Announcement Effects from Voluntary Partnership Agreements - A Gravity Model Approach

Abstract: The effects on trade from negotiating and entering voluntary partnership agreement is estimated using forest product trade data from 2000 to 2014 on countries in the Forest Law Enforcement, Governance and Trade (FLEGT) licensing process. Gravity model framework is used and the result shows that beginning negotiations lead to an export drop by approximately 0.6 percent and is relatively stable the following years. Entering a voluntary partnership agreement (VPA) shows signs of a similar initial export drop but with increasing magnitude over time. When EU timber regulation is introduced, countries currently involved in the process of becoming licensed by FLEGT experience on average an additional export drop of 0.26 percent. The most plausible reason for the export drop is due to expected increased production costs and small price premium for licensed forest products.