Optimal classical-communication-assisted local model of n-qubit Greenberger-Horne-Zeilinger correlations

We present a model, motivated by the criterion of reality put forward by Einstein, Podolsky, and Rosen and supplemented by classical communication, which correctly reproduces the quantum-mechanical predictions for measurements of all products of Pauli operators on an n-qubit GHZ state (or ``cat state''). The n-2 bits employed by our model are shown to be optimal for the allowed set of measurements, demonstrating that the required communication overhead scales linearly with n. We formulate a connection between the generation of the local values utilized by our model and the stabilizer formalism, which leads us to conjecture that a generalization of this method will shed light on the content of the Gottesman-Knill theorem.Comment: New version - expanded and revised to address referee comment

CINTRAFOR Working Paper 111

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two-thirds of the country and there is an extensive sawmill industry skewed heavily to small, rural sawmills using outdated technology.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 73rd signatory to the Kyoto Protocol on May 31st, 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 CASBEESumai 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. 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 onequarter 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 m3) from North America (either Seattle or Vancouver, BC) to Tokyo generates the same amount of CO2 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 within CASBEE-Sumai and many subsidy programs. The second relates to a program supported by MAFF that aims to increase the market share of domestic wood use in the post and beam (PandB) 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), 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 between 2007 and 2015 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 between 2007 and 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 use of domestic wood in place of imported lumber and the extent to which imported logs are replaced by domestic logs. Considering the current constraints on the ability of domestic timber to substitute for imported wood (e.g., timber supply, lower timber quality and lower mechanical strength, 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 PandB 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 PandB 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

