Trade in forest products: a study of the barriers a study ... · A STUDY OF THE BARRIERS FACED BY DEVELOPING COUNTRIES ... Non-Tariff Measures 8 4. Classification of Barriers 9 5.

Trade in forest products:a study of the barriersfaced bythe developing countries

byI.J. BourkeFAO Andre Research FellowForest Research InstituteRotorua, New Zealand

FAOFORESTRY

PAPER

83

FOODAND

AGRICULTUREORGANIZATION

OF THEUNITED NATIONS

Rome, 1988

Trade in forest products: a study of the barriers faced by the deve/opi ng cou ntries

by I.J. Bourke FAO Andre Research Fellow Forest Research Institute Rotorua, New Zealand

FAO FORESTRY

PAPER

83

FOOD AND

AGRICULTURE ORGANIZATION ·

OF THE UNITED NATIONS

Rome, 1988

The designations employed and the presentation ofmaterial in this publication do not imply the expression ofany opinion whatsoever on the part of the Food andAgriculture Organization of the United Nationsconcerning the legal status of any country, territory, cityor area or of its authorities, or concerning the delimitationof its frontiers or boundaries.

M-37ISBN 92-5-102655-6

All rights reserved. No part of this publication may be reproduced, Stored in a retrieval system, ortransmitted in any form or by any means. electronic, mechanical, photocopying or otherwise, withoutthe prior permission of the copyright owner. Applications for such permission, with a statementof the purpose and extent of the reproduction, should be addressed to the Director, PublicationsDivision, Food and Agriculture Organization of the United Nations, Via delle Terme di Caracalla,00100 Rome, Italy.

© FAO 1988

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part, of the Food ,and Agriculture Organization of the United' Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries,

M-37 ISBN 92-5-102655-6

All rights reserved, No part of th~s publication may, be reproduced , stored in a retr ieval system, or transmitted in any form or by any means, electronic, m~chan ica l , photocopying or otherwise, without the prior permission of the copyright owner. :Applications for such permission. with a statement of the pu'r"pose anp extent of lIie reproduction, 'should be addressed 10 the Director, Publications Divisio1n, Food and Agriculture b 'rganization of Ihe United Nations, Via delle TerrTl'e di Caracatla, 00100 Rome. 11;' ly.

© FAO 1988

TRADE IN FOREST PRODUCTS:

A STUDY OF THE BARRIERS FACED BY DEVELOPING COUNTRIES

FOREWORD

After several years of debate and empirical research, contemporaryeconomic thinking now generally accepts the concept that export-orienteddevelopment strategies - as opposed to protectionist, import substitutionpolicies - produce better results in terms of overall economic growth. Thishas created a renewed interest in developing countries for the study offorces governing the international market.

International trade exerts a powerful influence on the forest-basedsector of developing countries. Most of these must depend on imports tosatisfy an often substantial part of their needs of industrialized forestproducts. At the same time, many possess vast forest resources which can beused to expand production for the export market and therefore increase theavailability of the foreign exchange needed to stimulate economic growth.Fluctuations in the international market can have a profound impact on thestructure of production in developing countries.

A wide variety of factors affects the intensity, direction andcomposition of international trade. Among them protectionism is a majorforce. However, very little research has been done in the forestrydevelopment field to understand the influence of the various protectionistmeasures on the structures of production in developing countries. Thisnotwithstanding, it is known that trade barriers impose a proportionallygreater burden on those exporters who operate enterprises of a relativelysmaller size, as they have a more limited capacity to adapt to the demandingand rapidly changing conditions of the international market. Many of theseexporters are located in the forest-based sector of developing countries.

The present report explores some of the main issues associated withtrade protectionism in forest products and its effects on developingcountries. The document describes the importance of trade as a majorinfluence moulding the shape of the forest-based sector of these countries,the nature and magnitude of trade barriers affecting forestry products, theefforts undertaken in the past - and planned for the future - aimed atreducing trade barriers and the policy measures which countries couldconsider adopting in order to reduce the impact of protectionism. While mostof the data collected and the analyses carried out in the cours o this

research related to the Asia-Pacific region, the same forces, even ifoperating with different intensity, are also present in Africa and LatinAmerica. The report is a pioneering effort in a field that has receivedlittle systematic attention in the past and it is hoped that its findingswill stimulate further analysis of this most important issue.

TRADE IN FOREST PRODUCTS:

A STUDY OF THE BARRIERS FACED BY DEVELOPING COUNTRIES

FOREWORD

After several years of debate and ~mpirical r esearch, contemporary economic thinking now generally accepts the concept that export-oriented development strategies - as opposed to protectionist, import substitution policies - produce better results in terms of overall economic growth. This has created a renewed interest in developing countries for the study of forces governing the international market.

International trade exerts a powerful influence on the forest-based sector of developing countries. Most of these must depend on imports to satisfy an often substantial part of their needs of industrialized forest products. At the same time; many possess vast forest resources which can be used to expand· production for the export market and therefore increase the availability of the foreign exchange needed to stimulate economic growth. Fluctuations in the international market can have a profound impact on the structure of production in developing countries.

A wide variety of factors affects the intensity, direction and composition of international trade. Among them protectionism is a major force. However, very little research has been done in the forestry development field to understand the influence of the various protectionist measures on the structures of production in developing countries. This notwithstanding, it is known that trade barriers impose a proportionally greater burden on those exporters who operate enterprises of a relatively smaller size~ as they have a more limited capacity to adapt to the demanding and rapidly changing conditions of the international market. Many of these exporters are located in the forest-based sector of developing countries.

The present report explores some of the main issues associa ted with trade protectionism in forest products and its effects on developing countries. The do c ument describes the importance of trade as a major influence moulding the shape of the forest-based sector of these countries, the nature and magnitude of trade barriers affecting forestry products, the efforts undertaken in the past - and planned for the future - aimed at reducing trade barriers and the policy measures which countries could consider adopting in order to reduce the impact of protectionism. While most of the data collected and the analyses carried out in the cours~ o' this research related to the Asia-Pacific region, the same forces, eveu if operating with different intensity, are also present in Africa and Latin America. The report is a pioneering effort in a fi eld that has received little systematic attention in the past and it is hoped that its findings will stimulate further analysis of this most important issue.

The study was carried out by Ian J. Bourke under an André MayerResearch Fellowship awarded to the author by the Food and AgricultureOrganization of the United Nations (FAO). Additional funds were provided bythe Forest Research Institute, Rotorua, New Zealand, and Resources for theFuture, Washington D.C., U.S.A. The contribution of these organizations isgratefully acknowledged.

res Rodssistant DirectorGeneralForestry Department

The study was carried out by Ian J. Bourke under a n Andre Mayer Research Fellowship awarded to the author by the Food and Agriculture Organization of the United Nations (FAa). Additional funds were provided by the Forest Research Institute, Rotorua, New Zealand, and Resources for the Future, Washington D.C., U.S.A. The contribution of these organizations is gratefully acknowledged.

ssistant Director-General Forestry Department

TABLE OF CONTENTS

PAGE

ACKNOWLEDGEMENTS

SUMMARY AND CONCLUSIONS 1

INTRODUCTION 6

1. Background 6

2. Report Objectives and Approach 7

3. Definition of Trade Barriers 8

Tariff Measures 8

Non-Tariff Measures 8

4. Classification of Barriers 9

5. Limitations of Formal Classifications 11

6. Distinction Between 'Artificial' and'Natural' Barriers 12

I. OVERVIEW OF WORLD TRADE 13

Introduction 13

Industrial Roundwood 13

Sawlogs and Veneer Logs 14

Sawnwood 15

Veneer 16

Plywood 17

Woodchips, Pulp and Paper 17

Overview 18

THE ROLE OF BARRIERS IN ECONOMIC DEVELOPMENT 21

Introduction 21

International Trade 21

Trade in the Development Process 23

Trade Barriers in the Development Process 24

Measurement of Protection 26

Benefits of Industrialization 30

6.1 Foreign exchange earnings 30

6.2 Employment 32

6.3 Value-added 32

6.4 Other benefits 34

Barriers and Industrialization 34

Summary 35

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

SUMMARY AND CONCLUSIONS

INTRODUCTION

1.

II .

1. Background 2. Report Objectives and Approach 3 . Definition of Trade Barriers

(a) Tariff Measures (b) Non-Tariff Neasures

4. Classification of Barriers 5. Limitations of Formal Classifications 6. Distinction Between 'Artificial' and

'Natural f Barriers

OVERVIEW OF WORLD TRADE

1. Introduction 2 . Industrial Roundwood 3. Sawlogs and Veneer Logs 4. Sawnwood 5. Veneer 6 . Plywood 7. Woodchips, Pulp and Paper 8 . Overview

THE ROLE OF BARRIERS IN ECONOMIC DEVELOPMENT

1. Introduction 2 . International Trade 3. Trade in the Development Process 4. Trade Barriers in the Development Process 5. Measurement of Protection 6. Benefits of Industrialization

6.1 Foreign exchange earnings 6 . 2 Employment 6.3 Value-added 6.4 Other benefits

7. Barriers and Industrialization 8. Summary

PAGE

i

1

6

6 7 8 8 8 9

11

12

13

13 13 14 15 16 17 17 18

21

21 21 23 24 26 30 30 32 32 34 34 35

PACE

BARRIERS TO TRADE 37

Introduction 37

Tariff Barriers 37

2.1 Decline in tariff rates 37

2.2 Characteristics of tariff schedules 38

Non-Tariff Barriers (NTBs) 423.1 Quantitative Restrictions 423.2 Measures Influencing Prices 52

3.3 Health and Technical Standards 53

3.4 Customs and Administration Entry Procedures 563.5 Trade Agreements 58

3.6 Ocean Freight 603.7 Other Measures 62

IV. MEASURES TO REDUCE BARRIERS 65

Introduction 65International Agreements 65

2.1 Multilateral Trade Negotiations (MTNs) 652.2 Generalised System of Preferences (GSPs) 66Bilateral and Regional Agreements 68

Trends in Barriers 694.1 Decline in Tariff Rates 694.2 Growth in the Use of NTBs 69Conclusion 73

V. EFFECTS OF REDUCING BARRIERS 75

Introduction 75

Estimates of Trade Expansion 75

2.1 Overall Effects 75

2.2 Effects on Individual Countries 79Effects on Competitiveness 83Effects on Trade Patterns 91

Effects on Industrialization 93

VI. BARRIERS AND TRADE POLICY 95

Introduction 95

The Relative Importance of Tariff andNon-Tariff Barriers 95

Future Trends 97

3.1 Tariff Reductions 97

3.2 Non-Tariff Barrier Reductions 98

Policy Implications 99

Responsibility for Policy Action 103

Suggestions for Further Research 104

III.

IV.

V.

VI.

PAGE

BARRIERS TO TRADE 37

1 . Introduction 37 2 . Tariff Barriers 37

2.1 Decline in tariff rates 37 2.2 Characteristics of tariff schedules 38

3. Non-Tariff Barriers (NTBs) 42 3 . 1 Quantitative Restrictions 42 3.2 Measures Influencing Prices 52 3.3 Health and Technical Standards 53 3.4 Customs and Administrati-on Entry Procedures 56 3.5 Trade Agreements 58 3. ,6 Ocean Freight 60 3.7 Other Measures 62

MEASURES TO REDUCE BARRIERS 65

1. Introduction 65 2. International Agreements 65

2.1 Multilateral Trade Negotiations (MTNs) 65 2 . 2 Generalised System of Preferences (GSPs) 66

3. Bilateral and Regional Agreements 68 4. Trends in Barriers 69

4 . 1 Decline in Tariff Rates 69 4.2 Growth in the Use of NTBs 69

5. Conclusion 73

EFFECTS OF REDUCING BARRIERS

1. Introduction 2. Estimates of Trade Expansion

2.1 Overall Effects 2.2 Effects ' on Individual Countries

3. Effects on Competitiveness 4. Effects on Trade Patterns 5. Effects on Industrialization

BARRIERS AND TRADE POLICY

1. Introduction 2. The Relative Importance of Tariff and

Non-Tariff Barriers 3. Future Trends

3.1 Tariff Reductions 3.2 Non-Tariff Barrier Reductions

4. Policy Implications 5. Responsibility for Policy Action 6. Suggestions for Further Research

75

75 75 75 79 83 91 93

95

95

95 97 97 98 99

103 104

PACE

REFERENCES 106

APPENDIXES

I. UNCTAD classification of NTMs 111

H. Ocean freight 114

III. Barriers and the developing countries:The Case of the East Asian Region 117

Introduction 117

Background to East Asia 117

Barriers Affecting the Developing Countriesof the East Asian Region 119

3.1 Import Barriers 1193.2 Export Restrictions 127

Philippines 128

Malaysia 130

(e) Indonesia 133IV. Calculation of Increased trade from a

reduction in Japanese tariffs 138

PAGE

REFERENCES 106

APPENDIXES

I. UNCTAD classification of NTMs 111 II. Ocean freight 114 III. Barriers and the developing countries:

The Case of the East Asian Region 117 1. Introduction 117 2. Background to East Asia 117 3. Barriers Affecting the Developing Countries

of the East Asian Region 119· 3.1 Import Barriers 119 3.2 Export Restrictions 127

(a) Philippines 128 (b) Malaysia 130 (c) Indonesia 133

IV. Calculation of Increased trade from a reduction in Japanese tariffs 138

LIST OF ABBREVIATIONS

ASEAN Association of South East Asian NationsCIF Cost, Insurance and FreightEEC European Economic CommunityEFTA European Free Trade AreaFAO Food and Agriculture Organisation of the United NationsFOB Free On BoardGATT General Agreement on Tariffs and TradeGSP Generalised System of PreferencesIMF International Monetary FundTiCs Less developed countries

cubic metresMFN Most Favoured NationMTN Multilateral Trade NegotiationsNTBs Non-tariff barriersNICs Newly industrialised countriesNTMs Non-tariff measuresSEALPA South East Asian Log Producers AssociationUNCTAD United Nations Conference on Trade and DevelopmentUNIDO United Nations Industrial Development OrganisationVERs Voluntary export restraints

UNLESS STATED OTHERWISE ALL VALUES QUOTED ARE IN US DOLLARS.

LIST OF ABBREVIATIONS

ASEAN CIF EEC EFTA FAO FOB GATT GSP IMF

L~Cs m MFN MTN NTBs NICs NTMs SEALPA UNCTAD UNIDO VERs

Association of South East Asian Nations Cost, Insurance and Freight European Economic Community European Free Trade Area Food and Agriculture Organisation of the United Nations Free On Boa rd General Agreement on Tariffs and Trade Generalised System of Preferences International Monetary Fund Less developed countries cubic metres Most Favoured Nation Multilateral Trade Negotiations Non-tariff barriers Newly industrialised countries Non-tariff measures South East Asian Log Producers Association United Nations Conference on Trade and Development United Nations Industrial Development Organisation Voluntary export restraints

UNLESS STATED OTHERWISE ALL VALUES QUOTED ARE IN US DOLLARS.

ACKNOWLEDGEMENTS

The valuable comment, advice and encouragement of a number of peopleis gratefully acknowledged. The scope and nature of the study benefittedgreatly from the input of the following staff at FAO, Rome: Mr. Arnoldo H.Contreras, who acted as Liaison Officer and oversaw the project, andMr. J.E.M. Arnold, Mr. M.E. Chipeta, Mr. T. Erfurth, Mr. H.J.I. Huuhtanen,and Mr P.A. Wardle, all of the Forestry Department, who provided comment onthe form and content of the study.

Information was obtained from discussions with Mr. K. Takeuchi andMr. A. Olechowski of the World Bank, Washington D.C.; Mr. T.M. Roepstorff,Mr. A.V. Bassili and Dr. J. Weeks, UNIDO, Vienna; Mr. D. Wessel and Mr.Brysz, UNCTAD, Geneva; Mr. R. Leonhardt, Mr. T. Takase and Ms. J. Falkus,GATT, Geneva.

Mr. G.P. Horgan and Mr. J.N. Buddle of the Forest Research Institute,Rotorua, New Zealand, provided valuable comments and reviewed early draftsof the report.

Finally I would like to especially acknowledge the advice,encouragement and guidance provided by Mr. R.A. Sedjo of Resources for theFuture, Washington D.C. and Mr. Arnoldo H. Contreras, FAO, Rome, who had amajor influence on the final product of the research.

Ian J. Bourke

- i -

ACKNOWLEDGEMENTS

The valuable comment, advice and encouragement of a number of people is gratefully acknowledged. The scope and nature of the study benefitted greatly from the input of the following staff at FAO, Rome: Mr. Arnoldo H. Contreras, who acted as Liaison Officer and oversaw the project, and Mr. J.E.M. Arnold, Mr. M.E. Chipeta, Mr. T. Erfurth, Mr. H.J.I. Huuhtanen, and Mr P.A . Wardle, all of the Forestry Department, who provided comment on the form and content of the study.

Information was obtained from discussions with Mr. K. Takeuchi and Mr. A. Olechowski of the World Bank, Washington D.C.; Mr. T.M. Roepstorff, Mr. A.V. Bassili and Dr. J. Weeks, UNIDO, Vienna; Mr. D. Wessel and Mr. Brysz, UNCTAD, Geneva; Mr. R. Leonhardt, Mr. T. Takase and Ms. J. Falkus, GATT, Geneva.

Mr. G.P. Horgan and Mr. J.N. BuddIe of the Forest Research Institute, Rotorua, New Zealand, provided valuable comments and reviewed early drafts of the report.

Finally I would like to especially acknowledge the advice, encouragement and guidance provided by Mr. R.A. Sedjo of Resources for the Future, Washington D.C. and Mr. Arnoldo H. Contreras, FAO, Rome, who had a major influence on the final product of the research.

Ian J. Bourke

1


Main Findings

I. Trade barriers affect trade by placing impediments in the way of freetrade. The barriers reduce volumes below levels that would otherwise occur,and influence the pattern of trade. Reduced barriers would thereforestimulate additional trade, change the pattern, and alter the productstraded. It is therefore worth ensuring that these barriers are reduced, orat the very least do not increase.

Since unprocessed products such as logs and rough-sawn timber alreadyhave zero or low tariff levels in most markets, and face few non-tariffbarriers, reducing barriers on forest products implies a reduction in rateson more processed products. This in turn implies a reduction in tariffescalation, a practice which discriminates against more highly processedproducts.

Stimulation of demand for more processed products has the potentialto encourage greater industrialization in the developing countries. If

effective, this would provide the associated benefits of increased foreignexchange earnings, employment, value-added, diversification of the economy,regional development, and the development of processing, management andmarketing skills. These benefits would not be limited to the forestrysector, but would have flow-on benefits.

Tariff rates on forest products are generally relatively low. For anumber of products in specific developed country markets, however theyare still relatively high. While the situation varies considerably, themain products affected are plywood, some size and species of sawnwood,reconstituted panels and some wood manufactures. Additionally, some paperand paper products have moderately high rates.

Tariff rates will continue to decline on many products up to 1987 asagreements made in the MTN are fulfilled. For many of the productsmentioned above though, only limited reductions were agreed to.

Developing countries receive a number of preferences which reduce theimpact of tariffs. In many cases the rates they face reduce to zerothrough these preferences. The most important and extensive preferencesystem is the GSP scheme. Although of considerable importance to thedeveloping countries, for many of the products of special importance tothem, the GSP is restricted by a range of exclusions or non-tariffbarriers. Tariff quotas, exclusion of some suppliers, value restrictionsand market share limitations restrict these products in a number ofdeveloped countries.

In addition to placing limitations on GSP schemes NTBs restrict orfrustrate export activities. A range exist, and in many cases tariffs anda number of NTBs apply to the same product. Although individually many ofthese trade barriers are not of major significance in Eorest productstrade, collectively (barrier stacking) they can create extreme difficulty.

- 1 -


Main Findings

1. Trade barriers affect trade by placing impediments in the way of free trade. The barriers reduce volumes below levels that would otherwise occur, and influence the pattern of trade. Reduced barriers would therefore stimulate additional trade, change the pattern, and alter the products traded. It is therefore worth ensuri ng that these barriers are reduced, or at the very least do not increase.

2. Since unprocessed products such as logs and rough-sawn timber already have zero or low tariff levels in most markets, and face few non-tariff barriers, reducing barriers on forest products implies a reduction in rates on more processed products. This in turn implies a reduction in tariff escalation, a practice which discriminates against more highly processed products.

3. Stimulation of demand for more processed products has the potential to encourage greater industrialization in the developing countries . If effective, this would provide the associated benefits of increased foreign exchange earnings, employment, value-added, diversification of the economy, regional development, and the development of processing, management and marketing skills. These benefits would not be limited to the forestry sector, but would have flow-on benefits.

4. Tariff rates on forest products are generally relatively low. For a number of products in specific developed country markets, however they are still relatively high. While the situation varies considerably, the main products affected are plywood, some size and species of sawnwood, reconstituted panels and some wood manufactures. Additionally, some paper and paper products have moderately high rates.

5. Tariff rates will continue to decline on many products up to 1987 as agreements made in the MTN are fulfilled. For many of the products mentioned above though, only limited reductions were agreed to.

6. Developing countries receive a number of preferences which reduce the impact of tariffs. In many cases the rates they face reduce to zero through these preferences. The most important and extensive preference system is the GSP scheme. Although of considerable importance to the developing countries, for many of the products of special importance to them, the GSP is restricted by a range of exclusions or non-tariff barriers. Tariff quotas, exclusion of some suppliers, value restrictions and market share limitations restrict these products in a number of developed countries.

7. In addition to placing limitations on GSP schemes NTBs restrict or frustrate export activities. A range exist, and in many cases tariffs and a number of NTBs apply to the same product. Although individually many of these trade barriers are not of major significance in forest products trade, collectively (barrier stacking) they can create extreme difficulty.

NTBs range from those which are used specifically to restrict trade,such as quantitative restrictions, to those which have other primary aimsbut which (either intentionally or unintentionally) also restrict trade.Quantitative restrictions are not widespread, but where present have a morecertain and therefore more direct effect than most other barriers.

Health, safety and technical standards are common and can haveimportant trade limiting effects for forest products. Safety and technicalstandards are of special importance. Because many developing countrieshave limited testing and quality control facilities, less extensiveresearch backup, and often less experience in marketing their products,they find such requirements much greater impediments than do most developedcountry exporters.

Anti-dumping and countervailing duty investigations are becoming morecommon for forest products although to date they have had only limitedhnpact on most developing countries. There is evidence to suggest thatthey may become more of a problem in the future unless market conditionsimprove dramatically.

Import licensing schemes apply in most markets. While it seemslikely that in some instances they are used to control imports it isdifficult to provide any clear evidence. This situation also applies tocustoms entry procedures.

Most other NTBs are currently of relatively minor significance toforest products trade, although difficulties exist in exporters being fullyaware of what requirements they must meet. The developing countries findit more difficult to keep up with changing regulations and requirementsthan do developed countries.

Perhaps the most difficult measures to evaluate are subsidies, exportassistance grants, regional encouragement assistance, and various directand indirect tax benefits. Usually they are not classified as NTBs becauseof the difficulty of identifying them, determining how they are used andestablishing how they affect imports. In most situations they are notnecessarily provided with trade control in mind, but indirectly they canhave a substantial impact. Further difficulty arises because the measuresare rarely directly related to forest products. For example, regionalagricultural subsidies which subsidise land clearing can encourage logging.

Export restrictions imposed by the major forest-rich developingcountries are currently having a major impact on trade especially in theAsian region. Export taxes, and log export controls and bans are beingused by many developing countries to 'force' a greater degree of processingto be carried out in their own countries.

There is considerable variability in the degree of commitment made tothese controls in the Asian region, with Indonesia and West Malaysia havinga strong commitment, the Philippines being forced by economic difficultiesto continually modify their position, and Sarawak and Papua New Guineaencouraging log exports. Sabah follows somewhat of a middle ground,dictated by the importance of log exports to its economy and a limitedprocessing sector.

- 2 -

8. NTBs range from those which are used specifically to restrict trade, such .as quantitative restrictions, to those which have other primary aims but which (either intentionally or unintentionally) also restrict trade. Quantitative restrictions are not widespread, but where present have a more certain and therefore more direct effect than most other barriers.

9. Health, safety and technical standards are common and can have important trade limiting effects for forest products. Safety and technical standards are of special importance. Because many developing countries have limited testing and quality control facilities, less extensive research backup, and often less experience in marketing their products, they find such requirements much greater impediments than do most developed country exporters.

10. Anti-dumping and countervailing duty investigations are becoming more common for forest products although to date they have had only limited impact on most developing countries. There is evidence to suggest that they may become more of a problem in the future unless market conditions improve dramatically.

11. Import licensing schemes apply in most markets. While it seems likely that in some instances they are used to control imports it is difficult to provide any clear evidence. This situation also applies to customs entry procedures.

12. Most other NTBs are currently of relative ly minor significance to forest products trade, although difficulties exist in exporters being fully aware of what requirements they must meet. The developing countries find it more difficult to keep up with changing regulations and requirements than do developed countries.

13. Perhaps the most difficult measures to evaluate are subsidies, export assistance grants, regional encouragement assistance, and various direct and indirect tax benefits. Usually they are not classified as NTBs because of the difficulty of identifying them, determining how they are used and establishing how they affect imports. In most situations they are not necessarily provided with trade control in mind, but indirectly they can have a substantial impact. Further difficulty arises because the measures are rarely directly related to forest products. For example, regional agricultural subsidies which subsidise land clearing can encourage logging.

14. Export restrictions imposed by the major forest-rich developing countries are currently having a major impact on trade especially in the Asian region. Export taxes, and log export con trols and bans are being used by many developing. countries to 'force' a greater degree of processing to be ca rried out in their own countries.

15. There is considerable variability in the degree of commitment made to these controls in the Asian region, with Indonesia and West ~laysia having a strong commitment, the Philippines being forced by economic difficulties to continually modify their position, and Sarawak and Papua New Guinea encouraging log exports. Sabah follows somewhat of a middle ground, dictated by the importance of log exports to its economy and a limited processing sector.

-3-.

Part of the rationale and justification given for these exportbarriers is that they compensate for the barriers imposed by the importingcountries, and consequently ensure that those countries with a comparativeadvantage are not excluded from the markets.

These export restrictions are placing considerable pressure on Japan,Republic of Korea, the Taiwan Province of the People's Republic of Chinaand Singapore, all of which have built up significant plywood, furnitureand wood manufacturing industries heavily dependent on imported tropicalhardwoods. These countries are seeking alternative supply sources,including the option of substituting softwood logs, moving towards otherprocessing activities (such as panels and manufactures with lowerproduction tolerances or higher quality finishes), and in some cases (suchas Republic of Korea) increasing their own import tariffs to limit imports.Despite these moves there is evidence that many firms are ceasingoperation, running at well below capacity, or moving their activities tothe log producing countries.

Although Indonesia, Malaysia and the Philippines appear to currentlyhave a cost advantage in more processed forest products it is not clearthat they have a clear comparative advantage in these products. Lowerproductivity, less skill in production and marketing, poor infrastructure,high cost shipping services, poor quality control, and limited capitalresources are some of the problems that must be overcome. Present costadvantages are strongly influenced by differential log pricing systemswhich provide domestic processors with logs at a considerable discount overforeign log buyers.

Any reduction in trade barriers in importing countries will enhancethe ability of developing countries to compete on export markets. It willnot however, guarantee a place in the market since the supplying countriesmust be able to meet market requirements regarding quality, technicalperformance, regularity of supply, etc. Without serious efforts to providethese product and marketing requirements they will depend on log exportcontrols to 'force' a position in the market.

Trade barriers are only one factor in enhancing the competitivenessof the developing countries. Improvement in'a number of other areas isalso required. In many cases these would provide a greater contribution toindustrialisation and increased commercial success than the reduction oftrade barriers. Improved freight services, including lower freight rates,development of managerial and marketing skills, evaluation of marketpotential and requirements, and improved processing capability, includingplant productivity, are areas where increased effort is needed.

Action

Positive steps must be taken if the impact of import trade barriersis to be reduced. It is not sufficient to leave any improvement to thegoodwill of the countries concerned, since there is little evidence tosuggest that major changes will take place unless either clear benefitsexist for the importing countries or concession are forced on them.

- 3 -

16 . Part of the rationale and j ustification given for these export barr ie r s is tha t they compensa t e for the barriers imposed by the importing countries, and consequently ensure that those countries with a comparative advantage are not excluded from the markets.

17. These export restrictions are placing considerable pressure on Japan, Republic of Korea, the Taiwan Province of the People's Republic of China and Si ngapore, all of wh i ch have built up significant plywood, furniture and wood manufacturing industries heavily dependent on imported tropica l hardwoods . These countries are seeking alternative supply sources, including the option of subst i tuting softwood logs, moving towards other processing activities (such as panels and manufactures with lower production tolerances or highe r quality finishes), and in some cases (such as Republic of Korea) increasing their own import t ariffs to limit impor ts . Despite these moves there is evidence that many firms are ceasing operation, running at well be low capacity, or moving their activities to th e log producing count ries.

18. Although Indonesia, Malaysia and the Philippines appear to currently have a cost advantage in more processed forest products it is not clear that they have a clear comparative advantage in these products. Lower productivity, less skill in production and marketing, poor infrastructure, high cos t shipping s ervices , poor quality control, and limited capital resources are some of the problems tha t must be overcome. Present cost advantages are strongly inf luenced by differential log pricing systems which provide domestic processors with logs at a conside rabl e discount over foreign log buyers.

19. Any reduction in trade barriers in impor ting countries will enhance the ability of developing countries to compete on export markets. It will not however, guarantee a place in the market since the supplying countries must be able to meet market requirements regard i ng quality, technical performance, regularity of supply, etc. Without serious efforts to provide these product and marketing requirements they will depend on log export controls to 'force' a position in the market.

20. Trade barriers are only one factor in enhancing the competitiveness of the developing countries. Improvement in ·a number of other areas is also required. In many cases these woul d provide a greater contribution to industrialisation and increased commercial success than the reduction of trade barriers. Improved freight services, including lower freight rates, development of managerial and marketing skills, evaluation of market potential and requirements, and improved processing capability, including plant productivity, are areas where increased effor t is needed.

Action

21 . Positive steps must be taken if the impact is to be reduced. It is not sufficient to l eave

of import trade barriers any improvement . to the i3 little evidence to goodwill of the countries concerned ,

suggest that major changes will take exist for the importing countries or

since there place unless either clear benefits concession are forced on them.

-4-

There should be continued effort, to reduce tariffs, throughinternational, regional and bilateral negotiations.

Increasing attention must be paid to increasing the visibility ofnon-tariff barriers, and to ensuring they do not become more prevalent.Visibility would be increased if existing non-tariff inventories wereextended, the information made more current, extensive, and freelyavailable. This would assist in encouraging greater restraint in the useof NTBs.

94. Continued efforts to establish agreement on what measures constitutebarriers, and to provide 'ground-rules' for their use, should take place.

International and regional agencies, governments, and researchorganizations should undertake trade policy research which evaluates theimpacts of barriers and considers alternative strategies relating to tradebarriers in a variety of countries. Only limited work on forest productshas been carried out to date - this should be increased, and shouldconsider both broad product groupings and isolate the issues affectingindividual product categories.

Studies which consider the more restricted interests of specificcountries and particular products would be especially valuable inhighlighting the situation facing individual countries and identifyingtheir varying circumstances.

The developing countries should press for improved conditionssurrounding the GSP scheme. Moves such as extension of the productscovered, removal of restrictions limiting the schemes, and improvements tothe means of allocating quotas between exporting countries would greatlyenhance the schemes. In particular, improved treatment of plywood wouldassist greatly.

A number of procedures would assist the developing countries to avoidfacing some of the current barriers, or make it easier for them to meetrequirements. For example, the provision of information regarding importrequirements and procedures, product standards, and usage requirementswould be of great value.

Expanded research and product testing, together with regionalcooperative efforts to implement harmonised grading rules and manufacturingstandards, would ease current difficulties in these areas. In particular,efforts should be increased for lesser-known species.

Developing countries should place increased emphasis on thedevelopment of their domestic markets for forest products. This wouldenable processing, marketing and management skills to be tmproved beforemoving into export markets.

Improvement in a number of additional areas is important to theeffective development of forest products exports. Although these are notdirectly linked to the formal trade barriers discussed in this report,their improvement would indirectly reduce the relative importance of the

- 4 -

22. There should be continued effort, to reduce tariffs, through international, regional and bilateral negotiations.

23. Increasing attention must be paid to increasing the visibility of non-tariff barriers, and to ensuring they do not become more prevalent. Visibility would be increased if existing non-tariff inventories were extended, the information made more current, extensive, and freely available. This would assist in encouraging greater restraint in the use of NTBs.

24. Continued efforts to establish agreement on what measures constitute barriers, and to provide 'ground-rules' for their use, should take place.

25. International and regional agencies, governments, and research organizations should undertake trade policy research which evaluates the impacts of barriers and considers alternative strategies relating to trade barriers in a variety of countries. Only limited work on forest products has been carried out to date - this should be increased, and should consider both broad product groupings and isolate the issues affecting individual product categories.

26. Studies which consider the countries and particular products highlighting the situation facing their varying circumstances.

more restricted interests of specific would be especially valuable in individual countries and identifying

27. The developing countries should press for improved conditions surrounding the GSP scheme. Moves such as extension of the products covered, removal of restrictions limiting the schemes, and improvements to the means of allocating quotas between exporting countries would greatly enhance the schemes. In particular, improved treatment of plywood would assist greatly.

28. A number of procedures would assist the developing countries to avoid facing some of the current barriers, or make it easier for them to meet requirements. For example, the provision of information regarding import requirements and procedures, product standards, and usage requirements would be of great value.

29. Expanded research and product testing, together with regional cooperative effort s to implement harmonised grading rules and manufacturing standards, would ease current difficulties in these areas. In particular, efforts should be increased for lesser-known species.

30. Developing countries should place increased emphasis on the development of their domestic markets for forest products. This would enable processing, marketing and management skills to be improved before moving into export markets.

31. Improvement in a number of additional areas is important to the effec tive development of forest products exports. Although these are not directly linked to the formal trade barriers discussed in this report, their improvement would indirectly reduce the relative importance of the

- 5 -barriers. The reduction of costs and/or improved ability to meet marketrequirements will reduce the relative importance of trade barriers bymaking exports easier and more profitable. Areas of importance are seafreight rates, processing expertise, product development, marketing andmanagement skills.

- 5 -barriers. The reduction of costs and/or improved ability to meet market requirements will reduce the relative importance of trade barriers by maki ng exports easier and more profitable. Areas of importance are sea freight rates, processing expertise, product development, marketing and management skills.

- 6 -

INTRODUCTION

1. Background

International trade in forest products, as with that in most otherproducts, is controlled and regulated by various trade measures. These maybe designed specifically to regulate international trade, or they may do soindirectly. Equally, their nature and significance may vary, both betweenindividual products and also markets. A wide array exist and their impactsand consequences vary considerably, as does the effectiveness in achievingtheir goals.

There are tariff and non tariff measures which are used by importingand exporting countries for a variety of purposes. Importing countriesrestrict or prohibit imports in order to protect existing domesticproducers of identical or similar products; encourage the development of adomestic industry where none exists; reduce the drain on limited foreignexchange reserves; raise revenue; move towards domestic self-sufficiencyfor strategic reasons; encourage trade links with certain trading partnersrather than others; or restrict entry of undesirable products.

An important consequence in many cases is that the effects often gofar outside the intended goals. In these situations, measures such as, forexample, technical standards, which may have been designed for legitimatemanagement reasons may place major restrictions in the way of exporters.Similarly, measures such as internal subsidies or regional encouragementgrants, which have domestic goals, may result in distortions which spillover into international trade. For example, subsidised domestic stumpagecan make otherwise uncompetitive suppliers major competitors of low cost,efficient, exporting countries. In addition to their inadvertant effectson trade, however, there are many situations where otherwise legitimatemeasures are purposely used to restrict trade.

While the restrictions of importing countries are most common,exporting countries also impose measures which restrict or regulate trade,often for many of the same reasons. For examp/e, measures such asquantitative export controls or export levies aim to encourage domesticproduction by limiting the raw materials which can be exported, or to raiserevenue for the government.

In all situations, however, the broad objectives of the measures areprotection in one form or another. Even for measures which have littleeffect on trade, the primary purpose is protection.

Although tariffs are the best known and most obvious measuresinfluencing trade, non-tariff measures (NTMs) have become increasinglyimportant in recent years. In particular, the combined effects of areduction in many tariffs through international trade negotiations, and theworld-wide slowdown in economic growth since the mid-1970s which has placedconsiderable pressure on many countries, have affected trade policies.

- 6 -

I NTRODUCTION

1. Background

International trade in forest products, as with tha t in most other products, is controlled and r egulated by various trade measures. These may be designed specifically to regulate international trade, or they may do so indirectly . Equally, their nature and significance may vary, both between individual products and also markets' A wide array exist and their impac ts a nd consequences vary considerably, as does the effectiveness in achieving their goals.

There are tariff and non t ariff measures which are used by importing and exporting countries for a variety of purposes. Importing countries restrict or prohibit i mport s in order to protect existing domestic producers of identical or similar products; encourage the development of a domestic indus try where none exists; reduce the drain on limited foreign exchange reserves; raise revenue; move towards domestic self- sufficiency for strategic reasons; encour age trade links with cer t ain trading partners rather than others; or restrict entry of undesirable products.

An important consequence in many cases is that the effects often go far outside the i ntended goa l s . In these situations, measures such as, for example, technical standards, which may have been designed for l egitimate management r easo ns may place major restrictions in the way of exporters. Similarly, measures such as internal subsidies or regional encouragement grants, which have domestic goals, may result in distortions which spill over into international trade . For example, subsidised domestic stumpage can make othe rwise uncompetitive suppliers major competitors of low cost, efficient, export ing countries. In addi t ion to their inadvertant effects on trade, however, there are many situations where otherwise legitimate measures a re pu rposely used to restrict trade.

While the restrictions of importing countr i es are most common, exporting countries a l so impose measures which restrict or regulate trade, often for many of the same reasons. For example, measures such as quantitative export controls or export l evies aim to encourage domestic produc tion by limiting the raw materials which can be exported, or to raise revenue for the government.

In all situations, however, the broad objectives of the measures a r e protection in one form or another. Even for measures which have little effect on trade, the primary purpose is protec tion.

Although tariffs are the best known and most obvious measures influencing trade, non-tariff measures (NTMs) have become increasingly important in recent years. In particular, the combined effects of a reduction in many tariffs through international trade negotiations, and the world-wide slowdown in economic growth since the mid-1970s which has placed considerable pressu re on many countries, have affected trade policies.

These effects have resulted in many countries searching for other methodsto restrict or control imports in order to protect domestic industries, orin a wider context, control their economies. Evidence suggests that astariff rates have declined, countries have moved towards the use of NTMs asa means of providing protection, because of their diversity, theflexibility that they offer, their selectivity and, to a degree, theirlower visibility.

While tariff levels have been reduced in the last 10 years, rates forsome forest products in some markets are still relatively high. Forexample, rates on plywood of 10-15% ad valorem are not uncommon in many ofthe major developed markets; those on sawn timber in the range 5-8%; andmanufactured wood articles 5-10% (GATT, 1984). Average rates for 11developed markets were estimated to be 5.7% for secondary wood products(UNIDO, 1983). For developing countries the rates can be considerablyhigher.

One estimate of the effects of the removal of tariffs on forestproducts has suggested that complete removal by the main developed markeileconomies (DMECs) would increase their imports of wood and wood productsby 6.4% (based on 1976 trade levels), that is by over U.S. $950 million(UNIDO, 1983).

Similar estimates are not possible for NTMs, but the wide array ofmeasures and their incidence does support the view that the effects oftheir removal are also likely to be substantial. GATT has identified over800 NTMs which affect trade, while the UNCTAD data base on governmentaltrade measures provides Eor 105 categories and sub-categories ofproduct-specific measures and 106 categories and sub-categories of NTMs(UNIDO 1983). While not all are of importance to forest products trade, alarge proportion are.

2. Report Objectives and Approach

This report identifies and discusses the various methods used toprotect and influence forest product markets, the effects of the measures,and how they are distorting international trade in forest products. In

particular, it concentrates on the tnpacts on the developing countries, andthe way in which the measures hinder or encourage increasedindustrialization in them.

Interest lies in measures which affect trade, whether they are mainlyaimed at restricting or altering trade, or have this effect even though notspecifically designed for this purpose. The main purpose of the report isto clarify the role these measures have in international trade, and tosuggest policy actions which may assist the developing countries toovercome their restrictive effects.

The Asia-Pacific region is used as the main focus for considering thedetails of the measures which can affect forest product trade and theirimpacts.

1/ The estimates do not include pulp and paper products.

- 7 -

These effects have resulted in many countries searching for other methods to restrict or control imports in orde r to protect domestic industries, or in a wider context, control their economies. Evidence suggests that as tariff rates have declined, countries have moved towards the use of NTMs as a means of providing protection, because of their diversity, the flexibility that they offer, their selectivity and, to a degree, their lower visibility .

While tariff levels have been reduced in the last 10 years, rates for some forest products in some markets are still relatively high. For example, rates on plywood of 10-15% ad valorem are not uncommon in many of the major developed markets; those oU-sawn timber in the range 5-8%; and manufactured wood articles 5-10% (GATT, 1984). Average rates for 11 developed markets were estimated to be 5.7% for secondary wood products (UNIOO, 1983). For developing countries the rates can be considerably higher.

One estimate of the effects of the removal of tariffs on forest products has suggested that complete removal by the main developed marke£/ economies (OMECs) would increase their imports of wood and wood products by 6.4% (based on 1976 trade levels), that is by over U.S. $950 million (UNIOO, 1983).

Similar estimates are not possible for NTMs, but the wide array of measures and their incidence does support the view that the effects of their removal are also likely to be substantial. GATT has identified over 800 NTMs which affect trade, while the UNCTAD data base on governmental trade measures provides for 105 categories and sub-categories of product-specific measures and 106 categories and sub-categories of NTMs (UNIDO 1983). While not all are of importance to forest products trade, a large proportion are.

2. Report Objectives and Approach

This report identifies and discusses the various methods used to protect and influence forest product markets, the effects of the measures, and how they are distorting international trade in forest products. In particular, it concentrates on the impacts on the developing countries, and the way in which the measures hinder or encourage increased industrialization in them.

Interest lies in measures which affect trade, whether they are mainly aimed at restricting or altering trade, or have this effect even though not specifically designed for this purpose. The main purpose of the report is to clarify the role these measures have in international trade, and to suggest policy actions which may assist the developing countries to overcome their restrictive effects.

The Asia-Pacific region is used as the main focus for considering the details of the measures which can affect forest product trade and their impacts.

1/ The estimates do not include pulp and paper products.

- 8 -

3. Definition of Trade Barriers

A number of definitions of trade barriers have been suggested. Whilemany have theoretical appeal they have been difficult to use in anoperational sense. In its broadest sense a trade barrier is any governmentlaw, policy or practice which has a restrictive effect on trade. This

definition excludes 'natural' barriers such as distance from markets,language differences or customer preferences, and also restrictive privatebusiness practices unless used in a discriminatory fashion through tradeassociations, cartels, etc. government monetary and fiscal practices canhave restrictive effects on trade, but are not generally considered tradebarriers in the sense referred to in this report. Restrictions imposed bygovernments to protect public health or safety or for other reasonsunrelated to protection from foreign competition are only regarded as tradebarriers if they are abused or have a substantial effect on trade.

Tariff Measures

The identification and analysis of tariff measures and theirinfluences, while by no means simple, is relatively straightforward. Tariffschedules are published by governments and their levels, structure and thespecific product classifications they apply to are generally readilyavailable. Further, the estimation of the size of the barrier they presentto imports is also relatively simple since they are expressed inquantitative terms.

Non-Tariff Measures

Non-tariff measures, on the other hand, are diverse, difficult toidentify and even more difficult to quantify. No readily available orstrictly comparable listing exists since many of the measures arequalitative rather than quantitative in nature. Moreover, measures whichdistort trade in some situations may have no effect in others, eitherbecause of the environment in which they occur, or in the differing mannerin which they may be applied.

Some studies refer to all measures which can affect trade asbarriers. Others consider it more appropriate to use the term tradedistortions rather than barriers, since some measures expand trade ratherthan act as barriers. Another approach is to differentiate measures on thebasis of their intent1/. On this basis practices and regulations which are(a) used as commercial policy instruments to protect domestic suppliersfrom overseas competition, are differentiated from; (b) those mainlydesigned for non-commercial reasons but which are also employed to restrictimports or stimulate exports; and (c) those not designed for importrestriction purposes or to encourage exports, but which inadvertently havesome effect in this direction.

1/ For a detailed discussion of this and other definitional points seeWalter (1969), Baldwin (1970), and Yeats (1979).

- 8 -

3. Definition of Trade Barriers

A number of definitions of trade barriers have been suggested. lfhile many have theoretical appeal they have been difficult to use in an operational sense. In its broadest sense a trade barrier is any government law, policy or practice which has a restrictive effect on trade. This definition excludes 'natural' barriers such as distance from markets, language differences or customer preferences, and also restr ic tive private business practices unless used in a discriminatory fashion through trade associations, cartels, etc. government monetary and fiscal practices can have restrictive effects on trade, but are not generally considered trade barriers in the sense referred to in this report. Restrictions imposed by governments to protect public health or safety or f or other reasons unrelated to protection from foreign competition are only regarded as trade barriers if they are abused or have a substantial effect on trade.

(a) Tariff Measures

The identification and analysis of tariff measures and their influences, while by no means simple, is relatively straightforward. Tariff schedules are published by governments and their levels, structure and the specific product classifications they apply to are generally readily available. Further, the estimation of the size of the barrier they present to imports is also relatively simple since they are expressed in quantitative terms .

(b) Non-Tariff Measures

Non-tariff measures, on the other hand, are diverse, difficult to identify and even more difficult to quantify. No readily available or strictly comparable listing exists since many of the measures are qualitative rather than quantitative in nature. Moreover, measures which distort trade in some situations may have no effect in others, either because of the environment in which they occur, or in the differing manner in which they may be applied.

Some studies refer to all measures which can affect trade as barriers. Others consider it more appropriate to use the term trade distortions rather than barriers, since some measures expand trade rather than act as barriers.

1/Another approach is to differentiate measures on the

basis of their intent . On this basis practices and regulations which are (a) used as commercial policy instruments to protect domestic supplie r s from overseas competition, are differentiated from; (b) those mainly designed for non-commercial reasons but which are als o employed to restrict imports or stimulate exports; and (c) those not designed for import restriction purposes or to encourage exports, but which inadvertently have some effect in this direction.

1/ For a detailed discussion of this and other definitional points see Walter (1969), Baldwin (1970), and Yeats (1979).

- 9 -

In this report the term trade barrier refers to government laws,policies or practices which affect trade whether they are intended for thispurpose or not. The main exception to this is the exclusion of governmentmonetary and fiscal policies. Interest, therefore, lies in artificialregulations and policies which hinder the free flow of trade.

Thus some, but not all measures which may act as barriers areaddressed. Only those of importance to trade in forest products, and onlythose which have an important impact are emphasised, with main emphasis onthose of interest to the developing countries. The selection of themeasures is to some extent arbitrary since little in-depth analysis hasbeen published which enables the importance of the measures to be rated.The coverage does, however, include both those which are clearly barriersand those which may in some situations act as barriers. Thus no attempt ismade to distinguish between non-tariff barriers (NTBs) and non-tariffmeasures (NTMs).

The term 'trade measures' is, a broader term than that of 'tradebarriers'. In general 'measure' indicates a practice or policy which mayor may not be acting as a barrier, but they are generally usedinterchangeably in this report. This approach is taken because the maininterest is in discussing those elements which are acting as obstacles totrade - whether intentionally or unintentionally - and because of thedifficulties of isolating the exact eEfects in all situations.

It is important to note that the main consideration surroundingbarriers involves discrimination. The question at the heart ofprotectionism through trade barriers is whether or not the policies andrules concerned actually discriminate against imports from some or allcountries. If the so-called barriers apply equally to domestic suppliesand imports they cannot be considered trade restrictions. If

discrimination exists, so that imports must meet requirements that domesticsuppliers do not, then these can be considered formal barriers.

This report therefore is directed to formal rules and policies whichinvolve an element of actual or implied discrimination against importedforest products.

4. Classification of Barriers

Both GATT and UNCTAD have developed inventories of NTMs in order toincrease the transparency of these trade distorting policies, and to allowestimates of their frequency and impact. Although differing in detail andthe manner of classification, the two inventories are essentially similar.GATT uses a classification which places NTMs into five broad groups on thebasis of the type of measure. UNCTAD includes all non-tariff measureswhich have the potential to act as barriers witInut attempting to establishwhether in fact they are being used in this way . To date the inventoryprovides information on 45 developed market economy and developingcountries.

1/ See appendix for a copy of the UNCTAD classification.

- 9 -

In this report the term trade barrier refers to government laws, policies or practices which affect trade whether they are intended for this purpose or not. The main exception to this is the exclusion of government monetary and fiscal policies. Interest, therefore, lies in artificial regulations and policies which hinder the free flow of trade.

Thus some, but not all measures which may act as barriers are addressed. Only those of importance to trade in forest products, and only those which have an important impact are emphasised, with main emphasis on those of interest to the developing countries. The selection of the measures is to some extent arbitrary since little in-depth analysis has been published which enables the importance of the measures to be rated. The coverage does, however, include both those which are clearly barriers and those which may in some situations act as barriers. Thus no attempt is made to distinguish between non-tariff barriers (NTBs) and non-tariff measures (NTMs).

The term 'trade measures' is, a broader term than that of 'trade barriers'. In general 'measure' indicates a practice or policy which may or may not be acting as a barrier, but they are generally used interchangeably in this report. This approach is taken because the main interest is in discussing those elements which are acting as obstacles to trade - whether intentionally or unintentionally - and because of the difficulties of isolating the exact effects in all situations.

It is important to note that the main consideration surrounding barriers involves discrimination. The question at the heart of protectionism through trade barriers is whether or not the policies and rules concerned actually discriminate against imports from some or all countries. If the so- called barriers apply equally to domestic supplies and imports they cannot be considered trade restrictions. If discrimination exists, so that imports must meet requirements that domestic suppliers do not, then these can be considered formal barriers.

This report therefore is directed to formal rules and policies which involve an element of actual or implied discrimination against imported forest products.

4. Classification of Barriers

Both GATT and UNCTAD have developed inventories of NTMs in order to increase the transparency of these trade distorting policies, and to allow estimates of their frequency and impact. Although differing in detail and the manner of classification, the two inventories are essentially similar. GATT uses a classification which places NTMs into five broad groups on the basis of the type of measure. UNCTAD includes all non-tariff measures which have the potential to act as barriers wit~?ut attempting to establish whether in fact they are being used in this way To date the inventory provides information on 45 develope d market economy and developing countries.

1/ See appendix for a copy of the UNCTAD classification.

- 10 -

A useful indication of the broad array of individual measures thatexist and from which the discussion of barriers will be drawn is given byconsidering these classifications. Broadly, the measures involve:

(0 Specific limitations on trade:quantitative restrictions; export restraints; health andsanitary regulations; licensing; embargoes; minimum priceregulations, etc.

Charges on imports:tariffs, variable levies; prior deposits; special duties onimports; internal taxes, etc.

Standards:industrial standards; packaging; labelling and markingregulations, etc.

government interventions in trade:government procurement; stock trading; export subsidies;countervailing duties; trade diverting aid, etc.

Customs and administrative entry procedures:customs valuation; customs classification; anti-dumpting duties;consular and customs formalities and requirements, and samplerequirements.

The striking feature is the wide range of different measures thathave an impact on trade, and the diversity of objectives they can have. It

is also obvious that there is room for disagreement on whether any list iscomplete and also whether all measures listed should be consideredbarriers.

When attempting to provide quantitative estimates of the extent ofbarriers, the composition of the list is clearly of considerableimportance. For present purposes, however, the important point is thenumber and diversity of those included. A point highlighted throughout thereport is that whether or not many of these measures are barriers to tradedepends very much on the individual circumstances surrounding them. Thesame measure can have completely different effects depending on theindividual country involved and the product.

GATT also maintains an inventory on quantitative restrictions, basedon information provided to it by member nations, and information on trademeasures in dey,loping countries is collected in a less formalised mannerby UNCTAD/ECDC .

1/ UNCTAD/ECDC (1984)

- 10 -

A useful indication of the broad array of individual measures that exist. a nd from which the discussion of barriers will be drawn is given by considering these classifications. Broadly, the measures involve:

(i) Speci f ic limitations on trade: quantitative restrictions; export restraints; health and sanitary regulations; licensing; embargoes; minimum price regulations, etc.

(ii) Charges on imports: tariffs, variable levies; prior deposits; special duties on imports; internal taxes, etc.

(iii) Standards: industrial standards; packaging; labelling and marking regulations, etc.

(iv) government interventions in trade: government procurement; stock trading; export subsidies; countervailing duties; trade diverting aid, etc.

(v) Customs and administrative entry procedures: customs valuation; customs classification; anti-dumpting duties; consular and customs formalities and requirements, and sample req uirements.

The striking feature is the wide range of different measures that have an impact on trade, and the diversity of objectives they can have. It is also obvious that there is room for disagreement on whether any list is complete and also whether all measures listed should be considered barriers.

When attempting to provide quant i tative estimates of the extent of barriers, the composition of the list is clearly of considerable importance. For present purposes, however, the important point is the number and diversity of those included. A point highlighted throughout the report is tha t whether or not many of these measures are barriers to trade depe nds very much on the individual circumstances surrounding them. The same measure can have completely different effects depending on the individual country involved and the product.

GATT also maintains an inventory on quantitative restrictions, based on information provided to it by member nations, and information on trade measures in dey,loping countries is collected in a less formalised manner by UNCTAD/ECDC. .

1 / UNCTAD/ECDC (1984)

5. Limitations of Formal Classifications

Although of considerable usefulness, it must be recognised thatformalised classifications such as those discussed above have a number oflimitations.

(0 An extensive array of measures exist with a multiplicity ofobjectives and effects. It is therefore extremely difficult toidentify all relevant cases.

The very reason that the use of NTBs has risen in recent yearsis their lower visibility and their greater flexibility. As

international efforts at reducing tariff levels have met with adegree of success, countries have sought other means ofrestricting imports. NTBs are both more varied and moreflexible and therefore capable of greater selectivity.Additionally, the ease with which they can be altered providesan advantage over fixed, formalized tariff schedules.

(ii) Even the same measures may differ substantially in their intentand effects, depending on the manner in which they are used. It

is therefore more important to consider the specificcharacteristic of the individual measures and the way in whichthey are applied than is the case for tariffs. This isparticularly true for measures such as customs clearance orproduct standards for example.

(iii)Classifications such as those developed by GATT and UNCTAD aredependent on notification by the countries involved. Theytherefore depend on the degree of cooperation received and thelevel of agreement developed on what measures are to benotified. For example USA notifications do not includevoluntary export restraints since that country argues they arenot import barriers. Generalised System of Preferences(GSP) restrictions and limitations are not included in theinventories.

It is extremely difficult, if not impossible, forclassifications to indicate the restrictiveness of specificbarriers. The existence of a barrier says little about the wayin which it is administered, and the frequency with whichbarriers are indicated says very little about the extent towhich trade is being distorted. For example, various forms oflicensing are indicated for forest products in a number ofimportant markets but the degree to which they inhibit trade isdifficult to judge. Discretionary licensing in some markets mayin fact be equivalent to automatic licensing in others; in othermarkets it may be similar to much more restrictive controls.

Data on some countries is more comprehensive than on others.That on countries which publish their import regulations in adetailed and systematic manner is generally more complete than

- 11 -

5. Limitations of Formal Classifications

Although of considerable usefulness, it must be recognised that formalised classifications such as those discussed above have a number of limitations .

(i) An extensive array of measures exist with a multiplicity of objectives and effects. It is therefore extremely difficult to identify all relevant cases.

The very reason that the use of NTBs has risen in recent years is their lower visibility and their greater flexibility. As international efforts at reducing tariff levels have met with a degree of success, countries have sought other means of restricting imports. NTBs are both more varied and more flexible and therefore capable of greater selectivity. Additionally, the ease with which they can be altered provides an advantage over fixed, formalized tariff schedules.

(ii) Even the same measures may differ substantially in their intent and effects, depending on the manner in which they are used. It is therefore more important to consider the specific characteristic of the individual measures and the way in which they are applied than is the case for tariffs. This is particularly true for measures such as customs clearance or product standards for example.

(iii)Classifica tions such as those developed by GATT and UNCTAD are dependent on notification by the countries involved. They theref ore depe nd on the degree of cooperation received and the level of agreement developed on what measures are to be notified. For example USA notifications do not include voluntary export restraints since that country argues they are not import barriers . Generalised System of Preferences (GSP) restrictions and limitations are not included in the inventories.

(iv) It is extremely difficult, if not impossible, for classificat ions to indicate the restrictiveness of specific barriers. The exis tence of a barrier says little about the way in which it is administered, and the frequency with which barriers are indicated says very little about the extent to which trade is being distorted. For example, various forms of licensing are indicated for forest products in a number of important markets but the degree to which they inhibit trade is difficult t o judge. Discretionary licensing in some markets may in fact be equivalent to automatic licensing in others; in other markets it may be similar to much more restrictive controls.

(v) Data on some countries is more comprehensive than on others. That on countries which publish their import regulations in a detailed and systematic manner is generally more complete than

- 12 -

for those whose trade regulations are published in a lesssystematic and accessible manner. The responsiveness ofcountries to requests for information also varies, as does theaccuracy of their information. Conclusions about therestrictiveness of individual countries can therefore bemisleading if only the inventories are considered.

6. Distinction Between 'Artificial' and 'Natural' Barriers

Of note is the fact that this study is considering measures which maybe seen as 'artificial' influences on trade patterns, levels, productmakeup, or frequency. It does not investigate 'natural' factors whichinfluence trade, such as natural resource endowments, transportationadvantages or limitations, climatic conditions, infrastructuralcapabilities etc. Many of these are substantial barriers to increased ormore profitable trade of the developing countries, and represent majorhurdles to be overcome by these countries. In fact, in many cases they aremuch more important in hindering development than are tariff and non-tariffbarriers. For example, difficulties faced by exporters in developingcountries in obtaining adequate shipping space, regular services andcompetitive rates can place developing countries at a substantialdisadvantage in international trade. Equally, limited infrastructure orthe lack of trained manpower are difficulties commonly faced by thesecountries.

These are however 'natural' barriers in that they are a reflection ofthe resources of the country, its stage of development, or even itslocation relative to markets. They are not barriers imposed with thespecific purpose of affecting trade, or measures which are put in place forother purposes and indirectly affect trade.

In many instances exporting countries, both developed and developing,cite these factors as barriers to trade without distinguishing them fromthose erected specifically to influence trade. A current example of thisis seen in demands by U.S. forest product producers and trade associationsthat Japan reduce its trade barriers. In the list of barriers mentionedare Japanese business practices, the unwillingness of Jiyanese consumers tobuy imported goods, and Japanese product specifications . These aremarketing problems which any organization engaged in exporting must expectto face and overcome - alongside the difficulties of different consumerpreferences, cultural traditions and business structures - not formal tradebarriers. In the case of high freight rates to certain markets, or poorschedules, the reasons can generally be traced back to normal commercialdecisions made by shipping companies. They reflect factors such as theamount and type of cargo available, the port facilities, the alternativesopen to the ship owner, commercial risk, etc.

1/ The Japanese requirement for 3' x 6' plywood panels is said todiscriminate against U.S. exporters who are geared to the U.S. domesticsize of 4' x 8'. 'Invisible' barriers in Japan mentioned by the U.S. pulpand paper industry include the distribution system; 'orderly market'controls by Japanese importer associations; close ties between domesticproducers, distributors and banks; and customer preferences for localsupplies. (Sedjo, 1984).

- 12 -

for those whose trade regulations are published in a less systematic and accessible manner. The responsiveness of countries to requests for information also varies, as does the accuracy of their information. Conclusions about the restrictiveness of individual countries can therefore be misleading if only the inventories are considered .

6. Distinction Between 'Artificial' and 'Natural' Barriers

Of note is the fact that this study is considering measures which may be seen as 'artificial' influences on trade patterns, levels, product makeup, or frequency. It does not investigate 'natural' factors which influence trade, such as natural resource endowments, transportation advantages or limitations, climatic conditions, infrastructural capabilities etc. Many of these are substantial barriers to increased or more profitable trade of the developing countries, and represent major hurdles to be overcome by these countries. In fact, in many cases they are much more important in hindering development than are tariff and non- tariff barriers. For example, difficulties faced by exporters in developing countries in obtaining adequate shipping space, regular services and competitive rates can place developing countries at a substantial disadvantage in international trade. Equally, limited infrastructure or the lack of trained manpower are difficulties commonly faced by these countries.

These are however 'natural' barriers in that they are a reflection of the resources of the country, its stage of development, or even its location relative to markets. They are not barriers imposed with the specific purpose of affecting trade, or measures which are put in place for other purposes and indirectly affect trade.

In many instances exporting countries, both developed and developing, cite these factors as barriers to trade without distinguishing them from those erected specifically to influence trade. A current example of this is seen in demands by U.S. forest product producers and trade associations that Japan reduce its trade barriers. In the list of barriers mentioned are Japanese business practices, the unwillingness of J1yanese consumers to buy imported goods, and Japanese product specifications . These are marketing problems which any organization engaged in exporting must expect to face and overcome - alongside the difficulties of different consumer preferences, cultural traditions and business structures - not formal trade barriers. In the case of high freight rates to certain markets, or poor schedules, the reasons can generallyb~ traced back to normal commercial decisions made by shipping companies. They reflect factors such as the amount and type of cargo available, the port facilities, the alternatives open to the ship owner, commercial risk, etc.

1/ The Japanese requirement for 3' x 6' plywood panels is said to discriminate against U.S . exporters who are geared to the U.S. domestic size of 4' x 8'. 'Invisible' barriers in Japan mentioned by the U.S. pulp and paper industr,y include the distribution system; 'orderly market' controls by Japanese importer associations; close ties between domestic producers, distributors and banks; and customer preferences for local supplies. (Sedjo, 1984).

- 13 -

I. OVERVIEW OF WORLD TRADE

Introduction

This chapter provides a brief overview of world forest productsproduction and trade patterns. The purpose is to highlight the major tradeflows that exist, and indicate the main exporting and importing nations.This will highlight the role of the developing countries in forest productstrade, indicate the main developing countries involved in trade, identifythe products traded, and highlight the main markets these products arecurrently exported to.

The overall objective of the section is to provide an indication ofthe markets which are of greatest importance to the developing countries,in order to identify the markets which will be of greatest interest whenconsidering trade barriers. In general the current main markets will be ofgreatest interest in relation to barriers, although there will obviously bemarkets where only limited trade occurs because trade barriers are high.In these cases current trade flows may not necessarily provide a clearindication of all markets of interest to the developing countries.

Industrial Roundwood

Developed countries account for almost 80% of the world's productionof indust5ial roundwood. The magor producers in 1984 were te USA (336million m ), the USSR (275,000 m ) and Canada (155 million m ). Betweenthem they accounted for almost 50% of world production. Other important,but less major, producers include China, Brazil, Sweden and Finland.

World production of industrial roundwo3d increased by 13.9% between1970 and 1984 to3reach nearly 1500 million m (Table 1). Of the increaseof 178 million m $3the developing countries provided the greatest share,70% (125 million m ). Growth in production over that period was 5% for thedeveloped countries, but 60.2% for the developing countries. Thus whilethe developed countries are the dominant producers, greatest growth inrecent years has come from the developing countries.

The main increase in the developing countries has occurred in Braziland China, but a wide range of other Asian and African countries have shownincreases. The main producing developing countries are China, Brazil,Malaysia, Indonesia and India.

*/ This discussion is based on data available in FAO (1985) and in FAO-s7Monthly Bulletin of Tropical Forest Products in World Timber Trade.' Onlya limited number of tables have been provided in this chapter. Further datacan be found in the above publications.

- 13 -

* I. OVERVIEW OF WORLD TRADE

1. Introduction

This chapter provides a brief overview of world forest products production and trade patterns. The purpose is to highlight the major trade flows that exist, and indicate the main exporting and importing nations. This will highlight the role of the developing countries in forest products trade, indicate the main developing countries involved in trade, identify the products traded, and highlight the main markets these products are currently exported to .

The overall objective of the section is to provide an indicat ion of the markets which are of greatest importance to the developing countries, in order to identify the marke t s which will be of greatest interest when considering trade barriers. In general the current main markets will be of greatest interest in r elation to barriers , although there will obviously be markets where only limited trade occurs because trade barriers are high. In these cases current trade flows may not necessarily provide a clear indication of all markets of interest to the develop i ng countries.

2. Industrial Roundwood

Developed countries account for almost 80% of the world's production of indust3ial roundwood . The ma~or produ cers in 1984 were t~e USA (336 million m ), the USSR (275 ,000 m ) and Canada (155 million m). Between them they accounted for almost 50% of world production. Other important, but less major, producers include China, Brazil, Sweden and Finland.

World production of industrial roundwo~d increased by 13.9% between 1970 and 1984 t0

3reach nearly 1500 million m (Table 1). Of the increase

of 178 million m '3the developing countries provided the greatest share, 70% (125 million m). Growth in production over that period was 5% for the developed countries, but 60.2% for the dev~loping countries. Thus while the developed countries are the dominant producers, greatest growth in recent years has come from the developing countries.

The main increase in the developing coun tries has occurred in Brazil and China, but a wide range of other Asian and African countries have shown increases. The main producing developing countries are China, Brazil, Malaysia, Indonesia and India.

*/ This discussion is based on data available in FAD (1986) and in ·FAO 'Monthly Bulletin of Tropical Forest Products in World Timber Trade . ' Only a limited number of tables have been provided in this chapter. Further data can be found in the above publications.

TABLE 1 - World Production and Exports of Industrial Roundwood

Source FAO (1986)

Of the 1500 million m3 proiuced in 1984, 456 million m3 (307.) was

non-coniferous and 100 million m (69.6%) coniferous. The developingcountries accounted for 50% of world non-coniferous production, but only10% of coniferous production. The dependence of the developing countrieson non-coniferous wood is highlighted by the fact that 68.4% of theirproduction of industrial roundwood in 1984 was non-coniferous. If the twolargest producers, China and Brazil, both of which had extensive coniferousproduction, are excluded, 83% of the rest of the developing countriesproduction was non-coniferous.

Just over 100 million m3 of industrial roundwood was exported invarious product forms in 1984. Again the developed countries provided thelargest share (78%). In order of importance the world's main exportingcountries were the USA, Malaysia, Australia, Canada and Indonesia.

World trade increased by 9.2 million m3 (9.8%) betwe9 1970 and 1984.Exports from the developed countries rose by 18.1 millin m (32.4%), whilethose of the developing countries fell by 8.8 million m (23.2%). Thisdecline was largely a reflection of falling log exports. The maindeveloping countries to show declines were Indonesia and the Philippines,and a number of African countries, mainly Cate d'Ivoire and Gabon. Of thedeveloped countries the USA and the USSR reduced exports. Australia andCanada, together with a number of smaller exporters in Western Europe,increased exports.

3. Sawlogs and Veneer Logs

Production

- 14 -

Exports Ratio

(million m3) (%)

1970 1277.7 93.6 7.3

1975 1282.8 98.7 7.7

1980 1441.4 115.3 8.01984 1455.6 102.8 7.1

World production of both coniferous and non-coniferous saw and veneerlogs increased 3)etween 1970 and 1984. Coniferous production rose 11.9% to635.5 million m , and non-coniferous production rose 15.1% to 242.2 millionm (Table 2). Exports of coniferous logs rose 23.5%, but that ofnon-coniferous logs fell 22.5% to 30.0 million m largely because ofsignificant declines in Indonesia and the Philippines. These countriesrestricted exports through export log controls.

- 14 -

TABLE 1 - World Production and Exports of Industrial Roundwood

Production Exports ---------------------------

1970 1975 1980 1984

1277.7 1282.8 1441. 4 1455 .6

Source FAO (1986)

(million m3 )

93.6 98.7

115.3 102 .8

Ratio

(%)

7.3 7.7 8.0 7.1

Of the 1500 million m3

pr01uced in 1984, 456 million m3 (30%) was non-coniferous and 100 million m (69.6%) coniferous. The developing countries accounted for 50% of world non-coniferous production, but only 10% of coniferous production. The dependence of the developing countries on non-coniferous wood is highlighted by the fact that 68.4% of their production of industrial roundwood in 1984 was non-coniferous. If the two largest producers, China and Braz il, both of which had extensive coniferous production, are excluded, 83% of the rest of the developing countries production was non-coniferous.

Just over 100 million m3

of industrial roundwood was exported in various product forms in 1984. Again the developed countries provided the largest share (78%). In order of importance the world's main exporting countries were the USA, Malaysia, Australia, Canada and Indonesia.

3 World trade increased by 9.2 mill ion m (9.8%) betwee~ 1970 and 1984. Exports from the developed countries rose by 18.1 milli~n m (32.4%), while those of the developing countries fell by 8.8 mil lion m (23.2%). This decline was largely a reflection of falling log exports. The main developing countries to show declines were Indonesia and the Philippines, and a number of African countries, mainly Cote d'Ivoire and Gabon . Of the developed countries the USA and the USSR reduced exports. Australia and Canada, together with a number of smaller exporters in Western Europe, increased exports.

3. Sawlogs and Veneer Logs

World production of both coniferous and non-coniferous saw and veneer logs increased getween 1970 and 1984. Coniferous production rose 11.9% to 6~5.5 million m , and non-coniferous production rose 15.1% to 242.2 million m (Table 2). Exports of coniferous logs rose 2~.5%, but that of non-coniferous logs fell 22.5% to 30.0 million m largely because of significant declines in Indonesia and the Philippines. These countries restricted exports through export log controls.

Source: FAO (1986)

Developing countries accounted for 10.2% of world coniferous saw andveneer log production in 1984, and 3.5% of exports. They provided 59.7% ofnon-coniferous production and 88.8% of non-coniferous exports. Thedeveloping countries exported 13.3% of their total log production in 1984,while the developed countries exported 5.1% of theirs.

World trade in logs is dominated by exports to the Far East -primarily to Japan, China and the Republic of Korea. The dominantsuppliers are the USA and the USSR which export predominantly coniferouslogs, and Malaysia which exports non-coniferous logs. Smaller flows fromthe developing countries are from other Asia-Pacific suppliers and fromChile to the Far East markets, and from a number of African countries toWestern Europe.

