Commodity report: Expansion of exports of forest products from developing countries - Part 2

FAO SECRETARIAT

Longer term trends and prospects

World trends

As was seen in the first part of the paper, exports of forest products from developing countries have been rising very rapidly indeed. Over the decade to 1963-65 their total exports of these products rose nearly threefold in value, and their exports to the developed countries more than threefold. Though processed products made up rather less than half this growth, the annual value of exports of the latter nevertheless grew by nearly $150 million over 10 years, and toward the end of the decade the share of the wood outflow being exported in processed form was growing. What are the prospects for the next decade or so?

During the past four years, the basis for evaluating longer term trends and prospects in forest products trade has improved considerably. This period has seen the completion and publication of a number of major appraisals which have greatly improved the knowledge of the wood sector and its evolution in the more important parts of the world. Foremost among these is a very important reappraisal of both requirements and production trends in the wood sector in the United States, and major surveys of the wood resources of Canada and the U.S.S.R. In addition, FAO has completed its cycle of regional timber trends studies, in collaboration with the regional economic commissions of the United Nations, and has collated their findings, together with the findings of the major national appraisals cited immediately above, in an evaluation of the trends in the wood sector, to 1975, on a global scale (FAO, 1966; FAO, 1967). The findings of relevance from this world study can be summarized for the period to 1975, as follows:

1. Demand for most forest products, in particular wood-based panels,⁶ paper and paperboard, will everywhere continue to rise rapidly.

2. The greater part of the additional quantities will be required in the developed and developed centrally-planned countries (i.e., U.S.S.R. and eastern Europe); which by 1975 in aggregate will require⁷ annually 15 percent more sawnwood than in 1961, nearly two-and-a-half times as much wood-based panels and twice as much paper and paperboard.

3. In some parts of the world, particularly among the developed countries, this growth of requirements will outstrip growth in domestic supply of wood by an ever-widening margin.

4. Trade will consequently play an increasingly important role in supplying forest products. It is estimated that by 1975 the quantity of annual world trade in forest products will be at least 50 percent greater than in 1961, at which time it was valued at $6,100 million. In terms of wood volume (in total equivalent to at least an additional 100 million cubic meters of roundwood), about half of this trade increase is expected to be pulp and paper, about a third sawnwood and the rest plywood and veneer (or the wood raw material for these products). Table 5 shows where the biggest among these import demands are likely to materialize.

5. It is expected that the conifer-rich developed countries will supply most of the additional exports of pulp and paper, and much of the sawnwood. But it is expected that hardwood-rich developing countries will provide some of the sawnwood and much of the additional plywood and veneer - or, as at present, the log raw materials.

⁶ Plywood (and veneer), fibreboard and particle board.

⁷ Provided populations and incomes (products) grow at the rates assumed in the study, in which it was further assumed that the relationship between prices of wood products and the prices of their nearest substitutes will not change by 1975.

It is on the supply side that the advances in knowledge about the sector which have become available in the last few years have most significantly contributed to the picture - in particular with respect to the wood-rich northern countries. The appraisal in depth of the resources of Canada and U.S.S.R. quantified their yield potentials, and showed that they are immense. The re-evaluation of the United States situation resulted in a large upward revision of the estimate of its huge supply potential.⁸ Table 6 gives some idea of what is involved quantitatively.

⁸ Earlier in the decade new inventory information has also led to a sharp upward revision in the yield estimates of the other important producing area, northern Europe.

By no means all of what could be cut is economically accessible, or will be so by 1975. But much of it is, or will be. Examination of the size, content and accessibility of these huge wood resources with their large coniferous contents, and of the other factors affecting the competitive strength of the wood-using industries, points strongly to these areas being far the biggest suppliers of sawn softwood, woodpulp and pulp and paper on the international market in the short and medium term - in particular to the developed countries in the Northern Hemisphere where the large deficits are emerging or growing.

