COMMITTEE ON FOREST INDUSTRY - The International … e.pdf · i tt 0 international tropical timber council committee on forest industry distr. general cfi(xx)/5 28 march 1997 original:

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INTERNATIONAL TROPICAL TIMBER COUNCIL

COMMITTEE ON FOREST INDUSTRY

Distr. GENERAL

CFI(XX)/5 28 March 1997

Original: ENGLISH

TWENTIETH SESSION 21 - 29 May 1997 Santa Cruz de la Sierra, Bolivia

SUPPORTING DOCUMENT OF WORK FOR AN EXPERT PANEL ON

GUIDELINES FOR THE DEVELOPMENT OF SUSTAINABLE FOREST INDUSTRIES

[PRE·PROJECT PPD 11/92 (I)]

PREPARED BY

DR. HECTOR CISNEROS MR. GEOFFREY PLEYDELL

SUPPORTING DOCUMENT OF WORK FOR AN EXPERT PANEL ON

GUIDELINES FOR THE DEVELOPMENT OF SUSTAINABLE FOREST INDUSTRIES

A report by consultants arising from the preferred options selected by the Pennanent Committee on Forest Industry

from possible areas of coverage of the proposed Guidelines set out by a worlcing party in its report PCI(XIX)/5 -October 1996

Dr. Hector Cisneros (Penl) Mr. Geoffrey Pleydell (UK)

January 1997

Abbreviations

Background

Selected Approach

Defining the Framework

IdentifYing Target Audiences

Proposals for Guidelines

F or Producer Countries

For Consumer Countries

Work Assignment

Selected Option

CONTENTS

ITTO Decision 2(XXI) on Market Access

Example of an Approach to Investment Incentives

1

2

2

5

11

15

17

32

Appendix

1

2

3

4

CITES

FAO

ILO

ISO

ITTA

ITTC

IT TO

NGO

PCI

R&D

UNCED

UNCTADIDTCI

UNIDO

WB

WHO

WTO

ABBREVIATIONS

Convention on International Trade in Endangered Species of Fauna & Flora

Food & Agriculture Organisation of the United Nations

International Labour Organisation

International Organisation for Standardisation

International Tropical Timber Agreement

International Tropical Timber Council

International Tropical Timber Organisation

Non government organisation - generally accepted as referring to non profit making organisation operating in the fields of environment, conservation, human rights and related concerns.

ITTO Permanent Committee on Forest Industry

Research & Development

United Nations Conference on Environment & Development

United Nations Conference on Trade & Development: Division on transnational corporations & investment

United Nations Industrial Development Organisation

World Bank

World Health Organisation

World Trade Organisation

2. BACKGROUND

At the thirteenth sessions of IT TO in Yokohama in November 1993 the Permanent Committee on Forest Industries approved a proposal for a pre project study [pPD 11/92 Rev. 1 (1)]. The study was to establish the basis for further work leading to the development of ITTO Guidelines for the Development of Sustainable Forest Industries. Two consultants (one from Sweden and one from Honduras) were charged with preparing a first draft of a document containing proposal for such Guidelines.

In January 1995 an ITTO Expert Panel met to consider and revise as appropriate the document prepared by the consultants. The work of the Expert Panel was submitted in the form of draft Guidelines [PCI(XVI)7] to the Permanent Committee on Forest Industries at the sixteenth sessions in Accra, Ghana, in May 1995. This provided opportunities for comment by members.

By the time of the seventeenth sessions in Y okohama in November 1995 a number of member countries had submitted their views in writing - document PCI(XVII)4.

Further time was allowed for comment and at the eighteenth sessions in Manila, Philippines, in May 1996 a document PCI(XVIII)5 was produced which embodied views from Finland, France, Japan, the UK, USA and the FAO. Document PCI(XVIII)5 Add. 1 provided comments from China and Myanmar, together with additional comments from France. Brazil provided a separate note. At the eighteenth sessions the Committee agreed that the comments received confirmed the need for further study on the preferred scope of the Guidelines, the target audiences, and the format and appropriateness of specific principles and recommendations. To assist this process the Committee asked the Secretariat to convene a small Working Party, to work in consultation with the Secretariat, to consider and elaborate on options for scope, coverage and target audience. This Working Group met in Y okohama in October 1996 and consisted of representatives from Brazil, Ghana, Japan, Malaysia, the UK and USA. Its report, document PCI(XIX/5), was presented at the nineteenth sessions in Yokohama in November 1996 and enabled the Committee to select its preferred option.

SELECTED APPROACH

The option (Scope Option 2 - see Appendix 2) chosen by the Permanent Committee is to "focus on policies and measures to promote domestic further processing of tropical timber" and is to cover "producer and consumer member countries (including different sets of principles/ recommended actions; the set for producer member countries focusing on measures to promote further processing industries; and the set for consumer member countries focusing on market access and facilitation of investment and access to financing)".

This report provides principles and recommended actions for national governments, the industrial sector and relevant agencies related to this option. The Work Assignment for the authors is attached in Appendix I.

3. The report of the Working Group notes that this option is consistent with Article 1(e) ITTA 1983 "to encourage increased and further processing of tropical timber in producer member countries", and with Article l(i) ITTA 1994 "to promote increased and further processing of tropical timber from sustainable sources in producing member countries". In the words of the Working Group it therefore addresses an ITTO objective which is attractive to producer member countries, saying: "To promote increased and further processing of tropical timber from sustainable sources in producing member countries with a view to promoting their industrialisation and thereby increasing their employment opportunities and export earnings."

The Working Group proposed that the Guidelines should be limited to wood processing industries, excluding industry operations related to forest harvesting and logging. This limitation was justified by the Working Group because forest management and logging have already been covered by the "ITTO Guidelines for Sustainable Management of Natural Tropical Forests 1990". Both in the Working Group's report and in this report the fundamental and essential need to achieve the sustainability of forests for environmental, social and economic purposes is taken for granted. It should be noted that a basic requirement for long term industrial success and development is an assured supply of raw material.

Before recommending the exclusion of forest management from the proposed Guidelines, the Working Group discussed whether there was a need for guidelines aimed specifically at forest industry enterprises to further encourage their voluntary active participation in the process of improving forest management and the achievement of Objective Year 2000, but whatever views might be taken on this, the primary focus of the proposed Guidelines was industry and processing rather than on forests.

The Working Group also noted that reformulation of principles in the proposed Guidelines may offer opportunities to explore circumstances under which appropriate assistance for countries with less well developed industry might come from external sources.

The Working Group noted that many countries import timber, including some 'producer' member countries in IT TO, and that the requirement for efficient use of wood remains a need whether based on local wood sources or on imports.

In respect of the particular option/coverage selected by the Permanent Committee on Forest Industries, the report of the Working Group noted a suggestion that the original pre project title which used the word 'Guidelines' might be retitled 'Policies and measures to promote further processing industries in tropical timber producing member countries'.

Change of emphasis

It should be noted that the choice of Scope Option 2 implies a shift in emphasis. Scope Option 1 offered by the Working Party - but not selected - focused on complementing the application of ITTO Guidelines for sustainable forest management with proposals for guidelines centred on using raw material from the forest more efficiently, and thus on the concept of sustainable development associated with environmental considerations. Scope Options 4 and 5 also gave emphasis to environmental sustainability but were not selected.

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4. The choice of Scope Option 2 changed the emphasis from forestry considerations to the promotion of domestic further processing of tropical timber - a legitimate objective clearly recognised in ITTA 1983 and ITTA 1994. In effect whilst Guidelines arising from Scope Option 2 must take account of environmental matters, they no longer remain the principal focus.