4. Sawnwood

- 15 -

TABLE 2 - World Production and Exports of Sawlogs and Veneer Logs

World sawlwood production was 450.3 million m3 in 198. Of this338.6 million m (75.2%) was coniferous and 111.2 million m (24.8%)

non-coniferous. (Table 3) The developing countries accounted for 2.1% oftotal production - 10.7% of coniferous sawnwood and 52.4% of non-coniferoussawnwood. This share of non-coniferous sawnwood production rose over teperiod 1970-84 from 33.2%. This involved an increase of 27.2 million m .

In the case of exports, only 15.2%of3

total sawnwood exports in 1984were non-coniferous. Of the 13.1 million m of non-coniferous sawnwoodexported, almost two-thirds came from the developing countries. Exports

from the developing countries more than doublid between 1970-84 with themajor exporteri being Malaysia (3.4 mi11in m in 1984), Indonesia(3.2 million m ) Singapori (0.8 million m ) the Philippines SO.5 millionm ) Brazil (0.5 million m ) and Cate d'Ivoire (0.4 million m ).

Production Exports Ratio

Logs - coniferous 1970 550.0 24.4 4.41975 542.5 23.9 4.41980 609.2 98.0 4.61984 615.5 31.1 5.1

Logs - non-coniferous 1970 210.4 38.7 18.41975 210.7 36.2 17.2

1980 258.6 42.0 16.21984 242.2 30.0 12.4

(million m3) ( % )

- 15 -

TABLE 2 - World Productiorr arrd Exports of Sawlogs arrd Verreer Logs

Productiorr Exports Ratio --------------- - - -------

(milliorr m3) (%)

Logs - coniferous 1970 550.0 24.4 4.4 1975 542.5 23.9 4.4 1980 609.2 28.0 4.6 1984 615.5 31.1 5 .1

Logs - rrorr-corriferous 1970 210.4 38.7 18.4 1975 210.7 36.2 17.2 1980 258.6 42.0 16.2 1984 242.2 30.0 12.4

Source: FAO (1986)

Developirrg courrtries accounted for 10.2% of world coniferous saw and verreer log productiorr irr 1984, arrd 3.5% of exports. They provided 59.7% of rrorr-corriferous productiorr arrd 88.8% of rrorr-corriferous exports. The deve loping courrtries export~d 13.3% of their total log productiorr in 1984, while the developed countries exported 5.1% of theirs.

World trade in logs is dominated by exports to the Far East -primarily to Japan, Chirra arrd the Republic of Korea. The domirrarrt suppliers are the USA arrd the USSR which export predomirrarrtly corriferous logs, and Malaysia which exports rrorr-corriferous logs. Smaller flows from the developirrg courrtries are from other Asia-Pacific suppliers arrd from Chile to the Far East markets, arrd from a rrumber of Africarr courrtries to Westerrr Europe.

4. Sawnwood

World saw~wood productiorr was 450.3 milliorr m3 irr 198~. Of this 338.6 mil1iorr m (75.2%) was corriferous and 111.2 million m (24.8%) non-corriferous. (Table 3) The developing courrtries accounted for 2.1% of total production - 10.7% of coniferous sawrrwood arrd 52.4% of rron-coniferous sawnwood. This share of non- coniferous sawnwood production rose over t~e period 1970-84 from 33.2%. This involved an irrcrease of 27.2 million m .

In the case of exports, only 15.2% of3

total sawnwood exports in 1984 were rrorr-corriferous. Of the 13.1 million m of rron-coniferous sawnwood exported, almost two-thirds came from the developing countries. Exports from the developing countries more than doubljd betweerr 1970-84 with the major exporter~ being Malaysia (3.4 milli~n m in 1984), Indonesia (~.2 million m ) Singaporj (0.8 milliorr m ) the Philippines SO.5 million m ) Brazil (0.5 milliorr m ) and Cote d'Ivoire (0.4 million m ).

- 16 -

TABLE 3 - World Production and Exports of Sawnwood

Source: FAO (1986)

The developing countries have provided an increasing share ofnon-coniferous sawnwood exports, moving from 54.2% of world exports in1970 to 65.9% in 1984. An increasing proportion of their production isbeing exported (6.7% in 1970 compared with 14.9% in 1984) although theproportion is still low. By comparison the developed countries exported5.2% of their non-coniferous production in 1970 and 8.3% in 1984, again anincreasing but minor proportion.

Just over half (57%) of exports of non-coniferous sawnwood from thedeveloping countries went to developing countries, with Singapore, Brazil,Thailand and China being the main markets. A variety of developedcountries imported from the developing countries, particularly WesternEurope, Japan, the USA and Australia. The main developing countryexporters were Malaysia and Indonesia, and to a lesser extent Singapore(which re-exported sawnwood), the Philippines, Brazil, Cate d'Ivoire andParaguay.

5. Veneer

World productionlof veneer sheets increased from 3.0 million m3 in

1970, to 4.7 million m' in 1984 (Table 4). Although the major share wasproduced by the developed countries (64.8%), growth over the period 1970-84was greatest in the developing countries. Production in the latter doubledduring that time. The major exporters in 1984 were Canada, the USA, thePhilippines and Malaysia. The developed countries exported 52.1% of worldexports. The proportion of their production moving to export rose from 55%in 1970 to 63.1% in 1984.

The main markets for the developing countries were Japan, a range ofWest European countries, Singapore, Brazil and China.


Sawnwood - coniferous 1970 312.1 49.3 15.8

1975 304.7 43.3 14.2

1980 333.6 66.0 19.81984 338.6 72.9 21.5

Sawnwood - non-coniferous 1970 94.3 7.1 7.5

1975 96.7 7.9 8.2

1980 113.6 12.5 11.01984 111.7 13.1 11.7

(million m3) % )

- 16 -

TABLE 3 - World Production and Exports of Sawnwood

Production Exports -------------------- - - --

(million m3

)

Sawnwood - coniferous 1970 312.1 49.3 1975 304.7 43.3 1980 333.6 66.0 1984 338.6 72.9

Sawnwood - non-coniferous 1970 94.3 7.1 1975 96.7 7.9 1980 113.6 12.5 1984 111.7 13.1

Source: FAO (1986)

Ratio

(%)

15.8 14.2 19.8 21.5

7.5 8.2

11.0 11.7

The developing countries have provided an increasing share of non-coniferous sawnwood exports, moving from 54.2% of world exports in 1970 to 65.9% in 1984. An increasing proportion of their production is being exported (6.7% in 1970 compared with 14.9% in 1984) although the proportion is still low. By comparison the developed countries exported 5.2% of their non-coniferous production in 1970 and 8.3% in 1984, again an increasing but minor proportion.

Just over half (57%) of exports of non-coniferous sawnwood from the developing countries went to developing countries, with Singapore, Brazil, Thailand and China being the main markets. A variety of developed countries imported from the developing countries, particularly Western Europe, Japan, the USA and Australia-. The main developing country exporters were Malaysia and Indonesia, and to a lesser extent Singapore (which re- exported sawnwood), the Philippines, Brazil, Cote d'Ivoire and Paraguay.

5. Veneer

World production30f veneer sheets increased from 3.0 million m3 in 1970, to 4.7 million m in 1984 (Table 4). Although the major share was produced by the developed countries (64.8%), growth over the period 1970- 84 was greatest in the developing countries. Production in the latter doubled during tha t time. The major exporters in 1984 were Canada, the USA, the Philippines and Malaysia. The developed countries exported 52.1% of world exports. The proportionof their production moving to export rose from 55% in 1970 to 63.1% in 1984.

The main markets for the developing countries were Japan, a range of West European countries, Singapore, Brazil and China.

6. Plywood

World production of qlywood increased steadily between 1970 and 1984,moving from 33.2 million m to 44.0 million in 1984, a 33% increase(Table 4). Developed countries produced three-quarters of the total in1984, although this share was down from the 1970 level of 87.7%.

TABLE 4 - World Production and Exports of Veneer and Plywood

Plywood

Source: FAO (1986)

The largest single producer was the USA, which alone accounted for40.9% of world production. Other important producers were Japan,Indonesia, the USSR, Canada and China.

Exports of plywood reached 8.3 million m3 in 1984 with developingcountries accounting for 67.9%. Total exports almost doubled between 1970and 1984, and the share of the developing countries rose from 65.7%.

Indonesia3becamethe world's largest exporter, exporting just over 3

million m in 1984. Other important exporters were China (Taiwan),Singapore, Finland, Canada, Malaysia and the Republic of Korea.

7. Woodchips, Pulp and Paper

Production and exports of woodchips, wood pulp, and various paper andpaperboard products were heavily dominated by the developed countries.Australia, the USA and Canada dominated the woodchip trade;

North America and Scandanavia were principal exporters of pulp andnewsprint; and North America, Scandanavia, various Western Europeancountries, the USSR and Japan the main exporters oE other paper andpaperboard products. The only developing countries with any major trade inthese products were Brazil, Chile, Mexico, the Republic of Korea and India,although relative to the major producers the volumes were small.

- 17 -

1970 33.2 4.8 14.5

1975 34.3 5.4 15.71980 39.3 6.6 16.81984 44.0 8.4 19.1


(million m3) (%)

Veneer 1970 3.0 0.9 30.01975 3.7 1.0 27.01980 4.4 1.4 31.81984 4.7 2.0 42.6

- 17 -

6. Plywood

World production of ~lywood increased steadily between 1970 and 1984, moving from 33.2 million m to 44.0 million in 1984, a 33% increase (Table 4). Developed countries produced three-quarters of the total in 1984, although this share was down from the 1970 level of 87.7% .

TABLE 4 - World Production and Exports of Veneer and Plywood

Production Exports Ratio ------------------------

(million m3

) (%)

Veneer 1970 3 .0 0.9 30.0 1975 3.7 1.0 27.0 1980 4.4 1.4 31.8 1984 4.7 2.0 42.6

Plywood 1970 33.2 4.8 14.5 1975 34.3 5.4 15 . 7 1980 39.3 6.6 16.8 1984 44.0 8.4 19.1

Source: FAO (1986)

The largest single producer was the USA, which alone accounted for 40 . 9% of world production. Other important producers were Japan, Indonesia, the USSR, Canada and China.

Exports of plywood reached 8.3 million m3 in 1984 with developing countries accounting for 67.9%. Total exports almost doubled between 1970 and 1984, and the share of the developing countries rose from 65.7%. Indonesia

3became the world's largest exporter, exporting just over 3

million m in 1984. Other important exporters were China (Taiwan), Singapore, Finland, Canada, Malaysia and the Republic of Korea .

7. Woodchips, Pulp and Paper

Production and exports of woodchips, wood pulp, and various paper and paperboard products were heavily dominated by the developed countries. Australia, the USA and Canada dominated the woodchip trade;

North America and Scandanavia were principal exporters of pulp and newsprint; and North America, Scandanavia, various Western European countries, the USSR and Japan the main expor ters of other paper and paperboard products. The only developing countries with any major trade in these products were Brazil, Chile, Mexico, the Republic of Korea and India, although relative to the major producers the volumes were small.

Wood chips

Pulp

- 18 -

TABLE 5 - World Production and Exports of Woodchips, Pulp and Paper

Paper and Paperboard

Source: FAO (1986)

8. Overview

Product ion

(million m3) (%)

1970 NA 5.81975 NA 10.0

1980 NA 17.91984 NA 14.8

(million tonnes)

(%)1970 102.1 16.9 16.6

1975 102.2 15.1 14.81980 125.7 21.2 16.9

1984 135.4 21.4 15.8

(million tonnes)

(%)1970 128.1 23.4 18.3

1975 130.8 23.1 17.7

1980 170.1 35.1 20.61984 187.7 39.8 21.2

Exports Ratio

In general terms the main international flows of forest products areto the developed countries. As shown in table 6, developed countriesbnport over 60% of world imports for all the listed products exceptplywood. For many, in excess of 80% is involved. For all products exceptnon-coniferous sawlogs and veneer logs, non-coniferous sawnwood, veneer,and plywood, the developed countries also provide over 90% of worldexports. The main flows are therefore from developed countries suppliersto developed country markets. A much lower proportion of developingcountry exports are directed to the developed countries.

Only small volumes of coniferous logs or sawnwood, pulp, newsprint,and other paper and paperboard are exported by the developing countries.The main products exported are non-coniferous sawnwood, and plywood.

The main trade flow of tropical logs is to Japan, with South-EastAsia providing over 95% by volume. In 1985 Malaysia, Papua New3Guinea, thePhilippines and the Solomon Islands shipped almost 11 million m to Japan,with Malaysia alone providing just over 11 million m . Other smaller flowsare from African countries - primarily C3te d'Ivoire, Gabon, and Cameroon -to Western Europe.

- 18 -

TABLE 5 - World Production and Exports of Woodchips, Pulp and Pape r


(%)

Woodchips 1970 NA 5.8 1975 NA 10.0 1980 NA 17.9 1984 NA 14.8

(mill ion tonnes) -------------- ------ (%)

Pulp 1970 102.1 16.9 16.6 1975 102.2 15.1 14.8 1980 125.7 21.2 16.9 1984 135.4 21.4 15 . 8

(million tonnes) -------------------- (% )

Paper and Paperboard 1970 128.1 23 . 4 18.3 1975 130 . 8 23.1 17.7 1980 170 . 1 35.1 20.6 1984 187 . 7 39.8 21.2

Source: FAO (1986)

8. Overview

In general terms the main international flows of forest products are to the developed countries. As shown in table 6, developed countr ies import over 60% of world imports for all the lis ted products except plywood . For many, i n excess of 80% is involved. For all products except non- coniferous sawl ogs and veneer logs, non-coniferous sawnwood, veneer, and plywood, the developed countries also provide over 90% of world exports. The main f lows are the r efore from developed countries suppliers to developed country markets . A much lower proportion of developing country exports are directed to the developed countries.

Only small volumes of coni f erous logs or sawnwood, pulp, newsprint, and other paper a nd paperboard are exported by the developing countries. The main products expor 'ted are non-coniferous sawnwood, and plywood.

The main trade flow of tropical logs is to Japan, with South- Eas t Asia providing over 95% by volume. In 1985 Malaysia, Papua New

3Gui nea, the

Philippines and the Solomon Islands shipped almost Ij million m t o Japan, with Malaysia alone providing just over 11 million m . Other smaller flows are from African countries - primarily Cote d'Ivoire, Gabon, and Cameroon -to Western Europe.

- 19 -

The major tropical sawnwood movements were from South-East Asiancountries to Japan and to a lesser extent Western Europe. Malaysia, themain exporter, also shipped a considerable volume to Singapore. Smallervolumes were exported by Brazil to the USA, and by Brazil and a number ofAfrican countries to Western Europe.

Only small volumes of veneer were exported by the developingcountries with the main flows being from South-East Asia to Japan, the USA,and Singapore; and from West Africa to Western Europe.

Plywood flows from the developing countries were again relativelysmall, but have been increasing rapidly as Indonesia expands its exports.The main flow is from Indonesia, Malaysia, the Philippines, and Singaporeto the USA, Western Europe and Japan.

Exports of pulp and paper by the developing countries are small,other than those of Brazil and to a lesser extent Chile.

In summary, the main market areas of current interest to thedeveloping countries are Japan, Western Europe and the USA. For the majordeveloping country exporters with significant forest resources - namely theAsia-Pacific countries of Indonesia, Malaysia, the Philippines, Papua NewGuinea, and the Solomon Islands - these markets, together with in-transitdeveloping country processing areas such as the Republic of Korea, Taiwanand Singapore, have to date been the major destinations. Recent exportcontrols which have restricted the export of logs, and to a lesser degreeveneer and some sawnwood, have reduced the importance of the in-transitdeveloping country markets.

- 19 -

The major tropical sawnwood movements were from South-East Asian countries to Japan and to a lesser extent Western Europe. Malaysia, the main exporter, also shipped a considerable volume to Singapore. Smaller volumes were exported by Brazil to the USA, and by Brazil and a number of African countries to Western Europe.

Only small volumes of veneer were expor ted by the developing countries with the main flows being from South-East Asia to Japan, the USA, and Singapore; and from West Africa to Western Europe.

Plywood flows from the developing countries were again relatively small, but have been increasing rapidly as Indonesia expands its exports. The main flow is from Indonesia, Malaysia, the Philippines, and Singapore to the USA, Western Europe and Japan.

Exports of pulp and paper by the developing countries are small, other than those of Brazil and to a lesser extent Chile.

In summary, the main market areas of current interest to the developing countries are Japan, Western Europe and the USA. For the major developing country exporters with significant forest resources - namely the Asia-Pacific countries of Indonesia, Malaysia, the Philippines, Papua New Guinea, and the Solomon Islands - these markets, together with in-transit developing country processing areas such as the Republic of Korea, Taiwan and Singapore, have to date been the major destinations. Recent export controls which have restric t ed the export of logs, and to a lesser degree veneer and some sawnwood, have reduced the importance of the in-transit developing country markets.

Sawlogs and vener logs

coniferous (M )

(Ion-coniferous

(m3)

Total (ill)

Sawnwood

coniferous

(m3)

non-coniferous

(m3)

Total

(ni3)

Veneer (m)

Plywood

(m3)

Pulp

(t)

Newsprint (t)

Other paper and

paperboard (t)

Source:

FAO (1986)

TABLE 6 - Forest Products Trade - 1984

Total

Exports by

Proportion

Developing Country trade with the Developed Countries

Exports by

Exports to

Proportion

exports

developed

-developing

developed

countries

(%)

Total

Proportion

Imports from

Proportion

countries

countries

(%)

(million)

imports

of world

developed

(million)

imports

countries

(%)

(mill

ion)

(mill

ion)

----------

(million)

31.12

29.99

96.4

21.60

29.97

3.41

11.4

20.02

--- --

61.09

34.40

54.7

41.62

72.89

71.24

97.8

63.36

13.15

4.41

33.5

7.63

86.04

75.64

87.9

70.99

2.04

0.98

48.0

1.30

8.36

2.68

32.1

4.58

21.38

19.69

92.1

18.10

13.26

13.12

98.9

11.35

26.52

25.29

95.4

21.60

(%)

(mill

ion)

69.4

21.17

98.0

1.13

0.43

38.1

66.8

3.16

15.8

26.56

16.86

63.5

68.1

24.33

58.5

27.69

17.29

62.4

86.9

63.18

99.7

1.66

0.18

10.8

r°)

58.0

3.85

50.5

8.74

3.79

43.4

I

82.5

67.03

94.4

10.40

3.97

38.2

63.7

0.83

63.8

1.06

0.47

44.3

54.8

2.38

52.0

5.68

2.20

38.7

84.7

16.99

93.9

1.69

1.11

65.7

85.6

11.35

100.0

0.15

00

81.4

20.96

97.0

1.24

0.64

51.6

TABL

E 6

-F

ore

st P

rodu

cts

Trd

de -

1984

4.

__

__

__

__

".

__

. __

__

__

__

__

__

__

___

__

__

__

__

___

__

___

__

__

___

__

__

._

__

__

_

_ _

__

__

__

__

__

__

__

__

___

__

__

__

__

__

__

__

_ _

To

tal

EX

port

s b

y P

ropo

rtio

rl

Dev

elop

ing

Cou

ntry

tra

de

wit

h t

he

Dev

elop

ed C

ount

ries

E

xpor

ts b

y E

Xpo

rts

to

Pro

port

ioo.

ex

po

rts

deve

lope

d ------

-------------------

-de

velo

ping

de

velo

ped

---

cou

ntr

ies

(%)

To

tal

Pro

po

rtio

n

Impo

rts

fro

n

Pro

port

iorl

co

un

trie

s co

un

trie

s (%

) (m

illi

on

) im

port

s o

f w

orld

de

velo

ped

---

(mil

lio

n)

impo

rts

cou

ntr

ies

(%)

(mil

lio

n)

(mil

lio

n)

Saw

logs

and

v~r lo

gs

-co

nlf

ero

us

(m)

3 31

.12

-no

o.-c

oluf

erou

s (m

)

29.9

7

3 T

ota

l (m

)

61.0

9

SaW

rtIo.U

Od

3 -

cooi

fero

us (

Ill)

3

72 .8

9 -

rlO

rl""

colu

fero

us (

m )

13

.15

To

tal

(m3

) 86

.04

3 Ve

neer

(m

)

2.04

Ply1

o.UOd

(m

3 ) 8.

36

Pul

p (t

) 2(

,38

New

spri

nt (t

) 13

.26

Oth

=r p

aper

and

""

per

lnar

d (

t)

26.5

2

29.9

9 3.

41

34.4

0

71.2

4 4.

41

75.6

4

0.98

2.68

19.6

9

13.1

2

25.2

9

---

--

-----

---

-. --

--

--

--

--

--

---

---

----

-.-

---

--

--

Sou

rce:

FA

D (1

986)

96.4

11

.4

54.7

97.8

33

.5

87.9

48.0

32.1

92.1

98.9

95.4

(mil

lio

n)

21.6

0 20

.02

41.6

2

63.3

6 7.

63

70.9

9

1.30

4.58

18.1

0

11.3

5

21.6

0

(%)

69.4

66

.8

68.1

86.9

58

.0

82.5

63.7

54.8

84.7

85.6

81.4

(mil

lio

n)

21.1

7 3.

16

24.3

3

63.1

8 3.

85

67.0

3

0.83

2.38

16.9

9

11.3

5

20.9

6

98.0

15

.8

58.5

99.7

SO

.5

94.4

63.8

52.0

93.9

100.

0

97.0

1.13

26

.56

27.6

9

1.66

8.

74

10.4

0

1.06

5.68

1.69

0.15

1.24

0.43

16

.86

17.2

9

0.18

3.

79

3.97

0.47

2.20

1.11

o

0.64

--------

----

----

----

--------

---

---

--

---

-------

--

---

------

-------

--

--

---

38.1

63

.5

62.4

N

10.8

0

43.4

38.2

44.3

38.7

65.7

o

51.6

- 21 -

H. THE ROLE OF BARRIERS IN ECONOMIC DEVELOPMENT

Introduction

This chapter briefly considers some broad conceptual issues relatingto internacional trade, and in particular barriers. The purpose is tohighlight some of the issues surrounding trade, many of which areconflicting. Readers wishing to follow up these issues should refer to theextensive literature that exists on international trade and its role indevelopment.

International Trade

The general view of economists is that international trade has abeneficial effect on economic development. By expanding markets andproviding an opportunity for countries to specialize in the production ofthose goods in which they have a comparative advantage, the developmentprocess is assisted.

Some of the benefits suggested to flow from this international tradeare:

increased markets enable specialization, and hence economies ofscale lower costs of production;

generates overseas exchange which is necessary to purchase goodsand services from overseas;

provides a basis for the development of other industries whichservice and support the export industries;

the growth of business activity in the economy generates bothincome and employment.

The 'pure' theory of international trade based on the views putforward by the classical economists such as Adam Smith and David Ricardo,suggests that by following the theory of comparative advantage allcountries are made better off as a result of the specialization thatresults. This theory is based on the assumption of perfect competitionwhich assumes that no individual or country is able to significantlyinfluence the prices at which it buys or sells. Additionally, there isfree movement of resources within a country but complete immobility betweencountries; there are no artificial barriers to trade; tastes, technologyand the amount of productive services are given; and exchange rates betweencurrencies are free to adjust.

Real world conditions are such that these criteria rarely exist, andas a consequence the theory that all countries are left better off bygreater liberalization is too simplistic. Completely free trade does notexist today because of the controls and restrictions that have been put inplace over a long period of time. As a consequence, although it is

- 21 -

II. THE ROLE OF BARRIERS IN ECONOMIC DEVELOPMENT

1. Introduction

This chapter briefly considers some broad conceptual issues relating to international trade, and in particular barriers. The purpose is to highlight some of the issues surrounding trade, many of which are conflicting. Readers wishing to follow up these issues should refer to the extensive literature that exists on international trade and its role in development.

2. International Trade

The general view of economists is that international trade has a beneficial effect on economic development. By expanding markets and providing an opportunity for countries to specialize in the production of those goods in which they have a comparative advantage, the development process is assisted.

are: Some of the benefits suggested to flow from this international trade

(a) increased markets enable specialization, and hence economies of scale lower costs of production;

(b) generates overseas exchange which is necessary to purchas e goods and services from overseas;

(c) provides a basis for the development of other industries which service and support the export industries;

(d) the growth of business activity in the economy generates both income and employment.

The 'pu·re' theory of international trade based on the views put forward by the classical economists such as Adam Smith and David Ricardo, suggests that by following the theory of comparative advantage all countries are made better off as a result of the specialization that results. This theory is based on the assumption of perfect competition which assumes that no individual or country is able to significantly influence the prices at which it buys or sells. Additionally, there is free movement of resources within a country but complete immobility between countries; there are no artificial barriers to trade; tastes, technology and the amount of productive services are given; and exchange rates between currencies are free to adjust.

Real world conditions are such that these criteria rarely exist, and as a consequence the theory that all countries are left better off by greater liberalization is too simplistic. Completely free trade does not exist today because of the controls and restrictions that have been put in place over a long period of time. As a consequence, although it is

- 22 -

possible to show that free trade may be the best policy for the world as awhole, it is more difficult to always reach the same conclusion for anindividual country, or the individual producers of a specific commodity.

Those who support restrictive trade policies indicate a number ofarguments for such policies. Some of the gains suggested for the countryimposing the restrictions are:

Obtain imports at lower prices (i.e. improve the terms of trade).This is possible if the country is a major importer of theproduct in world trade terms, and the supply in the exportingcountries is relatively inelastic. If achievable, this gain isobtained at the expense of other countries.

Reduce unemployment. It may be possible to increase employmentin some sectors in the country imposing the barrier, through thesubstitution of domestic production for imports. This willcertainly benefit those sectors, and may have a positive effecton regional employment. It may therefore be proposed in order tostimulate regions where unemployment is a problem. It is likely,however, that these gains may be more than offset by losses inother parts of the economy.

(e) Encouragement of industrialization, either through protecting newindustries which can be competitive if able to become established(i.e. 'infant industries'), or by protecting developingindustries from imports (import substitution).

Although the 'infant industry' argument is frequently put forwardthere is little evidence to support this view. Such infantindustries commonly require permanent protection.

This protection may, however, stimulate a wider range ofsecondary industries based on those receiving protection. Thedifficult question to answer is the cost of this stimulation, andwhether the industries which develop are efficient. In manycases the cost to the country of stimulating industrializationmay be substantial. The cost of encouraging further processingof logs in Indonesia, Sarawak, the Philippines, and the Cated'Ivoire may have been substantial, particularly because many ofthe mills established have relatively poor conversion rates.

Revenue generation. If imports continue to flow into thecountry, government can increase its revenue. This can be animportant source of revenue for developing countries.

Improve the balance of payments. By reducing imports the outflowof foreign exchange will fall. As long as exports continue thebalance of payments will he improved. An important question iswhether exports will continue, since retaliation by othercountries may occur. Many of the above benefits may therefore bereversed if important trading partners retaliate.

- 22 -

possible to show that free trade may be the best policy for the world as a whole, it is more difficult to always reach the same conclusion for an individual country, or the individual producers of a specific commodity.

Those who support restrictive trade policies indicate a number of arguments for such policies. Some of the gains suggested for the country imposing the restrictions are:

(a) Obtain imports at lower prices (i.e. improve the terms of trade). This is possible if the country is a major importer of the product in world trade terms, and the supply in the exporting countries is relatively inelastic. If achievable, this gain is obtained at the expense of other countries.

(b) Reduce unemployment. It may be possible to increase employment in some sectors in the country imposing the barrier, through the substitution of domestic production for imports. This will certainly benefit those sectors, and may have a positive effect on regional employment. It may therefore be proposed in order to stimulate regions where unemployment is a problem. It is likely, however, that these gains may be more than offset by losses in other parts of the economy.

(c) Encouragement of industrialization, either through protecting new industries which can be competitive if able to become established (i.e. 'infant industries'), or by protecting developing industries from imports (import substitution).

Although the 'infant industry' argument is frequently put forward there is little evidence to support this view. Such infant industries commonly require permanent protection.

This protection may, however, stimulate a wider range of secondary industries based on those receiving protection. The difficult question to answer is the cost of this stimulation, and whether the industries which develop are efficient. In many cases the cost to the country of stimulating industrialization may be substantial. The cost of encouraging further processing of logs in Indonesia, Sarawak, the Philippines, and the Cote d'Ivoire may have been substantial, particularly because many of the mills established have relatively poor conversion rates.

(d) Revenue generation. If imports continue to flow into the country, government can increase its revenue. This can be an important source of revenue for developing countries.

(e) Improve the balance of payments. By reducing imports the outflow of foreign exchange will fall. As long as exports continue the balance of payments will be improved. An important question is whether exports will continue, since retaliation by o ther countries may occur. Many of the above benefits may therefore be reversed if important trading partners retaliate.

- 23 -

Opponents of trade restrictions consider that many of the suggestedbenefits of imposing restrictions do not in fact occur, or can only beachieved at high cost. They consider that what may appear to be benefitsare often only achieved at high cost to some other part of the economy.

Overall it appears that the advantages of free trade are greater thanthose of restrictive policies. There may nevertheless be situations wherethe erection of barriers can be advantageous to an individual country orsector, even though other countries can only achieve similar benefits athigh cost.

3. Trade in the Development Process

Generally two main views of the role of trade in economic developmentof the developing countries exist. One favours a policy of importsubstitution. This considers that a developing country should firstconcentrate on establishing industries which produce products that arepresently imported. An established market already exists for theseproducts and internal control is easier. It is suggested that thisdevelopment will then serve as a stimulus for other industrial activity,including future export expansion. The second view considers that exportsshould lead industrial development, and that the flow-on effects ofeconomic growth and development which follow will be more rational andsustainable.

For a developing country, the first of these policies reflects adesire to be self-reliant. The goal is to reduce the country's dependenceon world markets and imports. The strategy used emphasises the developmentof manufacturing industries producing for the domestic market. Consumergoods, capital goods and intermediate products are all produced for thelocal market, and import substitution is an important element of thestrategy. The strategy is one based on trade restrictions, and can becalled an inward-looking strategy, or alternatively one of self-reliance.

The outward-looking or export oriented strategy focusses on thedevelopment of industries in which the country can be expected to have acomparative advantage in international trade, and in a developing countrytends to therefore emphasise labour-intensive industries, the encouragementof small-scale industries, and export promotion activities. This policyrepresents a liberalised, free-trade approach.

Both strategies attempt to use whatever natural resources the countrymay have, and the most appropriate one to follow will depend on theindividual country's characteristics and the manner in which any particularpolicy is implemented. Each strategy will have different strengths andweaknesses and some elements of each can be combined in a developmentprogramme.

Currently opinion favours the second view, a development policy basedon free trade with a strong export orientation, and although by no meansconclusive, the evidence for this is fairly compelling. A strong case insupport of this approach is presented by Little (1982). Comparisons of

- 23 -

Opponents of trade restrictions consider that many of the suggested benefits of imposing restrictions do not in fact' occur, or can only be achieved at high cost. They consider that what may appear to be benefits are often only achieved at high cost to some other part of the economy.

Overall it appears that the advantages of free trade are greater than those of restrictive policies. There may nevertheless be situations where the erection of barriers can be advantageous to an individual country or sector, even though other countries can only achieve similar benefits at high cost.

3. Trade in the Development Process

Generally two main views of the role of trade in economic development of the developing countries exist. One favours a policy of import substitution. This considers that a developing country should first concentrate on establishing industries which produce products that are presently imported. An established market already exists for these products and internal control is easier. It is suggested that this development will then serve as a stimulus for other industrial activity, including future export expansion. The second view considers that exports should lead industrial deve lopment, and that the flow-on effects of economic growth and development which follow will be more rational and sustainable.

For a developing country, the first of these policies reflects a desire to be self-reliant. The goal is to reduce the country's dependence on world markets and imports. The strategy used emphasises the development of manufac turing industries producing for the domestic market. Consumer goods, capital goods and intermediate products are all produced for the local market, and import substitution is an important element of the strategy. The strategy is one based on trade restrictions, and can be called an inward-looking strategy, or alternatively one of self-reliance.

The outward-looking or export oriented strategy focusses on the development of industries in which the country can be expected to have a comparative advantage in international trade .. and in a developing country tends to therefore emphasise labour-intensive industries, the encouragement of small-scale industries, and export promotion activities. This policy represents a liberalised, free-trade approach.

Both strategies attempt to use whatever natural resources the country may have, and the most appropriate one to follow will depend on the individual country ' s characteristics and the manner in which any particular policy is implemented. Each strategy will have different strengths and weaknesses and some elements of each can be combined in a development . programme.

Currently opinion favours the second view, a development policy based on free trade with a strong export orientation, and although by no means conclusive, the evidence for this is fairly compelling. A strong case in support of this approach is presented by Little (1982). Comparisons of

- 24 -

growth in countries such as The Republic of Korea and The Taiwan Provinceof the People's Republic of China which followed strong free trade policieswith the poorer progress of Indonesia and the Philipines which favouredinward-looking policies e given as evidence of the superiority ofexport-oriented policies . Balassa has strongly supported an exportorientation on the basis of numerous detaed analyses of economicperformance for a wide range of countries .

Experience in a number of countries has shown that major orientationtowards import substitution policies backed by import controls can lead toinefficient and costly production systems. The long term cost to thecountry can be substantial, since inefficient domestically orientedindustry develops at the expense of efficient industries capable of earningessential foreign currency.

4. Trade Barriers in the Development Process

Despite the general support for a free-trade orientation in tradepolicies, and the weight of evidence which favours liberalisation as ameans of encouraging efficient development, trade barriers are widely usedby both developed and developing countries.

Countries erect trade barriers or show only limited support for theirliberalisation for a variety of reasons, as indicated above. Under someconditions barriers can improve a country's situation; under others theresult is less clear and uncertainty surrounds the question of who gainsand who loses through freer trade. Those who are already assisted throughtrade barriers will suffer while the benefits will go to others. Whereprotection has been in force for a period of time the removal orliberalisation of this protection is a difficult political decision.Powerful and well-entrenched interest groups will have developed, whilejobs and associated businesses will be affected by any reductions. Thereare therefore strong political and economic forces working against change.

The appropriate policy or mix of policies to use becomes one ofperspective - both in a country to country situation and also within acountry. One country may lose at the expense of another - similarly onegroup within a country may lose at the expense of another. Importingcountries which use trade barriers to protect their less efficientproducers and/or to raise revenue will have both gainers and losers.Consumers will benefit from a reduction in these barriers, but producerswho were formerly protected will lose. If the revenue earned wassubstantial, the government will lose an important source of funds. In theexporting country producers will gain and the benefits will flow on toothers in the economy. The issue is therefore complex.

1/ See for example Westphal and Kim (1977). It is important to note,however, that this emphasis followed previous import restriction policies.

2/ See for example, Balassa and Associates (1971), Balassa (1978) andBalassa (1981).

- 24 -

growth in countries such as The Republic of Korea and The Taiwan Province of the People's Republic of China which followed strong free trade policies with ·the poorer progress of Indonesia and the Philipines which favoured inward-looking policies ~7e given as evidence of the superiority of export-oriented policies . Balassa has strongly supported an export orientation on the basis of numerous deta~led analyses of economic performance for a wide range of countries .

Experience in a number of countries has shown that major orientation towards import substitution policies backed by import controls can lead to inefficient and costly production systems. The long t e rm cost to the country can be substantial, since inefficient domestically oriented industry develops at the expense of efficient industries capable of earning essential foreign currency.

4. Trade Barriers in the Development Process

Despite the general support for a free-trade orientation in trade policies, and the weight of evidence which favours liberalisation as a means of encouraging efficient development, trade barriers are widely used by both developed and developing countries.

Countries erect trade ba rriers or show only limited support for their liberalisation for a variety of reasons, as indicated above. Under some conditions barriers can improve a country's Situation; under others the result is less clear and uncertainty surrounds the question of who gains and who loses through freer trade. Those who are already assisted through trade barriers will suffer while the benefits will go to others. Where protection has been in force for a period of time the removal or liberalisation of this protection is a difficult political decision. Powerful and well-entrenched interest groups will have developed, while jobs and associated businesses will be affected by any reductions. There are therefore strong political and economic forces working against change.

The appropriate policy or mix of policies to use becomes one of perspective - both in a country to country situation and also within a country. One country may lose at the expense of another - similarly one group within a country may lose at the expense of another. Importing countries which use trade barriers to protect their less efficient producers and/or to raise revenue will have both gainers and losers. Consumers will benefit from a reduction in these barriers, but producers who were formerly protected will lose. If the revenue ea rned was substantial, the government will lose an important source of funds. In the exporting country producers will gain and the benefits will flow on to others in the economy. The issue is therefore complex.

1/ See for however, that

example Westphal and Kim (1977). this emphasis followed previous

It is important to note, import restriction policies .

2/ Se e for example, Balassa and Associates (1971), Balassa (1978) and Balassa (1981).

- 25 -

Barriers affecting forest products influence the developing countriesin a number of ways - both positively and negatively.

Import barriers erected by the major markets, particularly those ofthe developed countries, affect both the level of trade and the form offorest products traded by the developing countries. The level of trade isaffected by the absolute size of any particular barrier; the form in whichproducts are imported is affected by the relative size of the barriersbetween different products. In addition by imposing a wider range ofbarriers or more severe barriers on some forest products than others theycan influence the type of product the developing country can export. As

will be discussed later in the report, more highly processed forestproducts such as plywood, veneer, wood manufactures and furniture tend toface higher tariff and non-tariff barriers than unprocessed raw materialCorms such as logs and wood chips.

Developing countries use import barriers to both gain revenue and tolimit the import of products which may inhibit the development of their ownindustries. In particular high tariff rates are used to protect domesticwood processing industries from cheaper imports. For example even thoughMalaysia, Indonesia, the Philippines and Papua New Guinea have largenatural forest areas and consequently cheap supplies of wood they allhnpose tariffs even on rough sawn timber. These latter range from 10-20%,while protection for more highly processed products is even greater withtariffs of up to 50%.

The Republic of Korea, a developing country with only limited forestsdeveloped an efficient export plywood industry based on importing logs fromother countries. Part of the stimulus for this industry was a range ofdevelopment policies which included import barriers. These providedinitial protection for plywood producers, and assisted the development of aviable world, competitive industry.

Export taxes have been used by developing countries to both raiserevenue and influence industrial development. Taxes on a range ofproducts, including forest products, have been an important source ofgovernment revenue. More recently, by using differential taxes many haveattempted to influence the type and form of domestic processing. Exporttaxes on logs, together with quotas and complete bans have been used tostimulate/force greater domestic processing.

In summary, despite the evidence which supports liberalised tradepolicies which emphasise free trade, restrictive policies which use variousforms of barriers are a fact of life. They influence the trade anddevelopment of developing countries in a number of ways. They are bothused by the developing countries themselves and used against them. Theyaffect both the level, form and direction of international trade in forestproducts. They can be used to restrict the development of the forestsectors in these countries, but equally they can be part of a plannedstrategy by the developing countries to encourage industrial development.

- 25 -

Barriers affecting forest products influence the developing countries in a number of ways - both positively and negatively.

Import barriers erec ted by the major markets, particularly those of the developed countries, affect both the level of trade and the form of forest products traded by the developing countries . The level of trade is affected by the abso lute size of any particular barrier; the form in which products are imported is affected by the relative size of the barriers between different products. In addition by imposing a wider range of barriers or more severe barriers on some forest products than o thers they can influence the type of product the developing country can export. As will be discussed later in the report, more highly processed forest products such as plywood, veneer , wood manufactures and furniture tend to face higher tariff and non-tariff barriers than unprocessed raw material forms such as logs and wood chips .

Developing countries use import barriers to both gain revenue and to limit the import of products which may inhibit the development of their own industries. In particular high tariff rat es are used to protect domestic wood processing industries from cheaper imports. For example even though Malaysia, Indonesia, the Philippines and Papua New Guinea have large natural forest areas and consequently cheap supplies of wood they all impose tariffs even on rough sawn timber. These latter range from 10-20%, while protection for more highly processed products is even greater with tariffs of up to 50%.

The Republic of Korea, a developing country with only limited forests developed an efficient export plywood industry based on importing logs from other countries. Part of the stimulus for this industry was a range of development policies which included import barriers. These provided initial protection for plywood producers, and assisted the development of a viable world, competitive industry.

Export taxes have been used by developing countries to both raise revenue and influence industrial development. Taxes on a range of products, including forest products, have been an important sou r ce of government revenue. More recently, by using differential taxes many have attempted to influence the type and form of domestic processing. Export taxes on logs, together with quotas and complete bans have been used to stimulate/force greater domestic processing.

In summary, despite the evidence which supports liberalised trade policies which emphasise free trade, restrictive policies which use various forms of barriers are a fact of life. They influence the trade and development of developing countries in a number of ways. They are both used by the developing countries themselves and used against them. They affect both the level, form and direction of international trade in forest products. They can be used to restrict the development of the forest sectors in these countries, but equally they can be part of a planned strategy by the developing countries to encourage industrial development.

5. Measurement of Protection

- 26 -

The extent to which domestic industry is protected by trade barriers,and hence the extent to which exporters may find it difficult to compete onexport markets, invariably focuses on the most visible element of anyprotection being provided - the level of import tariffs, size of quotas,level at which price guidelines are set, etc.

A considerable body of research has been published on the measurementof the extent of protection provided to a number of sectors in specificcountries. Little has been done, however, relating to forest products.The main thrust of the research is identification of the relative amountsof assistance (protection) being provided to particular sectors of theeconomy. These estimates are seen as essential pre-cursors to more eventreatment of different sectors, and thus a reduction in distortions withinthe economy. Uneven assistance to different sectors or industries resultsin misallocation of resources within the economy, so that, for example,export-oriented industries may be disadvantaged at the expense of thosewith a domestic market orientation.

To a foreign exporter interest lies in the extent to which domesticproducers in the import market are being assisted, or in reverse, theextent to which the exporter must overcome protection provided in theimport market if he is to be competitive on that market.

The mosilobvious and common measure of protection is the nominal rateof protection . This measures the extent to which consumers assistdomestic producers through payment of higher prices for goods. It does notmeasure the resource allocative effects of the protection and therefore amore relevant economic measure is the level of effective protection. Thistakes account of the effects of protection being given to the inputs usedin the production process, and any subsidies, taxes, etc. It is thereforea measure of the degree of protection that is provided to domestic valueadded.

Using this concept it is possible to show that a relatively modestnominal rate may in fact mask a much higher effective rate.

1/ Nominal tariff rate expresses the duty as a proportion of the landedduty free price in the market rather than as a proportion of the FOB pricewhich is the usual base on which import duties are calculated. The nominalrate of protection is therefore always less than the nominal tariff. It isequal to the tariff rate times the ratio of the FOB price to the landedduty free price, i.e.,

nominal protectionDuty FOB

= tariff xLanded duty free price CIF

- 26 -

5. Measurement of Protection

The extent to which domestic industry is protected by trade barriers, and hence the extent to which exporters may find it difficult to compete on export markets, invariably focuses on the most visible element of any protection being provided - the level of import tarif fs, size of quotas, level at which price guidelines are set, etc.

A considerable body of research has been published on the measurement of the extent of protection provided to a number of sectors in specific countries. Little has been done, however, relating to forest products. The main thrust of the research is identification of the relative amounts of assistance (protection) being provided to particular sectors of the economy. These estimates are seen as essential pre-cursors to more even treatment of different sectors, and thus a reduction in distortions within the economy. Uneven assistance to different sectors or industries results in misallocation of resources within the economy, so that, for example, export-oriented industries may be disadvantaged at the expense of those with a domestic market orientation.

To a foreign exporter interest lies in the extent to which domestic producers in the import market are being assisted, or in reverse, the extent to which the exporter must overcome protection provided in the import market if he is to be competitive on that market.

The mos£/obvious and common measure of protection is the nominal rate of protection • This measures the extent to which consumers assist domestic producers through payment of higher prices for goods. It does not measure the resource allocative effects of the protection and therefore a more relevant economic measure is the level of effective protection. This takes account of the effects of protection being given to the inputs used in the production process, and any subsidies, taxes, etc. It is therefore a measure of the degree of protection that is provided to domestic value added.

Using this concept it is possible to show that a relatively modest nominal rate may in fact mask a much higher effective rate.

l/ Nominal tariff rate expresses the duty as a proportion of the landed duty free price in the market rather than as a proportion of the FOB price which is the usual base on which import duties are calculated. The nominal rate of protection is therefore always less than the nominal tariff. It is equal to the tariff rate times the ratio of the FOB price to the landed duty free price, i.e.,

~ty

nominal protection Landed duty free price

roB tariff x

~C~IF~-

The Japanese tariff on hardwood plywood is 20%, while that onimported logs used to produce this plywood is zero. Since the cost ofhardwood logs represents some 71% of the final cost of plywood effectiveprotection afforded the domestic plywood industry is over 65%, well abovethe nominal rate of 20%.

As a general observation effective rates of protection are usuallyabove nominal rates, sometimes substantially so. Domestic producers maytherefore be receiving considerably higher protection than would appear tobe the case on the surface. Estimates for a number of forest products areshown in Table 1 for the USA, EEC, Japan, Italy and Indonesia, and bearthis out. The levels of effective protection are almost all greater thannominal rates, but are not, however, particularly high. For those pr29uctswith positive nominal rates, effective rates range from 1.1% to 25.4% .

Highest effective rates apply to plywood and wood manufactures in Japan.

11 Although a number of versions of the formula for estimating effectiveprotection have been presented, a convenient form is:

t - a t

E

1 - 2. a

where: t. = nominal tariff on final product (0t. nominal tariff on inputs (j)

a. = inputs as proportion of output

(1 -- a.) = value added

2/ By comparison rates two and three times higher are not uncommon forsome non-forest products. UNIDO (1984) even reports rates of 400-600% forIndonesia.

ij

- 27 -

A simplified example for plywood has been used by Takeuchi (1983) tohighlight the extent to which a low nominal tariff may vsk the much highereffective protection Japanese plywood producers receive

- 27 -

A simplified example for plywood has been used by Takeuchi (1983) to highlight the extent to which a low nominal tariff may T1sk the much higher effective protection Japanese plywood producers receive .

The Japanese tariff on hardwood plywood is 20%, while that on imported logs used to produce this plywood is zero. Since the cost of hardwood logs represents some 71% of the final cost of plywood effective protection afforded the domestic plywood industry is over 65%, well above the nominal rate of 20%.

As a general observation effect i ve rates of protection are usually above nominal rates, sometimes substantially so. Domestic producers may therefore be receiving considerably higher protection than would appear to be the case on the surface. Estimates for a number of forest products are shown in Table 1 for the USA, EEC, Japan, Italy and Indonesia, and bear thi s out. The levels of effective protection are almost all greater than nominal rates, but are not, however, particularly high. For those pr2?ucts with positive nominal rates, effective rates range from 1.1% to 25.4% . Highest effective rates apply to plywood and wood manufactures in Japan.

l/ Although a number of versions of the formula for estimating effective protection have been presented, a convenient form is :

t i - 2. a ij t j

E i

1 - L. a ij

where: nominal tariff on final product (i)

tj nominal tariff on inputs (j)

aij

inputs as proportion of output

(1 - a i ) = value added

2/ By comparison rates two and three times higher are not uncommon for some non-forest products. UNIDO (1984) even reports rates of 400-600% for Indonesia.

UNCTAD (1979) post Kennedy Round tariff rates

Grilli and La Noce (1983)

(e) UNIDO (1984)

TABLE 1 - Estimates of effective protection

Nominal

Effective

Nominal Effective

Nominal

Effective

Nominal

Effective

Nominal

Effective

Wood in rough

oO

1.0

1.1

2.3

2.3

Wood simply worked

0.3

o1.6

4.0

2.9

8.5

Plywood

8.5

13.8

11.3

19.6

14.0

25.4

Wood manufactures

6.7

13.6

8.7

16.3

11.5

23.2

Timber and wood products

1.96

0.89

0-1.20

Wooden furpiture

8.33

12.04

15.0

51.90

Paper and paperboard

3.78

4.98

23.50

45.78

Product

USA(a)

EEC(a)

Japan(a)

Italy(b)

Indonesia(c)

TABL

E 1

-E

stim

ates

of

effe

ctlv

e p

rote

ctio

n

Pro

duct

U

SA

(a)

EE

C(a

) -

----

----

----

-_._

----

----

------

.--~---

Japa

n(a)

It

aly

(b)

Indo

nesi

a(c)

Nom

inal

E

ffec

tiv

e N

omin

al

Eff

ecti

ve

Nom

inal

E

ffec

tiv

e N

omin

al

Eff

ecti

.ve

Nom

ln'll

E

ffec

tiv

e

Woo

d in

rou

gh

0 0

Woo

d si

mpl

y w

orke

d 0

.3

0 Pl

ywoo

d 8

.5

13.8

W

ood

man

ufac

ture

s 6.

7 13

.6

Tim

ber

and

woo

d pr

oduc

ts

Woo

den

furp

itu

re

Pap

er a

nd

pape

rboa

rd

(a)

UNCT

AD

(197

9)

post

Ken

nedy

Rou

nd

tari

ff

rate

s (b

) G

rill

i an

d La

Noc

e (1

983)

(c

) UN

lDO

(198

4)

1.0

1

.6

11.3

8.

7

--------.-------------------

1.1

2.3

4

.0

2.9

19.6

14

.0

16.3

U

.S

2.3

8.5

25.4

23

.2

1.96

8.

33

3.78

0.89

12

.04

4.98

--------------

o 15.0

23

.50

-1.2

0

51.9

0 45

.78

IV

<X>

29

The values also generally show the way in which rates escalate asproducts move from unprocessed to more highly processed forms.

Although estimates of effective protection highlight the fact thatthe protection being received by domestic producers is often higher than isapparent from nominal rates it is important to qualify this observation.It is also important to be clear on what effective protection rates do anddo not show. Firstly, in some situations the level of effective protectionmay be negative. This implies that the local industry concerned is placedat a disadvantage compared with the position it would be in under freetrade conditions. This can result where inputs used in the produoionprocess are subject to tariffs, thus raising the production costs .

Secondly, estimates can be subject to a high degree of error. Thishas implications for the comparison of estimates made for differentcountries, different products, and even made by different analysts.

Data difficulties, the assumptions used, and different nivation formssuggest that any estimates should be viewed with some caution .

Thirdly, it is not possible to compare rates of effective protectionon the same products or industries between countries and suggest from thiswhich markets exporters will find it easiest to compete on. To an exporterthe relevant issues are his costs of production and the cost of landing theproduct in the market, including the nominal tariff rate he may face. A

knowledge of the level of effective protection may give him a generalindication of how easy or difficult it may be to compete against domesticproducers. It will not give any indication of the ease of competingagainst other exporters. This information must be developed from othersources, and from actual experience in the market. The estimates ofeffective protection can give an idea of how highly protected the localindustry is; they do not indicate what the cost structure in that marketis. There are situations where industries, for historical or otherreasons, receive subtantially greater protection than most producers needand firms would still be highly competitive even with lower levels ofprotection.

1/ Examples of this situation were shown by Balassa (1971). He foundnegative effective protection in a number of forestry related industries in1967 in Norway, West Malaysia, Chile, and the Philippines.

2/ As an example, the rough estimate for plywood in Japan given byTakeuchi (1983) indicates that producers receive an effective rate ofprotection of over 65%. The estimates by UNCTAD shown in Table I indicatean effective rate for plywood in Japan of 25%. This difference may be dueto the differing time periods involved. More likely it may result fromTakeuchi's simplifying assumption that all inputs used in processing inJapan are free of protection. In the formula in footnote 1 (p. 27) therateofprotectionwouldbereducedhynon-negativevaluesfort.and/orhigher estimates for a...3.j

- 29 -

The values also generally show the way in which rates escalate as products move from unprocessed to more highly processed forms.

Although estimates of effective protection highlight the fact that the protection being received by domestic producers is often higher than is apparent from nominal rates it is important to qualify this observation. It is also important t o be clear on what e f fective protection rates do and do not show. Firstly, in some situations the level of effective protection may be negative. This implies that the local industry concerned is placed at a disadvantage compared with the position it would be in under free trade conditions . This can result where inputs used in the produt,ion process are subject to tariffs, thus raising the produc t ion costs .

Secondly, estimates can be subject to a high degree of error. This has implications for the comparison of estimates made for different countries, different products, and even made by different analysts.

Data difficulties, the assumptions used, and different Z?uation forms suggest that any estimates should be viewed with some caution .

Thirdly, it is not possible to compare rates of effective protection on the same products or industries between countries and suggest from this which markets exporters will find it easiest to compete on. To an exporter the relevant issues are his costs of production and the cost of landing the product in the market, including the nominal tariff rate he may face. A knowledge of the level of effective protection may give him a general indication of how easy or difficult it may be to compete against domestic producers. It will not give any indication of the ease of competing against other exporters. This information must be developed from other sources, and from actual experience in the market. The estimates of effective protection can give an idea of how highly protected the local industry is; they do not indicate what the cost structure in that market is. There are situations where industries, for historical or other reasons, receive subtantially greater protection than most producers need and firms would still be highly competitive even with lower levels of protection.

l/ Examples of this situation were shown by Balassa (1971). He found negative effective protection in a number of forestry related industries in 1967 in Norway, West Malaysia, Chile, and the Philippines.

2/ As an example, the rough estimate for plywood in Japan given by Takeuchi (1983) indicates that producers receive an effective rate of protection of over 65%. The estimates by UNCTAD shown in Table 1 indicate an effective rate for plywood in Japan of 25%. This difference may be due to the differing time periods involved. More likely it may result from Takeuchi's simplifying assumption that all inputs used in processing in Japan are free of protection. In the formula in footnote 1 (p. 27) the rate of protection would be reduced by non-negative values for t. and/or

] higher estimates for a ij •

1/ See Baldwin (1970), Little (1982), Syntec (1984).

- 30 -

Finally, as noted by various authors1/, effective rate of protectiondoes not give a clear indication of che extent to which resources haveshifted within an economy because of trade protection. The level ofprotection can also give a poor indication of how resources would shift ifthe protection was removed. Little (1982) suggests The effective rate ofprotection should not however be taken to be even a rudimentary measure ofwhere comparative advantage lies".

Estimates of effective protection are therefore primarily useful as ameans of determining how much protection is being provided to differentsectors of the economy so that comparison is possible. They highlight thefact that the same nominal rates do not necessarily mean equal effectiveprotection. A knowledge can therefore lead to more equal treatment ofindustries within an economy. Estimates can be a useful indicator of theextent of protection received and by implication possible competitiveness;they do not provide evidence of which countries are most competitive, norhow much imports would expand by if protection were reduced.

6. Benefits of Industrialization

All developing countries have been attempting to increase their levelof industrialization. The benefits of moving away from a heavy dependenceon primary activities are, briefly:

6.1 Foreign exchange earnings

Increased foreign exchange earnings are likely as less processedproducts are replaced by higher priced products. In most cases additionalgross earnings will be generated. For example average per unit returns areshown for logs, sawnwood and plywood in table 2. In 1984 the per unitrevenue for plywood was from $11/m3 roundwood equivalent (Philippines) to$258/m3 (Papua New Guinea) greater than from log exports. The increase forsawnwood for the four developing countries noted ranged from - $19/m3 (i.e.sawnwood returns were below those of logs) to $47/m3. By comparisonestimates for 1975 show margins for plywood of $23-$115/m3 and for sawnwoodof $13-$47/m3.

The additional gross returns from processing are therefore variable,both between countries and between time periods. The additional foreignexchange can be small (and in some cases negative) or quite large dependingon the specific conditions. In most cases though, additional foreignexchange is generated.

- 30 -

Finally, as noted by various authors1/, effective rate of protection

does not give a clear indication of the extent to which resources ha ve shifted within an economy because of trade protection. The level of protection can also give a poor indication of how resources would shift if the protection was removed. Little (1982) suggests "The effective rate of protection should not however be taken to be even a rudimentary measure of where comparative advantage lies".

Estimates of effective protection are therefore primarily useful as a means of determining how much protection is being provided to different sectors of the economy so that comparison is possible. They highlight the fact that the same nominal rates do not necessarily mean equal effective protection. A knowledge can therefore lead to more equal treatment of industries within an economy. Estimates can be a useful indicator of the extent of protection received and by implication possible competitiveness; they do not provide evidence of which countries are most ' competitive, nor how much imports would expand by if protection were reduced.

6. Benefits of Industrialization

All developing countries have been attempting to increase their level of industrialization. The benefits of moving away from a heavy dependence on primary activities are, briefly:

6.1 Foreign exchange earnings

Increased foreign exchange earnings are likely as less processed products are replaced by higher priced products. In most cases additional gross earnings will be generated. For example average per unit returns are shown for logs, sawnwood and plywood in table 2. In 1984 the per unit revenue for plywood was from $11/m3 roundwood equivalent (Philippines) to $258/m3 (Papua New Guinea) greater than from log exports. The increase for sawnwood for the four developing countries noted ranged from - $19/m3 (i.e. sawnwood returns were below those of logs) to $47/m3. By comparison estimates for 1975 show margins for plywood of $23-$115/m3 and for sawnwood of $13-$47 /m3.

The additional gross returns from processing are therefore variable, both between countries and between time periods. The additional foreign exchange can be small (and in some cases negative) or quite large depending on the specific conditions. In most cases though, additional foreign exchange is generated.

1/ See Baldwin (1970), Little (1982) , Syntec (1984).

Logs

TABLE 2 - Average Export Values ($1m3 f.o.b.)

1975

1984

Sawnwood

Plywood

Value1

GAV

Value2

GAV

Indonesia

44

13

54

23

96

Malaysia

26

52

26

97

71

80

Philippines

36

59

23

66

30

104

Papua New Guinea

25

72

47

140

115

53

Converted @ 55%.

2Converted @ 50%.

GAV = Gross added value (product value less log value)

Source:

Based on FAO data.on unit values for exports (FAO, 1986).

Logs

3Sawnwood

Plywood

($/m

log equivalent)

1Value

GAV

Value

GAV

77

-19

108

12

95

15

113

33

109

5115

11

100

47

311

258

3 TA

BLE

2 -

Ave

rage

F.x

port

Val

ues

($/m

f.

o.b

.)

---

-----

-----

-.---

----

---

----

---Y

<iis

----

----

----

----

----

----.

----

----

----

----

--i9

84

Log

s Sa

wnw

ood

Plyw

ood

Logs

3S

awnw

ood

($/m

lo

g eq

uiv

alen

t)

Plyw

ood

----

----

----

--V

alu"

l GA

V 2

Val

ue

GAV

1 V

alue

GA

V 2

Val

ue

GAV

--------

---

--

---

--

---

.---

---

-----

-------

---

---

---

--

----------

--

.--

------

---

-----

---

---

-----

---

---

--

---

Indo

nesi

a 31

44

13

54

23

96

77

-1

9 10

8 M

alay

sia

26

52

26

97

71

80

95

15

113

Ph

ilip

pin

es

36

59

23

66

30

104

109

5 11

5 Pa

p.ua

New

Gui

nea

25

72

47

140

115

53

100

47

311

12

33

II

258

------

----

----

----

----

--_.----

----

----

----

_.

----

----

----

---

----

----

-----

----

----

---

---

----

---

1 C

onve

rted

@ 55

%.

2 C

onve

rted

@ 50

%.

GAV

= G

ross

add

ed v

alue

(pr

oduc

t va

lue

less

log

val

ue)

Sou

rce:

B

ased

on

FAD

dat

a. o

n u

nit

val

ues

for

expo

rts

(FA

D,

1986

).

.., -

Since the processing and forest products can be labour intensive,employment effects can be generated, both in the industry concerned andthrough flow-on effects in other industries. Depending on the productsbeing produced and the tec4ology selected employment ratios of from3.2-14.0 psons per 1000 m of production have been suggested in primaryprocessing . In addition linkage effects provide additionalopportunities. The number of employees per establishment in priaTy woodprocessing ranges from 20-175 depending on the country concerned' .

Generally, industries in developing countries are more labour intensivethan those in developed countries.

6.3. Value-added

-32 -

It should be noted that although additional gross foreign exchangeearnings per unit of the resource are likely, the total foreign exchangeearned may in fact decline during the early stages of moving from logexports to more processed products. This may occur because the lostrevenue from log exports may be much greater than the initial gains fromsmall volumes of more processed products.

If a substantial decline in log volumes occurs it is likely, at leastin the short term, that the decline in total revenue can be substantial.

The situation will depend on market conditions, the volumes tradedand the degree of competition on the export markets. Export log volumes inthe Philippines declined 71% between 1975 and 1984, while sawnwood andplywood volumes rose. Log revenue also fell 17% but that from sawnwood andplywood more than doulied (in nominal dollars). This more than compensatedfor lost log revenues (Table 3).

A major decline in log volumes Erom Indonesia took place between 1980and 1984, and revenue fell 89%. Revenue from sawnwood and plywood (innominal dollars) doubled but was not sufficient to balance the losses fromlog exports. The sum of the revenue from logs, sawnwood and plywoodhalved, involving a drop of $1200 million.

6.2 Employment

This is the addition to che value of the product that is contributedby the processing activity. Gross value add0 is therefore the grossrevenue less the cost of purchased materials .

1/ These comments relate to current dollar values and do not takeaccount of the declining value of money over the period.

2/ UNCTAD (1982)

3/ UNIDO (1983e)

4/ Apparent value added may be reduced by leakage if government supportsare involved or capital and labour charges to overseas firms occur (e.g.use of expatriate staff, overseas capital to finance the operation etc).

, I

- 32 -

It should be noted that although additional gross foreign exchange earnings per unit of the resource are likely, the t0tal foreign exchange earned may in fact decline during the early stages of moving from log exports to more processed products. This may occur because the lost' revenue from log exports may be much greater than the initial gains from small volumes of more processed products.

If a substantial decline in log volumes occurs it is likely, at least in the short term, that the decline in total revenue can be substantial.

The situation will depend on market conditions, the volumes traded and the degree of competition on the expo rt markets. Export log volumes in the Philippines declined 71% between 1975 and 1984, while sawnwood and plywood volumes rose. Log revenue also fell 17% but that from sawnwood and plywood more than dou~1ed (in nominal dollars). This more than compensated for lost log revenues (Table 3).

A major decline in log volumes from Indonesia took place between 1980 and 1984, and revenue fell 89%. Revenue from sawnwood and plywood (in nominal dollars) doubled but was not sufficient to balance the losses from log exports. The sum of the revenue from logs, sawnwood and plywood halved, involving a drop of $1200 million.

6.2 Employment

Since the processing and forest products can be labour intensive, employment effects can be generated, both in the industry concerned and through flow-on effects in other industries. Depending on the products being produced and the tech~ology selected employment ratios of from 3.2-14.0 PZ7sons per 1000 m of product ion have been suggested in primary processing In addition l inkage effects provide additional opportunities. The number of employees per establishment in pri~1ry wood processing ranges from 20-175 depending on the country concerned . Generally, industries in developing countries are more labour intensive than those in developed countries.

6.3. Value-added

This is the addition to the value of the product that is contributed by the processing activity. Gross value adde? is therefore the gross revenue less the cost of purchased materials .

l/ These comments relate to curre nt dollar values and do not take account of the declining value of money over the period.

2/ UNCTAD (1982)

3/ UNIDO (1983e)

4/ Apparent value added may be reduced by leakage if government supports are involved or capital and labour charges to overseas firms occur (e.g. use of expatriate staff, overseas capital to finance the operation etc).

FAO, 1986

As an indication of the importance to an economy table 4 shows thegross output value from the Indonesian sawmilling and plywood industries in1983/84 and the value added by each. Value added by sawmilling was some$457 million while that of the plywood industry was $307 million.

TABLE 4 - Economic Importance of the Sawmilling andPlywood Industries - Indonesia 1983/84

- 33-

TABLE 3 - Export Performance: Logs, Sawnwood and Plywood

Indonesia Philippines

Gross output value (turnover)Gross value added*

Sawmilling Plywood

($/million)

* Gross output value minus purchased inputs.Source: Meulenhoff (1985).

928.3 808.0456.8 307.0

Estimates for Indonesia suggest value added per employee in 1980 was$1000 for furniture, $4100 for wood products (excluding furniture) and

1975 1980 1984 1974 1980 1984

Logs3

- volume (mill m) 12.9 15.2 1.6 4.6 1.2 1.3

- vilue ($mill) 409.6 1514.8 164.3 166.9 148.9 137.6

$/m 31 99 96 36 129 104

Sawnwood- volume (mill m3) 0.4 1.2 2.2 0.3 0.7 0.5

- vllue ($mill) 31.5 260.3 306.3 27.2 181.3 107.0

$/m 80 215 139 107 244 198

Plywood- volume (mill m 3) 1 245 3046 233 474 400

- vilue ($mill) Neg 55.7 657.8 20.6 117.3 61.7

$/m 107 227 216 131 319 230

Total revenue ($mill) 441.1 2330.8 1128.4 214.7 447.5 306.3

- 33 -

TABLE 3 - Export Performance: Logs, Sawnwood and Plywood

Indonesia Philippines

Logs - volume (mill m3 ) - v1lue ($mill) $/m .

Sawnwood 3 - volume (mill m ) - v1lue ($mill) $/m

Plywood 3 - volume (mill m ) - v11ue ($mill) $/m

1975

12.9 409.6

31

0.4 31. 5

80

1 Neg 107

Total revenue ($mill) 441 . 1

FAO, 1986

1980

15.2 1514 . 8

99

1.2 260.3

215

245 55.7 227

2330 . 8

1984

1.6 164.3

96

2.2 306.3

139

3046 657 . 8

216

1128.4

1974

4.6 166.9

36

0.3 27.2 107

233 20.6

131

214.7

1980

1.2 148.9

129

0 . 7 181.3

244

474 117.3

319

447.5

1984

1.3 137.6

104

0 . 5 107.0

198

400 61.7

230

306.3

As an indication of the importance to an economy table 4 shows the gross output value from the Indonesian sawmilling and plywood industries in 1983/84 and the value added by each . Value added by sawmilling was some $457 million while that of the plywood industry was $307 million.

*

TABLE 4 - Economic Importance of the Sawmilling and Plywood Industries - Indonesia 1983/84

Sawmilling Plywood

($/million)

Gross output value (turnover) Gross value added*

928.3 456.8 .

Gross output value minus purchased inputs. Source: Meulenhoff (1985).

808.0 307.0

Estimates for Indonesia suggest value added per employee in 1980 was $1000 for furniture, $4100 for wood products (excluding furniture) and

- 34 -

$4300 for paper and paper products (UNIDO, 1984). Similar estimates forMalaysia (1979) showed furniture $3016, wood products $6032 and paper andpaper products $5027 per employee (UNIDO, 1985). The total effect of anincrease in production, including forward and backward linkage effects, isestimated to be of the order of 1.4 to 2.1 times the direct effect forForest product processing activities. Indsnesia, Malaysia and thePhilippines together exported 31 million m of logs valued at $2.9 billionin 1980. The potential gross value added from exporting a significantproportion of these as sawnwood, veneer or plywood is obvious.

6.2 Other benefits

In addition to the major benefits indicated above the following gainscan also be achieved.

development of skills which are transferred to other industries.For example servicing activities may be developed and contributeto non-forestry sectors.

diversification which makes the economy less dependent on alimited range of activities. By producing a range of processedproducts (sawnwood, plywood, furniture etc) the vagaries of thelog market may be reduced.

regional development effects. Processing activities which arelocated in more remote regions of the country can have valuableeconomic and social effects on the region.

7. Barriers and Industrialization

The role that trade barriers play in industrialization is difficultto evaluate. This is especially true in relation to an individual sectorsuch as forestry. The more obvious signs of industrialization in thesector can be identified, such as number of plants established, overseasexchange earnings, employment etc. However, establishing the link betweenthese elements and trade barriers is difficult if not impossible. Manyother factors are involved, particularly the market conditions and changesin competitiveness which may alter with changes in important costs such asfreight rates, energy costs etc.

Greater industrializatioylis an important element in improvedeconomic activity in a country . Earlier sections of this report haveidentified ways in which trade barriers reduce the profitability andcompetitiveness of many producers, the manner in which exports are keptbelow free-trade levels, and the tendency to restrict exports of moreprocessed forest products. These points all indicate that trade andindustrialization levels would be greater if barriers were reduced. It is,however, difficult to provide evidence of the level of industrializationthat has been stimulated by any reductions that have taken place.

1/ Numerous economic analyses have been published which support thisview. See other sections of this report.

- 34 -

$4300 for paper and paper products (UNIDO, 1984). Similar estimates for Malaysia (1979) showed furniture $3016, wood products $6032 and paper and paper products $5027 per employee (UNIDO, 1985). The total effect of an increase in production, including forward and backward linkage effec ts, is estimated to be of the order of 1.4 to 2.1 times the direct effect for forest product processing activities. Ind~nesia, Malaysia and the Philippines together exported 31 million m of logs valued at $2.9 billion in 1980. The potential gross value added from exporting a significant proportion of these as sawnwood, veneer or plywood is obvious.

6.2 Other benefits

In addition to the major benefits indicated above the following gains can also be achieved.

development of skills which are transferred to other industries. For example servicing activities may be developed and contribute to non-forestry sectors.

diversification which makes the economy less dependent on a limited range of activities. By producing a range of processed products (sawnwood, plywood, furniture etc) the vagaries of the log market may be reduced.

regional development effects. located in more remote regions economic and social effects on

7. Barriers and Industrialization

Processing activities which are of the country can have valuable the region.

The role that trade barriers play in industrialization is difficult to evalua te. This is especially true in relation to an individual sector such as forestry. The more obvious signs of industrialization in the sector can be identified, such as number of plants established, overseas exchange earnings, employment etc. However, establishing the link between these elements and trade barriers is difficult if not impossible. Many other factors are involved, particularly the market conditions and changes in competitiveness which may alter with changes in important costs such as freight rates, energy costs etc.

Greater industrializatioy/is an important element in improved economic activity in a country . Earlier sections of this report have identified ways in which trade barriers reduce the profitability and competitiveness of many producers, the manner in which exports are kept below free-trade levels, and the tendency to restrict exports of more processed forest products. Thes e points all indicate that trade and industrialization levels would be greater if barriers were reduced. It is, however, difficult to provide evidence of the level of industrializa tion that has been stimulated by any reductions that have taken place.

1/ Numerous economic analyses have been published which support this view. See other sections of this report.

1/ See appendix 3, section 3.2.