CINTRAFOR Working Paper 81

The export segment of Alaska's forest products industry is characterized by its supply of high-quality Sitka spruce, western hemlock, western red cedar, and Alaska (yellow) cedar, all highly valued in domestic and export markets. The industry, however, is also characterized by its limited in-state and out-of-state transportation infrastructure, low economies of scale at most processing facilities, and harvest regulations that threaten the consistent supply of timber. Alaska firms have clearly been dependent upon exporting primary wood products, deriving over $660 million in revenue in 1993, the industry's peak. However, by 1998 export revenue had dropped below$200 million. This sharp decline is due to a variety of factors including the Asian economic crisis, declining international timber prices, lower cost competitors, changes in forest harvest regulations that led to a decline in Alaska's timber harvest, rising domestic processing costs, and expensive and time consuming shipping logistics to export markets. Alaska producers must confront several challenges in order to survive and expand their role as a competitor in the international timber market. An important aspect of succeeding in an increasingly competitive market is product differentiation. Alaska suppliers must identify what products are in high demand in which markets and effectively match their production capabilities with specific product/market opportunities. This report describes some market opportunities for Alaska wood products and evaluates the ability of Alaska firms to compete in these product markets. The markets examined were: 1) Japan, 2) Korea, 3) China, and 4) Western Europe. JAPANESE MARKET Market opportunities exist for Alaska producers in supplying both structural and non-structural wood products into Japan. The Japanese market is experiencing a period of transition due to regulatory changes and new construction technologies. With regard to structural lumber, the Japanese market is transitioning from a green lumber market towards kiln-dried lumber. Taking advantage of this transition will require a substantial investment in kiln drying facilities on the part of Alaska sawmill operators. In particular, Alaska producers should be able to take advantage of the preference for Sitka spruce in Hokkaido to supply kiln dried dimension lumber for the 2x4 market and kiln dried baby squares for the post and beam market (90mm, 105mm, 120mm, 130mm, and 150mm squares). Two other products that should be of interest to Alaska sawmillers are non-structural studs (mabashira) and sill plates (dodai) for post and beam homes. The precut industry provides an opportunity for Alaska sawmillers to export kiln dried lamstock to precut component manufacturers. Perhaps the greatest market opportunity for Alaska softwood lumber exists in the market for non-structural lumber products. Japanese shoji manufacturers have a long history of utilizing Alaska Sitka spruce, western red cedar, and Alaska (yellow) cedar in the manufacture of a wide variety of products. Clearly there is already a strong market for logs and waney cants in the shoji industry. However, the opportunity exists to supply both green and kiln dried lumber to shoji manufacturers. Shoji manufacturers have already shifted towards using white spruce in their products, and they indicated that price is an important consideration. KOREAN MARKET The market for Sitka spruce logs and lumber is the most promising market for Alaska suppliers in Korea. Korea imports more Sitka spruce lumber from the US than any other softwood species. Exports have been variable during the past eight years that export data are available, and exports plummeted in 1998 as the Asian recession slowed production and consumption in Korea. However, 1999 statistics show that Sitka spruce lumber export volume has doubled since 1998. Since other species cannot rival the suitability of Sitka spruce as a superior wood for musical instruments, and Alaska has the largest supply of Sitka spruce in the world, Alaska suppliers have a comparative advantage in the Korean wooden musical industry. Korea also has a growing market for dimension lumber for 2x4 construction, although this market is still small and faces several obstacles related to 2x4 technology transfer and building codes, which currently limit the widespread adoption of 2x4 housing. Rather than focus on Korea for higher processed wood products, such as lumber, it may be more appropriate for Alaska producers to focus on maintaining their share of the Korean market for pulp logs and Sitka spruce logs or non-commodity specialty wood products, such as wood for musical instrument manufacturing. Since the price for premium Sitka spruce is higher than the price for dimension lumber or wood that is used in plywood manufacturing, the musical instrument makes more sense for Alaska firms. WESTERN EUROPEAN MARKET FOR NATURALLY DECAY RESISTANT ALASKA SPECIES While there are markets in the EU for naturally decay resistant wood products, Alaska species such as western red cedar and Alaska (yellow) cedar face five basic obstacles: 1) the niche markets where they could be used are very small, 2) The end-uses for these species are dominated by lower cost domestic species, 3) in high-end niche markets where Alaska species could be used, tropical species dominate, 4) the cost of transporting products from the Western US to Europe is high 5) the US dollar has been strong and exchange rates have fluctuated, making prices for US products less competitive and stable compared to European wood products. The markets where naturally decay resistant species could be used include the decking market in the UK and the siding market in Denmark, which utilize western red cedar and lesser amounts of Alaska (yellow) cedar. However, Alaska species encounter formidable competition from lower cost European redwood and European whitewood and tropical hardwoods. The UK decking market is dominated by lower priced domestic redwood and whitewood, and tropical wood dominates the high-end decking market. Another promising market for western red cedar products may be the US Pacific Northwest where red cedar is used for exterior decking and siding. Current estimates indicate that over 6.5 million decks are constructed on U.S residential structures on an annual basis at a cost of $1.9 to$3 billion. Slightly over 47.4 of new home decks were found to be constructed with pressure treated lumber, followed by western red cedar, concrete, and redwood representing 18.5, 14.1, and 11.1 percent of the market, respectively (Shook and Eastin 2000). Increasingly strict harvest regulations about allowable harvest areas in the US PNW coupled with the increasing demand for western red cedar decking and siding may present an opportunity for Alaska suppliers. Harvest volumes in British Columbia are also declining. Finally, the logistics of servicing a regional as opposed to international market are numerous. Regional markets are easier to access because there are no differences in language or consumer preferences, and they are closer, making shipping, establishing contracts, and providing after sales service easier. The PNW market is particularly suited to Alaska western red cedar producers because products often go through Seattle en-route to international destinations and therefore the distribution channels have already been established. i

Community Economic Impact of Hypothetical NARA Woody Biomass Jet Fuel Refineries in the Pacific Northwest

This study used regional input-output analysis (I/O) to measure the economic impacts of the introduction of the biorefinery facilities in the Pacific Northwest that convert woody biomass into biojet fuel and co-products