The assumption was that guidance on sustainable forest management had already been provided and that no more guidance in that respect was needed.

There are however other aspects of environmental management which arise within industry. This is recognised in Agenda 21 ofUNCED'92 and elsewhere. For example, in the range of global Standards being devised in the IS014000 series of the International Organisation for Standardisation which are devoted to environmental management as can be seen from the following summary of their scope:

ISO 14000-14009 ISO 14010-14019 ISO 14020-14029 ISO 14030-14039 ISO 14040-14049 ISO 14050-14059 ISO 14060

Environmental management systems Environmental auditing Environmental labelling Environmental performance evaluation Life cycle analysis Terms and definitions Environment aspects in product standards

This shift in emphasis may be rationalised to some extent by consideration of the status of some wood processing enterprises in tropical developing countries. The ability of individual enterprises to develop technically and commercially is varied, especially in countries where facilitating resources are lacking. Large industrial units, including transnational companies, are most able to absorb environment management techniques. It is likely to be the smaller enterprises in developing countries which are the most disadvantaged.

Whilst it is desirable that the wood processing sector should aspire to sustainable development based on the application of good environment practices additional to those of sustainable forest management, it may not be easy to give precedence to the more demanding environmental management procedures advocated by more aflluent societies over first establishing a sound technical, business and market foundation.

In preparing this report the authors have taken full note of the first draft report of the Expert Panel (PCI XVIl7) and of the variety of comments made by member nations. The authors also gratefully acknowledge the value of earlier work undertaken in the field of industrial development of the forest sector by UNIDO and FAO. This report does not cover pulpwood, pulpwood chips, fuelwood, charcoal, chemical derivatives and non timber forest products such as rattan, cane or bamboo.

DEFINING THE FRAMEWORK

These Guidelines have been drawn up to address the development of a sustainable industrial sector for domestic further processing of tropical timber. The sector, however, has to be properly defined to comply with the mandate of promoting domestic further processing of tropical timber. Further processing could be undertaken within the primary and secondary wood industries for local or overseas markets, or both. Thus, these Guidelines are not only intended for the industrial sector capable of exporting, but for the forest industry in general, within the framework of IT TO.

5.

The following diagram defines (dotted lines) the forest industry sector within the manufacturing chain:

FOREST INDUSTRY FLOW

1 Natural Tropical Forests 1 Plantations

/ ,-I '_L_og_gin_g---J

Other uses (chips, pulp & paper, par­ticleboard, MDF)

lNPUfS: Legislation Investment & Financing Infrastructure Training & T eclmical Transfer Environmental & Safety Research & Development Social Issues Market Promotion

, I I I

---------------. . I

Primary products

I I

Secondary products

,

!-------~------~ I

Other uses (chips, pulp & paper, par­ticleboard, MDF)

Raw material supply will differ between the two industrial categories. The supply to the primary industry comes from logs (natural forests and/or plantations). The secondary industry is mostly supplied by the primary producer, although it may also be integrated within the primary sector.

The diagram on the previous page shows the flows of material and products from tree to market, and highlights the area of coverage of these Guidelines. The Guidelines are mandated to deal with the promotion of domestic further processing of tropical timber. Further processing is defined as activities beyond the production of rough sawn timber, veneer and plywoodlblockboard. Some further processing can take place within the ambit of primary production.

As is shown on the diagram, primary and secondary wood processing industries interact with one another. Both require a number of inputs to efficiently manufacture their respective products. The needs for these inputs vary between primary and secondary industries and also from country to country.

6.

COMMITMENT TO SUSTAINABILITY

The member nations of the International Tropical Timber Organisation are dedicated to the perpetuation of forests and the variety of services, products, and protective and productive conservation roles they can provide. The concept of perpetuation has been embodied in the word 'sustainability' and has become firmly established as relating to sustainable forest management. There are many general definitions of sustainability but interpretation of the term in practice depends very much on local perceptions of the role of forests. Such perceptions are influenced by the differing cultural and economic viewpoints of society.

In terms of timber extraction and primary processing, the term 'sustainability' has become over-ridingly associated with the forest as the source of wood supply. The primary wood processing sector is strongly concerned with utilisation and wood supply from the forest. Its products in the form of sawn timber and panels are, in the main, not aimed at specific end uses, and although special sizes for sleepers and sea defence timbers are exceptions that come to mind, the primary processing sector offers raw materials which more specialised sectors of the wood using industries can shape to their needs.

Further processing activities are undertaken to meet perceived needs in particular end use sectors and to obtain the associated social and economic benefits. The emphasis, whilst still encompassing an assured and appropriate wood supply, is much more on meeting consumer requirements in local and international markets. In these Guidelines the concept of 'sustainability' is related to wood supply, to the development and maintenance of a profitable activity in a competitive environment, and to the concept of environmental management in wood processing enterprises

INDUSTRY.

The word 'industry' carries the inference of use of machinery at one level or another, but significant levels of wood processing take place on a very small scale involving manual and craftsman activities.

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The term 'industry' extends from the use of single simple pieces of woodworking equipment up to complex mass production lines in association with ancillary residue recovery, drying, finishing and packaging activities. The larger the industrial units the more likely they are to be self motivated with a full range of entrepreneurial, commercial and technical management abilities, with highly skilled workforces and with links to credit and external finance. The wood processing sector in member nations - whether producer or consumer - may contain examples of all levels of activity. Not all elements of these Guidelines may be applicable to every level of wood processing activity or to every IT TO member nation. Some producer member countries have highly advanced industrial sectors, just as some consumer nations - for example transition economy countries - may identify scope for activity to rehabilitate industry.

Vertically integrated businesses may extend from log harvesting and conversion to the production of added value products. In such cases there is direct opportunity to ensure that wood supply comes from sustainably managed forests.

In practice the manufacturing of specialised added value products can often take place separately and those concerned purchase their wood mainly from the primary sector. This more specialised sector's links with Government are more likely to be through departments concerned with industry rather than departments concerned with forests.

This wood flow to domestic processors sometimes has to compete with the desire of primary producers to export their production.

The small enterprise sector makes a contribution and there is scope to assist it make more efficient use of wood and to be more rewarding for the participants.

THE NEED FOR WELL DRIED WOOD

A significant proportion of secondary added value processing requires inputs of kiln dried timber. This may be undertaken in the primary sector, in which case the dry material is available to all who wish to purchase. Individual wood processing enterprises may undertake their own kiln drying if they are able to afford installation of their own kilns.

ASPECTS OF ENVIRONMENTAL AND SOCIAL RESPONSffiILITY

Efforts to ensure perpetuation of adequate wood supply from forests and plantations should be complemented within the wood processing sector by (i) optimum utilisation of raw materials, (ii) the minimising of waste, (iii) high standards of responsibility towards matters of

environmental management, (iv) the minimising of pollution, (v) regard for health and safety, and (vi) responsible and progressive attitudes towards staff and the community. These endeavours will, among other benefits, assist in enhancing the market potential for wood products in comparison with non wood materials.

The commitment to the perpetuation of forest production, services and conservation is embodied for ITTO member nation governments in Objective Year 2000. It is a commitment made by governments and its principal concern is on responsible log harvesting. Safeguarding forest potential encompasses a complex range of factors including non timber pressures on forests arising from agriculture, mining and infrastructure needs. As expressed in the introduction to the first draft proposals for Guidelines, the attainment of sustainable stabilised agriculture is, in some countries, likely to be a critical factor in ensuring a future for forests.

