Assessing the potential impacts of the European Union deforestation regulation on Asia-Pacific forest product trade

This paper provides a quantitative forecast of the dynamic impact of the European Union Deforestation Regulation on forest product exports from nine major Asia-Pacific countries. Employing a novel two-stage forecasting framework, we first utilize a Least Absolute Shrinkage and Selection Operator regression model on a high-dimensional dataset of 46 macroeconomic and trade-related predictors to perform automated variable selection for multiple forecast horizons. The selected variables are then used in an Ordinary Least Squares model to generate dynamic forecasts from October 2025 to December 2027. A forward-looking policy shock is simulated by combining a historical proxy based on the European Union Timber Regulation with a calibrated “intensity multiplier” differentiated by country-risk classification. Our projections reveal a multi-phase adjustment process: a sharp, region-wide contraction in the fourth quarter of 2025, followed by a period of significant volatility and supply chain disruption in 2026, and an uneven recovery in 2027. The findings highlight significant heterogeneity. Standard-risk countries (Indonesia, Malaysia) are projected to face greater volatility and suppressed growth trajectories, while some smaller, low-risk nations (the Philippines) may benefit from a substitution effect. The findings provide crucial, evidence-based insights for policymakers and industry stakeholders navigating the implementation of this landmark regulation.