- 35 -

The only relatively clear evidence of a link between trade barriersand industrialization lies with export barriers imposed by the developingcountries. The most obvious example is the increase in plant numbersreported in Odonesia that are clearly linked to that country'srestrictions and the reported changes in processing plants and theiractivities in the countries buying raw materials from Indonesia and otherSouth-East Asian log producing countries. South Korea, Singapore, Taiwanand Japan all show definite signs of the impact of the export restrictions.Random Lengths (April 17, 1986) reports that 31 of Japan's 164 plywoodmills plan to close down in the next two years, reducing Japaneseproduction by a quarter. Nearly all mills producing 4' x 8' panels areexpected to close because of competition from Indonesian hardwood plywoodand possibly from North American softwood plywood. Part of this increasedcompetition is said to be because of reduced plywood tariffs which begin in1987. Producers of 3' x 6' panels are also expected to suffer asIndonesian mills begin producing this size of panel.

Korean plywood producers have also been suffering from the log3exportrestrictions. Plywood exporis have declined from around 1 million m in

the early 1980s to 377,000 m in 1984, due to both the restrictions andpoor market conditions (again influenced by large volumes of low pricedIndonesian plywood). Moves being taken to adapt to this situation includefinding alternative sources of logs, (e.g. hardwood logs from Papua NewGuinea and the Solomon Islands and softwood logs from Chile and the USA),and moving processing activities to Indonesia and Papua New Guinea. In asimilar manner the Taiwan Province has been looking to alternative supplysources, and is attempting to upgrade its products to such items as fancyveneers and overlaid plywood.

Singapore has had declining exporti of sawntimber since 979, as logimports have declined from 1.5 million m in 1978 to 31,000 m in 194,and sawntimber imports have declined from 1.2 million m to 865,000 m overthe same period (FAO, 1986). Singapore's strategy to adapt to thissituation has been to place increasing emphasis on more highly processedwood products, although the wood processing industry is reportedly facingan uncertain future.

8. Summary

The above discussions have highlighted some of the problems andadvantages that surround trade liberalisation.

Establishing the degree of protection provided a domestic industry isdifficult. In addition it is difficult to determine how hard it is for anexporter or exporting country to compete on a market where the domesticindustry is protected. Estimates of the nominal rate of protection providean indication of the degree of protection being provided domesticproducers, but a more relevant economic measure is provided by the level ofeffective protection. Limited estimates for forest products show thatrates of effective protection are generally above nominal rates. For some

- 35 -

The only relatively clear evidence of a link between trade barriers and industrialization lies with export barriers imposed by the developing countries. The most obvious example is the increase in plant numbers reported in I7donesia that are clearly linked to tha t country's restrictions and the reported changes in processing plants and their activities in the countries buying raw materials from Indonesia and other South-East Asian log producing countries. South Korea, Singapore, Taiwan and Japan all show definite signs of the impact of the export restrictions. Random Lengths (April 17, 1986) reports that 31 of Japan's 164 plywood mi l ls plan to close down in the next two years, reducing Japanese production by a quar t er. Nearly all mills producing 4' x 8' panels are expected to close because of competition from Indonesian hardwood plywood a nd possibly from North American softwood plywood. Part of this increased competition is said to be because of reduced plywood tariffs which begin i n 1987. Producers of 3' x 6' panels are also expected to suffer as Indonesian mills begin producing this size of panel.

Korean plywood producers have also been suffering from the 10g3export restrictions. Plywood expor5s have declined from around 1 million m in t he early 1980s to 377,000 m in 1984, due to. both the restrictions and poor market conditions (again influenced by l arge volumes of low priced Indonesian plywood). Moves being taken to adapt to this situation include finding alternative sources of logs, (e.g. hardwood logs from Papua New Guinea and the Solomon Islands and softwood logs from Chile and the USA), and moving processing activities to Indonesia and Papua New Guinea. In a similar manner the Taiwan Province has been looking to alternative supply sources, and is attempting to upgrade its products to such items as fancy veneers and overlaid plywood.

Singapore has had declining export~ of sawntimber since 1979, as log imports have declined from 1.5 million m in 1978 to 31~,000 m in 19~4, and sawntimber imports have declined from 1.2 million m to 865,000 mover the same period (FAO, 1986). Singapore's strategy to adapt to this situation has been to place increasing emphasis on more highly processed wood products, although the wood processing industry is reportedly facing an uncertain future.

8. Summary

The above discussions have highlighted some of the problems and advantages that surround trade liberalisation.

Establishing the degree of protection provided a domestic industry is difficult. In addition it is difficult to determine how hard it is for an exporter or exporting country to compete on a market where the domes t ic industry is protected. Estimates of the nominal rate of protection provide an indication of the degree of protection being provided domestic producers, but a more relevant economic measure is provided by the level of effective protection. Limited estimates for forest products show that r ates of effective protection are generally above nominal rates. For some

1 / See appendix 3, section 3.2.

- 36 -

of the main developed country markets effective rates are double nominaltariff rates, although in comparison with rates on other products effectiverates for most forest products are not high. This measure, however, sayslittle concrete about the ease with which imports could compete withdomestic production if the protection was reduced. High effectiveprotection suggests that domestic producers are heavily protected; it doesnot provide any clear evidence on how easy or difficult it may be forexporters to compete if protection was reduced. The main use of aknowledge of effective protection is as an indication of how highlyprotected a sector or industry is relative to others in the economy. It istherefore a valuable macro-economic tool, rather than one which is usefulin the actual market place.

The benefits of trade liberalization are also difficult to identifyclearly. Completely free trade as viewed by pure trade theory isunrealistic, and the assumptions on which it is based do not exist in reallife. Evidence does however support the overall view that greaterliberalization of trade is on balance beneficial. The problem arises inthat 'on-balance' does not guarantee that all will be better off. A gainin total welfare involves the question of who benefits and who loses.Under certain conditions some countries or interests are made better off bytrade barriers; under other conditions they may be worse off. Clearly, atleast in the short term a move towards liberalization works against thosebeing protected by the trade barriers. In most situations free trade islikely to be the most desirable goal.

Greater liberalization of barriers on the forest products of interestto the developing countries will clearly be beneficial in most situationssince it is obviously beneficial to the developing countries if importmarkets reduce their import barriers. Complete liberalization of allbarriers affecting all countries, which implies the removal of barriers bythe developing countries themselves, does not have such a clearcut answer.The weight of evidence suggests that long-term development prospects andeconomic welfare are increased by outward-looking, liberal trade policiesimplemented by all countries. The closer policies are to free trade, thebetter industrial performance that is likely. Under some conditions,though, such a liberalization may result in some developing countrieslosing at the expense of other countries (either other developingcountries, or developed countries). In these situations those developingcountries which would be harmed may benefit by erecting trade barriers.

A broad conclusion is, therefore, that the evidence supports amovement towards free trade. Except in limited situations where tradecontrols can be shown to be a preferable situation, the freeing of trade isas a rule the most desirable policy. The most appropriate mix of policiesFor any country or group of countries will however depend on thecircumstances of each and the development of a country's policies must reston a careful analysis of the circumstances surrounding that specificcountry.

- 36 -

of the main developed country markets effective rates are double nominal tariff rates, although in comparison with rates on other products effective rates for most forest products are not high. This measure, however, says little concrete about the ease with which imports could compete with domestic production if the protection was reduced. High effective protection suggests that domestic producers are heavily protected; it does not provide any clear evidence on how easy or difficult it may be for exporters to compete if protection was reduced. The main use of a knowledge of effective protection is as an indication of how highly protected a secto r or industry is relative to others in the economy. It is therefore a valuable macro-economic tool, rather than one which is useful in the actual market place.

The benefits of trade liberalization are also difficult to identify clearly. Completely free trade as viewed by pure trade theory is unrealistic, and the assumptions on which it is based do not exist in real life. Evidence does however support the overall view that grea ter liberalization of trade is on balance beneficial. The problem arises in that 'on-balance' does not guarantee that all will be better off. A gain in total welfare involves the question of who benefits and who loses. Under certain conditions some countries or interests are made better off by trade barriers; under ot her conditions they may be worse off. Clearly, at least in the short term a move towards liberalization works against those being protected by the trade barriers. In most situations free trade is likely to be the most desirable goal .

Greater liberalization of barriers on the forest products of interest to the developing countries will clearly be beneficial in most situations s ince it is obviously beneficial to the developing countries if import markets reduce their import barriers. Complete liberalization of all barriers affecting all countries, which implies the removal of barriers by the developing countries themselves, does not have such a clearcut answer. The weight of evi dence suggests that long-term development prospects and economic welfare are increased by outward-looking, liberal trade policies implemented by all countries. The closer policies are to free trade, the better industrial performance that is likely. Under some conditions, though, such a liberalization may result in some developing countries losing at the expense of other countries (either other developing countries, or developed countries). In these situations those developing countries which would be harmed may benefit by erecting trade barriers.

A broad conclusion is, therefore, that the evidence su pports a movement towards free trade. Except in limited situations where trade controls can be shown to be a preferable situation, the freeing of trade is as a rule the most desirable policy. The most appropriate mix of policies for any country or group of countries will however depend on the circumstances of each and the development of a country's policies must rest on a careful analysis of the circumstances surrounding that specific country .

This section identifies and discusses some of the main trade barriersaffecting trade in Eorest products. Concentration is more on identifyingthe range of barriers and highlighting the extent to which they exist andthe manner in which they operate rather than attempting a fullycomprehensive coverage.

9. Tariff Barriers

- 37 -

III. BARRIERS TO TRADE

I. Introduction

Tariffs are the most widely used and obvious means of providingprotection. The effect of a tariff is to place a tax on the exporter whichresults in his product entering the importing country at a higher pricethan it otherwise would. This restricts the competitiveness of thatproduct and may even result in its complete exclusion from the market.Imported products are therefore placed at a disadvantage relative tosimilar domestically produced products. Although its primary function wasformerly one of raising revenue, the main function is now one ofprotection, although in many developing countries the revenue element isstill of importance to national treasuries. This is especially true wheredomestic production of the product is of little importance.

The most common form is an ad valorem tariff, where the duty is afixed proportion of the value of the imported item. Other less frequentlyused forms are the specfyic tariff, where a fixed charge per unit ofimported item is levied , or a compound tariff which involves a percentageplus a specific charge.

2.1 Decline in tariff rates

Tariff barriers and hence the degree of control and protection givenby them, have declined over the past thirty years, with greatest progressbeing made since 1979 when the Tokyo Round of the Multilateral TradeNegotiations (MTNs), conducted under GATT, concluded. In this Round ofinternational negotiations a we range of reductions in Most FavouredNation (MFN) tariffs were made"' .

l/ For example USA rates on most softwood timbers from communistcountries are $4.00 per 1000 board feet.

2/ MFN tariff rates are those provided to other GATT member countriesand to most developing countries. They are bound rates and cannot beraised. They cannot be selectively reduced except under specialcircumstances.

- 37 -

III. BARRIERS TO TRADE

1. Introduction

This section identifies and discusses some of the main trade barriers affecting trade in forest products. Concentration is more on identifying the range of barriers and highlighting the extent to which they exist and the manner in which they operate rather than attempting a fully comprehensive coverage .

2. Tariff Barriers

Tariffs are the most widely used and obvious means of providing protection. The effect of a tariff is to place a tax on the exporter which results in his product entering the importing count ry at a higher price than it otherwise would. This restricts the competitiveness of that product and may even result in its complete exclusion from the market. Imported products are therefore placed at a disadvantage rela tive to similar domestically produced products. Although its primary function was formerly one of raising revenue, the main function is now one of protection, although in many developing countries the revenue element is still of importance to national treasuries. This is especially true where domestic production of the product is of little importance.

The most common form is an ad valorem tariff, where the duty is a fixed proportion of the value of the imported item. Other less frequently used forms are the specf,ic tariff, where a fixed charge per unit of imported item is levied ) or a compound tariff which involves a percentage p lus a specific charge.

2. 1 Decline in tari ff rates

Tariff barriers and hence the degree of control and protec t ion given by them, have declined over the past thirty years, with greatest progress being made since 1979 when the Tokyo Round of the Multilateral Trade Negotiations (MTNs), conducted under GATT, concluded. In this Round of internat ional negotiations a w~1e range of reductions in Most Favoured Nation (MFN) tariffs were made .

1/ For countries

example USA rates on most sof twood are $4.00 per 1000 board feet.

timbers from communist

2/ MFN tariff rates are those provided to other GATT member countries and to most developing countries. They are bound rates and cannot be raised . They cannot be selectively reduced except under special circumstances.

- 38 -

An analysis of pre-and post-Tokyo Round average trade weighted tariffrates for wood and wood products carried out by UNCTAD (UNIDO 1983d) forselected malar developed country markets shows the extent of this decline.The average rates for all importing markets analysed were zero for wood inthe rough; declined from 2.4% (pre-Tokyo Round) to 1.7% (post-Tokyo Round)for primary nod products; and from 7.8% to 5.7% respectively for secondarywood products 1.

As a general observation, while rates of 5-10% may seem rather low,where the dutiable value is relatively high and where highly competitivemarket conditions exist, the duty can have a malar influence oncompetitiveness of a particular exporter. Further, although nominal ratesmay be relatively low, the effective rates implied by these may in fact heextremely high. For example, the effective rate of protection for woodproducts was estimated to be 95% in the E7,C, % in Japan and 18.3% in theUSA, well above the nominal rate in each case- . The effective rate ontropical hardwood plywooi/in Japan is also likely to be well above thenominal duty race of 20% .

2.2 Characteristics of tariff schedules

Table 1 indicates the decline in average rates, and also highlights anumber of other points:

i) Variation Between Developing, Developed and Socialist CountryRates

Although average rates have declined and in most situations are atlow levels, rates differ between imports from developing countries,developed market economies and socialist countries of Eastern Europe. In

general, the rates faced by the socialist countries are higher than thosefaced by other countries. The developing countries, on the other hand,face the lowest level of duties due to the range of special preferencesthey are eligible for, espeOally special races under the GeneralizedSystem of Preferences (GSP)

1/ The post-Tokyo Round rates reflect bound rates to be achieved at theend of the phase-in period. In many cases they therefore reflect rates tobe achieved by 1987 rather than current levels.

2/ Yeats (1974)

3/ See chapter II

4/ Discussion of the GSP scheme, which is available only to developingcountries, is given in Chapter IV, section 2.2.

- 38 -

An analysis of pre-and post-Tokyo Round average trade weighted tariff rates for wood and wood products carried out by UtlCTAD (UNIDO 1983d) for selected major developed country marltets shows the extent of this decline. The average rates for all importing markets analysed were zero for wood in the rough; declined from 2.4% (pre-Tokyo Round) to 1.7% (post-Tokyo Round) for primary w~~ products; and from 7.8% to 5.7% respectively for secondary wood p rod lie ts .

As a gen~ral observation, while rates of 5-10% may seem rather low, where the dutiable value is relatively ~igh and where highly competitive market conditions exist, the duty can have a major influence on competitiveness of a particular exporter. further, although nominal rates may be relatively low, the effective cates implied by these may in fact be extremely high. For example, the effective rate of protection for wood products was estimated to be 95% in the E~C, ~7% in Japan and 18.3% in the USA, well above the nominal rate in each case • The effective rate on tropical hardwood plyw05/in Japan is also likely to be well above the nominal duty rate of 20% •

2.2 Characteristics of tariff schedules -----------------------------------Table 1 indicates the decline in average rates, and also highlights a

number of other points:

i) Variation B~tween Developing, Developed and Socialist Country Rates

Although average rates have declined and in most situations are at low levels, rates differ between imports from developing countries, developed market economies and socialist countries of Eastern Europe. In general, the rates faced by the socialist countries are higher than those faced by other countries. The ~eveloping countries, on the other hand, face the lowest level of duties due to the range of special preferences they are eligible for, espes~ally special rates under the Generalized System of Preferences (GSP) •

1/ The post-Tokyo Round rates reflect bound rates to be achieved at the end of the phase-in period. In many cas~s they therefore reflect rates to be achieved by 1987 rather than current levels.

~/ Yeats (1974)

~/ See chapter II

~/ Discussion of countries, is given

the GSP sch~me, which is available in Chapter IV, section 2.2.

only to developing

AUSTRALIAWood in [he rough 11.9 0.0 7.2 0.0 0.0 0.0

Primary wood products 11.0 8.4 6.1 6.0 42.3 42.2

Secondary wood products 16.7 16.7 25.6 25.6 17.7 17.7

AUSTRIAWood in the rough

Primary wood productsSecondary wood products

CANADAWood in the rough

Primary wood products

Secondary wood products

JAPAN

Wood in the roughPrimary wood productsSecondary wood products

NEW ZEALANDWood in the rough

Primary wood products

Secondary wood products

NORWAYWood in the rough

Primary wood productsSecondary wood products

U.S.A.Wood in the rooghPrimary wood productsSecondary wood products

- 39 -

Table 1 - Average tariff rates facing wood and wood products inmajor developed country markets

Imports from developing countries Imports from D.M.E.C. imports from socialist countries

pre-Tokyo post-Tokyo pre-Tokyo post-Tokyo pre-Tokyo post-Tokyo

0.1 0.1 0.3 0.3 1.0 0.7

0.2 0.2 8.6 7.0 2.3 2.2

6.8 6.8 21.4 20.5 19.2 18.6

0.0 0.0 0.4 0.1 0.0 0.0

6.1 6.1 4.6 2.5 13.9 7.7

6.5 6.5 17.7 12.6 15.7 10.3

E.E.C.

Wood in the rough 0.0 0.0 0.1 0.0 0.2 0.0



0.0 0.0 0.0 0.0 0.0 0.0

8.2 7.4 0.3 0.2 2.0 1.9

11.1 4.8 9.6 4.3 10.4 4.6

0.0 0.0 0.1 0.0 1.4 0.0

6.7 6.7 11.5 11.5 26.7 26.7

21.9 21.9 21.1 21.1 21.1 21.1

0.0 0.0 0.0 0.0 0.0 0.0

0.0 0.0 1.9 1.3 1.8 1.3

0.0 0.0 6.9 4.8 5.6 3.8

SWEDENWood in the rough 0.0 0.0 0.0 0.0 0.0 0.0



SWITZERLANDWood in the rough 0.0 0.0 . 1.2 1.1 1.6 1.3

Primary wood products 0.0 0.0 5.6 3.6 2.8 2.3-


FINLANDWood in the rough 0.0 0.0 0.0 0.0 0.0 0.0



0.0 0.0 0.0 0.0 0.0 0.0

11.0 5.6 0.8 0.4 15.4 7.3

3.5 1.7 4.7 2.4 3.8 2.3

Source: UNCrAD Data Base un Trade Measures

UNIDO (1983d)

Note: Averages overestimate the effects of preferences since all imports eligible for pre.,:rences are assumed to benefit1rom them.

- 39 -

Tabl~ \ - Averagl;! tad ff rates facing wood and wood products In major developed country mark~[s

',uports rrOlD developing countrl!!s hnl'urts feen D.H.Le. l lft l)() rt s frOOI socialist coulltrles --------------------------------- ------------------------- --------------------------------

pre-Tukyo IlC)st-Tokyo pre-Tokyo pnst-Tokyo pre-Tokyo IInst-Tokyo

AU!:o'TIW...IA WooJ In thO;! rough 11.9 0.0 7.1. 0 .0 0.0 0.0 l'r1lllary wood products 11.0 8.4 b . \ b .O 42 . 3 102.1. SO;!condu T't wood products 16 . 7 Ib.7 25.6 25 .6 11.7 17.7

AUSTil[" Wood In the Tough 0.\ 0.\ 0.1 0.) 1.0 0.7 t'rllaary wood products 0.1 '0 .2 8.b 7 .0 2.3 2.2 Secondary wood p,roJuc ts b." b.8 21.4 20 . S 19.2 L8.6

CANADA Wood 1n the rough 0.0 0.0 0.4 0.\ 0.0 0.0 PrLmary wood products b.\ b . \ 4.b 2.S 13.9 7.7 Secondary wood products b.S b.S 17. 7 12.6 IS.7 10.3

E.E.C. Wood In [hI:! rough 0.0 0 .0 0.\ 0 .0 0 .2 0.0 Primary wood products 2.S 1.9 1.0 0.8 1.\ 0 .8 Secondary wood products 2.S I.S 2.2 1.7 4.7 3 .2

JAPAN Wood 1n the rough 0 .0 0.0 0.0 0.0 0.0 0.0 Primary wood products 8.2 7.4 0.3 0 . 2 2.0 1.9 Seconda ry wood products 11.1 4.8 9.b 4 . 3 10.4 4.b

N"" ZEAU.N!J Wood In the cough 0 .0 0 .0 0.\ 0.0 \.4 0.0 Prhllary wood products b . 7 b.7 11 . 5 11.5 26.1 26.7 Seconda ry wood products 21.9 21.9 21.1 21.1 21.1 21.1

NORWAY IIood 1n the rough 0.0 0.0 0.0 0.0 0.0 0.0 Prll11ary wood products 0.0 0 .0 I.' 1.3 1.8 l.3 Secondary wood products 0.0 0.0 b.9 4.8 S.b 3.8

SWWEN Wood In the rough 0.0 0 .0 0.0 0.0 0.0 0.0 Primary wood products 0.0 0 .0 1.6 1.4 1.2 1.0 Secondary wood products 0.0 0.0 • 4 .0 3.0 4.9 3 .7

SWITZERUNO Wood In the rough 0.0 0.0 \.2 1.\ I.b 1.3 Primary wood products 0 .0 0.0 S.b 3.b 2.8 2.3' Seconda ry wood products 1.2 0 .8 13.9 9.S 14.1 9.7

FINL\ND Wood I" the rough 0 .0 0 .0 0.0 0.0 0.0 0.0 t'rlwary wood products 0.0 0 . \ 0." 0 . 7 0." O.b St!condary WOO<.I producls 1.\ 0.7 7.7 4.9 S.3 3.b

U.S.A . Wood In t ilt> rough 0.0 0.0 0 . 0 0.0 0.0 0 .0 t'rllll8ry wood products 11.0 S.b 0 .8 0 .4 15.4 7.3 Seconda ry ~ products ].5· \. 7 4.7 2 .4 3.8 2 .3

Sou rce: UNCrAll Data 8as~ Oil Trtld~ lieasureS

UNTOO (J98JJ)

NOlt:: Allc rages ollerestirualt.' the effects of preferences since all imports eligible for pre c'!rences are ass\ded to benefit t rom tht>m.

- 40 -

Since tariff rates vary significantly both between products andbetween markets discussions of average situations, while highlightinggeneral conditions, tend to either under or over emphasize certainfeatures. Details of rates applying to specific product categories for anumber of developed and developing counHies are given in appendix 4, andclearly highlight individual variations .

Variation Between Markets

While in most cases rates are low, considerable variation stillexists between the rates charged by individual markets. For example,post-Tokyo Round rates for developing countries for primary wood productsrange from zero for Norway, Sweden and Switzerland to 6.7% in New Zealand,7.4% in Japan, and 3.4% in Australia.

Tariff Zscalation

There is a tendency for tariff rates to be lowest on unprocessedproducts and to rise with increased processing. This characteristic, knownas tariff escalation, is common in agricultural and forest products and is

suggested to be an attempt by importing countries to ensure that thebenefits of processing activities accrue to them rather than the exportingcountry.

Wood in the rough generally faces low or zero rates of duty while inmost situations higher levels apply to primary wood products, and evenhigher rates to secondary wood products.

Tariffs are used to place restrictions on products that importingcountries consider themselves to be most vulnerable to competition in. Thelimited evidence may therefore reflect the fact that the major developedmarkets see other developed countries rather than developing countries asmajor threats in secondary wood products. In turn this could reflect thegreater level of sophistication of the developed markets in higherprocessing. Tariff escalation should thus be seen in the context ofattempts to control the import of products the importing market is mostvulnerable in, rather than a deliberate attempt to restrict developingnations to the production of unprocessed products.

Nevertheless, the great difference in tariff rates betweenwood-in-the-rough and primary products, and that between primary andsecondary products has considerable significance for developing countries.As the term implies, primary processing is the first stage of processingbeyond the basic stages of logs or squared logs. It generally represents asemi-processed form, the product serving as an input into secondary woodproducts. The primary processing activity is usually more labour-intensiveand less demanding of skilled staff than secondary processing, and as aconsequence is more likely to be within the developing countries'capabilities during their early stages of development. As well as being aless demanding process, an important feature is that the products require

1/ See tables 5, 6 and 7 Appendix 3.

Since tariff rates vary significantly both between products and betwe~n markets discussions of average situations, while highlighting general conditions, tend to either under o r over emphasize certain features. Decails of rateS applying to specific product categories for a number of developed a nd developing couoifies are given in appendix 4, and clearly highlight individual variations •

ii) Variation Between Markets

While in most cases rates are low, considerahle variation st ill exists between the rates charged by individual markets. For exa mpl e, post-Tokyo Round rates for developing countries for primary wood products range from Zero for Norway, Sweden and Switzerland to 6.7% in New Zealand, 7.4% in Japan, and 3.4% in Australia .

iii) Tariff Escalation

There is a tendency for tariff rates to be lowest on unprocessed products and to rise with increased processing. This characteristic, known as tariff escalation, is common in agricultural and forest products and is suggested to be an attempt by importing countries to ensure that the benefits of processing activities accrue to them rathe r than the exporting country.

Wood in the rough generally faces low or zero rates of duty while in most situations high~r levels apply to primary wood products, and even higher rates to secondary wood prod uets.

Tariffs dre used to place restrictions on prooucts that importing countries consider themselves to be most vulnerable to competition in. The limited evidence may therefore reflect the fact that the major developed markets see other developed countries rather than developing countries as major threats in secondary wood products. In turn this could reflect the greater level of sophistication of the developed markets in higher processing. Tariff escalation should thus be seen in the context of attempts to control the import of products the importing market is most vulnerable in, rather than a deliberate attempt to restrict developing nations to th e production of unprocessed products.

Nevertheless, the great difference in tariff rates between wood-in-the - rough and primary products, and that betwee n primary and secondary products has considerable significance for developing countries. As the term implies, primary processing is the first stage of processing beyond the basic stages of logs or squared logs. It generally represents a semi-processed form, the product serving as an input into secondary wood products. The primary processing activity is usually more labour-intensive and less demanding of skilled staff than secondary processing, and as a consequence is more likely to be within the developing countries' capabilities rluring their early stages of development. As well as being a less demanding process, an important feature is that the products require

1/ See tables 5, 6 and 7 Appendix 3.

- 41 -

less marketing expertise. Primary products, being more standardized, tendto have well developed international markets where price and supplyavailability play a more important role in successful sales than is thecase for many secondary products. For secondary products productiontolerances are narrower, quality requirements more demanding, and design,packaging, and promotional aspects of particular importance. Individualpurchases are also smaller, placing greater demands on identifying andnegotiating sale conditions, and meeting buyers' requirements within theconfines of transport services.

These features, together with the need in many cases to combine thewood with other non-wood materials to produce the secondary product, resultin a much greater degree of complexity in both production and marketing.This, in turn, places greater importance on the availability of skilledlabour, managerial skills, and developed infrastructure.

The higher tariffs on primary wood products therefore restrict thetype of processing that is usually within the developing countriescapabilities, namely primary processing, thus hindering their efforts toindustrialize. This point is supported by GATT (1984) which inflcated thatwhen analysis is carried out at the disaggregated product level , tariff

protection appears to still be of some significance for fibreboard,plywood, particle board and in some markets for sawnwood. All are itemswhich fall into the broad category of primary wood products.

Although the significance of tariff escalation shown by the ratestructure of developed markets, particularly the major importers such asJapan and Western Europe is unquestioned, the phenomenon is not restrictedto these countries. In fact, evidence suggests that tariff levels arehighest in developing countries, and that tariff escalation also exists inthe import schedules of the developing countries and to a lesser extent inthe centrally planned countries of Eastern Europe. Escalation was shownfor developing countries in the three main regions, Asia, America andAfrica (UNCTAD 1983). Of these regions, Africa had the lowest tariff ratesin each category, substantially lower than those for the highest region,Asia. Rates for the socialist countries were much lower than those of thedeveloping countries, and rates on secondary wood products in thesecountries were in fact lower chan for primary wood products (Table 2).

Although tariff escalation may have lost some of its practicalsignificance in recent years it is still important in inhibiting the exportdevelopment of the developing countries. Much of its significance has beenreduced as special concession schemes such as the GSP, other specialpreference agreements, and regional free trade arrangements have reduced orabolished tariffs for specific countries. However, in those markets withpositive MFN rates, countries which do not qualify for additionalconcessions or where restriction clauses exist still face the impact ofescalation. Even after taking account of special preferences, escalationwas apparent for wood and wood product imports into the developedmarket-economy countries (UNIDO, 1983).

1/ CCCN four digit level.

- 41 -

less marketing expertise. Primary products, being more standardized, tend to have well developed international markets where price and supply availability playa more important role in successful sales than is the case for many secondary products. For secondary products production tolerances are narrower, quality requirements more demanding, and design, packaging, and promotional aspects of particular importance.. Individual purchases are also smaller, placing greater demands on identifying and negotidting sale conditions, and meeting buyers' requirements within the confines of transport services.

These features, together with th~ need in many cases to combine the wood with other non-wood materials to produce the secondary product, result in a much greater degree of complexity in both production and marketing. This, in turn, places greater importance on the availability of skilled labour, managerial skills, and developed infrastructure.

The higher tariffs on primary wood products therefore restrict the type of processing that is usually within the developing countries capabilities, namely primary processing, thus hindering their efforts to industrialize. This point is supported by GATT (1984) which in1tcated that when analysis is carried out at the disaggregated product level , tariff protection appears to still he of some significance for fibreboard, plywood, particle board and in some markets for sawnwood. All are items which fall into the broad category of primary wood products.

Although the significance of tariff escalation shown by the rate structur~ of developed markets, particularly the major importers such as Japan and Western Europe is unquestioned, the phenomenon is not restricterl to these countries. In fact, evidence suggests that tariff levels are highest in developing countries, and that tariff escalation also exists in the import schedules of the developing countries and to a lesser extent in the centrally planned countries of Eastern Europe. Escalation was shown for dev~loping countries in the thre~ main regions, Asia, America and Africa (UNCTAD 1983). Of these regions, Africa had the lowest tariff rates in each category, substantially lower than those for the highest region, Asia. Rates for the socialist countries were much lower than those of the developing countries, and rates on secondary wood prcxlucts in these countries were in fact lower than for primary ·wood products (Table 2).

Although tariff escalation may have lost some of its practical significance in recent years it is still important in inhibiting the export development of the developing countries. Much of its significance has been reduced as special concession schemes such as the GSP, other special preference agreements, and regional free trade arrangements have reduced or abolished tariffs for specific countries. However, in those markets with positive MFN rates, countries which do not qualify for additional concessions or where restriction clauses exist still face the impact oJ escalation. Even after taking account of special preferences, escalation was apparent for wood and wood product imports into the developed market-economy countries (UNIDO, 1983).

l/ CCCN four digit level.

markets(a)

- 42 -

TABLE 2 - Non-weighted average tariff rates on wood and wood products inselected developing and socialist countries of Eastern Europe*

1/ This may be volume or value based.

Wood in the Primary wood Secondary wood

in the original report.

* Poland, Hungary, Bulgaria, Czechoslovakia, Romania

3. Non-Tariff Barriers

3.1 Quantitative restrictions

(a) Tariff Quotas

Tariff quotas are a variation of conventional tariffs. They involvetwo different tariff levels on a product, the higher level coWg intoforce when imports reach a certain specified quota or ceiling level. Fora number of individual forest products in selected markets they are ofmajor significance. The following examples highlight their nature and theimpacts they have by particular reference to the EEC, a trading regionwhere they are a major element of an extensive system of trade barriers.

Paper and paperboard products have been subject to tariff quotas fora number of years although their incidence has declined. In the case ofimports from the European Free Trade Agreement (EFTA) countries a 1972agreement with the EEC provided a phased reduction in tariff levels, withthe duty being removed on January 1, 1984. Associated with this regime, asystem of volume ceilings were instituted. When these ceilings wereexceeded, full customs duties were applied. Thus the EFTA countries tradedvolume restraints for phased tariff reductions.

For newsprint a tariff quota scheme was introduced in 1969. UnderGATT rules the EEC undercook to allow 1.5 million tonnes of newsprint toenter free of duty. In more recent years the opening quota of 1.5 million

Importingrough products products

Africa 14.4 16.2 24.1

Ame rica 26.2 37.6 52.5

AsiaSocialist countries of

34.1 57.8 73.1

Eastern Europe 7.3 14.5 9.9

Source: National Tariff Schedules.Adapted from UNCTAD (1983a). A full list of countries appears

- 42 -

TABLE 2 - Non-weighted average tariff rates on wood and wood products in selected developing and socialist countries of Eastern Europe*

Importing markets(a)

Africa America Asia Socialist countries

East~rn Europe of

Wood in the rough

14.4 26.2 34.1

7.3

Source: National Tariff Schedules.

Pri mary wood products

16.2 37.6 57.8

14.5

Secondary wood prod ucts

24.1 52.5 73.1

9.9

Adapted from UNCTAD (1983a). A full list of countries appears in the original report.

* Poland, Hungary, Bulgaria, Czechoslovakia, Romania

3. Non-Tariff Barriers

3.1 Quantitative restrictions

(a) Tariff Quotas

Tariff quotas are a variation of conventional tariffs. They invo l ve two different tariff levels on a product, the higher level cortng into force when imports reach a certain specified quota or ceiling level. For a number of individual forest products in selected markets they are of major significance. The following examples highlight their nature and th e impacts they have by particular reference to the EEC, a trarling region where they are a major el~ment of an extensive system of trade barriers.

Paper and paperboard products have been subject to tariff quot as for a number of years although their incidence has declined. In the case of imports from the European Free Trade Agreement (EFTA) countries a 1972 agreement with the EEC provided a phased reduction in tariff levels, with the duty being removed on January I, 1984. Associated with this regime, a system of volume ceilings were instituted. When these ceilings were exceeded, full customs duties were applied. Thus the EFTA countries traded volume restraints for phased tariff reductions.

For newsprint a tariff quota scheme was introduced in 1969. Under GATT rules the EEC undertook to allow 1.5 million tonnes of newsprint to enter free of duty. In more recent years the opening quota of 1.5 million

l / This may be volume or value based.

- 43 -

tonnes was subsequently revised, with additional duty free volumesallocated if EEC suppliers did not have product available. For example, in1983 the volume entering duty free reached 2,680,000 tonnes, some 63% ofthe EEC's total consumption. 1984 estimates put imports from non-membercountries at about 2.1 million tonnes, or some 46% of total communityconsumption.

The phase out of duty in 1984 resulted in imports of paper and paperproducts from the EFTA countries becoming free of duty without volumerestrictions. As a result the quota was modified in 1985 being reduced to650,000 tonnes, with the bulk (600,000 tonnes) allocated to Canada, themajor non-Scandinavian supplier.

The 1986 allocation of this tariff quota between the EEC and memberstates was announced as:

Total

Country From Canada from Third Countries

(tonnes)

Benelux (Belgium, Netherlands, 40,400 2,000Luxembourg)

Denmark 600 80

Germany 88,000 15,820

Greece 1,000 10,820

France 5,500 1,400

Ireland 7,000 10

Italy 5,000 1,730

United Kingdom 390,000 6,650

EEC reserve 62,500 11,490

600,000 50,000

Source: EEC Document COM(95) 672 Final, 27 November 1985

The exact effects of this quota are difficult to determine as withany quota system, since it is difficult to estimate the extent to whichexporters withhold products to ensure they do not have to pay duty.Moreoever, with additional volumes being added to the original quota, thefinal volume paying full duty (5.4%) is difficult to assess.

The EEC also applies tariff quotas on a number of wood panel,moulding and furniture products, with the quotas allocated between EECMember States. The quota levels are announced annually, with imports belowthe quota entering at zero tariffs, while those above face tariffs whichrange from 3.5% to 10.4%. In the case of plywood, a tariff quota existsfor coniferous plywood. The 1985 quota level of 600,000 m' represents a200,000 m' expansion over the quota established when the scheme wasinstituted in 1974. No increase has taken place since 1980, despiteincreased consumption.

- 43 -

tannes was subsequently revised, with additional duty free volumes allocated if EEC sllpp liers di(\ not have product available. For example, in 1983 the volume e ntering duty free reached 2,600,000 tonnes , some 63% of the ESC 's total consumption. 1984 estimates put imports from non-member countries at about 2.1 million tonnes, or some 46% of total community cons umption.

The phase out of duty in 1984 resulted in imports of paper and paper products from the EFTA countries becoming free of duty without volume restrictions . As a result the quota was modified in 1985 being reduced to 650,000 tonnes, with the bulk (600,000 tonnes) allocated to Canada, the maj 0 r non-Scand inavian supplier.

The 1986 allocation of this tariff quota between the EEC and member states was announced as:

Country From Canada

Benelux (Belgium, Netherlands, 40,400 Luxembourg)

Denmark Germany Greece France I rei and Italy Uni ted Kingdom EEC reserve

Total

600 88,000

1,000 5,500 7,000 5,000

390,000 62,500

600,000

(tonnes)

f rom Third Countries

2,000

80 15,820 10,820 1,400

10 1,730 6 ,650

11,490

50,000

Source: EEC Document COM(95) 672 Final, 27 November 1985

The exact effects of this quota are difficult to determine as with any quota system, since it is difficult to estimate the extent to which exporters withhold products to ensure they do not have to pay duty. Moreoe ve r, with addi tional volumes being added to the original quota, the final volume paying full duty (5.4%) is difficult to assess.

The EEC also applies tariff quotas on a number of wood panel, moulding and furniture products, with the quotas allocated betw"en EEC Memb~r States. The quota levels are announced annually, with imports below the quota entering at zero tariffs, while those above face tariffs which range from 3.5% to 10.4%. In the case of plywood, a tariff quota exists for coniferous plywood. The 1985 quota level of 600,000 m' represents a 200,000 m' expansion over the quota established when the scheme was instituted in 1974. No increase has taken place since 1980, despite increased consumption.

- 44 -

Developing countries primarily produce hardwood products, which inthe case of plywood is not covered by the above tariff quota. Specialconcessions provide many of the developing countries with relief from thestandard tariff. For example, under the Lome' Convention, all ACP (Wican,Caribbean and Pacific) countries obtain unlimited duty-free access .

Those countries not eligible for these concessions, which includes all themajor hardwood plywood producers (Brazil, Indonesia, Malaysia, thePhilippines, Singapore and the Republic of Korea) are generally eligiblefor GSP treatment. Details of the GSP quotas and ceilings on plywood andcertain other products classified as 'sensitive' by the EEC are shown inTable 3. The dominant positions of Germany, France and the United Kingdomas importers of these products is highlighted. For hardwood plywood eachof the six exporting countries receives an individual quota allocation(87,000 m' each in 1985). In addition each EEC member state is subiect toan allocation, with the United Kingdom receiving over half.

The restrictiveness of the tariff quotas is suggested by the factthat heavy early shipments by countries wishing to ship the maximum volumeduty free often res2t in the quotas being virtually filled in the firstquarter of the year . For non-conifsrus plywood, the quota only allowspart of total imports duty free entry . Further, the allocation of thequota to individual producers and individual member states creates otherdifficulties. Quotas remain tied to individual suppliers until the end ofthe year with the result that some suppliers exceed their duty-free quotaswhile others under-supply (Table 4). Over-quota volumes currently faceduties of 10.4%.

A further difficulty for exporters facing tariff quotas of this typeis the uncertainty created. Exporters are often unsure at the time ofshipping whether shipments will be admitted duty-free. Large consignmentsfrom other exporters may arrive earlier and fill the quota. Complicatedadministrative systems such as this bear most heavily on exporters indeveloping countries who have less access to information and less developedexporting systems.

The Republic of Korea recently introduced a tariff quota with theintention of increasing trade, rather than restricting it. In this casethe tariff on particle board was reduced from 30% ro 20% for imports up to100,000 m' entering during the period April-December 1985. This move wastaken to reduce the cost of imported particle board used by the domesticfurniture industry, but to place limits on the volume that might enter.While involving a relaxation of an import barrier the example highlightsthe uncertainty created by many non-tariff barriers, since in this caseduty on all imports would revert to 30% in 1986 unless the tariff quota wasextended.

1/ A total of 57 countries. These are least developed countriesassociated with the EEC under the Lomé" Convention.

2/ Coniferous quotas were exhausted before 18 June in 1981-1984(Asian Timber, 1984). However in most years additional allocations weresubsequently given so that most imports entered duty free.

3/ Total imports were approximately 500,000 m' in 1981 (ECE TimberBulletin for Europe) while the quota level was 471,000 m'.

- 44 -

De veloping countries primarily pronuce hardwood products, which in the case of plywood is not cov~red by the above tariff quota. Spec ial concessions provide many of the developing countries with relief from the standard tariff. For example, under the Lome Convention, all ACP (trrican, Caribbean and Pacific) countries obtain unlimited duty-free access • Those countries not eligible for these concessions, which includes all the major hardwood plywood producers (Brazil, Indonesia, Malaysia, the Philippines, Singapore and the Republic of Korea) are generally eligible for GSP treatment. Details of the GSP quotas and ceilings on plywood and certain other products classified as 'sensitive' by the E~C are shown in Table 3. The dominant positions of Germany, France and the United Kingdom as importers of these products is highlighted. For hardw ood plywood each of the six exporting countrie s re ceives an individual quota allocation (87,000 m' each in 1985). In addition each EEC member state is subiect to an allocation, with the United Kingdom receiving over half.

The restrictiveness of the tariff quotas is suggested by the fact that heavy early shipments by countries wishing to ship the maximum volume duty free often rest}t in the quotas being virtually filled in the first quarter of the year • For non- conif 3yous plywood, the quota only allows part of total imports duty free entry • Further, the allocation of the quota to individual producers and individual member stateS creates othe r difficulties. Quotas remain tied to individual suppliers until the end of the year with the result that some suppliers exceed their duty-free quotas while others under-supply (Table 4). Over-quota volumes currently face duties of LD.4%.

A further difficulty for exporters facing tariff quotas of this type is the uncertainty created. Exporters are often unsure at the time of shipping whether shipments will be admitted duty-free. Large consignments from other exporters may arrive earlier and fill the quota . Complicated administrative systems such as this bear most heavily on exporters in developing countries who have less access to information and less developed exporting systems.

The Republic of Korea recently introduced a tariff quota with the intention of increasing trade, rather than restricting it. In this case the tariff on particle board was reduced from 30% to 20% for imports up to 100,000 m' ente ring during the period April-Uecember 1985. This move was taken to reduce the cost of imported particle board used by the domestic furniture industry, but to place limits on the volume that might enter. While involving a relaxation of an import barrier the example highlights the uncertainty created by many non-tariff barriers, since in this case duty on all imports would revert to 30% in 1986 unless the tariff quota was extended.

1..1 A total of 57 countries. These are least developed countries associated wi th the EEC under th~ Lome Convention ..

~/ Coniferous quotas were exhausted b efore 18 June in 1981-l984 (Asian Timber, 1984). However in most years additional allocations were subs~quently given so that most imports entered duty free.

l/ Total imports were approximately 500,000 m' in 1981 (ECE Timber Bulleti n for Europe) while the quota level was 471,000 m'.

CCUheading

No.

Description

TABLE 3 - CSP Scheme of the EEC for sensitive items : 1985 levels

(CSP rate : OZ)

Beneficiary

countries or

territories

(I)

44.11

(allnumbers)

44.15

(allnumbers)

44.23 Builders' carpentry

(all and joinery (includingnumbers) pre-fabricated and

sectional buildings and

assembled parquet

flooring panels).

Community tariff quotas Ceilings

Individual quota Initial share Individual ceiLing

mnount (ECU) allocated to for countries or

Member States territories other

(ECU) than those undercolumn 3 (ECU)

8 832 200

(1982-6 422 850)

NOTE: Other products falling within CCCN chapters 44 and 94 are either granted MIN duty-free treatment or CSP

duty-free treatment, being covered by the list ut non-sensitive CSP items.

(2) (3) (4) (5) (6)

Fibre building board Brazil 3 594 500 BNL 959 911 5 340 400

uf wood or other (1982-3 150 000) DK 11 574

vegetable material. D 696 219

CR 33 968E 18 368

F 141 156

IKL 5 032

I 35 729

3 523

UK 610 670

Plywood, blockboard,

laminboard, batten-

Brazil

S. Korea

87 300 m3

(1982-73 000)

BNL 14

DK 3

596

713

87 300 m3

board and similar Indonesia D 7 358

laminated wood Malaysia CR 154

products (including Philippines E 625

veneered panels and Singapore F 1 591

sheets); inlaid wood IKI, 1 360

and wood marquetry. 1 1 129

P 120

UK 54 908

94.03 Other furniture and 4 621 500

(94.03- parts thereof: (1982-3 939 600)

21,23 B. Other furniture25,27,

33,35,

39,49)

cer IIcadll~

No.

( ' )

44.11 (all number s)

44 . 15 (all nt.ll1lbers)

44.23 (all 1\utQ~rs)

94.03 (94.01-21,i3 25,27 , )),)5,

39,49)

- 45 -

TABI.E 1 - C51' Sd.cn'o,: o( the ~:EC for scutiltlvc I[t'ms : 19H'l ]t;!vcls (l:SI' r,Hc : U7.)

Description

(2)

Flbrt:! building board of wood or ocher vegetable material.

Pl)"olOod , blockboard, laml nboard. batten-board and slrailar lallllnac~d IoI'l.IOd prl)l.\ucts (including v(:neered panels and sheets) i inlaId wood and wood marquecry.

Builders' car~ntry and joinery (Including prt:,-fabrtcated anJ st!ctlonal buildings and assemblt!d parquec flooring panels).

Ocher furniture and parts thereof: B. Otht:!r furniture

-- - - - ---o------c. Coorounlty tariff quotas

Bt:!lIeflclary coulltrles or tt;!rrl[urlt!s

(J)

Brazil

Brad 1 S. Korea Indonesia Hahtysla I'hll1pptnes Singapore

Individual quoca UllIOunc (f:CU)

(4 )

1 594 SUO (1982-) 150 000)

87 )00 111)

(1982-73 000)

Inlclal share allocated to Member Scaces (cOJ)

(5 )

BNl. 959 911 IlK II 57t. D 696 219 CR )) 968 E 1M )68 F 141 156 IKL 5 0)2 I )5 729 P ) 52) UK 610 670

BNL '4 59b OK ) 71)

0 7 )58 GR 154 E b25 , 59 ' IRL 360

12. p 120 UK 54 'J08

Cl!t Ilugs

Individual ceiling for cou nt ries or tt!rrttortcs oth~r [han those uf\dt:!r colwnn ] (EaJ)

(b)

5 )40 400

87 )00 Dt3

8 8)2 200 (1982-6 422 850)

4 621 500 (1982-) 939 600)

NOn::: Other products failing wlth ln cern chapters 44 and 94 arc etther granted KI-'N duty-free trcatlllCnt or CSt> duty-free treatroent, being cuver .. -d by the list of nOI"r-Stllslttve CSt> lceaa.s.

Quota allocatioi 70,000each country (m )

Source: Asian Timber, Dec. 1984

Tariff quotas have substantially diluted the GSP benefits developingcountries have received for some forest products (particularly plywood).Although a tariff quota may have represented a freeing up of trade whenoriginally implemented, because of the difficulty of expanding these quotasthey tend to become restrictive measures. Despite growing consumptionofplywood in the EEC only small changes in quota levels have taken place .

A further problem with tariff quotas, as with any systems of quotas,is the equitable allocation of the quota between suppliers. Allocationsare often based on past trade patterns or preferential treatment forfavoured suppliers. This can make it difficult for new or non-favouredsuppliers to compete, even though they may be more efficient producers.Controls also operate on GSP preferences through limitations which restrictthe maximum share of any supplier. In the case of a number of Japanesewood products, GSP import ceilings are subject to a restriction limitingany individual country to a maximum of 50% of the total quota. Similarprovisions also apply to the USA GSP scheme.

(b) Other Import Restrictions

In addition to the tariff quota which combines a tariff andquantitative ceilings, quantitative restrictions vary considerably in type,manner of operation, and their impact. They include various types ofquotas such as bilateral or global quotas where individual countries orgroups of countries are allocated specified volumes (or values);prohibitions which may be total or only apply under certain conditions;licensing systems which range from very restrictive to automatic; and'voluntary' export restraints (VERs) which although administered byexporting countries are the result of pressure from the importing countryconcerned.

- 46 -

TABLE 4 - Expiration dates of non-coniferous plywoodquota allocations: EEC

Brazil OPEN OPEN OPEN 19 Oct

Indonesia 5 Sept 10 June 3 March 12 Jan

S. Korea 11 Nov. OPEN OPEN OPEN

Malaysia 20 May 15 June 4 June 9 JulyPhilippines 2 Sept 19 Oct 12 Aug 25 May

Singapore 26 June 13 Sept 23 Sept 7236 m'

73,500 75,000 78,500 87,300

1/ 1974 imports of all plywood totalled 1.8 million m' and 1984 2.7million m3. 1984 consumption was about 3.5 million m3 with an estimated30% being softwood.

1981 1982 1983 1984 1985

(at end-Oct)

- 46 -

TABLE 4 - Expiration dates of non-coniferous plywood quota allocations: EEG

1981 1982 1983 1984 1985 (at end-Oce)

Brazil OPEN OPEN OPEN 19 Oct Indonesia 5 Sept 10 June 3 March 12 Jan S. Korea 11 Nov. OPEN OPEN OPEN Malaysia 20 May 15 June 4 June 9 July Philippines 2 Sept 19 Oct 12 Aug 25 May Singapore 26 June 13 Sept 23 Sept 7236 m'

Quota allocatio~ 70,000 73,500 75, 000 78,500 87,300 each country (m )

Source: Asian Timber, Dec. 1984

Tariff quotas have substantially diluted the GSP benefits developing countries have received for some forest products (particularly plywood). Although a tariff quota may have represented a freeing up or trade when originally implemented, because of the difficulty of expanding these quotas they tend to become restrictive measures. Despite growing consumptionl?f plywood in the EEG only small changes in quota levels have taken place •

A further problem with tariff quotas, as with any systems of quotas, is the equitable a llocation of the quota between suppliers. Allocations are often based on past trade patterns or preferential treat ment for favoured suppliers. This can make it difficult for new or non-favoured suppliers to compete, even though they may be more efficient producers . Controls also operate on GSP preferences through limitations which restrict the maximum share of any supplier. In the case of a number of Japanese wood products, GSP import cei.lings are subject to a restriction limiting any individual country to a maximum of 50% of the total quota. Similar provisions also apply to the USA GSP scheme.

(b) Other Import Restrictions

In addition to the tariff quota which combines a tariff and quantitative ceilings, quantitative restrictions vary considerably in type, manner of operation, and their impact . They include various types of quotas such as bilateral or global quotas where individual countries or groups of countries are allocated specified volumes (or values); prohibitions which may be total or only apply under certain conditions ~

licensing systems which range from very restrictive to automatic~ and 'voluntary' export restraints (VERs) which although administered by exporting countries are the result of pressure from the importing country concerned.

l/ 1974 imports of all plywood totalled 1 . 8 million m' and 1984 2 .7 million m). 1984 consumption was about 3.5 million m) with an estimated 30% being softwood.

- 47 -

As well as quantitative import restrictions, export restrictions(other than VERs) also control trade in forest products. The most wellknown and probably that with the greatest impact is the log exportrestriction.

Quotas: a ceiling placed on the volume or value of the productwhich may enter during a specified time period. In some casesquotas are used to restrict imports during certain seasons inorder to limit competition with domestic supply. Quotas were usedby France in 1983 and 1984 as a temporary measure to restrictimports of softwood timber from non-EEC countries while wood fromtrees destroyed in a severe storm in November 1932 were sold onthe domestic market. An import quota of 1.75 million m' for 1983was ser and extended to 1984 because depressed demand resulted ina much slower off-take than expected. Quotas of this type aretemporary and short-term in operation. When applied, however,they do provide considerable disruption to trade.

Prohibitions: these are more restrictive and at the extreme maystop imports altogether. In less restrictive circumstances theyallow imports if the product meets certain conditions. Entry iscommonly prohibited if health and sanitary requirements are notmet. For example, to combat oak wilt disease the United Kingdomrequires fumigation of oak logs, while other species such asconifers, maple, sycamore and yellow poplar must either be kilndried, fumigated, pressure treated or have the bark removed. TheEEC also requires all coniferous lumber to be debarked, to avoidfurther infestations of the pine bark beetle. Products notmeeting these requirements are prohibited from entering communitycountries. Brazil has a range of tight restrictions including theprohibition of some products already manufactured in Brazil;import duties which range from 45% on pulpwood logs co 160% onplywood; and the widespread use of licenses which are capable ofbeing suspended, as occurred in 1983/84, for a wide range of paperand paperboard products. These measures have been designed toencourage local industry, and more recently to reduce the drain onforeign exchange in order to alleviate the financial crisis Brazilhas faced.

Import licensing: in this case imports are subject to licenseswhich may be readily issued or difficult co obtain. Althoughautomatic licenses are available on wood and wood products in manycountries, they often serve as a means of monitoring import flowsso that the country concerned may apply other restrictive controlsas necessary. Countries such as New Zealand and South Africa, forexample, provide automatic or liberal licensing which is used forstatistical purposes; the EEC on the other hand uses such controlsfor surveillance in the case of certain sensitive products. Morerestrictive licensing exists where the issuing of the license isat the discretion of the authorities. Colombia, for example, hasdiscretionary licensing for a wide range of wood and paperproducts.

- 47 -

As well as quantitative import restrictions, export restrictions (other than VERs) also cont rol trade in forest products. The most well known and probably that with the greatest impact is the log export restriction.

Quotas: a ceiling placed on the volume or value of the product which may enter during a specified time period. In some cases quotas are used to restrict imports during certain seasons in order to limit competition with domestic supply_ Quotas were used by France in 1983 and 1984 as a temporary measure to restrict imports of softwood timber fro m non-EEC countries while wood from trees destroyed in a severe storm in November 1982 were sold on the domestic market. An import quota of 1.75 million m' for 1983 was set and extended to 1984 b~cause depressed demand r~sult~d in a much slower off - take than expected. Quotas of this type are temporary and short-term in operation. When applied, however, they do provide considerable disruption to trade.

Prohibitions: these are more restrictive and at the extreme may stop imports altogether. In less restrictive circumstances the y allow imports i f th e product meets certain conditions. Entry is commonly prohibited if health and sanitary requirements are not met. For ~xample, to combat oak wilt diseaSe the United Kingdom requires fumigation of oak logs, while other species such as conifers, maple, sycamore and yellow poplar must either be kiln dried, fumigated, pressure treated or ha ve the bark removed. The EEC also requires all coniferous lumber to be debarked, to avoid further infestations of the pine bark beetle. Products not meeting these requirements are prohibited from entering community countries. Brazil has a range of tight restrictions including th~ prohibition of some products already manufactured in BraZil; import duties which range from 45% on pulpwood logs to 160% on plywood; and the widespread use of licenses which are capable of being suspended, as occurred in 1983 /84, for a wide range of paper and, paperboard prod ucts. These measures have been designed to encourage local industry, and more recently to reduce the drain on foreign exchange in order to allev.iate the financial crisis Brazi.l has faced.

Import licensing: in this case imports are subject to licenses which may be readily issued or difficult to obtain. Although automatic licenses are available on wood. and wood prod ucts in many countries, they often Serve as a means of monitoring import flows so that the country concerned may apply other restrictive controls as necessary . Countries such as New Zealand and South Africa, for example, provide automatic or liberal licensing which is used for statistical purposes; the EEC on the other hand uses such' controls for surveillance in the case of certain sensitive products. More restricti ve licensing exis ts where the issuing of the · license is at the discretion of the authorities. Colombia, for example, has discretionary licensing for a wide range of wood and paper products.

- 43 -

The extent to which import licensing restricts trade is obviouslydifficult to assess. Even the more liberal situations oftencreate a degree of uncertainty which may reduce exporters'willingness to trade in those markets. Unless consistentlyadministered on a liberal basis, licensing can be a considerablebarrier to trade development.

- 'Voluntary' export restraints (VERs): exporters agree to limittheir exports over a specified time period to an agreed maximum.For the purposes of this discussion VERs are considered importrestrictions, rather than export restrictions, since they are'forced' on the exporting country by the importing country.Although administered by the exporting country, these areessentially quotas in that they result from pressure applied bythe importing country. The exporter agrees to limit his exportsbecause he fears even more difficult restrictions will be imposedotherwise.

Examples in the forest products area are limited, unlike the case ofagricultural products where they exist for a number of products.'Voluntary' restraints were applied to plywood exported to the U.S.A. byJapan in Che 1950s (UNIDO, 1983); and for logs and cants exported to Japanby the United States in 1973 (Wiseman and Sedjo, 1985). in the case ofplywood large volumes being shipped by Japan caused friction between thetwo countries and resulted in Japanese exporters making voluntaryrestraints to avoid more restrictive measures. In 1972 the U.S.A. agreedto limit log and cant exportf/to Japan to near the then current level ofabout 10 million m' per year . Even after the agreement expired Japanreportedly viewed this as about the level of imports they wished tomaintain. U.S. log exports have fluctuated near the 10 million m' levelsince that time, although this may be due to other factors, particularlylog export restrictions from federal lands imposed in 1968 and 1974.

VERs which do not involve any direct government involvement alsoaffect trade. In this case firms act together and agree to limit theirexports in an attempt to anticipate, and therefore defuse, protectionistpressures in the importing countries. An agreement between an Australianpaper manufacturer and three New Zealand pulp exporters which limited thesale of packaging materials and converted products in Australia and alsolimited the quantity and conditions of supply from New Zealand to otherAustralian purchasers provides an example. A lack of governmentinvolvement is indicated by the fact that in 1978 the Australian TradePractices Commission ruled that parts of the agreement reduced competition,and as a result the Australian manufacturer amended che agreement toovercome these effects (OECD, 1984).

A side effect of VERs is che degree of centralized control that mustbe imposed on che exporting sector in order to ensure the restraint levelis not exceeded. This may require government control or at least policing

Around 200 million board feet.

- 48 -

The extent to which import licensing restricts trad e is obviously difficult to assess. Even the more liberal situations often create a degree of uncertainty which may reduce exporters' willingness to trad e in those markets. Unless consistently administered on a liberal hasis, licensing can he a considerable barrier to trade development.

'Voluntary' export restraints (VERs): exporters agree to limit their exports over a specified time period to an agreed maximum. For the purposes of this discussion VERs are considered import restrictions, rather than export restrictions, since they are 'forced' on the exporting country by the importing country. Alt~ough administered by the exporting country, these are essentially quotas in that they r~sult from pressure applied by the importing country. The exporter agrees to limit his exports ~ecause he fears even more difficult restrictions will be impos ed otherwise.

Examples in the forest products area are limited, unlike th~ case of agricultural products where they exist for a number of products. 'Voluntary' restraints were applied to plywood exported to the U.S.A. by Japan in the 1950s (UNIDO, 1983); and for logs and cants exported to Japan by the United States in 1973 (Wiseman and Sedjo, 1985). In the case of plywood large volumes being shipped by Japan caused friction between the two countri~s and result~d in Japan e s e exporters making voluntary restraints to avoid more restrictive measures. In 1972 the U.S.A. agreed to limit log and cant expo rtf / to Japan to near the then current level of about 10 million ml p~r year • Even after the agreement expired Japan reportedly viewed this as about the level of imports they wished to maintain. U.S. log exports have fluctuated near th e 10 million m' level since that time, although this may be due to other factors, particula rly log export restrictions from federal lands imposed in 1968 and 1974.

VERs which do not involve any direct government involvement also affect trade. In this case firms act together and agree to limit their exports in an attempt to antiCipate, and th e refore defuse, protectionist pressures in the impacting countries. An agreement between an Australian -paper manufacturer and three New Zealand pulp exporters which limited the sale of packaging materials and converted products in Australia and a lso limited the quantity and conditions of supply from New Zealand to other Australian purchasers provides an example. A lack of government involvement is indicated by the fact that in 1978 the Australian Trade Practices Commission ruled that parts of the agreeme nt reduced competition, and as a result the Australian manufacturer amended the agreement to overcome these effects (OECD, 1984).

A side effect of VERs is the degree of centra l ized control that must be imposed on the e x porting sector in order to ensure the restraint level is not exceeded. This may require government control or at least policing

l/ Around 200 million board feet.

- 49 -

by the industry itself. One effect of quantitative restrictions of thistype is that new exporters find ic difficult to enter the markets concernedbecause volume allocations have already been made to existing exporters.In total this type of restriction has the usual effects which result fromquota-type restrictions, while having the additional disadvantage that theimporting country has masked a barrier it has effectively created and hascircumvented GATT rules.

Two additional features stand out. Firstly, VERs are highlydiscriminatory, in that the agreements only apply to certain countries orsuppliers. Secondly, they are often difficult to identify. Privateagreements need not be notifed to the government in most countries, whilegovernments often argue they are not import barriers because they areinstituted by the exporting country. Governments do not then include themin their notifications to international trade bodies such as GATT.

(c) Export Restrictions

Quantitative restrictions are by no means limited co importrestrictions. Many of the quantitative measures already discussed are alsoon exports. The number of measures is, however, much more limited than forimports.

Quotas, prohibitions licences

Governments have long used such techniques as export licenses,prohibitions (both total or conditional), and quotas to limit the export ofall or only selected forest products. All distort trade patterns bylimiting the flow of product, or selectively encouraging exports ofparticular products. The basic objectives vary with the particularsituation, but initially most were used as a means of gathering taxrevenues (where export taxes were used), or retaining products for domesticuse.

Recently, considerable attention has been focused on log exportrestrictions which aim to encourage (or force) processing activities to becarried out in the wood supplying country rather than in the importingcountry. Those of the main log exporting countries of South East Asia -

Indonesia, Malaysia and the Philippines - are of special note. Theserestrictions and their impacts will be discussed in greater detail in alater section. At this point, it is of interest to indicate the broaddimensions of export restrictions, the range of methods used, and todescribe selected examples. The following examples indicate two points -that export restrictions in forest products are not new, and that developedas well as developing countries have used them to influence trade patterns.

(i) Restrictions by developed countries

One of the most widely quoted and certainly most widely debated casesis that of North American log controls. Both the USA and Canada, two ofthe world's major wood producers and exporters, retain restrictions on theexport of logs.

- 49 -

by the industry itself. On~ effect of quantitative restricti ons of this type is that new exporters find it difficult to enter the mark~ts concerned because volume allocations have already be~n made to existing exporters. In total this type of restriction has the usual effects which result from quota-type restrictions, while having the additional disadvantage that the importing country has masked a barrier it has effectively created and has circumvented GATT rules.

Two additional featuces stand out. l'icstly, VERs ace highly discriminatory, in that the agreements only apply to certain countries or suppliers. Secondly, they ace often difficult to identify. Private agreements need not be notifed to the government in most countries, while governments often argue they ar~ not import barriers because they are instituted by the exporting country. Governments do not then include them in their notifications to international trade bodies such as GATT.

(c) Expoct Restcictions

Quantitative restrictions are by no means limited to import restrictions. Many of the quantitative measures already discussed are also on exports. The number of measures is, however, much more limited than for imports.

Quotas, prohibitions, licences

Governm~nts have long used such techniques as export licenses, pcohibitions (both total oc conditional) , and quotas to limit the expoct of all oc on.ly selected forest pcoducts. A.ll distoct trade pattecns by limiting the flow of product, or selectively encouraging exports of particular products. The basic objectives vary with the particular situation, but initially most were used as a means of gathering tax revenues (where export taxes were used), or retaining products for domestic use.

Recently, considerable attention has been focused on log export restrictions which aim to encourage (or force) processing activities to be carried out in the wood supplyin.g country rather than in the importing countcy. Those of the main log exporting countries of South East Asia IndoneSia, MalaYSia and the Philippines - are of special note. These restrictions and their impacts will be discussed in greater detail in a later section. At this paint, ie is of interest to indi cate the broad dimensions of export restrictions, the range of methods used, and to describe selected examples. The following examples indicate two points -that export restrictions in forest products are not new, and that developed as well as developing countries have used them to influence trade patterns.

(i) Restrictions by developed countries

One of the most widely quoted and cenainly most widely debated cases is that of North American log controls. Both the USA and Canada, two of the world's major wood producers and exporters, retain restrictions on the export of logs.

- 50 -

in the case of Canada, the Provincial laws prohibit the export of anylogs that may be required by domestic processors. In British Columbia, themajor forestry Province, in order to receive a permit to export, logs mustfirst be advertised for sale in Canada for a specified time. If nopurchasers are found, permits are issued. This ban was introduced in 1906and has resulted in only relatively small volumes of logs being exported.Canada has provided less than 2% of Japan's log imports since the mid-1970seven though it has been the world's third largest producer of saw andveneer coniferous logs over that time. Although log exports have only beena small proportion of log production (less than 3%), volumes more thanquadrupled over the period from the late 1960s to 1984, despite therestrictions. In an effort to reduce exports the restrictions weretightened in early 1986. Under these changes, exports will only be allowedfor less preferred species or if some log sales are needed to make theharvesting of a stand economic (Random Lengths Export, December 5, 1984).

By contrast, the USA has maintained its position as the world'slargest exporter of logs despite Log bans similar to those of Canada. From1969 to 1973 the export of logs from federal land west of the 100thmeridian was limited to 350 million board feet (about 2 million m3) peryear. Since October 1973 a han on the export of unprocessed timber fromfederally-owned land has been enforced and in addition some western stateshave applied restrictions on logs from state-owned land (US ITC, 1985).

The effects of these restrictions have been debated for many years.The basic intent of the restrictions has been to increase the supply oflogs to che domestic industry, and thus lower the price they must pay forthem. It is argued that as a consequence the domestic processing industrywould be stimulated, and domestic consumers would have an increased supplyof wood products at lower prices. In addition the reduced export volumewould force the overseas markets to import sawn timber rather than logs,further stimulating the domestic processing industry. The extent to whichthis has occurred in North America has been the subject of considerabledebate without any clearcut conclusion being reached. Despite the controlsUSA log exports increased by 8% between 1973 and 1984 while sawn timberexports ??ly grew by 4%. Over the same period Canada's log exports grewfourfold while sawn timber exports expanded by 59%.

Whether the increase in log exports would have been greater withoutthe log ban is difficult to determine. In contrast to the Canadiansituation where only 8% of timber lands are owned by private interests,about 72% of US commercial forest lands are privately owned (US ITC,1985)2/. This enabled log exports co continue at a high level despite thebans, as volumes from private owners have increased.

1/ Average exports 1968-1970 equalled 826,000 m3, 1984 totalled3.3 million m3. Average exports 1970-73 used as base because 1972 and 1973log export appears to have been abnormally low. 1984 exports of logstotalled nearly 16 million m' and sawntimber 5 million m' (FAO, 1986).

2/ Acreage owned by non industrial owners and forest industries.

- 50 -

In the case of Canada, the Provincial laws prohibi t the export of any logs that may b~ r~quired by domestic processors. In British Colum~ia, the major forestry Province, in order to receive a permit to export, logs must firs t be advertised for sale in Canada for a specified time. If no purchasers are found, permits are issued. This ban was introduced in 1906 and has resulted in only relatively small volumes of logs being exported. Canada has provided l ess than 2% of Japan's log imports since the mid-1970s even though it has been the world's third largest producer of saw and v~n~er conifero us logs over that time. Although log exports have only been a small proportion of log production (less tha n 3%), volumes more than quadrupled over the period from the late 1960s to 1984, despite the restrictions. In an effort to reduce exports the restrictions were tightened in early 19 86. Und~r these changes, exports will only be allowed for less preferred species or if some log sales are needed to make the harvesting of a stand economic (Random Lengths Export, December 5, 1984).

By contrast, the USA has maintained its position as the world's largest exporter of logs despite log bans simi lar to those of Canada. From 1969 to 1973 the export of logs from federal land west of the 100th meridian was limited to 350 million board feet (about 2 million m') per year. Since October 1973 a ban on the export of unprocessed timber from feder ally-owned land has been enforced and in addition some western states have applied restrictions on logs from state-owned land (US lTC, 1985).

The effects of these restrictions have been debated for many years. The basic intent of the restrictions has heen to increase the s upply of logs to the domestic industry, and thus lower the price they must pay for them. It is argued that as a consequence the domestic processing industry would be stimulat.ed, and domestic consumers would have an increased supply of wood products at lower prices. In addition the reduced export volume would forc~ the overseas markets to import sawn timber rather than logs, further stimulating the domestic processing industry. The extent to which this has occurred in North America has been the subject of considerable debate without any clearcut conclusion being reached. Despite the controls USA log exports increased by 8% between 1973 and 1984 while sawn timber exports ??ly grew by 4%. Over the same period Canada's log expor ts grew fourfold while sawn timber exports expanded by 59%.

Whether the increase in log exports would have been greater without the log ban is difficult to determine. In contrast to the Canadian situation where only 8% of timber lands are owned by private interes ts, about212% of US comm~rcial forest lands are privately owned (US lTC, 1985) • This enabled log exports to continue at a high level despite the bans, as volumes from private owners have increased.

}j Average exports 1968-1970 equalled 826,000 m', 1984 totalled 3.3 million m'. Average exports 1970-73 used as hase because 1972 and 1973 log export appears to have been abnormally low. 1984 exports of logs totalled nearly 16 million m' and sawntimber 5 million m' (FAO, 1986).

~/ Acreage owned by non industrial owners and forest industries.

- 51 -

(ii) Restrictions by developing countries

Quantitative controls on exports have also been used by developingcountries throughout Africa, Asia and South America. Many countries usequotas or prohibitions. The export of logs was banned by Ghana in 1979, andtotal prohibition on the export of the two main species together withquotas on other species was introduced in 1982 by Africa's leading logexporter, the Cbte diIvoire. In Bangladesh, Pakistan and Thailand, logexports are virtually banned, while in India the export of logs and lumberwas banned in the early 1980s in order to ensure adequate wood supplies forthe domestic woudworking and other wood-based industries. Malaysia, thePhilippines and Indonesia have all maintained log export controls since theearly 1970's. The detail of the policies used and the commitment to themhas varied lfltween these countries, and even with the country in the caseof Malaysia . The net effect in most cases has been declining volumes oflogs exported, with the most dramatic effect being seen in Indonesia. In

each case the quantitative restrictions have been backed with othercontrols.