ITTO AND INDUSTRY

8.

As observed in the introductory comments in the first set of draft proposals, IT TO is uniquely placed to offer potential as a forum for trade/industry and environment interests without disturbing its formal role as an intergovernmental body. In the context of these draft Guidelines ITTO might encourage exchange of information and experience on investment codes, or extend its statistical services to included added value products, or exchange experiences in dealing with the informal sector. The opportunity to create consensus and co-operation is frequently referred to in this report.

The authors of this report were not asked to suggest recommended actions to be undertaken by ITTO, but there is considerable opportunity for ITTO and/or other international institutions to work in the field of industrial development for tropical forest products at the level of international co-operation and the supply of information. It is possible that the Expert Panel, which is to be convened to prepare the final version of these proposals for Guidelines, may wish to make some recommendations on the role ofITTO.

INDUSTRY AND GOVERNl\1ENT

Interaction between industry and government is essential, not least because industry is unlikely to expand and function efficiently unless the national economic, social, financial, fiscal and infrastructural climate is conducive to the minimisation of investment risk and offers long term stable conditions for growth.

In trying to formulate Guidelines for sustainable industry, it is recognised that the thrust is mainly towards the relationships between industry and government coupled with national interests. It is not the task of these Guidelines to proffer thoughts on how industry should run its affairs, which are matters for its management, and relate to dynamism, entrepreneurial flair and the many skills and disciplines for commercial and industrial success. In the final analysis the private enterprise wood products sector has to be able to react successfully to market needs through its own strengths and abilities.

Industry has to be profitable or else it fails. The essence of industrial development is that it should lead to a self-sustaining sector with potential for growth and must be capable of generating surplus to meet a variety of expectations in terms of wages, government revenues, interest on loans, return on shareholder funds, and reserves for difficult times and for future development. Any proposals for internalising notions of environmental cost have to be seen against this background.

CONSUMER COUNTRIES

9.

It was considered by the Working Group that the set of Guidelines for consumer nations was to be more about market access for processed products, financial support potential and technology transfer.

Market access for processed products from tropical countries

For a number of years there has been aggressive campaigning in some consumer countries aimed at stopping the import of tropical wood or insisting that only tropical wood from sustainably managed forests should be purchased. These pressures have come, in the first instance, from environmental NGOs, but they have in turn influenced the attitudes, policies and actions of many others in consumer countries to take stances which can be regarded as discriminatory. The extent of this influence varies but can involve national governments, sub national governments, professionals in wood using sectors, retailers, schools, universities and the general public.

All timber from whatever source should be subject to the same judgement levels.

Market access can also be interpreted as the process of developing market opportunity where the underlying need is to identify potential markets and create and maintain linkages at all levels to create an enabling climate. The initiative for starting these processes is likely to rest mostly on the producer nations.

Organisations in consumer countries may contact producer countries in a search for assured, reliable supplies, for ways to reduce costs, and for assurance of sustained forest management. This implies an entirely passive role for those in producer countries anxious to develop the wood processing sector. The whole essence of drawing benefit from the consumer countries rests strongly on positive strategies and actions by those in the producer countries seeking information, making contacts and creating trust.

Finance

Developing wood processing industries in tropical producer countries requires financial inputs. It is necessary to identify potential sources of investment funds in the consumer nations. Finance sources may be sought from government, government agencies, international agencies (World Bank), regional sources (European Development Fund, African Development Bank and others) and possibly from NGOs. In the main, private sector finance will centre on banks, shareholder support, partnerships and other private sector approaches. Sources of finance in the private

sector might include joint ventures which bring technical and managerial inputs as well as money.

10.

For both public and private sector financing it is important that the industry in producer countries does itself have widest knowledge of potential routes to raising investment funds. There needs to be mutual understanding of the elements of evaluation used in judging business opportunity including the evaluation of risk, comparative rates of return, international finance and appropriate currencies, scope of feasibility studies, cash flows and credit, and other relevant aspects. It is possible that the submission of business plans and feasibility studies may be required to contain reassurance on environmental matters.

Technology transfer including training

Government and industry (individually or through its trade associations) in producer nations need to take a positive role in identifying potential sources of technical assistance from consumer countries. They need to discover, for example, the range and scope of professional, business and technical training establishments in consumer countries and the ways in which their knowledge can be made available.

Transfer of technology may also be linked to the establishment of one-to-one linkages between businesses in producer and in consumer countries which offer mutual benefits in terms of needs for certain wood components in one direction, and in the other the requirement for assistance in accurate production, packaging, presentation and other aspects of total quality management.

11. IDENTIFYING TARGET AUDIENCES

Before describing what might be the contents of the proposed Guidelines, it is necessary to identify the wide variety of elements within the target audiences which influence the successful development of a strong self-supporting industrial sector.

The Working Group option chosen by the Permanent Committee on Forest Industry calls for separate sets of guidelines for producer nations and for consumer nations and goes on to define the target audiences under three headings: "national governments", "the industrial sector" and "relevant agencies". This requirement can be set out in simple diagrammatic form as follows:

National Governments The Industrial Sector Relevant Agencies

Producer Country

Consumer Country

In practice the Guidelines will primarily be for use by the first two categories, namely "National Government" and "The Industrial Sector". The third category consists of elements which can have a significant influence in the evolution of sustainable development of the wood processing sector. Those representing these elements may only be concerned with a particular aspect of the Guidelines. They may not feel themselves to be particularly bound to the overall aims and objectives of the Guidelines. It is nevertheless desirable that a continuous effort is made by Government and industry to acquaint individual organisations, considered to be "relevant agencies", with the Guidelines. This third category of "relevant agencies" has not been interpreted in this report in the strict sense of "agency" but encompasses a wide range of functions - and by implication organisations concerned with these functions - which can affect the success or otherwise of endeavours to develop sustainable industry.

The sectors and interests within each of these headings are set out in Table 1 (producers) and Table 2 (consumers). A very broad range of interests has been listed. In the case of government responsibility, the list is in the form of functions. It would be necessary for governments in individual countries to identify which specific departments/organisations are involved in each of these functions. The tables help demonstrate that it is the linkages and the interaction between these elements which form the foundation of a set of principles for the proposed Guidelines.

In the case of the "industrial sector" it is necessary to make some additional comments.

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Table 1

TARGET AUDIENCES AND SECTORS - PRODUCER COUNTRIES Functions and/or Participants

NATIONAL GOVERNMENTS

Policy & legislation Planning Industrial development Forestry Finance Infrastructure Communications Trade regulations International trade Training Research & development National Standards Health & safety Labour Environment Statistics & forecasting Sub national governments Regional groups

International co-operation

INDUSTRIAL SECTOR

Wood product producers: Large scale Medium size Small Informal

Industry associations Trade associations Local wood distributors

RELEVANT AGENCIES

Forestry organisations Training & education Research & development Financial Potential investors Labour/unions Shipping & transport Local suppliers Local cOlumunities NGOs Media Sources of expertise Embassies of consumer countries International agencies

Table 2

TARGETAUDIENCESANDSECTORS-CONSUMERCOUNTRIES FWlctions and/or Participants

NATIONAL GOVERNMENTS

Market access Import regulations Tariffs Technology transfer Business expertise Training Research & development Aid International business co-operation Trade missions Statistics and forecasts Guidance to subnational

International fora Regional groups

governments

INDUSTRIAL SECTOR

Associations for trade, distribution, retailing and manufacturing

Associations for woodworking machinery and supplies

Wood product importers, manu­facturers and retailers

Producer nations' trade promotion organisations

RELEVANT AGENCIES

Research & development Investment and corporate finance National Standards NGOs Potential investors Media Sources of expertise Embassies of producer countries International agencies

13. THE INDUSTRY SECTOR IN PRODUCER COUNTRIES

This group includes the primary processing sector and the secondary processing sector. In turn the industrial sector can be classified by size categories or by their compliance with governmental regulations. Classifying the industrial sector by size and capability may have a bearing on the kind of external assistance which might be needed for further development.

