the  competitiveness  factors  have  been  categorised  as  either 
tangible or intangible. Tangible  factors  comprise both the various  input cost factors,  such as raw 
materials  and  energy,  and  the  technology-based  factors  that  are  connected  with  productivity, 
such as machinery capacities, control  systems and information  and communications  technologies 
(ICT). Intangible  factors  are  all  factors  contributing  to  improving  quality  and  performance  such 
as research & development,  innovation, education  and  skills, on the one hand, and the  legislative 
and  administrative  (institutional)  framework  on the  other  hand.  Changing  the  intangible  factors 
influences  the tangible ones. 

In order to learn more about the factors  affecting  the competitiveness  of the EU FB-IND, several 
'SWOT'analyses  have been  carried  out by  independent  consultants  in cooperation  with  some of 
the FB-IND sectors. These studies provided a comprehensive  overview of the sectors' strong and 
weak  points,  opportunities  offered  and  threats  to  be  faced.  Their  results  are  summarised  in  a 
table attached to this  communication  (see  annex  1). The  following  outlines  the  main  findings  of 
these studies. 

TANGIBLE  FACTORS 

INPUT  FACTORS 
Costs related to wood,  energy,  labour, transportation  and tax are generally higher  in the EU than 
for  example  in North  and  South  America  and  Asia.  Only  Japan  faces  higher  production  costs 
than the EU FB-IND. 

Forest Wood 
The EU has a total  forest  area of  130 million ha, accounting  for  about  36% of its total  land area. 
Some 87 million ha (67%) are considered  exploitable forests.8 In comparison with the vast boreal 
and  tropical  forests  of  other  regions  in  the  world,  the  EU's  forest  resources  are  modest, 
representing  only 4% of the world's  forest  resources.9  Since wood  availability  is fundamental  to 
the  industry,  the  EU  forest-based  industries,  together  with  the  EU  forest  owners,  have  made 
substantial  efforts  to  ensure  the  development  of the  whole  forestry  sector  in  Europe  (including 
downstream  FB-IND). As  a result,  the  EU  forest  cover  and  growing  stock  have  increased  over 
the last  100 years and more than 50%, since the 1950s.10 

In  terms  of  wood  availability,  the  EU  is  today  fairly  well  positioned.  As  regards  the  current 
consumption  in Europe, only 70% ''  of the annual growth  of EU wood  resources  are being used, 

which  might  imply  that  there  is room  for  further  development  of  the  wood-based  industries. In 
fact,  the  remaining  30%  comprises  forest  that  is  unsuitable  for  or  unavailable  to  industry. 
Therefore,  within  a 30-year  perspective,12  taking  into  account  both  the  objective  of  sustainable 
forest  management  and  the  forecasted  increase  in  the  demand  for  wood-based  products  in  the 
EU,  wood  resources  will  increasingly  need  to  be  complemented  by  outside  wood  supply 
resources such as those of Russia. 

Wood prices  in the  EU, depending on the  species, are  50-150% higher  than  in North  and  South 
America  and  Asia  (excluding  Japan). In  spite  of the  higher  price, the  FB-IND  uses  mainly  EU 
wood due to its proximity, quality and the sustainability of EU  forests.13 

Chemicals 
A  wide  range  of  chemicals  are  used  in  the  FB-IND.  For  wood,  these  are  mainly  glues,  resins, 
surfacing  substances  and preservatives. For papermaking the most used chemicals are fillers  and 
coatings  such  as  kaolin,  latex,  starch.  For  graphics  it  is water-based  and  solvent  inks  and  dyes. 
There  is a strong EU-based  chemical  industry  linked  to the  FB-IND. Additionally,  the  pulp and 
paper  industry often  has on-site production  of chemicals and recovery  of by-products.  Chemical 
costs  are  generally  lower  for  the  EU  than  for  its  competitors,  except  in North  America  where 
they are 5-15% lower than  in the EU.14 

Energy 
FB-IND  are  often  energy  intensive  but  have  significantly  increased  their  energy  efficiency 
during  the  last  20 years,  both  through  process  development  and  recovery  as  well  as  the  use  of 
residues. Energy sources have also been  diversified,  with  a prominent  use of renewable  energies 
such as hydro, wood, paper and process residues. The FB-IND thus depend on guaranteed  energy 
supply  at  competitive  prices. However,  despite  increasing  convergence  over  the  last  few  years, 
energy  prices  in the  various  EU  Member  States  are  still  relatively  high  and  vary  significantly. 
Average  gas  and  electricity  prices  for  the  EU  FB-IND  are  about  100%  higher  compared  to 
Canada, 25-30% higher  compared  to the  USA  and  South  America  and  10% higher  compared  to 
some  Asian  countries  such  as  China,  Indonesia  and  South  Korea.  The  impact  of  these  higher 
costs varies according to specific  sub-sectors of FB-IND.15 

Labour 
Labour costs are high  in the EU, reflecting  not only salaries and wages, but also the  costs  of the 
high  level  of European  health  and  safety  standards  and  welfare  systems.  They  are  20%  higher 
than in North America, and about  100% higher compared with  South America and Asia. This has 
a  considerable  cost  impact  in  labour-intensive  sectors  such  as  the  printing,  publishing  and  the 
woodworking  industries.16  These  higher  costs  may  partly  be  compensated  by  the  'proximity 
factor'  but  also  require  a  permanent  effort  of  compensation  through  quality,  service  and  other 
factors  adding 'customer value' to the product. 