Export duties and taxes: Clearly the most direct and simplest methodof reducing exports is through quotas or prohibitions. In a number ofcountries direct volume restraints have been associated with other forms ofrestriction. Many South-East Asian and some West African countries useexport charges, sometimes combined with quotas, to both raise revenue andencourage a greater degree of domestic processing. As examples, Indonesia,the Philippines, Malaysia, Liberia, Ghana, and C6te d'Ivoire all imposevolume or value based export charges which decrease with the degree ofprocessing. Value-based taxes on logs vary from about 10% to 44% dependingon species; those on semi-processed products (rough sawn or planed wood)from 2 to 11%; and processed (veneer, plywood) from 0 to 4%. In some casesvolume charges are used, and can be as high as $75/m' for higher value logspecies; $60/m' for rough sawn timber of high value species; while only$2/m' for processed forms. Measures such as these together withdifferential royalty charges result in domestic log prices beingsubstantially lower than export prices - in many cases $50-701m' lower(FAO, 1983b).

An additional form of restriction with important effects on thevolume of exports is the control of harvesting by government. This may bedirect as in the Philippines where the government, which owns most of theforested land, has restricted timber licenses to only nine areas of thecountry. The level of allowable cut is specified in the licenses and wasreduced from 14 million m' in 1932 ro 5 million m' in 1985. This hascontrolled the level of wood available for both the domestic market andexport. In addition, export levels of wood products are also specified.Twenty-five percent of the allowable cut may be exported as logs, 70% ofsawn timber production, and 80% of plywood production (FAO, 1983b). Such

controls are, however, aiministratively cumbersome. Republic of Korea, amajor exporter of panel products, recently announced restrictions onproduction from its forests by designating 1.5 million ha of forescland asa zone where logging is to be banned for 100 years (World Wood, Aug. 1983).

1/ These policies and their impacts are discussed in more detail inAppendix 3.

- 51 -

(ii) Restrictions hy developing countries

Quantitative controls on exports have also been used by developing countries throughout Africa, Asia and South America. Many countries use quotas or prohibitions. The export of logs was bannerl by Ghana in 1979, and total prohibition on the export of the two main species together with quotas on other species was introduced in 1982 by Africa's leading log exporter, the Cote d'lvoire. In Bangladesh, Pakistan and Thailand, log exports are virtually banned, while in India the export of logs and lumber was banned in the early 19805 in order to ensure adequate wood supplies for the domestic WOodworking and other wood-based industries. Malaysia, the Philippines and Indonesia have all maintained log export controls since the early 1970's. The detail of the policies used and the commitment to them has varied Y1tween these countries, and even with the country in the case of Malaysia • The net effect in most cases has been declining volumes of l ogs exported, with the most dramatic effect being seen in Indonesia. In each case the quantitative restrictions have been backed with other controls.

Export duties and taxes: Clearly the most direct and simplest method of re ducing exports is through quotas or prohibitions. In a number of countries direct volume restraints have been associated with other forms of restriction. Many South-East Asian and some West African countries use export charges , sometimes combined with quotas, to both raise reVenue and encourage a greater degree of domestic processing. As examples, IndoneSia, the Philippines, Malaysia, Liberia, Ghana, and Cote n'lvoire all impose volume or value based export charges which decrease with the degree of processing. Value-based taxes on logs vary from about 10% to 44% depending on species; those on semi-processed products (rough sawn or planed wood) from 2 to 11%; and processed (veneer, plywood) fro m 0 to 4%. In some cases volume charges are used, and can be as high as $75/m' for higher value log species; $60/m) f.or rough sa wn timber of high value species; while only $2/ml for processed for ms. Measures such as these toge ther with differential royalty charges result in domestic log prices being substantially lower than expor t prices - in many cases $50-70 / m' lower (FAO, 1983b).

An additional form of restriction with important effects on the volume of exports is the control of harvesting by government. This may be direct as in the Philippines where the governme nt, which owns most of the forested land, has restricted timber licenses to only nine areas of t he country. The level of allowable cut is specified in the licenses and was reduced from 14 mil lion m' in 1932 to 5 milli on m' in 1985. This has controlled the level of wood available for both the domestic market and export. In addition, export levels of wood products are also specified. Twenty-five percent of the allowable cut may be expo rted as logs, 70% of sawn timber production, and 80% of plywood production (FAO, 1983b). Such controls are, however, administratively cumbersome. Republic of Korea, a major expor ter of panel prOducts, recently announced restrictions on production from its forests by designating 1.5 million ha of forestland as a zone where logging is to be banned for 100 years (World Wood, Aug. 1983).

1/ Th~se policies and their impacts are discussed in more detail in Appendix 3.

- 52 -

Export controls on logs have also influenced trade from a number ofSouth American countries. Most, with the notable exception of Chile whichremoved its restrictions in 1975, still maintain bans which have been inplace for many years. In particular, Brazil has banned log exports sincethe early 1970s in favour of domestic production of higher value added woodmanufactures such as timber and panel products. This ban was lifted in1984 except for a few protected species (Asian Timber, March 1985).Increases in log exports have not occurred to date, but indications arethat substantial volumes may occur in the future as major proiects such ashydro electricity, mining and ranching'development release logs.

3.2 Measures influencing prices

Some of these measures increase price by the addition of governmentcharges in a similar manner to tariffs. In this case the increase iscollected by the government as customs revenue. Others, however, work fromthe other end. Prices are increased at the wholesale or retail level, withthe importer or exporter retaining the margin rather than it beingcollected by the importing country as tax revenues. For example variablelevies equalize the landed import price with one specified by thegovernment; with 'voluntary' export price agreements exporters agree withproducers in the importing country to maintain certain minimum prices; andminimum price systems involve the triggering of additional governmentcharges or price investigations if prices fall below the specified price.In all cases prices are affected; and in all, the price increase whichresults can be achieved without the increase going to the government. Onlyif che exporters fail to take the necessary action co keep price above aminimum level does the government institute penalty taxes.

Although used extensively for agricutural products these tyFes ofnon-tariff measure are less widely used in forest products trade .

Examples do, however, exist. 'Voluntary' export price agreements, underwhich prices were raised to what were regarded as more realistic levels,were negotiated on manufactured wood products by the EEC in 1980. Theseapplied to eight European and East European countries. In 1982 and 1983,further countries were covered by the agreement. Similar agreementscovered selected paper products. The agreement to raise prices followedanti-dumping investigations, as was the case with New Zealand sawn timberon the Australian market.

In the New Zealand case, which began in 1982 following investigation,industry to industry discussions, and legal battles the New Zealandindustry agreed to restrictions. These involved observing minimum exportprices based on 'normal' values set by the Australian Customs Service, andlimiting the monthly volume of shipments of structural grade timber. The'voluntary' restraints were in place for about two years before governmentto government negotiations and improved market conditions allowed them tobe removed in 1985. This highlights the degree of 'enforcement' involvedin many so-called 'voluntary' agreements, and the role governments may playin the process.

1/ The variable levy system used by the EEC to enforce minimum pricesfor animal products is perhaps the most well-known example.

- 52 -

Export controls on logs have also influenced trade from a number of South American countries. Most, with the notable exception of Chile which removed its restrictions i n 1975, still maintain bans which have bee n in place for many years. In particular, Brazil has banned log expo rts since the early 1970s in favour of domestic production of higher value added wood manufacture s such as timber a nd panel products. This ban was lifted in 1984 except for a few pro t ec t ed species (Asian Timbe r, March 1985) . Increases in log exports have not occur red to date, but indi cations are that substantial volumes may occ ur in ~.he future as maior projects such as hydro electricity, mining a nd ranching ! development release logs.

3.2 Measures influencing pri c es

Some of these measures increase price by the addi ti on of government charges in a si milar manner to tariffs. In this case the increase is collected by the government as customs revenue. Others, however, work f rom the othcc end. Prices are inc re ased at the wholesale or retail level, with the importer or exporter r~taining tll~ ma rgin rath~r th an it being collected by the importing co untry as tax r~venues. For example variable levies equalize the landed import price with one specified by the governme nt ; with 'volun tary ' export price ag ree ment s expo rters agree with producer s in the importing country to maintain certain minimum prices; and minimum price systems involve the triggering of additional government charges or price investigations if prices fall below the specif ied price. In all cases prices are affected; and in all, the price increase whic h result s can be achieved without the incr~ase goi ng to the gover nment. Only if the exporters fail to take the nece ssa ry action to keep price above a minimum level does the gover nment institute penalty taxes.

Although used extensively for agricutural products these t¥?es of non-tari ff measure are less widely used in forest products trade • Examples do, however, exist. 'Voluntary' export price agreements, under which pri CeS were raised to what were regarded as mo re realistic leve ls , were negotiated on manuf.actured wood products by the EEC in 1980. These applied to eight Suropean and East European countries. 1n 1982 and 1983, further countries were covered by the agreeme nt. Similar agreements covered selected paper products. The agreement to rai se prices followed anti-dumping inves t igations, as was the case with New Zealand sawn t i mber on the Australian market.

1n the New Zealand case, which bega n in 1982 fo l lowing investiga ti o n, industry to industry discussions, and legal battles the New Zea land industry agreed to restrictions. These involved o bserving minimum export prices based on 'normal' values set by t he Australian Customs SerVice , and limiting the monthly volume of shipments of struct ur al g r ade timber. The 'voluntary' restraints were in place for abou t two years before government to governme nt negotiations and improved market conditions a llowed th e m to be removed in 1985 . Thi s hig hlights the degree of 'en fo r cement' involved in many so-called ' voluntary' agreements, and the role governments may play in the process.

l / Th e variable levy syste m used by the EEC to enforce minimum prices for animal products is perhaps the most well-known example.

- 53 -

In the case mentioned above, anti-dumping investigations resulted inthe exporting countries agreeing to raise prices. In other cases theresult may be the imposition of anti-dumping duties which accrue to thegovernment. In a similar manner, countmailing duties enforced to negatesubsidies also accrue to the government .

Measures such as these act as a considerable barrier to exportingcountries even where formal duties are not applied. In a number of cases,such as the one discussed above informal agreements are entered into toavoid the duties. The threat of filing a complaint may also be used topress.ure exporting firms to modify their prices or strategies. Exportersare generally required to post a bond equal to the alleged amount of thesubsidy or dumping and are therefore under immediate pressure, even thoughthe charge may not be proven. The uncertainty involved in facing actual orpotential charges can be formidable and considerable expense can beinvolved in providing information, preparing strategies, travelling, seniorexecutives presenting evidence at hearings and employing consultants andlegal counsel. Moreover, while this is happening, and during formalproceedings, trade volumes can suffer as exporters react to theuncertainty, and importers cut back purchases which might subsequently faceadditional charges. Where the process is drawn out, the effect on tradecan, for many small firms, be crippling even if the original complaints areeventually rejected.

The uncertainty and effects of such situations also heightensexporters' awareness of the delicate position they hold. They aretherefore likely to be more restrained in future trade than would otherwisehave been the case, and may even concentrate exports on less difficultmarkets.

3.3 Health and technical standards

(a) Health Standards

These exist in most countries and are generally acknowledged aslegitimate regulations to ensure the continued health of the importingcountries' environment. Pests and diseases which may be introduced in woodproducts, can have devastating effects on the health of domestic forests,other plants and even human health. For this reason stringent quarantineregulations are common - particularly in countries which are alreadyrelatively free of many pests and diseases and where the forest sector isof major importance to che economy.

1/ Anti-dumping laws relate to the sale of imported goods at pricesbelow che price of comparable goods sold in the exporters domestic market.The actions must result in material damage to the industry in the importingcountry.

Countervailing duties seek to offset government subsidies received bythe exporter. Again material injury to the industry in the importingcountry must be proven. See OECD, 1984 for a full discussion.

- 53 -

In the case mention~d above, anti-dumping investigations resulted in the exporting countries agreeing to raise prices. In other cases the result may be the imposition of anti-dumping duties which accrue to the government. In a similar manner, countrfvailing duties enforced to negate subsidies also accrue to the government •

Measures such as these act as a considerable barrier to exporting countries even where formal duties are not applied. In a number of cases, such as the one discussed above informal agreements are entered into to avoid the duties. The threat of filing a complaint may also be used to press·ure exporting firms to modify their prices or strategies. Exporters are generally required to post a bond equal to the alleged amount of the subsidy or dumping and are therefore ~nder immediate pressure, even though the charge may not be proven. The uncertainty involved in facing actual or potential charges can be formidable and considerable expense can be involved in providing information, preparing strategies, travelling, senior executives presenting evidence at hearings and employing consultants and legal counsel. Moreover, while this is happening, and during formal proceedings, trade volumes can suffer as exporters react t o the unc er tainty, and importers cut back purchases which might subsequently face additional charges. Where the process is drawn out, the effect on trade can, for many small firms, be crippling even if the original complaints are eventually rejected.

The uncertainty and effects of such situations also heightens exporters' awareness of the delicate position they hold. They are there fore likely to be more restrained in future trade than would otherwise have been the case, and may even concentrate exports on less difficult markets.

3.3 Health and technical standards

(a) Health Standards

These exist in most countries and are generally acknowledged as legitimate regulations to ensure the continued health of the importing countries' environment. Pests and diseases ·which may be introduced in wood products, can have devastating effects on the health of domestic forests, other plants and even human health. For this reason stringent quarantine regulations are common - particularly in countries which are already rel at i ve l y free of many pests and diseases and where the forest sector is of major importance to the economy_

1) Anti -dump ing laws relate to the sale of imported goods at pric.es below the price of comparable goods sold in the exporters domestic market. The actions must result in material damage to the industry in the importing country.

Countervailing duties seek to offset government subsidies received by the exporter. Again material injury to the industry in the importing country must be proven. See OEeD, 1984 for a full discussion.

•

- 54 -

The complexity and severity of health requirements and the manner inwhich they are enforced may have a substantial effect on trade. Togetherwith technical standards, they are reportedly cited most often by exportingcountries as obstacles to trade in submissions to GATT (GATT, 1984). Theextent to which they restrict trade, and the degree to which they are usedprimarily for this purpose is difficult to determine. While differentcountries might be expected to have somewhat different attitudes and needson health matters, substantial differences exist on the standards and cheway in which they are administered. The major difficulty is to identifywhere the regulations are excessively restrictive and go beyond reasonablelevels for protection from pests and diseases.

Because of the consequences of major infestations of many of thesepests and diseases it is not surprising that fairly severe regulations arebeing applied in many countries. These involve strict inspection andtreatment requirements and at the extreme, prohibitions of products notmeeting the specified requirements. Ferguson and Lloyd (1980) noted thatAustralia, along with a number of other countries, has particularly strictquarantine requirements. Material containing bark, all wood productsimported from countries where the Khapra beetle is found, and productswhich on inspections show signs of insect activity must all be fumigated.Log imports can only occur at a few ports and must be processed within aspecified distance of the port. Additionally, importers must submit anotice of intent to import lumber, and phyto-sanitary certificates from theexporting country must be included with the shipment, although this doesnot avoid inspection by Australian quarantine staff (FAS, 1985).

The EEC member states require fumigation of oak logs and lumber, andcertain other species must be either kiln dried, fumigated, pressuretreated, or have the bark removed. All coniferous lumber must be debarked.In the case of oak, imports from North America in particular wererestricted until a system of fumigation which overcame the problem wasdeveloped.

While few would argue with the need to maintain restrictions forhealth and sanitary reasons, much of the debate on whether they are in factnon-tariff barriers revolves more around the enforcement procedures thanthe regulations themselves. Some of the issues at dispute are theinsistence that products be inspected on arrival, while also requiringinspection certificates from the exporting country; rejection of importswhere the documentation has a minor error; restriction of entry points tosometimes limited and often obscure locations; and short hours of operationof inspection facilities. Further argument arises over whether or notcertain pests or diseases are in fact important or harmful enough torequire the action demanded by some countries.

The primary complaint is therefore that the health and sanitaryregulations and their administration is excessively restrictive, and goesbeyond the level needed to ensure adequate protection, not that suchregulations are unnecessary.

(b) Technical Standards

These are closely linked to the question of health standards.Technical standards are considered an important means of ensuring products

- 54 -

The complexity and severity of health requirement s and the manner in which th~y are enforced may have a substantial effect on trade. Together with t~chnical standards, they are reportedly cited most ofte n by exporting countries as obstacles to trade in submissions to GATT (GATT, 1984). The ~xtent to which they restrict trade, and the degree to which they are used primarily for this purpose is difficult to determine. While different countri es might be expected to have somewhat different attitudes and needs on health matters, substantial differences exist on the standards and the way in which they are administered. The major difficulty is to identify where the regulations are excessively restr ictive and go beyond reasonable levels for protection from pests and diseases.

Because of the consequences of major infestations of many of these pests and diseases it is not surprising that fairly severe regulations are being applied in many countries. These involve strict inspection and treatment r~quirements and at the extreme, prohibitions of products not meeting the specified requir~ments. Ferguson and Lloyd (1980) noted that Australia, along with a number of other countries, has particularly strict quarantine requirements. Material containing bark, all wood products imported from countries where the Khapra beetle is found, and products which on inspections show signs of insect activity must all be fumigated. Log imports can only occur at a few ports and must be processed within a specified distance of the port. Arlrlitionally, importers must submit a notice of intent to import lumber, and phyto-sanitary certificates from the exporting country must be included with the shipment, although this does not avoid i nspection by Australian quarantine staff (FAS, 1985).

The EEe member states require fumigation of oak logs and lumber, and certain other species must be either kiln dried, fumigat ed , pressure treated, or have the bark removed. All coniferous lumber must be debarked. In the case of oak, imports from North America in particular were restricted until a system of fumigation which overcame the problem was developed.

While few would argue with the need to maintain restrictions for health and sanitary reasons, much of the debate on whether they are in fact non-tariff barriers revolves more around the enforcement procedures than the regulatio ns themselves. Some of the is sues at dispute are the insistence that products be inspected on arrival, while also requiring inspection certificates from the exporting country; rejection of imports where the documentation has a minor error; restriction of. entry points to sometimes limited and often obscure locations; dnd short hours of operation of inspection fac ilities. Further argument arises over whether or not certain pests or diseases are in fact important or harmful eno1lgh to require the action demanded by some countries.

The primary complaint is therefore that the health and sanitary regulations and their administration is exceSSively restrictive, and goes beyond the level needed to ensure adequate protection, not that such regulations are unnecessary.

(b) Technical Standards

These are closely linked to the question of health standards. Technical standards are considered an important means of ensuring products

- 55 -

perform adequately under specific end-use conditions. They ensure productsare capable of meeting che demands of the end-use, by indicating theircapabilities. As with health regulations, they vary both between countriesand between markets within a country.

Each country has unique practices, preferences, and wood productsupply characteristics which are reflected in their standards. Laws, codesand standards relating particularly, but not exclusively, to constructionuses differ between countries, and can create considerable barriers totrade. Many of these differences, however, merely reflect usagepreferences rather than formal barriers and are therefore not tradebarriers as defined in this study. For example, the main Japanese plywoodsheet sizes of 0.92 m x 1.82 m (so-called 3' x 6') reflects the uniqueconstruction design practices used in that country. Although NorthAmerican producers consider this a barrier to trade because their ownmarket demands 1.22 m x 2.42 m (so-called 4' x 8') sheets, it is a marketpreference based on different construction methods rather than anartificial barrier.

Cases do exist where building codes unfairly discriminate againstwood and wood products. This can be against all woods, or only againstsome species or types of products. In many developing, and some developedcountries, strong prejudices are held against wooden homes. This can bebased on incorrect traditional beliefs about such things as strength,durability and performance under fire, earthquake, or hurricane conditions.Methods of construction and familiarity with particular species can affectthese beliefs, as can product failures resulting from incorrect use, ratherthan the products's inherent abilities. In some tropical countries theexclusion of timber by building codes is due to a lack of technicalinformation on timber (UNIDO, 1983a). Again, however these are not non-tariff barriers since the discrimination is not just against imported woodproducts.

Standards nevertheless exist which do discriminate against imports.Because of the ring width of radiata pine Japan classified it with otherpine species. Proof that its technical capabilities were not trulyreflected by ring width required considerable time and expense. Severalyears of discussions and technical evaluations were needed before theregulations were altered in 1981.

Softwood plywood imports into Japan faced technical difficultiesuntil the problem was resolved in 1983. Before resolution of thesedifferences, which covered a 17-year period and involved extensivedevelopment work by the American Plywood Association, softwood plywood waseffectively precluded from construction uses. Another disagreement oversoftwood plywood involved tolerance levels for 'white pocket', a fungaldisease of Douglas fir. Japan was unwilling to accept signs of thisdisease in imported Douglas fir although U.S. tests reportedly showed thatthe levels allowed in U.S. construction grade plywood had no effect on theproduct's performance. Again extensive efforts were needed by the U.S.plywood industry before the standards were modified to a mutuallyacceptable level.

- 55 -

perform adequately under specific end-use conditions. The y ensure products are capable of meeting the demands of the end-use, by indicating theif capabilit ies. As with health regulations, they vary both between countries and between markets within a country.

Each country has unique practict:!s, preferences, and wood product supply characteristics which are reflected in their stdndards. Laws, codes and standards relating particularly, but not exclusively, to construction USeS differ between countries, and can create considerable harrier s t o trade. Many of these differences, however, merely reflect usage pref e rences ratht:![ than formal barriers and are therefore not trade barriers as defined in this study. For example, the main Japanese plywood sheet sizes of 0.92 m x 1.82 m (so-called 3' x 6') reflects the unique construction design practices used in that country. Although North American produc~rs consider this a barrier to trade hecause their own market demands 1.22 m x 2.42 m (so-called 4' x 8') sheets, it is a market preference based on different constructi on methods rather than an artificial barrier.

Cases do exist wh~re building codes unfairly discriminate against wood and wood products. This can be against all woods, or only against some species or types of products. In many developing, and some developed countries, strong prejudices are held against wooden homes. Thi s can be based on incorrect traditional beliefs about such things as strength, durability and performance under fire, earthquake, or hurricane conditions. Methods of construction and familiarity with particular species can affect these beliefs , as can product failures resulting fro m incorrect use, rather than the products's inherent abilities. In some tropical countries th e exclusion of timber by building codes is due to a lack of technical information on timber (UNIDO, 1983a). Again, however these are not nontariff barriers since the discrimination is not just against imported wocxl products.

Standards nevertheless exist which do discriminate against imports. Because of the ring width of radiata pine Japan classified it with o ther pin e species. Proof that its technical capabilities were not truly reflected by ring width required considerable time and expense. Several years of discussions and technical evaluations were needed before the regulat ions were altered in 1981.

Sof twood plywood imports into Japan faced technical d if ficul tie s until the problem was resolved in 1981. Before resolution of these d i f ferences, which covered a l7-year period and involved extensive deve lopment work by the American Plywood ASSOCiation, softwood plywood was effective ly precluded from construction uses. Ano[her disagreement over softwood plywood involved tolerance levels for 'white pocket', a fungal dis~ase of Douglas fir. Japan was unwilling to accept signs of this disease in imported Douglas fir although U.S. tests reportedl y showed t hat the levels allowed in U.S. construction grade plywood had no effect on the product's p~rformance. Again extensive efforts were needed by the U.S. plywood industry before the standards were modifi ed to a mutually acceptable leve l.

- 56 -

These examples illustrate how technical standards can operate as non-tariff barriers. Recognition of this at an international level resulted intechnical standards being one of the five major agreements covering non-tariff barriers reached in the Tokyo Round of the NTM negotiations.

Technical standards can have particularly important implications fordeveloping countries since these countries can have considerable difficultymeeting excessively restrictive standards. They often have limited controlfacilities, inspection services, fumigation and treatment plants, etc.This is of particular significance because efforts to export 'lesser-known'tropical species are likely to be greatly hindered by excessively tighttechnical standards. Standards in the developed country markets do notreflect the needs of these species because few have entered internationaltrade.

Further, the performance characteristics of the products can differdramatically with changing climatic conditions. A given tropical wood maynot perform well under temperate conditions even though its strength andperformance may be excellent in humid tropical climates. Additionally, chebuilding practices which have developed in a country to suit its ownconditions may not be adequate to compensate for the differentcharacteristics of the imported wood. Technical standards differsubstantially between import markets, and even between different regionswithin a country. The difficulties of meeting standards in a number ofexport markets can be substantial. Product specifications which have beendeveloped to meet the requirements of one market may not satisfy others,requiring adaptations which may be beyond the abilities of a developingcountry, or uneconomic to provide.

3.4 Customs and administrative entry procedures

Customs Procedures

Customs procedures present difficulties and uncertainties which candeter exporters, particularly smaller firms. At best they may add to thecost of landing the products in the market; at worst be of sufficientdifficulty to stop imports altogether. Complaints range from the view thatthey are unnecessarily complicated, to a belief that they are deliberatelyused to inhibit imports. Difficulties faced include the complexity ofdocuments, problems in obtaining necessary authorizations, complexinspection procedures, differences in valuation procedures, and physicalproblems in clearing the goods.

Documentation

Documentation may require the stamp of numerous departments orofficers, many of whom may be difficult to locate, or require repeatedproof relating to the products. The physical location of these approvingoffices may be widely dispersed and their hours of operation limited. In

some cases the entry point at which customs services operate may be heavilyrestricted. Examples exist for European countries where entry proceduresconstantly change, where only one border post (at an obscure location) isspecified for certain products where customs declaration forms are always

- 56 -

These examples illustrate how technical standards can operate as oontariff barriers. Recognition of this at an international level resulted in technical standards being one of th e five major agreements covering oontariff barriers r~ached in the Tokyo Round of the NTH negotiations.

Technical standards can have particularly important implications for developing countries since these countries can have considerable difficulty meeting excessively restrictive standards. The y often have limited control facilities, inspection services, fumigation and treatment plants, etc. This is of particular significance because efforts to export 'lesser-known' tropical spec ies are likely to be greatly hindered by excessively tight technical standards. Standards in the developed country markets do not reflect the need s of these species because few have e ntered international trade.

Further, the performance characteristics of the products can differ dramatically with changing climatic conditions. A given tropical wood may not p~rform w~ll under temperate conditions even though its strength and performance may be excell~nt in humid tropical climates. Additionally, the building practices which have developed in a country to suit its own conditions may not be adequate to compensate for the different characteristics of the imported wood. Technical standards differ substantially between import markets, and even between different regions within a country. The difficulties of meeting standards in a number of export markets can be substantial. Product specifications which have been developed to meet the requirements of one market may not satisfy others, requiring adaptations which may be beyond the abilities of a ?eve loping country, or uneconomic t o provide.

3.4 Customs and administrative entry procedures

(a) Customs Procedur~s

Customs procedures present difficulties and uncertainties which can de ter exporters, particularly smaller firms. At best they may add to the cost of landing the products in the market; at worst be of sufficient difficulty to stop imports altogether. Complaints range from the view that they are unnecessarily complicated, to a belief that they are deliberately used to inhibit imports. Difficulties faced include the complexity of documents, problems in obtaining necessary authorizations, complex inspection procedures, differences in valuation procedures, and physical p roblems in clearing the goods.

(b) Documentation

Documentation may require the stamp of numerous departments or officers, many of whom m~y be difficult to locate, or require repeated proof relating to the products. The physical location of these approving offices may be widely dispersed and their hours of operation limited. In some cases the entry point at which customs services operate may be heavily restricted. Examples exist for European countries where entry procedures constantly change; where only one border post (at an obscure location) is specified for certain products where customs declaration forms are always

- 57 -

in short supply, etc. Measures such as these clearly suggest that the

customs1 urocedures are being deliberately used to restrict the flow ofimports7.

(c) Customs valuation

Customs valuation determines the value of the goods entering thecountry. The assessed value is then ed to calculate customs duties andother taxes and charges at the border . Where differing systems ofvaluation are used by different countries the result can be both confusingand restrictive. Arbitrary and inequitable techniques raise the cost ofthe goods well above domestic levels, thus placing the imported products ata competitive disadvantage. Differences in the stage in the distributionchain at which the valuation is made, and the cost elements included in thevalue can create substantial differences, particularly if part of theassessment is at the discretion of the customs authority. An assessmentbased s? a CIF value clearly results in a much higher duty than one basedon FOB . Again, one based on a government determined reference price maydiffer (either above or below) from one based on a market price. Untilrecently Canadian import duties on forest products (as with all products)were based on the assessed greater of the fair market price, or the sellingprice. Under this system a great deal of uncertainty regarding the value,and hence the duty, payable, existed. As from January 1985 the system waschangedoo basing the import duties on the actual transaction value of theproduct .

The valuation issue is often associated with the tariff classifica-tion of the goods, since this can affect the customs category the productfalls into and hence the duty rate. In particular, with tariff escalationaffecting wood products, classification of a product into a differentcategory can raise the duty payable. Differences in the way the same woodproducts are treated in different countries can often in part be attributedto different classification systems. The predominant system of tarifi/classification is the Customs Cooperation Council Nomenclature (CCCN)

1/ Means of reducing problems of this nature were addressed in the TokyoRound code addressing Import Licensing Procedures.

2/ In addition, licenses and import quotas may be based on the value ofthe goods.

3/ FOB - free on board. This is the value at the point of export.CIF includes the cost of freight and insurance and therefore indicates thecost of landing the product (excluding duty) in the overseas market.

4/ This change resulted from the Customs Valuation Agreement negotiatedunder the Tokyo Round of the MTN.

5/ Formerly known as the Brussels Tariff Nomenclature (BTN).

- 57 -

in short supply, etc. Measures such as these clearly suggest that the ~ustomslyrocedures arc being delibera t ely used to restrict the flow of lmports •

(c) Customs valuation

Customs valuatio n determines the value of the goods entering the country. The assessed value is then 2'~ed to calculate customs duties and other taxes and charges at the border • Where differing systems of valuation are used by different countries the result can be both confusing and restrictive. Arbitrary and inequitable techniques raise the cost of the goods well abolTe domestic lelTels, thus placing the imported products at a competitilTe disadlTantage. Differences in the stage in the distribution chain at which the valuation is made, and the cost elements included in ~he

value can create sllbstantial differences, particularly if part of the assessment is at the discretion of the customs authority. An ass~ssment based ~? a CIF lTalue clearly results in a much higher duty than one based on FOB • Again, one based on a government determined reference price may differ (either above or below) from one based on a market price. Until recently Canadian import duties on forest products (as with all products) were based on the assessed greater of the fair market price, or the selling priCe. Under this system a great deal of uncertainty regarding the value, and hence the duty, payable, existed. As from January 1985 the system was changed4~0 basing the import duties on the actual transaction value of the product •

The valuation issue is often associated with the tariff classification of the goods, since this can affect the customs category the product falls into and hence the duty rate. In particular, with tariff escalation affecting wood products, classification of a product into a different category can raise the duty payable. Differences in the way the same wood products are treated in different countries can often in part be attributed to different classification systems. The predominant system of tarif 51 classification is the Customs Cooperation Council Nomenclature (CCCN) •

II Means of r~ducing problems of this nature were addressed in the Tokyo Round code add ressing Import Licensing Procedures.

~I In addition, licenses and import quotas may be based on the value of the goods.

21 FOB - free on board. This is the value at the point of export. CIF includes the cost of freight and insur ance and therefore indicates the cost of landing the product (excluding duty) in the olTerseas market.

~I This change resulted from the Customs Val uation Agreement negotiated under the Tokyo Round of the MTN.

~I Formerly known as the Brussels Tariff Nomenclature (BTN).

- 58 -

Canada and the USA, two of the major forest producing and exportingcountries, each have their own classifications which differ markedly fromthis system and creates confusion for countries wishing to export to them.It also makes a comparison of duty rates between countries difficult.Disagreement also occurs over the categorization of some products. To

assist in reducing barriers due to differences in customs classifications,international moves have been made to develop a uniform system ofclassification. The Customs Cooperatt?n Council has developed a systemknown as The Harmonized System (U.S.) , which it is hoped will providegreater uniformity between countries. Of special importance to developingcountries is the fact that major varieties of tropical wood have beenidentifi separately under four new CCCN headings covering wood and woodproducts .

3.5 Trade agreements

Agreements between industry organizations or governments in someinstances act as barriers to trade. It is, however, difficult co classifythem as trade barriers since their form and impact may vary greatly,ranging from those which have considerable restrictive effects to thosewhich in fact result in a freeing of trade. The form and scope can rangefrom regional or sub-regional agreements to those within countries. It isalso difficult to distinguish many from normal efforts commercial firmsmake to improve their competitive position. Action on price agreements,volume restraints and bilateral agreements can be seen as normal businesspractices. While they may therefore restrict or distort trade from whatmight be free-trade conditions, they do not fall within che scope of traderestrictions being addressed in this study.

Agreements such as the South-East Asian Lumber Producers Association(SEALPA), which involve voluntary quotas or price conditions, are notgreatly different from similar arrangements Operated at an individualgovernment level, as discussed earlier under quota systems or pricemanagement controls. The primary difference is that they are voluntary, oronly mandatory for members of the organisation. They may involve more thanone country, or only some producers within a country. In fact the SEALPAactivity relating to fixing log export quotas and minimum export prices hasrested largely on the initiative of national organizations or evenindividual governments, rather than SEALPA. Indonesian log export controlsare enforced by government; in the case of Malaysia individual stategovernments have determined the extent of restrictions with the result thatPeninsular Malaysia has almost eliminated log exports, Sabah has some levelof restriction, while Sarawak maintains a policy of encouraging logexports. It is, however, likely that support for controls has beenencouraged by the existence of a regional body whose interests lie inimproving marketing of its members and ensuring these members developgreater market power in their dealings with importers. In the case ofSEALPA, primarily Japan.

1/ Officially called The Harmonized Commodity Description and CodingSystem. It is due to become operative in 1986.

2/ For details see GATT (1983).

- 58 -

Canada and the USA, two of the major forest produci ng and exporting countries, each have their own classifications which differ markedly from this system and creat~s confusion for countries wishing to export to them. It also makes a comparison of duty rates between countries difficult. Disagreement also occurs over the categorization of some products. To assist in reducing barriers due to differences in customs classifications, international moves have been made to develop a uniform system of classification. The Customs Cooperat17n Council has developed a system known as The Harmonized System (H .S.) , which it is hoped will provide greater uniformity between countries. Of special importance to developing countries is the fact that major varieties of tropical wood have been identifiz1 separately under four new CCCN headings covering wood and wood products •

3.5 Trade agreements

Agreements between industry organizations or governments in some instances act as barriers to trade. It is , however, difficult to classify them as trade barriers since their form and impact may vary greatly, ranging from those which have considerable restrictive effects to those which in fact result in a .f reeing of trade. The form and scope can range from regional or sub-regional agreements to those within countries. It is also difficult to distinguish many from normal efforts commercial firms make to improve their competitive position. Action on price agreements, volum~ restraints and bilateral agreements can be seen as normal business practices. While they may therefore restrict or distort trade from what might b~ free-trade conditions, the y do not fall within the scope of trade restrictions being addressed in this study.

Agreements such as the South-East Asian Lumber Producers Association (SEALPA), which involve voluntary quotas or price conditions, are not greatly different fro m similar ar rangements operated at an individual government level, as discussed earlier under quota systems or price management controls . The primary difference is that they are voluntary, or only mandatory for members of the prganisation. They may involve more than one country, or only some producers within a country. tn fact the SEALPA activity relating to fixing log export quotas and minimum export prices has rested largely on the initiative of national organizations or even individual governments, rather than SEALPA. Indonesian log export controls are enforced by government; in the case of Malaysia individual state governments have determined the extent of restrictions with th e n~sult that Peninsular Malaysia has almost eliminated log exports, Sabah has some level of restriction, while Sarawak maintains a policy of encouraging log exports. It is, however, likely that support for controls has been encouraged by the existence of a regional body whose interests lie in improving marketing of " its members and ensuring these me mbers develop greater market power in their dealings with importers. In the case of SEALPA, primarily Japan.

l/ Officially called The Harmonized Commodity Description and Coding System. It is due to become operative in 1986.

'5:../ For details see GATT (1983).

59

Other trade organizations with similar roles influence volumes orprices with varying levels of success in other regions and for other woodproducts. The Asian Panel Products Federation (APPF) sets guide prices forall major consuming markets, while the African Timber Exporters'Association coordinates the policies, including pricing policies, of themajor exporting countries in West and Central Africa.

The primary benefits of such organizations usually lie in their roleas forums for members to discuss problems, share information and developrationalized systems for grading standards, etc. Participants at a meetingof experts on tropical timber marketing in 1983 (UNCTAD, 1983) concludedthat there was little cooperation among the producing countries ofSoutheast Asia and that the activities of exporters' trade associationswere weak when compared with those of importers' trade associations in theconsuming countries. Success through such arrangements depends onconsiderable self-restraint by members, an accepted commonality of purpose,and self-imposed control and discipline. These are generally difficult toachieve among groups with very different interests and problems.

Trade agreements involving governments are much more effective, andconsequently present much greater distortions to trade. While they usuallyreduce barriers to trade between the countries involved, they in turnincrease the barriers faced by ocher suppliers causing trade diversion.The establishment of the EEC has resulted in reduced barriers betweenmember states, but for many products increased barriers (or less-favouredtreatment) to non-member states. For example the Free Trade Agreementsnegotiated betweenlhe EEC and the members of the European Free TradeAssociation (EFTA) , not joining the EEC have resulted in EFTA countries,principally Norway, Finland, and Sweden, moving to duty-free entry to theEEC for all paper and paperboard products. Other suppliers connue toface tariff levels which put them at a competitive disadvantage .

Other examples of trade agreements which reduce the competitivenessof countries not covered by the agreement include the South 7cificRegional Trade and Economic Cooperation Agreement (SPARTECA) , and theLatin America Free Trade Association (LAFTA), arrangements betweenAustralia and New Zealand (Closer Economic ROations Agreement) and thosebetween East European block countries (CMEA) . Some of these arrangements

1/ The agreements resulted from two original members of EFTA, the UnitedKingdom and Denmark, becoming members of the EEC. Current EFTA membersare Norway, Finland, Sweden, Portugal and Austria.

2/ Outside suppliers face levels ranging from 6 to 13%.

3/ This agreement provides special access for some South Pacific Forumnations (Fiji, Nauru, Tonga, Samoa, Cook Islands, Niue, Papua New Guinea,Solomons, Tuvalu, Kiribati and Vanuatu) ro the Australian and New Zealand'markets. Among the products given special treatment are some wood and woodproducts.

4/ Council for Mutual Economic Assistance. Signatory countries areBulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary,Mongolia, Poland, Romania, USSR, Vietnam.

- 59 -

Other trade organizations with similar rol~s influence volumes or prices with varying levels of success in other regions and for other wood products. The Asian Panel Products Federation (APPF) sets guide prices for all major consuming markets, while the African Timber Exporters' Association coordinates the policies, including pricing policies, of the mdjor exporting countries in ~olest and Central Africa.

Th~ primary benefits of such organizations usually lie in their role as forums for memb~rs to discuss problems, share information and develop rationalized systems for grading standards, etc. Participants at a meeting of experts on tropical timber marketing in 1983 (UNCTAD, 1983) concluded that there was little cooperation among the producing countries of Southeast Asia and that the activities of exporters' trade associations were weak when compared with those of importers' trade associations in the consuming countries. Success through such arrangements depends on considerable self-restraint by members, an accepted commonality of purpose, and self-imposed control and discipline. These are generally difficllit to achieve among groups with very different interests and problems.

Trade agreements involving governments are much more effective, ann consequently present much greater distortions to trade. While they usually reduce barriers to trade between the countries involved, they in turn increase the barriers faced by other suppliers causing trade diversion. The establishment of the EEC has resulted in reduced barriers between member states, but for many products increased barriers (or less-favoured treatment) to non-member states. For example the Free Trade Agreements negoti ated betweenl~he EEC and the members of the European Free Trade Association (EFTA) , not joining the EEC have resulted in SFTA countries, prinCipally Norway, Finland, and Sweden, moving to duty-free entry to the EEC for all paper and paperboard products. Other suppliers conztnue to face tariff levels which put them at a competitive disadvantage •

Other examples of trade agreements which reduce the competitiveness of countries not covered by the agreement include the South 37cifiC Regi onal Trade and Economic Cooperation Agreement (SPARTECA) , and the Latin America Free Trade Association (LAFTA), arrangements between Australia and· New Zealand (Closer Economic R~~ations Agreement) and those between East Eu ropean block countries (CMEA) . • Some of these arrangements

l / The agreeme nts resulted from two original members of EFTA, the United Kingdom and Denmark, becoming members of the EEC. Current EFTA members are No rway, Finland, Sweden, Po rtugal and Aus tria.

~/ Outside suppliers face levels ranging from 6 to 13%.

3/ This agreement provides special access for some South Pacific Forum ~ations (Fiji, Nauru, Tonga, .Samoa, Cook Islands, Niue, Papua New Guinea, Solomons, Tuvalu, Kiribati and Vanuatu) to the AuStralian and New Ze~land '

markets . Among the products given special treatment are some wood and wood products .

':!./ Council for Hutual Economic Assistance. Signatory countries are Bulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, USSR, Vietnam.

- 60 -

are likely to have little effect on trade in forest products for a numberof reasons. In some cases the countries involved may have limited forestresources, or the markets in the countries may be small. In others, thecountries may have very similar forest resources, with the result thatlittle trade develops. In yet other situations additional clauses,requirements for inter-industry consultations, etc., may control tradeflows.

In the case of the CER agreement between New Zealand and Australia,trade barriers between the two countries for forest products had previouslybeen emoved or reduced to low levels under an agreement initiated in19651/u

3.6 Ocean freight

Freight problems are one of the most major difficulties facing thoseengaged in international trade in forest products. For a great manycountries transport places a significant restriction on theircompetitiveness. This reflects the fact that the majority of forestproducts which enter international trade are bulky with a low value pershipping unir. Products such as logs, sawn timber, plywood, woodchips andpulp and paper, which make up the greatest share of world trade all havethis characteristic. Additionally, distances between the location of theresource and the export market are often extensive. As a consequence,ocean freight costs make up a significant proportion of the cost of landingthe proiuct in an overseas market. Freight costs can range from 13% to 94%of the FOB cost, depending on the product, the route involved, and the timeof shipping. Typically, however, the range is 15% to 30% (Table 5).

Appendix 2 provides details of a number of aspects of sea freightwhich create difficulties for those shipping forest products. All of thesedifficulties are real and major barriers to international trade, asituation which applies for most countries but particularly for thedeveloping countries. There is little evidence, however, that they are theresult of concerted restrictive practices imposed with the aim of limitingor distorting trade. They reflect natural comparative advantage (ordisadvantage) or commercial decisions made by shipping lines. Certainlythe conditions associated with particular services place exports from thedeveloping countries at a disadvantage with competitors in other locations,but the decisions surrounding the services are predominantly made oncommercial grounds.

There are nevertheless some practices concerning internationalshipping that distort trade patterns and may be classified as non tariffbarriers. In many instances government impose restrictions on the freeoperation of shipping services. Most are intended to assist or protectsome sector of the economy other than the forest sector, but their effectis often to either increase the costs faced by their own exporters, orprovide unintended protection for domestic processors.

1/ New Zealand-Australia Free Trade Agreement (NAFTA). In thisagreement forest products featured as one of the major commodity groups tobe deregulated.

- 60 -

are likely to have little effect on trade in forest products for a number of reasons. In some cases the countries involved may have limited forest resources, or the markets in the countries may be small. In others, the countries may have very similar forest resources, with the result that little trade develops. In yet oth~r situat ions additional clauses, requirements for int~r-industry consultations, etc., may control trane flows.

In the case of the CER agreement between New Zealand and Australia, trade barriers between the two countries for forest products had previously been1yemoved or reduced to low levels under an agreement initiated in 1965 •

3.6 Ocean freight

Freight problems are one of the most major difficulties facing those engaged in international trade in forest products. For a great many countries transport places a significant restriction on their competitiveness. This refl~cts the fact that the majority of forest products which enter international trade are bulky with a low value per shipping unit. Products such as logs, sawn timber, plywood, woodchips and pulp and paper, which make up the gr~atest share of world trade all have this characteristic. Additionally, distances between the location of the resourc~ and the export market are often extensive. As a consequence, OCean freight costs make up a significant proportion of the cost of landi ng the product in an overseas market. Freight costs can range from 13% to 94% of th~ FOB cost, depending on the product, the rOllte involved, and the time of shipping. Typically, however, the range is 15% to 30% (Table 5).

Appendix 2 prOVides details of a number of aspects of sea freight which create difficulties for those shipping forest products. All of these difficulties are real and major barriers to international trade, a situation which applies for most countries but particularly for the developing countries. There is little eVidence , however, that they are the r~sult of concerted restrictive practices imposed with the aim of limiting or distorting trade. They reflect natural comparative advantage (or disadvantage) or commercial decisions made by shipping lines. Certainly the conditions associated with particular services place exports from the developing countries at a disadvantage with competi t ors in other locations, but the decisions surrounding the services are predominantly mad e on commercial grounds.

Th~re are nevertheless some practices concerning international shipping that distort trade patterns and may be classified as non tariff barriers. In many instances government impose restrictions on the free operation of shipping services. Most are intended to assist or protect some sector of the economy other than the forest sector, but their effect is often to either increase the costs faced by their own exporters, or provide unintended protection for domestic processors.

l./ New Zealand-Australia Fre~ Trade Agreement (NAFTA). In this agreement forest products featured as one of the major commodity groups to be deregulated.

-61 -

Table 5 - Ocean freight cost as proportion of product valuea

1/ Shipping conferences are cartels of a number of shipping lines. Thegroup coordinates schedules, services and freight rates, and has thereforeoften been considered to limit competition, and therefore increases freightrates to users.

Product Route Freight as Proportion

FOB CIF

value value

Logs East Africa - Europe Over 50%Indonesia - Japan 20-31 16

New Zealand - Japan 48 32

Plywood Indonesia - Japan 14 12

Malaysia - Japan 13 11

Sawntimber New Zealand - Japan 33 21

New Zealand - Australia 30 25

West Africa - Europe 23-31

South America - Europe 17-94

Papua New Guinea - Europe 79

South East Asia - Europe 17-35South East Asia - USA (West Coast) 15

a/ Proportions reflect specific examples. They should therefore be usedonly as approximations.

Sources: UNIDO (1982 and 1983 e), Takeuchi (1983), Horgan & Theron (1983)

A number of countries have restrictions which force exporters to usedomestically owned shipping lines. The regulations usually seek to protectdomestic shipping companies and/or the jobs of that country's seamen. Thisprotection is only necessary if the domestic shipping industry cannotcompete in a free market- In the Philippines, a law requiring the use ofPhilippine flag carriers for a proportion of export shipmentslyas enactedin 1977 but competition between non conference and conference shippingcreated difficulties for national flag carriers. As a result, the 40%guarantee for national carriers which covered the exports and importsbetween the Philippines and the USA was removed in 1984. In Sabah, a 1982revision to timber license agreements made it compulsory for log exportersto use government nominated shipping lines. Although availability andcoordination of ships were stated as likely co slow the implementation ofthe law (World Wood, Sept. 1983) the goal was to give priority to Sabahowned shipping. Indonesian and Japanese shipping firms attempted to usetheir combined power to share the shipping of timber from Indonesia toJapan. In 1975 shipowners in the two countries reached a trade sharingagreement. However, the Indonesian Government effectively blocked theJapanese lines by denying permits to them, thus giving preference conational carriers. As a result, by 1982 Japanese ships were carrying only18% of the lumber volume. It was reported in 1983 that the controls wereto be relaxed, (World Wood, Sept. 1983).

- 61 -

a Table 5 - Oc~an fr~ight cost as proportion of product value

Product

Logs

Plywood

Sawn timber

Route

East Africa - Europe Indonesia - Japan

N~w Zealand - Japan

Indonesia - Japan Malaysia - Japan

New Zealand - Japan New Zealand - Australia Wes[ Africa - Europe South America - Europe Papua New Guinea - Europe South East Asia - Europe South East Asia - USA (West

Freight as Proportion

FOB CIF value value

Over 50% 20-31 16

48 32

14 12 13 11

33 21 30 25

23-31 17-94

29 17-35

Coast) 15

~I Proportions reflect specific examples. They should therefore be used only as approximations.

Sources: UNIDO (1982 and 1983 e), Takeuchi (1983), Horgan & Theron (1983)

A number of countries have restrictions which force exporters to use domes[ically owned shipping lines. The regulations usually seek to protect domestic shipping companies and/or the jobs of that country's seamen. This protection is only necessary if the domestic shipping industry cannot compete in a free market. In the Philippines, a law requiring the use of Ph ilippine flag carriers for a proportion of export shipments1yas enacted in 1977 but competition between non conference and conference shipping created difficulties for national flag carriers. As a result, the 40% guarantee for · national carriers which covered the exports and imports b~tween the Philippines and the USA was removed in 1984. In Sabah, a 1982 revision to timber' li cense agreements made it compulsory for log exporters to us~ government nominated shipping lines. Although availability and coordination of ships were stated as likely to slow the implementation of the law (World Wood, Sept. 1983) the goal was to give priority to Sabah owned shipping. Indonesian and Japanese shipping firms attempted to use their combined power to share the shipping of timber from Indonesia to Japan. In 1975 shipowners in the two countries reached a trade sharing agreement. However, the Indonesian Government effectively blocked the Japanese lines by denying permits to them, thus giving preference to national carriers. ·As a result, by 1982 Japanese ships were ca(rying only 18% of the lumber volume. It was reported in 1983 that th~ controls w~re to be relaxed, (World Wood, Sept. 1983).

II Shipping conferences are cartels of a number of shipping lines. The group coordinates schedules, services and freight rates, and has therefore often been considered to limit competition. and ther~fore increases freight rates to users.

-62 -

It is difficult to assess the effect of measures such as these onexport shipments. Where the national carriers are less efficient thanalternative lines, costs to the/exporter are no doubt raised. On the otherhand, such moves can have positive effects. They can enable more regularservices, service previously unserviced areas, and also serve to balanceany restrictive practices that importers may engage in. For instance,Japanese importers commonly purchase forest products such as logs ac FOBand arrange shipping themselves. In many cases the FOB price negotiatedwith the supplier is a residual price, that is market levels less allrelevant costs bring the price back to FOB. In this situation shippingcost estimates become important, and where a small number of large buyerswho also own the shipping lines exist, as is the case in Japan, smallersuppliers are at a disadvantage. In these situations the shipping ratescan be manipulated to favour the buyer. Although evidence that thismanipulation occurs is difficult to obtain because of the complexities ofshipping and the variability of rates, it does seem likely that it exists.

Restrictions concerning lines who may carry imports into developingcountries are also common. Many developing countries restrict che carriageof imports, or a proportion of them, to domestically registered ships.Brazil, Colombia, Republic of Korea and the Philippines are examples.

Although the evidence is only fragmentary and inconclusive, there issome evidence to suggest that developing countries may be at a disadvantageon some routes. Members of conference lines, which operate liner servicesto fixed schedules, generally have specified rates with varying surchargesand discounts depending upon custom and circumstances at the time. Theseconferences tend to segment their markets and charge higher prices onroutes where little competition from non conference lines exists, and lowerprices where competition is greater. UNIDO (1983e) suggests that in EastAsia where considerable competition in shipping occurs and where mostshipping lines operate outside the conferences, price competition isstrong, unlike the situation facing exporters in West Africa. Thisdiscrimination appears to be the result of conditions facing the shippingcompany - both competition and the characteristics of the trade involved -rather than a deliberate attempt to influence trade patterns in favour of aparticular country. Nevertheless the final result may in fact be to dothis.

Certainly, however, shipping companies attempt to take advantage ofche situation and increase their profits wherever possible, and developingcountries are usually less able to combat such actions.

A final case of practices which distort trade is that of subsidisednational shipping lines. Since freight is such an important part of themovement of forest products, measures which artificially reduce exportcosts give exporters an unfair advantage over exporters in other countries,enabling them to compete where they would otherwise be uncompetitive.

3.7 Other measures

As indicated by the UNCTAD inventory on non tariff measures (seeAppendix Table 1) a wide array of other measures exist which act, or maypotentially act, as trade barriers. Some encourage domestic production by

- 62 -

It is difficult to assess the effect of measur~s such as these on export shipments. Where the national car ri ers a re less efficient than alternative lines, costs to the/ exporter a re no doubt raised. On the other hand, such moves can have positive effects. They can enable mor e regular services, service previously unserviced areas, and also serve to balance any restricti ve practices that importer s may engage in . For instance, Japanese importers commonly purchase fo r es t products such as logs at FOB and arrange shipping themselves. In man y cases the FOB price negotiated with the supplier is a residual price, that is market l evels less all relevant costs bring the price back to FOB. In this situation shipping cost estimates become important, and where a s mall number of l arge buyers who also own the shipping lines eXist, as is the case in Japan, s maller suppliers are at a disadvantag~. In these situations the shipping rates can be manipulated to favour the buyer. Although evidence t hat this manipulation occurs is difficult to obtain because of the complexities of shipping and the variability of rates, it does seem likely that it exists.

Restrictio ns concerning lines who may carry impor ts into developing countries are also common. Many developing co untries restrict th e carriage of import s , or a proportion of them, t o domest ically reg i stered ships. Brazil, Colo mbia, Republic of Korea and the Philippines are examples.

Although the evidence is only f ragme ntary and inconclusive, there is some evidence to suggest that developing countries may be at a disadvantage on some routes. Members of conference lines, which operat~ l iner services to fixed schedules, gener a lly have specified rates with varying su rcharges and discounts depe nding upon cus t om and circumstances at the time. These conferences tend to segment thei r markets and charge higher prices on routes where little competition from non c onference lines exists, and lower prices where competition is greater. UNIDO (1983e) suggests that i n East Asia whe re considerabl~ competition in shipping occurs and where most shipping lines operate outsid e the conferences, price competition is strong, unlike the situation facing exporters in West Africa. This discrimination a ppears to be the result of condition s facing the shipping company - both competition and the characteri s ti cs of the trade involved -rather than a deliberate attempt to influence trade patterns in favour of a particular country. Neve rtheless the final result may in fact be to do this.

Certainl y , however, shipping companies at tempt to take advantage of the situation and increas e their profits wherever possible, and developing countries are usually less able to combat such actions.

A final case of pr ac tices which distort trad e is that of subsidised national shipping lines . Since freight is such an important part of th~

mov~ment of forest products, measures which artificially reduce export cos ts give expo rters an unfair advantage over expo rters in other countries, enabling them to compete where they would otherwise be uncompetitive.

3.7 Other measu res

As indicated by the UNCTAD inventory on non tariff measureS (see Appendix Table 1) a wide array of other measures exist which act, or may potentially act, as trad e barriers. Some encourage domestic production by

- 63 -

allowing domestic producers to compete domestically where they would nototherwise be able to. Others encourage domestic producers to export.

Production grants, preferential loans and subsidies, tax concessions,research and development funding etc. all can reduce costs of productionbelow levels that would otherwise exist. Export encouragement measures canalso include tax concessions, grants, preferential exchange rates,government-funded marketing and promotional activities etc. These mayreduce costs to the exporter or provide services that exporters wouldotherwise be unable to provide for themselves.

Many countries have goverment policies which encourage forestmanagement or the establishment of commercial plantations. These may rangefrom free advice or enforced management practises to the use of directsubsidies. These policies, if successful, reduce wood production costs andmay thus encourage exports. For example countries such as Chile, Brazil,New Zealand, Fiji and Finland amongst others have developed major exportoriented forest industry on the basis of heavily subsidised plantationforests.

Measures such as these can improve the competitiveness of domesticproducers either directly or indirectly. The measures may or may not,however, be specifically aimed at providing this assistance. Some, such asexport tax concessions or freight subsidies, are clearly targetted atexport encouragement. Others are less clear, and may be for other reasons,but can have substantial effects on trade. In particular productionsubsidies can ensure inefficient domestic industries exist and even grow.These producers can profitably compete against other more efficientproducers both on the domestic and export markets.

It is generally very difficult though to clearly identify themeasures and their impacts. In particular domestic subsidies which canhave a major impact on international competitiveness are often notspecifically linked to particular products. Policies which have no clearassociation with forestry may be of considerable assistance - for examplegeneral freight subsidies, regional development grants and broadmacro-economic policies all have major impacts.

Government polices on the sale of state-owned wood can provideindustry with low-cost resources which enable profitable exports.

No attempt will be made to analyse these barriers any further. It is

important to note though that they exist, and can be of much greaterimportance than many of the barriers already discussed.

Subsidies in particular are of major concern and at the extreme canresult tn large volumes of cheap products being dumped on internationalmarkets I. For forest products government stumpage policies, freightsubsidies, plant construction and modernization grants etc are common inmany countries.

1/ EEC agricultural policies are a prime example of this.

- 63 -

allowing dom~stic producers to compete domestically where they would nut otherwise be able to. Others encourage domestic producers to export.

Production grants, preferential loans and subsidies, tax concessions, research and development funding etc. all can reduce costs of production below levels that would otherwise exist. Export encouragement measureS can also include tax concessions, grants, preferential exchange rates, government-funded marketing and promotional activities etc. These may reduce costs to the exporter or provide services that exporters would otherwise be unable to provide for themselves.

Many countries have goverment policies which encourage forest management or th~ establishment of commercial plantations. These may range fr om free advice or enforced management practises to the use of direct subsidies.. These polic ies, if successf ul, red uc~ wood prod uct ion cos ts and may thus encourage exports. For example countries such as Chile, Brazil, New Zealand, Fiji and Finland amongst others have developed major export oriented forest industry on the basis of he aVily subsidised plantation fares ts.

Measures such as these can improve the competitiveness of domestic producers either directly or indirectly. The measures mayor may not, however , be specifically aimed at providing this assistance. Some, such as export tax concessions or freight subsidies, are clearly targetted at export encouragement. Others are less clear, and may be for other reasons, but can have substantial effects on trade. In part icular production subsidies can ensure inefficient domestic industries exist and even grow. These producers can profitably compete against other more efficient producer s both on the domestic a nd export markets.

It is generally very difficult though to clearly identify the mt:::asures and thef r impacts.. In particular domestic subsidies which can have a major impact on internati ona l competitiveness are often not specifically linked to particular products. Policies which have no clear association with fo restry may be of considerable assistance - for example general freight subsidies, regional development gran ts and broad macro-economi c policies all have major impacts.

Government polices on the sale of state-owned wood can provide industry with low-cost resources which enable profitable exports.

No attempt will be made to ana lyse these barriers any further. It is important to note though that they exist, and can be of much greater importance than many of the barriers already discussed.

Subsidies in particular are of major concern and at the extreme can r esult In large volumes of cheap products being dumped on international markets /. For forest products government stumpage policies, freight subsidies, plant construction and modernization grants etc are common in many countries.

l / EEC agricultural policies are a prime example of this.

- 64 -

Recognition of the need to reduce the impacts of many of thesemeasures has resulted in efforts to provide ground rules on many of thesepolicies at an international level. GATT rules clearly identify some andprovide guidelines which GATT signatories should operate within. Forexample rules governing dumping and subsidies have been addressed in theGATT Code on Subsidies/Countervailing Measures developed in the TokyoRound. While providing useful boundaries the code has only had partialsuccess. The small number of signatories, the difficulty of defining allrelevant conditions, and the restricted ability to enforce the rules hasmeant that the code has only provided limited protection for those affectedby subsidies or dumping.

- 64 -

Recognition of the need to reduce the impacts of many of these measures has resulted in efforts to provide ground rules on many of these polici e s at an international level . GATT rules c learly identify some and provide guidelines which GATT signatories should operate within. For example rule s governing dumping and subsidies have been addressed in the GATT Code on Subsidies / Countervailing Measures developed in the Tokyo Round. While providing useful boundaries the code has only had partial SUCCeSS. The small number of signatories, the difficulty of defining all rele vant conditions, and the restricted ability to enforce the rules has meant that the code has only prOVided limited protection for those affected by subsidi e s or dumping.

- 65 -

IV. MEASURES TO REDUCE BARRIERS

Introduction

In this chapter some of the main actions which have been taken toreduce trade barriers are discussed. The main international and regionalnegotiations that have had an influence are briefly covered, and the extentto which they have been sucessful is analysed. One main trend in barriersreferred to in numerous documents, is the substitution of NTBs for tariffs.As tariff rates have declined, NTBs are believed to have increased. Thischapter addresses this issue for forest proiucts.

International Agreements

2.1 Multilateral Trade Negotiations (MTNs)

A number of tariff cutting rounds of negotiations have taken placeunder the auspices of GATT. The most recent of these, the Tokyo Round wasthe first to address the issue of non-tariff barriers. Explicit inclusionof agriculture, non-tariff barriers and an emphasis on the interests of thedeveloping countries were the main features which distinguished the TokyoRound from previous rounds of negotiations on trade liberalization.

Two results arose from the Tokyo Round - GATT members agreed to aprogramme of tariff reductions, and a set of 'codes' on non-tariff barrierswere developed.

In the case of tariff reductions, countries signing the MTN TariffProtocol agreed to implement a series of reductions which were to becompleted by 1 January 1987. In most cases an agreed timetable of cuts wasestablished and involved a series of equal reductions.

For many forest products the agreed concessions provided substantialreductions; for others, however, no concessions were given. For exampleJapanese tariffs on spruce, pine, fir sawnwood were reduced from 10% to 6%,fibreboard from 22.5% to 6.5%, particle board from 20% to 12%; andnewsprint from 5.5% to 3.9%. On the other hand Japan was unwilling toreduce its tariffs on dressed coniferous sawnwood or coniferous plywood.Hardwood plywood remained unchanged for some sizes, while being reducedfrom 20% to 17% for larger thicknesses. EEC changes included reductionsfrom 5% to 3.8% on coniferous sawnwood, 5% to 4% on dressed sawnwood and13% co 10% on plywood. Newsprint was reduced from 7% to 4.9% and kraftpaper from 8% to 6%. The USA changes included reductions on veneers whichranged from 10% to 4% and 5% to 0%; hardwood and coniferous plywood from20% to 8%; other plywoods from 7.5 to 3% and 20 to 8%.

For many products, therefore, substantial tariff reductions will haveoccurred by 1987; for others, little or no change will have taken place.

Overall for forest products only limited changes will have takenplace because most products were not subject to major tariffs prior to theMTN. Average weighted tariffs on wood products are estimated to fall from3.4% to 1.9% for the USA, 1.4% to 1.0% for the EEC and 1.3% to 0.9% for

- 65 -

IV. MEASURES TO REDUCE BARRIERS

1. Introduction

In this chapter som~ of the main actions which have been taken to reduce trade barriers are discussed. The main international and regional negotiations that have had an influence are briefly covered, and the extent to which they have been sucessful is analysed. One main trend in barriers referred to in numerous doc~ments, is the substitution of NTBs for tariffs. As tariff rates have declined, NT~s are believed to have increased. This chapter addresses this issue for forest products.

2. International Agreements

2.1 Multilateral Trade Negotiations CMTNs) ,

A number of tariff cutting rounds of negotiations have taken place und er the auspices of GATT. The mos t rece nt of these, the Tokyo Round was ~he first to address the issue of non-tariff barriers. Explicit inclusion of agriculture, non-tariff barri~rs and an emphasis on the interests of the developing countries were the main features which distinguished the Tokyo Round from previous rounds of n~gotiations on trade liberali?ation.

Two results arose from the Tokyo Round - GATT members agreed to a programme of tariff reductions, and a set of 'codes' on non-tariff barriers wer" developed.

In the case of tariff reductions, ~ountries signing the MTN Tariff Protocol agreed to implement a series of reductions which were to be completed by 1 January 1987. In most cases an agreed timetable of cuts was establi shed and involved a series of equal reductions.

For many forest products the agreed concessions provid"d substantial reductions; for others, however, no concessions were given. For example Japanese tariffs on spruce, pine, fir sawnwood were reduced from 10% to 6%, fibreboard from 22.5% to 6.5%, particle board from 20% to 12%; and newsprint from 5.5% to 3.9%. On the other hand Japan was unwilling to r educe its tariffs on dressed coniferous sawn.wood or coniferous ply wood. Hardwood plywood remained unchanged for some sizes, while being reduced from 20% to 17% for larger thicknesses. EEC changes included reductions from 5% to 3.8% on coniferous sawnwood, 5% to 4% on dressed sawnwood and 13% to 10% on plywood. Newsprint was reduced from 7% to 4.9% and kraft paper from 8% to 6%. The USA changes included reductions on veneers which ranged from 10% to 4% and 5% to 0%; hardwood and coniferous plywood from 20% to 8%; other plywoods from 7.5 to 3% and 20 to 8%.

For many products, therefore, substantial tariff reductions will have occurred by \987; for others, little or no change will have taken place.

Overall for forest products only limited changes will have .taken place because most products were not subject to major tariEfs prior to the MTN. Average weighted tariffs on wood products are estimated to fall from 3.4% to 1.9% for the USA, 1.4% to 1.0% for the EEC and \.3% to 0.9% for

-66 -

eight other markets. Those for paper and paperboard to fall from 0.5% to0.2% (USA), 4.5% to 4.2% (EEC) and from 7.4% to 4.9% (eight other markets)(Olechowski and Yeats, 1982). The benefits to the developing countries ofthe MTN tariff reductions alone, while useful in some cases, will belimited.

In addition to agreed tariff reductions, negotiations took place ona wide range of non-tariff barriers. These took two forms. Firstlymultilateral agreements on codes of conduct sought to increase the clarityand precision of GATT provisions and to ensure more consistent applicationof them. Secondly, requests were considered on the removal of specificbarriers.

Codes were negotiated on the following:

Subsidies/Countervailing Measures

Technical Barriers

(e) Customs Valuation

Government Procurement

Import Licensing Procedures1/

These have provided general guidelines and procedures to be followed,but because of the 'vagueness' of many of their aspects, appear to beof only general value in reducing non-tariff barriers. Many countries givelittle pretense of following GATT rules when they wish to take certainactions; in many situations strict enforcement is difficult, lengthy oreven impossible; and finally many non-tariff barriers are not controlled byGATT regulations (for example Voluntary Export Restraints and otherquantitative restrictions).

These codes therefore appear to be of general usefulness butunlikely to have been of any major significance in reducing trade barriers.One benefit is that they have clearly directed attention to some areaswhere non-tariff barriers are a problem, even though they have not beenable co solve the problems concerned.

2.2 Generalised System of Preferences (GSP)

Under the UNCTAD GSP scheme many developed countries provide specialtariff rates CO developing countries. These rates are lower than applyunder the MFN classifications. Duty-free or special rates are provided codeveloping countries on products specified by the donor country.

Under this scheme substantial gains have been possible for a numberof products. However the effectiveness of the scheme has been considerablyreduced by limitations or exclusions that apply. Concessions are providedby Individual donor countries who specify the products involved, the

1/ Useful summaries of the codes may be found in a series of bookletspublished by the US Department of Commerce.

- 66 -

eight other markets. Those for paper and paperboard to falL from 0.5% to 0.2% (USA), 4.5% to 4.2% (EEe) and from 7.4% to 4.8% (eight other markets) (Oiechowski and Yeats, 1982). The benefits to the developing countries of the MTN tariff reductions alone, while useful in some cases, will be limited.

In addition to agreed tariff reductions, n~gotiations took place on a wide range of non-tariff barriers. These took two forms. Firstly multilateral agre~ments on codes of conduct sought to increas~ the clarity and precision of GATT provisions and to ensure more consistent application of them. Secondly, requests were considered on the removal of specific barriers.

Codes were negotiated on the following:

(a) Subsidies/Countervailing Measures

(b) Technical Barriers

(c) Customs Valuation

(d) Government Procurement

(e) Import Licensing Procedures 1/

These have provided general guidelines and procedures to be followed, but because of the 'vagueness' of many of their aspects, appear to be of only general value in reducing non-tariff barriers. Many countries give little pretense of following GATT rules when they wish to take certain actions; in many situations strict enforcement is difficult, lengthy or even impossible; and finally many non-tariff barri~rs are not controlled by GATT regulations (for example Voluntary Export Restraints and other quantitative restrictions).

These codes therefore appear to be of general usefulness but unlikely to have been of any major significance in redUCing trade barriers. One benefit is that they have clearly directed attention to some areas where non-tariff barriers are a problem, even though they have not been able to solve the problems concernerl.

2.2 Generalised System of Preferences (GSP)

U~ e r the UNCTAD GSP scheme many developed countries provide special tariff rates to developing countries. These rates are lower than apply under the MFN classifications. Duty-free or special rates are provided to developing countries on products specified by the donor country.

Under this scheme substantial gains have been possible for a number of products. However the effectiveness of the scheme has been conSiderably reduced by limitations or excl usions that apply. Concessions are provided by individual donor countries who specify the products involved, the

l/ Useful summaries of the codes may be found in a series of booklets published by the US Department of Commerce.

- 67 -

countries the preferences apply to, and other limitations that apply. In a

number of cases products of special interest to the developing countriesare excluded (e.g. plywood in Japan), the level of trade may be controlledby ceiling volumes or values (e.g. plywood and carpentry and joineryproducts in the EEC), or market share restrictions may apply (e.g. amongstproducts into Japan and the USA).

Only a proportion of imports eligible for GSP treatment actuallyutilise them because of these restrictions, a lack of knowledge, controlson the timing of entry or similar factors. Wood products are among thoseproducts considered to be most hindered by limitations on the GSP schemesin the EEC, the USA and Japan (UNCTAD, 1979).

In 1981/82 only 37.5% of industrial products (includes forestproducts) eligible for GSP treatment utilised the scheme in the rEC,64.1%in -Japan, 48.5% in the USA, and 97.7% in Australia (UNCTAD,1984b).

An indication of the limited influence of some GSP schemes is givenby an International Trade Commission analyses of the USA scheme (ITC,1983).This reported that although GSP forest product imports totalled $349million in 1981, they only represented 3.6% of total forest productsimports, and that this share had grown little since 1978. The ratio forspecific product areas included 37% of total imports for miscellaneous woodmanufactures, 34% of millwork, 8% of plywood and building boards, 6% ofindustrial papers and packaging, and 0.2% of lumber. In total only 15% offorest product imports entered under classifications which were eligiblefor GSP treatment. The report concluded "GSP imports have not resulted insignificant increases in the overall import market share of any commodity/import group in forest products sector." This was influenced by the factthat "... many product areas within this sector are not eligible for GSPduty-free treatment."

Overall the GSP scheme has had an important effect for many forestproducts, providing developing countries with tariff advantages over othersuppliers. The potential benefits of the scheme have, however, beenconsiderably reduced in many countries by various limitations andrestrictions on products of special interest to the developing countries.A reduction of many of the restrictions, and the inclusion of many productscurrently excluded from the schemes of a number of countries, would greatlyenhance the value of the GSP.

One issue regularly raised in international discussions is whetherdeveloping countries should press for a general reduction in MFN rates, orfor improved GSP treatment. Lower MFN rates would encourage additionaltrade for all exporters including the developing countries, while the lossof GSP preferential margins would result in a degree of trade diversionfrom the developing countries. One view presented is that because GSPpreferences are not permanent and can be removed, modified, or subject tovarious exclusions, LDC's would achieve more security by pressing forfurther MFN cuts. The counter-view is that concentration on MFN cuts willeventually result in developing countries ceasing to have any preferenceover developed countries.