TABLE 5. - ESTIMATED GROWTH IN SELECTED MAJOR WOOD DEFICITS,¹ 1961-1975 (Million cubic meters, roundwood equivalent)

	Deficit		Present main sources of external supply area and product
	1961	1975
EEC and United Kingdom
Sawlogs and veneer logs	40½	56½	Northern Europe U.S.S.R. and Canada sawn softwood West Africa hardwood logs
Pulpwood and other round wood	41	88½	Northern Europe and North America chemical pulp, kraft paper and newsprint
TOTAL	81½	145
United States
Sawlogs and veneer logs	17	28	Canada sawn softwood East and southeast Asia hardwood sawnwood, plywood and veneer
Pulpwood and other round wood	20½	21	Canada newsprint, chemical pulp and pulpwood
TOTAL	37½	49
Japan
Sawlogs and veneer logs	10½	20	North America and U.S.S.R. coniferous (soft) sawlogs Southeast Asia hardwood sawlogs and veneer logs
Pulpwood and other round wood	-	10	United States and U.S.S.R. pulpwood
TOTAL	10½	30

SOURCE. FAO Wood: world trends and prospects, 1966-1967.

¹ Deficits expressed in equivalent volumes of roundwood raw material see right-hand column for form in which main inflows are actually imported and from where.

TABLE 6. - PRINCIPAL WOOD-PRODUCING AREAS OF THE NORTH TEMPERATE ZONE (Million cubic meters)

	1965 removals
	Average net annual growth	Industrial wood	Total	Estimated allowable cut of industrial wood, 1975
Northern Europe	117	90.3	104.9	¹99
U.S.S.R.	874	276.9	385.3	²605
United States	461	286.9	318.5	³326
Canada	...	90.7	97.2	³211-315

SOURCES. FAO. Wood: world trends and prospects, 1966, 1967,

¹ Forecast removals of industrial wood in 1975.-² Allowable out 1963 -³ Varies according to management system.

What few of the Northern Hemisphere countries have, even the wood-rich ones, are large untapped volumes of actually or potentially economically available hardwoods with good decorative or machining properties, of the sort that are sought after for some sawnwood uses and for much plywood and veneer. Most of the additional resources of such woods are to be found in the tropical high forests.

Though the distinction between the supply possibilities and prospects of the developed and developing countries along these lines is far from absolute - some developing countries will share in the growth in trade in sawn softwood, pulp and paper and some developed countries in the trade in hardwood sawnwood and plywood - it is clear that in the short and medium term by far the largest part of the aggregate exports of developing countries will continue to be in tropical hardwoods and the processed products to be made from these woods.

Hardwood sawnwood, veneers and plywood

Earlier in the decade it was estimated (FAO, 1966) that by 1975 the developed countries would need annually, in roundwood terms, 15 to 20 million cubic meters more of tropical hardwoods than they were importing at the turn of the decade - about 13 million cubic meters ® annually in 1959-61. So far, the trade has been growing at a considerably faster rate than is implied by this estimate, in particular into Japan and, to a lesser extent, into the United States imports into western Europe have been growing slightly more slowly than foreseen earlier. Imports into Japan are probably unlikely to continue for much longer to grow at quite the massive rate of the recent past. The tempo of growth in the country's requirements for forest products is expected to slow down gradually, and also, over the longer term, the country's major planting program is expected to increase the share of wood requirements supplied out of domestic production. Meanwhile, rapidly growing access to coniferous wood from the U.S.S.R. and, to a lesser extent, from North America is likely to bring about some shift from broadleaved (hardwood) to coniferous woods in the country's imports. Nevertheless, it does appear that 1975 requirements will still be higher than the earlier estimate. It now appears that requirements in the developed countries alone is likely to be about 30 to 35 million cubic meters ® of tropical hardwood roundwood and products in that year - one half to two thirds as large again as in 1963-65.

This would mean a further growth by such very large absolute quantities that the first question to be asked is can the developing countries raise supplies by such margins, and at such a rate, and without either a destructive rundown of the resource or an unacceptable upward pressure on costs and prices?

The importance of cost and price must be stressed. Though the huge demand for tropical hardwoods does largely reflect their special characteristics (large size, good quality, decorative appearance, etc.), they are not unique. Other woods can be used as raw material for many of the grades of sawnwood, veneer and plywood for which they are used, and these products are subject to substitution by a variety of other materials. Rising prices would slow down the growth in import demand for tropical hardwoods accepted above.⁹

⁹ As was noted in footnote 7 these estimates of future requirements were based upon the assumption of no change in the price competition facing these products.

Though far from all the tropical high forest area has been surveyed, enough is known for it to be clear that in fact very much larger quantities could be made available annually. Physically there seems every reason to believe that, at least up to 1975, supply can match the growth in requirements. There must be more doubt, though, about whether costs can be contained while doing so.