Primary processing

Processing which arises directly from logs from natural forests or plantations and leading to the production of rough sawn timber, veneers, plywood and blockboard. Particleboard, waferboard and other panels may also be considered as primary products.

Primary production may be extended, through waste recovery and the use of residues, into laminating and finger jointing techniques or the production of chips for particleboard. Primary processing may be extended to treatments which assist subsequent sale and utilisation such as kiln drying or preservative treatments. Primary processing units may also be vertically and directly integrated with the production of secondary products such as machined timber, mouldings, flooring and other products.

Secondary or further processing

The further processing of primary products may either be vertically integrated as part of the activity of a primary product organisation or may be undertaken by separate processing and manufacturing units purchasing wood from the primary sector. The more specifically a product is fashioned for a particular end use, the more likely it is to be produced in independent organisations not vertically integrated into primary processing.

Industry and Trade Associations

Trade and industry associations have a key role in the development of the wood processing industry. They offer central points for dialogue with government as well as with the extensive range of "relevant agencies" which affect the sector, including training, research, statistics and market information.

Associations can also be centres of information for their members on a wide variety of aspects of industrial development and marketing.

Associations can spearhead overseas market access and marketing strategies. Where they can do this in close association with their government, there can be substantial advantages.

Associations in producer countries are well placed to establish strong links with relevant associations in consumer countries and to play roles in international fora, including representing industry'S views in areas of international debate in such areas as certification and CITES.

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This category covers businesses which handle large volumes of raw material and product, which are highly mechanised, have continuous flow production lines and a broad array of management skills in commerce, finance, marketing, product development and research, together with high quality engineering and maintenance skills and well trained operatives. Such organisations are likely to have considerable direct exposure to international marketing.

This category includes transnational organisations which may have their origins in either developed or developing nations. It might be argued that very large organisations are especially conscious of the need to act in a socially and environmentally responsible manner and that to a large extent they act as role models, centres of excellence and leaders of the local industry. They are also well positioned to undertake product development, and to put into operation activities to minimise waste and conserve energy use. They may also have a high sense of the importance of having recognised regulatory systems for environment

C management, and they may have formalised staff policies.

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Medium

Businesses handling more modest volumes of raw material and with mechanisation, but with more limited range of management and technical skills and less able to rely entirely on their own resources to acquire additional inputs for development.

Low levels of mechanisation and with relatively few in-house skills to assist self development. This category might include businesses at craft or village carpenter levels, with perhaps only one or two people employed. It might also cover wood processing which might be described as 'co-operative' or 'community' level production activities. The enterprises in this category may be widely scattered in urban and rural areas. They are likely to be working with historical approaches in method and product, and may lack infrastructural support.

"Informal"

The informal sector knowingly or unknowingly escapes government regulation and taxation. It can exist at all levels in the forest products sector. The presence of an informal sector may be a handicap to the achievement of sustainable forest management and may also be responsible for supply of poor quality and wasteful wood.

INTERNATIONAL

In addition to the three target audiences within the producer and consumer nations, it is necessary to take account of international obligations or international thinking as embodied in international conventions (CITES, for example), the non binding proposals arising from UNCED'92, the work of the WTO, the lLO, WHO, Standards arising from ISO, and other international initiatives including Objective Year 2000 of the ITTO.

PROPOSAL FOR A DOCUMENT ENTITLED

EITHER

Guidelines for the Promotion of Domestic Further Processing of Tropical Timber

OR

Policies and Measures to Promote Further Processing Industries in Tropical Timber

Producing Member Countries

containing two sets of principles: one set for producer countries one set for consumer countries

15.

16.

GROUPING OF PRINCIPLES

The Principles which are contained in the Guidelines have been grouped under the following headings:

Producer Countries:

Policy & Legislation Mutual Understanding Investment & Development Climate Infrastructure & the Maintenance ofIndustrial Efficiency Wood Supply Needs of Smaller Scale Industries Enhancing the Local Use of Timber Products Industry & People Environmental & Safety Considerations Training & Assistance Research & Development Development of International Trade The Informal Sector

Consumer Countries:

Market Access Trade Development Transfer of Technology & Training Investment & Finance

SECTION 1 PROPOSALS FOR GUIDELINES FOR PRODUCER COUNTRIES

POLICY & LEGISLATION

17.

Principle 1 There should be formal, strong and long term commitment by government to the enhancement and maintenance of the economic, environmental and social benefits of a responsible wood processing sector, and to its potential contribution to the national economy. Action 1: Government should embody this commitment in national development plans which take account of Principle 7.

Principle 2 Political commitment is demonstrated through appropriate policies recognised and supported at high political level and across the spectrum of government responsibilities.

Principle 3 Policies that affect industry should be based on awareness of the industrial viewpoint.

Principle 4 Industrial development policies should be made effective through appropriate legislation, regulation and implementation. Action 2: Government should develop appropriate statutory instruments and regulations and facilitate their implementation and understanding through guidance in the form of codes of practice and use of government information channels.

Principle 5 Policies should be based on knowledge of future demand for wood products, and on the current and potential wood consumption by industry in relation to the sustainable ability of forest and plantation resources to meet these needs. Action 3: Government should undertake and maintain appropriate information systems on forests, industry, markets and demographic trends. Action 4: Government should promote investment in the forest and wood processing industries only up to the calculated sustainable harvest capacity of the nation's forests.

Principle 6 Corrupt practices are a barrier to the introduction of sustainability.

MUTUAL UNDERSTANDING

Principle 7

Principle 8

Knowledge of the dynamics of the sector is essential to government in planning industrial strategy and fiscal programmes. Action 5: Government should continue to seek market transparency and price information. Government should seek to have a clear understanding of the roles and expectations of the links in the chain of custody from producer to customer and the underlying commercial structure of costs, non forest taxation, profits and reserves in relation to competition and market share. Industry should understand the need for and the focus of government policies, and co-operate in the achievement of national objectives.

All sectors concerned in the development of sustainable wood processing industry need high levels of communications one with another in order that the aims, objectives and responsibilities of all players and potential players are taken into account. Action 6: Government and industry should create mechanisms and meetings needed to identify and implement co-operative activities between government, and trade and industry. Action 7: Wider ranging mechanisms and meetings should also be promoted by government and industry - since they are also necessary for exchanges of views - bringing together according to need and circumstance, government, relevant government agencies, trade and industry associations, training and education, relevant professionals and research & development institutions, communications and transport interests, representation from finance and commerce, labour, communities, and environment/conservation interests. The national capability for providing expert advice and assistance should not be overlooked.

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INVESTh1ENT & DEVELOPMENT CLIMATE

Principle 9 Confidence in investment and industrial development will be fostered by a stable political and economic climate.

Principle 10 Industry is dependent on banking, and on local and international financial facilities responsive to its needs. Action 8: Industry should find ways to explain its business potential, needs and problems to government and the banking and financial sector, and to inspire helpful response.