- 67 -

countries the preferences apply to, and other limitations that apply a In a number of cases products of special interest to the deve loping countries are ~xcluded (e.g. plywood in Japan), the level of trade may be controlled by ceiling volumes or values (e.g. plywood and carpentry and joi nery products in the EEC), or market share restrictions may apply (e.g. amongst products into Japan and the USA).

Only a proportion of imports eligible for GSP treatment actually utilis e the m because of these restrictions, a lack of knowledge, controls on the timing of entry or similar factors. Wood products are among those products considered to b~ most hindered by limitations on the GSP schemes in the EEC, the USA and Japan (UNCTAD, 1979).

In 1981/82 only 37.5% of industri al products (includes forest products) eligible for GSP tr~atment utilised the scheme in the ~EC,64.1% in -Japan, 48.5% in the USA , and 97.7% in Australia (UNCTAD,1984b).

An indication of the limiterl influence of some GSP schemes is given by an International Trade Commission analyses of the USA scheme (lTC,1983). This reported that although GSP forest product imports totalled $349 million in 1981, they only represented 1.6% of total forest products imports, and that this share had grown little since 1978. The ratio for specific product areas included 37% of total imports for miscellaneous wood manufactures, 34% of millwork, 8% of plywood and building boards, 6% of industrial papers and packaging, and 0.2% of lumber. In total only 15% of forest product imports entered under classifications which were eligible for GSP treatment. The report concluded "GSP imports have not resulted in significant increases in the ov~rall import market share of any commodity! import group in forest products sector." This was influenced by the fact that " ••• many product areas within this sector are not eligible for GSP duty-free treatment."

Overall th~ GSP scheme has had an important effect for many forest prOducts, providing developing countries with ta riff advantages ove r other suppliers. The potential benefits of the scheme have, however, been considerably reduced in many countries by various limitations and restrictions on products of special interest to the developing countries. A reduction of many of the restrictions, ann the inclusion of many products currently excluded from the schemes of a number of countries, would greatly enhance the value of the GSP.

One issue regularly raised in i nternational discussions is whether developing countries should press for a general reduction in MFN rates, or for improved GSP treatment. Lower MFN rates would encourage additional trade for all exporters including the developing countries, while the loss of GSP preferential margins would result in a degree of trade diversion from the developing countries. One view presented is that because GSP preferences are not permanent and can be removed, modified, or subject to various exclusions, LOC's would achieve more security by pressing for further MFN cuts. The counter-view is that conce ntration on MFN cuts will eventually result in developing countries ceasing to have any preference over developed countries.

-68 -

Most research studies that have considered this issue have concludedthat developing countries would gain more from MFN cuts than they wouldlose through the erosion of GSP tariff margins1/. These conclusions relateto overall gains and losses, assuming certain specified levels of reductionfor all products. The conclusion therefore indicates large net gains whichreflect different situations for different individual products.

This conclusion may or may not also apply when individual productgroups or individual countries are considered. Thus while developingcountries may benefit in total from concerted efforts to further reduce MFNrates, for forest products as a group the conclusion is less certain.Similarly, some individual countries may gain while others lose. As

already indicated tariffs on most forest products have reached relativelylow levels. Further MFN reductions would in these cases provide relativelyminor gains.

There is obviously no clearcur answer to which would be best. Theanswer rests on which countries are being considered, what MFN cuts mightoccur, how much improvement could be made to the GSP system, and whetherthe interests of the forestry sector alone are considered. Developingcountries are not a homogenous group and nor are the interests of onesector necessarily the same as those of other sectors in the same country.

3. Bilateral and Regional Argreements

A number of bilateral or regional preference schemes also exist, andwere discussed in some detail in Chapter III. Many include forestproducts, but actual trade flows are often relatively limited because thecountries involved have similar characteristics, including resourceendowments. For instance, most of che countries in the ASEAN region haveextensive forest resources and do not engage in trade in forest products coany extent between themselves.

Informal agreement involving associations of producers, such asSEALPA, have provided a forum for discussing trade barriers facing theirmembers, and for limited efforts to have these reduced. On the other hand,they have also stimulated and encouraged an increase in export controls bytheir members.

An increasing trend is the use of bilateral and regional agreementswhich provide special preferences CO a limited number of recipients. Suchschemes, which are developed outside GATT and therefore circumvent manyGATT regulations, have been viewed with increasing concern by manycountries. While providing expanded benefits to some countries they createincreasing barriers to those not eligible for the preferences. Theytherefore have important potential implications for trade patterns.

1/ Baldwin and Murray (1977), Sapir and Baldwin (1983) Cline et al(1978) for example.

- 68 -

Most research studi~s that have considered this issue have concluded that developing countries would gain more froml~FN cuts than they would lose through the erosion of GSP tariff margins • These conclusions relate to overall gains and losses, assuming certain specified levels of reduction for all products. The conclusion therefore indicates large net gains which reflect different situations for different individual products.

This conclusion mayor may not also apply when individual product groups or individual countries are considered. Thus while developing countries may benefit in t otal from concerted efforts to further reduce MFN rates, for forest products as a group the conclusion is less certain. Similarly, some individual countries may gain while others lose. As already indicated tariffs on most forest products have reached relatively low levels. Further MFN reductions would in these cases provide relati vely minor gains.

There is obviously no clearcut answer to which would be best. T~e

answer rests on which countries are being considered, what MFN Cllts might occur, how much improvement could be made to the GSP system, and whether the interests of the forestry sector alo ne are considered. Developing countries are not a homogenous group and nor are the interests of one sector necessarily the same as those of other sectors in the same country.

3. Bilateral and Regional Argreements

A number of bilateral or regional preference schemeS also exist, and were discussed in some detail in Chapter III. Many include forest products, but actual trade flows are often relatively limited because the countries involved have similar characteristics, including resource endowments. For instance, most of the countries in the ASEAN region have extensive forest resources and do not engage in trade in forest products to any extent between themselves.

Informal agreement involving associations of producers, such as SEALPA, hav~ prOVided a forum for discussing trade barri~rs facing their members, and for limited efforts to have these reduced. On the other hand, they have also stimulated and encouraged an increase in export controls by their members.

An increasing trend is the use of bilate ral and regional agreements which provide special preferences to a limited number of recipients. Such sch~mes, which are developed outside GATT and therefore circumvent many GATT regulations, have been viewed with increasing concern by many countries. While providing expanded benefits to some countries they create increasing barriers to ~hose not eligible for the preferences. They ther~fore have important potential implications for trade patterns.

1/ Baldwin and Murray (1977), Sapir and Baldwin ( l983) Cline et al (1978) for example.


Tariff barriers, and hence the degree of control and protection givenby them, have declined over the past thirty years, with greatest progressbeing made since 1979 when the Tokyo Round concluded.

This is indicated by average trade weighted rates which will apply by1987 when countries make the final bound Levels available. Average rateswill have reached zero for wood in the rough; 1.7% for primary woodproducts; and 5.7% for secondary wood products. Rates on pulp and paperwill also have reached low levels (UNIDO, 1983d).

Although tarifE rates are generally relatively low, they are stillrelatively high for a. number of products in specific developed countrymarkets. While the situation varies considerably, the main productsaffected are plywood, some size and species of sawnwood, reconstitutedpanels, and some wood manufactures. Additionally, some paper and paperproducts have moderately high rates, although since few developingcountries have important pulp and paper industries, these are of onlypassing interest.

Special preference schemes reduce the impact of MFN rates and in manycases reduce the rates faced by developing countries to zero. However, forsome products of special importance to developing countries - particularlycertain sizes and species of sawnwood, plywood, some reconstituted panels,wood manufactures and in some situations, furniture - they are restrictedby a range of exclusions or non-tariff barriers.

Tariffs on forest products are likely to continue to decline in thefuture, although races on some products in some markets will continue to berelatively high.

4.2 Growth in the use of NTBs

A number of studies on protectionism have presented the view thatchere is a growing [rend towards the substitution of NTBs for tariffcontrols1/. The broad conclusion is that as tariff protection hasdeclined, countries are increasingly resorting to NTBs to provideprotection for domestic producers. This view applies in particular toagricultural products, but textiles and clothing, footwear and automobilesare additional important exmples. The problems of quantitatively assessingthe use of NTBs makes ic difficult to verify the change in emphasis ofprotectionist measures, but statements on individual countries andcommodities tends to provide evidence.

-69 -

4. Trends in Barriers

1/ The problem is discussed in a number of general reports. Aparticularly comprehensive discussion on the issue of protectionism isfound in UNCTAD (1983a). Other documents which discuss the growing use ofNTBs include FAO (1980), FAO (1983c) and UNCTAD (1979).

- 69 -

4. Trends in Barriers


Tariff barriers, and h~nce the degree of control and protection given by them, hav~ declined OVer the past thirty years, with greatest progress being mad~ since 1979 when the Tokyo Round concluded.

This is indicated by average trRde weighted rates which will apply by 1987 when countries make the final bound levels available. Average rates will have reached zero for wood in the rough; 1.7% for primary wood products; and 5.7% for secondary wood products. Rates on pulp and paper will also have reached low levels (UNIDO, 1983d).

Although tariff rates are gen~rally relatively low, they are still relatively high for d number of products in specific dev~loped country markets. While the situation varies considerably, the main products affected are plywood, some size and species of sawnwood, reconstituted panels, and some wood manufactures. Additionally, some paper and paper products have morl~rately high rates, although since few developing countries have important pulp and paper industries, these are of only passing interest.

Special preference schemes reduce the impact of MFN rates and in many cases reduce the rates faced by developing countries to zero. However, for some products of special importance to developing countries - particularly certain sizes and species of sawnwood, plywood, some reconstituted panels, wood manufactures and in some situations, furniture - they are restricted by a range of exclusions or non-tariff barriers.

Tariffs on forest products are likely to continue to decline in the future, although rates on some products in some markets will continue to be relatively high.

4.2 Growth in the us~ of NTBs

A number of studies on protectionism have presented the view that th~re iS l ? growing trend towards the substitution of NTBs for tariff controls • The broad conclusion is that as tariff protection has declined, countries are increasingly resorting to NTBs to provide protection for dom~stic producers. This view applies in particular to agricultural products, but textiles and clothing, footwear and automobiles are additional important exmples. The problems of quantitatively assessing th~ use of NTBs makes it difficult to verify th~ change in emphasis of protectionist measures, but statements on individual countries and commodities tends to provide evidence.

II The problem is discussed in a number of general reports. A particularly comprehensive discussion on the issue of protectionism is found in UNCTAD (1983a). Other documents which discuss the growing use of NTBs include FAO (1980), FAO (1983c) and UNCTAD (lq79).

- 70 -

In the case of forest products information is available on thepresent use of NTBs. Factual information on whether or not their use hasexpanded in recent years is more difficult to obtain for a number ofreasons. It is difficult to actually identify individual barriers. Muchdepends on the way in which many are administered; there is no definitivelist of what should be considered an NTB; and part of the appeal of usingNTBs is their lack of visibility. Further, the UNCTAD and GATT inventoriesof NTBs are relatively recent developments. There is therefore no similarinformation available which relates to, say, the early or mid-1970s whichmay serve as a point of comparison. And finally, the difficulties ofquantitatively evaluating the measures in such an inventory aresubstantial.

For these reasons it has been necessary to rely on a general reviewof selected individual countries in an attempt to determine whether or notthose NTBs which currently exist are relatively new, or have been in placeEor a long period of time.

Table 1 provides a summary of some of the main barriers (other thantariffs) that have affected forest products over the past twenty years.Although selective this listing does provide a general indication ofwhether or not NTBs have been increasing.

Points to come out of the table are:

most quantitative import restrictions have been in place forabout 10 years or less.

quantitative import controls are most common in the EEC and anumber of developing countries. Many schemes only becomeeffective when specified import volumes have been exceeded.

Their use appears to have grown in the early-mid 1970s, but tohave changed little since that time. It is relevant to notethough, that the volumes able to be imported have shown littlegrowth despite considerable increases in domestic consumption inthe particular markets concerned.

(e) Increasing use has been made of official complaint procedureswhich result in formal anti-dumping or countervailing dutyprocedures.

Their prevalence is mainly restricted co a small number ofcountries which have formal legal provisions and procedures andwhich have an administrative structure for enforcement. The EECand the USA have made greatest use of such procedures.

(d) Export controls on volumes or prices have been in place in manycountries for 10-15 years but the commitment to them hasincreased greatly in the last 5 years. Although many countriesmade half-hearted efforts at restricting logs and some timbers inthe early-1970s, a full commitment has only been apparent inrecent years. On the ocher, hand Latin American countries havegenerally maintained their restrictions, with Chile and Brazilbeing exceptions by removing their log bans.

- 70 -

In the cas~ of forest products information is available on the present use of NTBs. Factual infor mation on whether or not their USe has expanded in reCent. years is mort: difficult to obtain for a number of reasons. It is difficult to actually identify individual barriers. Much depends on the way in which many are administered: there is no definitive list of what should be consid~rerl an NTB; and part of the appeal of using NTBs is their lack of visibility. Further, the UNCTAD and GATT inventories of NTBs are relatively recent developments. There is t heref ore no similar information available which relates to, say, the early or mid-1970s which may s"rve as a point of comparison. And finally, the difficul ties of quantitatively evaluating the measures in such an inventory are substantial.

For these reasons it has been necessary to rely on a general review of sel~cted individual countries in an attempt to determine whether or not those NTBs which curr~ntly exist are relatively new, or have been in place for a long period of time.

Table 1 provides a summary of some of the main barriers (other than tariffs) that have affected forest products over the past twenty years. Although selective this listing does provid~ a general indication of whether or not NTBs have been increaSing.

Points to come out of the table are:

(a) most quantitative import restrictions have been in place for about 10 years or less.

(b) quantitative import controls are most common in the EEC and a number of developing countries. Many schemes only become effective when specified import volumes have been exceeded.

Their use appears to have grown in the ea rly-mid 19705, but to have changed little since that time. It is relevant to note though , that the volumes ·able to be imported have shown little growth despite considerable increases in domestic consumption in the particular markets concerned.

(c) Increasing use has been made of official complaint procedures which result in formal anti-dumping or countervailing duty procedures.

Their prevalence is mainly restricted to a small number of countries which have formal legal provisions and procedures and which have aQ administrati ve structure for enforcement. The EEC and the USA have made greatest use of such procedures.

(d) Export controls on volumes o r prices have been in place in many countries for 10-15 years but th~ commitment to th~m has increased greatly in the last 5 years. Although many countries made half-hearted efforts at re st ri ct ing logs and some timbers in the early-1970s, a full commitment has only been apparent in recent years. On the other, hand Latin American countries have gen~rally maintained their restrictions, with Chile and Brazil being exceptions by removing their log bans.

TABLE 1: DESCRIPTION OF SELECTEDNON-TARIFF BARRIERS USED BY SPEC/FIED COUNTRIES FOR FOREST PRODUCTS

EECTariff quota

Tariff quota

Tariff quota

Tariff quota

Quota (France)

Quota (France)

Voluntary exportprice restraint

Anti-dumpinginvestigation

Productstandards

Productdefinitions

Price'inveetigation

USA .

Anti-dumpinginvestigations

Countervailinginvestigation

Export controls Logs

Product standards

Product standards

OTHER COUNTRIESQuota

Quota

Quote

Prohibition

Export controls

Anti-dumpinginvestigations

ariff c,uote

Product

JAPANVoluntary export Logs andrestrictions canta

Product standards Plywood

Appliesto:

Logs and All importa 1981Sawn tiMber

Kraft pulp

Pulp

Plywood

SoftwoodSawn timber

All imports

36 namedcountries

Japan

Canada

USA

All imports

Yearinitiated

1981

1975.

1982

All countries 1978

1976

- 71 -

Changes sinceintroduction

Modified 1985

Unchanged

Extended for year

Requirementsincreased

Continuing

Ruling 1985

1976

Completed 1983

Continuing

Removed

NOTE: The above list is not all inclusive. Numerous other barriers also apply.

SGURCE: Official dncuments.

Comments

EFTA countries exempt from quota from1984. Additional quantities added tobasic quota throughout quota periods

Separate scheme hardwood and softwood.Little growth in quota level

Temporary quota to allow disposal ofwind damaged resource

Usually limited periods involved.Some resulted in imposition of duties

Involved oak wilt disease. USA dis-agreement on W. Germany standards onpreservation

Dispute between USA and EEC

Charge of price-fixing over period%1973-81

Duties applied

No duties applied

Disagreement with USA over standards

NZ disagreement Over treatment ofP. radiate in standards

Disagreement over inspection require-ments, strength classifications,testing methods etc.

Applied by Norway

Applied by Norway

Commonly applies in many developingcountries

Applies in some developing countries(eg Nigeria, Tunisia, Columbia,Pakistan)

Applied to varying degree by developingcountries :.1g, Indonesia, Malaysia,Philippines, South American countries

Australian investigations.Duties imposed. Australian investigationsAustrelign investigationsPrice and volume restraents Imposed byAustralia, lvS3Australian investigations

All imports 1969

All imports 1973

All imports 1977

All imports 1983.

E. Europeancountries

No. countries 1980-1983

No. countries 1977-pres. Proceedings generallyof 1-2 year duration

P. radiata All radiate Revised 1981Sawn timber imports

Various All imports 1970s and Revisions throughout1980s period

Various Taiwan 1983

Various No. E. European 1978 Removed 1983countries

Various Most imports

Various Most imports

Mainly wood All countries 1970s Application tightenedin rough esp. from 1979logs

Plywood New Zealand 1982 Completed 1983Sawn timber Sweden 1983 Completed 1984Peper No. countries 1979-19E3 Completed 1990-1964Eawn New Zealand 1982 Withdrawn 1965Plywood All imports 1960 Removed 1963

Licensing import Various Various Most countries have this requiretent.authorisationetc. required

Newsprint

Paper Spaperboard

Plywood

Mouldings

SoftwoodSawn timber

Various

Various

VariouS

- 71 -

TABLE I: DESCRIPTION OF S1::LEC7Cn NON-TARIFF BAFlRI!:rtS US£!) BY SPEClnEO COUNTRl!:S FOR FOREST PRODUCTS

Ett Tariff quota

Tuiff quota

Tariff qu"ta .

T<!Iriff quo~a

Quota !F:u,Jlc.)

Quota (France)

Vol untary expor~ priCli restraint

Anti-dWllpinq inv •• ti'lation

'Product. definition.

Price · irw •• ti9a t'ion ... inti-dumping inv.stigations

Countervailing inv •• t1qa tion

Export controls

JAPAN VOi"Un"u.ry export r •• t:ricticns

Product standard.

Product standards

Product: st.~fLdardl

O'l't4ER COlmTRI£S Quo,"

Quo,",

Prohibitl.on

txp.>rt controls

Ant':'-dumpir.q investlt;iltlOns

LicellsiOCj ir.Ipo!"t louthol:i$atlon Ikte. requir~d

Product

Uewsprint

Paper , paperboard

Plywood

Mouldings

Softwood Sawn timber

Various

Various

Log. and Sawn timber

kraft pulp

Pulp

Plywood

Softwood Salom timber

Logs and eants

Plywood

P. radiata Sawn timber

V<1rious

various

Various

Variou5

Various

Mainly wc..od in rough esp. loq.

I'l)"Wood S<1lo>n tir.lb~r,

i-lywoo:!

Vacl.ous

Applief: to:

All import.s

'" imports

All imp,;lrts

All imports

E. European countries

No. countries

No. countries

All illlport.

All imports

36 n&lIIed countrie5

Japan

Canada.

All countries

us.

All imports

1..11 radiata inports

All i:nport.

Taiwan

Year initiated

1!;69

1973

1977

19B3

1980-1983

1977-pres .

1981

1981

1975 ,

1982

1978

1976

1970. and 19805

1983

No. E. European 1978 cOl.<ntries

~iost. i1I'Iports

~lost imports

All countries

Ne .... Zealand S .. ede n !,~. C"oul1t::"ies Ne;.; Z~alil.nd

"-21 imports

various

19708

1982 1~83

1979-19E3 1S18: 1<;'60

Changes since introduction

Modified 1995

Extended for year

Proceedings generally of 1-2 year duration

R~irUients

inere.t.s.d

Continuing

Ruling 1985

1976

Complete6 1983

Continuing

Removed

Revised 1981

Revisions ~~rcu9hout period

Removed 1983

~pplication tightened from 1979

Completed 1983 Co:npl eted 19!:14 Complete~ 1990-19S~

Withdr<1""n 1<)65 Re~vE:d 1963

NOTE; ~e above list is not all int::lI.:sive . NUlI'Ierous other barriers also apply.

SCURCE: Of fJ c1al d~cu~en t s,

Comments

EFTJ. count ries ey.e.mpt froll< q;Jou. frOCl 1984. Adcitional quantities added to

basic quota throughout quota peeiods

Separate scheme hardwood and softwood . Little growth in quota level

Temporary quota. to allow dis..,osill of wind d~ged resource

Usually limited period. involved. Some result.d in imposition of duties

Involv.d oak wilt di •••••. USA di.agreement on \of. Ge%1llany su.ndard. on preservation

Pi.pute b.tw~.n USA And EEC

Charge of pric.-fixing over period' 1973-81

Duti ••• ppli.d

No duties a.pplied

Diugreement wi tli USA over sUlr.&rds

NZ disagrel!ml!!nt over treat:ment of ' P. radiata in standards

Disa9re~nt over inspection require=ent5, strength cla.ssifica.tions, testing methods etc.

~pplied by No~a.y

Appl ied by !Iororay

Commonly applies in =an~ developin9 countrie:=;:

Applie. in some developing countries (09 Nigeria, TUni~ia., Columbia., Pakhtan)

Applied to varying degree by deve loping countries :,g Indonesia., Ma.laysia, Philippines, South ' American countries

J.ustralian investi9ation~ ,

Duties imposed. Australiar, in\'es~ili<1 tl or,S

~':-l~~,,~~,!n .. ·M~.~ti.'it~l~~~~ts l.ustr"lib, 1"1&:! Austrul i<1r. investi<]<1tl.c..ns

Mo!:t countries h.lve this reC;Uin';T .. ~nt..

- 72 -

These restrictions range from formal limitations controlled bygovernments, to more informal agreements between members ofregional or product associations such as, for example, SEALPA.

Product standards for health and safety are common. The extentto which they are developed and used specifically to limitimports is, however, difficult to determine. There is evidenceto suggest they are widely used and that it requires effort on acase-by-case basis to have them modified. Only instances wherelong-standing disputes between countries have existed have beenlisted in table 1.

It is difficult to determine whether or not the use of importlicensing or import inspection procedares to restrict imports hasbecome more prevalent. Many countries have had such practices inplace for long periods. However, even without a change in theirprevalance it is possible to increase their restrictiveness,since the manner in which they are operated can easily change.

The above analysis suggests that a definite statement on anychange is difficult to make. informal comments made by tradepolicy officials, individual exporters and trade associations dotend to suggest increasing difficulty in coping with theseprocedures.

Overall it would appear that NTBs have become more prevalent in totalin the last 15 years. Some barriers have increased while others havedecreased. There is little clearcut evidence that they have changedgreatly, however, in the last six years, the point at which the last GATTmultilateral trade negotiations were concluded.

In the case of individual barriers there has been increased use ofanti-dumping and countervailing procedures, and isolated instances ofvoluntary agreements on volumes or prices. Products standards andadministrative procedures such as import licensing, inspection proceduresand technical and health regulations have become an increasing problem,although it is difficult to 'prove' this assertion. Certainly exportcontrols on logs and sawn timber have increased in recent years. Althoughthe number of instances where these are used has not necessarily grown, thecommitment to these controls and che volume of trade they affect hasexpanded considerably.

What is clear is that the current range of NTBs is extensive. No onetype of barrier is, by itself, clearly of major concern. This in partreflects one of the attractions of NTBs - that they offer the countryconsiderable flexibility in controlling trade. A further point of concernis that NTBs can be combined, so that any particular product can be subjectto a number of different barriers, the net effect being to create asignificant barrier to trade.

A subjective assessment of the trend in the main barriers is given inTable 2.

- 72 -

These restrictions range from formal limitations controlled by governments, to more informal agreements between members of regional or product associations such as, for example, SEALPA.

(e) Product standards for health and safety are c ommon. The extent to which they are developed and used specifically to limit imports is, howev~r, difficult to determine. There is evidence to suggest they ar~ widely used and that it requires effort on a case-by - case basis to have them modified. Only ins tances where long- standing disputes between countries have existed have been listed in table 1.

(f) It is difficult to determine whether or not the use of import licensing or import inspection procedures to restrict imports has become more prevalent. Many countries have had such practices in place for long periods. However, even without a change in their pre valance it is possible to increase their restrictiveness, since the manner in which they ar~ op~rated can easily change.

The above analysis suggests that a definite statement on any change is difficult to make. Informal comments made by trade policy offiCials, individual exporters and trade associations do tend to suggest increasing difficulty in coping with these proced ures.

Overall it would appear that NTBs have become more prevalent in total in the last 15 years. Some barriers have increased while others have decreased. There is little clearcut evidence that they have changed greatly, however, in the last six years, the point at which the last GATT multilateral trade negotiations were concluded.

In the case of individual barriers there has been increased use of anti-dumping and countervailing procedures, and isolated instances of voluntary agreements on volumes or prices. Products standards and administrative procedures such as import licensing, inspection procedures and technical and health regulations have become an increasing problem, although it is difficult to 'prove' this assertion. Certainly export controls on logs and sawn timber have increased in recent years. Although t h e number of instances where these are used has not necessarily grown, the commitment to these controls and the volume of trade they affect has expanded considerably.

What is clear is that the current range of NTBs is extensive. No one type of barrier is, by itself, clearly of major concern. This in part reflects on~ of the att~actions of NTBs - that they offer the country consinerable flexibility in controlling trade. A further point of concern is that NTBs can be com~ined, so that any particular product can be subject to a number of different barriers, the net effect being to create a significant barrier to trade.

A subjective assessment of the trend in the main barriers is given in Table 2.

Import restrictionsTariff Declining DecliningTariff-quota Increasing StaticTotal Prohibition Increasing StaticConditional prohibition Increasing StaticQuota Increasing Static

Import licences Increasing StaticImport procedures Increasing Static/IncreasingVariable levy N.A. N.A.

Anti-dumping/countervailing investigations Increasing IncreasingAnti-dumping/countervailing duties Increasing IncreasingVoluntary export restraints N.A. N.A.

Price control N.A. N.A.

Standards Increasing Static/DecliningGovernment procurement Increasing StaticMarking and packaging Increasing Scatic/Declining

Export restrictions

Price controls, levies etc. Increasing IncreasingQuotas, prohibitions Increasing Increasing

N.A. = little or no importance

1 Subjective assessment based on review of publications and informationconcerning individual barriers and the dates they were introduced. The

assessment does not involve any weighting by the volume of tradeaffected.

5. Conclusion

International negotiations have played an important part in reducingtariff levels on many forest products. Tariffs have been brought torelatively low levels for most products, although rates are still ofimportance in a number of cases - in particular rates on plywood,reconstituted panel products, some sawnwood, and certain paper and paperboardproducts in a number of countries.

- 73 -

Although the examples are somewhat arbitrary, it is clear that themajor developed country markets all use many of the measures identified.Evidence of increased use of them is, however, more difficult to establish.

TABLE 2 - Trends in the incidence of indicudual trtdebarriers affecting forest products trade

Direction of Movement

1960's-1979 Since 1979

- 73 -

Although th~ examples are som~what arbitrary, it is clear that the major developed country markets all use many of the measures identified. Evidence of increased use of them is, however, more difficult to establish.

TABLE 2 - Trends in the incidence of indicudual trfde barriers affecting forest products trade

Import restrictions Tariff Tariff-quota Total Prohibition Conditional prohibition Quota Import licences Import proced ures Variable levy Anti-dumping/countervailing investigations Anti-dumping/countervailing duties Voluntary export restraints Price control Standards Government procurement Marking and packaging

Export restrictions

Price controls, levies etc. Quotas, prohibitions

N.A. = little or no importance

Direction of Movement

1960's-1979

Declining Increasing Increasing Increasing Increasing Increasing Increasing

N. A. Increasing Increasing

N.A. N.A.

Increasing Increasing Inc reasing

IncreaSing Increasing

Since 1979

Decli n i ng Static Static Static Static Stat ic

Static/Increasing N. A.

Increasing Increasing

N.A. N. A.

Static/Declining Static

Static/Declining

Increasing Increasing

1 Subjective assessment based on review of publications and information concerning individual barriers and the dates they were introduced. The

assessment d~~s not involve any weighting by the volume of trade affected.

5. Conclusion

International negotiations have played an important part in reducing tariff levels on many forest products. Tariffs have been brought to r~latively low levels for most products, although rates are still of importance in a number of cases - in particular rates on plywood, . reconstituted panel products, some sawnwood, and certain paper and paperboard products in a number of countries.

- 74 -

Preferences provided under the GSP scheme have been of specialimportance in providing developing countries with tariff advantages overdeveloped country suppliers. The scheme is, however, considerably hampered bya variety of limitations and restrictions imposed. Efforts to extend andliberalize the scheme would be of considerable benefit to the developingcountries.

Bilateral and regional agreements have also provided restricted benefitsfor some products, although their value to forest products appears to havebeen rather limited.

If the interests of forest product exporters or the forestry sector indeveloping countries are considered in isolation, further efforts on GSP ratesand conditions would seem likely to offer more scope than further reductionsin MFN rates. When a wider perspective is taken however, research hassuggested that the developing countries would gain more from MFN reductions.Which avenue to follow will be dependent on detailed study of speciEiccountries or regions, and a clear understanding of their situation and exportpotential.

NTBs are more difficult to identify and evaluate, but a wide rangeaffect forest products. In many instances they involve products which havehad only limited tariff reductions under the MTN, or which are restricted orexcluded under special preference schemes such as GSP.

In general terms, the use of NTBs does not show any clear evidence ofincreasing, other than for a few specific barriers. In particular, importprocedures, anti-dumping and countervailing investigations and duties showsigns of increasing. On che export side, those which restrict the export ofunprocessed products have clearly become more common.

Although the use of NTBs for forest products may not be increasing,there is little evidence that they are declining. The period 1960-1979 showedsubstantial growth in their use, and many of those introduced over that periodcontinue to affect trade.

- 74 -

Pr~ferences provided under the GSP scheme have been of special importance in providing developing countries with tariff advantages over developed country suppliers. The scheme is, however, considerably hampered hy a variety of limitations and restrictions imposed. Efforts to extend and liberalize the scheme would be of considerable benefit to the developing countries.

Bilateral and regional agreements have also provided restricted bene fits for some products, although their value to forest products appears to have been rather limited.

If the interests of forest product exporters or the forestry sector in developing countries are considered in isolation, furthe r efforts on GSP rates and condi tions would seem likely to offer more scope than further reductions in MFN rates. When a wider perspective is taken however, research has suggested that the developing countries would gain more from MFN reductions. Which av"n"e to follow will be dependent on detailed study of specific countries or regions, and a clear understanding of their situation and export pot"ntial.

NTBs are mor" difficult to identify and evaluate, but a wide range affect forest products. In many instances they involve products which have had only limited tariff reductions under the MTN, or which are restricted or excluded under special preference schemes such as GSP.

In general terms, the use of NIBs does not show any clear evidence of increasing, other than for a few specific barriers. In particular, import procedures, anti-dumping and countervailing investigations and duties show signs of increasing. On the export side, th ose which restrict the export of unproc~ssed products have clearly become more common.

Although the use of NTBs for forest products (here is little evidence that they are declining. substantial growth in their use, ana many of those continue to affect trade.

may not be The period introduced

increasing, 1960-1979 showed over that period

- 75 -

V. EFFECTS OF REDUCING BARRIERS

Introduction

Previous chapters have looked at the range of trade barriers that canaffect trade in forest products and provided a brief look at the East Asianregion. Although some coverage has been given to the way in which barriersinfluence development and the likely effects of liberalizing trade, theseissues have not been looked at in any detail. This chapter provides a morein-depth discussion of quantitative estimates that have been made of thegains from liberalization. It then looks at an extremely important issue,the extent to which any natural comparative advantage may be being negatedby import barriers. Following this it briefly comments on the effects ontrade patterns in the region before looking at the manner in which areduction in barriers would influence industrialization.

Estimates of Trade Expansion

2.1 Overall Effects

Estimates of the effects of the reduction/removal of barriers havebeen prepared for forest products in a limited number of cases. These usestatic partial equilibrium trade models to estimate the extent to whichtrade in these products would change if an indicated reduction in thebarriers took place. Both the number of studies reporting estimates forforest products and the level of detail of the estimates has been extremelylimited, unlike the situation for many manufactured and agriculturalproducts. Additionally, the range of barriers addressed has also beenlimited because of the lack of appropriate data and the difficulty ofquantitatively evaluating non-tariff brriers other than those which can beexpressed as tariff equivalents. Finally, again for the above reasons,studies have either aggregated individual products into broad productgroups, such as 'wood and wood products' or 'paper products', or consideredexporting countries in aggregate, such 'developing countries'. This lackof attention to forest products is largely due to the relatively low levelof barriers facing most traded forest products, and the low priority placedon forestry trade by the major developed trading regions.

Most studies that include forest products have been limited toassessing tariff levels. In particular a number of studies addressed havethe effect of tariff reductions agreed to in the Kennedy and Tokyo Roundtrade negotiations. The difficulties of identifying non-tariff barriers,developing acceptable models, and developing quantitative informationsuitable for use in the models means that empirical evaluation withinreasonable levels of accilyacy is extremely difficult. This has generallyprecluded their analysis . The estimates made, do however, give a broad

1/ Details of the more frequently used model forms, their assumptionsand limitations can be found for example in Baldwin and Murray (1977),Cline et al (1978), and Sapir and Baldwin (1983).

- 75 -

v. EFFECTS OF REDUCING BARRIERS

1. Introduction

Previous chapters have looked at the range of trade barriers that can affect trade in forest products and provided a brief look at the East Asian reg ion. Although some coverage has been given to the way in which barriers influence development and the likely effects of liberalizing trade, these issues have not been looked at in any detail. This chapter provides a more in-depth discussion of quantitative estimates that have been made of the gains from liberalization. It then looks at an extremely important issue, the extent to which any natural compara tive advantage may be being negated by import barriers. Following this it briefly commen t s on the effects on trade patterns in the region before looking at the manner in which a reduction in barriers would influence industrialization.

2. Estimates of Trade Expansion

2.1 Overall Effects

Estimates of the effects of the reduction/removal of barriers have been prepared for forest products in a limited number of cases. These use static partial equilibrium trade models to estimate the extent to which trade in these products would change if an indicated reduction in the barriers took place. Both the number of studies reporting estimates for forest products and the level of detail of the estimates has been extremely limited, unlike the situation for many manufactured and agricultura l products. Additionally, the range of barriers addressed has also been limited because of the lack of appropriate data and the difficulty of quantitatively evaluating non-tariff brriers other than those which can be expressed as tariff equivalents. Finally, again for the above reasons, studies have either aggregated individual products into broad product groups , such as 'wood and wood products' or 'paper products', or considered exporting countries in aggregate, such 'developing countries'. This lack of attention to fores t products is largely due to the relatively low level of barriers facing most traded forest products, and the low priority placed on forestry trade by the ma jor developed trading regions.

Most studies that include forest products have been limited to assessing tariff levels. In particular a number of studies addressed have the effect of tariff reductions agreed to in the Kennedy and Tokyo Round trade negotiations . The difficulties of identifying non-tariff barriers, developing acceptable models, and developing quantitative information suitable for use in the models means that empirical evaluation within reasonable levels of acc~7acy is extremely difficult. This has generally precluded their analysis • The estimates made, do however, give a broad

1/ Details of the more frequently used model forms, their assumptions and limitations can be found for example in Baldwin and Murray (1977), Cline et al (1978), and Sapir and Baldwin (1983) .

- 76-

indication of the size and direction of likely trade changes for selectedproducts and broad regions.

Two elements are important in assessing quantitatively the impact ofreducing barriers such as tariffs. The main effect of a reduction is tocreate additional trade through increased demand. In this trade creationelement, the reduction of the tariff reduces the price of imports which inturn stimulates additional demand. The extent of the additional demandcreated depends on the original level of trade that took place, the size ofthe price (i.e. the elasticity of demand). The more responsive (elastic)demand is to price the greater the increase in trade that will result.

In addition to trade creation, a degree of trade diversion may alsobe involved. This diversion will occur if the relative attractiveness ofdifferent sources of imports changes. If the tariff fall reduces the levelof preferences that some suppliers held before the reduction, theirposition will decline relative to those benefitting from the tariff cutssince the price of their product will be relatively dearer. As a resultimporters could be expected to switch part of their purchases to othersuppliers. For example, if developing countries have had GSP advantageseroded by general tariff cuts, some trade may be diverted to othersuppliers.

The effect of barrier reductions will therefore vary with theparticular case being considered - the original level of the barrier, theextent of the reductions, the selectivity of the reductions, theresponsiveness of demand, and the extent to which substitute productsand/or suppliers exist. These will influence the level of trade created,and for those situations where trade diversion takes place, whether or notany trade lost is significant.

The most comprehensive estimates for forest products are thosereported by UNIDO (1983). In this study the effects oE a removal ofpost-Tokyo RITy.nd tariffs in ten developed market-economy countries wereinvestigated . Using a partial-equilibrium model, estimates of the gainsand losses were made for each of the ten markets. Separate details wereprovided of the effects on developed country exporters, developing countryexporters, and socialist country exporters in Eastern Europe and Asia.

The analysis considered the impact of a removal of MFN tariffs, andas a result the consequences of some exporters (particularly the developingcountries) losing trade preferences that existed. Thus estimates for eachof the ten countries covered both trade creation and trade diversion. Theresults (table 1) indicate that complete removal of tariffs in the tendeveloped countries would have an expansionary effect on trade in woodproducts. The overall effect would be to increase imports by about $960million, an increase of 6.4 percent over the 1976 trade base.

Trade created for developed country suppliers amounts to about $730million, an 8 percent increase. In addition up to $ 12 million could be

1/ The EEC is considered as one market area.

- 76 -

indi~ation of the size and direction of likely trade changes for selected products and broad regions.

Two elements are important in assessing quantitatively the impact of reducing barriers such as tariffs. The main effect of a reduction is to create additional trade through increased demand. In this trade creation element, the reduction of the tariff reduces the price of imports which in turn stimulates additional demand. The extent of the additional demand created depends on the original level of trade that took place, the size of the price (i.e. the elasticity of demand). The more responsive (elastic) demand is to price the greater the increase in trade that will result.

In addition to trade creation, a degree of trade diversion may also be involved. This diversion will occur if the relative a ttractiveness of different sources of imports changes. If the tariff fall reduces the level of preferences that some suppliers held before the reduction, their position will decline r elative to those benefi tting from the tariff cuts since the price of their product will be relatively dearer. As a result importers could be expected to switch part of their purchases to other suppliers. For example, if developing countries have had GSP advantages eroded by general tariff cuts, some trade may be diverted to other suppliers.

The effect of barrier reductions will therefore vary with the particular case being considered - the original level of the barrier, the extent of the reductions, the selectivity of the reduc tions, the responsiveness of demand, and the extent to which substitute products and/or suppliers ex ist. These will influence the level of trade created, and for those situations where trade diversion takes place, whether or not any trade lost is significant.

The most comprehensive est imates for forest products are those reported by UNIDO (1983). In this study the effects of a removal of post- Tokyo R~ynd tariffs in ten developed market-economy countries were investigated . Using a partial-equilibrium model, estimates of the gains and losses were made for each of the ten markets. Separate details were provided of the effects on developed country exporters , developing country exporters, a nd socialist coun try exporters in Eastern Europe and Asia.

The analysis considered the impact of a removal of MFN tariffs, and as a resul t the consequences of some exporters (par ticularly the developing countries) losing trade preferences that existed. Thus estimates for each of the ten countries covered both trade creation and trade diversion. The results (table 1) indicate that complete removal of tariffs in the ten developed countries would have an expansionary effect on trade in wood products . The overall effect would be to increase imports by about $960 million, an increase of 6.4 percent over the 1976 trade base.

Trade created for developed country suppliers amounts to about $730 million, an 8 percent increase. In addition up to $ 12 million could be

1/ The EEC is considered as one market area.

1/ Incloilng cork nnl cork prodmts. Increase over 1976 trade level.2/ USA not leclixled dkw to tl-e' lack of data. New Zealand hnportn from nocinlint coultrien arr lens thRn US $ in thrumml.

Source: Olechowski (1985)

Thtde i Datimited trade effects from n ronaval of the ront-Tokyo Pourd tariffs on unod and 1.0.11 pnyhootsill the rajor developed market-ecorrnry. countries

Importer

TrivioCreation

(US

Importa &on developing countriesTrata

CreationTrade

Irforts from IMFETrod':

Creatlon

Imports fonn Socialiat countrien 2/Trade Diversion Ibtal effect Diversion lbt,11 effect lrade Dlvernion 1111.2 effect

Lod$ Million)

High low High(X of actual inTx)rts)

La., 1Ugh

'(11S $ minion)Low High

(X of actual Importe)Lod

(1.15 $ Million)High 1//: 1110

(X of actual Importa)

Austria 0.0 -1.2 -1.4 -7.6 -8.3 175.7 3.3 3.4 71.9 71.9 6.1 0.1 0.2 12.5 12.7

Canada . 9.3 -13.6 -14.6 -6.0 -7.3 167.6 15.6 16.6 34.1 34.1 1.1 -1.7 -1.7 -7.n -9.4

EEC (9) 45.2 15.5 25.2 3.7 4.3 78.4 -27.4 -49.13 1.5 1.0 50.1 11.7 19.3 6.1 7.0

Finland 0.0 -0.3 -0.4 -6.7 -9.9 8.5 0.5 0.7 15.3 14.9 0.7 -0.3 -0.4 0.3 0.1

Japan 49.2 -0,1 40.2 2.7 2.7 15.4 0.1 0.6 0.8 0.8 0.6 0.0 0.0 (41 0,1

Ney 2pAland 0.0 -1.0 -1.5 -19.0 -27.6 2.4 1,0 1.4 30.7 34.7

Narway 0.1 -1.0 -1.3 -5.7 -7.3 48.1 2.4 2.8 17.7 17.7 2.3 -1.1 -1,4 10.3 9.3

Sweden 0.4 -1.7 -2.2 -6.3 -8.5 13.2 0.0 0.4 10.2 10.1 13.5 1. 11 2.0 14.1 14.1

St.ritzerland 0.2 -1.1 -1.3 -6.7 -8.5 145.9 1.4 1.6 47.4 47.5 4.1 -0.1 -0.1 31.6 33.7

USA 46.1 -3.4 -5.6 6.3 6.n 56.2 3.4 5.5 2.9 3.0

Total 151.6 -0.8 -3.2 3.3 3.4 731.4 0.4 -11.8 8.1 8.11 78.8 10.3 18.0 5.2 5.7

Thble 1 Fntlmted tmJe effects fron ,. ramvnl nC tl-c fO'It-Thk)Q T1o!. nJ tnrU fe 011 IoJXld nrr3 IoO"lI I'n:'oIhr:tA l! in the mJor rlcve.lornl rmrkct-ecanny COlntric9

~rta fran d~or~ CCU'ltrice J~rtB (rm 01I"'I:: Tnod. Trade. 01 vend01 lbtaI effect ~Ie Trn.cle Dlverslm Tht.-11 effect Tnvlc

(Xeatlm l£w lUg, l£w H!d> cnntlon Lw m~l l£w Htr)l frt>.tItJoo Intx>rter (US $ Hllllm) (X of octual IlT{XIrta) . (Us $ MiU {on) (X of IIctlJ/ll Import9)

hlStria 0.0 -1.2 -1 . 4 -7.6 -II.] 175.7 ).) ).4 71.' 71.9 6. 1

00""'"' 9.] -13.6 -14.6 -6.0 -7.) 167.6 )'j ,t1 Hi.(, )f.,1 )f •• ) 1.1

m:; (9) 45.2 15.5 25.2 ].7 4.1 70.1. ->.7.4 -.l9.R 1.5 1.0 .71.1

FlniArd 0.0 -{l. 3 -{l.4 -<>.7 -9 . 9 a.5 0. \ 0.7 I ~,.1 14,Q 0.7

J."", 49.2 -{l.1 -11.2 2.7 2.7 15. ', 0.] 0.6 O.R n.8 n ••

"'" luIanI 0.0 -1.0 -1.5 -19.0 -27.6 2.4 1.0 1.4 Xl.7 Y,.7

"'""y 0.1 -1.0 -I.) - 5.7 -7.3 48.1 2.4 2.A 17.7 17.7 2.3

""""'" 0,/. -1.7 -2.2 -6.3 -11.5 ll.2 n.D a.', 10.2 In. l D.')

I

Mtz.erland 0.2 -1.1 -1.1 -<>. 7 -8.5 145.9 I.' I •• 1,7.ft 47." il.l

USA ".1 - 3.4 -5 .6 • • 3 6.0 5/;.2 ).4 .').') 2.' 3.0

Total m.b -{l.a -3.2 3.3 3. ' 7JI.La n •• -11,8 0.1 O.n 7n ,A

11 In::lml~ cork nTTI cork rrnJuch. Increase over 1976 trade level. 11 L5A rot lr1:1u:1od ,"It' to thP. · tack of dAta. t-bI lcalrn1 Imrortll fron noctnllllt COO1triC'.q am It'tlll tlnn U~ $ In thC)lt'!Jlrwl.

Source: Ol echowski (1985)

r~rt9 fom Str.1.,l1Rt C0l1tdC8 2/ T(";)(le lHvt'rrdon lbtJll f"(fcr. t

I"" IIIFJI '-", HIgh ([5 $ Hlll loo) (t of octllal {1'Il"rtll;

0.1 0.2 12.> 12.7

-1 .7 -1.7 -7.n -'I.' 11.7 19.1 6.1 7.0

-11.) -{},r. D.) 0.1

0.0 D.n n.\ 0.1

-1.1 -I,q In.1 9.1

I.' 2.0 11 •• 1 lft .1

-11.1 -<1.1 1].1) )).1

In.J 1.1\.0 5.2 5.1

...., ....,

- 78 -

diverted to other suppliers as a result of a loss of preferences. The maindiversion (between $27 and $50 million) would be in the EEC, primarily dueto the erosion of preferences granted to the EFTA countries. The mainadditional trade created for developed country suppliers would occur inAustria, Canada and Switzerland.

Removal of the tariffs would have a much smaller but neverthelessimportant impact on che trade of the developing countries. The increasewould be about 3.3 percent, a total of $150 million additional tradecreated. Trade diversion would amount to about $1-3 million. The lowerlevel of trade created for developing countries mainly reflects the factthat tariff levels facing such countries are already relatively low formost wood and wood products. The main expansion in trade would occur inJapan, USA and the EEC, while the main losses through diverted trade wouldbe in Canada and the USA.

It should be noted that for the developing countries the additionaltrade created far outweighs losses through trade diversion. This is alsotrue for the developed countries. However, these estimates represent anideal situation - the normal procedure is for rates to be selectivelyreduced, and then usually on a percentage reduction basis. It is thereforehighly unlikely that tariffs would be completely removed on those productswhich presently still have high rates.

In the case of the socialist countries of Eastern europe the overalleffect would be a trade gain of between 5.2 and 5.7 percent. Suppliers insocialist countries would gain $79 million through trade creatfp, as wellas between $10 million and $18 million through trade diversion .

One of the few studies considering NTBs (UNCTAD, 1985) has presentedestimates on the assumption of the preferential removal by the developedcountries of all MFN tariffs facing the developing countries, together withthe complete removal of quantitative non-tariff barriers. Imports of 'woodand paper products' by the EEC from the developing countries were estimatedto increase over 1980 levels by $638 million, those by the USA/Canada by$40 million, and by Japan by $10 million. It was also concluded that theseincreases could be achieved with only minor effects on the developedcountries. The proportion of each markets consumption provided by importsfrom the developing countries was estimated to increase by less than 0.5%in the EEC and remain virtually unchanged for the USA/Canada and Japan.

The estimates therefore provide an indication of the effects of thecomplete removal of many of the main barriers limiting the developingcountries. They highlight a number of points:

(a) in comparison with many other product groupings (such astextiles, clothing, food and beverages) increases in wood andpaper trade would be relatively small.

1/ The estimates for the socialist countries did not include additionaltrade with the USA due to data limitations.

- 78 -

diverted to other suppliers as a result of a loss of preferences. The main diversion (between $27 and $50 million) would be in the EEC, primarily due to the erosion of preferences granted to the EFTA countries. The main additional trade created for developed country suppliers wo uld occur in Austria, Canada and Switzerland.

Removal of the tariffs would have a much smaller but nevertheless important impact on the trade of the developing countries. The increase would be about 3.3 percent, a total of $150 million additional trade created. Trade diversion would amount to about $1-3 million. The lower level of trade created for developing countries mainly reflects the fact that tariff levels facing such countries are already relatively low for most wood and wood products. The main expansion in trade would occur in Japan, USA and the EEC, while the main losses through diverted trade would be in Canada and the USA.

It should be noted that for the developing countries the additional trade created far outweighs losses through trade diversion. This is also true for the developed countries. However, these estimates represent an ideal situation - the normal procedure is for rates to be selectively reduced, and then usually on a percentage reduction basis. It is therefore highly unlikely that tariffs would be completely removed on those products which presently still have high rates.

In the case of the socialist countries of Eastern europe the overall effect would be a trade gain of between 5.2 and 5.7 percent. Suppliers in socialist countries would gain $79 million through trade creatf7n, as well as between $10 million and $18 million through trade diversion •

One of the few studies considering NTBs (UNCTAD, 1985) has presented estimates on the assumption of the preferential removal by the developed countries of all MFN tariffs facing the developing countries, together with the complete removal of quantitative non-tariff barriers. Imports of 'wood and paper products' by the EEC from the developing countries were estimated to increase over 1980 levels by $638 million, those by the USA/Canada by $40 million, and by Japan by $10 million. It was also concluded that these increases could be achieved with only minor effects on the developed countries. The proportion of each markets consumption provided by imports from the developing countries was estimated to increase by less than 0.5% in the EEC and remain virtually unchanged for the USA/Canada and Japan.

The estimates therefore provide an indication of the effects of the complete removal of many of the main barriers limiting the developing countries. They highlight a number of points:

(a) in comparison with many other product groupings (such as textiles, clothing, food and beverages) increases in wood and paper trade would be relatively small.

1/ The estimates for the socialist countries did not include additional trade with the USA due to data limitations.

- 79 -

the gains are nevertheless likely to be significant, althoughthere is substantial uncertainty in any estimates developed. Forexample, in 1976 dollars the gains to the developing countriesfrom tariff cuts only (table 2) on rod and wood products aresuggested to be around $150 million I; those for wood and paperproducts from tariff and NTB cuts in the order of $690 million in1980 dollars. The estimates are only for a limited number ofmarkets though, and therefore overall trade gains if all marketsthough, and estimates are only for a limited number of marketsthough, and therefore overall trade gains if allolarkets areconsidered would no doubt be considerably higher . Further thelatter estimates do not cover all NTBs.

greatest impact would occur in the EEC, reflecting the fact thata higher level of wood and paper products trade already occurswith that market that with the USA/Canada and Japan, and thatcurrent barriers are greatest in that market.

Further estimates were made at a more dissaggregated level using 1980trade levels and the results for five SITC categories of forest productsare shown in table 3. These are categories of most importance in the tradeof deveveloping countries. Impessive gains are estimated for -furniture"and -other printing papers," and to a lesser extent for "plywood" and"non-coniferous sawn and planed lumber."

2.2 Effects on individual countries

Studies such as these address the overall impact of reducing barriers(mainly tariffs). The main interest at an operational level is on anindividual country or group of countries. Each developing country isinterested in what benefits it may expect from trade liberalization.Similarly, within a country the producers of specific products or groups ofproducts wish to determine how trade liberazation will affect them. In

this respect the producers of forest products wish to know how anyliberalization which may involve much broader barrier changes will affecttheir own trade. This is particularly important since some forms ofliberalization may result in some developing countries losing trade toothers, although developing countries as a whole may gain.

Any attempt at estimating the effects on an individual country mustinclude a detailed analysis of that country, its own conditions andcircumstances including production capabilities, infrastructure, productmix etc, if a true assessment is to be made. Some overall indication ofthe impact can, however, be made using the partial equilibrium modelstraditionally used to evaluate the effects of reducing quantitativebarriers.

1/ If adjusted by the average rate of developed market economy countryrate of inflation over this period (8.6%) this gives a 1980 value of $226million.

2/ The estimates do, however, show an optimal situation that is unlikelyto be achievable, in that complete removal by all countries would bepolitically and economically difficult. Agreement by all or even mostcountries would be difficult if not impossible.

- 79 -

(b) the gains are nevertheless likely to be significant, although there is substantial uncertainty in any estimates developed. For example, in 1976 dollars the gains to the developing countries from tariff cuts only (table 2) on I?od and wood products are suggested to be around $150 million ; those for wood and paper products fr om tari ff and NTB cuts in the order of $690 million in 1980 dollars. The es timates are only for a limited number of markets though, and therefore overall trade gai ns if all markets though, and es timates are only for a limited number of markets though, and therefore overall trade gains if al127arkets are conside red would no doubt be considerably higher • Further the latter es timates do not cover all NTBs.

(c) greatest impact would occur in the EEC, reflecting the fact that a higher level of wood and paper products trade already occurs with that market that with the USA/Canada and Japan, and that current barriers are greatest in that market.

Further estimates were made at a more dissaggregated level using 1980 trade levels and the r esults for five SITC categories of forest products a re shown i n table 3. These are categories of most importance in the trade of deveveloping countries . Impessive gains are est imated for "furniture" and "other printing papers, " a nd to a lesser extent for "plywood" and "non-coniferous sawn and planed lumber."

2.2 Effects on individual countries

Studies such as these address the overall impact of reducing barriers (mainly tariffs). The main interest at an operational level is on an individual country or group of countries. Each developing country is interested in what benefits it may expect from trade liberalization. Similarly, within a country the producers of specific products or groups of products wish to determine how trade liberazation will affect them. In this respect the producers of forest products wish to know how any liberalization which may involve much broader barrier changes will affect their own trade. This is particularly important since some forms of liberalization may result in some developing countries losing trade to others, although developing countries as a whole may gain.

Any attempt at estimating the effects on an individual country must include a detailed analysis of that country, its own conditions and circumstances including production capabilities, infrastructure, product mix etc, if a true assessment is to be made. Some overall indication of the impact can, however, be made using the partial equilibrium models traditionally used to evaluate the effects of reducing quantitative barriers.

1/ If adjusted by the average rate of developed market economy country rate of inflation over this period (8 .6% ) this gives a 1980 value of $226 million.

2/ The estimates do, however, show an optimal situation that is unlikely to be achievable, in that complete removal by all countries would be politically and economically difficult. Agreement by all or even most countries would be difficult if not impossible.

Source:

Reported in UNCTAD (1985).

Development Statistics: Supplement 1984 (United Nations publication, Sales No. E/F.04.II.D.12), pp. 476-483.

European Economic Community

United States/Canada

Japan

Imports Erom

developing

countries

Ratio oE

imports from

developing

countries to

consum Lion

Imports [tom

developing

countries

Ratio of

imports Erom

developing

countries to

consumption

Imports from

developing

countries

Ratio ot

imports from

developing

countries to

consumption

1980

1980

1980

Apparent

1960

Est.

1980

Est.

Apparent

1980

Est.

1980

Est.

Apparent

1980

Est.

1930

Est.

Product yroup

Consumption

Value

Changó

Value Change

Consumption

Value

Change

Value Change

Consumption

Value

charne Value Change

($mil.)

($mil.) ($m11.)

($mil.)

($mil.) ($m11.)

($mil.)

($mil.) ($m:1.)

Ml manufactures

1,733,875

39,359

11,568

2.27

2.93

2,110,839

43,061

10,282

2.04

2.52

908,669

13,372

583

1.47

1,53

co

Textiles

65,084

2,720

2,097

4.18

7.40

64,188

1,270

407

1.90

2.61

36,122

617

88

1.71

1.95

OClothing

57,049

6,828

4,357 11.97

19.60

65,013

7,027

6,357 10.81

21.35

16,671

971

134

5.03

6.62

1

Wood and paper

products

159,706

2,077

638

1.30

1.69

224,404

1,211

40

0.54

0.55

96,947

474

IQ

0_,A0_111-U

Chemicals

27,795

2,867

260

1.38

1.50

207,735

1,578

27

0.76

0.11

107,260

795

72

0,71

0.00

Metals

60,852

2,020

1,861

3.32

6.37

183,107

3,643

210

1.99

2.10

68,138

2,466

132

3.62

3.61

Transport

equipment

161,675

1,244

386

0.77

1.00

234,459

609

23

0.26

0.26

83,570

200

-0.24

0.24

Machinery

394,243

5,558

976

1.41

1.65

510,386

12,045

687

2.36

2.69

257,674

1,107

47

0,43

0.11

Food, beverages

and tobacco

308,563

5:986

4,587

1.94

3.42

309,367

4,145

1.082

1.34

1.68

119,529

992

1,216

0,03

1.01

Source:

Estimates of 1980 apparent consumption and import penetration ratios are taken Erom UNCTAD, Handbook of International Trade and

Table 2

Estimated effect oE a preEerential trade liberalization on import-consumption ratios

in selected developed market-economy countries

Pro

du

c t

gro

up

'fI.ll

m

anuf

actu

res

Tex

tile

s C

loth

ing

W

ood

and

pap

er

pro

du

cts

C

hem

ical

s M

etal

s T

run

spor

t eq

uipm

ent

Mac

hina

cy

Foo

d.

bev

erag

es

and

tob

acc

o

Tab

le

2 E

stim

ated

eff

ect

of

a p

refe

ren

tia

l tr

ade

U.b

era

liza

tio

n o

n im

por

t-co

nsu

mp

tio

n

ra

tio

s in

se

lect

ed

dev

elop

ed

mar

ket-

econ

omy

cou

ntr

ies

Eur

opea

n ec

onom

ic C

omm

unity

U

nit

ed

Sta

tes/

Can

ada

Jap

an

Rat

io o

f R

atio

of

Imp

orts

fr

om

imp

orts

fr

om

Imp

orts

fr

om

imp

orts

fr

om

Imp

ort

s fr

om

dev

elo

pln

g d

evel

op

lng

d

evel

opin

g d

evel

op

ing

d

evel

op

ing

co

un

trie

s co

un

trie

s to

co

un

trie

s co

un

trie

s to

co

un

trie

s co

nsu

mp

tion

co

nsu

mp

tion

1960

19

60

1980

A

pp

are

nt

1960

E

st.

1900

E

st.

App

aren

t 19

60

!Sst

. 19

00

E:a t.

A

ppar

ent

1960

E~t .

C

on

su

mE

tlo

n

Val

ue

Cha

nqo

Val

ue

Cha

nge

Con

:mm

p t io

n

VD

lue

Cha

nge

Val

ue

Cha

nge

Con

sum

Qtio

Q

Y..Q

l.4£.

Ch~l

9.Q

($m

ll.

) ($

mi1

.)

($m

ll.)

($

mll

. )

($m

ll.)

($

mli

.)

($m

l1.

) ($

mil

.)

($c,

' 1.)

1. 7

33.6

75

39

.35

9

11. 5

68

2.2

7

2.93

2

.liO

. 639

4

3.0

61

10

.202

2

.04

2

.52

90

0.66

9 1

3.3

72

30

3

65

.00

4

2."1

20

2.0

97

4.1

8

7.4

0

64

,10

8

1.2

70

407

1. 9

8 2

.61

36

.122

61

7 00

5

7.0

49

6

.62

6

4.3

57

11

.9"1

1

9.6

0

65

.01

3

7,0

27

6

.05

7

10

.01

2

1.3

5

16

.6'/1

97

1 13

1

159.

736

2,0

77

638

.l.

30

1. 6

9 22

4,'1

04

1.2

11

10

0

.54

0

.S5

9

3.9

17

17

1 lQ

20

7.79

5 2

.66

7

260

1. 3

0 1.

50

207.

735

1, 5

78

27

0.7

6

0.7

7 10

7.26

0 79

5 72

6

0.6

52

2

.02

0

1. 6

61

3.3

2 6

.37

18

3.10

7 3

.64

3

210

1. 9

9 2

.10

6

6.1

36

2

.46

6

132

161.

675

1.2

11

30

6 0

.77

1

.00

23

1.45

9 60

9 23

0

.26

0

.26

0

3,5

70

20

0 39

4.24

3 5

.55

6

976

l. 4

1 1

.65

51

0.3

66

12

.045

68

7 2

.36

2

.69

25

7.67

4 1

.10

7

47

30B

.563

5

.986

4

,58

7

1. 9

4 3

.42

3

09

.36

7

4.1

45

1

.08

2

1. 3

4 1

. 60

119.

529

992

1. 2

16

H,)

tio

01

irn

por

t5

from

d

evel

op

ing

co

un

trie

s to

co

nsur

np t

19n

1980

E

s t.

Valu~

CIlM

}.9E.

1.4

7

1.53

1. 7

1 1

. 95

5.0

] 6

,62

WlL

..-O

" .. A

B.

0.7

4

0.0

0

3.6~

3.G

l

0.2'

" 0

.21

0

.43

0.

1'1

0.0

3

l. 0

1

Sou

rce;

E

stim

ate

s o

f 19

BD

ap

par

ent

con

sum

pti

on

and

imp

ort

pen

etra

tio

n

ra

tio

s ll

re

tak

en

from

U

HC

'rl\O

. H

andb

ook

of

Inte

rna

tio

na

l T

rade

an

d D

evft

lopm

ent

Sta

tisti

cs:

Su

pple

men

t 19

64

(Un

ited

Nat

ion

s p

ub

licati

on

. S

ales

N

o.

E/F

.34

.II.

D.1

2).

p

p.

476-

403.

So

urc

e:

Rep

ort

ed

in

U

NC

'rA

D

(l.9

?5

).

ao

0

- 81 -

3 PreferentialTABLE - Potential Trade Gains from Barrier

a Based on the assumption of a reduction to zero of tariff duty rate andelimination of non-tariff barriers for developing countries only. Onlyquantitative NTBs such as quotas and price controls were included.

Increase over 1980 over 1980 trade levelSource: UNCTAD (1985) (Part I)

As an example, estimates for Indonesia, Malaysia and the Philippinesare given below. These suggest the extent to which these countries mightbenefit individually from further tariff reductions (or an equivalent levelof NTBs) on selected forest products in the Japanese market.

The procedure uses the methodology of Baldwin and yyrray (1977) andprovides estimates of trade creation and trade diversion . CurrentJapanese tariffs on plywood, veneer and sawntimber are assumed removed forproducts from the developing countries only. The estimates are shown intable 4. The assume that tariffs are reduced to zero for all developingcountries, and three levels of demand response are shown - a medium level,which assume an import price elasticity of -1.8 for plywood and veneer, and-1.33 for santimber. The low and high levels shown use the medium levelelasticity minus 1.0 and plus 1.0 respectively. Using the assumption thatmarket shares remain constant, the trade increases for Indonesia, Malaysiaand the Philippines are calculated.

If the tariff on plywood was removed an estimated additional 31717 m3

would be imported. This represents just under 28% of 1984 imports from alldeveloping countries. If existing market shares are maintained, Indonesiawould obtain the major part of this increase. Malaysia and the Philippineswould gain very little.

An estimated additional 24492 m3 of veneer would be imported from thedeveloping countries or 17% of 1984 trade. Malaysia is currently ihe maindeveloping country supplier, and would increase exports by 24000 mwhereal Indonesia and the Philippines would only increase exports by around4000 m

1/ The basic methodology is indicated in appendix 4.

Reductions for Developing Countries (1980 base)

SITC Description PotentialTrade IncreaseCategory

aGains

(70) a

($ million)

2433 Sawn lumber, planed/groovednon-coniferous 28.6 0.6

2517 Sulphate wood pulp 5.5 0.2

6312 Plywood 96.0 11.26412 Other printing paper 592.3 7.58210 Furniture 1030.1 59.5

- 81 -

TABLE 3 - Potential Trade Gains from Preferential Barrier Reductions for Developing Count rie s (1980 base)

SITC Description Potential Trade Increa~e

Category Gains a (%) ($ million)

2433 Sawn lumber, planed/grooved non-coniferous 28.6 0.6

2517 Sulphate wood pulp 5.5 0 . 2 63 12 Plywood 96.0 11.2 6412 Other printing paper 592.3 7 . 5 8210 Furniture 1030.1 59.5

a Based on the assumption of a red uction to ze r o of tariff duty rate and elimination of non-tariff barriers for developi ng countries only. Only quantitative NTBs such as quotas and price controls were included.

Increase over 1980 over 1980 trade l evel Source: UNCTAD (1985) (Part I)

As an example, estimates for Indonesia, Malaysia a nd the Philippines are given below. These suggest the extent to which these countries might benefit individually f r om further tariff reductions (or an equivalent level of NTBs) on selected forest pr oducts in the Japanese marke t .

The procedure uses the methodology of Baldwin and ¥yrray (1977) and provides estimates of trade creation and trade diversion . Current Japanese tariffs on plywood, veneer and sawnt imbe r are as sumed removed for products from the developing countries only . The estimates are shown in table 4. The assume that tariffs are reduced to ze r o fo r all developing countries, and three levels of demand response are shown - a medium level, which assume an import price elasticity of -1. 8 for pl ywood and veneer, and -1.33 for santimber. The low and high levels shown use the medium level elasticity minus 1.0 and plus 1.0 respectively. Using the assumption that market shares remain constant, the trade increases for Indonesia, Malaysia and the Philippines are calculated.

If the tariff on plywood was removed an estimated additional 31717 m 3

would be imported. This represents just under 28% of 1984 imports from all developing countries. If existing market shares are maintained, Indonesia would obtain the major part of this increase. Malaysia and the Philippines would gain very little.

3 An estimated additional 24492 m of veneer would be imported from the developing countries or 17% of 1984 trade. Malaysia is currently Jhe main developing country supplier , and would i ncrease export s by 24000 m , whereaj Indonesia and the Philippines would only increase exports by around 4000 m .

1/ The basic methodology is indicated in appendix 4.

Product

TABLE 4 - Increased Trade Resulting From Removing Japanese

Tariffs Facing the Developing Countries

(Increase over 1984 trade levels)

Initial

Demand

Increased trade for all developing countries

Total as %

Total increased trade for:

tariff

responseb

developing

levela

Trade

Trade

Total

country

Malaysia

Indonesia

Philipplues

creation

diversion

imports

(%)

(m3)

(m3)

(m3)

(%)

(m3)

(m3)

(m3)

Plywood

18.0

Low

14067

30

14097

12.2

13477

437

42

Medium

31650

67

31717

27.5

30321

983

95

High

49234

104

49338

42.8

47167

1529

148

veneer

7.5

Low

8874

3345

12219

7.7

1931

10147

1772

Medium

19967

7525

27492

17.3

4344

23506

3986

High

31060

11710

42770

26.9

6758

36568

6202

Sawntimber

5.0

Low

13378

1237

14615

1.7

1706

2908

2879

Medium

53916

4987

58903

6.9

18967

11722

11604

High

94453

8736

103189

12.1

33227

20535

20328

aTariff level facing developing countries.

Plywood rates are 17% and 20%.

The rate used reflects the greater volume oC

smaller thickness imported.

bBased on import demand elasticity Eor medium level plus and minus 1.0, i.e. medium plywood and veneer = -1.8: low = -0.8;

high = -2.8.

Sawntimber medium = -1.33.

Assumes each maintains present market share.

Methodology discussed in appendix 4.

TABL

E ~

-In

crea

sed

T

rade

R

esu

ltin

g

From

R

emov

ing

Jap

anes

e T

arif

fs

Fac

ing

the

Dev

elop

ing

cou

ntr

ies

(In

crea

se

over

19

84

trad

e le

vels

)

Pro

du

ct

Init

ial

Dem

and

Incr

ease

d

trad

e fo

r a

ll d

evel

op

ing

cou

ntr

ies

To

tal

6S

%

T

otal

jncre~sed

trad

e [o

r:

tari

ff

resp

onse

b --

----

----

----

----

----

----

----

----

----

----

--d

evel

op

ing

--

----

----

----

----

----

----

----

----

--_

. le

vela

T

rade

T

rade

T

ota

l co

un

try

Ind

ones

ia

Mal

aysi

a cr

eati

on

d

iver

sio

n

imp

orts

(\)

(m

3)

(m3

) (m

3)

(\)

(m

3)

(m3

)

Ply

woo

d 1

8.0

Lo

w

1406

7 30

14

097

12

.2

1341

1 43

1 M

ediu

m

3165

0 67

31

711

27

.5

3032

1 98

3 H

igh

49

234

104

4933

8 4

2.8

41

161

1529

Ven

eer

7.5

Lo

w

8814

33

45

1221

9 1

.1

1931

10

441

Med

iwn

1996

7 75

25

2149

2 1

1.3

43

44

2350

6 H

igh

31

060

1171

0 42

770

26

.9

6158

36

5(,8

saw

nti

mb

er

5.0

Lo

w

1331

8 12

31

1461

5 \.

1

4106

29

08

Med

ium

53

916

4981

58

903

6.9

18

961

1112

2 H

igh

94

453

8736

10

3189

IL

l 33

221

2053

5

a T

ari

ff ·

iev

el

faci

ng

dev

elo

pin

g c

ou

ntr

ies

. P

ly«o

od

rate

s ar

e 1

7\

and

20

\.

The

ra

te

use

d

refl

ects

th

e g

rea

ter

volu

me

o[

sma

ller

th

ick

nes

s im

por

ted

.

b B

ased

on

impo

rt

dem

and

ela

stic

ity

fo

r m

ediu

m

lev

el

plu

s an

d m

inus

1

.0.

i.e.

med

iufI

i p

lyw

ood

an

d ve

nee

r'"

-1

.8:

low

-0

.8;

hig

h::

: -2

.8.

Saw

ntim

ber

med

ium

""

-}.3

3.

c A

ssum

es

each

ma

inta

ins

pre

sen

t m

arke

t sh

are

.

Met

hod

olog

y d

iscu

ssed

in

ap

pend

ix

4.

Ph

il ip

p \

II'!

S

(10

3 ) 11

/: 0

"

,.,

l'U

111

2 J9

e.&

62

07.