The currently sought-after species are probably becoming scarcer, in commercial qualities and sizes, in some of the at present more accessible areas, but there remain huge quantities even of these woods in other areas. However, the latter tend to be more remote and more costly of access, though there is opportunity for effecting counterbalancing cost reductions by improving logging and transport.

Inter alia, logging and transportation costs are high because very few of the large number of species present in the forest are currently utilized. Even in the forests already in use only a small fraction of the available volume is taken. The cost of roads, equipment, etc., incurred in opening up and operating the forests are consequently heavy per unit of wood volume extracted.

Several of the unused or little-used species have been found, after proper trial and testing, to be suitable for commercial use - but they have yet to find wide acceptance on the market. To effect a more efficient as well as a larger output from the tropical hardwood forests, more usable species need to be introduced on to the market - either directly to the export market or to the domestic markets in order to release the more highly valued woods for export.

The second question that arises is the extent to which the growing export in tropical hardwoods can be as processed products and manufactures, rather than as raw material. It is necessary at this stage to stress the magnitude of even the existing demand for the products of tropical hardwoods. The products of the nearly 21 million cubic meters ® of tropical hardwood roundwood used annually in developed countries in 1963-65 would have been worth (at f.o.b. export prices), if they had all been processed in the developing countries, more than $1,000 million.¹⁰ It is estimated that by 1975 the quantity required will have grown by one half to two thirds. Quite clearly, in the relatively short period between now and 1975 the developing countries simply cannot establish viable industrial capacity on anything like the scale necessary to process all of this quantity. The question then becomes, in the short term, more one of how much could they competitively process for export rather than where can they find export markets for their processed forest products.

¹⁰ International trade statistics do not distinguish between logs for the sawmilling industry (sawlogs) and logs for processing into plywood and veneer (veneer logs). This value has therefore to be based on an estimate of how the logs imported into developed countries were distributed among these uses.

The processes of producing sawnwood, veneer and plywood all give a low recovery. From 40 to 60 percent of a saw-log (by volume) and 50 to 70 percent of a veneer log are discarded in processing. As log raw material costs constitute a very high proportion of total production costs (50 to 70 percent in the case of sawnwood) it is therefore usually desirable, subject to the qualifications that follow, to locate these industries as close to the forest as possible. Processing in the country of origin thus plays an important part in improving the efficiency with which the heterogeneous tropical forests are utilized, as the lower valued species can usually only be exported after the weight loss incurred in processing.¹¹

¹¹ For example, woods, which are otherwise difficult to sell as logs or sawnwood, can be successfully used as core veneer in plywood.

There are other reasons why it makes good economic sense to locate these industries in the developing countries where the wood is. These industries, in particular sawmilling and veneer production, are not capital intensive and can be efficient with relatively small-scale operation; they are relatively simple and do not require a high degree of technical expertise among most of the workforce; and they have few inputs which are of high cost because they either have to be imported or produced by protected domestic industries. In brief, they are industries which can be successfully introduced into many countries, even at an early stage of development.

However, there are of course limitations to the rate at which they can expand competitively. First, though simple as industries go, they do require a certain minimum of skills, services and infrastructure. And mills producing for export generally need to be as up-to-date and large as any in the industry. Moreover, as labor and other costs rise in importing developed countries, there is a tendency for at least some of these countries to seek to import products, such as kilned and planed sawnwood (or furniture and joinery parts), which have been further processed in the low-cost exporting countries, and those producers that can effect these more sophisticated additional stages of processing are consequently likely to be the ones that are best placed to expand their exports.

Secondly, the uses, such as furniture, to which the decorative among these woods are put, tend to be subject to rapid changes in fashion. That part of the industry which processes these woods - in fact a much smaller and slower growing part than that for utility woods - is often more profitably market oriented than resource oriented. High-value decorative woods will consequently tend logically to continue to be exported in log form.

Even among utility woods only the best qualities and grades are usually suitable for export to developed countries. Growth in an export industry is therefore likely to be linked to the growth in a domestic market for lower grades, or an export market for these grades among other developing countries. Singapore, for example, finds outlets in the Near East for much of the lower grades of sawnwood from its large sawmilling industry.