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Principle 11 Investors and industry are assisted by simple and speedy routes through government departments, administrative processes and regulatory requirements, and will be encouraged by clear concise presentations of laws, investment codes (example in Appendix 4), regulations, taxation and other requirements which they have to meet. Action 9: Government shall endeavour to set up single departments capable of handling the range of industrial development needs. Action 10: Government should consider publication of concise guides, for example investment codes, codes of practice, health & safety regulations. The preparation by government and industry of check lists focusing on various aspects of investment, feasibility studies, and industrial and trade development is recommended.

20. INFRASTRUCTURE & THE MAINTENANCE OF INDUSTRIAL EFFICIENCY

Principle 12 The highest levels of efficient infrastructure are needed in support of economic and industrial development. Infrastructure needs encompass transport: road, rail and ports; energy: electricity and other fuels; telecommunications, mail services, water supply, sewage/sanitation. More indirectly infrastructure may embrace health and education. Action 11: Government should endeavour to integrate infrastructure planning as part of development plans for forest industries.

Principle 13 In order to remain efficient and operational, industry needs ready access to sources of spare parts, consumable stores, fuel and other supplies. Action 12: Government should shape import requirements which are simple and do not impose high financial burdens through high duties, and do not inhibit the import of vital material for industry.

Principle 14 The intrinsic value of wood, the fact that trees take a long time to grow and the limits to sustainably harvestable volumes should be reflected in its utilisation to its maximum potential, minimising the production of waste. Action 13: Government and industry should review national and international knowledge and experience in waste recovery and use of residues, and disseminate it widely within industry. The international dimension, including the pooling of knowledge and the avoidance of duplication of effort, might be facilitated through international institutions such as the ITTO. Action 14: Industrial enterprises might find ways of using waste either in new products or as sources of energy. Note should be taken of the potential benefits of becoming energy self-sufficient, a consideration mainly for primary forest industries.

Principle 15 In order to remain competitive and efficient, the forest industries will have to make changes to adapt to different wood supply situations including the use of plantation grown material, and higher utilisation of lesser known species.

21. WOOD SUPPLY

Principle 16 Industry and long term industrial development is dependent on an adequate, reliable and sustainable supply of raw material. The wood processing sector may rely on wood originating from natural forests and plantations or on imports. (Related to Principle 15) Action 15: Governments should endeavour to forecast sustainable harvest levels against the background of international commitment to forests, which call on them to observe the Forest Principles and relevant elements of Agenda 21 ofUNCED'92, the Convention on International Trade in Endangered Species of Fauna & Flora, the Convention on Biodiversity, and other international understandings and legal agreements affecting forests.

Member nations ofITTO should follow ITTO's:

Guidelines for the Sustainable Management of Natural Tropical Forests, Guidelines for the Establishment and Sustainable Management of Planted

Tropical Forests, Guidelines on the Conservation of Biological Diversity in Tropical

Production Forests, Guidelines on Fire Management in Tropical Forests, Criteria for the Measurement of Sustainable Tropical Forest

Management,

Principle 17 Sustainable wood production is only one activity within the social, economic and conservation roles of forests.

Principle 18 Prices for raw material, primary and secondary products which fully reflect costs and the industry'S "ability to pay" will encourage and assist sustainable forest management.

Principle 19 There may be problems in ensuring adequate supply of primary products to secondary processing business where the suppliers in the primary sector may prefer to export their products. Action 16: Government should ascertain whether constraints exist in the supply of wood by the primary sector to the secondary sector, and consider what actions, if any, it could take. Those sectors of industry which are involved should create dialogue to overcome the problem.

Principle 20 Manufacturers of more specialised wood products seek to purchase wood in forms which best suit their needs.

Principle 21 Whilst the consumers make the final buying decisions, market preferences are influenced by changing supply and by promotion of attractive competitive alternatives. Action 17: Industry and trade sectors should be permanently promoting the use of wood according to the changing wood supply situation.

22.

23. NEEDS OF SMALLER SCALE INDUSTRIES

Principle 22 Small sized businesses and the individual craftsman/artisan are unlikely individually to attract all the skills and aids which might enable them to improve their productivity, quality and market access. Action 18: Government should encourage smaller businesses to form associations to represent their views and through which it may be possible to organise a common pool of technical advice on products, production techniques and equipment, and on financial advice for individual members to draw on. Action 19: Associations formed to represent the interests of small scale operators should be encouraged to link with associations representing other sectors of forest products interests. Action 20: Members of such associations and groups should identifY areas of co-operation in marketing, promotion, common standards, and the aggregation of product quantities to make up larger exportable volumes. Action 21: In conjunction with representatives of the sector, the government should explore the creation of centres of activity which bring together members of the small scale sector on one site where there can be common services, technical advice and opportunities for combined marketing efforts. Action 22: Government should promote training, knowledge of financial and credit opportunities, appropriate intermediate technologies, and the use of publicity techniques and specialists disseminate advice to assist this sector.

Principle 23 Small businesses are likely to lack the resources to develop a full range of industry, business and environmental disciplines. (Related to Principle 22)

ENHANCING THE LOCAL USE OF TIMBER PRODUCTS

Principle 24 There may be barriers to overcome in order to extend the efficient use of wood and wood products within local markets.

24.

Action 23: by government, industry, and research & development might include: - examining the regulations governing the specification by government departments and agencies of timber species, products, qualities and dimensions. - working with National Standards Organisations to encourage more efficient use of wood and wood products, through appropriate Standards, specifications, performances and practices, and recommended grouping of speCIes. - greater use of product labelling to show compliance with local Standards. - dissemination of existing information on efficient use of wood. - identifYing consumer preferences to assist in the introduction of a wider range of species. Action 24: Industry should endeavour to improve the quality standards of its products destined for local markets in order to develop its own skills and in some cases to substitute for high quality wood products being imported. Drying and preservation of wood are actions that will assist in improving quality standards, in the introduction of more species and in enhancing the use of wood products.

Principle 25 Consumer expectations of better standards for timber products in the local markets helps to create a stronger foundation for meeting demands in competitive overseas markets.

Principle 26 Local markets may offer greater opportunities for utilisation of a wider range of species especially in products where performance is the criteria rather than the species of which it is made. Action 25: In endeavouring to utilise more species there are many considerations for industry, but there is a particular need to find profitable products and markets for very high density species and very low density speCIes. (Related to Action 24.)

INDUSTRY & PEOPLE

Principle 27 Industry development offers prospects of increased skills, career review and advancement, regular income, security of employment and improved standards ofliving for all levels of employee. Action 26: Industry, according to its capability, should consider the provision of conditions of service for employees, with personnel policies which should comply at least with national practices. Industry should be prepared to meet legitimate representatives of labour.

Principle 28 Industry should work in harmony with the community.

25.

Action 27: Industry should endeavour to play positive roles in community affairs. Action 28: Where industry is considering a new investment in production facilities, it should be aware ofthe views of the local community.

Principle 29 Recruitment of staff should be based on merit, on suitability for the task and should encompass men and women.

26. ENVIRONMENTAL & SAFETY CONSIDERATIONS

Principle 30 Industrial activity should not lead to undesirable impacts on people and on the environment and should at least comply with existing national environmental standards. Action 29: Government should publicise and enforce regulations regarding such matters as air, soil or water pollution, disposal of hazardous waste, sanitation, hygiene, dust extraction, storage of dangerous substances, fire precautions, safety guards on machinery. Action 30: Industry should avoid environmental pollution, excessive noise and other activities which might adversely affect the local community. Action 31: When possible, industry should seek to rely on raw materials known to have come from forests managed on sustainable harvesting regimes and should give preference to such sources. Action 32: Industry might consider appropriate voluntary environmental management policies or codes of practices.