CINTRAFOR Working Paper 105

The economic liberalization policies initiated in 1991 have led India along the path of increased economic growth and greater macroeconomic stability. Real GDP growth averaged 6% over the period 1997-2001, exceeded 8% from 2002-2005 and is projected to be about 9.2% in 2006. This rapid economic growth has been supported by a loosening of trade restrictions which have contributed to a rapid increase in both imports and exports. Between 2000 and 2005, imports increased from $US50 billion to$US149 billion while exports increased from $US36 billion to$US103 billion. Future economic growth may be tempered by rising inflation, which is projected to be almost 7% in 2006, and rapidly increasing wage rates for skilled labor. For example, food price inflation rose by 10% in 2006. In addition, poor infrastructure (especially roads, ports and electrical power distribution), restrictive labor laws and poor quality public services (especially in education and health) also pose serious challenges to continued high levels of economic growth in India. It is estimated that almost 40% of India’s fruit and vegetable harvest rots before reaching market due to inadequacies in the transportation and electrical distribution infrastructure. India will continue the process of opening its economy due to the fact that it must create on the order of 15 million new jobs every year simply to provide employment for young people entering the job market. However, future economic growth is dependent on reducing (and eventually eliminating) subsidies and providing improvements in the road and electrical distribution infrastructure, particularly in the rural areas of India. The forest cover in India is estimated to be 637,293 km2; 19.4% of the total land area. India’s forests are mostly state owned; only 10% of the forests are classified as community or private forests. A recent survey by domestic and international organizations revealed a moderate increase in India’s forest cover. Forest plantations play a very important role as a source of raw material to the domestic wood-based industry. Since adopting the National Forest Policy of 1988 (NFP), there has been a ban on the felling of trees in all forests located above an altitude of 1,000 meters. In addition, high priority has been given for planting fuelwood and deciduous fodder producing trees in government forests. Finally, industrial wood production was restricted to farms and wastelands. As a result, there was a drastic reduction in timber harvest volumes as a number of states stopped timber harvesting and a ban was announced on all harvest operations in the national parks and protected sanctuaries. The NFP emphasized meeting the fuelwood, fodder and small timber needs of local communities rather than the raw material requirements of the wood-based industry. It should be noted than even before the NFP was implemented in 1988, the existing forest policy was more conservation oriented than industry oriented. The raw material crisis for the wood-based industries became more acute following the adoption of the NFP. As a result, the forest-based industries have had to increase their dependence on private forests and bamboo from natural forests (bamboo harvesting from natural forests is permitted) for their raw material supply. Though large reforestation programs were proposed in conjunction with the NFP budget, constraints prevented the forestry department from meeting the reforestation targets. To meet the community demand for fuelwood, small timber plantations were designed which provided timber products that were less useful for industry. In order to improve the availability of raw materials, the NFP proposed the liberalization of log, chips and pulp imports. The Indian forest products industry, both the wood products sector and the paper and paperboard sector, have been constrained by severe raw materials shortages. This raw material shortage for the forest products industry has been further accentuated as a result of a Supreme Court ruling limiting the felling and movement of timber within the country. In an effort to alleviate the raw material shortage, the forest products industry is increasingly relying on imported logs, chips, wood pulp and waste paper. Hence, for the wood-based industries, imports have become a very important component of their raw material mix. The graduated structure of tariffs applied on wood product imports clearly indicates that the Indian government encourages the import of unprocessed lumber that can be used by the wood-based industries as raw material inputs. Higher tariff rates are imposed on imported finished and value added products to protect the less efficient domestic manufacturers from international competition. In addition to the basic import tariffs, India also imposes duties such as surcharges, additional customs duties and special additional duties. Other additional levies can be imposed on imported wood products depending on the nature of the product. These additional levies include countervailing duties, anti-dumping duties and safeguard duties. Other non-tariff barriers include state taxes, which can be as high as 18% of the value of imports and various port of entry restrictions which might add up to a large mark-up on imported items. Such tariff and non-tariff barriers by the government make imported products less competitive in India. Over the past decade the tariff rates and the non tariff barriers have been reduced dramatically and India has started importing large volumes of forest products. Indian trade in forest products has increased tremendously over the period 1999-2005. This is in response to both the decline in the domestic timber harvest as well as the increased demand for wood products within the domestic wood processing industry. Over the period 2000-2005 Indian exports of wood products jumped from $US30 million to$US99 million, a 230% increase. In contrast, imports of wood products went from $US528 million to$US957 million, an 82% increase over the same period. As a result, India saw its balance of trade in wood products worsen from $US498 in 2000 to$US858 million in 2005. It is important to note that over 88% of India’s wood imports were logs, primarily from Malaysia and Myanmar. Housing has long been neglected in India’s national 5-year plans. The unfulfilled demand for housing was estimated to be approximately 50 million units in 2001 and was projected to be increasing at a steady rate. This housing shortage stems from a lack of government funding and the inadequacy of financial institutions, coupled with an increase in building material, labor and land costs. In the tenth five-year plan, from 2002 – 2007 special emphasis has been given to the housing sector and some state governments have announced a target of achieving “shelter for all” by 2012. Efforts have also been made to reform the allied institutions in an attempt to provide support to the housing sector. The government is beginning to view the housing sector as a very important driver of economic expansion and increased employment. These new initiatives by the government and the huge latent demand for housing, coupled with an expanding economy, should result in higher housing starts in the country over the next decade. The middle class population in India, which is almost the size of the US population, is becoming more exposed to the western life-style and is showing an interest in western style doors, windows and kitchen cabinets. India has a centuries old tradition of wood use, particularly for interior design and furniture. Although structural wood is rarely used for construction, outside observers have noted that India uses more interior wood than Japan. Recent estimates suggest that the market for high end imported value-added wood products is increasing steadily as a result of continuing economic prosperity in India. This represents one of the largest emerging markets for value-added wood products in the world. New residential construction, primarily multifamily units, are increasingly going to standardized sizes for doors, windows, and interior fittings. This has led to an increased demand for imported doors, windows and cabinets. The total annual demand for furniture in India is estimated to be $US1.25 billion of which 90$US37 million and growing at an annual rate of 15%. Imports of wood products into India have been growing rapidly, although the demand for wood products is heavily skewed towards raw materials such as logs, chips and pulp. While the middle class in India is growing and becoming more open towards using imported value-added wood products, much work needs to be done to take advantage of this demand. For example, India must accelerate their rationalization of import tariffs and remove those non-tariff barriers designed to protect inefficient domestic manufacturers from international competition. This will not only ensure compliance with their WTO obligations but will also force the domestic processing industry to invest in more efficient processing technologies. In addition, there remain long-term opportunities to introduce North-American wood frame construction technology in India. The combination of a severe housing shortage and interest in developing energy efficient housing both provide impetus for working to gain acceptance for wood frame construction. However, in order to achieve the successful introduction and adoption of wood frame construction it is important that the US government and industry associations work with the Indian government to develop and adopt wood frame building codes. Finally, acceptance of wood frame construction technology is dependent on increasing the familiarity and understanding of this construction technology within the architect and construction communities. A key element to gaining this acceptance could be in educating architects and residential builders on the superior environmental performance and energy efficiency of North-American wood frame construction technology