to  the  distribution  of  final  products  for  retail  sale.  Therefore,  any 

Transportation  and logistics costs 
Transport  and  logistics  are  very  important  for  the  EU  FB-IND,  from  wood  procurement  in  the 
forest 
legislative, 
administrative,  fiscal  or  other  factor  exercising  an  impact  on  the  costs  of  transportation  and 
logistics  has  an  immediate  consequence  for  FB-IND  competitiveness.  In  most  parts  of  the 
European  Union,  transport  networks  and  services,  including  rail,  road,  waterways,  airports, 
seaports,  postal  and  courier  services  are  today  well  developed  and  of  high  quality.  However, 
transport  costs  are  high,  in  particular  diesel  fuel  is  twice  as  expensive  in  Europe  as  in  other 
competing regions.17 

TECHNOLOGY BASED FACTORS 

Over  the  past two  decades,  the  EU  FB-IND  has  made  considerable  efforts  to  increase  process 
productivity and efficiency  in order to offset the handicap of higher  input costs as compared with 
their  competitors  in  other  regions.  This  has resulted  in  both  considerable  investments  in  higher 

production  capacities  and a wave of mergers during the past years. Consequently,  the number of 
FB-IND companies has decreased  more in the EU than  in other regions  in the world. In parallel, 
continuous  investment  has  raised  EU  production  installations  to  the  largest  in  the  world  and 
enabled  them  to considerably  increase  both  their productivity  and  quality  levels. More  efficient 
production  has  resulted  in  increased  yields  in the  use  of wood  and  water,  and  improved  energy 
efficiency.  The  development  of  process  recovery  systems  has  reduced  raw  material  needs. 
Among the EU FB-IND competitors, Asia and Latin-America have increasingly modern and new 
production  capacity,  whilst  the  North-American  capacity  on  the  other  hand  is  ageing.  The  EU 
FB-IND is more fragmented,  and it includes both new and ageing production  capacity. 

INTANGIBLE  FACTORS 

R &D  INNOVATION  &  SKILLS 
Through mergers, forward  and backward  integration, and  intensified  cooperation  with dependent 
industry  and  other  interlinked  sectors  (the  so-called  clustering),  the  EU  FB-IND  have  improved 
their knowledge and know-how and contributed to the present high  level of R&D, innovation and 
skills.  However,  the  main  efforts  in  this  area  were  made  by  sectors  gravitating  around  the  EU 
FB-IND  rather  than  by  the  FB-IND  core  activities  themselves.  Thus,  machine  and  equipment 
suppliers,  the  chemical  industry,  process  designers  and  automatic  process-control  system 
suppliers, as well as  input from  research  communities, contribute  significantly  to  improving and 
upgrading  the  EU  FB-IND.  Continuous  efforts  in these  fields  have  enabled  the  EU  FB-IND  to 
create  a  technological  and  know-how  competitive  edge  in  production  efficiency,  as  well  as 
differentiated  and high value added products and quality. 

Further  competitiveness  factors  for  the  EU  FB-IND  are  human  competence  and  skills.  The 
highly  skilled  workforce  in  the  EU  has  enabled  the  FB-IND  to  efficiently  use  their  tangible 
assets and ensured the continued  implementation  of innovations. It has, furthermore,  enabled  the 
EU FB-IND  to  outperform  competitors  from  lower  cost  countries  both  in  terms  of  productivity 
and quality. 

LEGISLATIVE  AND INSTITUTIONAL  FACTORS 
The  EU  legislative  and  institutional  framework  obviously  has  significant  impact  on  both  the 
investment  and  operating  costs  of the EU FB-IND  and  consequently  on their  present  and  future 
competitiveness.  Environmental,  fiscal,  energy,  or  labour  related  measures,  both  at  EU  and 
national  level,  affect  the  actual  cost  level  of  the  input  factors  as  well  as  the  technology  based 
investments.  While the EU  single market, the  introduction  of the  euro  and  high  living  standards 
offer  an  excellent  market  place  for  FB-IND,  legal  measures,  in  particular  in  the  environment 
field, often  form  a major  challenge  for  the  sector. Environmental  obligations  are  still  seen  more 
as  a  cost  increasing  factor  than  as  factor  to  enhance  competitiveness.  In  particular,  the  use  of 
voluntary  instruments,  such  as  the  eco-management  and  audit  scheme  (EMAS)  regulation, 
should be encouraged. It should be noted that today as much as  15% of the new investment in the 
FB-IND  is  directed  to  meet  environmental  targets.  The  corresponding  figure  in  competing 
regions  is  lower.  The  EU  FB-IND  have  tried  to  overcome  this  by  enhancing  technological 
productivity  and efficiency  and  increasing  efforts  in the areas  of R&D,  innovation,  training and 
skills. 

2. THE MAIN CHALLENGES AND AREAS OF ACTION FOR THE EU FOREST-
BASED AND RELATED  INDUSTRIES 

The  evaluation  of  the  factors  affecting  the  competitiveness  of  the  EU  FB-IND  allows  for  the 
identification  of the various  longer term challenges the  sector will  be faced  with. In this  chapter, 
these  challenges  will  be  grouped  in  the  following  broad  categories:  Globalisation,  the  EU 
enlargement,  environment  and  energy,  technology  and  human  resources,  regulatory  framework, 
and the industry image in the public. The action areas designed to meet these challenges  are also 
outlined for each category. 

2.1 THE GROWING IMPACT OF  GLOBALISATION 

Globalisation  is  not  a  new  phenomenon  in  the  EU  FB-IND,  but  has  gained  pace  in  three 
successive  waves:  the. internationalisation  of  trade,  especially  since  the  1950s;  the  worldwide 
flow  of  capital,  especially  since  the  1980s;  the  globalisation  of  information  flows,  which 
continue  to  grow  faster  than  either  trade  or  capital.  It  has  resulted  in  the  increased  geographic 
availability  and  uniformity  of  technology,  expertise  and  capital  through  cheap  and  available 
transport, ever more rapid and effective  communications  media and networks. The  interaction  of 
these  factors  has  led  to  the  creation  of  a  more  homogeneous  and  cross-cultural  business 
environment. 