Principle 31 Health & safety measures minimise lost productivity caused by accident and subsequent absence from work. (Related to Principle 30)

27. TRAINING & ASSISTANCE

Principle 32 The greater the sophistication, specialisation and scale of production of wood components or products, the greater and more specialised will be the range and integration of professional, managerial and technical skills required. Action 33: Government and industry may review existing sources of training and their scope in relation to the needs of industry, through a permanent joint committee or similar device on industrial training for the forest products sector. Action 34: Government and industry should systematically compile dossiers of potential sources of financial aid for training assistance and design training activities according to industry needs.

Principle 33 Industry should have a strong voice in identifYing practical training needs. Action 35: Government should consider providing training based on industry recommendations and needs. Sources of training should include formal courses at technical college and university with appropriate revision of syllabus; technical training centres which should have industry support and involvement; training within industry; training by suppliers of machinery and equipment to the industry; training and extension training services for rurally based small industries; training embracing industrial and business management; and advisory services evolved and run by trade/industry associations.

RESEARCH & DEVELOPMENT

Principle 34 Close liaison is necessary between the wood processing industry and research & development organisations in order to focus on appropriate development work. Action 36: Representatives of government, industry and the research & development (R&D) sector should review the role of existing centres of

28.

R&D for the forest products industry and current programmes of work. Action 37: Representatives of government, industry and the R&D sector should establish research needs and priorities for industrial development. It would be expected that industry would play a leading role in this work. The scope of research should be wide and range across product, production, business development, market intelligence and other relevant areas. Appropriate centres for accumulating information on worldwide developments in industry-related R&D should be identified or created. Industry should be made aware of their existence and should have easy access to them for information. Action 38: Industry should assess market trends and scope for potential products in order to advise and assist relevant R&D organisations in programme formulation. Action 39: Public and private research institutions, both at national and international levels, should co-ordinate R&D programmes to avoid duplication of effort. They should also keep abreast of activities and trends in wood product development and utilisation in world markets. Action 40:National research bodies should make efforts to promote information exchange between government, industry and trade.

Principle 35 Considerable valuable research on lesser known species, the use of plantation wood and product development has been done in forest industries, and the resulting information is not always readily available. Action 41: Government should take appropriate action to ensure that this information is made widely available to a large sector of wood industry. Action 42: Industry and government should identifY the gaps in knowledge required and promote research to fill them.

DEVELOPMENT OF INTERNATIONAL TRADE

Principle 36 Detailed knowledge of markets is an essential first step in creating business opportunities. Continuous up-to-date market intelligence and forecasting are essential to successful marketing and market development and to the process of making investment decisions in the wood processing sector. Action 43: Trade and industry associations and government departments concerned with export development should co-ordinate planning and market transparency programmes designed to identify principal markets and market opportunities and to make and maintain contact with importing and user industries in those markets. Action 44: Government and industry should also co-operate in strategic planning of detailed market research into preferences, prejudices and attitudes of consumers in order to obtain information essential to market success. Action 45: Government and industry should institute training in market research and market development.

Principle 37 A climate of trust and credibility between producers and customers creates a foundation for long term business relationships. Action 46: Governments should promote the participation of industry in international meetings and trade missions.

Principle 38 The needs and preferences ofthe customer provide an over-riding

29.

consideration in the sustainable successful marketing of primary and added value products. Endeavours to influence customer preferences and purchases will be better focused if there is awareness of customer thinking and need.

Principle 39 Added value products have to meet the expectation of customers in competitive markets; for example in delivered volumes, acceptable design and form, consistent quality and specification, reliability of delivery and acceptable pricing. Action 47: Industry should ensure that its personnel are trained for total quality management, constant improvement in product quality and cost reduction.

Principle 40 Sustained promotional activity in the market place communicates the views and objectives of an exporting country and its forest products industry. Action 48: Government and industry in producing member countries should develop sustained programmes to promote the potential of their forests and forest products industry. Together they should assess the need for sustainable promotion in target markets and, with due regard for cost and forecasted

benefits, plan appropriate approaches. If the market is potentially large and the sector is capable of capturing substantial market share, then a regional promotional office may be considered.

30.

Principle 41 Some wood using markets seek reliable assurances that the wood products they purchase come from well managed forests. Action 49: Life cycle analysis, certification and environmental management systems are among potential tools for use in marketing and promotional strategy by government and industry. Action 50: Appropriate public relations activity, including use of the Internet, may be considered by government and industry in order to explain the producer country's environmental policies to environmentally concerned sectors of overseas markets. Action 51: Industry should, when possible, give preference to wood from sources that comply with the relevant ITTO Guidelines for forest management.

THE INFORMAL SECTOR

Principle 42 The existence of an informal sector denies government of rightful revenues, resulting sometimes in unfair competition for the formal sector, and because it is by definition uncontrolled, may hinder sustainable forest management and the development of sustainable industry. Action 51: Government should guide and assist the informal sector in becoming formal.

31.

(

32.

SECTION 2 PROPOSALS FOR GUIDELINES FOR CONSUMER COUNTRIES

Considerations for consumer countries in relation to the development of sustainable industry in tropical forested producer countries.

MARKET ACCESS

Principle 1 There should be no discrimination against the imports of tropical timber products. Timber and timber products from whatever source, tropical and non tropical, should be afforded the same access to markets. Action 1: Governments of IT TO member countries should comply with Decision 2(XXI) of the ITTC taken in Yokohama in November 1996 (see Appendix 3). Action 2: Governments will comply with international obligations such as the requirements of the World Trade Organisation. Action 3: Consumer members, through their trade and industry associations, should become aware of and sympathetic to the difficulties of exporting countries in reaching sustainable forest management and be open to opportunities arising from the use of lesser known species and plantation grown species in tropical countries. Action 4: Governments of consumer countries should aim to simplify import procedures and requirements.

( TRADEDEVELOPMENT

Principle 2

Principle 3

Trade and industry in consuming countries in the developed world may be insufficiently aware of potential beneficial trade opportunities arising from improved production of added value wood products in tropical countries.

Liaison between trade/industry associations, dealing with wood and wood products in consumer countries and their counterparts in tropical producer countries, is a potential catalyst for market development and hence for industrial development for the wood products sector in tropical countries. Action 5: Trade and industry associations in consumer countries should assist their members by creating dialogue with trade and industry associations in tropical producer countries. Action 6: Governments and trade/industry associations in consumer countries

should find ways to assist individual enterprises in consumer countries to communicate their needs in terms of added value products and components to potential suppliers and potential partners in producer countries. Action 7: Trade and industry in consumer countries should endeavour to utilise lesser known species, plantation grown timber and wood products resulting from wood recovery, in the understanding that this will make a positive contribution to the conservation of forest resources. (Related to Action 3.) Action 8: Governments of consumer countries in the developed world should strengthen policies of aid and assistance which will be beneficial to the national economies of tropical countries by assisting in the export of processed wood products. Action 9: International institutions should find positive ways to encourage consumer countries to participate actively in improving international trade in processed wood products from tropical countries.