287'

) 11

604

20

nG

00

'"

83

The removal of the current preferential tariff (5%) on sawntimbe5 isestimated to increase imports from all developing countries by 58903 m , 9r6.9% of the 1984 imports from them. Of this, indonesia would gain 18967 mMalaysia 11722 m- and the Philippines 11604 m.

The estimates indicate the gains to the developing countries from thecomplete removal of tariffs by Japan. The increases from trade creationare substantially higher than those from trade diversion. Trade creationaccounts for almost all of the total trade increase for plywood, 73% forveneer, and 897. for sawntimber. Since Indonesia, Malaysia and thePhilippines are the major current suppliers of tropical wood products tothis market, they would gain most from such a removal.

Worthwhile gains would arise for the developing countries in total.At average 1984 FOB. prices the increased trade could be worth anadditional $ 7.1 million for plywood, $ 4.1 million for veneer, and $ 10.1million for sawntimber.

Under the assumptions used, the gains to each of the three countriesanalysed are dependent on the market share each achieves. Based on 1984shares, Indonesia would export an addditional $ 6.5 million of plywood, $520,000 of veneer, and $ 2.6 million of sawntimber. Malaysia would achievethe following: $ 200,000 for plywood, $ 2.8 million for veneer, and $ 2million for sawntimber. The Philippines would gain little from plywood($21,000), $ 800,000 from veneer, and $ 2.3 million from sawntimber.

The complete removal of Japanese tariffs facing the developingcountries would therefore provide worthwhile benefits to the developingcountries in total, and to individual countries which have shown by currentexports that they can export competitive products.

It must be stressed that the models used are subject to a number oflimitations. In Particular they assume that each exporter retains itscurrent share of the market. Further, the trade gains are based onexisting import levels. In many cases trade shares between exporters maychange considerably from existing levels. As an example etimates madeprior to Indonesia's rapid expansion in plywood production and trade wouldhave given very different results from those developed at present. Theassumption that the increased demand is based on current imports impliesthat the imported product and the domestically produced product arenonsubstitutable. In many cases it is more likely that at least somesubstitution is likely, and therefore that the supplying country may gainmore from the trade liberalizatoin than is shown. Additionally, productswith high tariff rates which effectively stop most imports will showsmaller gains from a tariff reduction than those with lower current ratesand consequently higher current trade. For these reasons the estimatesgiven should be considered minimum levels in most cases. They should alsoonly be considered broadly indicative of the degree and direction of tradechanges.

3. Effects on Competitiveness

A commonly presented view is that the forestrich developingcountries have a comparative advantage in the production and processing of

- 83 -

The removal of the current preferential tariff (5%) on sawntimbe~ is estimated to increase imports from all developing countries by 58903 m , ~r

6 .9% of the 19843 imports from them. Of this, Jndonesia would gain 18967 m , Malaysia 11722 m and the Philippines 11604 m .

The estimates indicate the gains to the developing countries from the complete removal of tariffs by Japan. The increases from trade creation are substantially higher than those from trade diversion. Trade creation accounts for almost all of the total trade increase for plywood, 73% for veneer, and 89% for sawntimber. Since Indonesia, Malaysia and the Philippines are the major current suppliers of tropical wood products t o this market, they would gain most from such a removal.

Worthwhile gains would arise for the developing countries in total. At average 1984 FOB. prices the increased trade could be worth an additional $ 7.1 million for plywood, $ 4.1 million for veneer, and $ 10.1 million for sawntimber.

Under the assumptions used, the gains to each of the three countries analysed are dependent on the market share each achieves. Based on 1984 shares, Indonesia would export an addditional $ 6.5 million of plywood, $ 520,000 of veneer, and $ 2.6 million of sawntimber. Malaysia would ach ieve the following: $ 200,000 for plywood, $ 2.8 million for veneer, and $ 2 million for sawntimber. The Philippines would gain little from plywood ($21 ,000), $ 800,000 from veneer, and $ 2.3 million from sawntimber.

The complete removal of Japanese tariffs facing the developing countries would therefore provide worthwhile benefits to the developing countries in total, and to individual countries which have shown by current exports that they can export competitive products.

It must be stressed that the models used are subject to a number of limi tations. In Particular they assume that each exporter retains its current share of the market. Further, the trade gains are based on existing import levels. In many cases trade shares between exporters may change considerably from existing levels. As an example etimates made prior to Indonesia's rapid expansion in plywood production and trade would have given very different results from those developed at present. The assumption that the increased demand is based on current imports implies that the imported product and the domestically produced product are non-substitutable. In many cases it is more likely that at least some subst itution is likely, and therefore that the supplying country may gain more from the trade liberalizatoin than is shown. Additionally. products wi th high tariff rates which effectively stop most imports will show smaller gains from a tariff reduction than those with lower current rates and consequently higher current trade. For these reasons the estimates given should be considered minimum levels in most cases. They should also only be considered broadly indicative of the degree and direction of trade changes.

3. Effects on Competitiveness

A commonly presented view is that the forest-rich developing countries have a comparative advantage in the production and processing of

-84 -

wood. These countries have shown over a lengthy period of time that theycan successfully and profitably export logs to overseas markets. In

addition to providing a range of preferred hardwood species these countrieshave been able to supply high-quality material at competitive prices.

Little progress, however, has been made over this time in expandingexports of more highly processed products. This is suggested to be areflection of the import restrictions that are faced. The view is thatimport barriers protect domestic producers in the importing countries byraising the landed price of more competitive suppliers. Additionaly,tariff escalation and restrictive purchasing policies artificially ensurethat the developing countries continue to find the export of raw logs moreattractive than more processed products. Export restrictions imposed bymany log exporting developing countries, such as export taxes on the leastprocessed product forms, log export bans, etc., are attempts to compensatefor the import barriers they face. Restrictions of this type denycompetitive processors raw material, and/or raise the cost of this materialto them. They also move local firms towards more processed products byreducing the profitability of the export of logs.

While appealing, these arguments do not necessarily guaranteesuccess. Two major criticisms can be raised. While the raw materialexporting countries may have a comparative advantage in producing logs,this does not necessarily imply an advantage in processing. Sucess maytherefore rest largely on the ability to deny other processors rawmaterial, unless additional advantages can be developed such as lower costsfrom improved infrastructure, greater production efficiency, etc.

A Second criticism rests on the fact that it can be extremelydifficult to ensure sales by denying competitors raw materials. Unless theexporting country can genuinely be competitive in wood processing, it willbe difficult to develop viable export activities. At one extreme buyersmay substitute other products rather than pay higher prices or acceptpoorer products. Other materials such as cement, steel, or plastics may beused, or reconstituted products such as medium density fibreboard ororiented strand board may be used as substitutes for solid wood products.At the other extreme alternative sources of raw material will be found.Unless an exporter or group of exporters are dominant raw materialsuppliers and few alternatives exist, restricting log exports may not haveall the anticipated benefits. Numerous examples exist where this has beenthe case. The effect of log bans in most South American countries wasdiluted by Chile abandoning its controls in 1975 and placing major emphasison log exports; the effects of Peninsular Malaysia have been affected bycontrary policies being followed by Sarawak and to a lesser extent Sabah;and Philippines efforts have been unsuccessful to date.

Japan has partly compensated for declining raw materials by findingother hardwood suppliers and investigating the feasibility of substitutingsoftwood logs.

Much of the basic premise on which the relocation of processing inthe log producing countries is based, is that these countries are lowercost producers than current producers. Log producing countries believe

- 84 -

wood. These countries have shown over a lengthy period of time that they can successfully and profitably export logs to overseas markets. In addition to providing a r ange of preferred hardwood species these countries have been able to supply high-quality material at competitive prices.

Little progress, however, has been made over this time in expanding exports of more highly processed products. This is suggested to be a reflection of the import restrictions that are faced. The view is that import barriers protect domestic producers in the importing countries by raising the landed price of more competitive suppliers. Additionaly, tariff escalation and restrict ive purchasing policies artificially ensure that the developing countries continue to find the export of raw logs more attractive than more processed products. Export restrictions imposed by many log exporting developing countries, such as export taxes on the least processed product forms, log export bans, etc., are attempts to compensate for the import barriers they face. Res t rictions of this t ype deny competitive processors raw material , and /or raise the cost of this materia l to them. They also move local firms towards more processed products by reducing the profitability of the export of logs.

While appealing, these arguments do not necessarily guarantee success. Two major criticisms can be raised. While the raw material exporting countries may have a comparative advantage in producing logs, this does not necessarily imply an a dvantage in processing. Sucess may therefore rest largely on the a bility to deny other processors raw material, unless additional advantages can be developed such as lower costs from improved infrastructure, greater production efficiency, etc.

A Second criticism rests on the fact that it can be extremely difficult to ensure sales by denying competitors raw materials. Unless the exporting country can genuinely be compet i tive in wood processing, it will be difficult to develop viable export activi ties. At one extreme buyers may substitute other products rather than pay higher prices or accept poorer products. Other materials such as cement, steel, or plastics may be used, or reconstituted products such as medium density fibreboard or oriented strand board may be used as substitutes for solid wood products. At the other extreme alternative sources of raw material will be found. Unless an exporter or group of exporters are dominant raw material suppliers and few alternatives exist, restricting log exports may not have all the anticipated benefits. Numerous examples exist where this has been the case. The effect of log bans in most South American countries was diluted by Chile abandoning its controls in 1975 and placing major emphasis on log exports; the effects of Peninsular Malaysia have been affected by contrary policies being followed by Sarawak and t o a lesser extent Sabah; and Philippines efforts ·have been unsuccessful to date.

Japan has partly compensated for declining raw materials by finding other hardwood suppliers and i nvestigati ng the feasibility of substituting softwood logs.

Much of the basic premise on which the relocation of processing in the log producing countries is based, is that these countries are lower cost producers than current producers. Log producing countries believe

- 85 -

their major advantages are access to a plentiful and cheap supply of labor,and control over the wood resource. In addition, the first stages of woodprocessing such as sawntimber, plywood, and veneer are highly weightreducing. Since transport costs are a major proportion of the CIF cost oflogs in the importing country, this weight and volume reduction, which canamount to 40-60%, should result in substantial freight cost savings. It issuggested that these advantages will more than compensate for areas inwhich the developing countries are at a disadvantage, such as skilledmanpower, access to capital, and infrastructure.

Two important questions are therefore raised:

Do the log producing countries have a comparative advantage inprocessing logs as well as in growing them? and

Are import barriers one of the primary impediments to theircompetitiveness?

(a) Cost Competitiveness

It is difficult to make firm cost comparisons between nations becauseof the many factors which affect competitiveness, the lack of relevantdata, and the fact that considerable variation can exist in how some costsshould be valued. A limited number of studies provide some information onthe subject although the information they provide is far from conclusive.Takeuchi (1983) indicated a number of Asian developing countries held costadvantages over Japan in the production of plain harwood plywood. Hisestimates (Table 5) suggest that in 1980 the cost advantage, CIF Japan,over Japanese based production ranged from 9% for Singapore to 39% for WestMalaysia. At FOB. the advantage ranged from 15% to 47% for Singapore andWest Malaysia, respectively.

Another study estimated that in 1975 African timber-producingcountries had a comparative price advantage over Effopean producers ofplywood, veneer and plywood, ranging from 7 to 33% .

Comparative cost information for other products and countries is bothdifficult to obtain and evaluate. Fragmentary evidence such as thatmentioned by IIASA (1984) when compared with that present5d by Takeuchi forexample, suggests plywood costings ranging f5om US $240/m for plants inWest and Central Africa to around $220-300/m for Asian countries (Table 6and 7). The relative importance indicated for the main cost elementssuggests absolute differences in the labor costs but little difference incapital charges. Energy costs are the main item in Africa while the Asianestimates assume all energy requirements are met by burning wood wastes.Differences in assumptions such as this make comparisons of the importanceof each item difficult.

1/ "Possibilitê de création d'industries exportatrices Africaines etMalagches associées." Commission des communautés Européennes, Bruxelles,1976.

- 85 -

their major advantages are access to a plentiful and cheap supply of labor, and control over the wood resource. In addition, the first s tages of wood processing such as sawntimber, plywood, and veneer are highly weight reducing. Since transport costs are a major proportion of the CIF cost of logs in the importing country, this weight and volume r eduction, which can amount to 40-60%, should result in substantial frei ght cost savings. It is suggested that these advantages will more than compensate for areas in which the developing countries are at a disadvantage, such as skilled manpower, access to capital, and infrastructure.

Two important questions are therefore raised:

(a) Do the log producing countries have a comparative advantage in processing logs as well as in growing them? and

(b) Are import barriers one of the primary impediments to their competitiveness?

(a) Cost Competitiveness

It is difficult to make firm cost comparisons between nations because of the many factors which affect competitiveness, the lack of relevant data, and the fact that considerable variation can exist in how some costs should be valued. A limited number of studies provide some information on the subject although the information they provide is far from conclusive. Takeuchi (1983) indicated a number of Asian developing countries held cost advantages over Japan in the production of plain harwood plywood. His estimates (Table 5) suggest that in 1980 the cost advantage, CIF Japan, over Japanese based production ranged from 9% for Singapore to 39% for West Malaysia. At FOB. the advantage ranged from 15% to 47% for Singapore and West Malaysia, respectively.

Another study estimated that in 1975 African t imber-producing countries had a comparative price advantage over Epfopean producers of plywood, veneer and plywood, ranging from 7 to 33% •

Comparative cost information for other products and countries is both difficult to obtain and evaluate. Fragmentary evidence such as that mentioned by IIASA (1984) when compared with that presentjd by Takeuchi for example, suggests plywood costings ranging f30m US $240/m for plants in West and Central Africa to around $220-30D/m for Asian countries (Table 6 and 7). The relative importance indicated for the main cost elements suggests absolute differences in the labor costs but little difference in capital charges. Energy costs are the main item in Africa while the Asian estimates assume all energy requirements are met by burning wood wastes. Differences in assumptions such as this make compari sons of the importance of each item difficult.

1/ "Possibilite de creation d'industries exporta trices Africaines et Malagches associees." Commission des communautes Europeennes, Bruxelles, 1976.

TABLE 5 -

-86 -

The major difference, however, between the figures is the absoluteand proportionate level of raw materials. The IIASA figurei indicated rawmaterials, of which logs are the major part, ire only $501m (32%) 11.Africa compred with Takeuchi's cost of $202/m (71%) for Indonesia(Table 7). Even though different regions are concerned, differences ofthis size are rather difficult to reconcile when statistics on domesticmarket prices are studied.

Estimated cost of production for plain plywoodat selectel locations in Asia (early 1980)(US$ per m of plywood)

Indonesia Sabah West PhilippinesMalaysia

Costs:logs

- labor-other cost

Total cost to FOB(Export price)Sea freight and

insurance

cost CIF Japan:- without import Nty

with import duty

Price advantage relativeto Japane:

at FOBb- at CIF

without dutywith duty

Source: Based on Takeuchi (1983)Estimates assume wood waste is burned to provide fuel.

a Log input assumed to be "South Sea" tropical hardwood. Thereforeincludes log freight to Japan, whereas freight on plywood in othercolums is indicated as a separate item.

b Japanese duty of 20% of import price (i.e. export price plus freightand insurance).

c Japanese price is assumed to approximate an ex-factory price.

d Comparison is not completely appropriate as Japan costs relate to 0.9 mx 1.82 m sheets3 while others are 1.2 m x 2.42 m. Takeuchi suggests aprice of $468/m may be more reasonable.

e Percentage by which price is below the Japanese price.

1/ Log costs plus glue and other supplies.

152 127 10024 20 24

119 143 90

295 290 214

(323) (310) (270)

43 26 31

337 317 245410 383 305

27% 28% 47%

16% 21% 39%

-2% 5% 24%

Singapore Japan

201 286a35 36

206 70

342 402c(358) (385)

26 0

368 402c445 402d

15% d

9% d

-11%

99

25

132

256

(303)

23

279344

36%

31%14%

- 86 -

The major difference, however, between the figures is the absolute and proportionate level of raw materials. The IIASA figurej indicated raw materials , of which l ogs are the major part, 1re only $50/m (32%) r7 Afr ica compred with Takeuchi's cost of $202/m (71%) for Indonesia (Table 7). Even though different regions are concerned, differences of this size are rather difficult to reconcile when stat istics on domestic market prices are studied.

TABLE 5 - Estimated cost of production for plain plywood at selecte1 locations in Asia (early 1980) (US$ per m of plywood)

Indonesia Sabah West Philippines Singapore Japan Malaysia

Costs : - logs 152 127 100 99 201 - labor 24 20 24 25 35 -other cost 119 143 90 132 206

Total cos t t o FOB 295 290 214 256 342 (Export price) (323) (310) (270) (303) (358) Sea freight and

insurance 43 26 31 23 26

cost CIF Japan: - without import d~ty 337 317 245 279 368 - with import duty 410 383 305 344 445

Price advantage relative e to Japan : - at FOB b 27% 28% 47% 36% 15% - at CIF

- without duty 16% 21% 39% 31% 9% - with duty -2% 5% 24% 14% -11%

Source: Based on Takeuchi (1983) Estima t es assume wood waste is burned to provide fuel.

a Log input assumed to be "South Sea" tropical hardwood. Therefore includes log freight to Japan, whereas freight on plywood in other colums is indicated as a separate item.

b Japanese duty of 20% of i mport price (i.e. export price plus freight and insurance).

c Japanese price is assumed to approximate an ex-factory price.

286a

36 70

402c

(385)

0

402 c

402 d

d

d

d Comparison is not completely appropriate as Japan costs relate to 0.9 m x 1.82 m sheets

3while others are 1.2 m x 2.42 m. Takeuchi suggests a

price of $468/m may be more reasonable.

e Percentage by which price is below the Japanese price.

1/ Log costs plus glue and other supplies.

-87 -

further confusion is given by estimates for Japan reported by UNIDO(1983) which suggest timber and adhesives, labor and other expenses are75%, 14% and 11%, of total costs respectively. Comparative figures forSouth Korea for these costs are 81%, 7% and 12%, little different to thosefor Japan, although they markedly different from those for West and CentralAfrica.

Table 6 - Unit Processing costs for Mills in Westand Central Africa

1/ UNIDO (1983b)

Cost item sawntimber Veneer Plywood

m3 (%) m3 (%) m3 (%)

Raw material 32 (40) 80 (40) 50 (21)Labor 20 (25) 20 (10) 12 (5)

Energy 4 (5) 60 (30) 60 (25)

Capital 8 (10) 40 (20) 86 (15)

Total 80 (100) 200 (100) 240 (100)

Source: IIASA (1984)

Table 7 - Plywood Processing Costs - Comparison

Indonesia* West & Central Africa(Takeuchi) (IIASA)

3 3$/m (%) $/m (%)

Raw material 202 (71) 50 (32)

Labor 24 (8) 12 (8)Energy - - 60 (38)

Capital 38 (13) 36 (22)

Other 19** (8)

Total 283 (100) 158 (100)

Excludes packaging and transport and charges tothe port.Assumes energy provided by wood waste.

** General management costs (e.g. health facilities,technica fees)

- 87 -.. f urther confusion is given by estimates for Japan reported by UNIDO

(1 983) which suggest timber and adhesives, labor and other expenses are 75%, 14% and 11%, of total costs respectively. Comparative figures for South Korea for these costs are 81%, 7% and 12%, little different to those fo r Japan, although they markedly different from those for West and Central Africa.

Table 6 - Unit Processing costs for Mills in West and Central Africa

Cost item sawn timber Veneer Plywood

Raw material 32 (40) 80 (40) 50 (21) Labor 20 (25) 20 (10) 12 (5) Energy 4 (5) 60 (30) 60 (25) Capital 8 (10) 40 (20) 86 (15)

Total 80 (100) 200 (100) 240 (100)

Source : IIASA (1984)

Table 7 - Plywood Processing Costs - Comparison

Raw material Labor Energy Capital Other

Total

202 24

38

Indonesia* (Takeuchi)

(71 ) (8 )

(13) 19** (8)

283 (100)

West & Central Africa (IIASA)

50 (32) 12 (8) 60 (38) 36 (22 )

158 (100)

* Excludes packaging and transport and charges to the port.

**

Assumes energy provided by wood waste.

General management costs (e.g. health facilities, technica fees)

1/ UNIDO (1983b)

-

Looking specifically at the issue of freight rates, although theprocessing of logs into sawntimber or plywood is a weight and volumereducing activity, part of this weight/volume loss advantage is lostbecause of the manner in which sea-freight rates are established.Characteristics of ocean shipping and the many factors which affect ratesare discussed in detail in Appendix 2, but two features are worth repeatinghere.

Firstly, while the weight/volume of the prodw to be shipped isreduced, the per-unit freight rate generally rises . This reflects thefact that the rate is partly determined by the value of the product beingshipped. In addition greater care must be taken with more processedproducts since the are more easily damaged, and more sophisticated storageand loading facilities may be needed. The result is that the full freightsavings that might otherwise be expected do not arise.

Secondly, the lower volumes to be shipped, the generally more diversedestinations and smaller volumes required by any single buyer which resultfrom the more processed products, make it difficult to assemble the volumesneeded to allow the use of charter shipping. Charter rates are consistent-ly below those of liner rates with the result that if liner shipping mustbe used, much of the advantage from lower shipping weight is lost.

As an example of the relative position, table 1, appendix 2 indicatesthat depending on the yeir, rates for plywood shipped from Indonesia toJapan are some $10-$131m of product shipped higher than for logs.Assuming a weight lm of aboui 45% in processing and increased insuranceand packaging costs of $18/m , the cost of shipping one cubic metre s,fplywood is $10.30 lower than for shipping the equivalent volume (1.85m ) of

logs. Using 1980 freight rates the margin in favour of plywood falls to$2.50. While this comparison appears to suggest the shipment of plywood isless costly than the shipment of logs, it should be appreciated that unlesslarge volumes of plywood destined for a limited number of ports canshipped, it is likely that liner rates would applAr rather than the lowercharter rates. If this is the case, the $10-151m higher rate on plywoodthat applies would remove any savings in freight - in fact, freight costswould be higher.

In summry, although these estimates suggest that production ofplywood can be carried out more cheaply in the log-producing countriesthan (in this case) Japan, this does not provide conclusive proof thatthese countries possess a comparative advantage.

The cost advantage shown is in fact predominantly a reflection of thecost of the raw material, logs. In Takeuchi's analysis the implied pricespaid for logs in the countries indicated are substantially less in each

1/ Freight rate escalation has been commented on by Yeats (1981) amongothers.

2/ Insurance 0.7% of FOB cost and packaging $9/m3 (Takeuchi, 1983).

-.. 88 -

Looking specifically at the issue of freight rates, although the processing of logs into sawntimber or plywood is a weight and volume reducing activity, part of this weight/volume loss advantage is lost because of the manner in which sea-freight rates are established. Characteristics of ocean shipping and the many factors which affect rates are discussed in detail in Appendix 2, but two features are worth repeating here.

Firstly, while the weight/volume of the prod~9t to be shipped is reduced, the per-unit freight rate generally rises . This reflects the fact that the rate is partly determined by the value of the product being shipped. In addition greater care must be taken with more processed products since the are more easily damaged, and more sophisticated storage and loading facilities may be needed. The result is that the full freight savings that might otherwise be expected do not arise.

Secondly, the lower volumes to be shipped, the generally more diverse destinations and smaller volumes required by any single buyer which result from the more processed products, make it difficult to assemble the volumes needed to allow the use of charter shipping. Charter rates are consistently below those of liner rates with the result that if liner shipping must be used, much of the advantage from lower shipping weight is lost.

As an example of the relative position, table 1, appendix 2 indicates that depending on the ye~r, rates for plywood shipped from Indonesia to Japan are some $10-$13/m of product shipped higher than for logs. Assuming a weight 12~s of abous 45% in processing and increased insurance and packaging costs of $18/m , the cost of shipping one cubic metre ~f plywood is $10.30 lower than for shipping the equivalent volume (1.85m ) of logs. Using 1980 freight rates the margin in favour of plywood falls to $2.50. While this comparison appears to suggest the shipment of plywood is less costly than the shipment of logs, it should be appreciated that unless large volumes of plywood destined for a limited number of ports can shipped, it is likely that liner rates would appl~ rather than the lower charter rates. If this is the case, the $10-15/m higher rate on plywood that applies would remove any savings in freight - in fact, freight costs would be higher.

In summry, although these estimates suggest that production of plywood can be carried out more cheaply in the log-producing countries than (in this case) Japan, this does not provide conclusive proof that these countries possess a comparative advantage.

The cost advantage shown is in fact predominantly a reflection of the cost of the raw material, logs. In Takeuchi's analysis the implied prices paid for logs in the countries indicated are substantially less in each

1/ Freight rate escalat i on has been commented on by Yeats (1981) among others.

2/ Insurance 0.7% of FOB cost and packaging $9/m3 (Takeuchi, 1983).

Source: Takeuchi (1983)

These differences cannot be accounted fo5 by ocean freight costswhich were shown earlier io be around $25-301m . In the f7se of indonesila substantial part ($55/m ) is the result of export taxes , but $27-32/mis still unexplained. While part of the difference may be a result ofquality differences, it seems reasonable to conclude that the exportrestrictions have resulted in a substantial differential above and beyongwhat can be explained by these factors.

The advantage suggested for the log-producing countries, on the basisof these estimates, therefore, is not a reflection of two of the mainadvantages indicated as reasons for a changed location of processing,namely the extensive weight reduction which therefore provides lowerfreight costs, and the lower laboicost. The primary cost advantage wouldappear to be the cost of the logs . Since the species, quality and sourceof the logs is essentially the same in all cases, it becomes clear that thedominant cost advantage results from artificial controls such as localexport taxes, royalty systems etc. which discriminate against export logsin favour of those destined for domestic processing. From this it must beconcluded that the comparative advantage that many reports3/ imply thelog-producing countries hold, is not in fact true comparative advantage.

1/ See Takeuchi (1983).

2/ For Indonesian logs Takeuchi indicates a price diffesential betweendomestic and export logs of comparable quality of $55-651m in 1980.

3/ See for example the studies of Takeuchi (1983), UNIDO (1983e) andUNCTAD (1982), all of which imply these countries hold a comparativeadvantage.

- 89 -

case than those paid by Japan. Assuming the estimates relate to roughlyequivalen grades of logs, the price advanage held over Japan ranged fromUS $147/m for West Malaysia, to US$ 112/m for Ingonesia (Table 8).Singapore, a log-importing country, had a US $92/m advantage over Japan.

TABLE 8 - Implied Log Prices Paid by Plywood Producersat Different Locations (1980)

Location Unit cost ($1m3) Differencefrom Japan

Indonesia 80 112

Sabah 66 126

Peninsular Malaysia 45 147

Philippines 50 142

Singapore 100 92

Japan 192

- 89 -

case than those paid by Japan. Assuming the estimates relate to roughly equivalen5 grades of logs, the price advansage held over Japan ranged from US $147/m for West Malaysia, to US$ ll2/m for I~onesia (Table 8). Singapore, a log-importing country, had a US $92/m advantage over Japan.

TABLE 8 - Implied Log Prices Paid by Plywood Producers at Different Locations (1980)

Location

Indonesia Sabah Peninsular Malaysia Philippines Singapore Japan

Source: Takeuchi (1983)

3 Unit cost ($/m )

80 66 45 50

100 192

Difference from Japan

112 126 147 142

92

These differences cannot be accounted foS by ocean freight costs which were shown earlier 30 be around $25-30/m. In the f7se of Indonesi~ a substantial part ($55/m ) is the result of export taxes ,but $27-32/m is still unexplained. While part of the difference may be a result of quality differences, it seems reasonable to conclude that the export restrictions have resulted in a substantial differential above and beyong what can be explained by these factors.

The advantage suggested for the log-producing countries, on the basis of these estimates, therefore, is not a reflection of two of the main advantages indicated as reasons for a changed location of processing, namely the extensive weight reduction which therefore provides lower freight costs, and the lower laboZ/cost. The primary cost advantage would appear to be the cost of the logs • Since the species, quality and source of the logs is essentially the same in all cases, it becomes clear that the dominant cost advantage results from artificial controls such as local export taxes, royalty systems etc. which discriminate against export logs in favour of those destined for domestic processing. From

3This it must be

concluded that the comparative advantage that many reports imply the log-producing countries hold, is not in fact true comparative advantage.

1/ See Takeuchi (1983).

l/ For Indonesian logs Takeuchi indicates a price diffe3ential between domestic and export logs of comparable quality of $55-65/m in 1980.

3/ See for example the studies of Takeuchi (1983), UNIDO (1983e) and UNCTAD (1982), all of which imply these countries hold a comparative advantage.

- 90 -

This is further reinforced when it is considered that the countries withthe strongest competitive position in plywood production in the past havebeen South Korea and Taiwan. In both cases, as with Singapore, theirexports have been based on log imports from the major log-producingcountries, and an important reason for their declining market share is thedifficulty of obtaining logs, not declining competitiveness.

The available information on tropical plywood production seems tosuggest that ignoring barriers:

Production costs for Asian developing countries may be similaror slightly above those of Japanese producers if log costs areignored;

with a logh price differential the developing countries are ableto sell at lower prices than Japanese producers;

if either the log differential is maintained, or the logproducing countries improve their processing activities andachieve lower costs in processing and ocean freight, andassuming their quality is comparable, they can become fullycompetitive. Critical factors in processing are factors such asthe 17ve1 of utilization of the plant, and the conversionrate .

(b) Barriers

The second main argument put forward for export restrictions in thelog producing countries, is that these compensate for the entry barriersimposed by the importing countries. This implies that these barriers raisethe price of imports to uncompetitive levels. The export restrictions aretherefore seen as compensating for this disadvantage by making the price ofthe log higher to the processors in the importing country.

In the plywood example analysed by Takeuchi, the import duty of 20%of the import price is estimated to represent from 17-20% of the deliveredcost of plywood. As indicated in table 5, the duty resulted in the CIFprice for Singapore and Indonesia being above the Japanese price while forSabah, West Malaysia, and the Philippines the margin enjoyed by them wasreduced. Given the approximate nature of the cost estimates, it is reason-albe to suggest that in this example the import duty alone is clpable ofhaving a major impact. Duty leveis in the order of US$ 60-70/m of plywoodon landed prices of US$ 300-400/m are clearly likely to have a majoreffect on competitiveness.

Import duty rates in other major consuming countries varyconsiderably, generally reflecting the extent to which a local industryexists.

1/ For example, the plants compared by Takeuchi assumed higherconversion rates (wood recovery rates) and higher capacity levels for Japanthan for most other production sites.

- 90 -

This is further reinforced when it is considered that the countries with t he strongest competitive position in plywood production in the past have been South Korea and Taiwan. In both cases, as with Singapore, their exports have been based on log imports from the major log-producing countries, and an important reason for their declining market share is the difficulty of obtaining logs, not declining competitiveness.

The available information on tropical plywood production seems to s uggest that ignoring barriers:

i) Production costs for Asian developing countries may be similar or slightly above those of Japanese producers if log costs are ignored;

ii) with a logh price differential the developing countries are abl e to sell at lower prices than Japanese producers ;

iii) if either the log differential is maintained, or the log producing countries improve their processing activities and achieve lower costs in processing and ocean freight, and assuming their quality is comparable, they can become fully competitive. Critical factors in processing are factors such as the t7vel of utilization of the plant, and the conversion rate .

( b) Barriers

The second main argument put forward for export restrictions in the l og producing countries, is that these compensate for the entry barriers imposed by the importing countries. This implies that these barriers raise the price of imports to uncompetitive levels. The export restrictions are therefore seen as compensating for this disadvantage by making the price of the log higher to the processors in the importing country.

In the plywood example analysed by Takeuchi, the import duty of 20% of the import price is estimated to represent from 17-20% of the delivered cost of plywood. As indicated in table 5, the duty resulted in the CIF price fo r Singapore and Indonesia being above the Japanese price while f or Sabah, West Malaysia, and the Philippines the margin enjoyed by them was r educed. Given the approximate nature of the cost estimates, it is reasonalbe to suggest that in this example the import duty alone is c~pable of having a major impact. Duty leve!s in the order of US$ 60-70/m of plywood on landed prices of US$ 300-400/m are clearly likely to have a major effect on competitiveness.

Import duty rates in other major consuming countries vary considerably , generally reflecting the extent to which a local indust r y exists.

1/ For example, the plants compared by Takeuchi assumed higher c onversion rates (wood recovery rates ) and higher capacity levels for Japan than for most other production sites.

- 91 -

Non-tariff barriers are more difficult to commen on. For someproducts in some major markets they are clearly restricting trade below thelevel that would occur under free-trade. The tariff quotas and limitationsplaced on GSP eligibility have an effect on panel products and somefurniture products. Although difficult to substantiate in any clear way,import licenses and entry procedures have an impact on the ease with whichtrade can occur. Even where they may be issued automatically they can havea deterent effect, especially if not consistently administered. At bestthey may merely be an irritant, at worst a considerable barriers.Voluntary export restrainsts (VERs) and anti-dumping or countervailingduty investigations have been used in a limited number of cases for forestproducts, but there is some evidence to suggest they are becoming morecommon. Equally, health and technical standards affect trade but cannot bequantitatively measured.

NTBs are, therefore, restricting trade from the log producingcountries. The specific barrier and its affect varies with both theproduct and the individual importing country. The affect is difficult todetermine but because a number of separate barriers may apply at any onetime, the overall effect is likely to be greater than appears on thesurface. This barrier "stacking" means that in most cases a number ofnon-tariff barriers apply to the product in addition to tariff barriersthat exist.

Thus, in total, trade barriers do represent a disincentive to theprocessing and export of forest products by the log-producing countries.The exact effect is hard to establish but the relaxation of tariff andnon-tariff barriers would assist increased local processing in thesecountries. Tariffs place an added cost on imports, which restrictscompetitiveness. In an equivalent manner non-tariff barriers raise costsor make it difficult for the developing countries to export. Since thereare few signs that trade barriers are being relaxed to any extent the useof export restrictions by the log-producing countries is an importantcompetitive strategy. Their cost competitiveness will continue to beclosely linked to effective government policies, particularly those whichcreate differential prices for logs. This is likely to continue to be thecase for the foreseeable future.

4. EEfects on Trade Patters

Only broad comments can be made since the specific results will beinfluenced by the exact nature of the changes that are made.

Some general points are:

trade barriers are not the only, or even the main factors,affecting the competitive ability of the developing countries;

reduced import barriers in the developed countries wouldencourage an expansion of more processee exports by thedeveloping countries;

(c) the extent of any growth in processed forest product exports willbe dependant on how well the developing countries can meet market

- 91 -

Non-tariff barriers are more difficult to commen on. For some products in some major markets they are clearly restricting trade below the level that would occur under free-trade. The tariff quotas and limitations placed on GSP eligibility have an effect on panel products and some furniture products. Although difficult to substantiate in any clear way, import licenses and entry procedures have an impact on the ease with which trade can occur. Even where they may be issued automatically they can have a deterent effect, especially if not consistently administered. At best they may merely be an irritant, at worst a considerable barriers. Voluntary export restrainsts (VERs) and anti-dumping or countervailing duty investigations have been used in a limited number of cases for forest products, but there is some evidence to suggest they are becoming more common. Equally, health and technical standards affect trade but cannot be quantitatively measured.

NTBs are, therefore, restricting trade from the log producing countries. The specific barrier and its affect varies with both the product and the individual importing country. The affect is difficult to determine but because a number of separate barriers may apply at anyone time, the overall effect is likely to be greater than appears on the surface. This barrier "stacking" means that in most cases a number of non-tariff barriers apply to the product in addition to tariff barriers that exist.

Thus, in total, trade barriers do represent a disincentive to the processing and export of forest products by the log-producing countries. The exact effect is hard to establish but the relaxation of tariff and non-tariff barriers would assist increased local processing in these countries . Tariffs place an added cost on imports, which restricts competitiveness. In an equivalent manner non-tariff barriers raise costs or make it difficult for the developing countries to export . Since there are few signs that trade barriers are being relaxed to any extent the use of export restrictions by the log-producing countries is an important competitive strategy. Their cost competitiveness will continue to be closely linked to effective government policies, particularly those which create differential prices for logs. This is likely to continue to be the case for the foreseeable future.

4. Effects on Trade Patters

Only broad comments can be made since the specific results will be influenced by the exact nature of the changes that are made.

Some general points are:

(a) trade barriers are not the only, or even the main factors, affecting the competitive ability of the developing countries;

(b) reduced import barriers in the developed countries would encollrage an expansion of more processec exports by the developing countries;

(c) the extent of any growth in processed forest product exports will be dependant on how well the developing countries can meet market

- 92 -

requirements. Particularly important will be the relative price,quality of the product, its consistency and the reliability ofthese countries as supliers;

expansion of processed forest products trade will depend oil anexpanded processing sector and therefore the investment environ-ment;

an important element in the growth in forest products trade willbe the buoyancy of the main import markets. Unless demandexpands, price competition will continue to a major factor inachieving sales;

selective reduction of trade barriers would have quite adifferent effect on trade patterns than would more broadly-basedremovals. Reductions which favour individual markets orsuppliers such as through regional trate agreements or fromunilateral changes by individual markets would alter presentpatterns to a greater degree than if multilateral agreementsoccur; extension of the CS') to additional products (e.g. hardwoodplywood in Japan) or the removal of limiting conditions (e.g.tariff quotas on panels into the EEC) would encourage increasedtrade in selected products by the developing countries;

pressure for reduced trade barriers from the major forest productdeveloped country exporters (e.g. U.S.A., Canada) may havespin-off benefits for the developing countries, but will alsoincrease competition for them;

For example recent Japanese reductions in tariffs on woodproducts (particularly panels) will increase competition fromsoftwoods (including reconstituted panels). This will increasethe likelihood of substitution for harwood products unless pricedifferentials are sufficient to attract continued trade;

export restrictions will continue to have a greater impact ontrade patterns than import restrictions;

the effects of these export restrictions will depend on theexporting countries continuing to enforce them. Pressure fromdomestic producers, government revenue difficulties, etc. willinfluence the level of continued commitment;

assuming continued commitment, plywood and sawntimber exportswill expand in the log-producing countries at the expense ofproduction in the main markets and in-transit producingcountries. The rate of expansion will also be influenced by thesuccess these latter countries have in finding alternativesources of supply, including softwood logs;

This trend will be encouraged as processors become more skilledin both production and marketing, and as infrastructure isimproved;

- 92 -

requirements . Particularly impo~tant will be the relative price, quality of the product, its consistency and the reliability of these countries as supliers;

(d) expansion of processed forest products trade will depend on an expanded processing sector and therefore the inves tment environment;

(e) an important element in the growth in forest products trade will be the buoyancy of the main import markets. Unless demand expands, price competition will continue to a major factor in achieving sales;

(f) selective reduction of trade barriers would have quite a different effect on trade patterns than would more broadly-based removals. Reductions which favour individual markets or suppliers such as through regional trate agreements or from unilateral changes by individual markets would alter present patterns to a greater degree than if multilateral agreements occur; extension of the GSP to additional products (e.g. hardwood plywood in Japan) or the removal of limiting conditions (e.g. tariff quotas on panels into the EEC) would encourage increased trade in selected products by the developing countries;

(g) pressure for reduced trade barriers from the major forest product developed country exporters (e.g. U.S.A., Canada) may have spin-off benefits for the developing countries, but will also increase competition for them;

For example recent Japanese reductions in tariffs on wood products (particularly panels) will increase competition from softwoods (including reco~stituted panels). This will increase the likelihood of substitution for harwood products unless price differentials are sufficient to attract continued trade;

(h) export restrictions will continue to have a greater impact on trade patterns than import restric tions;

(i) the effects of these export restrictions will depend on the exporting countries continuing to enforce them. Pressure from domestic producers, government revenue difficulties, etc. will influence the level of continued commitment;

(j) assuming continued commitment, plywood and sawntimber exports will expand in the log-producing countries at the expense of production in the main markets and in-transit producing countries. The rate of expansion will also be influenced by the success these latter countries have in finding alternative sources of supply, including softwood logs;

This trend will be encouraged as processors become more skilled in both production and marketing, and as infrastructure is improved;

- 93 -

(k) trade in panels and processed hardwood products will decline inKorea, Taiwan, Singapore and Hong Kong as these exportrestrictions limit log supplies. These countries will modifytheir operations as much as possible by leaving primaryprocessing to the log-producing countries and concentrating onmore capita-intensive secondary processing;

(1) the Asian producers may increase sales to Europe in addition tothe current emphasis on Japan and China;

increasing competition for many markets is likely fromreconstituted panel products produced in developed countries, andfrom softwood solid panels.

increased exports of wood manufactures and furniture are likelyto grow more slowly.

unless further dramatic restrictions in supply occur, such asthose intituted by Indonesia, major changes in trade patterns areunlikely in the short term. Without these supplies - imposedchanges deve/oping countries will make slow progress, mainlydependent on their processing, distribution and marketingimprovement than on trade barriers.

All of these general trends depend heavily on factors other thanchanges in trade barriers. In particular market demand and the ability ofthe developing countries to produce and market competitive product arecritical.

5. Effects on Industrialization

It is difficult to assess what effects further reductions in tradebarriers might have on industrialization. The benefits of industrializa-tion based on forestry are obvious for the log producing countries, butthere is a need to fully assess overall sector strategies and individualprojects before major commitments are made. Although there is evidence tosuggest that these countries can benefit from resource-based industrialdevelopment there is little a priori evidence that they necessarily have aclear comparative advantage in the processing of many products. Each casemust be determined on its merits.

A reduction in import barriers can assist development efforts butsince these barriers are already relatively low for many products the gainsare unlikely to be of major significance. Benefits are only likely to beof any importance for products where barriers are still relatively high,such as plywood and some wood manufactures. Even with these reductions,successful industrialization will depend more on other factors thanbarriers. Unless the developing countries can produce products which arecompetitive in all respects, including quality, technical performance,reliability of supply, and provision of marketing services,industrialization based on these products is unlikely to succeed withoutgovernment assistance. Reduced barriers will provide an important stimulusrather than ensure success. Demand factors and competitive conditions willhave an important effect on profitability.

- 93 -

(k) trade in panels and processed hardwood products will decline in Korea, Taiwan, Singapore and Hong Kong as these expo rt restrictions limit log supplies. These countries will modify their operations as much as possible by leaving primary processing to the log-producing countries and concentrating on more capita-intensive secondary processing;

(1) the Asian producers may increase sales to Europe in addition to the current emphasis on Japan and China;

(m) increasing competition for many markets is likely from reconstituted panel products produced in developed countries, and from softwood solid panels.

(n) increased exports of wood manufactures and furniture are likely to grow more slowly.

(0) unless further dramatic restrictions in supply occur, such as those intituted by Indonesia, major changes in trade patterns are unlikely in the short term. Without these supplies - imposed changes developing countries will make slow progress, mainly dependent on their processing, distribution and marke ting improvement than on trade barriers .

All of these general trends depend heavily on factors other than changes in trade barriers. In particular market demand and the ability of the developing countries to produce and market competitive product are critical.

5. Effects on Industrialization

It is difficult to assess what effects further reductions in trade barriers might have on industrialization. The benefits of industrialization based on forestry are obvious for the log producing countries, but there is a need to fully assess overall sector strategies and individual projects before major commitments are made. Although there is evidence to suggest that these countries can benefit from resource-based industrial development there is little a priori evidence that they necessarily have a clear comparative advantage in the processing of many products. Each case must be determined on its merits.

A reduction in import barriers can assist development efforts but since these barriers are already relatively low for many products the gains are unlikely to be of major significance. Benefits are only likely to be of any importance for products where barriers are still relatively high, such as plywood and some wood manufactures. Even with these reductions, successful industrialization will depend more on other factors than barriers. Unless the developing countries can produce products which are competitive in all respects, including quality, technical performance, reliability of supply, and provision of marketing services, industrialization based on these products is unlikely to succeed without government assistance. Reduced barriers will provide an important s timulus rather than ensure success . Demand factors and competitive conditions will have an important effect on profitability.

- 94 -

Trade barriers are most likely to have a direct impact Zhere theyartificially restrict entry rather than where they add to the costs of theproduct, unless this added cost is substantial. For this reason barrierswhich control entry such as quantitative controls, import regulations andsafety and technical requirements potentially have most effect.

Currently the most direct influence on industrialization is from theexport barriers imposed by the developing countries, rather than importbarriers. Without these much of the impetus for industrialization wouldslow, since these have the effect of forcing changes which might no occurotherwise. The ability of Indonesia and Malaysia to take over markets fromSingapore, Taiwan and South Korea is closely related to their ability todeny these countries raw material rather than any clear natural advantages.As an example, UNIDO (1984) has suggested that although wage levels inIndonesia were well below other developing countries in the region, thepotential comparative advantages it might enjoy because of this are largelyoffset by low levels of productivity. The ratio of value-added per workerin both the wood and furniture industries was lower than in Malaysia andthe Philippines, for example. The conclusion reached was that Indonesia's"potential advantage due to low wage levels will only be realised inindustries and plants which can show internationally comparable levels oflabor productivity-.

This same study indicated that the developing countries as a grouphave comparative advantage in simply worked wood and wood manufactures.They may also have an advantage in veneer and plywood, but for this thenewly-industrialised countries (NICs) (such as Republic of Korea, Taiwanand Singapore) have greater comparative advantage. the NICs were suggestedto have comparative advantage in veneer and plywood manufacture; while thedeveloped countries were seen as most competitive in pulp, paper andpaperboard, and furniture.

This underlines the fact that a number of elements are important inoverall competitiveness, and that control of the resource does notnecessarily equate with comparative advantage in producing and marketingprocessed products. In the past Republic of Korea and Taiwan were able tobe xtremely competitive in selling processed products on export markets,based on imported logs. On the other hand, Japan, which also purchaseslogs for processing, has been unable to compete for third markets againstthese two countries. Its OWD domestic market has also required protectionto withstand competition.

Indonesia's export controls however resulted in substantialreductions in market shares held by Republic of Korea and Taiwan.Indonesia's share of Japanese plywood imports has risen from zero in themid-1970s to 92% in 1985. At the same time Korea's share has fallen from65% to almost nothing and Taiwan's share from 30% to almost nothing. By

comparison Malaysia and the Philippines, both log exporting countries, havealso declined in importance as suppliers of plywood to the Japanese market.

- 94 -

Trade barriers are most likely to have a direct impact where they artificially restrict entry rather than where they add to the costs of the product, unless this added cost is substantial. For this reason barriers which control entry such as quantitative controls, import regula t ions and safety and technical requirements potentially have most effect.

Currently the most direct influence on industrialization is from the export barriers imposed by the developing countries, rather than import barriers . Without these much of the impetus for industrialization would slow, since these have the effect of forcing changes which might no occur otherwise. The ability of Indonesia and Malaysia to take over markets from Singapore, Taiwan and South Korea is closely related to their ability to deny these countries raw material rather than any clear natural advantages. As an example, UNIDO (1984) has suggested that although wage levels in Indonesia were well below other developing countries in the region, the potential comparative advantages it might enjoy because of this are largely offset by low levels of productivity. The ratio of value-added per worker in both the wood and furniture industries was lower than in Malaysia and the Philippines, for example. The conclusion reached was that Indonesia's .. potential advantage due to low wage levels will only be realised in industries and plants which can show internationally comparable levels of labor productivity".

This same study indicated that the developing countries as a group have comparative advantage in simply worked wood and wood manufactures. They may also have an advantage in veneer and plywood, but for this the newly-industrialised countries (NICs) (such as Republic of Korea, Taiwan and Singapore) have greater comparative advantage. the NICs were suggested to have comparative advantage in veneer and plywood manufacture; while the developed countries were seen as most competitive in pulp, paper and paperboard, and furniture.

This underlines the fact that a number of elements are important in overall competitiveness, and that control of the resource does not necessarily equate with comparative advantage in producing and marketing processed products. In the past Republic of Korea and Taiwan were able to be xtremely competitive in selling processed products on export markets, based on imported logs. On the other hand, Japan, which also purchases logs for processing, has been unable to compete for third markets against these two countries . Its own domestic market has also required protection to withstand competition.

Indonesia's export controls however resulted in substantial reductions in market shares held by Republic of Korea and Taiwan. Indonesia's share of Japanese plywood imports has risen from zero in the mid-1970s to 92% in 1985. At the same time Korea's share has fallen from 65% to almost nothing and Taiwan's share from 30% to almost nothing. By comparison Malaysia and the Philippines, both log exporting countries, have also declined in importance as suppliers of plywood to the Japanese market.

- 95 -

VI. BARRIERS AND TRADE POLICY

Introduction

In previous chapters the range of trade barriers that exist, theeffect they have on forest products trade of the developing countries,their role in development and the effects of liberalization have beenanalysed. This chapter draws the previous analysis together and providessuggestions on the policy steps that must be taken in order to reduce theimpact of trade barriers. It comments on likely future trends, andsuggests a number of measures that would reduce the impact of the variousbarriers addressed in this report.

The Relative Lmportance of Tariff and Non-Tariff Barriers

Import barriers have little effect on the trade of unprocessedproducts such as logs, woodchips and wood pulp with the main developedcountry markets. Tariff levels are either zero or minimal in most cases;few cases exist where quotas and other quantitative controls are used;price controls, investigations etc are rarely used; and safety regulationshave little effect.

This lack of restriction reflects the limited forest resources inmany of the main markets, or at least the lack of hardwoods such as thosegrown in the developing countries; the fact that these products do notcompete directly with domestic supplies; and the fact that raw materialswhich require further processing to produce a final product are importantto domestic industries. Since these raw materials are able to be turnedinto a number of other products safety standards have little relevance.The only barriers of any note are health standards which are used to ensurediseases are not introduced into the country.

Barriers become increasingly important as more processed products aretraded, with both tariff and non-tariff barriers becoming more prevalent.Additionally, the manner in which they are enforced becomes increasinglysevere. The effect is to restrict the ability of the developing countriesto produce more processed products which provide the opportunity forincreased economic and social development. Since industrialization has 1/been shown by many studies to be an important contributor to developmentthese restrictions work against the development efforts of the developingcountries. Some of the main problems identified have been the escalationof both tariffs and NTBs, the wider range of barriers used as productsbecome more processed, and the greater number of developed country marketsimposing these barriers.

Tariff barriers have been addressed in a number of multi-lateraltrade negotiation rounds the most recent of which, the Tokyo Round, alsoattempted to address NTBs. As a result of these regotiations and other

1/ Discussed in Chapter II.

- 95 -

VI. BARRIERS AND TRADE POLICY

I. Introduct ion

In previous chapters the range of trade barriers that exist, the effect they have on forest products trade of the developing countries, their rol e in deve lopment and the effects of liberalization have been analysed. This chapter draws the previous analysis together and provides suggestions on the policy steps that .must be taken in order to reduce the impact of trade barriers. It comments on likely future trends, and suggests a number of measures that would reduce the impact of the various barriers addressed in this report.

2. The Relative Importance of Tariff and Non-Tariff Barriers

Import barriers have little effect on the trade of unprocessed products such as logs, woodchips and wood pulp with the main developed country markets. Tariff levels are either zero or minimal in most cases; few cases exist where quotas and other quantitative controls are used; price con trols, investigations etc are rarely used; and safety regulations have little eff ect .

This lack of restriction reflects the limited forest resources in many of the main markets, or at least the lack of hardwoods such as those grown in the developing countries; the fact that these products do not compete directly with domestic supplies; and the fact that raw materials which require further processing to produce a final product are important to domestic industries. Since these raw materials are· able to be turned into a number of other products safety standards have little relevance. The only barriers of any note are health standards which are used to ensure diseases are not introduced into the country.

Barriers become increasingly important as more processed products are traded, with both tariff and non-tariff barriers becoming more prevalent. Addit iona lly, the manner in which they are enforced becomes increasingly severe. The effect is to restrict the ability of the developing countries to produce more processed products which provide the opportunity for increased economic and social development. Since industrialization has 1/ been shown by many studies to be an important contributor to development , these restrictions work against the development efforts of the developing countries. Some of the main problems identified have been the escalation of both ta ri ffs and NTBs, the wider range of barriers used as products become more processed, and the greater number of developed country markets imposing these barriers.

Tariff barriers have been addressed in a number of multi-lateral trade negotiation rounds the most recent of which, the Tokyo Round, also attempted to address NTBs. As a result of these regotiations and other

l/ Discussed in Chapter II.

- 96 -

moves, tariffs have generally reached low levels on a wide range ofproducts. For specific products in individual countries, however, ratesare still significant. In particular plywood, certain sawntimber products,manufactured wood products and some paper and paperboard products facerelatively high rates. Major developed countries which maintain hightariffs on some of these products include Japan, the EEC and Australia.Developing countries themselves generally have higher rates than those inplace in the developed countries. Those facing the developing countriesare, however, reduced by special preferences and this further reduces theeffect for most forest products. Nevertheless, there are still situationsof considerable importance to the developing countries.

As tariffs have declined NTBs have tended to increase, and havebecome of growing concern. In many cases they are substituted for tariffsbecause of their variety, ease of modification to take account of changingconditions, greater certainty of effect, and their lower visibility. Whilethis is less true for forest products than for many other products, NTBs dohave a significant effect on selected products. Of particular note isplywood which often faces a variety of these barriers.

Non-tariff barriers are much more difficult to identify and evaluate.Nevertheless the wide array that exist, the increasing frequency with whichmany appear, and the number that can apply to a given product suggest theyare a problem. They are a greater problem for the developing countriesthan for developed country exporters.

Countervailing duties or antidumping investigations createuncertainty or involve heavy costs to exporters. Other barriers such asstandards restrict exports because the developing countries are less ableto meet the regulations, do not have adequate facilities or expertise toensure the requirements are met (e.g. grading, drying, treatment, qualitycontrol procedures), have inadequate infrastructure to ensure the physicaldistribution system operates effectively, and lack technical information onthe wood they are increasingly attempting to export.

Other NTBs which impact on forest products are health and technicalstandards, customs entry regulations, and import authorizations. Theserange from formalities which act as irritants, to requirements which can bemet by the developing countries but which increase the cost of doingbusiness, to practices which developing countries have considerabledifficulty adapting to. In general, the forest products most affectedinvolve have been those from developed countries, but cases affecting thedeveloping countries seem likely to increase.

Many of these are marketing or development problems rather than tradebarriers but the problems are magnified if the rules and regulations areunnecessarily strict, complicated or obscure. For example, grading andmarking regulations which may present difficulties to developed countriesbecause of their complexity or the need for extensive (unnecessary) testingcan be almost insurmountabl2 problems for developing countries which lackappropriate testing facilities, have relatively unknown or unprovenspecies, or lack knowledge and expertise for conducting the requiredtesting, sampling or marking. At very least such difficulties addconsiderably to both the cost and the uncertainty involved.

- 96 -

moves, tariffs have generally reached low levels on a wide range of products. For specific products in individual countries, however , rates are still significant. In particular plywood, certain sawntimber products, manufactured wood products and some paper and paperboard products face relatively high rates. Major developed countries which maintain high tariffs on some of these products include Japan, the EEC and Australia. Developing countries themselves generally have higher rates than those in place in the developed countries. Those facing the developing countries are, however, reduced by special preferences and this further reduces the effect for most forest products. Nevertheless, there are still situations of considerable importance to the developing countries.

As tariffs have declined NTBs have tended to Increase, and have become of growing concern. In many cases they are substituted for tariffs because of their variety, ease of modification to take account of changing conditions, greater certainty of effect, and their lower visibility. While this is less true for forest products than for many other products, NTBs do have a significant effect on selected products. Of particular note is plywood which often faces a variety of these barriers.

Non-tariff barriers are much more difficult to Identify and evaluate. Nevertheless the wide array that exist, the Increasing frequency with which many appear, and the number that can apply to a given product suggest they are a problem. They are a greater problem for the developing countries than for developed country exporters.

Countervailing duties or antidumping Investigations create uncertainty or involve heavy costs to exporters. Other barriers such as standards restrict exports because the developing countries are less able to meet the regulations, do not have adequate facilities or expertIse to ensure the requirements are met (e.g. grading, drying, treatment, quality control procedures), have Inadequate Infrastructure to ensure the physical distribution system operates effectively, and lack technical information on the wood they are increasingly attempting to export.

Other NTBs which Impact on forest products are health and technical standards, customs entry regulations, and import authorizations. These range from formalities which act as irritants, to requirements which can be met by the developing countries but which increase the cost of doing business, to practices which developing countries have considerable difficulty adapting to. In general, the forest products most affected involve have been those from developed countries, but cases affecting the developing countries seem likely to increase.

Many of these are marketing or development problems rather than trade barriers but the problems are magnified If the rules and regulations are unnecessarily strict, complicated or obscure. For example, grading and marking regulations which may present difficulties to developed countries because of their complexity or the need for extensive (unnecessary) testing can be almost Insurmountable problems for developing countries which lack appropriate testing facilities, have .elatlvely unknown or unproven species, or lack knowledge and expertise for conducting the required testing, sampling or marking. At very least such difficulties add considerably to both the cost and the uncertainty involved.

- 97 -

Because of the generally low tariff levels applying to imports fromdeveloping countries, greatest benefit to these countries would come from areduction in NTBs which limit the flow of products or which make themarketing more difficult or more expensive. This is especially true ofrestrictions which limit the application of the GSP scheme. Specialpreference schemes modify the tariff rates in most developed countries andgive developing country exporters an advantage over other exporters. For

some products which are within the processing capabilities of developingcountries, however, such as veneer, plywood, and many wood manufactures,exclusions, quotas, tariff quotas and similar restrictions lima the

preferences. Quantitative restrictions limit the volume of products thatthe GSP applies to; value or market share limits on individual countriesrestrict trade; product exclusions remove some products from the schemealtogether.

An important point to note is that the impact of many of the barriersdiscussed is increased because a number apply to any given product. One

barrier operates in addition to others, with products facing both NTBs andhigh tariffs. The net effect is therefore considerably greater than ifonly one barrier applied.

3. Future Trends

3.1 Tariff Reductions

For a number of reasons it appears likely that tariff levels onforest products will continue to decline. Firstly the continuation ofstaged reductions agreed to in the Tokyo Round will occur. Thus, unlessbound commitments are not fulfilled, rates will decline until 1987. In

addition individual countries are still making some reductions which werenot included in the Tokyo Round agreements. Of special note are theplanned reductions on veneer, plywood and some manufactured wood productsannounced in early 1986 by Japan. Through this, tariffs on these productscould decline by between 12.5% and 33.3% by 1988. Secondly, since tariffson many forest products are already relatively low further cuts will havelittle negative effect on domestic producers in these countries. Countriesmay therefore be willing to make further reductions. Equally though,these reductions will have little positive effect in the exportingcountries. Thirdly, considerable pressure is being applied by majordeveloped country exporters on some important forest product markets. TheUSA has identified forest products, particularly plywood and paper andpaperboard products, as one of ve sectors to press for improved tradeaccess into the Japanese market . Canada is seeking improved access tothe EEC for newsprint; North American softwood plywood interests areseeking greater access to the EEC; North America has identified markets asdiverse as Australia and Brazil as being subject to varying degrees ofrestriction. And finally, the ease with which other countries canidentify, compare and evaluate tariffs of other countries, means that thesetariffs are likely to continue to decline. Declining tariffs in the mainmarkets are also likely to provide pressure on the currently high importtariffs that exist in developing countries.

1/ In the Market-Oriented Sector-Selective (MOSS) negotiations begun inearly 1985 telecommunications, electronics, forest products, pharmaceut-icals and medical equipment have been emphasised.

- 97 -

Because of the generally low tariff levels applying to imports from developing countries, greatest benefit to these countries would come from a reduction in NTBs which limit the flow of products or which make the marketing more difficult or more expensive. This is especially true of restrictions which limit the application of the GSP scheme. Special preference schemes modify the tariff rates in most developed countries and give developing country exporters an advantage over other exporters. For some products which are within the processing capabilities of developing countries, however, such as veneer, plywood, and many wood manufactures, exclusions, quotas, tariff quotas and similar restrictions limit the preferences. Quantitative restrictions limit the volume of products that the G&P applies to; value or market share limits on individual countr ies restrict trade; product exclusions remove some products from the scheme al together.

An important point to note is that the impact of many of the barriers discussed is increased because a number apply to any given product . One barrier operates in addition to others, with products facing both NTBs and high tariffs. The net effect i s therefore considerably greater than if only one barrier applied.

3. Future Trends

3.1 Tariff Reductions

For a number of reasons it appears likely that tariff levels on forest products will continue to decline. Firstly the continuation of staged reductions agreed to in the Tokyo Round will occur. Thus, unless bound commitments are not fulfilled , rates will decline until 1987. In addition individual countries are still making some reductions which were not included in the Tokyo Round agreements. Of special note are the planned reductions on veneer, plywood and some manufactured wood products announced in early 1986 by Japan. Through this, tariffs on these products could decline by between 12.5% and 33.3% by 1988. Secondly, since tariffs on many forest products are already relatively low further cuts will have little negative effect on domestic producers in these countries. Countries may therefore be willing to make further reductions. Equally though, these reductions will have little positive effect in the exporting countries. Thirdly, considerable pressure is being applied by major developed country exporters on some important forest product markets. The USA has identified forest products, particularly plywood and paper and paperboard products, as one of f}ve sectors to press for improved trade access into the Japanese market . Canada is seeking improved access to the EEC for newsprint; North Am e rican softwood plywood interests are seeking greater access to the EEC; North America has identified markets as diverse as Australia and Brazil as being subject to varying degrees of restriction. And finally, the ease with which other countries can identify, compare and evaluate tariffs of other countries, means that these tariffs are likely to continue to decline. Declining tariffs in the main markets are also likely to provide pressure on the currently high import tariffs that exist in developing countries.

1/ early icals

In the Market-Oriented Sector-Selective (MOSS) negotiations begun in 1985 telecommunications, electronics, forest products, pharmaceutand medical equipment have bee n emphasised.

- 98-

Although tariffs seem likely to continue to decline, this does notnecessarily mean that all products will benefit. Many of the productsindicated in this report as being of most interest to the developingcountries still have relatively high tariffs which show little sign of anysizeable reduction. Even the considerable pressure applied by the USA hasto date only shown limited gains for many forest products in Japan and theEEC.

3.2 Non-Tariff Barrier Reductions

Poor market conditions, a lack of economic growth worldwide, andgrowing protectionism in many non-forest products all suggest that thedesire to protect domestic producers and isolate the country's economy fromworld pressures, will continue to mean that countries look to tradebarriers to restrict imports. Because tariff levels will continue todecline, for the reasons given above, NTBs are likely to become moreprevalent. The use of bilateral trade agreements, which encourage tradebetween the countries involved but discourage it with other countries, isone procedure which is restricting trade in some areas.

Internal supports such as subsidies, export grants and productionassistance give producers in some countries a competitive advantage. Thefact that many countries provide an extensive array of assistance measuresto forest growing ensures that disputes will arise over the fairness ofcompetition. A common reaction to these situations is to institutecontrols which 'compensate' for the alleged unfair competition. Unlessdemand expands in the main import markets so that the prices received forforest products increase, the pressure to use NTBs barriers to controlimports is likely to continue.

There is little evidence to suggest that trade barriers for forestproducts in total will become increasingly restrictive in the future. Themain difficulties at present relate to selected products and selectedmarkets, and there is little to suggest these barriers will become morerestrictive. On the other hand there is little to suggest that anysignificant improvement will occur. Without encouragement, coercion, or astrong commitment by interest groups, NTBs are likely to remain. Forestproducts are most likely to gain through flow-on reductions which aremainly negotiated for other products, or where the interests of the majortrading countries coincide with those of the forest sectors in thedeveloping countries. The limited but useful Japanese reductions on woodproduct tariffs are an example of this. Without strong pressure from theUSA these reductions would probably have not occurred. Further, thepressure was primarily directed at some other product categories ratherthan forest products. The net effect has been reduced tariffs which willbenefit all forest product exporters. Nevertheless, for some plywoodgroupings softwood plywood still retains its current tariff advantage overhardwood plywood. For some categories, though, the rates may become equalby 1988.

The greatest impact on trade flows will continue to be from theexport barriers imposed by the developing countries themselves. The exacteffect of these restrictions will depend on a number of factors, includingthe degree of commitment to these controls; the viability of processing in

- 98 -

Although tariffs seem likely to continue to decline, this does not necessarily mean that all products will benefit. Many of the products indicated in this report as being of most interest to t he developing countries still have relati vel y high tariffs which show little sign of any sizeable reduction. Even the conside rable pressure applied by the USA has to date only shown limited gains for many forest products in Japan and the EEe.

3.2 Non-Tariff Barr ier Reductions

Poor market conditions, a lack of economic growth worldwide, and growing protectionism in many non-forest products all suggest that the desire to protect domestic producers and isolate the country ' s economy from world pressures, will continue t o mean that countr ies look to t rade barriers to restrict imports. Because tariff leve ls will continue to decline, for the reasons given above, NTBs are likely to become more prevalent. The use of bilateral trade agreements, which encourage trade between the countries involved but discourage it with other countries, is one procedure which is restricting t rade in some areas.

Internal supports such as subsidies, export grants and production assistance give producers in some countries a competitive advantage. The fact that many countries provide an extensive array of assistance measures to forest growing ensures that disputes wi ll arise over the fairness of competition. A common reaction to these situations is to institute controls which 'compensate' for the alleged unfair compet ition . Unless demand ex pands in the main import markets so that the prices received for forest products increase, the pressure to use NTBs barriers to control imports is likely to continue.

There is li ttle evidence to suggest tha t trade barriers for forest products in total will become increasingly restrictive in the future. The main diffi culties at present relate to selected products and selected markets, and there is little to suggest these barriers will become more restrictive. On the other hand there is little to suggest that any significant improvement will occur. Without encouragement, coercion, or a strong commitment by interest groups , NTBs are likel y to remain. Forest products are most l ikel y to gain through fl ow-on reductions which are mainly negotiated for other product s, or where the interests of the major tra ding countries coincide with those of the forest sectors in the developing countries. The limited but useful Japanese reductions on wood product t arif fs are an examp le of this . Without st rong pressure from the USA these reductions would probably have not occurred. Further, the pressure was primarily directed at some other product categories r ather than forest products. The net effect has been reduced tar iffs which will benefit all forest product exporters. Nevert heless , for some plywood groupi ngs softwood plywood still retains its current tariff advan t age over hardwood plywood. For some categories, though , the rates may become equal by 1988.

The greatest impact on trade flows will continue to be from the export barriers imposed by the developing countries themselves. The exact effect of these restrictions will depend on a number of factors, includi ng the degree of commitment to these controls ; the viability of processing in

- 99 -

the forest-growing countries; the extent to which importers can findalternative sources of supply; and the extent of competition with othersuppliers. Indications are that as long as the governments of Indonesia,Malaysia and the Philippines continue to be willing to maintain thebarriers by effectively subsidising domestic log prices (unless total bansare imposed), and to continue to provide regional support for processingdevelopment, an increasing proportion of exports of hardwood plywood,hardwood timber, and wood manufactures will come from these countries. It

is less clear at this stage whether these countries have a true competitiveadvantage in these products which will allow them to increase their marketshares in the absence of export restrictions.

4. Policy Implications

Although in general formal trade barriers are not a serious problemfor forestry trade in most situations, for certain products (e.g. plywood,some sawntimber, reconstituted panels, and some wood manufactures) incertain markets, they create difficulties. In these cases, and to ensurethat NTBs do not increase it is important that continued efforts are placedon containing and/or reducing them. The benefits of freer undistortedtrade were discussed throughout this report.

While recognising the value of efforts on trade barriers it is worthemphasising that improvement in industrial development and marketinginfrastructure to support export activities are of much more importance.Limitations in these appear to be of more significance in limiting exportactivity than trade barriers. Major effort should therefore be placed onimproving these areas. Suggestions are indicated in section (c) of thischapter.

Notwithstanding the greater importance of these other factors,improvements surrounding trade barriers are also of value to the developingcountries.

Positive steps must be taken if the impact of import trade barriersis to be reduced. It is not sufficient to leave any improvement to thegoodwill of the countries concerned, since there is little evidence tosuggest that major changes will take place unless either clear benefitsexist for the importing countries, or concessions are forced on them.

Efforts to reduce these barriers should take place at a number ofdifferent levels, and can be broadly considered in three categories. Thosewhich:

reduce barriers;

make it easier to avoid or overcome barriers;

reduce the importance of barriers.

a. Procedures to reduce barriers

(I) Every opportunity should be taken to discuss and negotiatereductions in tariffs. Multilateral trade negotiations havebeen effective in reducing many tariffs. Further effortsshould be made to continue these moves. International agencies

- 99 -

the forest-growing countries; the extent to which importers can find alternative sources of supply; and the extent of competition with other suppliers. Indications are that as long as the governments of Indonesia, Malaysia and the Philippines continue to be willing to maintain the barriers by effectively subsidising domestic log prices (unless total bans are imposed), and to continue to provide regional support for processing development, an increasing proportion of exports of hardwood plywood, hardwood timber, and wood manufactures will come from these countries. It is less clear at this stage whether these countries have a true competitive advantage in these products which will allow them to increase their market shares' in the absence of export restrictions.

4. Policy Implications

Although in general formal trade barriers are not a serious problem for forestry trade in most situations, for certa.1n products (e.g. plywood, some sawn timber , reconstituted panels , and some wood manufactures) in certain markets, they create difficulties. In these cases, and to ensure that NTBs do not increase it is important that continued efforts are placed on containing and/or reducing them. The benefits of freer undistorted trade were discussed throughout this report.

While recognising the value of efforts on trade barriers it is worth emphasising that improvement in industrial development and marketing infrastructure to support export activities are of much more importance. Limitations in these appear to be of more significance in limiting export activity than trade barriers. Major effort should therefore be placed on improving these areas. Suggestions are indicated in section (c) of this chapter.

Notwithstanding the greater importance of these other factors, improvements surrounding trade barriers are also of value to the developing countries.

Positive steps must be taken if the impact of import trade barriers is to be reduced. It is not sufficient to leave any improvement to the goodwill of the countries concerned, since there is little evidence to suggest that major changes will take place unless either clear benefits exist for the importing countries, or concessions are forced on them.

Efforts to reduce these barriers should take place at a number of different levels, and can be broadly considered in three categories. Those which:

a. red uce barriers;

b . make it easier to avoid or overcome barriers;

c. reduce the importance of barriers.

s. Procedures to reduce barriers

(i) Every opportunity should be taken to discuss and negotiate reductions in tariffs. Multilateral trade negotiations have been effective in reducing many tariffs. Further efforts should be made to continue these moves. International agencies

, \ \

such as GATT, UNCTAD and FAO should provide the forums at whichthese issues can be aired and agreements negotiated. Theseactivities should extend to regional and subregional gatheringswhich bring importing and exporting countries together.