In  the  EU  FB-IND,  the  effects  of  globalisation  have  been  seen  in  the  increased  worldwide 
procurement  of  raw  materials  such  as  wood  and  pulp  and  in  the  intensification  of  world-wide 
trade  in forest-based  products (+ 30% in  1992-1996)18 and forest  industry  designated  technology 
products.  Globalisation  is  a  two-way  phenomenon:  on  the  one  hand  it  offers 
increased 
opportunities  to  those  sectors  that  are  active  in  extra-EU  exports,  such  as  paper  &  board  and 
graphic industry. On the other hand it increases pressure within the EU through  low cost imports, 
which  affect  in  particular  the  products  with  a  low  value-added,  e.g.  sawn  wood,  certain  wood 
based panels and pulp industries. In both cases, the EU FB-IND faces competition from  countries 
where  social  and  environmental  standards,  concern  for  sustainable  forest  management,_health 
and  consumer  protection,  and  the  priority, accorded  to  intellectual  property  rights  and  hence 
production  costs are  at a lower  and,  in some  cases, far  lower  level. In the  next  WTO  Millenium 
Round environmental  standards should be given special attention. 

The Community  industry  is increasingly  challenged  by the new  low cost competitors  from  Asia, 
Latin  America  and  sometimes  the  CEEC,  in  particular  when  the  new  competitors  protect  the 
development  of their  FB-IND through  high  import tariffs  and  restrictive  export  quotas. This has 
caused  the  EU  FB-IND  to  lose  market  shares,  both  within  and  outside  the  EU.  Competition  is 
further  increased  through  growing  mobility  and  transfer  of  technology,  knowledge  and  know-
how in the form  of skills towards  low input cost areas, thus accentuating the  pressure  on the EU 
FB-IND. In the  1990's, the highest  growth  in new  investment  outside the EU  in the FB-IND has 
taken place in Asia resulting in a loss of market shares of the EU FB-IND in certain  sectors, such 
as in the wood based panels  industry. 

Initial  consequences  of this  new  competitive  situation  can  be  observed  in the  increase  in cross-
continental  purchases  of forest  resources, mergers, joint  ventures, alliances,  licensing and  rights 
purchases.  In  addition  to  pure  cost  factors,  these  developments  are  intended  to  ensure  future 
wood  supply,  improve  the  stability  of  the  market,  and  to  better  serve  FB-IND  customers,  a 
number of whom act on a global scale. 

Challenges: 
•  Adapt the industry structure to the new competitive  situation; 
• 

Improve  access  to  markets  in  third  countries  for  the  Community  exports  and  investment, 
inter alia, through WTO and prepare for the Millennium Round  negotiations; 

a  Strive for free  and fair trade  with respect to tariff  and non-tariff  barriers; 
Q  Work  towards  the  harmonisation  of  international  standards,  certifications  and  tests,  as well 

as their mutual  recognition; 

a  Safeguard  EU FB-IND interests in international  fora. 

Action areas: 
In  order  to  ensure  the  global  and  sustainable  competitiveness  of  the  EU  FB-IND,  it  will  be 
essential to guarantee access to raw materials and export markets, to create and environment that 
favours  competition  on  an  equal  footing,  and  to  encourage  the  EU  FB-IND's  adaptation  to  a 
fiercer  competition. 

•  Encourage  the  EU-FB-IND  to  adapt  and  restructure  using  market-driven  mechanisms  and 

improve the availability of  funding; 

•  Ensure the  continued  access to and the  availability  of  raw materials  through  actions  against 

eventual third country export restrictions; 

•  Collect relevant  information  about tariff  and non-tariff  barriers  in third countries that  impede 
access to these markets, and to take appropriate measure, through  the WTO  if necessary,  for 
their removal; 

•  Promote in the next WTO Millenium Round a high-level of environmental  standards; 
• 

In  international  fora  such  as WTO, WIPO, UN/CSD,  ISO, work  towards  the  harmonisation 
and the mutual recognition of rules and standards, and contribute to the development  of more 
equal, fair  and reciprocal competition rules. 

2.2 THE ENLARGEMENT  OF THE EU 

The  political  decision  to  incorporate  into  the  EU  the  candidate  Central  and  Eastern  European 
Countries  (CEECs)  has  underpinned  the  transition  of these  countries  to  democracy  and  market 
economy.  With  a  population  of  more  than  100  million,  the  candidate  CEECs  constitute  a 
significant  potential  growth  market  for  EU  forest  based  and  related  products.  The  growth  in 
demand will start to be felt when the current relatively  low consumption  levels begin to approach 
the EU-15 levels. The FB-IND in the CEEC play an important role  in the modernisation  process, 
as they  are  often  at  the  center  of  key  industrial  activities  and  export  revenue  sources.  FB-IND 
figures  among the top three industry sectors in the Baltic states, Slovenia and Poland.19 

However,  the  strengths  of  the  candidate  CEECs,  such  as  low  labour  costs  and  a  good  level  of 
technical  qualifications,  are  often  outweighed  by  outdated  production  technologies,  low  energy 
efficiency  and  poor  environmental  performance.  The  forest  resources  of the  candidate  countries 
are considerable, representing  33 million hectares of commercial  forests  i.e. 36% of those of the 
EU-15.20  However, the  privatisation  process of these  resources  has  only  recently  been  launched 
with  an unknown  outcome. Furthermore,  it will take  some  time  to  implement  sustainable  forest 
management,  as widely practiced  in the EU where  it is grounded  in a legislative  base,  supported 
by monitoring institutions and private forest  owners. 

Challenges: 
•  Ensure adoption and application of the EU legislation, the so-called  'acquis communautaire'; 
•  Build up complete and reliable statistics of the FB-IND in the CEEC; 
Q  Acquire  sufficient  knowledge  of  the  economic,  technical  and  environmental  performance 

with the aim of ensuring the CEECs  ability to compete  in the Single Market. 

