A categorical modeling approach to analyzing the impacts of the Lacey Act 2008 amendment on Chinese companies’ export cost and the implications on their sourcing behaviors

The United States (US) Lacey Act 2008 amendment (LAA) is a timber legality regulation that requires US importers to monitor and minimize the risk of illegally harvested wood products within their supply chains. This paper empirically examines the effect of the LAA on Chinese companies’ export costs to the US. The study uses 138 responses from two surveys in Shanghai, China, in 2013, i.e., 5 years after the LAA was implemented. Given the high proportion of zero export increase indicated by the Chinese companies, a zero-inflated ordered probit model was used to model Chinese companies’ export cost increases to the US. The research results demonstrate that pre-LAA raw material sourcing patterns are primary indicators of the respondents’ export cost increase to the US as a result of the LAA. From the results, it can be inferred that log and lumber importers from suspect regions are taking additional measures, by changing their procurement practices, to ensure the legality of their raw material, which is adding to their cost structure. The results also indicate that smaller companies, given their flexibility with raw material procurement, were less likely to experience a post-LAA cost increase relative to their larger counterparts.