Expansion of these industries tends also to be increasingly affected by the ability to find commercial outlets for the large amounts of processing residues. In developed countries these are commonly used in the board and pulp industries,¹² but in developing countries these industries, if present at all, are likely to be able to absorb only a very limited part of the residues of large export-oriented sawing or veneer-peeling industries. The success of China (Taiwan) and the Republic of Korea as plywood exporters rests in no small part on their ability, in conjunction with their low-cost and technically skilled labor, to develop uses for the veneer log cores; for example, in small-scale wooden manufacturing industries such as joinery and furniture parts (some of which is also exported).¹³

¹² In developed countries the existence of a market both for the range of sizes and qualities that can be produced and also, increasingly, for much of the processing residues, in fact can largely offset the higher raw material costs of imported logs. In other words, unless producers in the countries of origin can match or nearly match this range of outlets, their competitive advantage in log input costs amounts to very little, if anything at all.

¹³ An important recent development which could very significantly widen the range of outlets for processing residues, and hence the profitability of processing, in some developing countries, is the development of the bulk shipment of wood residues for pulping in chip form. Low delivered costs are possible with this means even over long distances. The principal flows at present, which are growing very rapidly, are from Canada to the United States and from the United States to Japan. In both oases it is coniferous wood that is being moved. But Japanese companies are now reportedly also interested in obtaining broadleaved wood (hardwood) ohms for pulpwood - from tropical hardwood producing countries in southeast Asia.

Costs of transport add rapidly to the total costs of such a bulky, heavy commodity as wood. Between west Africa and western Europe freight costs account for up to 60 percent, on the lower valued species, of the landed cost of logs. Producing countries with poor shipping links with the major importing countries, and poor port handling facilities, are likely to suffer a major cost disadvantage. Shipping costs in fact have been an important element in the recent growth in export forest industries in the developing and other countries - the big growths have tended to be in those countries that are well located with respect to the principal markets (and to log supplies).

In order to quantify, if only very broadly, the possible export potential for the period to 1975, these and other relevant aspects of the resource availability, industry economics and location of each producer and potential producer of tropical hardwood products have been briefly examined in order to obtain a general idea of their possibilities and limitations. Because information on many aspects is poor or lacking, the exercise must be seen as no more than tentative and subject to wide margins of error. Table 7 summarizes the results of the examination.

TABLE 7. - ESTIMATED CHANGE IN PROCESSED TROPICAL HARDWOOD EXPORT POSSIBILITIES TO 1975

	1963-65 exports	Estimated 1975 export possibilities
	Million m³ (s)		$ million
Sawnwood	2.44	3.7-4.0	215-230
Plywood and veneers	0.91	2.4-3.4	290-410

SOURCE. FAO secretariat estimates.

The exercise assumes the earlier estimate of an aggregate demand for tropical hardwoods in developed countries in 1975 of 30 to 35 million cubic meters ®, and deploys a range of alternative supply estimates. The upper level of the range of estimates represents the apparent upper limit of the viable production-for-export, to developed countries, possible of achievement by developing countries by 1975. In other words, an estimate of the exports that could materialize at present real prices if there were no constraints such as tariffs affecting imports in the form of roundwood rather than processed products, and after allowance has been made for increased trade in these products between developing countries.¹⁴ Under this assumption a very large increase in trade is involved. Exports of processed hardwood products from developing to developed countries would grow more than threefold, and by $450 million, in annual value over 11 years. Nevertheless, even this very large growth would not provide by any means all of the additional quantity of tropical hardwoods estimated to be required by developed countries in 1975. Exports of logs would consequently also grow, by up to 30 percent and $100 million, above the 1963-65 level.¹⁵

¹⁴ It must be stressed again that this is a very rough estimate of possible production-for-export and not an estimate of the additional import demand that might be generated by the lower prices resulting from tariff removals, and so on. Because the trade is so new, has grown so rapidly, has embraced substantial shifts in the product quality patterns involved, and has been accompanied by major changes in use-patterns in the principal market, it would not appear to be possible to establish meaningful import demand elasticities at the present time.

¹⁵ In practice, of course, the elimination of tariffs implicit in this assumption is likely to mean a lowering of at least some market prices and consequently an expansion of demand even beyond the level estimated here. On the other hand, it must be kept in mind that demand in developed countries may not expand as vigorously as is foreseen here, and that prices for these products may fall because of slackening demand. If prices were to decline, the potential for viable processing for export in developing countries would of course be more restricted than has been estimated here.