Action areas: 
•  Monitor the transposition and implementation  of EU legislation  in the CEEC ; 
•  Evaluate the CEEC  FB-IND's readiness  for  accession  and verify  that the candidate  countries 

meet the requirements  of the Single Market; 

•  Enhance  institution-building,  both  in  public  administration  and  among  the  FB-IND  in  the 

CEECs; 

•  Develop statistical  information  related to the FB-IND in the CEECs; 
• • 

Improve  awareness  within  the  CEEC  of the  effects  of the  EU  policy  objectives  on the FB-
IND and facilitate  industrial cooperation with their EU partners. 

2.3 AN INCREASED SENSITIVITY TOWARDS SUSTAINABLE  DEVELOPMENT, 
ENVIRONMENT AND ENERGY 

Increased  awareness  at  all  levels  of  society  has  led  to  the  growing  sensitivity  of  the  public  to 
environmental  issues.  For  the  Forest-Based  Industries  and  Related  Industries,  sustainable 
development  has become  one of its key priorities. This  implies that  an  overall  balance  has to be 
found  between  environmental,  social  and  economic  aspects. The  challenge  is thus two-fold:  the 
9 

sector has to .improve the the environmental performance  on a permanent  basis while  increasing 
its competitiveness  in order to maintain  its presence  in the EU, thus providing  employment  and 
creating  value-added.  As  regards  EU  environmental  legislation,  at  present  one  of  the  most 
advanced  in  the  world,  predictability,  coherence  as  well  as  economic  and  social  feasibility  are 
necessary  to  maintain  competitiveness  and  hence  employment  in  the  EU  FB-IND.  The 
Commission  invites  all  stake  holders  to  continue  their  commitment  to  achieve  a  balanced 
approach to the three main pillars of the  sustainability. 

Sustainable  forest  management  (SFM)  is vital  in order to maintain  all  the  ecological,  social  and 
economic  functions  of  forest  resources,  amongst  which  is  the  necessity  of  ensuring  a  constant 
supply  of  raw  materials  at  competitive  prices.  Increasing  awareness  and  concern  about  the 
ecological  and  social  aspects  requires  effective  and  coordinated  policies  on  forestry,  land  use, 
environment,  industries, energy, fiscal  matters and foreign  trade at the appropriate  level. There is 
a  need  to  demonstrate  and  visualize  at  national,  EU  and  pan-European  level  that  SFM  has 
become  in  recent  years  an  important  vehicle  of  social,  political  and  environmental  change. An 
important  policy  tool  to  be  developed  by  the  Member  States  in  this  respect  will  be  the 
formulation  and  implementation  of National  or  Sub-national  Forest  Program's  (NFP) as  defined 
by the Intergovernmental  Panel of Forests (IPF) and identified  as a substantial  element of the EU 
Forestry  Strategy.  In this  context,  careful  consideration  has to  be  given  to  the  ways  of  carrying 
out  SFM and  its designation. According  to estimates, the average  cost  impact  of  SFM and  SFM 
designation adds between  8 and 20% to the costs of wood as raw material (at stumpage level).21 

Much  has  already  been  achieved  with  regard  to  the  reduction  of  emissions  through  improved 
techniques  and  processes.  The  remaining  challenge  consists  in  applying  best  practicies 
throughout the different  sectors in the EU, in particular by applying the Best available  techniques 
(BAT) as defined  in the IPPC Directive, taking into account  local  conditions  and the size as well 
as  the  need  to  avoid  the  shifting  of  pollution  between  the  different  media.  These  BAT  are 
currently the subject  of an information  exchange between Member  States and Industry, the result 
of which will be published  by the Commission  as a BAT reference  document  for  each  sector,  in 
particular  the  pulp  and  paper  sector.22  Research  is  needed  on  the  question  of  the  form  (liquid, 
gaseous, solid) in which emissions could best be improved. 

Sustainable development means also improved  recovery of used wood, paper and  board  products 
and hence a smaller  amount of final  disposals. The waste management  legislation  is a particular 
challenge  to a sector that has been  active  in recovering wood  and  paper  waste to produce  either 
secondary raw material (fiber)  or energy from  a renewable source. The definition  of waste that is 
currently  applied  to  secondary  raw  materials  is  seen  by  industry  as  creating  an  administrative 
burden  and  costs  in  particular  for  small  and  medium  enterprises.  The  implementation  of  the 
Directive  on  packaging  and  packaging  waste,  due  to  be  revised  at  the  beginning  of  2000  will 
have  to  carefully  consider  the  need  to  avoid  differential  treatment  of  materials  which  could 
distort competition between those materials. 

As mentioned  earlier,  recovery  activity  within  the FB-IND  is already  highly  developed  starting 
with  heat  recovery  from  the  debarking  of  the  trees  and  all  the  other  process-inherent  recovery 
and  recycling  activities.  Although  further  improvement  in  this  area  is  still  possible,  further 
development  of  wood  and  paper  recovery  activities  is  nevertheless  a  many-sided  issue  with  a 
number of technical parameters to be taken  into account. Research  is needed  on many aspects of 
wood, paper  and  board  products to  improve their  recyclability  as  new material  or energy  source 
from  a life-cycle  analysis  point  of view,  such  as de-inking  techniques  and  non-hazardous  wood 
treatment  substances. 

Wood  and  paper  products,  in  particular  the  more  durable  products,  play  a  significant  role  in 
climate change, through the extension  of the carbon  sink effect  of forests.  Increased  use of wood 
products can both stimulate the growth and carbon  sequestration  and  increase the carbon  storage 
effect,  while decreasing the emissions through material  substitution.  The  Special  Report  on land 
use,  land  use  change  and  forestry,  being  prepared  by  the  Intergovernmental  Panel  on  Climate 
Change, will assess existing data on the carbon  sinks and the carbon-storing  products  in order to 

10 

implement the Kyoto Protocol. This report,  due in May 2000,  is highly relevant to the FBI-IND 
that are contributing to  it. In particular,  it will  allow to  implement Art. 3.3  and  3.4  of the  Kyoto 
Protocol. 

