Restricting trade does not generate investments

Timo Jaatinen,
Director General,
Finnish Forest Industries Federation,

From time to time, some countries in the Baltic Sea economic area have restricted timber exports abroad. Some countries have restricted land and forest ownership by a separate law. In addition, exports of some end products have faced additional tariffs in some countries. At the same time, investments are warmly welcomed, and the flow of raw materials and end products is made more difficult. No country has yet refused to invest in the forest industry. What is this all about?

Countries in the Baltic Sea Region are desperately seeking solutions to enhance the competitiveness of their own forest industries. Too often the choice of instruments involves restricting foreign trade. Frontiers will only open up and barriers will be removed once their own industry is back on its feet. Once the industry has laid the groundwork for these types of shortcuts, it will often remain uncompetitive.

Paradoxically investments are desired, but too often no help is given after the decision is made – except long speeches and reassurances. Investments in the forest industry require, for example, well-functioning raw material markets, good demand for end products, skilled labor, a stable energy policy and, above all, financiers, who have an independent source of picture of the future development of the business environment. Above all, stable and reliable politics are essential because the forest industry investments are done for decades.

A modern bioproduct (pulp) mill costs around EUR 1.5 billion and cannot be built at a much lower cost. Competitiveness requires certain scale in production which means a pulp mill cannot be done in small scale. The competitiveness of a plant usually requires also strict requirements for the technology, which often comes directly from the consumers. The raw material and end-product logistics of the factory must function, and the production must be safe and environmentally friendly. In addition, the factory must convince other contractors and companies around it. The conditions for entrepreneurship must also be in order unless the investing company wants to handle its own harvesting, transportation, maintenance, etc. Even fierce competition does not seem to be a barrier for a new investment when the conditions are right.

It is certain that restricting trade leads to unfavourable investment environment. Free trade is a guarantee of efficient trade and fair competition is the best way to promote an investment climate. Investments always bring wealth across national borders. Therefore, legal cross-border trade in wood should be promoted and the free movement of wood raw material guaranteed.

Expert article 2637

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