The lower level of the range in Table 7 is an estimate of the expansion that could be achieved if exports of the processed products, sawnwood, veneer and plywood were limited by the growth in the markets where they were already accepted, and by the present slow rate of substitution for log imports elsewhere. In fact, in the relatively short period to 1975 the expansion of tropical hardwood export-oriented processing capacity in most developing countries will be limited by factors other than the size of the available export markets in developed countries (i.e., by lack of necessary skills, of outlets for lower grades and residues). The exceptions are a number of countries in the Far East in which availability of markets already is a principal limiting factor on further expansion of exports. The lower estimates in Table 7 consequently reflect in the main the curb on additional exports that this region is likely to suffer because of restricted access to markets, notably in Japan. The difference in the levels of additional trade in processed hardwood products that would appear to be possible under the two assumptions is substantial, namely about $130 million annually by 1975. Moreover, at the lower level of growth in processed products, though it is still very large, log exports would have to rise by up to 50 percent from the 1963-65 level in order to meet estimated total 1975 requirements for tropical hardwoods in developed countries.

The emphasis in this section has been on production-limiting factors rather than on the limitations and constraints in the market. But even now the degree of access to markets, in the broadest sense of the term, materially curbs growth in at least some developing countries' exports of these forest products. As time passes this will of course become increasingly important to other exporters among developing countries, and even in the immediate future some of the barriers, such as tariffs, hinder the development of even their present potential for creating viable processing capacity for export. Furthermore, the preceding examination and discussion has not yet taken into account the fact that the developed centrally-planned countries import and use hardly any tropical hardwoods. Yet most of these countries share the limitations faced by the other countries in the north temperate zone in expansion of supplies of woods with similar characteristics tropical hardwoods could widen the range of wood products and qualities available to them. Should these countries decide to improve the quality of durable consumer goods such as furniture, they could provide a new and important market for tropical hardwoods.

The third section of this paper examines the progress being made, and which could be made, in improving access to markets and in other areas pertinent to the expansion and diversification of developing countries' exports of hardwood and other forest products. First, however, consideration must be given to the other major forest product groups likely to enter the trade in much larger quantities over the next decade or so.

Pulp and paper

Production of pulp and paper is highly capital intensive, and substantial economies of scale can be achieved. For example, fixed investment per daily ton could be more than twice as great in a pulp mill producing 25 tons a day as in a mill producing 200 tons and will add about $30-35 a ton to the costs of production of a product with a world market price of, say, $120. Operating and market conditions do not require or permit great economies to be obtained through large scales of operation in all branches of the industry, but large scales of operation are possible in the production of the mass grades - newsprint, chemical pulp, and kraft packaging - which form the largest part of the pulp and paper entering international trade. The new newsprint mills now being built by the principal exporters have annual capacities of 100,000 to 200,000 tons, and the new kraft mills from 200,000 to 300,000 tons requiring investment of S40-90 million per mill.

Such large unit sizes are of course not everywhere necessary for competitive production. Cheaper inputs, or lower production or delivery costs, would permit a mill of smaller size. But the pulp and paper industry is also a sophisticated industry requiring a high degree of technical skill, and large inputs of chemicals, power and water. Few developing countries at present have the necessary infrastructure, skills or supporting services and industries, and are therefore at a cost disadvantage over many stages in the construction and running of a pulp and paper industry.

Where many developing countries can secure an important cost advantage is in low-cost wood. As the cost of wood raw material is usually the largest item in production costs of woodpulp - it commonly accounts for 40 to 60 percent in North America and northern Europe - this advantage can be significant. At present few developing countries have large resources in low cost pulpable raw material, of appropriate quality, available for supporting an export industry. The hardwoods and a variety of other fibrous materials that they do commonly possess are increasingly used for pulping and form the basis for much of the pulp and paper industry serving domestic markets in developing countries. However, at present the bulk of the grades supplied through the trade are made from long-fiber coniferous woods. As has been pointed out earlier, these occur indigenously only in limited quantities and in a few areas within the developing countries.

There are, however, most extensive areas within the developing world where exotic conifers and pulpable hardwoods can be grown in man-made forests. What is most important, the conditions of cultivation are generally such that the wood can be grown much faster and more cheaply than in the north temperate zone.