CINTRAFOR Working Paper 108

The United States residential construction industry, traditionally the largest end-use market for softwood lumber, has been undergoing a period of change for more than a decade. Builders’ acceptance of substitute materials and new innovations has increased, providing a unique challenge to softwood lumber producers. In such a situation, understanding the ways in which residential builders specify and use softwood lumber and lumber substitutes is essential to the success of any softwood lumber manufacturer. The Center for International Trade in Forest Products (CINTRAFOR) completed its first study on material substitution in 1995 (CINTRAFOR Working Paper No. 57), providing a benchmark for softwood lumber use in structural applications in residential construction. This was followed by surveys looking at material use in 1998 (CINTRAFOR Working Paper No. 73) and 2001 (CINTRAFOR Working Paper No. 93). The current study, undertaken in 2005, represents the fourth in this series and is intended to describe the trends in material use and substitution in the residential construction industry in 2004. The 2005 survey also explores builders’ awareness, usage and perceptions of certified softwood lumber and sets a baseline for tracking certified lumber usage in residential construction. In 2004, single family construction accounted for over three-quarters of construction firms’ revenue. The larger firms reported a high proportion of new single family housing than their smaller counterparts. Additionally, there appears to be a negative relationship between firm size and the amount of revenue generated from repair and remodel activities. These findings are consistent with previous survey findings. The 2005 survey also reveals that the larger firms are more involved in non-residential construction. Builders in the southwest region of the US reported significantly less involvement in the repair and remodeling sector and significantly more involvement in the non-residential sector. The share of single family construction reported by builders was found to be consistent across all regions. A longitudinal analysis (from 1998 to 2004) of substitute material usage revealed that the largest changes occurred in the usage of glulam beams, LVL, steel framing, wood I-joists, open-web trusses, and structural insulated panels, with wood I-joists, LVL, steel framing and glulam beams recording significant decreases between 2001 and 2004. In contrast, structural insulated panels, panelized wall systems and open-web trusses have experienced an increase in use since 2001. Survey respondents in the southeast and southwest regions of the country reported a steady increase in their usage of finger jointed lumber between 1998-2004. However, the usage of finger jointed lumber nationally was found to be constant over this period. The usage of glulam beams decreased substantially in the eastern US while remaining fairly constant in the western US. Nationally, glulam beams recorded the largest drop in reported use (12.6%). Use of wood I-joists declined across all regions, with the exception of the northwest, as solid wood joist prices moderated. In addition, use of Parallam TM remained relatively constant between 1998 and 2004, whereas the use of TimberStrandTM lumber increased in the western US while declining in the eastern US. The use of non-wood material substitutes (steel framing and reinforced concrete) generally declined in the southern regions and increased in the northeast. An analysis of material usage within specific end-use applications revealed that softwood lumber use has either increased or remained relatively constant in all applications with the singular exception of load bearing walls. For headers, wall framing and roof framing applications, softwood lumber remained the dominant material with a market share of more than 70% in each application. For floor framing, the market is split between softwood lumber, wood I-joists and open-web trusses. However, it should be noted that for all structural applications, softwood lumber recorded the largest market share. The market share for softwood lumber increased in floor and roof framing applications, remained constant in header and non-load bearing wall applications and declined in load bearing wall applications. In wall framing applications, none of the substitute materials had a market share of more than 6% whereas softwood lumber (both solid sawn and finger-jointed studs) enjoyed a market share of approximately 88.3% and 80.9% in non-load bearing and load bearing wall applications, respectively. The usage of softwood lumber in floor framing increased from 39% in 2001 to 43% in 2004, making softwood lumber the primary material for floor joists. Significantly, the market share for wood I-joists in flooring applications (its major market) declined by almost 12%. The use of wood trusses for roof framing has experienced a steady increase since 1995, rising from a market share of 46% in 1995 to 53% in 2004. Builders rated strength, straightness, lack of defects and the availability of softwood lumber as the most important attributes of softwood lumber; a result that has been consistent over the course of the four surveys. The importance ratings for two attributes, price and price stability, have begun to decline in importance. On a positive note, home builders consistently