TRANSFER OF TECHNOLOGY AND TRAINING

Principle 4 Countries with industries more advanced in the product cycle represent a potential source of knowledge, training and technology, which can be of value to those tropical countries whose industries, products and export market penetration are less advanced. Action 10: Departments of governments in developed countries with responsibility for aid and assistance to developing countries should strengthen activities which encourage technology transfer and access to training. International institutions should play their part at an international level. An essential first step would be to identify sources of training and technology transfer. This information needs to be assembled in centres which are recognised by trade and industry and are easy of access and use. Such information may already have been collated on a global or national basis. Action 11: Universities, technical colleges and R&D organisations in consumer countries should endeavour to encourage participation by individuals and organisations in producer countries in courses and programmes which have relevance to the technical, business and managerial inputs required in industrial development in the wood products sector. Private enterprise organisations in consumer countries, which are engaged in the wood products sector, might also be encouraged to offer training opportunities.

33.

INVESTMENT & FINANCE

Principle 5 Consumer nations in the developed world are sources of capital and therefore have the potential to facilitate investment in the wood products sector of tropical countries. Action 12: Governments and industry in consumer countries can identify sources of investment funding in the public and private sectors of their countries which may be available to industry in tropical producer countries. Action 13: Government and industry in consumer countries should find ways to inform the investment and finance sector in their country of the potential income producing opportunities which may be realised through investment in sustainable wood products industries in the tropics. Action 14: Governments in consumer countries should develop positive policies to facilitate investment flows for the development of wood product industries in tropical developing countries. Action 15: International institutions should assist in the identification and commitment of external funding and investment into the wood processing sectors of developing tropical countries in ways which will lead to strong, competitive and self-supporting enterprises.

34.

APPENDIX 1

WORK ASSIGNMENT

To further advance work on pre project PPD 11192 (I) "Reviewing and Preparing Supporting Documents of Work on Guidelines for the Development of Sustainable Forest Industries" by the consultant, jointly with his co-consultant, shall prepare a report addressing the recommendations of the Forest Industry Permanent Committee on Guidelines scope, coverage and target audience. The main Committee recommendation is to focus the Guidelines on ·policies and measures to promote domestic further processing of tropical wood, covering both producer and consumer members, but including different sets of principles/recommended actions, the set of producer member countries focusing on measures to promote further processing industries, and the set for consumer member countries focusing on market access and facilitation of investment and access to financing.

Other important Committee recommendations which shall be taken into account by the consultants in the preparation of the report are:

(i) that the Guidelines target audiences should be national governments, the industrial sector and relevant agencies;

(ii) that in the context of the assigned work, forest industries shall be limited to wood processing industries excluding industry operations related to forest harvesting and timber logging; and

(iii) to consider previous work found in documents PCI (XVJ)/7 and PCI (XJX)/5,.and work by other organisations such as FAO and UNIDO on the issue of policies and measures to promote the development of further processing industries.

The consultants' report shall be submitted to ITTO by 31 March 1997. Documents PCI(XVJ)/7 and PCI(XIX)/6 as well as the full text on the Committee's decision and recommendations on Guidelines agreed at PCI's Nineteenth Session, are in annexes I, IT and ID respectively.

The consultants shall also attend and act as rapporteurs at the Working Group which will be convened to finalise the. report. The Working Group will be convened in the second half of 1997 after consideration of the consultants' report by Committee members.

. . P :

APPENDIX 2

EXTRACT FROM THE REPORT OF THE WORKING GROUP ON GUIDELINES FOR THE DEVELOPMENT OF

SUSTAINABLE FOREST INDUSTRIES pcr XIX/5 October 1996

- The Selected Option -

. .... .. .. ' ... ,. :~ ...... .

Scope Option 2: Focus on p.oUcies and measures to promote\domestlc further proc •• sing of tropical timber .

Scope option 2 calls for th.e Guidelines. to focus on policies and measures to promote domestic further proc-es$ing of tropical timber. This scope op~ion is consistent with Article 1, (e),' ITTA 1983, "to encourage increased and further processing of tropical timber in producing member countries", and Article 1, (i), ITTA 1994, "to . promote increased and further processing of tropical timber from sustainable sourc~s in producing member- countries". It, therefore, addresses an ITTO objective which is attractive to producer member countries:.

. To promote increased and further processing of tropical timber from sustainable sources in producing member countries with a view to promoting their industrialization and thereby increasing.:their employment opp'ortlJnities and exp.0rt earnings. . .

Recommended policy and measures for producer member countries would be designed to assist development of their in-country further· processing capability. However, it should be noted that this scope .Qption. wo.uld also include recommendations on policies and measures which could be t.aken by consumer member countries to assist producer member countries. to develo,? their further processing capability. These would include, inter alia, actio~s to facilitate· market access for processed ~roducts, investment, access to financing, tecFinology tran.~fer and training. .. ,.;

A s.uggestion is ma~e to replace the original pra-project title, which includes .. the word "Guidelines", by UPo!i~ie$ and Measures to Promote Further Processing Jndvstr.ies in Tropical Timber Producing Member Co.untries" .•. ·This.Vlil,1 need to be ·foUowed by the necessary odjustmentsin the pra-project implementation w.~·rk, to conform with the scope and title.

The Working Group agreed that this scope optiQn was viable.

~-.

INTERNATIONAL TROPICAL TIMBER COUNCIL

ITTO

TWENTY-FIRST SESSION 13-20 November 1996 Yokohama. Japan

DECISION 2(XXI)

APPENDIX 3

Distr. ;, , GENERAL'

ITTCOQCI)l13 20 November 1996

Original: ENGUSH

PROMOTION Of, MARKET ACCESS,OPPORTUNITIES FOR: INTERNATIONAL TRADE IN TROPICAL TIMBER

The International Tropical Timber Council.

Acknowledging the positive relatlonshlp that can exist between intemational trade In tropical timber and sustainable forest management;,

N21J.o.g Article 1. sub-paragraphs (b). (e) and (I) of the International Tropical Timber Agreement. 1994; ., .

Noting also the progress towards the Year 2000 Objective;

8Y:!..§IJ2. that World Trade OrganlzaUon CNTO) provisions can have an important effect on the achIevement of IITO objectives; .

further noting the ongoing discussions In the WTO. including in the Committee on Trade and Environment. on Improving ma~et access; .

StreSSing the Importance of m~~et access opportuni~les In assisting countrl~ to generate financial resources to help im~lement national policies that promote sustainable forest management:

Recognizing the Importance of, Improving public unde~anding of the positive role that the Intemational trade in timber can have In giving value to fore.sts and in generatIng financial resources for the sustainable management of forests;

Concerned that national actions which restrict International trade In tropical timber may have a negative effect on forest management in member countries;

Decides to:

1. Urge member countries to undertake measures to' eliminate possible obstacles to market access for tropical timber a~ a pos~lble means to fQst.er sustainable forest'm$nagement;

2. Urge members to m,ake su~natJonal and private 'sector users of tropiCS.!. ~Iniber aware of the positive relationship .. that Qan, ~>.cJ.st. b~tween In.terpatlonal trade in tropical, ~Imber and the efforts being made by tropIcal timber producIng countries toward sustainable forest management in the, context of U)e,.Ye.ar .. 2000 Ol;>j~ct.ive;. . . . .' .

3. Encourage m~mbers to invIte sub-national govelJlrn..ents and the private septor to consider their policies on the use of troPical"U~b~(,ln,th~.,li~,I:l.tOf the Year 2000 O,bjG.9f!Ve.