The  EU  FB-IND  are  medium  to  heavy  energy  consumers.  Given  the  already  important 
achievements  in  increasing  energy  efficiency,  the  scope  for  further  improvements  is  small. 
Energy  recovery  through  the  incineration  of  wood  and  paper  waste,  which  form  renewable 
energy resources,  should  be encouraged  as a way to further  decrease  the  use of fossil  fuels.  The 
European Union  has set the  goal of  increasing the share of energy  from  renewable  sources  from 
5%  up  to  12% by  2010,  with  most  of  the  increase  foreseen  to  come  from  bio-mass  i.e.  from 
forests  and  agriculture.23  Since  wood  is  the  common  raw  material  of  the  FB-IND,  the  need  to 
secure a reliable and permanent supply of wood has become an even greater challenge. 

Challenges: 
Q  Improve the EU FB-IND environmental  and energy  performance; 
• 
a  Contribute actively and competently to coherence, predictability and  competitive 
sustainability  in environmental  and energy legislation  and voluntary  instruments;24 

Promote Sustainable Forest Management within the EU; 

•  Ensure energy supply at competitive prices; 
•  Secure a permanent supply of wood at competitive prices under the development of energy 

policy from  renewable energy sources; 

a  Communicate on environmental performance  using agreed measurement methods. 

Action areas: 
Legislation  and  measures  taken  should  be  based  upon  proper  scientific  assessment  and 
cost/benefit  analyses,  taking  into  account  proportionality.  The  FB-IND  contribution 
to 
sustainable development could be further  enhanced by taking the following  actions: 

• 

• 

Improve  the  EU  FB-IND  environmental  and  energy  performance  through  continuous  R&D 
efforts,  environmental  and  energy  benchmarking  and  uptake  of  cost  effective  new 
technologies and other solutions, taking into account the particular needs of SMEs; 
Improve  waste. management  through  a  comprehensive  approach  including  cost  effective 
recycling,  energy  recovery  and  innovative  solutions  for  final  disposal  by  finding  the  best 
means and waste disposal form  (liquid, gaseous or solid) to effectively  reduce emissions; 
•  Assess the carbon  sequestration  and  storage effects  of the EU FB-IND  in the forest  products 
and  energy  recovery  and  evaluate  how,  through  increased  use  of  FB-IND  products,  their 
climate  change  impact  is  improved,  considering  also  the  substitution  effect  of  less 
environmentally  friendly  materials; 

•  Support  the  implementation  of  the  EU  forestry  strategy  by  contributing  to  promote  cost-
effective  sustainable  forest  management  and  to  set  up  national  or  sub-national  forest 
programs and by thus contributing to establish a suitable SFM  framework; 
Identify  areas in environmental  and energy questions, in which value added could be reached 
through  cost  effective  voluntary  instruments,  such  as  EMAS  and  contribute  actively  and 
competently to the legislative process; 

• 

•  Develop  systematic  and  comprehensive  reports  for  the  EU  FB-IND  in  the  fields  of 

environment and energy. 

2.4 THE ACCELERATED  TECHNOLOGICAL EVOLUTION AND ITS 
IMPLICATIONS FOR HUMAN  RESOURCES 

2.4.1  TECHNOLOGY,  INNOVATION  AND R  &  TD 

Globalisation,  sustainable  development  and  growing  competition  from  low-cost  countries  put 
increasing  pressure  on  productivity  and  environmental  performance  and  create  a  need  for  new 
technical  developments  in order to  stay ahead  in the  competitivity race. High  input costs  can be 

11 

overcome  by using  modern  technology  and  ICT, with  the  aim  of  increasing  productivity  at FB-
IND  installations  and  of  improving  product  quality.  Equally  important  is the  need  to  be  aware 
early  of changing  customer  requirements  and to engage  more  in customer-oriented  research  and 
development  activities.  The  maintenance  of  competitiveness  in  these  conditions  requires 
considerable  and  continuous  efforts  in  R&D,  a permanent  and  enhanced  process  of  innovation, 
and  well-organised  dissemination  of  related  information,  for  the  efficiency  of  the  industry  as  a 
whole.  Within  the  Fifth  Framework  Programme  for  RTD  (1998—2002),  several  specific  and 
horizontal programmes  include research activities on forest-based  industries. Within the  forestry-
wood  chain  community  RTD  efforts  are aiming at optimising the  efficiency  and productivity  of 
the  entire  "production  and  processing  chain"  and  matching  the  sustainable  production  of  forest 
resources to industrial and market needs and requirements. 

Furthermore,  new  information  and  communication  technologies  are  rapidly  changing  the 
traditional  business  environment.  New  possibilities,  such  as  electronic  and  cross-media 
publishing,  using  both  paper-based  and  electronic  communications 
the 
convergence  of  technologies  and  media.  Other  emerging  areas,  such  as  electronic  commerce 
create  new  challenges  and  business  models  in  the  area  of  Intellectual  Property  Rights  (IPR), 
liability data protection  and the security of commercial transactions. Electronic Data  Interchange 
(EDI)  and  in  some  sectors  'digital  workflow'  require  the  development  and  implementation  of 
industry  standards. It is still a major  challenge  for  many of the FB-IND subsectors to ensure that 
SMEs also benefit  from  ICT. 

tools,  amplify 

Challenges: 
a 

Improve  competitiveness  by  carrying  out  Research  and  Development  leading  to  new 
processes and innovations; 

a  Encourage  innovation and networking within the FB-IND; 
a  Satisfy  end-user requirements by designing new  'user oriented'  products  and  services, e.g. in 

new media; 

•  Develop and increase the use of systems' solutions e.g. in construction  products; 
•  Ensure  that  FB-IND  research  needs  and  priorities  are  meaningfully  reflected  within  future 

EU RTD programmes; 

•  Ensure  that  the  FB-IND  takes  maximum  advantage  from  the  Global  Information  Society, 
ICT  and  electronic  commerce;  improve  the  uptake  of  cost-effective  new  technologies  and 
other solutions, in particular  in SMEs. 

