10 Redesigning Forest Policy Tools Under a Transitional Economy Setting Maksym Polyakov and Lawrence Teeter Forest Policy Center School of Forestry and Wildlife Sciences, Auburn University, Auburn, AL 36849-5418, USA Introduction Transition to a market economy implies that forest management (even when conducted by state forestry enterprises) must be conducted in a business-like manner, with the goal of maximizing economic efficiency, and should be independent of the direct influence of authorities (Ferenc, 1995). At the same time, governments or forestry regulatory agencies should set up a framework for forest management that will ensure taking into account societal needs for ‘intangibles’ produced by forests, i.e. by compensating for market fail- ures. Development of forest policies in European countries shows a clear tendency toward a unified approach to supervision and control of forest management in corporate, state and private forests. Most European countries use a balanced mix of forest policy tools (Merlo and Paveri, 1997) with regulatory tools playing a significant role. Examples of widely used regulatory forest policy tools are restrictions concerning stocking levels, the timing of final fellings, and allowable cuts (Wernerheim, 1988). In this chapter we discuss the regulation of allowable cut within the system of forest policy tools, analyse the current system of annual allowable cuts in the Ukraine, propose a method which will comply with the goals for transition to a market economy, and present implications of its use for timber resources utilization. Ukrainian Forest Policy Background Ukraine is one of the largest European countries in area, size, population, natural resources and economic potential. In size and population it is comparable with France. Ukraine boasts an enviable range of natural resources but never- theless is seriously dependent on imports of products such as timber, wood, paper and oil. The value of Ukrainian forest resources is estimated as 4.2% of the total value of the country’s natural resource potential (Rudenko, 1993). According to the State Forest Cadastre (Ukrderzhlisproekt, 1997) in 1996 the share of forest-covered lands was 15.6% while an optimal figure is estimated as 20–25%. This puts Ukraine in line with those European countries such as Germany, France, Italy and the UK, which are not self-sufficient for forest resources and are net importers of timber and wood products. Forests are unevenly distributed across the country (see Fig. 10.1). The most forested regions of Ukraine are in the north and west, primarily due to climatic conditions. Forests as a source of wood supply play a significant role in the economies of these regions. ©CAB International 2003. Forest Policy for Private Forestry: Global and Regional Challenges (eds L. Teeter, B. Cashore and D. Zhang) 95