A few countries have already created export pulp or pulp and paper industries based on man-made forests, and many more draw upon man-made forests for part of their pulpwood requirements. Both South Africa and New Zealand have built up big man-made forest-based industries which supply nearly all these countries own needs and provide the necessary basis for viable exports. Among developing countries, Chile, for example, has a large and fast-growing industry based on man-made conifer forests, including a mill which by late 1965 had an annual capacity of 250,000 tons, which is as large as any anywhere in the world. Swaziland has a conifer plantation-based export mill of 120,000 tons, which has been in production since 1961.

Considerable additional areas of pulpable man-made forest growths are maturing in these countries and elsewhere. But by no means all are so located as to be able to provide low-cost wood to a pulp and paper industry placed where it can compete in the international market much of the timber is too dispersed or remote from possible mill sites and/or markets. There will certainly be some additional successful export mills established by 1975, but development in magnitude would appear to be reserved for the more distant future.

In due course developing countries could thus become important exporters of pulp and paper. The question is one of timing. On the one hand, there is the question of how rapidly, and to what extent, rising costs of raw material procurement will press upon the competitiveness of industry in the north temperate zone. As has been indicated earlier, the new and additional evidence that has come forward in the past few years indicates that supply prospects in these countries as a whole - though not for all individual countries or even regions - are better than was thought likely earlier other suppliers are therefore likely to be able to establish themselves in the markets in developed countries more slowly. There is also at present surplus processing capacity in the industries of the principal producing countries, which is likely to persist for some years to come. This will constitute a further restraint on new export capacity elsewhere in the short term. It is also the case that the advantage of the superior growing conditions possessed by many developing countries is likely to increase over time, as it becomes necessary to invest progressively more heavily in order to intensify output of wood for pulping in the temperate forests.

On the other hand, there is the question of whether manmade forests can be built up at a fast enough rate and on a scale sufficient to provide for the opportunities as they arise. Many countries have shown that they already possess the requisite land area and necessary skills. But, though highly labor-intensive, afforestation on a scale sufficient to provide for a large pulp mill requires substantial financial investment.

Because of the size of the investment involved, timing is again important. Some of the pulpwood forests established already with export pulp in mind could prove to have been misplaced. Although wood-growing is characterized by great flexibility - the timber can be allowed to continue to grow without detriment to its quality for some time, or be diverted to other uses such as sawnwood - an element of misinvestment might be involved which few developing countries can readily afford.

The prospects for pulp and paper exports from developing countries must also be considered in conjunction with the question of meeting these countries' own rapidly growing requirements for these commodities. Most, if not all, developing countries have pulpable raw materials that will meet at least part of their requirements. The constraints on expansion of this industry in these countries are largely those determined by the scales of operation associated with viable production. While many grades of pulp and paper can be made efficiently in small units, particularly for domestic markets remote from outside suppliers, many countries simply do not provide a large enough market even for a small mill, or can cover only a part of their range of paper and paperboard requirements.

A substantial pulp and paper industry has already grown up in parts of Africa, Asia, and Latin America to supply domestic markets. Nevertheless in 1963-65, developing countries in aggregate imported 2.25 million tons, 2 million of them from developed countries. They also imported 826,000 tons of woodpulp, 737,000 of which came from developed countries. The total bill, at export prices f.o.b., was over $ 500 million, and this continues to grow.

Many of these markets are likely to present pulp and paper exporters and prospective exporters among developing countries with shorter (and therefore usually, but not always, cheaper) hauls to the market and higher prices in the market, than they can obtain by exporting to developed countries - advantages that may be enhanced by arrangements that encourage intra-regional trade, for example, the Latin American Free Trade Association. It is therefore to be expected that trade in pulp and paper between developing countries will, in the short term at least, build up more rapidly than exports to developed countries. (Most of Chile's growing exports already do go to other Latin American countries.)

TABLE 8. - EXPECTED GROWTH IN PULP AND PAPER INDUSTRY CAPACITY¹ IN THE DEVELOPING COUNTRIES

	Latin America			Africa²				Asia²
	1965	1970	1975	1965	1970	1975	1965		1970	1975
	Actual	Planned	Estimated	Actual	Planned	Estimated	Actual		Planned	Estimated
Pulp3
Woodpulp	1493	2104	3179	175	171	775	307		372	740
Other pulp	565	779	1060	78	108	551	695		1483	1650
TOTAL	2058	2883	4239	253	279	1326	1002		1855	2390
Paper and paperboard
Newsprint	389	325	916	6	9	216	158		258	525
Other	2882	4299	4855	167	334	960	996		1806	2270
TOTAL	3271	4624	5771	173	343	1176	1154		2064	2795

SOURCES. FAO. Wood: world trends and prospects, 1966. - FAO. World pulp and paper capacity, 1965 and 1967.