* * •

. ,',' ~~.';o<~;. '.~"" . :' "

: ~

APPENDIX 4

AN EXAMPLE OF AN APPROACH TO THE PROVISION OF INVESTMENT INCENTIVES

. '1'::.-~';O ,," '-',' .~ .. ~:,.-~. :.il ,,· ·~i:. ~(.~. ".' ,~'\".. . "~~". :.i. ' .. _. . '" .' . ~.

_ ~ ~:;(;~:;;~~ysiAN TIMBER·uioUSTRY B6ARD'.~~ riNVESTMENT INCENTIVES FOR THE WOOD-BASED INDUSTRYII~.

. ." "-~~~.'i.'t;.j~ ... <~./-~ .. .'.~ •. ~,:.::.';'''.- _ ... ~.. : .. ;. -:,,,; .:". .' '1'~"':.:, ," .

The wood-based inaustry Is jlccorded;h®P,f!PJ\tY for. ... : ... : RemI~,,~I'Cf~ ..•. .::,::' '.:_ -' further develIJpment bY·.the go.verflr:r~.~F;;'[~t~~tD;~I~;e;:; '.~,'~ . ,All paymeQ.ts,19 ~~ri~(~~idents abroad Jor any p~r.PD.se.:i'~· and support ~e groWt\! of the O)ao~~ tq~~~::~,~);~: Inc!~~ing cepa?"!;a~9~~f~.i~ and pr~fi~. ~e·fc!ely.':-'~' .:

the ~overnment has provld~d .ln~!~~ent.II\C:~ . ,>~.), ,t~;;:,~:1·~.~er~mtte~,s~bJQC;~,~~ly ~;~o~pl~tion of aSlm~~z ','; \,','.'-­particularly for downstreal"(l pr.9c:esslngsucO ~ '~:~;" :.~:::\';' ~~ ~':Statlstica! for~fgrr,r)llttan~ o(.mOf'e;~\j),OOO .~:-•. ' manufacture of reconstituted panels, mouldl{lgs~loineryand ." .. ' . cash or its equivalent in foreign currency. - ." . wooden and rattan-furniture for export. '.' • Employment of Expatriate Personnel The principal incentives listed in the 'Pfomotionof .... Foreign .compilnies are allowed to bring the required Investment Act (PIA). 1986 and the Income TaxAct, 1967 personnel in areas where there is shortage of ~~ed

· are as follows:- , )~' ' Malaysians.ln. addition to this. foreign cOl1.JPanies 'are also • General Incentlves~allowed certain';key posts' to be permanently filled by

- Pioneer Status Companies given pioneer incentives will· b~ given partial exemption for payment of income tax. They would only· have to pay tax on 30 per cent (for comp.a!lies· located' -' along the Western. Corridor of Peninsular. Malaysia) and 15 pel' cent (for companies located alons m,e Eastern .. Corridor of Peninsular Malaysia, Sabah imd Sarawak) .01" their statutory income. The period of tall exemption is 5 years commencing from the'pl:.oduction.'pate as. determined by the Mi/lister of Internatiomil.Trade and. Industry. . " ~.

Investment Tax Allowance (ITA) ", A company granted ITA will be given. an aJlowance of ", 60% In respect of qualifying capital expen'diciJre incurr.ed •. within 5 years from,the date of approval.Qf~eJ).rojec~, Seventy per cent of the statutory income tan be ,utilised" to set off the allowance.,while the balance of 30 per '" cent will be taXed at the prevailing company.taXrate. Any ullutilised allow~!)ce, can be carrhid forward to subsequellt yea~s .. ·· '-;-.. ';' Reinvestment Allowance A company granted Reinvestment Allowance may be given allowance up 50 50% of capital expenditure on plant. machinery and factory building for appr~v.ed expansion purposes, " •..

• Double Deduction of Export Credit I/)~ur:ance Premiums To encoul'age exporters to penetrate into nori:traditional markets. double dedudtion is allowed for premium' ' payments in respect of all export cre9it insurance cover with a company approved by the Ministry of Finance.

_. Double Deduction of Promotion of Exports Certain expenses incurred 'by resident companies for 'the purpose of seeking opportunities for export of products " manufacture,d in Malaysia are eligible for double,deductlon.­Examples are expenditure on advertising, supply of free samples ab~oad. . '

• Industrial BulldlngAllowanc:e (IBA)' A company is eligible for IBA in respect of buUdings used , as warehouses and as bulk storage installatici~ for storing goods fOI' export. The IBA consi~ts of an initial allowance for' 10% and-an annual allowance of 2%.

• Incentives for Research and Deve!opment '. . Double deductions are given for expenies 'incurreQ in respect of scientific research undertaken by a company. Buildings. plants and machinery used for R & P also. qualify for the allowance.' '. .

• Incentives forTralnlng In order to upgrade skills and improve productivity. allowances are given for expenditure on buUdings used for approved industrial training and double deductions are also., given on approved training programmes condu~ed by approved training institutions. '

foreigners. .

• Drawback of Custom Duties ./.. All duty.paid goods u.sed as parts or ingredients In tne

· manufacture of-other goods, which are· substantially exported are'eligible for drawback of duty in full.'

· packaging materials are not eligible for drawback. • Exemption from Customs Duty on M~lnery.

I;qulpment arid Raw Materials . Nearly all machinery. equipment and raw materials which are.,not produced locally and which are directly used in

.. the manufacturi~g process are not subject to import duty: surtaX and sa.les taX:Machinery, equipment and' raw .

'. ' mater!als still 'subjected to import duty can be ~onsidered '. for exemption provided specified conditions an'd criteria · are fulfilled. . . .

• . In~entl~es for Restru~ring J , This"scheme Is grante.;! ~o the sawmilling an~ pl~90d' ' . . industries ·keen ,to restructure. Eligible cOll)panles' may ,,~pply 'for the Indu,strial A~justment Allowance (IAA) of .uP

.. " ; to I OO%'iri respect:~fqualifying 'capital expenditJfe " ,incurred in ,an approved restructuring activity. Tnese . · companies are also eligible for preferential funding under the Industrial Adjustment Fund (IAF) .

• , Incentives for Fo,.t Plantation 'Projec:tl'

•

...

· A forest plantation project is recognised as a strategiC , project of national' interest and hence eligible for,pioneer statuS incentives with 100% tax exemption for IQ'years or investment tax allowance at the rate of 100% for S years. Infrastructure Allowance Companies undertaking projects in the promoted areas of the Eastern Corridor, Sabah and Sarawak, and wpich . ~~~e.rtake 'infras.tr~ctural works such as thebui~~ing of jetties, power stations. ports. connecting roads 'and electridty cabl.es. will be eligible for an infrastruCture allowance of 100 per cent on the expenditure incurred for a ,period of five years. . . Double Deduction of Freight Charges.-' _ Manufacturers located in Sabah and Sarawak who. export . rattan and wood-based products (excluding sawntimber and veneer), will be eligible for douqle deduction, on freight charges incurred.

• Inc:entives for High-Technology High technology ~ompanies, defined as compani8S engaged

, in promoted activities or in .the production of prompted products in areas of new and emerging ~echnoloiie$ are eligible for· full taX e~emption at statutory income level for a period of·S years; or, Investment Tax.Allowance·of 60%. on qualifying capital e>:,pe~diture incurred within.:" period of 5 years. The allowance can be off-set aga.inst th~ __ _ statutory· income· for each assessment year wi~o(Jt·any restriction.

.... -----... - ... --. -.. ~.- .. _ .. _----_.----- .... -Source: M,alaysian'lndustrial Develapment AUUlOrity and .::

Malaysian Timber Industry Board