Exporting nations with essentially similar interests andsituations should expand efforts to cooperate in presentingunited views to importing countries. Where possible,coordinated regional policies should be developed andprocedures strengthened to ensure they are adhered to by allparticipants. Groups (possibly with wider responsibilities)such as SEALPA could have an important role.

Developing countries should establish united views on whatchanges should be made by developed importing countries. In

earlier negotiations, there was wide disagreement betweendeveloping countries on questions such as what changes werepreferred and how negotiations should be conducted. Althoughunanimity will obviously be difficult to achieve, overall gainswill be increased if developing countries avoid internaldissension. For this reason countries must be prepared tocompromise to establish a united position.

Increased research which identifies and analyses many of theissues surrounding trade barriers is required. This researchwould provide a sound basis for developing effective tradepolicies, highlighting problems facing specific developingcountries or groups of countries, and establishing thesituation of individual forest products. Currently littleattention is paid to forest products by most studies of tradebarriers, mainly because other products face greater harriers.FAO could undertake further studies in this area, as well asassist and encourage other organizations, including thedeveloping countries themselves, to also do so. Studies of thebarriers faced by specific countries and the present andpotential impact would be useful.

Increased attention should be given to extending and improvingthe UNCTAD Inventory of Trade Measures. The number ofcountries reported in the inventory should be increased, andthe information included extended. Means of making theinformation more comprehensive, such as using nonofficialsources should be investigated, and the information should bemade widely available. A possible approach would be to provideeach country included in the inventory with a copy of its owninformation (obtained from a number of sources) annually. Thecountry would be requested to indicate any changes that shouldbe made by a specified date, following which the revisedinformation on all countries would be made available to anygovernments, international bodies, and research organizationrequesting the information.

- 100 -

such as GATT, UNCTAD and FAO should provide the forums at which these issues can be aired and agreements negotiated. These activities should extend to regional and subregional gatherings which bring importing and exporting countries together.

(ii) Exporting nations with essentially similar interests and situations should expand efforts to cooperate in presenting united views to importing countries. Where possible, coordinated regional policies should be developed and procedures strengthened to ensure they are adhered to by all participants. Groups (possibly with wider responsibilities) such as SEALPA could have an important role.

(iii) Developing countries should establish united views on what changes should be made by developed importing countries. In earlier negotiations, there was wide disagreement between developing countries on questions such as what changes were preferred and how negotiations should be conducted. Although unanimity will obviously be difficult to achieve, overall gains will be increased if developing countries avoid internal dissension. For this reason countries must be prepared to compromise to establish a united position.

(iv) Increased research which identifies and analyses many of the issues surrounding trade barriers is required. This research would provide a sound basis for developing effective trade policies, highlighting problems facing specific developing countries or groups of countries, and establishing the situation of Individual forest products. Currently little attention is paid to forest products by most studies of trade barriers, mainly because other products face greater barriers. FAO could undertake further studies in this area, as well as assist and encourage other organizations, including the developing countries themselves, to also do so. Studies of the barriers faced by specific countries and the present and potential impact would be useful.

(v) Increased attention should be given to extending and improving the UNCTAD Inventory of Trade Measures. The number of countries reported in the inventory should be increased, and the information included extended. Means of making the information more comprehensive, such as using non-official sources should be investigated, and the information should be made widely available. A possible approach would be to provide each country included in the inventory with a copy of its own information (obtained from a number of sources) annually. The country would be requested to indicate any changes that should be made by a specified date, following which the revised information on all countries would be made available to any governments, international bodies, and research organization requesting the information.

These moves would increase the transparency of NTBs and makethe information more widely known. It would also enable aconsiderable expansion in research that might be undertaken.

Developing countries as a group (or regional associations)should press for Improved conditions surrounding the GSPscheme. Moves such as extension of the products included,removal of restrictions such as tariff quotas improvements tothe means of allocating volumes between exporting countrieswould greatly enhance this scheme. Although research hassuggested that developing countries would gain more fromreductions in MFN tariffs than they would lose through reducedpreferences, the main evidence for this conclusion is relatedto studies covering all products traded. If only forestproducts trade is considered this conclusion is much lessobvious.

Developing countries with important forestry sectors shouldtherefore assess the relative benefits from each option totheir overall development and support the most appropriateoption. Considering forest products in isolation, it ispossible that further improvements to the GSP system would givegreatest benefit.

A number of major exporting countries (particularly developedcountries) are making strenuous efforts to have trade barriersreduced in selected importing countries. Developing countriesshould pay close attention to these, and where possible supportthese efforts. In addition they should ensure that their ownproducts are not placed at a disadvantage through these moves.For example many of the developed countries are pushing forreduced tariffs on softwood products. Developing countriesmust ensure that any tariff reductions on these are matched byreductions on hardwood products.

b. Procedures which make it easier to avoid or overcome barriers

The fo/lowing procedures would assist the developing countries toavoid facing some of the current barriers, or make it easier for them tomeet the requirements:

(1) Improve awareness of the existence of various regulations, howthey are administered, what rules exist, who is responsible fordecisions, what documentation is needed etc. This could beachieved by more widespread publication of information, andthrough advisory assistance, seminars, workshops etc.

International organization, trade associations, governments andresearch organizations could all assist.

- 101 -

These moves would increase the transparency of NTBs and make the inf ormation more widely known. It would also enable a considerable expansion in research that might be undertaken.

(vi) Developing countries as a group (or regional associations) should press for improved conditions surrounding the GSP scheme. Moves such as extension of the products included, removal of restrictions such as tariff quotas improvements to the means of allocating vol umes between exporting countries would greatly enhance this scheme. Although research has suggested that developing countries would gain more from reductions in MFN tariffs than they would lose through reduced preferences, the main evidence for this conclusion is related to studies covering all produc ts traded. If only forest products trade is considered this conclusion is much less obvious.

Developing countries with important forestry sectors should therefore assess the relative benefits from each option to their overall development and support the most appropriate option. Considering forest products in isolation, it is possible that further im provements to the GSP system would give greatest benefit.

(vii) A number of ma jor exporting countries (particularly developed countries) are making strenuous efforts to have trade barriers reduced in selected importing countries . Developing countries should pay close attention to these, and where possible support these efforts. In addition they should ensure that their own products are not placed at a disadvantage through these moves. For example many of the developed countries are pushing for reduced tariffs on softwood products. Developing countries must ensure that any tariff reductions on these are matched by reductions on hardwood products.

b. Procedures which make it easier to avoid or overcome barriers

The following procedures would ass is t the developing countries to avoid facing some of . the current barriers, or make it easier for them to meet the requirements :

(i) Improve awareness of the existence of various regulations, how they are administered, what rules exis t, who is responsible for decisions, what documentation is needed etc. This could be achi eved by more widespread publication of information, and through advisory assistance, seminars, workshops etc.

International organization, trade associations, governments and research organizations could all assist.

102

Continue pressure through international and regionalnegotiations for unnecessary and obstructive regulations to bemodified or removed. Individual countries and tradeassociations should also press for such changes.

Expand research and product testing which provides informationon the performance and characteristics of materials. Thisshould be accompanied by regional cooperation to develop andimplement harmonized grading rules and manufacturing standards.This would ease the difficulties faced by having to conform toa number of standards and specifications in order to meetcustomer needs in a number of markets. It would also enablemore effective product promotion.

Continue efforts at developing more effective and workableinternational rules concerning dumping and subsidies.

Place emphasis on the development of the domestic market. Thiswould enable processing, distribution and marketing skills tobe improved, and allow export efforts to work from a sounddomestic base. Quality control systems could also bedeveloped. The latter should be industrywide and effectivelyenforced.

c. Procedures which reduce the importance of barriers

Improvement in a number of additional areas is important to theeffective development of forest product exports. Although these are notdirectly linked to the formal trade barriers identified in this report,their improvement would indirectly reduce the relative importance of thebarriers. The reduction of costs and/or improved ability to meet marketrequirements will reduce the relative importance of trade barriers bymaking the export of many products easier and more profitable. Most of thefollowing factors have not been investigated to any depth in this reportbut their importance is clear.

(f) Sea freight. Since freight rates represent a major element intotal costs, small improvements could have important effects.Improved port facilities, greater efficiency in their use,internal infrastructure, coordination of shipping volumes,improved bargaining strength, etc are all factors of relevance.

Technical improvements in processing, which enhance productionskills, conversion rates, plant productivity, product qualityetc.

Product development. Greater awareness and experience inproduct design, manufacturing techniques for more processedproducts, quality control and packaging.

Marketing. Improved information on market requirements,demand, and enduses for a range of existing and potentialmarkets; expertise in selling, distributing and promoting theproducts; the identification of market opportunities;improvement in administering marketing programmes.

- 102 -

(ii) Continue pressure through international and regional negotiations for unnecessary and obstructive regulations to be modified or removed. Individual countries and trade associations should also press for such changes .

(iii) Expand research and product testing which provides information on the performance and characteristics of materials. This should be accompanied by regional cooperation to develop and implement harmonized grading rules and manufacturing standards. This would ease the difficulties faced by having to conform to a number of standards and specifications in order to meet customer needs in a number of markets . It would also enable more effective product promotion.

(iv) Continue efforts at developing more effective and workable international rules concerning dumping and subsidies.

(v) Place emphasis on the development of the domestic market. This would enable procp.ssing, distribution and marketing skills to be improved, and allow export efforts to work from a sound domestic base. Quality control systems could also be developed. The latter should be industry-wide and effectively enforced.

c. Procedures which reduce the importance of barriers

Improvement in a number of additional areas is important to the effective development of forest product exports. Although these a re not directly linked to the formal trade barriers identified in this report, their improvement would indirectly reduce the relative importance of the barriers. The reduction of costs and/or improved ability to meet market requirements will reduce the relative importance of trade barriers by making the export of many products easier and more profitable. Most of the following factors have not been investigated to any depth in this report but their importance is clear .

(i) Sea freight. Since freight rates represent a major element in total costs, small improvements could have important effects. Improved port facilities, greater efficiency in their use, internal infrastructure, coordination of shipping volumes, improved bargaining strength, etc are all factors of relevance.

(ii) Technical improvements in processing, which enhance production skills, conversion rates, plant productivity, product quality etc.

(iii) Product development. Greater awareness and experience in product design, manufacturing techniques for more processed products, quality control and packaging.

(iv) Marketing. Improved information on market requirements, demand, and end-uses for a range of existing and potential markets; expertise in selling, distributing and promoting the products; the identification of market opportunities; improvement in administering marketing programmes.

- 103 -

Planning and implementation. Assistance in project evaluation,plant design and commissioning, to ensure only projects whichstand a high chance of success are established, and to ensureproblem areas are identified at an early stage.

Alternative business structures. Assessment of ownership formsincluding the benefits of joint ventures, and selection of themost effective distribution channels.

Development of the domestic market. Expansion enables productdevelopment, achievement of economies of scale, producttesting, staff development, together with many of the pointsnoted above. Exports can then be developed more easily.

5. Responsibility for Policy Action

The issues identified above require that action be taken at a numberof levels. Some areas may only require improved policies and activities byIndividual countries, and can therefore be addressed by individualgovernments or trade associations. Others can be more effectivelyaddressed by improved regional cooperation, while still others are moreappropriate to international action. In most cases, however, action at allthree levels can contribute to overall improvement.

International agencies can:

provide the opportunity for governments to negotiate barrierreductions and establish the framework and policies concerninginternational trade;

undertake or fund research evaluations (studies of trade policyoptions, the impact of alternative actions, etc) and developstatistical information to support discussions and provide abasis for developing countries to determine their own mostappropriate policies;

(e) provide finance and technical expertise for evaluating problemsand solutions, conducting training courses, identifyingIndividual country and product problems, and sponsoring seminarswhich address trade problems;

sponsor and publish studies which provide information onindividual barriers;

encourage regional cooperative action in areas as diverse asindustry-wide grade standards, marking, quality assuranceprogrammememes and the coordination of transport.

In addition to international agencies such as FAO, UNIDO, GATT,UNCTAD and the World Bank, the proposed International Tropical Timberorganization could have an important role to play. It could encourage,initiate and promote relevant research, policy evaluation and negotiation.

- 103 -

(v) Planning and implementation. Assistance in project evaluation , plant design and commissioning, to ensure only projects which stand a high chance of success are established, and to ensure problem areas are identified at an early stage.

(vi) Alternative business structures. Assessment of ownership forms including the benefits of joint ventures, and selection of the most effective distribution channels.

(vii) Development of the domestic market. Expansion enables product development, achievement of economies of scale, product testing, staff development, together with many of the points noted above. Exports can then be developed more easily.

5. Responsibility for Policy Action

The issues identified above require that action be taken at a number of levels. Some areas may only require improved policies and activities by individual countries, and can therefore be addressed by individual governments or trade associations. Others can be more effectively addressed by improved regional cooperation, while still others are more appropriate to international action. In most cases, however, action at all three levels can contribute to overall improvement.

International agencies can:

(a) provide the opportunity for governments to negotiate barrier reductions and establish the framework and policies concerning international trade;

(b) undertake or fund research evaluations (studies of trade policy options, the impact of alternative actions, etc) and develop statistical information to support discussions and provide a basis for developing countries to determine their own most appropriate policies;

(c) provide finance and technical expertise for evaluating problems and solutions, conducting training courses, identifying individual country and product problems, and sponsoring seminars which address trade problems;

(d) sponsor and publish studies which provide information on individual barriers;

(e) encourage regional cooperative action in areas as diverse as industry-wide grade standards, marking, quality assurance programmememes and the coordination of transport.

In addition to international agencies such as FAa, UNIDO, GATT, UNCTAD and the World Bank, the proposed International Tropical Timber organization could have an important role to play. It could encourage, initiate and promote relevant research, policy evaluation and negotiation.

- 104 -

Regional organizations can:

undertake similar activities on many of these issues for their owngeographic region. They can encourage close cooperation on a moreselective basis.

Governments and country trade associations can:

provide an input at a more detailed level which identifies andimplements programmemes which meet their own specific needs. They mustalso provide the input which ensures effective action at both the regionaland international level.

6. Suggestions for Further Research

In the course of this study a number of issues relating to tradebarriers requiring further research have been identified. Those are listedbelow.

Further estimates of the effects of removing or liberalisingtrade barriers should be made. The estimates should providedetail at the individual product level for an extended number offorest products. Trade gains should be estimated for developingcountries individually and collectively. Quantitativeassessments of the effects of removing NTBs should be madewherever possible. Most existing studies only address tariffs.

Detailed case studies should be carried out of trade barriersaffecting forest products and their effects for individualcountries, particularly those in the African region. Theseshould consider in detail specific policies and the practicalimplications for exporters in the selected countries.

The practical importance of barriers and differences in relationto different wood species grades, sizes etc should beinvestigated by regional and/or country studies.

Analyses should be made for forest products of the relativebenefits to individual countries of further improvements in theGSP scheme versus reductions in MFN tariff rates. These shouldalso consider the effects in relation to other products exportedby the countries being considered.

The extent to which developing countries hold a comparativeadvantage in the processing of wood should be considered in moredepth. Such a study could identify where comparative advantageexists, where developing countries are at a disadvantage, andwhere improvements may be necessary.

Studies which identify and analyse trade policy options andstrategies for individual countries and regions would providevaluable guidance for governments. These should specificallyaddress the forestry sector.

- 104 -

Regional organizations can:

undertake similar activities on many of these issues for their own geographic region. They can encourage close cooperation on a more selective basis.

Governments and country trade associations can:

provide an input at a more detailed level which identifies and implements programmemes which meet their own specific needs. They must also provide the input which ensures effective action at both the regional and international level.

6. Suggestions for Further Research

In the course of this study a number of issues relating to trade barriers requiring further research have been identified. Those are listed below.

(a) Further estimates of the effects of removing or liberalising trade barriers should be made. The estimates should provide detail at the individual product level for an extended number of forest products. Trade gains should be estimated for developing countries individually and collectively. Quantitative assessments of the effects of removing NTBs should be made wherever possible. Most existing studies only address tariffs.

(b) Detailed case studies should be carried out of trade barriers affecting forest products and their effects for individual countries, particularly those in the African region. These should consider in detail specific policies and the practical implications for exporters in the selected countries.

(c) The practical importanc e of barriers and differences in relation to different wood species grades, sizes etc should be investigated by regional and/or country studies.

(d) Analyses should be made for forest products of the relative benefits to individual countries of further improvements in the GSP scheme versus reductions in MFN tariff rates. These should also consider the effects in relation to other products exported by the countries being considered.

(e) The extent to which developing countries hold a comparative advantage in the processing of wood should be considered in more depth. Such a study could identify where comparative advantage exists, where developing countries are at a disadvantage, and where improvements may be necessary.

(f) Studies which identify and analyse trade policy options and strategies for individual countries and regions would provide valuable guidance for governments. These should specifically address the forestry sector.

105

(g) Improved information on market requirements and future marketpotential for forest products in individual markets would providea basis for more effective export marketing, decisions onprocessing activities, and for trade strategies.

- 105 -

(g) Improved information on market requirements and future market potential for forest products in individual markets would provide a basis for more effective export marketing, decisions on processing activities, and for trade strategies.

- 106 -

REFERENCES

BALASSA, B. (Ed) (1967). Studies in Trade Liberalization (John HopkinsPress: Baltimore).

BALASSA, B. and Associates (1971). The Structure of Protection inDeveloping Countries (John Hopkins Press, Baltimore).

BALASSA, B. (1979). "The Changing Pattern of Comparative Advantage inManufactured Goods" Review of Econ and Stats. May.

BALASSA, B. (1981). The Newly Industrialising Countries in The WorldEconomy (Pergamon Press: N.Y.).

BALASSA, B. (1984). "Adjustment Policies in Developing Countries : A

Reassessment" World Development 12(9):955, September.

BALASSA, B. and Balassa (1984). "Industrial Protection in the DevelopedCountries" The World Economy, June.

BALDWIN, Robert E. (1970). Non-tariff Distortions of International Trade(Brookings Institute).

BALDWIN, R.E. and T. Murray (1977). "MFN Tariff Reductions and DevelopingCountry Trade Benefits Under the GSP". Econ. Jnl 87:30, March.

CLINE, W. et al (1978). Trade Negotiations in the Tokyo Round: A

Quantitative Assessment (Brookings Institute).

CLINE, William R. (1984). Exports of Manufactures from DevelopingCountries (Brookings Institute).

CORDEN, W.M. (1971). The Theory of Protection (Oxford Univ. Press).

CORDEN, W.M. (1974). Trade Policy and Economic Welfare (Oxford UniversityPress).

DEARDORFF, A.V. and R.M. Stern (1984). Methods of Measurement ofNon-tariff Barriers, June 6. Paper prepared for the UNCTAD.

DOAN, C.E. (1983). "Transportation Factors in the Movement of VariousForest Products in International Trade" in World Trade in ForestProducts (Ed. J.S. Bethel) (Univ. Wash. Press.).

FAO (1980). Protectionism in the Livestock Sector. CCP:ME 80/4 October.

FAO (1983a). New Protectionism and Attempts at Liberalization inAgricutural Trade. Econ. and Social Devel. paper No. 27.

FAO (1983b). Forest Revenue Systems in Developing Countries. Forestrypaper 43. (FAO : Rome).

- 106 -

REFERENCES

BALASSA, B. (Ed) (1967). Studies in Trade Liberalization (John Hopkins Press: Baltimore).

BALASSA, B. and Associates (1971). The Structure of Protection in Developing Countries (John Hopkins Press, Baltimore).

BALASSA, B. (1979). "The Changing Pattern of Comparative Advantage in Manufactured Goods" Review of Econ and Stats. May.

BALASSA, B. (1981). The Newly Industrialising Countries in The World Economy (Pergamon Press: N. Y.) •

BALASSA, B. (1984). "Adjustment Policies in Developing Countries A Reassessment" World Development ~(9): 955, September.

BALASSA, B. and Balassa (1984). "Industrial Protection in the Developed Countries" The World Economy, June.

BALDWIN, Robert E. (1970). Non-tariff Distortions of International Trade (Brookings Institute).

BALDWIN, R.E. and T. Murray (1977). "MFN Tariff Reductions and Developing Country Trade Benefits Under the GSP". Econ. Jnl 87:30, March.

CLINE, W. et al (1978). Trade Negotiations in the Tokyo Round: A Quantitative Assessment (Brookings Institute).

CLINE, William R. (1984). Exports of Manufactures from Developing Countries (Brookings Institute).

CORD EN , W.M. (1971). The Theory of Protection (Oxford Univ. Press).

CORDEN, W.M. (1974). Trade Pol icy and Economic Wei fare (Oxford Uni versi ty Press) •

DEARDORFF, A.V. and R.M. Stern (1984). Methods of Measurement of Non-tariff Barriers, June 6. Paper prepared for the UNCTAD.

DOAN, C.E. (1983). "Transportation Factors in the Movement of Various Forest Products in International Trade" in World Trade in Forest Products (Ed. J.S. Bethel) (Univ. Wash. Press.).

FAO (1980). Protectionism in the Livestock Sector. CCP:ME 80/4 October.

FAO (1983a). New Protectionism and Attempts at Liberalization in Agricutural Trade. Econ. and Social Devel. paper No. 27.

FAO (1983b). Forest Revenue Systems in Developing Countries. Forestry paper 43. (FAO : Rome).

- 107 -

FAO (1983c). Protectionism in Agricultural Trade : Review of Action Takenon Conference Resolution 2179. CCP 83/19, Aug.

FAO (1985a). Forest Products Prices. Forestry Paper 61.

FAO (19856). Recent Developments in Sawmill and Plywood Industries inIndonesia. FO:AFI/85/9.9.

FAO (1986). Yearbook of Forest Products 1973-84. (FAO, Rome).

FAS (1985). Wood products: Tariff and Non-tariff Barriers, USDA ForeignAg. Service Staff Report No. 4, April.

FINGER, J.M. and A.J. Yeats (1976). "Effective Protection byTransportation Costs and Tariffs: A Comparison of Magnitudes"Quarterly Journal of Economics, 90(1):169.

FORSTER, R.B., (1978). Japanese Forestry. The Resources, Industries andMarkets. Infol Rept. E-X030, Environment Canada, October, 1978.

GATT (1983). International Trade 1982/83 (Geneva).

GATT (1983). Tropical Products : Information on the Commercial PolicySituation and Trade Flows. COM.TD/W/345/Add.1, Sept.

GATT (1984). Problems of International Trade in Forestry Products. Spec.(84)13.

GRILLI, E. and M. La Noce (1983). The Political Economy of Protection inItaly. World Bank Working Paper No. 567.

HORGAN, G.P. and M.J. Theron (1983). The Influence of British ColumbianPricing Policies on the Prices of New Zealand sawntimbers in Japan.Forest Research Institute, Bull. 40, NZ Forest Service.

LITTLE, I.M.D., T. Scitovsky and M. Scott (1970). Industry and Trade inSome Developing Countries (Oxford Univ. Press).

LITTLE, I.M.D. (1982). Economic Development: Theory, Policy, andInternational Relations (Basic Books: N.Y.).

MURRAY, T. and I. Walter (1977). "Quantitative Restrictions, DevelopingCountries and GATT." Jnl World Trade Law 11(5) September-October.

NOGUES, J.J., A. Olechowski and L.A. Winters (1985). The Extent ofNon-tariff Barriers to Industrial Countries' Imports. Report No.DRD115, World Bank, January.

OECD (1984). Competition and Trade Policies: Their Interaction. (OECD,Paris)

OLECHOWSKI, A. (1985). Barriers to Trade in Forest Products (Unpublished)

- 107 -

FAO (1983c). Protectionism in Agricultural Trade: Review of Action Taken on Conference Resolution 2/79. CCP 83/19, Aug.

FAO (1985a). Forest Products Prices. Forestry Paper 61.

FAO (1985b). Recent Developments in Sawmill and Plywood Industries in Indonesia. FO:AFI/85/9.9.

FAO (1986). Yearbook of Forest Products 1973-84. (FAO, Rome).

FAS (1985). Wood products: Tariff and Non-tariff Barriers, USDA Foreign Ag. Service Staff Report No.4, April.

FINGER, J.M. and A.J. Yeats (1976). "Effective Protection by Transportation Costs and Tariffs: A Comparison of Magnitudes" Quarterly Journal of Economics, 90(1):169.

FORSTER, R.B., (1978). Japanese Forestry. The Resources, Industries and Markets. Infol Rept. E-X030, Environment Canada, October, 1978.

GATT (1983). International Trade 1982/83 (Geneva).

GATT (1983). Tropical Products: Information on the Commercial Policy Situation and Trade Flows. COM.TD/W/345/Add.I, Sept.

GATT (1984). Problems of International Trade in Forestry Products. Spec. (84)13.

GRILLI, E. and M. La Noce (1983). The Political Economy of Protection in Italy. World Bank Working Paper No. 567.

HORGAN, G.P. and M.J. Theron (1983). The Influence of British Columbian Pricing Policies on the Prices of New Zealand sawntimbers in Japan. Forest Research Institute, Bull. 40, NZ Forest Service.

LITTLE , 1.M.D., T. Scitovsky and M. Scott (1970). Industry and Trade in Some Developing Countries (Oxford Univ. Press).

LITTLE, I.M.D. (1982). Economic Development: Theory, Policy, and International Relations (Basic Books: N.Y.).

MURRAY, T. and 1. Walter (1977). "Quantitative Restrictions, Developing Countries and GATT." Jnl World Trade Law .!l(5) September-October.

NOGUES , J.J., A. Olechowski and L. A. Winters (1985). The Extent of Non-tariff Barriers to Industrial Countries' Imports. Report No. DRDI15, World Bank, January.

OECD (1984). Compet it ion and Trade Pol!cies: Thei r Interact ion. . (OECD, Pari s)

OLECHOWSKI, A. (1985). Barriers to Trade in Forest Products (Unpublished)

- 108 -

OLECHOWSKI, A. and A.J. Yeats (undated). Analytical Policy Needs Relatingto Contemporary Protectionist Problems : A Status Report on theUNCTAD Inventory of Non-tariff Measures. (Unpublished report).

OLECHOWSKI, A. and A. Yeats (1982). "Implications of the Tokyo Round forEast-West Trade Relations" Oxford Bull of Econ. and Stat., Feb. p.81.

SALGO, P. (1983). Shipping Problems in the Trade of Tropical Timber.UNIDO/IS. 387/3 Jan.

SAPIR, A. and R.E. Baldwin (1983). "India and The Tokyo Round" WorldDevelopment 11(7):565.

SEDJO, R.A. (1984). U.S.-Japan Forest Products Trade, paper prepared forthe U.S.-Japan Advisory Commission, June 22.

SHIBATA, A. (1968). "On the Equivalence of Tariffs and Quotas "AmericanEconomic Review, 58:137, March.

STERN, R.M. (1976). Price Elasticities in International Trade : An

Annotated Bibliography (MacMillan).

SWIDERSKI, J. and G. Heilborn (1983). Mechanical Wood-ProcessingIndustries in Developing Countries UNIDO/FAO First Consultation onthe Wood and Wood Products Industry. ID/WG. 395/5, June.

SYNTEC Economic Services (1984). The Structure of Industry Assistance inNew Zealand: An Exploratory Analysis.

TAKEUCHI, K. (1974). Tropical Hardwood Trade in the Asia-Pacific Region.World Bank Occasional Papers No. 17.

TAKEUCHI, K. (1983). "Mechanical Processing of Tropical Hardwood inDeveloping Countries: Issues and Prospects for the Plywood industry'sDevelopment in the Asia-Pacific Region" in Case Studies on IndustrialProcessing of Primary Products, Vol. I, World Bank - CommonwealthSecretariat.

UNCTAD/ECDC (1984). Summary Data Sheets on Trade Control Measures ofSelected Developing Countries, Report No. 172, Oct.

UNCTAD (1979). UNCTAD V: The Processing Before Export of PrimaryCommodities : Areas for Further International Cooperation.TD/229/Supp.2, May.

UNCTAD (1982). Consideration of the Possible Elements of an InternationalAgreement on Tropical Timber. TD/B/IPC/TIMBER/37.

UNCTAD (1983a). UNCTAD VI: Protectionism, Trade Relations and StructuralAdjustment. TD/274 Jan.

UNCTAD (1983b). Report of the Experts' Group Meeting on Cooperation amongSouth-East Asian Countries in the Marketing of Tropical TimberProducts, held in Bangkok, July.

- 108 -

OLECHOWSKI, A. and A.J. Yeats (undated). Analytical Policy Needs Relating to Contemporary Protectionist Problems : A Status Report on the UNCTAD Inventory of Non-tariff Measures. (Unpublished report).

OLECHOWSKI, A. and A. Yeats (1982). "Implications of the Tokyo Round for East-West Trade Relations" Oxford Bull of Econ. and Stat., Feb. p.81.

SALGO, P. (1983). Shipping Problems in the Trade of Tropical Timber. UNIDO/IS. 387/3 Jan.

SAPIR, A. and R.E. Baldwin (1983). "India and The Tokyo Round" World Development .!.!.(7): 565.

SEDJO, R.A. (1984). U.S.-Japan Forest Products Trade, paper prepared for the U.S. -Japan Advisory Commission, June 22.

SHIBATA, A. (1968). "On the Equivalence of Tariffs and Quotas "American Economic Review, 58:137, March.

STERN, R.M. (1976). Price Elasticities in International Trade An Annotated Bibliography (MacMillan).

SWIDERSKI, J. and G. Heilborn (1983). Mechanical Wood-Processing Industries in Developing Countries UNIDO/FAO First Consultation on the Wood and Wood Products Industry. ID/WG. 395/5, June.

SYNTEC Economic Services (1984). The Structure of Industry Assistance in New Zealand: An Exploratory Analysis.

TAKEUCHI, K. (1974). Tropical Hardwood Trade in the Asia-Pacific Region. World Bank Occasional Papers No. 17.

TAKEUCHI, K. (1983). "Mechanical Processing of Tropical Hardwood in Developing Countries: Issues and Prospec ts for the Plywood Industry's Development in the Asia-Pacific Region" in Case Studies on Industrial Processing of Primary Products, Vol. I, World Bank - Commonwealth Secretariat.

UNCTAD/ECDC (1984). Summary Data Sheets on Trade Control Measures of Selected Developing Countries, Report No. 172, Oct.

UNCTAD (1.979). UNCTAD V: The Processing Before Export of Primary Commodities: Areas for Further International Cooperation. TD/229/Supp.2, May.

UNCTAD (1982). Consideration of the Possible Elements of an International Agreement on Tropical Timber. TD/B/IPC/TIMBER/37.

UNCTAD (1983a). UNCTAD VI: Protectionism, Trade Relations and Structural Adjustment. TD/274 Jan.

UNCTAD (1983b). Report of the Experts' Group Meeting on Cooperation among South-East Asian Countries in the Marketing of Tropical Timber Products, held in Bangkok, July.

- 109 -

UNCTAD (1984a). Protectionism and Structural Adjustment Part 1 : Analysisof major issues and policy requirements. TD/B/981 (Part 1) 13February.

UNCTAD (1984b). Statistical Pocket Book 1984 (United Nations).

UNCTAD (1985a). Problems of protectionism and structural adjustment.Part I - Restrictions to trade and structural adjustment. TD/B/1039(Part I) Jan.

UNCTAD (1985b). Part II. Trends in production and trade in all sectorsand their underlying factors. TD/B/1039 (Part II), Jan.

UNIDO (1982). Shipping Problems in the Trade of Tropical timber, UNIDOID/WG. 387/2.

UNIDO (1983a). Measures to promote the use of wood and wood products.UNIDO ID/WG. 395/8, June.

UNIDO (1983b). Wood Processing Industry in a "Timber Deficit" Country,Japan : Structural Change, Adjustment Problems and Policies.UNIDO/IS. 403, August.

UNIDO (1983c). Potentials and Requirements of Increasing the Degree ofWood Processing in Development Countries of Asia and the Pacific.UNIDO/IS. 395, Sectoral Working Paper Series No. 5, June.

UNIDO (1983d). Tariff and Non-tariff Measures in the World Trade of Woodand Wood Products. Sectoral Working Paper No. 6 UNIDO/IS 396.

UNIDO (1983e). First World-Wide Study of the Wood and Wood ProcessingIndustries. Sectoral Studies Series No. 2. UNIDO/IS 398.

UNIDO (1983f). Wood Resources and Their Use as Raw Material. SectoralStudies Series No. 3. UNIDO/IS.399.

UNIDO (1984). Prospects for Industrial Development and for a CapitalGoods Industry in Indonesia. UNIDO/IS.479, Add 1, July.

UNIDO (1985). Malaysia (Industrial Development Review Series) UNIDO/IS545 July.

U.S. Tariff Commission (1974). Trade Barriers : An Overview.

U.S. Department of Commerce (1984). A Competitive Assessment of the U.S.Solid Wood Products Industry. Int. Trade Admin., August.

U.S. International Trade Commission (1983). An Evaluation of U.S. ImportsUnder the Generalised System of Preferences. ITC publication 1379,May.

U.S. International Trade Commission (1985). Conditions Relating to theImportation of Softwood Lumber into the United States. USITCPublication 1765, October.

- 109 -

UNCTAD (1984a). Protectionism and Structural Adjustment Part I : Analysis of major issues and policy requirements. TD/B/981 (Part I) 13 February.

UNCTAD (l984b). Statistical Pocket Book 1984 (United Nations).

UNCTAD (1985a). Problems of protectionism and structural adjustment. Part I - Restrictions to trade and structural adjustment. TO/B/I039 (Part I) Jan.

UNCTAD (1985b). Part II. Trends in production and trade in all sectors and their underlying factors. TD/B/I039 (Part II), Jan.

UNIOO (1982). Shipping Problems in the Trade of Tropical timber, UNIOO IO/WG. 387/2.

UNIOO (1983a). Measures to promote the use of wood and wood products. UNIOO ID/WG. 395/8, June.

UNIOO (l983b). Wood Processing Industry in a "Timber Deficit" Country, Japan: Structural Change, Adjustment Problems and Policies . UNIOO/IS. 403, August.

UNIOO (1983c). Potentials and Requirements of Increasing the Oegree of Wood Processing in Development Countries of Asia and the Pacific. UNIOO/IS. 395, Sectoral Working Paper Series No.5, June.

UNlDO (1983d). Tariff and Non-tariff Measures in the World Trade of Wood and Wood Products. Sectoral Working Paper No . 6 UNIDO/IS 396.

UNlDO (1983e). First World-Wide Study of the Wood and Wood Processing Industries. Sectoral Studies Series No.2. UNIOO/IS 398.

UNIOO (1983f). Wood Resources and Their Use as Raw Material. Sectoral Studies Series No.3. UNIDO/IS.399.

UNIOO (1984). Prospects for Industrial Development and for a Capital Goods Industry in Indonesia. UNIDO/IS.479, Add I, July.

UNIDO (1985). Malaysia (Industrial Oevelopment Review Series) 545 July.

U.S . Tariff Commission (1974). Trade Barriers: An Overview.

UNIOO/IS

U.S. Oepartment of Commerce (1984). Solid Wood Products Industry.

A Competitive Assessment of the U.S. Int. Trade Admin., August.

u.S. International Trade Commission (1983). An Evaluation of U.S. Imports Under the Generalised System of Preferences. ITC publication 1379, May.

U.S. International Trade Commission (1985). Conditions Relating to the Importation of Softwood Lumber into the United States. USITC Publication 1765, October.

- 110 -

WALTER, I. (1969). "Non-tariff barriers and the free-trade area option"Banca Nazionale del Lavoro Quarterly Review, 22:16, March.

WALTERS, Ingo (1971). "Non-tariff Barriers and the Export Performance ofDeveloping Countries: Am. Ec. Rev. 61(2):195, May.

WISEMAN, A.C. and R.A. Sedjo (1985). -Have Controls Reduced Log Exportsin the Pacific Northwest?" Journal of Forestry, P.680, November.

YEATS, A.J. (1974). "Effective Tariff Protection in The United States,the European Economic Community and Japan," Quarterly Review ofEconomics and Business, 14:41, Summer.

YEATS, A.J. (1977). "Do International Transportation Costs Increase withFabrication? Some Empirical Evidence", Oxford Economic Papers,29:458, November.

YEATS, A.J. (1979). Trade Barriers Facing Developing Countries (St.Martins Press, N.Y.)

YEATS, A.J. (1980). "Tariff Valuation, Transport Costs and the Establish-ment of Trade Preferences Among Developing Countries", WorldDevelopment, 8:129.

YEATS, A.J. (1981). "The Influence of Trade and Commercial Barriers onthe Industrial Processing of Natural Resources" World Development9(5):485.

- 110 -

WALTER, 1. (1969). "Non-tariff barriers and the free-trade area option" Banca Nazionale del Lavoro Quarterly Review, ~:16, March.

WALTERS, Ingo (1971). " Non-tariff Barriers and the Export Performance of Developing Countries : Am. Ec. Rev. ~(2):195, May.

WISEMAN, A.C. and R.A. Sedjo (1985). "Have Controls Reduced Log Exports in the Pacific Northwest?" Journal of Forestry, P.680, November.

YEATS, A.J. (1974). "Effective Tariff Protection in The United States, the European Economic Communi ty and Japan," Quarterly Revi ew of Economics and Business, ~:41, Summer.

YEATS, A. J . (1977). "00 International Transportation Costs Increase with Fabrication? Some Empirical Evidence", Oxford Economic Papers, ~:458, November.

YEATS, A.J. (1979). Trade Barriers Facing Developing Countries (St . Martins Press, N.Y.)

YEATS, A.J. (1980). "Tariff Valuation, Transport Costs and the Establishment of Trade Preferences Among Developing Countries" , World Development, ~:129.

YEATS, A.J. (1981) . the Industrial ~(5):485.

"The Influence of Trade and Commercial Barriers on Processing of Natural Resources" World Development

APPENDIX 1

TABLE 1

The UNCTAD Classification Scheme for Product-Specific Non-Tariff Measures

FISCAL MEASURES BEARING ON IMPORTS

1.1. Import specific charges and measures

1.1.1. Constraints to the operation of MFN tariffs

1.1.1.1. Tariff quotas

1.1.1.1.1. Ad valorem tariff with quota

1.1.1.1.2. Specific tariff with quota

1.1.1.1.3. Combined tariff with quota

1.1.1.2. Seasonal tariffs

1.1.1.2.1. Seasonal ad valwom Lariff

1.1.1.2.2. Seasonal specific tariff

1.1.1.2.3. Seasonal combined tariff

1.1.1.3. Ad valorem tariff with specific (tariff) minimum

1.1.2. Non-tariff charges applied on basis of declared value

1.1.2.1. Ad valorem charges

1.1.2.2. Specific charges

1.1.2.3. Combined ad valorem and specific charges

1.1.3. Non-tariff charges applied on basis of decreed value

1.1.3.1. Variable import duties

1.1.3.1.1. Variable import levy

1.1.3.1.2. Variable import price component

1.1.3.2. Transaction-specific import charges

1.1.3.2.1. Countervailing duty

1.1.3.2.2. Anti-dumping duty

1.2. Product-specific taxes including excise taxes

1.2.1. Ad valorem tax

1.2.2. Specific tax

1.2.3. Combined tax

VOLUME-RESTRAINING IMPORT MEASURES

2.1. Prohibitions

2.1.1. Total prohibitions

2.1.1.1. Prohibition total

2.1.1.2. Prohibition (health and safety)

2.1.1.3. Prohibition (wildlife)

2.1.1.4. Prohibition (censorship)

2.1.1.5. Prohibition (seasonal)

2.1.1.6. Prohibition with exceptions

2.1.2. Conditional prohibitions

2.1.2.1. Prohibition on basis of origin

2.1.2.2. Prohibition except for certain purchasers

2.1.2.2.1. State monopoly of imports

2.1.2.2.2. Sole importing agency

2.1.2.3. Prohibition for certain uso

2.1.2.4. Conditional prohibition (heAlth and safety)

2.1.2.5. Conditional prohibition

2.2. Quotas

2.2.1. Global quota

2.2.2. Quota by country

2.2.3. Seasonal quota

2.2.4. Quota

2.2.5. -Voluntary" export

111

APPENDIX

TABLE

The UNCTAD Classification Scheme for Product-Specific Non-Tariff Measures

1. FISCAL MEASURES BEARING ON IMPORTS

1 . 1. Import specific charges and measures

1.1.1. Constraints to the operation of HFN tariffs

1 . 1 . 1.1. Tariff quotas

1.1.1.1.1. Ad valorem tariff with quota

1.1.1 . 1 . 2. Speci fic tariff wit h quota 1.1.1.1.3. Combined tariff with quota

1.1.1 . 2. Seasonal tariffs

1.1.1.2 . 1. Seasonal ad Val OI I"m L.Hiff

1.1.1.2.2. Seasonal specific tariff 1.1.1.2.3. Seasonal combined ta r iff

1.1.1.3 . Ad valorem tariff with specific (ta r iff) min i mum

1 . 1 . 2. Non-tariff charges applied on basis of declared value

1.1.2.1-

1.1.2.2. 1.1.2.3 .

Ad valorem charges Specific charges Combined ad valorem and specific Charges

1.1 . 3. Non-tariff charges applied on basis of decreed value

1.1. 3. 1. Variable import duties

1.1. 3.1. L Variable import levy 1. 1.3.1 . 2 . Variable import price component

1.1 . 3 . 2. Transaction-specific import charges

1.1 . 3 . 2.1. Countervailing duty 1 . 1 . 3 . 2.2 . Anti-dumping duty

1.2. Product - specific taxes including excise taxes

1.2.1. Ad valor~m tax 1.2 . 2. Specific tax 1 . 2 . 3 . Combined tax

2. VOLUME-RESTRAINING IMPORT MEASURES

2.1. Prohibitions

2. 1.1. Total prohibitions

2.1.1.1. Prohibition tota 1 2.1.1.2. Prohibi tion (health and safety) 2.1.1.3 . Prohibition (wildlife) 2.1.1.4. Prohibiti on (c ensorship) 2 .1.1.5. Prohibition (seasonal) 2.1.1.6. Prohibition with except ions

2.1 . 2. Conditional prohibitions

2.2. Quotas

2.1.2 . 1 . Prohibition on basis of origin 2.1.2.2. Prohibition except for certain purchasers

2.1.2.2.1. State monopoly of imports 2.1.2.2.2. So le importing agency

2.1.2 .3. Prohibition for certain us,' 2.1 . 2.4. Conditional prohibition (heJlth and safety) 2 . 1.2 . 5 . Co ndi tional prohibition

2.2.1. Globa l quota 2.2.2. Quota by country 2.2.3, Sea30na l quota 2 . 2.4 . Quora 2. 2. 5. "Volunt ilry " exporr

OTHER MEASURES

- 112 -

TABLE 1 (Cont'd)

IMPORT AUTHORIZATIONS

3.1. Non-automatic authorizations

3.1.1. Authorizations to restrict entry

3.1.1.1. Discretionary authorizations

3.1.1.1.1. License requirements

3.1.1.1.2. Discretionary license

3.1.1.1.3. Import authorization

3.1.1.1.4. Import permit

3.1.1.1.5. Declaration with visa

3.1.1.1.6. Authorization to selected purchasers

3.1.1.2. Conditional import authorization

3.1.1.2.1. Authorization dependent on export

3.1.1.2.2. Authnrization dependent on domestic product purchase

3.1.1.2.3. Authorization dependent on foreign financing

3.1.1.2.4. Authorization dependent on availability of domestic supply

3.1.2. Authorizations to control compliance with standards

3.1.2.1. Authorization dependent on certification (health and safety)

3.1.2.2. Authorization dependent on certification (technical standards)

3.1.2.3. Authorization dependent on certification (censorship)

3.2. Automatic authorization

3.2.1. Automatic.license procedure

3.2.2. Liberal license procedure

3.2.3. Declaration without visa

3.2.4. License for surveillance purposes

3.2.5. lntra-community surveillance

PRICE LEVEL CONTROLS

4.1. Mínimum price systems

4.1.1. Decreed minimum prices

4.1.1.1. Minimum import price

4.1.1.2. Reference import price

4.1.1.3. Basic import price4.1.1.4. Trigger price

4.1.2. "Voluntary" export price restrai.nt

4.2. Price investigations

4.2.1. Anti-dumping investigation

4.2.2. Countervailing investigation

4.3. Price surveillance measures

5.1. Technical requirements

5.1.1. Health and safety regulations

5.1.2. Technical standards

5.1.3. Marking and packing requirements

5.2. Measures co assist import-competing production

5.2.1. Preferential credit facilities

5.2.1.1. Preferential interest rates5.2.1.2. Availability of credit

5.2.1.3. Loan guarantees

5.2.2. Assistance to production

5.2.2.1. General grant. .n producers

5.2.2.2. Investment grant5.2.2.3. Payment to material inputs5.2.2.4. Preferential provisions of services

5.2.2.4.1. Sasidised freight charges5.2.2.4.2. Pfeferential insurance terms

5.2.2.5. Research and development grants

5.2.2.6. Grant to purchasers

5.2.2.7. Equity participation by government

112 -

TABLE 1 (Cont'd)

3. IMPORT AUTHORIZATIONS

3.1. Non-automatic authorizations

3.1 . 1. Authorizations to restrict entry

3.1.1.1. Discretionary authorizations

License requirements Discretionary license Import authorization Import permit Declaration with visa

3.1.1.1.1-

3.1.1.1.2. 3.1.1.1.3.

3.1.1.1.4. 3.1.1.1.5.

3.1.1.1.6. Authorization to selected purchasers

3.1.1.2 . Conditional import authorization

3.1.1.2.1- Authorizat ion dependent on export 3.1.1.2.2. Auth'lcization dependent on domestic product purchase 3.1.1.2.3. Authorization dependent on foreign finanCing 3.1.1.2.4. Authorization dependent on avaLlability of domestic

3.1. 2. Authorizations to control compliance with standards

3.1.2.1. Authorization dependent on certification 3.1.2.2. Author!:tat ion dependent 3.1.2.3. Authorization dependent

3.2. Automatic authorization

3.2.1. Automatic'license procedure 3.2.2. Liberal license procedure 3.2.3. Declaration without visa 3.2.4. License for surv.eillance purposes 3.2.5. Intra-community surveillance

4. PRICE LEVEL CONTROLS

4.1. Hinimum price systems

4.1.1. Decreed minimum prices

4.1.1.1. 4.1.1.2. 4.1.1.3. 4.1.1.4.

Minimum import price Reference import p.rice Basic import price Trigger price

4.1.2. "Voluntary" export price rest raint

4.2. Price investigations

4 . 2.1. Anti -dumping investigation 4.2 . 2. Countervailing investigation

4.3. Price survei llance measures

5. OTHER HEASURES

5.1. Technical requirements

5.1 . 1. Health and safety regulations 5.1.2. Technical standards 5.1.3. Harking and packing requirements

on certification on certification

5.2. Measures to assist import-competi ng production

5.2.1. Preft:rential credit facilities

5.2.1.1. 5.2 .1.2. 5.2.1.3.

Preferential interest rates Availability of credit Loan guarantees

5.2.2. Assistance to production

5 . 2.2.1. General grant . . 0 producers 5.2 . 2.2. Investment grant 5. 2.2.3. Payment to material inputs 5.2.2.4 . Preferential provisions of services

5.2.2.4.1. 5.2 . 2.4 . 2.

S,,;b:iidised freight Charges P; eferential insurance terms

5.2.2.5. Research and deve lopment grants 5.2.2.6. Grant to purchasers 5. 2.2.7. Equity participation by government

(health and safety) (technical standards) (censorship)

supply

TABLE 1 (Cont'd)

5.2.3. Tax concessions

5.2.3.1. Tax exemption

5.2.3.2. Tax rebate

5.2.3.3. Tax refund

5.2.3.4. Tax deferral

5.2.3.5. Deduction from the tax base

5.2.3.5.1. Preferential depreciation allowance

5.2.4. Preferential treatment of imported input

5.2,4,1. Concessions on import charges

5.2.4.2. Procedural import preferences

5,2.4.3. Preferential exchange rates for imports

5.2.5. Sales promotion of import competing goods

5.2.5.1. Assistance for producer's product promotion

5.2.5.1.1. Grant to producer promotion scheme

5.2.5.1.2. Government-operated promotion scheme

5.2.5.2. Assistance to product marketing

. 5.2.5.2.1. Grant to producer marketing scheme

5.2.5.2.2. Government-operated marketing scheme

5,2.6. Price support measures including domestic subsidies

5.3. Other import measures

5.3.1. Measures pertaining to the Multifibre Arrangement (MFA)

5.3.1.1. MFA quoca

5.3.1.2. MFA consultation level

5.3.1.3. MFA export control

5.3.2. Additional customs formalities

5.3.3. Import deposits

TABLE 1 (Cont'd)

5.2.3. Tax conc~ssions

5.2.3,1. 5. 2.).2. 5.2,3.3. 5.2.3.4. 5. 2,3.5.

Tax ex,mption Tax rebate Tax refund Tax deferral Deduction from the tax base

5.2.3.5.1. Pr eferential dep r eciation allowance

5 t 2.A. Pre~erential treatmeqt of imported i npur ~

5.~,4,1. Concessions on l~port ~harges 5.2.~.2. ~rocedur.l import preferences 5,2.4 . 3. Preferential exchange rates fo; impurt&

5.2.5. Sales promotion of import competing goods

5.2.5.1. Assistance for producer!s product promotion

5.2 . 5.1.1. Grant to producer promotion scheme 5.2.5.1.2. Gov~rpment-operated promotion scheme

5.2.5.2. Assistance to product marketing

5.2.5~2.1.

5.2.5.2.2. Grant to producer marketing scheme Government-operated marketing scheme

5,2.6. Price support measures including domestic subsidies

5.1. Other import measures , 5.1.1. Heaspres pertaining to the Hultifibre Arrangement (MFA)

5.l.1.1. 5. 3.1.~. 5.3.1.3.

MFA quota MFA consultation level MFA export control

5,3.2. Additional customs formalities 5.3.3. Import deposits

- 114 -

APPENDIX 2

Ocean freight

Ocean freight costs are highly variable both between products, traderoutes, and over time. Differences between products can reflectdifferences in the value of the product, with higher valued prodtstypically facing higher rates, or the load factor of the product . In

addition the differences can reflect the volume of the product to beshipped, and the availability (or lack of it) oE backhaul cargo. Largevolume cargoes of logs, pulp, newsprint, woodchips, and to a lesser extentsawntimber, are traded. As a result, for these charter shipping is oftena viable option, specialized ships can be used (e.g., woodchip and woodpulpcarriers), or attractive long-term rates can be negotiated. If productscan be shipped in large volumes, in specialized ships, From a limitednumber of export ports, to a limited number of buyers, substantialadvantages in rate levels can be obtained.

As well as differing between products, however, rates for the sameproduct can also differ at any particular time period. Rates on the spotmarket can be considerably different from long-term contract cates, whichreflect the prevailing conditions in the market as well as conditions whenthe contracts were signed and expectations of the future held at that time.Rates on different routes of approximately similar length differ,reflecting the specific characteristics of the route. Ship turnaround time(influenced by port conditions such as facilities, labor force, congestionetc.), type of ship plying the route, availability of backhauls, and thelevel of competition between shipping lines all serve to give highlyvariable freight rates even for the same products. Even more significantis the fact that because of differences in factors such as these, there isoften only a loose relationship between the freight cost and distance.

As an example of the variability in rates, Table 1 indicates thedifferences that exist for the same products over different routes anddifferent time periods; and the differences between products.

1/ Load factor combines the weight of the product, its volume and easeof stowing.

- 114 -

APPENDIX 2

Ocean freight

Ocean freight costs are highly variable both between products, trade routes, and over time. Differences between products can reflect differences in the value of the product, with higher valued prodY7ts typically facing higher rates, or the load factor of the product . In addition the differences can reflect the volume of the product to be shipped, and the availability (or lack of it) of backhaul cargo. Large volume cargoes of logs, pulp, newsprint, woodchlps, and to a lesser extent sawntlmber, are traded. As a result, for these charter shipping is often a viable option, specialized ships can be used (e.g., woodch!p and woodpulp carriers), or attractive long-term rates can be negotiated. If products can be shipped in large volumes, in specialized ships, from a limited number of export ports, to a limited number of buyers, substantial advantages In rate levels can be obtained.

As well as differing between products, however, rates for the same product can also differ at any particular time period. Rates on the spot market can be considerably different from long-term contract rates, which reflect the prevailing conditions In the market as well as conditions when the contracts were signed and expectations of the future held at that time. Rates on different routes of approximately similar length differ, reflecting the specific characteristics of the route. Ship turnaround time (Influenced by port conditions such as facilities, labor force, congestion etc.), type of ship plying the route, availability of backhauls, and the level of competition between shipping lines all serve to give highly variable freight rates even for the same products. Even more significan t is the fact that because of differences in factors such as these, there Is often only a loose relationship between the freight cost and distance.

As an example of the variability in rates, Table 1 indicates the differences that exist for the same products over different routes and different time periods; and the differences between products .

!/ Load factor combines the weight of the product, Its volume and ease of stowing.

TABLE 1 - Ocean freight rates for selected forest products

Product RouteRate

Note: Most rates indicated are approximate and should only be taken asa general guide. Rates do not include port charges or, whererelevant, container packing.

Sources: Takeuchi (1983); UNIDO (1983b); UNIDO (1983c); CE Doan (1983);Swiderski and Heilborn (1983); Pulp & Paper (May 1985); FAO (1985),Japan Lumber Journal.1/ Charter rate. For containers add $23.00T/ Charter rate. For containers add $3.00-J./ Rates for printing and writing papers.

Bone dry unit = 1090 kg of oven dry woodchips

- 115 -

Feb March1980 1982 1983 1984

3

Logs Sabah - Japan 25.5 27.6 14 21

Sarawak - Japan 28.5 15 23.5Indonesia - Japan 30.2 26 22 26

Papua New Guinea - Japan 21.5 26 28


Chile - Japan 30 21

Sawn- US (West Coast) - Japan (charter) 20 15

timber Indonesia - Japan 40 38.5 33

New Zealand - Australia 42 46


Chile - Japan 28 20

Plywood Indonesia - Japan 40 38.50 33

Philippines - Japan 20

W. Malaysia - Japan 31

Particle East AErica - Europe 40

Board

$/tonne

Pulp US (West Coast) - Japan 37 471/ 32

US (West Coast) - Korea 60


Chile - Japan 61 56

Paper3/ 682/US (West Coast) - Japan 105

US - S.E. Asia 90

Europe (Rotterdam) - US (East Coast) 65

Finland - Japan 90

$/Bone dry unit

Woodchips Rotterdam - US (West Coast) 100

- 115 -

TABLE 1 - Ocean freight rates for selected forest products

Prod uc t Route

1980

Logs

Rate

Feb 1982

$/m3

27.6

March 1983 1984

21 Sabah - Japan Sarawak - Japan Indonesia - Japan

25.5 28.5

30.2 26 21. 5

14 15

22 26

23.5 26

Sawntimber

PI ywood

Papua New Guinea - Japan New Zealand - Japan Chi Ie - Japan

us (West Coast) - Japan (charter) Indonesia - Japan New Zealand - Australia New Zealand - Japan Chi 1 e - Japan

Indonesia - Japan Phi 1 i ppines - Japan W. Malaysia - Japan

Particle East Africa - Europe Board

Pulp

31 Paper

us (West Coast) - Japan US (West Coast) - Korea New Zealand - Japan Chile - Ja pan

us (West Coast) - Japan US - S. E. As i a Europe (Rotterdam) - US (East Coast) Finland - Japan

26 30

20 40

25 28

40 20 31

37

45 61

38.5

38.50

40

$/tonne

47 11

60

33 42

33

105 90 65 90

$/Bone dry unit

Woodchips Rotterdam - US (West Coast) 100

28 20 21

15

46 19 20

Note: Most rates indicated are approximate and should only be taken as a general guide. Rates do not include port charges or, where relevant, container packing.

32

37 56

Sources: Takeuchi (1983); UNIDO (1983b); UNlDO (1983c); CE Doan (1983); Swiderski and Heilborn (1983); Pulp & Paper (May 1985); FAD (1985), Japan Lumber Journal. 11 Charter rate. For containers add $23.00 21 Charter rate. For containers add $3.00 31 Rates for printing and writing papers.

Bone dry unit = 1090 kg of oven dry woodchips

- 116 -

Of special note is the reported rate of $90/t to freight printing andwriting papers from Finland to Japan, compared with the US west coast rate toJapan of $105/t. Thus the US rate is $15/t higher for a voyage less than halfthe distance. Similarly, the rates for sawntimber from the US west coast toJapan are less than half the Indonesia-Japan rates although the distance isnearly double.

Ocean shipping difficulties place a considerable burden on developingcountries attempting to develop profitable exports of forest products,particularly of more processed products such as panel products and furniturecomponents. On the one hand, internal conditions, particularly in thetropical countries, make shipping difficult and costly (for example, poorfacilities, climatic conditions, and product volumes). On the other, theforest resources are usually isolated and distant from regular shippingroutes. Much of Indonesia and Papua New Guinea's forestry industry suffersfrom problems of this nature, as do African countries with substantial forestresources such as Cameroon, Zaire, and the Ivory Coast. Further difficultiesare the lack of sophisticated port facilities and the limited opportunitiesoffered shipping lines for backhauls. Problems such as these limit theopportunities for attracting shipping lines to service the regions (thusreducing competition), and result in more expensive shipping operations.

It is difficult for developing countries to overcome the impasse ofinadequate and expensive shipping services resulting from low shippingvolumes, while volumes will not expand because shipping services areinadequate and expensive. This situation is less of a problem for logs,because large volumes are involved and both loading and shipment can becarried out without sophisticated equipment.

- 116 -

Of special note is the reported rate of $90/ t to freight printing and writing papers from Finland to Japan, compared with the US west coast rate to Japan of $IOS/t. Thus the US rate is $IS/ t higher for a voyage less than half the distance. Similarly, the rates for sawntimber from the US west coast to Japan are less than half the Indonesia-Japan rates although the distance is nearly double.

Ocean shipping difficulties place a considerable burden on developing countries attempting to develop profitable exports of forest products, particularly of more processed products such as panel products and furniture components. On the one hand, internal conditions, particularly in the tropical countries, make shipping difficult and costly (for example, poor facilities, climatic conditions, and product volumes). On the other, the forest resources are usually isolated and distant from regular shipping routes. Much of Indonesia and Papua New Guinea's forestry industry suffers from problems of this nature, as do African countries with substantial forest resources such as Cameroon, Zaire, and the Ivory Coast. Further difficulties are the lack of sophisticated port facilities and the limited opportunities offered shipping lines for backhauls. Problems such as these limit the oppo rtunities for attracting shipping lines t o service the regions (thus reducing competition), and result in more expensive shipping operations.

It is difficult for developing countries to overcome the impasse of inadequate and expensive shipping services resulting from low shipping volumes, while volumes will not expand because shipping services are inadequate and expensive. This situation is less of a problem for logs, because large volumes are involved and both loading and shipment can be carried out without sophisticated equipment.

- 117 -

APPENDIX 3

BARRIERS AND THE DEVELOPING COUNTRIES : THE CASE OF THE EAST ASIAN REGION*

Introduction

The East Asian region includes some of the world's major forest productexporting developing countries. Included in this category are both countrieswhich base their exports on their own forest resource, and those which havedeveloped exports based largely on imported wood. In the former category areIndonesia, Malaysia, the Philippines and Papua New Guinea. In the latter,Republic of Korea, Taiwan and Singapore.

This section discusses the barriers which are affecting the tradedevelopment of these countries. The objective is to highlight some of themain barriers and their effects by briefly looking at Indonesia, Malaysia andthe Philippines. Using these countries as examples some of the barriersdiscussed in chapter III are covered in more detall.

Background to East Asia

The following information provides a brief background to the maincountries in the region.

Table 1 indicates the wide differences that exist between the maindeveloping countries in the region. Populations range from 2.5 million inSingapore to 156 million in Indonesia. Gross National Product (GNP) ishighest in Indonesia ($87,000 million) and lowest in Singapore($17,000 million). On a per capita basis the reverse is true, with Singaporereaching $6,620 per capita in 1983 and Indonesia being less than 9 percent ofthis figure ($560).

Two of the three forest-rich countries which will be the focus of thischapter, Indonesia, and the Philippines, have low per capita GNP levels.These are less than half that of Malaysia. Indonesia and Malaysia showedannual average per capita growth rates of around 7 percent over 1973-83, whilethe Philippines achieved just over 5 percent.

Indonesia, Malaysia, Papua New Guinea, and the Philippines have largeoperable forest areas (Table 2) which range from about 7 million ha in thePhilippines to almost 74 million ha in Indonesia. Industrial roundwoodproduction is also varied, but large. Exports of industrial roundwood arerelatively small, however, except for Malaysia.

* Broadly defined as the Western Pacific Rim, excluding the People'sRepublic of China.

- 117 -

APPENDIX 3

BARRIERS AND THE DEVELOPING COUNTRIES THE CASE OF THE EAST ASIAN REGION*

1. Introduction

The East Asian region includes some of the world's major forest product exporting developing countries. Included in this category are both countries which base their exports on their own forest resource, and those which have developed exports based largely on imported wood. In the former category are Indonesia, Malaysia, the Philippines and Papua New Guinea. In the latter, Republic of Korea, Taiwan and Singapore.

This section discusses the barriers which are affecting the trade development of these countries. The objective is to highlight some of the main barriers and their effects by briefly looking at Indonesia, Malaysia and the Philippines. Using these countries as examples some of the barriers discussed in chapter III are covered in more detail.

2. Background to East Asia

The following information provides a brief background to the main countries in the region.

Table I indicates the wide differences that exist between the main developing countries in the region. Populations range from 2.5 million in Singapore to 156 million in Indonesia. Gross National Product (GNP) is highest in Indonesia ($87,000 million) and lowest in Singapore ($17,000 million). On a per capita basis the reverse is true, with Singapore reaching $6,620 per capita in 1983 and Indonesia being less than 9 percent of this figure ($560).

Two of the three forest-rich countries which will be the focus of this chapter, Indonesia, and the Philippines, have low per capita GNP levels. These are less than half that of Malaysia. Indonesia and Malaysia showed annual average per capita growth rates of around 7 percent over 1973-83, while the Philippines achieved just over 5 percent.

Indonesia, Malaysia, Papua New Guinea, and the Philippines have large operable forest areas (Table 2) which range from about 7 million ha in the Philippines to almost 74 million ha in Indonesia. Industrial roundwood production is also varied, but large. Exports of industrial roundwood are relatively small, however, except for Malaysia.

* Broadly defined as the Western Pacific Rim, excluding the People's Republic of China.

.. small

- 118 -

TABLE 1 - Selected Country Indicators - 1983

Population GDP GDP per GDP growth(mid-1983) capita 1973-83millions ($ 000 million) ($) (% per annum)

UNIDO, Industrial Development Review Series

Although the forest sector is important to Indonesia, Malaysia and thePhilippines the proportion of export income earned by this sector is not high.Malaysia develops 14 percent of its export revenue from forest products,while Indonesia and the Philippines receive 5.7 percent and 5.2 percentrespectively (Table 3).

TABLE 2 - Forest Resources and Industrial Roundwood

IndonesiaMalaysiaPhilippinesSingaporeThailandRep. of KoreaHong Kong

155.714.9

52.1

2.5

49.240.05.3

78.329.3

34.6

16.6

40.876.627.5

5601860

760

66208201916

5187

'

7.0

7.3

5.48.2

6.97.3

9.3

IndonesiaMalaysiaPhilippines

73.7

15.6

6.9

29.132.8

7.0

2.017.1

1.3Papua New Guinea 14.1 1.4 1.5

Rep. of Korea 2.3 0 0

TaiwanThailand 4.6 4.4

Source: UNIDO (19830, FAO (1986)

Operable Forest Area Industrial Roundwood 1984

Production xports(million ha) (million m )

•

- 118 -

TABLE I - Selected Country Indicators - 1983

Population GDP GDP per GDP growth (mid-1983) capi ta 1973-83 mil Ii ons ($ 000 million) ($ ) (% per annum)

Indonesia 155.7 78.3 560 7. 0 Malaysia 14 .9 29.3 1860 7. 3 Ph iIi ppines 52.1 34.6 760 5.4 Singapore 2.5 16.6 6620 8.2 Thai land 49.2 40.8 820 6.9 Rep. of Korea 40.0 76.6 1916 7.3 Hong Kong 5.3 27.5 5187 9.3

UNIDO, Industrial Development Review Series

Although the forest sector is important to Indonesia, Malaysia and the Philippines the proportion of export income earned by this sector is not high. Malaysia develops 14 percent of its export revenue from forest products,

while Indonesia and the Philippines receive 5.7 percent and 5.2 percent respectively (Table 3).

TABLE 2 - Forest Resources and Industr ial Roundwood

Indonesia Malaysia Phi lippines Pa pua New Gu i nea Rep. of Korea Taiwan Tha i land

Operable Forest · Area

(milli on hal

73.7 15.6 6.9

14. I

4 . 6

Source: UNIDO (I 983f) , FAO (1986) .. small

Industrial Roundwood 1984

Production IJxports (mil lion m )

29.1 32.8 7.0 1.4 2.3

4.4

2 . 0 17 . 1 1.3 1.5

a UNIDO (1985)b FAO (1986)

Table 4 shows that the proportion of the production of logs, sawntimberand plywood exported varies between the main countries of the region. Exceptfor Korea, the countries listed export a high proportion of their plywoodproduction (50-123%); a smaller proportion of their sawntimber (except forPapua New Guinea and Singapore) (35-45%); and except for Papua New Guinea andMalaysia, less of their logs (0-33%).

3. Barriers Affecting the Developing Countries of the East Asian Region

The main forest rich developing countries -- namely Malaysia, Indonesia,The Philippines, and Papua New Guinea -- direct most of their trade to Japan,the EEC, Australia, and the USA. The main products traded are unprocessedlogs and rough-sawntimber. Trade in more processed products such as veneerand plywood, furniture, and to a lesser extent mouldings and other carpentryitems is increasing, but apart from the dramatic gains in plywood exports madein recent years by Indonesia, total exports of most are still relativelysmall. Obviously many factors have had an influence on this performance.This section will discuss the role of trade barriers.

3.1 Import Barriers

Total Exportsa

- 119 -

TABLE 3 - Proportion of Export Revenue from Forestry Exports (1983)

(a) Barriers in the Developed Countries

Three features of import barriers are clear: (1) tariff levels for manyforest products are generally low, (2) in general more highly processedproducts face higher tariff rates than the unprocessed forms, (tariffescalation) and (3) a number of non-tariff barriers exist which, when added tothe tariffs, result in more restrictive conditions facing exports of processedproducts.

Forest Products Exportsb

($ million)

1113 5.7

2224 14.1

358 5.2

189 0.7

30 0.3

463 1.6

($ 000 million)

Indonesia 19.6

Malaysia 15.8

Philippines 6.9Rep. of Korea 28.3

Thailand 9.0Singapore 29.2

- 119 -

TABLE 3 - Proportion of Export Revenue from Forestry Exports (1983)

Indonesia Malaysia Phi li ppines Rep . of Korea Thai land Singapore

a UNIDO (1985) b FAO (1986)

a Total Exports

($ 000 milli on)

19.6 15.8 6.9

28.3 9.0

29.2

b Forest Products Exports

($ million)

1113 2224

358 189 30

463

%

5.7 14.1 5.2 0.7 0.3 1.6

Table 4 shows that the proportion of the production of logs, sawn timber and plywood exported varies between the main countries of the region. Except for Korea, the countries listed export a high proportion of their plywood production (50-123%); a smaller proportion of their sawntimber (except for Papua New Guinea and Singapore) (35-45%); and except for Papua New Guinea and Malaysia, less of their logs (0-33%).

3. Barriers Affecting the Developing Countries of the East Asian Region

The main forest rich developing countries -- namely Malaysia, Indonesia, The Philippines, and Papua New Guinea -- direct most of their trade to Japan, the EEC , Australia, and the USA . The main products traded are unprocessed logs and rough-sawntimber. Trade in more processed products such as veneer and plywood, furniture, and to a lesser extent mouldings and other carpentry items is increasing, but apart from the dramatic gains in plywood exports made in recent years by Indonesia, total exports of most are still relatively small. Obviously many factors have had an influence on this performance. This section will discuss the role of trade barriers.

3.1 Import Barriers

(a) Barriers in the Developed Countries

Three features of import barriers are clear: (1) tariff levels for many forest products are generally low, (2) in general more highly processed products face higher tariff rates than the unprocessed forms, (tariff escalation) and (3) a number of non-tariff barriers exist which, when added to the tariffs, result in more restrictive conditions facing exports of processed products.

TABLE 4 - Production and Exports of Major Products 1984

:Selected East Asian Countries

..

Negligible

are-exports important

Source: FAO (1986)

Saw and Veneer Logs

Sawntimber

Plywood

Production

Export

%Production

Export

Production

Export

(million

m3)

(million

m3)

(million

m3)

Indonesia

26.4

1.6

6.1

6.3

2.2

34.9

3820

3046

79.7

Malaysia

31.6

16.0

50.6

7.3

2.8

38.4

787

400

50.8

Philippines

3.9

1.3

33.3

1.1

0.5

45.4

414

269

65.0

Papua New Guinea

1.2

1.2

100

0.1

0.2

200a

..

..

..

Rep. of Korea

1.1

3.5

..6

1304

377

28.9

Singapore

0.4

0.8

200

482

591

122.6a

TABL

E 4

-P

rod

uct

ion

and

E

xp

ort

s o

f M

ajor

P

rod

uct

s 19

84

Sel

ecte

d

Eas

t !s

ian

Co

un

trie

s

·Saw

an

d V

enee

r L

ogs

Saw

ntim

ber

Plyw

ood

Pro

du

ctio

n

Exp

ort

%

Pro

du

ctio

n

Ex

po

rt

%

Pro

du

ctio

n

Exp

ort

%

----

----

----

----

----

----

---

----

----

----

----

----

---

----

----

----

----

----

----

---

33

3

(mil

lio

n m

)

(mil

lio

n

m )

(m

illi

on

m

)

Ind

on

esia

2

6.4

1

.6

6. I

6

.3

2.2

3

4.9

38

20

3046

7

9.7

M

alay

sia

31

.6

16

.0

50

.6

7.3

2

.8

38

.4

787

400

50

.8

Ph

ilip

pin

es

3.9

1

.3

33

.3

1.1

0

.5

45

.4

414

269

65

.0

Pap

ua

New

G

uine

a 1

.2

1.2

10

0 0

.1

0.2

20

0a

Rep

. o

f K

orea

1

.1

3.5

20

08

1304

37

7 2

8.9

Si

nga

pore

0

.4

(1. 8

482

591

l22

.6a

Neg

lfg

i bl e

a

re-e

xp

ort

s im

port

ant-

So

urc

e:

FAD

(198

6)

-N o

- 121 -

Of greatest significance to the developing countries are the barrierson panels -- both solidwood and reconstituted panels. In particular,plywood faces barriers which, potentially at least, restrict the ability ofthe developingoountries to compete with domestic production in the mainimport markets .