Action areas: 

Contribute  efficiently  to  the  overall  objectives  and  RTD  priorities  of  the  5th  Framework 
Programme for RTD and national programmes; 
Disseminate  in an  efficient  and  effective  way  information  on  research  results,  best  practice 
and  solutions,  thereby  enhancing  the  technology  and  innovation  transfer  process  and 
ensuring its monitoring; 
Investigate  the  advantages  that  the  Information  Society,  the  use  of  ICT  and  electronic 
commerce could offer  to the FB-IND; 
Monitor the uptake of new technology and ICT; 
Create incentives to encourage innovation in the FB-IND. 

2.4.2  DEVELOPMENT  OF HUMAN  RESOURCES 

Within  an  ever  more  knowledge-based  and  technology  driven  competitive  environment, 
attaining, maintaining and  improving a competitive edge depends  increasingly  on the  availability 
of  skilled  human  resources.  Identifying  and  exchanging  'best  practices',  spreading  information 
on  education  and  training,  supported  by  skills  and  competence  benchmarking  can  help  to 
facilitate  this process. Moreover,  new technologies  such as ICT will  influence  the  integration  of 
new forms  of work organisation  and other techniques and  require personnel  with  matching  skills 
and abilities. 
It is clear that the  involvement  of both  sides of the  industry  in the design  and  implementation  of 
training measures would help to increase their acceptance and make them more  efficient. 

12 

Challenges: 
Q  Attract a young and well educated labour force towards the FB-IND; 
•  Guarantee  useful  and  efficient  retraining  programmes  that  will  ensure  that  personnel  are 
motivated  and the companies  remain competitive  by creating a training culture that will  lead 
to the use of these vocational training programmes by large companies as well as SMEs. 

Action areas: 
•>  Make available information  about EU FB-IND at schools using also new media; 
•••  Contribute to the development  of technical  and university  level programmes to  increase FB-

IND's attractiveness; 

•  Develop  and  improve  vocational  training  within  the  FB-IND,  disseminating  information  of 
different  vocational training and retraining possibilities, contributing to life-long  learning; 
Investigate  the  value  added  of  total  quality  management  within  FB-IND,  especially  SMEs, 
and define training needs. 

• 

2.5 THE EVOLVING INTERNATIONAL AND EU REGULATORY  AND ECONOMIC 
FRAMEWORK 

A considerable  number  of  international,  community  and  national  instruments  make  up the  legal 
framework  within  which  the  EU  FB-IND  operate.  At  international  level,  the  EU  FB-IND  are 
concerned  with  trade  issues  in  the  World  Trade  Organisation  (WTO),  Intellectual  Property 
Rights  issues  in the  World  Intellectual  Property  Organisation  (WIPO), trade  and  environmental 
issues  for  forest  products  in  the  Intergovernmental  Forum  for  Forests  (IFF),  and  voluntary 
standards in the International  Standardisation Organisation (ISO). 

Within  the  EU,  reinforcing  the  single  market  by  ensuring  free  competition  remains  the  main 
pillar of the  strategy  for  growth,  innovation  and employment  creation.  Whilst the EU  legislation 
sets the level of necessary harmonisation, it needs to be ensured that national  legislation  does not 
impede the  free  circulation  of goods within the EU. In this context,  further  efforts  are needed  in 
the area of standardisation to promote  intra-EU trade. 

In order to promote the  creation  of an  appropriate  regulatory  framework,  public  administrations 
need  to  gather  adequate  statistical  information.  At  present,  certain  sectors  of  the  FB-IND  are 
absent from  the statistics and some basic information  is not available. 

Challenges: 
a  Contribute to the formulation  of fair and equitable international rules; 
Q  Contribute to adequate protection for content owners; 
a  Promote free  movement of EU FB-IND goods and services; 
•  Simplify  the legislative and administrative burden for  SMEs; 
•  Advance effective  application  of existing EU Directives; 
•  Contribute  to  the  development  of  sufficient  statistical  systems,  in  cooperation  with 

international organisations such as FAO and UN/ECE. 

Action areas: 

Contribute  to  the  adequate  harmonisation  of  Intellectual  Property  Right  rules  in  the 
borderless information  society; 
Identify  and remove technical and hidden barriers to trade in the Single Market; 
Ensure the monitoring  and  evaluation  of the development,  transposition  and  implementation 
of EU directives, regulations and other legal instruments; 
Investigate how to simplify  the administrative  burden on SMEs; 
Clarify  and  define  present  and  future  requirements  for  information  and  statistics  for  the 
whole chain of FB-IND and propose activities to this end; 
Enhance co-operation with relevant European and international  bodies. 

13 

2.6 THE GROWING IMPORTANCE  OF COMMUNICATING  A GOOD IMAGE TO 
SOCIETY 

In  general,  the  public's  knowledge  of  the  EU  FB-IND  (with  the  exception  of  the  publishing 
industry)  is  incomplete,  and  hence  the  industry's  image  is  frequently  negative.  In  the  extreme, 
these  industries  may  be  perceived  as  irresponsible  tree  killers  and  destroyers  of  mankind's 
natural  resources,  and  as  old-fashioned  low-tech  chimney  industries  polluting  the  environment. 
To  make  matters  worse,  the  EU  FB-IND  have  often  in the  public  mind  been  connected  to, and 
consequently have suffered  from,  the human-induced  deforestation  which takes place outside the 
EU. 