expressed higher satisfaction levels with all of the softwood lumber attributes in the 2005 survey. A review of the data shows that the respondents consistently recorded higher satisfaction levels for all the softwood lumber material attributes between 2001 and 2004. The 2005 survey also marks the first time that builders indicated satisfaction with two important softwood lumber quality attributes: lumber straightness and lack of defects. In all of the previous surveys, builders had consistently indicated dissatisfaction with both of these attributes. The fact that straightness and lack of defects are ranked as two of the most important lumber attributes, combined with the large increase in the satisfaction ratings for both of these attributes, suggests that builders have begun to view softwood lumber as a much better value over the past several years. It appears that builders are becoming more conscious of the environment and that this is beginning to influence the types of materials specified by some builders. Unfortunately, builders are receiving mixed messages about the environmental performance of non-wood materials. The results of this survey suggest that builders perceptions of the environmental performance of non-wood materials improved slightly between 2001 and 2004 whereas it decreased substantially for wood-based structural materials. With the exception of SIP’s, all of the substitute materials are considered to be more enviromentally friendly than softwood lumber. This result sugggests that it is important that the forest products industry in general, and softwood lumber manufacturers in particular, continue to educate builders about the environmental benefits of using wood relative to non-wood materials. A new section of the 2005 survey considered home builders awareness and use of certified lumber. The results of the survey showed that only 40% of homebuilders indicated that they were aware of certified wood. On average, only about 14% of homebuilders indicated that they have used certified wood. Among the users of certified lumber, the average percentage of homes framed with certified lumber was approximately 50%. Almost 15% of the builders who have used certified wood reported that they framed all of their houses with certified lumber. Further, in considering builders’ awareness and use of certified wood within individual states, the survey data suggest that awareness of certified wood was higher among builders located in the eastern US (42.7%) and along the west coast (45.2%) than in the central US (32.2%). However, among those builders who were aware of certified wood, the percentage of builders who reported using it was much higher on the west coast (50%) than in either the eastern US (29.2%) or the central US (38.1%). Previous research has shown that the willingness of customers to pay higher prices for certified wood plays a major role in the usage of certified lumber. This research shows that only 17% of the respondents in the eastern states and 29% of the respondents in the central states believe that their customers would be willing to pay higher prices for homes built using certified wood products. The percentage for respondents in the west coast states was higher at 50%. These survey results suggest that the awareness and usage of environmentally certified wood among builders is much higher on the west coast relative to the rest of the country. The survey results suggest that in the future large home builders may well lead the effort to increase the use of certified wood in building homes. This observation is based on the fact that 67% of large builders have heard of certified wood (this represents the largest segment for this question), 43% have used certified wood to build homes (this is the second largest segment for this question), 50% think that their customers would be willing to pay a premium for a home built from certified wood (this represents the largest segment for this question) and 75% expect that their use of certified wood will increase in the future (this represents the largest segment for this question). Further research is needed to understand home builders’ motivation for using certified wood and to explore the relationship between the use of certified wood and regulatory factors (such as green building codes and efforts to improve the energy efficiency of residential homes)

CINTRAFOR Working Paper 115

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 coexists 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 Americanstyle 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 PandB 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 valueadded 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 valueadded 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, reestablishing 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 replacement products

CINTRAFO+G56R Working Paper 120

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 offgassing 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 shoul

CINTRAFOR Working Paper 110

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 Study Youhao 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 Results A 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$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

CINTRAFOR Working Paper 123

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