(I) Tariff Barriers

Tariff rates for the EEC, Japan, the USA, Australia and New Zealandfor selected broad categories of wood and wood products are shown in table5. These are the main markets of interest to East Asian producingcountries. The products shown are those which are generally within thetechnical21financial and management capabilities of many developingcountries

MFN tariff rates on l'ese products are in most cases within the range5-20%, a significant level . The MFN rates are however, reduced by GSPrates which apply to the developing countries in most of the markets shown.However, plywood, and to a lesser extent veneer and particleboard areexcluded from the GSP in some markets, particularly Japan and Australia,while in other cases the benefits of the preferences are limited by certainrestrictions.

Since Japan is the largest market for unprocessed logs from theAsia-Tacific region and a major consumer of hardwood plywood and veneer,(the main use for hardwood logs) the lack of preferences on plywood is ofspecial significance. Of further concern is the fact that softwood plywoodhas a lower tariff rate than that Facing hardwood plywood -- 15% vs 17 or20% depending on thickness. Although softwood and hardwood plywoods arenot direct substitutes there is a degree of interchangeability in manyend-um, and the potential for more if either product becomes limited insupply . A tariff differential can therefore have important impacts.

1/ Estimates by Takeuchi (1983) tend to suggest developing countries inAsia have a competitive advantage which is negated by high tariffs.

2/ In a classification of manufactured products according to theirexport potential for developing countries, UNCTAD (1984) considered plywoodand veneer to be already within their production capacity, and woodmanufactures and paper articles as likely to come within their capacity inthe foreseeable future. Paper and paperboard products, and furniture wereconsidered beyond their capacity in the foreseeable future.

3/ As discussed in chapter II, effective rates of protection for theseproducts may be substantially higher than suggested by these nominalrates.

4/ For example current log export restrictions have resulted in someplywood plants carrying out trials on the suitability of softwoods.

- 121 -

Of greatest significance to the developing countries are the barriers on panels -- bQth solidwood and reconstituted panels. In particular, plywood faces barriers which, potentially at least, restrict the ability of the developingl70untries to compete with domestic production in the main import markets •

(i) Tariff Barriers

Tariff rates for the EEC, Japan, the USA, Australia and New Zealand for sele~ted broad categories of wood and wood products are shown in table 5. These are the main markets of interest to East Asian producing countri~s. The products shown are those which are generally within the t~chnicaI2/financial and management capabilities of many developing countries

MFN tariff rates on §7ese products are in most cases within the range 5-20%, a significant level The MFN rates are however, reduced by GSP rates which apply to the developing countries in most of the markets shown. However, plywood, and to a lesser extent veneer and particleboard are exclud~d from the GSP in some markets, particularly Japan and Australia, while In other cases the benefits of the preferences are limited by certain restrictions.

$ince Japan is the largest market for unprocessed logs from the Asia~Pacific region and a major consumer of hardwood plywood and veneer, (the main use for hardwood logs) the lack of preferences on plywood is of special significance. Of further concern is the fact that softwood plywood has a lower tariff rate than that facing hardwood plywood -- 15% vs 17 or 20% depending on thickness. Although softwood and hardwood plywoods are not direct substitutes there is a degree of interchangeability in many end-us~" and the potential for more if either product becomes limited in sppply • A tariff differential can therefore have important impacts.

II Estimates by Takeuchi (1983) tend to suggest developing countries in Asia have a competitive advantage which Is negated by high tariffs.

l/ In a classification of manufactured products according to their export potential for developing countries , UNCTAD (1984) considered plywood and veneer to be already within their production capacity, and wood manufactures and paper articles as likely to come within their capacity in the foreseeable future. Paper and paperboard products, and furniture were considered beyond their capacity in the foreseeable future.

3/ As discussed in chapter II, effective rates of protection for these products may be substantially higher than suggested by these nominal rates.

4/ For example current log export restrictions have resulted in some plywood plants carrying out trials on the suitability of softwoods • .

- 122 -

TABLE 5 - Import tariff rates for selected wood products

(X ad valorem)

a No distinction between Softwood and hardwood.

b In contrast to other softwoods some of the main North American species are free of duty.

c Preferential agreements exist for some countries or regions in addition to the GSP.

-- No preferential rate.

) Quantitative restrictions also exist.

Source: Tariff schedules, official documents.

Prepared February 1986.

Tariff No.

(CCCN)

Product Japan EEC(c) USA Australia(e) New Zealand(c)

MFN GSP MFN GSP MFN GSP MFN GSP MFN GSP

44.01- Wood in rough 0 0 0 0 0

44.04

44.05 Sawntimber

- Hardwood 10.0 5.0 0 0 0 0 5.0 5 less 0

- Softwood 7.0(b) 0 4.1 0 (a) (a) $0.43/m3 (a)

44.13 Sawntimber

planed, tongued, etc

- Hardwood 10.0 0 4.3 (0) 0-2.5 101 2,15 0 10 0

- Softwood 0, 10.0 0 (a) (a) (a)

44.14

44.15

Veneer 15.0

Plywood

(0, 7.5) 6.1 (0) 0 0 5.0 -- 30 20

- Hardwood 17, 20 -- (10.4) (0) 3.6-9.5 0 28 -- 35 25

Tropical 8.0 --- Softwood 15.0 -- (a) 20.0 (0) (a)

44.18 Particleboard 12.0 0 10.5 (0) 4.5 0 22.0 -- 20 10

44.20-28 Carpentry, 2.5-7.2 (0) 2.6-9.1 (0) 0-8.0 0 15.0 0 20 10

Joinery

94.01/03 Furniture 4.8 0 5.6, 6.3 (0) 2.8-5.8 (0) 30.0 (20.0) 40 22.5

- 122 -

TABLE 5 - Import tariff rates for selected wood produc ts

(X ad valorem)

Tariff No. Product Japan EEC(c) USA Austral1a(c) New Zealand( c) ( CCeN)

MFN GSF MFN GSP MFN GSP MFN GSP MFN GSP

f.!. .01- Wood in rough 0 0 0 0 0 44 . 04

4':'.05 Sawtimber - Hardwood 10.0 5.0 0 0 0 0 5.0 5 less 0 - Softwood 7.0(b) 0 4.1 0 (a) (a) $0. 43 1m3 (a)

4!..13 Sawntimber planed, tongued, etc - Hardwood 10.0 0 4.3 (0) C>-2.5 10! 2,15 0 10 0 - Softwood O. 10.0 0 (a) (a) (a)

4!. .14 Veneer 15.0 (0, 7.5) 6.1 (0) 0 0 5.0 30 20

44. 15 Plywood - Hardwood 17. 20 (10.4) (0) 3 .6-9.5 0 28 35 25

Tropical 8.0 - Softwood 15.0 (a) 20.0 (0) (a)

44 . 18 Particleboard 12.0 0 10.5 (0) 4 .5 0 22.0 20 10

44.20-28 carpentry, 2.5-7.2 (0) 2.6-9.1 (0) 0-8.0 0 15.0 0 20 10 joinery

94.01/03 Furniture 4.8 0 5.6, 6.3 (0) 2.8-5.8 (0) 30.0 (20.0) 40 22.5

a No distinction between softwood and hardwood.

b In contrast to other softwoods SOllIe of the main North American species are free of duty.

c Preferential agreements exist for some countries or regions in addition to the GSP .

No preferential rate.

() QuantitatIve restrictions also exist.

Source: Tariff schedules, official docUDents.


- 123 -

Rates on sawntimber are generally zero, except for Japan. In that

market the preferential rate on sawn hardwood is 5%. This compares withduty-fyee entry for sawn softwood species other than spruce, pine, fir andlarch .

Many of the products which are a natural progression to morevalue-added processing therefore continue to face tariff and/orquantitative controls. sawntimber, and panel products -- particularlyplywood -- face this problem.

Other processed products such as beading and moulding, carpentry andfurniture tend to have more open or duty-free access.

Both pulp and paper products show a similar situation. While being amuch more processed form than most wood products, pulp is usually givenduty-free entry; paper products which involve much greater processingtechnology and high capital cost are subject to low tariff rates.Preference systems provide duty-free entry to most products from developingcountries, no doubt because most developing countries are high costproducers and/or have little processing capacity. (Table 6)

It is therefore clear that, at least at the present stage ofdevelopment, Asian exporters face greatest difficulty with panel products,furniture, and to a considerably lesser extent, sawntimber andsemi-processed wood products.

(ii) Non-Tariff Barriers

NTBs such as quotas and tariff quotas have been discussed above andclearly restrict the developing countries of the region. Other NTBsoperating in addition to these restrictions also create difficulties. The

extent and degree to which they are restricting exports is, however,difficult to document. The lack of detail therefore creates considerabledifficulty when attempting to assess how much these barriers affect trade.On the limited information available, the main non-tariff barriers, otherthan tariff quotas, affecting Asian producers are probably health andtechnical standards, and to a lesser extent, licensing procedures. In mostinstances, although licensing procedures add to the exporters costs and arean irritant, they are probably not a major barrier to trade. Health andtechnical standards are more of a problem. This does not necessarilyreflect unreasonable standards but rather the level of development of thedeveloping countries and the importing country's own domestic marketrequirements.

1/ Two of the main species exported by North America, Douglas fir andhemlock, enter duty-free.

- 123 -

Rates on sawntimber are generally zero, except market the preferential rate on sawn hardwood is 5%. duty-fyee entry for sawn softwood species other than larch •

for Japan. In that This compares with

spruce, pine, fir and

Many of the products which are a natural progression to more value-added processing therefore continue to face tariff and/or quantitative controls. sawntlmber, and panel products -- particularly plywood -- face this problem.

Other processed products such as bead ing and moulding, carpentry and furniture tend to have more open or duty-free access.

Both pulp and paper products show a similar situation. While being a much more processed form than most wood products, pulp · is usually given duty-free entry; paper products which involve much greater processing technology and high capital cost are subject to low tariff rates. Preference systems provide duty - free entry to most products from developing countries, no doubt because most developing countries are high cost producers and/or have little processing capacity. (Table 6)

It is therefore clear that, at least at the present stage of development, Asian exporters face greatest difficulty with panel products, furniture, and to a considerably lesser extent, sawntimber and semi-processed wood products.

(Ii) Non-Tariff Barriers

NTBs such as quotas and tariff quotas have been discussed above and clearly restrict the developing countries of the region. Other NTBs operating in addition to these restrictions also create difficulties. The extent and degree to which they are restricting exports is, however, difficult to document. The lack of detail therefore creates considerable difficulty when attempting to assess how much these barriers affect trade. On the limited information available, the main non-tariff barriers, other than tariff quotas, affecting Asian producers are probably health and technical standards, and to a lesser extent, licensing procedures. In most instances, although licensing procedures add · to the exporters cos ts and are an Irritant, they are probably not a major barrier to trade. Health and technical standards are more of a problem. This does not necessarily reflect unreasonable standards but rather the level of development of the developing countries and the importing country's own domestic market requirements.

1/ TWo of the main species exported by North America, Douglas fir and hemlock, enter duty-free.

TABLE 6 -,144FN Tariff Rates in Selected Developed Countries

:Wood chips, Pulp and Paper

GSP rate in brackets

*Some or all items in the category limited by quotas, ceilings or similar restrictions

a)

Preferential agreements exist for countries or regions in addition to the GSP

Source:

National tariff schedules; official documents.

Abstralia

a)

EEC

a)

New Zealand

a)

Japan

Canada

USA

Wood chips

5(0)

00

00

0

Pulp

2-15(0)

00

00

0

Newsprint

05.4*(0)*

10(0)

3.9(0)

00

Other printing

papers

6-14(0)

4.1-12.8

0-40

8.5(0)

6.5-9.2

0

Paperboard

20(0)

60-40

5.0(0)

41.9(0)

(0-20)

TABL

E 6

-M

FN

Tari

ff

Rat

es

in S

ele

cte

d

Dev

elop

ed

Co

un

trie

s ,

Woo

d ch

ips,

P

ulp

an

d P

aper

Au

stra

lia

EEC

New

Z

eala

nd

Ja

pan

C

anad

a US

A a)

a)

a)

Woo

d ch

ips

5(0

) 0

0 0

0 0

Pu

lp

2-1

5(0

) 0

0 0

0 0

New

spri

nt

0 5

.4*

(0)*

1

0(0

) 3

.9 (0

) 0

0

Oth

er p

rin

tin

g

pap

ers

6-1

4(0

) 4

.1-1

2.8

0

-40

8

.5(0

) 6

.5-9

.2

0 ~

N ..,.

Pap

erb

oar

d

20

(0 )

6 0

-40

5

.0(0

) 4

1. 9

(0

) (0

-20

)

GSP

ra

te

in b

rack

ets

* So

me

or

all

it

ems

in

the

cate

go

ry

lim

ited

by

q

uo

tas,

ceil

ing

s o

r si

mil

ar

rest

ricti

on

s

a)

Pre

fere

nti

al

agre

emen

ts ex

ist

for

co

un

trie

s o

r re

gio

ns

in a

dd

itio

n

to

the

GSP

So

urc

e:

Nat

ion

al ta

riff

sc

hed

ule

s; o

ffic

ial

do

cum

ents

.

- 125 -

It is difficult to determine whether these non-tariff measures docreate difficulties for the Asian exporters. There is clear evidence ofimported temperate softwoods facing difficulties meeting health andtechnical standards in Japan, the EEC and Australia to name a few markets.The evidence for commonly traded hardwoods is more difficult. It is,however, likely they do face similar difficulties. Certainly the problemsfacing exports of lesser-known species are obvious.

(b) Barriers in the Developing Countries

Singapore, Hong Kong, and Thailand import sawntimber and panelproducts, while although Indonesia, Korea, Malaysia, the Philippines andTaiwan are important consumers, they import little. With the exception ofSingapore and Hong Kong (not included in the table) which maintain opentrade policies, most of the developing countries mentioned have tariffrates which are substantially above those in the developed countriesdiscussed. On most products, rates of 20-30% are common (Table 7). Theselevels probably overstate the situation to a degree as preferences applyingto inter-region trade between the ASEAN1/ countries are not taken intoaccount. Nevertheless, the general observation that tariffs aresignificantly higher than for the developed countries remains true.

As with the developed country markets, tariff escalation appears toexist in the tariff schedules. If Singapore and Hong Kong are excluded,rates on wood in the rough range from 5-20%; primary wood products 5-40%;and secondary wood products 10-50%. Tariffs on paper range from 5-50%.Actual rates for the Philippines and Papua New Guinea are higher thanindicated since duty is assessed on the f.o.b. price + 10% in the case ofthe Philippines, and a 3.5% surcharge applies for Papua New Guinea.

As might be expected, countries with limited wood resources whichhave built important industries on the processing of imported wood, such asSingapore, Korea, Taiwan and Hong Kong, all have zero or low tariffs onlogs and large section sawntimber. Countries with large forest resourcessuch as Indonesia and Malaysia on the other hand still maintain rather hightariffs, possibly in order to ensure logs or sawntimber from other nearbyresource-rich countries do not substitute for their own products. Allcountries in the region, except_ Singapore and Hong Kong, protect theirdomestic wood processing industries - including plywood and veneer plants -with high tariffs. Whether or not significant increases in inter-regionaltrade would occur if tariff levels were lowered or removed is difficult todetermine. Countries imposing these high tariffs must, however, believethis would be the case. Although these developing countries do notnecessarily have large domestic markets, they are important to theirdomestic industries and therefore considered worthy of protection. The sizeof their populations also suggests significant potential demand. In

addition, a 'captive' domestic market is seen as an important element inestablishing a viable industry of sufficient size to develop exportmarkets. Restrictions such as these also serve to conserve the use ofvaluable overseas exchange, as well as providing a source of revenue. Forthese and other reasons most of these developing countries have maintainedhigh tariffs.

1/ Singapore, Malaysia, Thailand, the Philippines and Indonesia. Bruneihas also been recently admitted.

- 125 -

It is difficult to determine whether these non-tariff measures do create difficulties for the Asian exporters. There is clear evidence of imported temperate softwoods facing difficulties meeting health and technical standards in Japan, the EEC and Australia to name a few markets. The evidence for commonly traded hardwoods is more difficult. It is, however, likely they do face similar difficulties . Certainly the problems facing exports of lesser-known species are obvious.

(b) Barriers in the Developing Countries

Singapore, Hong Kong, and Thailand import sawntimber and panel products, while although Indonesia, Korea, Malaysia, the Philippines and Taiwan are important consumers, they import little. With the exception of Singapore and Hong Kong (not included in the table) which maintain open trade policies, most of the developing countries mentioned have tariff rates which are substantially above those in the developed countries discussed. On most products, rates of 20-30% are common (Table 7). These levels probably overstate the situation17o a degree as preferences applying to inter-region trade between the ASEAN countries are not taken into account. Nevertheless, the general observation that tariffs are significantly higher than for the developed countries remains true.

As with the developed country markets, tariff escalation appears t6 exist in the tariff schedules. If Singapore and Hong Kong are excluded, rates on wood in the rough range from 5-20%; primary wood products 5-40%; and secondary wood products 10-50%. Tariffs on paper range from 5-50%. Actual rates for the Philippines and Papua New Guinea are higher than indicated since duty is assessed on the f.o.b. price + 10% in the case of the Philippines, and a 3.5% surcharge applies for Papua New Guinea.

As might be expected, countries with limited wood resources which have built important industries on the processing of imported wood, such as Singapore, Korea, Taiwan and Hong Kong, all have zero or low tariffs on logs and large section sawntimber. Countries with large forest resources such as Indonesia and Malaysia on the other hand still maintain rather high tariffs, possibly in order to ensure logs or sawntimber from other nearby resource-rich countries do not substitute for their own products. All countries in the region, except Singapore and Hong Kong, protect their domestic wood processing industries - including plywood and veneer plants -with high tariffs . Whether or not significant increases in inter-regional trade would occur if tariff levels were lowered or removed is difficult tb determine. Countries imposing these high tariffs must, however, believe this would be the case. Although these developing countries do not necessarily have large domestic markets, they are important to their domestic industries and therefore considered worthy of protec tion. The size of their populations also suggests significant potential demand. In addition, a 'captive' domestic market is seen as an important element in establishing a viable industry of sufficient size to develop export markets. Restrictions s uch as these also serve to conserve the use "of valuable overseas exchange, as well as providing a source of revenue. For these and other reasons most of these developing countries have" maintained high tariffs.

1/ Singapore, Malaysia, Thailand, the Philippines and Indonesia. Brunei has also been recently admitted.

126

TABLE 7: Tariff Rates - Selected Developing Countries in Asia-Pacific Region

(%Ad Valores)

Singapore Malaysia Philippines1 Indonesia Korea Papua-New Guinea2

44.03 Wood in rough

pulpwood 0 20 10 15 5 17.5

saw and veneer logs 0 20 10 15 5(C) 17.5

5-20(NC)

44.04 Wood roughly squared o 20 10 15 5(C) 17.5

5-20(NC)

44.05 Wood sawn lengthwise 20(C) 17.5

sliced or peeled o 20 20 15 20(NC)

44.09 Chips and particles 0 25 20 15 5

44.11 Fibre building boards 0 25 30 30 20 15

44.13 Wood planed, tonguedetc. 0 25 30 30 20 17.5

44.14 Veneer O 0,45 30 20(C) 20(C) 15

10-20(NC) 10-20(NC)

44.15 Plywood 0 25 40 30 15

Coniferous 30

Non-coniferous 30

44.18 Reconstit. boards 0 25 40 30 15

Particleboard 20*

Other 20

44.19 Wood bearings

mouldings etc. o 25 50 30 30 17.5

44.23 Builders carpentry,joinery 0 25 50 30 40 17.5

47.01 Wood pulp o 3 10,20 5 10

47.02 Waste paper 0 $29.53/t 10 40 5**

48.01 Paper 6 paperboardNewsprint 0 5 30 5 40 10

Printing 0 0 30 30 20

Kraft 0 5 50 30 0

48.05 Corr. paper board o 20 40 30 40 0

etc.

94.01, 94.03 Furniture 5 55,60 50 50 50 30

Source: Country tariff schedules; GATT Document TD/W/345 6 addendums; Bulletin International des Douanes.Prepared February 1986.

Notes: Members of the ASEAN group (Indoinesia, Malaysia, Philippines, Singapore and Thailand) grant special rates toother members. For example Malaysia gives 20% exemption from import duty on products in Categories 44 and 94,and full exemption for many items in 47.

C - coniferous NC = non-coniferous

* In April 1985 temporary reduction to 20% on imports up to 100,000 m3 entering before January 1986.Unless extended, the rate then reverts to 30%.

** Temporary rate. Bound GATT rates are higher

1 Duty assessed on FOB value plus 10%2 Surcharge of 3.5% also applies

- 1 20 -

!ABLE 7: Tariff Rates - Selected Developing Countries in Asia-Pacific Region (%Ad Valorem)

44 .03 Wood in rough - pulpwood - saw and veneer logs

44 .04 wood roughly squared

44.05 Wood sawn lengthwise sliced or peeled

44 .09 Chips and particles

44 . 11 Fi bre building boards

44.1 3 Wood planed, tongued etc.

44.14 Veneer

44.15 Plywood - Coniferous - Non-coniferous

44 . 18 Reconstlt. boards - Particleboard - Other

44.19 wood bearings mouldings etc.

44.23 Builders carpentry, joinery

47.01 wood pulp

47.02 Waste paper

48 .01 Paper & paperboard - Newspri nt - Prlntins; - Kraft

48.05 Corr. paper & board etc.

94 .01, 94.03 Furniture

Singapore Malaysia

0 20 0 20

0 20

0 20

0 25

0 25

0 25

0 0,45

0 25

0 25

0 25

0 25

0 3

0 $29.53/t

0 5 0 0 0 5

0 20

5 55,60

Philippines1 Indonesia

10 15 10 15

10 15

20 15

20 15

30 30

30 30

30 20(C) 10-20(NC)

40 30

40 30

50 30

50 30

10,20 5

10 40

30 5 30 30 50 30

40 30

50 50

Korea

5 5(C) 5-20(NC)

5(C) 5-20(NC)

20(C) 20(NC)

5

20

20

20(C) 10-20(NC)

30 30

20* 20

30

40

10

5**

40

40

50

Papua-New Gulnea2

17.5 17.5

17.5

17 .5

15

17.5

15

15

15

17.5

17.5

10 20 o

o

30

Source: Country tariff schedules; GATT Document rn/W/345 & addend\D8; Bulletin International des Douanes .

Notes:


Members of the ASEAN group (Indolnesia, Malaysia, Philippines, Singapore and Thailand) grant special rates to other members. For example Malays i a gives 20% exemption from iJllport duty on products In Categories 44 and 94. and full exemption for many items in 47.

C - coniferous He - non-coniferous

• In April 1985 temporary reduction to 20% on imports up to 100,000 m3 entering before January 1986. Unless extended, the rate then reverts to 30% •

•• Temporary rate. Bound GATT rates are higher

1 Duty assessed on FOB value plus 10% 2 Surcharge of 3.5% also applies

- 127 -

Other NTBs of importance are licensing schemes, strict controls onaccess to foreign currency, limitation of shipping to domestic lines, astrong tendency for centralised government purchasing, and tiedcounter-trade purchasing. All are common practices for developingcountries. In total, therefore, with certain exceptions, developingcountries maintain highly restrictive import policies which limit theability of other developing countries (and developed countries) to competeon their markets.

3.2 Export Restrictions

The most important barriers affecting trade patterns in the regionare export barriers erected by the exporting countries. These restrictionsare dramatically affecting the types and volumes of products traded, andconsequently the level of industrialization in the developing countries. Afeature of trade in forest products is the export of relatively unprocessedproducts such as logs, sawntimber and to a lesser extent wood chips by thedeveloping countries. These basic products are exported to the maindeveloped country markets where in many instances they are subject tofurther processing to produce final product forms. The most obviousexample is the extensive volume of hardwood logs shipped to Japan fromSouth East Asia, and converted to plywood and sawntimber. A similarsituation occurs with logs from Africa to Western Europe.

Limited efforts have been made for many years to encourage more ofthe raw material processing to be carried out in the developing countries.The main approach to this change has been through the use of export quotasor bans, and export taxes. Because of the structure of the industry inthese countries, the level of investment needed for processing plants, andthe method used by governments to sell the resource, most firms engaged inthe industry have found it more profitable to sell logs than to undertakeprocessing. As a consequence, progress towards more processed exports hadbeen slow. Attempts at encouraging processing through formal and informalagreement among those in the industry had little impact. Governmentencouragement through various assistance policies, by themselves also hadlittle effect. Recent moves in some countries in the region are, however,having a significant impact.

More direct control measures were imposed by the governments ofMalaysia, the Philippines, and Indonesia, both as a means of raisingrevenues but more importantly to speed up the rate of growth in processing.These governments all impose restrictions which limit the export of logs,and to a lesser extent sawntimber and veneer. Log export quotas and exporttaxes are used to give encouragement and incentive for more domesticprocessing. In addition, they seek to encourage better utilization inorder to conserve what is in many situations a rapidly diminishingresource. The Philippines, Indonesia, Peninsular Malaysia and Sabah, whichtogether constitute the South-East Asian Lumber Producers Association(SEALPA) have followed policies of restricting log exports. SEALPA hasbeen an important force in supporting the voluntary establishment of exportquota levels by its members.

- 127 -

Other NTBs of importance are licensing schemes, strict controls on access to foreign currency, limitation of shipping to domestic lines, a strong tendency for centralised government purchasing, and tied counter-trade purchasing. All are common practices for developing countries. In total, therefore, with certain exceptions, developing countries maintain highly restrictive import policies which limit the ability of other developing countries (and developed countries) to compete on their markets.

3.2 -Export Restrictions

The most important barriers affecting trade patterns in the region are export barriers erected by the exporting countries. These restrictions are dramatically affecting the types and volumes of products traded, and consequently the level of industrialization in the developing countries. A feature of trade in forest products is the export of relatively unprocessed products such as logs, sawntimber and to a lesser extent wood chips by the developing countries. These basic products are exported to the main developed country markets where in many instances they are subject to further processing to produce final product forms. The most obvious example is the extensive volume .of hardwood logs shipped to Japan from South East Asia, and converted to plywood and sawntimber. A similar situation occurs with logs from Africa to Western Europe.

Limited efforts have been made for many years to encourage more of the raw material processing to be carried out in the developing countries. The main approach to this change has been through the use of export quotas or bans, and export taxes. Because of the structure of the industry in these countries, the level of investment needed for processing plants, and the method used by governments to sell the resource, most firms engaged in the industry have found it more profitable to sell logs than to undertake processing. As a consequence, progress towards more processed exports had been slow. Attempts at encouraging processing through formal and informal agreement among those in the industry had little impact. Government encouragement through various assistance policies, by themselves also had little effect. Recent moves in some countrfes in the region are, however, having a significant impact.

More direct control measures were imposed by the governments of Malaysia, the Philippines, and Indonesia, both as a means of raising revenues but more importantly to speed up the rate of growth in processing. These governments all impose restrictions which limit the export of logs, and to a lesser extent sawntimber and veneer. Log export quotas and export taxes are used to give encouragement and incentive for more domestic processing . In addition, they seek to encourage better utilization in order to conserve what is in many situations a rapidly diminishing resource. The Philippines, Indonesia, Peninsular Malaysia and Sabah, which together constitute the South-East Asian Lumber Producers Association (SEALPA) have followed policies of restricting log exports. SEALPA has been an important force in supporting the voluntary establishment of export quota levels by its members.

- 128 -

(a) Philippines

In 1972 the Philippines decided in principle to phase out logexports, and subsequently passed a law to this effect. Under this law logexports were to be gradually phased out by 1976. Although there has been atotal log export ban since 1977 the urgent need for the overseas exchangegenerated by log exports, has meant that the commitment to the phaseout hasbeen less than complete. Restrictions have been imposed and lifted atvarious times, with current controls using export quotas which areallocated according to the Governments perceived policy goals. Thesequotas have ranged from 1.6 million m in 1983, to the 1985 situation whereno formal quota was announced, but permits were issued gn a case-by-casebasis. Since January 1986 an export quota of 800,000 m has been availablewith its allocation being on a one cubic metre for one cubic metre offinished wood product exports actually achieved in 1985. (Japan LumberJournal, 20 February 1986).

Despite variation in the severity of the controls and their on-offnature, they clearly contributed to the rapid decline in log exports thathas occurred -- i decline from almost 10 million m in 1970 to a 1984 levelof 1.3 million m 1/. In addition to quantitative restrictions exportlevies are impose:(71. These vary with the product form concerned, and aim toboth discourage the export of unprocessed forest products and providerevenue to the government. Levy rates in 1984 were: logs 25%, veneer 6%,lumber 6%, plywood 2%, and logs 25% ad valorem.

The contribution of these controls to the decline in log exports isdifficult to assess, since both the rapid rate of depletion of forestresources that has occurred in the Philippines and the low economicactivity in the major markets have obviously also contributed.Nevertheless, the dramatic decline that occurred in the mid-1970s wasclearly heavily, influenced by these restrictions.

The restrictions appear to have had little impact on the degree offurther processing. Since the mid-1970s, production of sawntimber, veneerand plywood his seen little improvement3 sawntimber production fell from1.5 million m in 1975 to 1.1 r3illion m in 1984; and veneer rose froml99,000 m in 1975 to 122,000 m in 1983, and then declined to 71,000 re' in

1984. 1975 was substantially below ihe levels achieved from 1970-1974.Plywood remained stable at 414,000 m in 1984. For each of these products,however, production in 1984 was considerably below that in 1.970 (Table 8).

1/ Official Philippine figures are considered to substantiallyunderstate actual shipments because of extensive smuggling and theunderstatement on shipping documents of shipped volumes by some exporters.Some unofficial estimates suggest actual exports may be understated by asmuch as 300% (FAS, 1985)

- 128 -

(a) Philippines

In 1972 the Philippines decided in principle to phase out log exports, and subsequently passed a law to this effect. Under this law log exports were to be gradually phased out by 1976. Although there has been a total log export ban since 1977 the urgent need for the overseas exchange generated by log exports, has meant that the commitment to the phaseout has been les s than complete. Restrictions have been imposed and lifted at various times, with current controls using export quotas which are allocated according to the Government3s perceived policy goals. These quotas have ranged from 1.6 million m in 1983, to the 1985 situation where no formal quota was announced, but permits were issued ~n a case-by-case basis. Since January 1986 an export quota of 800,000 m has been available with its allocation being on a one cubic metre for one cubic metre of finished wood product exports actually achieved in 1985. (Japan Lumber Journal, 20 February 1986).

Despite variation in the severity of the controls and their on-off nature, they clearly contributed to the rapid dec11ne in log exports that . has occurred -- 1 decline from almost 10 million m in 1970 to a 1984 level of 1.3 million m l/. In addition to quantitative restrictions export levies are imposed. These vary with the product form concerned, and aim to both discourage the export of unprocessed forest products and provide revenue to the government. Levy rates in 1984 were: logs 25%, veneer 6%, lumber 6%, plywood 2%, and logs 25% ad valorem.

The contribution of these controls to the decline in log exports is difficult to assess, since both the rapid rate of depletion of forest resources that has occurred in the Philippines and the low economic activity in the major markets have obviously also contributed. Nevertheless, the dramatic decline that occurred in the mid-1970s was clearly heavili influenced by these restrictions.

!

The restrictions appear to have had little impact on the degree of further processing. Since the mid-1970s, production of sawntimber, veneer and plywood h1s seen little improvement

3 sawn timber production fell from

1.5 mill~on m in 1975 to 1.1 ~illion m in 1984; and veneer rose from3 99,000 m in 1975 to 122,000 m in 1983, and then declined to 71,000 m in

1984. 1975 was substantially below 5he levels achieved from 1970-1974. Plywood remained stable at 414,000 m in 1984 . For each of these products, however, production in 1984 was considerably below that in 1970 (Table 8).

l! Official Philippine figures are considered to substantially understate actual shipments because of extensive smuggling and the understatement on shipping documents of shipped volumes by some exporters. Some unofficial estimates suggest actual exports may be understated by as much as 300% (FAS, 1985)

Saw and

Sawntimber

Veneer

Plywood

Saw and

Sawntimber

Veneer

Plywood

Veneer logs

Veneer logs

1

Source:

FAO (1986)

TABLE 8 - Production and Exports of Forest Products

:Philippines

Production

Exports

(million

m3)

(000

m3)

(million

m3)

(000

m3)

1975

8.4

1.5

99

423

4.6

0.3

99

157

1980

6.4

1.5

133

553

1.2

0.7

63

367

1981

5.4

1.2

138

463

1.7

0.6

39

398

1982

4.5

1.2

98

434

1.6

0.6

45

249

1983

4.4

1.2

123

469

1.0

0.7

123

312

1

1984

3.9

1.1

71

414

1.3

0.5

71

269

,--.

N.) o

TABL

E 8

-P

rod

uct

ion

and

E

xp

ort

s o

f F

ore

st

Pro

du

cts

Ph

ilip

pin

es

Pro

du

ctio

n

Exp

ort

s

Saw

an

d S

awnt

lmbe

r V

enee

r Pl

ywoo

d Sa

w

and

Saw

ntim

ber

Ven

eer

Plyw

ood

Ven

eer

log

s V

enee

r lo

gs

----

----

----

----

3---

----

----

----

----

-3--

---

----

----

----

----

3---

----

----

----

----

-3--

---

(mil

lio

n m

)

(000

m )

(m

illi

on

m

)

(000

m )

1975

8

.4

1.5

99

42

3 4

.6

0.3

99

15

7 19

80

6.4

1

.5

133

553

1.2

0

.7

63

367

1981

5

.4

1.2

13

8 46

3 1

.7

0.6

39

39

8 19

82

4.5

1.2

98

43

4 1

.6

0.6

45

24

9 19

83

4.4

1

.2

123

469

1.0

0

.7

123

312

1984

3

.9

1.1

71

414

1.3

0

.5

71

269

-N -a

-----

---

Sou

rce

: FA

O (1

986)

- 130 -

In contrast to production, since 1975 exports of sawntimber andplywood have risen while veneer has dropped, partly as a reflection ofmoves towards the use of other, cheaper core material in plywoodproduction. In the 1980s exports of veneer and plywood have fluctuatedfrom year-to-year, while sawntimber has remained stable. A high proportionof veneer and plywood (30-1007) is exported, while around 50% of sawntimberproduction is exported (Table 9).

9

The impact of the restrictions is therefore difficult to assess withany certainty because of the inconsistent policies followed, the effects ofother factors, particularly the state of the general economy, the decliningresource availability, and the suspect nature of some of the statistics.The general points that emerge are that the restrictions probably havecontributed to the significant decline in log exports. However, thedecline may also be the result of falling harvesting, since loggingcontrols aimed at conserving the declining resource have also been inplace. It is clear though that controls on log exports have not resultedin an appreciable increase in production of more processed products.

The effects are mixed, and appear to have been limited in achievingtheir goals. This clearly underlines the fact that restrictions such asthese are of limiced value by themselves. Other conditions must befavourable if processing is to expand.

(b) Malaysia

Malaysia is composed of eleven States in Peninsular Malaysia and thetwo East Malaysian States of Sabah and Sarawak. State Governmentsgenerally control forestry matters such as harvesting restrictions, loggingconditions, royalties, etc. The States of Peninsular Malaysia arecontrolled as a group.

Peninsular Malaysia began restricting log exports in 1972, by banningthe export of ten species. Log exports were subject to quota control from1976 when 5% of total log production was allowed to be exported. Quotalevels were steadily reduced from that period until a total ban took place

TABLE - Proportion of Production Exported : Philippines

Saw and

Veneer logsSawntimber

(70

Veneer Plywood

1975 55 20 100 37

1980 19 47 47 66

1981 31 50 28 86

1982 36 50 46 57

1983 23 58 100 67

1984 33 45 100 65

- 130 -

In contrast to production, since 1975 exports of sawntimber and plywood have risen while veneer has dropped, partly as a reflection of moves towards the use of other, cheaper core material in plywood production. In the 1980s exports of veneer and plywood have fluctuat ed from year-to- year, while sawntimber has remained stable. A high proportion of veneer and plywood (30-100%) is exported, while around 50% of sawntimber production is exported (Table 9) .

TABLE 9 - Proportion of Production Exported Philippines

Saw and Sawn timber Veneer Plywood Veneer logs (%)

1975 55 20 100 37 1980 19 47 47 66 1981 31 50 28 86 1982 36 50 46 57 1983 23 58 100 67 1984 33 45 100 65

The impact of the restrictions is therefore difficult to assess with any certainty because of the inconsistent policies followed, the effects of other factors, particularly the state of the general economy, the declining resource availability, and the suspect nature of some of the statistics. The general points that emerge are that the restrictions probably have contributed to the significant decline in log exports. However, the decline may also be the result of falling harvesting, since logging controls aimed at conserving the declining resource have also been in place. It is clear though that controls on log exports have not resulted in an appreciable increase in production of more processed products.

The effects are mixed, and appear to have been limited in achieving their goals. This clearly underlines the fact that restrictions such as these are of limiced value by themselves. Other conditions must be favourable if processing is to expand.

(b) Malaysia

Malaysia is composed of eleven States in Peninsular Malaysia and the two East Malaysian States of Sabah and Sarawak. State Governments generally control forestry matters such as harvesting restrictions, logging conditions, royalties, etc. The States of Peninsular Malaysia are cont rolled as a group.

Peninsular Malaysia began restricting log exports in 1972, by banning the export of ten species. Log exports were subject to quota control from 1976 when 5% of total log production was allowed to be exported. Quota levels were steadily reduced from that period until a total ban took place

_from 1 January 19851/. This ban has been introduced to compensate for logshortages, and as a result Peninsular Malaysia has effectively becole animporter of logs. The export of logs has fallen from 1.6 million m in

1970, to nil in 1985, and the region is likely to be a permanent pporterin the future if local sawmillers are to obtain adequate supplies(Table 10).

TABLE 10 - Sawlog and veneer log exports : Malaysia (million m3)

Peninsular MalaysiaTotal

- 131 -

1975 0.4 9.2 1.3 10.9

1980 0.3 8.2 6.7 15.2

1981 0.3 8.7 6.9 15.9

1982 0.2 9.9 9.2 19.3

1983 0.1 9.5 9.2 18.8

1984 Neglig. 7.0 9.0 16.0

Source: Asian Timber, (Various) and FAO, (1986).

Despite the reduction in log exports from Peninsular Malaysia exportsof sawntimber, veneer and plywood have all declined in recent years(Table 11).

TABLE 11 - Exports of Forest Products:Peninsular Malaysia

Source: Maskayu

Sabah has also restricted log exports, but less tightly because logexport returns are of major importance to the State's revenue. Logroyalty payments currently constitute about 60% of total revenue.

Sabah Sarawak

Sawntimber3Venees Plywol

(million m ) (000 m ) (000 m )

1981 2.25 92 444

1982 2.24 88 380

1983 2.32 65 523

1984 1.84 43 324

1985 1.62 33 292

1/ Limited volumes of certain species and sizes.may be exported underpermit.

2/ The utilisation of rubberwood from unprofitable or aged plantationsis receiving emriasis at present. The export of rubberwood sawntimberreached 89,000 m in 1984. Proposals by Peninsular Malaysia sawmillersthat they be able to purchase East Malaysian logs at reduced or subsidisedrates have so far met with little support.

- 131 -

1/ from 1 January 1985 . This ban has been introduced to compensate for log shortages, and as a result Peninsular Malaysia has effectively beco~e an importer of logs. The export of logs has fallen from 1.6 million m in 1970, to nil in 1985, and the region is likely to be a permanent t~porter in the future if local sawmillers are to obtain adequate supplies (Table 10).

TABLE 10 - Sawlog a nd veneer log expo rts : Malaysia (million m3 )

Total

1975 1980 1981 1982 1983 1984

Peninsular Malaysia

0 . 4 0.3 0 . 3 0 . 2 0.1 Neglig.

Sabah

9.2 1.3 8 . 2 6.7 8.7 6.9 9.9 9.2 9 . 5 9.2 7.0 9.0

Source: Asian Timber, (Various) and FAa, (1986).

Sarawak

10.9 15.2 15.9 19.3 18.8 16.0

Despite the reduction in log exports from Peninsular Ma laysia exports of sawntimber, veneer and plywood have all declined in recent years (Table 11).

TABLE 11 - Exports of Forest Products: Peninsular Malaysia

Sawntimber3 (million m )

venee3 (000 m ) Plywo01 (000 m )

1981 2.25 92 444 1982 2.24 88 380 1983 2.32 65 523 1984 1.84 43 324 1985 1.62 33 292

Source: Maskayu

Sabah has also restricted log exports, but less tightly because log export returns are of major importance to the State 's revenue. Log royalty payments currently constitute about 60% of total revenue.

1/ Limited volumes of certain species and sizes . may be expor ted under permit •

2/ The utilisation of rubberwood from unprofitable or aged plantations is receiving empjasis at present. The export of rubberwood sawntimber reached 89,000 m in 1984. Proposals by Peninsular Malaysia sawmillers that they be able to purchase East Malaysian logs at reduced or subsidised rates have so far met with little support.

- 132 -

Export quotas have been applied since the mid-1970s and the originalgoals were to reduce log exports by 5% per annum in 1977 and 1978, andthen by 10% per annum for the next four years. Additionally,encouragement for domestic processing of logs was given by providing lowerroyalty rates on logs for domestic utilisation than on those for exports.This differential has continued to operate.

The stated objective of these moves was to phase out log exports by1985. Although this goal has not been achieved the level has beensubstantially reduced from the volumes exported i the 1970s. Volumesfluctuated over the period fry:a over 12 million m in the early 1970s tothe 1984 level oi 7 million m (Table 10). The target was set at not morethan 5 million m per year from 1985 onwards. Although this target maynot be achieved if world market demand expands, the policies are likely toensure volumes are kept below the level that would occur withoutrestrictions. The goal of these policies is to reduce export of logs andencourage domestic processing. As part of these objectives the StateGovernment has participated in investment in processing plants.

Other restrictions affecting log exports have included the use ofcheck prices to base royalties on, policies aimed at giving Sabah - ownedships priority in carrying logs, and the requirement that only members ofthe Timber Association of Sabah be permitted to export logs.

Sarawak has followed a different path to that of Peninsular Malaysiaand Sabah. More extensive areas of commercially attractive forests and aless developed processing sector capable of utilising the resource haveencouraged the State to be far less restrictive3 In fact log 5xports haveexpanded steadily since 1975 from 1.3 million m to 9 million m in 1984following a decline in the early 1970s. This rising trend has reflectedthe lack of quantitative restrictions, low royalties and export taxes andthe lack of any preference for domestic users of logs.

Despite the stated goals of restricting log exports and encouragingthe export of more processed products, log exports from Malaysia in totaiare higher than in previous years with 984 exports being 16.0 million mcompared with ievels of 15-17 million m from 1975 to 1980. The peak of19.3 million m was achieved in 1982 (Table 10).

Although generally committed to controlling and reducing logexports, the differing policies followed by the three regions of thecountry have resulted in little overall decline. Specifically, the lackof a developed processing sector has encouraged Sarawak to expand its logexports, while Sabah and Peninsular Malaysia have been followingrestrictive policies. Of note is the fact that the move away from logexports is directly linked to the tightening of restrictions. Exportbarriers are therefore forcing structural changes by reducing volumesavailable to importing countries. Difficult market conditions in theearly 1980s have also been a factor in affecting export volumes.

The effectiveness of these policies has been somewhat hampered bythe differing emphasis of the three regions. Total exports of veneerSheets for Malaysia have expanded considerably in recent years, rising

- 132 -

Export quotas have been applied since the mid-1970s and the original goals were to reduce log exports by 5% per annum in 1977 and 1978, and then by 10% per annum for the next four years. Additionally, encouragement for domestic processing of logs was given by providing lower royalty rates on logs for domestic utilisation than on those for exports. This differential has continued to operate.

The stated objective of these moves was to phase out log exports by 1985. Although this goal has not been achieved the level has been substantially reduced from the volumes exported i~ the 1970s. Volumes fluctuated over the period fr~m over 12 million m in the early 1970s to the 1984 level 05 7 million m (Table 10). The target was set at not more than 5 million m per year from 1985 onwards. Although this target may not be achieved if world market demand expands, the policies are likely to ensure volumes are kept below the level that would occur without restrictions. The goal of thes e policies is to reduce export of logs and encourage domestic processing. As part of these objectives the State Government has participated in investment in processing plants.

Other restrictions affecting log exports have included the use of check prices to base royalties on, policies aimed at giving Sabah - owned ships priority in carrying logs, and the requirement that only members of the Timber Association of Sabah be permitted to export logs.

Sarawak has followed a different path to that of Peninsular Malaysia and Sabah. More extensive areas of commercially attractive forests and a less developed processing sector capable of utilising the resource have encouraged the State to be far less restrictive3 In fact log 3xports have expanded steadily since 1975 from 1.3 million m to 9 million m in 1984 following a decline in the early 1970s. This rising trend has reflected the lack of quantitative restrictions, low royalties and export taxes and the lack of any preference for domestic users of logs.

Despite the stated goals of restricting log exports and encouraging the export of more processed products, log exports from Malaysia in tota

3 are higher than in previous years with 3984 exports being 16.0 million m compared with fevels of 15-17 million m from 1975 to 1980. The peak of 19.3 million m was achieved in 1982 (Table 10) .

Although generally committed to controlling and reducing log exports, the differing policies followed by the three regions of the country have resulted in little overall decline. Specifically, the lack of a developed processing sector has encouraged Sarawak to expand its log exports, while Sa bah and Peninsular Malaysia have been following restrictive policies. Of note is the fact that the move away from log exports is directly linked to the tightening of restrictions. Export barriers are therefore forcing structural changes by reducing volumes available to importing countries. Difficult market conditions in the early 1980s have also been a factor in affecting export volumes.

The effectiveness of these policies has the differing emphasis of the three regions. Sheets for Malaysia have expanded considerably

been somewhat hampered by Total exports of veneer in recent years, rising

Source: FAO (1986)

As well as the export restrictions indicated, Malaysia maintains highimport tariff barriers for most forest products. As shown in table 6 mostwood and wood products face rates of 20% or 25%. Pulp and paper productshave low rates while furniture products have very high rates (55 - 60%).

(c) Indonesia

- 133 -

from 124,000 m3 in 19793to 566,000 m3 in 1984. This followed a drop fromthe 170,000 - 299,000 m exported in the Tid 1970s. Sawnwood exports haveremained in the range 2.8 - 3.5 million m since 19763 while plywoodexports have fluctuated between 344,000 and 479,000 m over the sameperiod (Table 12). Overall, therefore, exports of veneer and plywood havegrown and sawn wood exports have been maintained during a period ofrestricted world demand.

TABLE 12 - Exports of Forest Products:Malaysia

During the 1970s Indonesia was ihe world's largest exporter of logs,with volumes averaging 17.1 million m over the period 1975-80. Exportsreached a peak of 19.5 million m in 1978. Although exports fluctuatedwith changing demand conditions throughout the 1970s, the 1980s har seen adramatic decline in log exports. Volumes fell from 15.2 million m in 980to 6.5 million m3 in 1981, with further declines to reach 1.6 million m in

1984 (Table 13). 1985 exports are likely to be negligible.

These falls are the direct result of the Government's policies whichaim to ensure a higher proportion of the resource rents from logging arereceived by the Government, and to encourage increased wood-processing totake place in Indonesia. Additionally, the policies seek to encourage moreefficient utilisation of a natural resource which has been increasinglyunder threat.

Although these general goals were part of the Government's statedpolicies throughout the 1970s, little serious attempt was made to enforcethem until 1978. Since that time increasingly restrictive measures havebeen introduced to ensure an increasing amount of processing takes place inIndonesia rather than in the end-user market of Japan and the 'in-transit'processing centres of Singapore, Taiwan and Korea. In particular, emphasishas been placed on the expansion of plywood, the main end-use of thepreviously exported log resource.

Sawntimber(million m3)

Venee5(000 m )

Plywooq(000 m )

1979 3.5 124 466

1980 3.3 127 474

1981 2.8 160 467

1982 3.1 176 402

1983 3.5 554 479

1984 3.5 566 400

- 133 -

3 3 from 124,000 m in 19793

to 566,000 m in 1984. This followed a drop from the 170,000 - 299,000 m exported in the ~id 1970s. Sawnwood exports have remained in the range 2.8 - 3.5 million m since 1976

3 while plywood

exports have fluctuated between 344,000 and 479,000 m over the same period (Table 12). Overall, therefore, exports of veneer and plywood have grown and sawn wood exports have been maintained during a period of restricted world demand.

TABLE 12 - Exports of Forest Products:

1979 1980 1981 1982 1983 1984

Malaysia

Sawntimber3 (million m )

3.5 3.3 2.8 3.1 3.5 3.5

Source: FAO (1986)

Venees (000 m )

124 127 160 176 554 566

Plywo01 (000 m )

466 474 467 402 479 400

As well as the export restrictions indicated, Malaysia maintains high import tariff barriers for most forest products. As shown in table 6 most wood and wood products face rates of 20% or 25%. Pulp and paper products have low rates while furniture products have very high rates (55 - 60%).

(c) Indonesia

During the 1970s Indonesia was ~he world's largest exporter of logs, with volumes averaging 17.1 millJon m over the period 1975-80. Exports reached a peak of 19.5 million m in 1978. Although exports fluctuated with changing demand conditions throughout the 1970s, the 1980s ha~e seen a dramatic decline

3in log exports. Volumes fell from 15.2 million m in 3980

to 6.5 million m in 1981, with further declines to reach 1.6 million m in 1984 (Table 13). 1985 exports are likely to be negligible.

These falls are the direct result of the Government's policies which aim to ensure a higher proportion of the resource rents from logging are received by the Government, and to encourage increased wood-processing to take place in Indonesia. Additionally, the policies seek to encourage more efficient utilisation of a natural resource which has been increasingly under threat.

Although these general goals were part of the Government's stated policies throughout the 1970s, little serious attempt was made to enforce them until 1978. Since that time increasingly restrictive measures have ' been introduced to ensure an increasing amount of processing takes place in Indonesia rather than in the end-user market of Japan and the 'in-transit' processing centres of Singapore, Taiwan and Korea. In particular, emphasis has been placed on the expansion of plywood, the main end-use of the previously exported log resource.

Source: FAO (1986)

The main thrust of the Governments policy has been towardsrestricting the export of logs by a number of trade barriers. Additionallyother restrictions and encouragements have been used to move industrydevelopment in the direction desired by the government.

In 1978 the Government moved to increase local processing and expandits own revenue by increasing the export tax on logs from 10% of "checkprices" determined quarterly by the Government, to 20%. In addition a newtax of 5% was placed on roughly sawntimber in 1979. Log export quotas werelinked more directly to industrialization in 1980 by tying the allocationof cutting and export quotas of forest concession holders to their recentperformance in local processing.

In 1981 log export quotas were only provided to those forestconcession holders with integrated processing plants operating, or underconstruction. Emphasis on plywood production was ensured by requiring thatplywood be the main activity of the processing plant. Those with existingplants were required to process 80% of their log production locally or sellit to other plants capable of doing so. Those erecting plywood plants wererequired to sell one-third domestically, with a two year limit. Allexports were subject to the issue of licenses. These moves created asubstantial differential between the prices of export logs and domesticmarket logs. This differential was reported to be in the order of 50% in1980. Differentials were also reported between domestic and export plywoodprices, with domestic prices being some 15% above the export price.

Further moves took place in 1982 with a ban on the export of greenrotary peeled veneer. The aim of this control was to ensure domesticdrying and hence encourage (force) plants to upgrade their facilities tofull plywood manufacture. The general policy followed is for high exportlevies on logs, low taxes on semi-processed products and none on mostprocessed products. Details of the charges on logs in 1980 are shown intable 14.

- 134 -

TABLE 13 - Sawlog and veneer log exports:Indonesia

Volume

(million m3)

Value

($million)

1970 7.8 86.21973 18.5 561.31975 12.9 409.61977 18.9 899.01979 18.2 1550.01980 15.2 1514.81981 6.5 618.21982 3.2 332.61983 3.1 310.81984 1.6 164.3

- 134 -

TABLE 13 - Saw10g and veneer log exports : Indonesia

Volume Value ---------- -----------

3 (million m ) ($mil1ion)

1970 7.8 86.2 1973 18.5 561.3 1975 12.9 409.6 1977 18.9 899.0 1979 18.2 1550.0 1980 15.2 1514.8 1981 6.5 618.2 1982 3.2 332.6 1983 3.1 310.8 1984 1.6 164.3

Source: FAO (1986)

The main thrust of the Governments policy has been towards restricting the export of logs by a number of trade barriers. Additionally other restrictions and encouragements have been used to move industry development in the direction desired by the government.

In 1978 the Government moved to increase local processing and expand its own revenue by increasing the export tax on logs from 10% of "check prices" determined quarterly by the Government, to 20%. In addition a new tax of 5% was placed on roughly sawntimber in 1979 . Log export quotas were linked more directly to industrialization in 1980 by tying the allocation of cutting and export quotas of forest concession holders to their recent performance in local processing.

In 1981 log export quotas were only provided to those forest concession holders with integrated processing plants operating, or under construction. Emphasis on plywood production was ensured by requiring that plywood be the main activity of the processing plant. Those with existing plants were required to process 80% of their log production locally or sell it to other plants capable of doing so. Those erecting plywood plants were required to sell one-third domestically, with a two year limit. All exports were subject to the issue of licenses. These moves created a substantial differential between the prices of export logs and domestic market logs. This differential was reported to be in the order of 50% in 1980. Differentials were also reported between domestic and export plywood prices, with domestic prices being some 15% above the export price.

Further moves took place in 1982 with a ban on the export of green rotary peeled veneer. The aim of this control was to ensure domestic drying and hence encourage (force) plants to upgrade their facilities to full plywood manufacture. The general policy followed is for high export levies on logs, low taxes on semi-processed products and none on most processed products. Details of the charges on logs in 1980 are shown in table 14.

TABLE 14.

VOLUME BASED CHARGES ON LOG PRODUCTION AND EXPORT CHARGES ON LOGS INDONESIA

Volume Rased Charges on LogsIndonesia (1980)

On Log-Production

1. Timber Royalty (Iuran Halishutan, TRH)6% of posted export prices,"check prices"/m3

On Log Exports

2. Additional Timber Royalty (IHH Tambahan) Rp 700 $ 1.20roughly Rp 500-1000/mi,varies by regionon export logs onlyintended to finance river andharbour dredging

3. Timber Export Tax(Alokasi Devise Otomatis, ADO)

- 20% of posted export prices."check prices-/m3on export logs only

4. Industrial Contribution(Simpanan Wajib Industri)on export logs only

- refunded upon investmentin processing plant

5. MPO Tax (UPO Exim)Rp 40/m3/U.S. $ of check priceon export logs onlywithholding tax on corporations

- 6. Reforestation Deposit- U.S. $4.001m3- on export logs onlyrefunded when reforestation achieved

Total Volume Based Charges

On Domestically Processed LogsOn Export Logs

Source: FAO (1983b)

- 135 -

Representative Average Level(Based on an average check priceon logs of U.S. $135/m3)

(Ruphiah/m3) (US $/m3).

Rp 5,000 $ 8.00

Rp 16,900 $27.00

Rp 2,000 $ 3.20

Rp 5,400 $ 8.60

Rp 2,500

Rp 5,000Rp 32,500

$ 4.00

$ 8.00

$52.00

- 135 -

TABLE 14 .

VOLlll'!E BASED CHARGES ON LOG PRODUCTION AND EXPORT CHARGES ON 'LOGS : INDONESIA

Volume Based Charges on Logs Indonesia (1980)

On Lo~duction

1. Timber Royalty (luran Halishutan, IHH) 67. of posted "'export prices, "check prices" 1m3

On Log Exports

2. Additional Timber Royalty (IHH Tambahan) roughly Rp 500-1000/m?, varies by region on export logs only

- intended to finance river and harbour dredging

3. Timber E'xport Tax (Alokasi Devisa Otomatis, ADO)

207. of posted export prices' "check prices" 1m3

- on gxport logs only

4. Industrial Contribution (Simpanan Wajib Industri)

on export logs only - refunded upon investment

in processing plant

5 . MPO Tax (MPO Exim) - Rp 40/m3/U.S. $ of check price

on export , logs only - withholding tax on corporations

6. Reforestation Deposit U.S. $4.00/m3 on export logs only

- refunded when reforestation achieved

Total Volume Based Charges

On Domestically Processed Logs On Export Logs

Source: FAO (1983b)

Representative Average Level (Based on an average check price on logs of U.S. $135/m3)

(Ruphiah/m3)

Rp 5,000

Rp 700

Rp 16,900

Rp 2,000

Rp 5,400

Rp 2,500

Rp 5,000 Rp 32,500

(US $/1113)

$ 8.00

$ 1.20

$27.00

$ 3.20

$ 8.60

$ 4.00

$ 8.00 , $52.00

- 136 -

In addition to the export charges other restrictions have also beenintroduced. Of note was the establishment of seven plywood joint marketingboards (JMBs) in late 1984 to control export prices and volumes. Underthis scheme export licenses are only issued to members of the JMBs, andcompanies must operate within price and volume guidelines set by theboards. By 1985 volume quotas were confined to the United States andWestern Europe. (Philippine Lumberman, January 1985).

The effects of the determined efforts of the Government have beendramatic. Log exports bave virtually celsed. Sawnwood exports havedoubled since 1978 to nearly 2 million m , and plywrd exports moved fromnegligible levels in the mid-1970s to 2.2 million m in 1984. Since 1980sawnwood exports have been around 20-23% of total production, while plywoodexports have moved from a low of 50% of total production in 1981 to 84% in1983, and 80% in 1984.

Processing facilities expanded rapidly as firms sought to ensuretheir

access3tolog supplies. 2,571 sawmills with a production capacity of

15 million m are rTyorted as at December 1984. 294 of these have ForestExploitation Rights . Plywood mills Ixpanded rapidly from 29 mills withan installed capicity of 1.5 million m in 1980 to 96 mills with a capacityof 4.7 million m in 1984. In addition 27 more were under construction anda further 34 had been approved (FAO, 1985b).

Export barriers have clearly had a major impact on the development ofIndonesia's forestry sector. Extensive structural changes have occurredand Indonesia has moved rapidly from an exporter of unprocessed logs to anexporter of processed products, particularly plywood. The attendantbenefits of greater industrialisation, particularly employment, both in theindustry and associated industries and services have probably beenachieved, but some reports suggest substantial employment losses (50,000)have occurred in the logging industry (World Wood, Nov. 1984).

The effects of the restrictions have also been felt outsideIndonesia, as have those of the other forest growing countries of theregion, but the impact of Indonesia has been more significant for a numberof reasons. Firstly Indonesia is particularly dominant in the region. As

the major log supplier in the mid-1970s, the effects of its cut-back havebeen felt, particularly by Japan, its main market. Secondly, itscommitment to reducing (eliminating) log exports has been greater thanother countries. And thirdly, unlike other countries of the region,Indonesia has a significant resource still available for use. It'sreduction has therefore been less related to an already declining resourcethan, for example, Peninsular Malaysia or the Philippines. Finally thereduction in log exports has not only deprived a number of markets of a rawmaterial, but the strong move towards plywood production has placed largevolumes of this product onto end-use markets ensuring that prices have beenheld down. It is reported that Indonesia has created significantdifficulties for competitors because it has had to resort to severeprice-cutting to encourage purchases. (Asian Timber, various).

1/ 700 sawmills account for most of the exports (FAO, 1985b).

- 136 -

In addition to the export charges other restrictions have also been introduced. Of note was the establishment of seven plywood joint marketing boards (JMBs) in late 1984 to control export prices and volumes. Under this scheme export licenses are only issued to members of the JMBs, and companies must operate within price and volume guidelines set by the boards. By 1985 volume quotas were confined to the United States and Western Europe. (Philippine Lumberman, January 1985).

The effects of the determined efforts of the Government have been dramatic. Log exports have virtually ceJsed. Sawnwood exports have doubled since 1978 to nearly 2 million m , and plyw~od exports moved from negligible levels in the mid-1970s to 2.2 million m in 1984. Since 1980 sawnwood exports have been around 20-23% of total production, while plywood exports have moved from a low of 50% of total production in 1981 to 84% in 1983, and 80% in 1984.

Processing facilities expanded rapidly as firms sought to ensure their access3 to log supplies. 2,571 sawmills with a production capacity of 15 million mare ryyorted as at December 1984. 294 of these have Forest Exploitation Rights • Plywood mills jxpanded rapidly from 29 mills with an installed caP3city of 1.5 million m in 1980 to 96 mills with a capacity of 4.7 million m in 1984. In addition 27 more were under construction and a further 34 had been approved (FAO, 1985b).

Export barriers have clearly had a major impact on the development of Indonesia's forestry sector. Extensive structural changes have occurred and Indonesia has moved rapidly from an exporter of unprocessed logs to an exporter of processed products, particularly plywood. The attendant benefits of greater industrialisation, particularly employment, both in the industry and associated industries and services have probably been achieved, but some reports suggest substantial employment losses (50,000) have occurred in the logging industry (World Wood, Nov. 1984).

The effects of the restrictions have also been felt outside Indonesia, as have those of the other forest growing countries of the region, but the impact of Indonesia has been more significant for a number of reasons. Firstly Indonesia is particularly dominant in the region. As the major log supplier in the mid-1970s, the effects of its cut-back have been felt, particularly by Japan, its main market. Secondly, its commitment to reducing (eliminating) log exports has been greater than other countries. And thirdly, unlike other countries of the region, Indonesia has a significant resource still available for use. It's reduction has therefore been less related to an already declining resource than, for example, Peninsular Malaysia or the Philippines. Finally the reduction in log exports has not only deprived a number of markets of a raw material, but the strong move towards plywood production has placed large volumes of this product onto end-use markets ensuring that prices have been held down. It is reported that Indonesia has created significant difficulties for competitors because it has had to resort to severe price-cutting to encourage purchases. (Asian Timber, various).

1/ 700 sawmills account for most of the exports (FAO, 1985b).

- 137 -

Indonesia's moves have meant that log markets, such as Singapore,Taiwan and Korea have been forced to make significant cut backs in theirown plywood processing industries. In some instances the affected firmshave relocated their processing activities in Indonesia throughjoint-ventures. Japanese plywood manufacturers have suffered a severerecession and many closures have occurred at least partly due to a lack ofadequate supplies.

The impact of the decline in Indonesian logs has been reducedsomewhat by the fact that world demand for wood and wood products has beendepressed. In addition Japan has moved to other sources of hardwoods suchas Sarawak, Papua New Guinea, and the Solomon Islands. Some Japaneseplants are also evaluating softwood logs as a substitute input. Withplentiful future supplies of softwoods projected such a move would lessenthe effect of declining hardwood logs.

Although such attempts at compensating for reduced supplies oftropical hardwood logs are taking place, increasing quantities ofIndonesian plywood have penetrated a range of markets, including those ofHong Kong, Singapore, Japan, the USA, the EEC and the Middle East(Table 15).

TABLE 15 - Export Destilations:Indonesia(000 m )

Sawntimber Plywood

1980 1984 1980 1984

Hong Kong 42 95 100 674

Singapore 267 437 50 464

USA 43 44 26 820

Japan 129 202 9 145

Taiwan 87 187 - 111

Netherlands 51 44 - 8

Middle East * * 18 417

Rep. of Korea 11 136 * *

United Kingdom * * 16 124

Other 573 1053 26 283

Total 1203 2198 245 3046

* Included in 'other'Source: Economic Review, (Bank Bumi Daya, October 1985)

- 137 -

Indonesia's moves have meant that log markets, such as Singapore, Taiwan and Korea have been forced to make significant cut backs in their own plywood processing industries. In some instances the affected firms have relocated their processing activities in Indonesia through joint-ventures. Japanese plywood manufacturers have suffered a severe recession and many closures have occurred at least partly due 'to a lack of adequate supplies.

The impact of the decline in Indonesian logs has been reduced somewhat by the fact that world demand for wood and wood products has been depressed. In addition Japan has moved to other sources of hardwoods such as Sarawak, Papua New Guinea, and the Solomon Islands. Some Japanese plants are also evaluating softwood logs as a substitute input. With plentiful future supplies of softwoods projected such a move would lessen the effect of declining hardwood logs.

Although such attempts at compensating for reduced supplies of tropical hardwood logs are taking place, increasing quantities of Indonesian plywood have penetrated a range of markets, including those of Hong Kong, Singapore, Japan, the USA, the EEC and the Middle East (Table 15).

TABLE 15 - Export Desti~ations:Indonesia (000 m )

Sawn tim be r Plywood

-------------- --------------1980 1984 1980 1984

Hong Kong 42 95 100 674 Singapore 267 437 50 464 USA 43 44 26 820 Japan 129 202 9 145 Taiwan 87 187 111 Netherlands 51 44 8 Middle East * * 18 417 Rep. of Korea 11 136 * * United Kingdom * * 16 124 Other 573 1053 26 283

----------------------------------Total 1203 2198 245 3046

* Included in 'other' Source: Economic Review, (Bank Bumi Daya, October 1985)

TC = M

where:TC = trade volume created

= productE = import demand elasticityti = change in tariff -

M = initial level of imports from beneficiary country

Trade diversion (TD) is estimated using equation (2).

TD = TC

- 138 -

APPENDIX 4

Calculation of Increased Trade from a Reduction in Japanese Tariffs

The following method has been used to calculate the increased importsreported in table 4, chapter VI. The procedure uses the methodology ofBaldwin and Murray (1977). The percentage increase in imports isestimated by multiplying the percentage change in price caused by thebarrier reduction, by the responsiveness of the demand for imports to aprice change (import price elasticity of demand). The percentage changein imports is then applied to existing import levels to determine theabsolute change in imports. The percentage change in price equals thechange in the tariff divided by one plus the original tariff.

Trade creation (TC) resulting from a reduction in import tariffs isestimated using equation (1). This uses assumed changes in tariff levels,estimates of the responsiveness of the imported product to a reduction inprice (import price elasticity) and data on current import levels.(Table 1).

where:Mn = initial level of imports from non-beneficiariesV = initial level of domestic production in tariff cutting

country

- 138 -

APPENDIX 4

Calculation of Increased Trade from a Reduction in Japanese Tariffs

The following method has been used to calculate the increased imports reported in table 4, chapter VI. The procedure uses the methodology of Baldwin and Murray (1977). The percentage increase in imports is estimated by mUltiplying the percentage change in price caused by the barrier reduction, by the responsiveness of the demand for imports to a price change (import price elasticity of demand). The percentage change in imports is then applied to existing import levels to determine the absolute change in imports. The percentage change in price equals the change in the tariff divid.ed by one plus the original tariff.

Trade creation (TC) resulting from a reduction in import tariffs is estimated using equation (1). This uses assumed changes in tariff levels, estimates of the responsiveness of the imported product to a reduction in price (import price elasticity) and data on current import levels. (Table 1).

TC M E iii

where: TC i E ti M

trade volume created = product = import demand elasticity

change in tariff initial level of imports from beneficiary country

Trade diversion (TD) is estimated using equation (2).

TD TC i

where: Mn V

i

Mn i

V i

= initial level of imports from non-beneficiaries initial level of domestic production in tariff cutting country

(1)

(2 )

- 139 -

Tariff information has been drawn from various sources and is shown intable 5, Appendix 3. The rates shown are only approximate in someinstances as individual rates within a broad product category may differ.Production and trade data is drawn mainly from the FAO Yearbook of ForestProducts 1984 (1986) and the Japan Lumber Journal. The selection ofimport demand elasticities has been limited by a lack of current estimatesfor the range of products and markets being considered. Considerablevariation exists between estimates reported by different researchers. Inaddition the range of products reported is limited. Estimates used werereported by Cline et al (1978) or Stern (1976), and are for broad productgroups only.

- 139 -

Tariff information has been drawn from various sources and is shown in table 5, Appendix 3. The rates shown are only approximate in some instances as individual rates within a broad product category may differ. Production and trade data is drawn mainly from the FAO Yearbook of Forest Products 1984 (1986) and the Japan Lumber Journal. The selection of import demand elasticities has been limited by a lack of current estimates for the range of products and markets being considered. Considerable variation exists between estimates reported by different researchers. In addition the range of products reported is limited. Estimates used were reported by Cline et al (1978) or Stern (1976), and are for broad product groups only.

TABLE 1 - Japanese Imports

:1984

Source:

FAO (1986); Japan Lumber Journal

(m3)

(m3)

(m3)

(m3)

(m3)

(m3)

Plywood

7,291,000

135,000

115,270

110,160

3,510

405

Veneer

300,000

272,000

159,000

25,076

136,000

23,000

Sawntimber

28,667,000

4,492,000

851,300

273,800

169,700

168,000

Japan

Total

Imports from

Imports from:

domestic

imports

developing

production

countries

Indonesia

Malaysia

Philippines

TAB

LE

1 -

Jap

an

ese

Im

po

rts

19

84

Jap

an

T

ota

l Im

po

rts

fro

m

Imp

ort

s fr

om

: d

om

est

ic

imp

ort

s d

ev

elo

pin

g

pro

du

cti

on

co

un

trie

s

Ind

on

esi

a

Mala

ysi

a

Ph

ilip

pin

es

(m3

) (m

3)

(m3

) (m

3)

(m3

) (m

3)

Ply

wo

od

7

,29

1,0

00

1

35

,00

0

11

5,2

70

1

10

,16

0

3,5

10

4

05

V

en

eer

30

0,0

00

2

72

,00

0

15

9,0

00

2

5,0

76

1

36

,00

0

23

,00

0

Saw

nti

mb

er

28

,66

7,0

00

4

,49

2,0

00

8

51

,30

0

27

3,8

00

1

69

,70

0

16

8,0

00

~ .,. 0

So

urc

e:

FAO

(1

98

6);

Ja

pan

L

um

ber

Jo

urn

al

Trade in forest products: a study of the barriers a study ... · A STUDY OF THE BARRIERS FACED BY DEVELOPING COUNTRIES ... Non-Tariff Measures 8 4. Classification of Barriers 9 5.

Documents