The  EU  FB-IND  should  make  efforts  to  improve  its  image.  Information  campaigns  directed  at 
the  broad  public  could  help  to  promote  .the  fact  that  the  FB-IND  are  amongst  the  most 
sustainable  industrial  sectors  in  the  EU.  These  campaigns  should  demonstrate  in  particular  the 
sector's  use  of  renewable  raw  materials,  their  energy  efficiency,  their  well-developed  recycling 
and  energy  recovery  capacities  as  well  as  the  industry's  contribution  to  carbon  trapping  and 
storage. 

These  particular  environmental  qualities  of FB-IND  have  been  understood  both  at  international 
fora  and  within  the  European  institutions  such  as  the  European  Parliament,  the  Committee  of 
Regions  and  the  Committee  of  Economic  and  Social  Affairs.  Several  foras,  such  as  the 
Intergovernmental  Panel  of Forests  of the UN Commission  for  Sustainable  Development  (1997) 
and the  Third  Ministerial  Conference  on the Protection  of  Forests  in  Europe,  held  in Lisbon  in 
June  1998, stressed the need to  'take action to stimulate and promote the  sound  use of wood  and 
other forest-based  products as environmentally  friendly  and renewable resources'. The European 
Parliament's  'Thomas Report'  emphasised, furthermore,  the need for  development  of a European 
campaign for the promotion of wood and wood products. 

Closer  and  systematic  cooperation  between  the various  sectors  of the  EU  FB-IND  would  bring 
about  significant  synergy  effects  and  could  help  to  improve  the  industry's  image,  to  its 
competitive advantage. 

Challenge: 
• 

Improve the public's  awareness of both the positive characteristics  of the EU FB-IND and of 
its products vis-a-vis competing materials. 

Action areas: 
In  general,  knowledge  and  awareness  of  the  forest-based  and  related  industries  amongst  the 
professional  community,  politicians, NGO's,  schools  and  universities,  as  well  as  the  public,  is 
insufficient.  The  public's  perception  of  FB-IND  is  mainly  negative  and  based  on  inaccurate 
information.  This works to the  direct  competitive  disadvantage  of the FB-IND  and  does  little  to 
encourage  a  talented,  technically  qualified  labour  force  to  join  the  FB-IND.  In  a  technology 
oriented  future,  this could become a drag on the long-term competitiveness of the  sector. 

Awareness  of  the  industry's  strengths  in  different  fields  needs  to  be  improved  by  taking  the 
following  actions: 

•  Develop a common communications  strategy for the various FB-IND  sectors benefiting  from 
the knowledge and experience of professional  communications  and public relations experts; 
•  Collect  more  accurate  and  reliable  information  on  the  perceptions  of  the  FB-IND,  for 
example  by carrying out a Eurobarometer  opinion  poll (the EU's  tool  to assess  and  measure 
public opinion on specific  issues throughout the EU). 

These awareness-building  actions and other actions of common  interest could best be worked out 
through improved cooperation  of the various sectors of the EU FB-IND. Actions proposed are: 

14 

Use  the  'Advisory  Committee  to  the  Commission  on  Forestry,  Forest-based  and  Related 
Industries'  (reconstituted  in December  1997), and  its working  groups  to  extend  cooperation 
within  the  FB-IND;  this  Committee  should  also  serve  as  a  preparatory  platform  for 
discussions in political  fora. 
Create a Forum  on Forest-based  and Related  Industries,  involving  all the main  stakeholders; 
this  Forum  should  ensure  adequate  implementation  and  follow-up  of  actions  and  measures 
agreed  upon  and  could  include  a  High  Level  Industry  Panel  functioning  as  a  Steering 
Committee for  its work. 

3.  CONCLUSIONS 

The  Commission  recognises  the  importance  of  the  Forest-Based  and  Related  Industries  (FB-
IND)  in the  EU-15,  and  their  contribution  to the  sustainable  development  within  the EU  due  to 
economic  and  social  contribution  of  the  industries  which  provides  a  high  level  of  employment 
and  their  particular  environmental  characteristics,  from  the  renewability  of  wood  as their  main 
raw material to the high level of recovery and recyclability of most of their products. 

However,  as  highlighted  in  this  communication,  the  FB-IND  are  faced  with  a  number  of 
important  challenges,  which  could  create  new  opportunities  but  which  also  constitute  threats 
with  regard  to  the  industry's  future  global  competitiveness  and  its  sustainability.  Areas  for 
concrete  actions  to  be  undertaken  by the  different  stakeholders  in  a  proactive  and  cooperative 
approach have been  identified. 

In  order to  effectively  pursue  the  implementation  of these  actions, the  Commission  proposes  to 
create  a Forum,  constituted  of  representatives  of the  EU-FB  IND, the  services  of the  European 
Commission  and  other  main  stakeholders  (forest  owners,  trade  unions,  environmental  NGO's, 
scientific  and  academic  communities).  It  should  also  comprise  Member  States  experts  and 
Members of the European Parliament. The Forum should in particular: 
-  complete  the  analysis  of  the  competitiveness  factors  and  the  identification  of  the  main 
challenges of the EU FB-IND. 
- discuss and agree on concrete actions to be taken and/or pursued by the different  stakeholders. 
- follow  up their implementation  and provide regular update of the actions agreed upon. 

It  is  proposed  that  the  existing  'Advisory  Committee  to  the  Commission  on  Forestry,  Forest-
Based  and  Related  Industries'26  should  prepare  and  coordinate,  through  its  working  groups,  the 
inputs required to establish  the actions. The Commission  also suggests calling a plenary  meeting 
of  the  Forum  on  an  annual  basis,  in  collaboration  with  the  Presidency  and  the  High  Level 
Industry Panel. 

The  Commission  will  report  periodically  to  the  Council,  the  European  Parliament  and  the 
Committee of the Regions, on the evolution of this initiative. 

* * * ** 

15 

ANNEX 1: 

SUMMARY  OF  THE  RESULTS  OF  THE 
'SWOT'  EVALUATION  CARRIED  OUT  IN 
COLLABORATION  WITH  INDEPENDENT  EXPERTS  AND  REPRESENTATIVES  OF  THE  FB-
IND. 

The  conditions  for  the  EU  FB-IND  present  and  future  competitiveness  could  be  described  as  Strengths, 
Weaknesses, Opportunities and Threats that are presented  in a "SWOT" table below. 

Sustainable and expanding raw material base 

SWOT - Forest Based and Related  Industries 
STRENGTHS 
Tansibles:  Input  cost factors: 
• 
Tansibles:  Technoloeical  factors: 
*  Efficiency  of production  facilities 
"  Advanced technology 
•  Use of ICT technology  and multilingual 

knowledge 

Intangibles:  Oualitv &  performance: 
•  High quality products and service 
Strong environmental  performance 
* 
• 
Potential for FBI clustering 
•  Targeted advertising in magazines and 

newspapers and  directories 

•  Knowledge of local languages and culture 
•  Experience in data management 
•  Know-how & skills 
• 

Proximity  &  access  to  one  of  world's  largest 
and sophisticated  markets 

•  Good health and safety  standards 

high raw material costs, esp. wood 
high labour costs 
high energy costs 
high costs of printing 

WEAKNESSES 
Tansibles:  Input  cost  factors: 
* 
• 
• 
• 
Intangibles:  Oualitv &  performance: 
• 
• 
• 
• 
• 
• 
• 

lack of forest/wood  cultural  consciousness 
fragmented  structure 
inadequate training 
often conservatism and lack of innovation 
skills and knowledge in IT and economy 
lack of end user/market  orientation 
Intangibles:  Lesislative  and  institutional 
framework: 
high taxes 
low profitability  (->low re-investment) 
complicated (& costly) bureaucracy 
lack of capital for  modernisation 
no reliable statistics on SMEs 

• 
• 
• 
• 
• 

OPPORTUNITIES 
Tansibles:  Input  cost  factors: 
* 
• 

capitalise on expanding forest  resource 
participate 
competitive regions 

supply  chains 

in 

from 

cost-

development of Trans European Networks 
electronic  publishing 

expand use of wood 
promote wood as lifestyle  product 
total product  solutions 
specialisation 
electronic  commerce 
archived information  providers 
complementarity with new media 
capitalise on environmental  investments 

Tansibles:  Technolosical  factors: 
* 
• 
Intansibles:  Oualitv &  performance 
• 
• 
• 
• 
• 
• 
• 
• 
•  R &D  and know-how  advancement 
restructuring (esp. networks) 
• 
Intansibles: 
framework: 
* 
• 

Lesislative 

and 

success of Euro 
enlargement  (larger  market  and  control  of  low 
cost competition) 
•  more equitable taxation 
THREATS 
Tansibles:  Input  cost  factors: 
• 
• 

increasing wood costs + lower supply 
increasing importance of recovered fibre  (wood 
& paper), but risks of distortion of mix through 
imperfect  policies 
lower costs and environmental standards in 
competing third countries 

• 

institutional 

Intansibles:  Oualitv &  performance: 
* 

declining readership, household penetration and 
poor literacy 
advertising  revenue  moving 
broadcasting and new media 
lack of trainers 

to  commercial 

• 

• 

Intansibles:  Lesislative  and  institutional 
framework: 
• 
• 

unbalanced environmental  taxes 
potential  shortcomings  of  adequate  protection 
of content 
decreasing budgets of schools and  libraries 

• 

u, 

COM (1998) 649 Final. 

Source: Eurostat. 

Source: Eurostat. 

Source: "Competitiveness of the EU Publishing Industries", Media Group, Turku, Finland 
© European Communities  1999. 

Source: The Competitiveness  of European Industry-  1998 Report. 

Fax from  C.E.I BOIS (Confederation  Europeenne des industries du bois) of 2 February  1998 
concerning Kyoto Protocol on Climate change -  Implications for the Forest-based  Industries. 

Source: CEPI. 

Source: COM (1998) 649 Final. 

Idem as 6. 

Forest resources in Europe by K. Kuusela, European Forest Institute Research Report  1. 

Source: UN-ECE, FAO. 

Source: "Global Wood Fiber  Study", Wood Resources International  LTD 
© European Communities  1997. 

Competitiveness of the European Pulp, Paper and Board Manufacturing  Industry 
© European Communities  1999. 

Idem  12. 

Idem  12. 

Idem 12. 

Idem 12. 

Source: FAO Yearbook  1992—1996. 

Source: Countries  in Transition  1998: Bulgaria, Croatia, Czech Republic, Hungary, Poland, 
Romania, Russia,  Slovak Republic, Slovenia, Ukraine 
The Vienna Institute for International  Economic Studies. 

UN-ECE, FAO. 

Source: Competitive costs, benefits  and feasibility  for the Forest-Based  Industries of SFM 
designation for forests  and marking of forest  products, Jaakko Poyry 
© European Communities  1998. 

Directive 96/61/EC Intergrated Pollution Preventation  and Control, 
Official  Journal L257,  10.10.1996, p. 26. 

Energy for the future:  Renewable sources of energy, Green Paper for a Community  Strategy, 
COM (1996) 576. 

Better Lawmaking  1998: A Shared Responsibility, COM (98) 715. 

Commission Decision 97/837/EC. 

Idem 25. 

9 

10 

11 

12 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

1} 

ISSN  0254-1475 

COM(1999)457  final 

DOCUMENTS 

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03  08  10  14 

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