¹ Rated capacity in 1965 (actual) and 1970 (planned) estimated production in 1975. Coverage of the 1965 and 1967 capacity surveys are not always fully comparable.-² Developing countries only; excludes Near Eastern countries.- ³ Excluding dissolving pulp.

Growth in the pulp and paper trade among developing countries is in fact to be desired as a basis for sound growth in this industry in these regions. Because of the scale of operation involved in some of its branches, these must be developed on a larger than national scale to be viable. Too much of past pulp and paper capacity, especially in Latin America and parts of Asia, established initially as an import-substitution measure at the national level, has been in mills which are too small, uneconomic and costly to supply even neighboring countries in competition with suppliers from developed countries. Heavily protected production at high cost has also been detrimental to the expansion of paper and paperboard use, and of the further growth of the industry in these countries. The pulp and paper industry in fact should rank high on the list of industries which should be planned on a regional or subregional basis, with national developments co-ordinated and harmonized. Clearly, the development of a pulp and paper industry on such a basis should also provide a sound base, for those producers with the potential to do so, from which to expand in due course into exports to developed countries.

Table 8 summarizes the results of a series of country by country appraisals of prospects for viable pulp and paper production in Africa, Asia and Latin America by 1975. This is compared with the actual situation in 1965 and the capacity planned for 1970. It is expected that these industries will do considerably better than to double in size over ten years. It is not possible to say how much of 1975 production is likely to be exported, but exports could well be at least $100 million greater than in 1963-65, with most of them being taken by other developing countries.

Sawn softwood (coniferous)

The third product of which supplies through trade will be required in much increased quantities in the future, principally by the developed countries, is sawn softwood. As has been noted above, these woods are concentrated in the north temperate zone, in parts of which there remain enormous reserves which are adequate to match the expected growth in import requirements for some time to come.

However, those developing countries which do possess substantial coniferous forests (these being notably in Brazil and Central America) have shared in the trade to date as has been noted before, sawmilling, unlike the production of pulp and paper, is a relatively simple process which can be established efficiently and competitively in areas at an early stage of development. But it appears that limited resources, and growing domestic and regional market demands, will limit further expansion of exports of sawn softwood from most of these countries, though some room probably still exists for expansion of exports from parts of Central America. In addition, Japan has begun to import sawn softwood from Asian countries, such as China (Taiwan), having coniferous wood resources, and this trade could expand.

In the longer term it is more likely that some expansion of exports of sawn softwood could come from man-made coniferous forests in developing countries, though these will seldom provide the larger sizes and high qualities of product which the markets in developed countries increasingly require. As the sawlog raw material generally accounts for the greater part of the total production costs of sawnwood - commonly 50 to 70 percent - the low costs of log production in the fast-growing, manmade forests in developing countries can reduce costs of production of sawnwood substantially enough to offset the high transportation costs to markets in developed countries. Some countries, for example Kenya and Chile, already market small quantities of plantation grown sawn softwood to developed countries. However, growing demand for sawnwood in the developing countries is likely to limit the quantities available for export to developed countries as with pulp and paper, exports to other developing countries are, in the short term at least, likely to grow more rapidly.

Conclusion

The appraisal of developing countries' export prospects for the selected forest products considered in this paper shows that in aggregate they should continue to grow very rapidly indeed, with a rising share flowing in processed forms. By 1975 developing countries could be exporting in aggregate in excess of $1,000 million (at 1963-65 prices) of forest products to developed countries. In the short term the growth will still be concentrated on the products of tropical hardwoods, and will consequently benefit only a relatively small, though growing, number of developing countries. In the longer term there is good reason to believe that developing countries could become important exporters of a wider range of forest products, notably in the pulp and paper groups, thus considerably enhancing the scope for ultimate expansion of their trade in the wood-based sector and raising the number of participating countries. The final section of the paper examines what measures need to be taken in order to realize these encouraging potentials.

Attention has been concentrated here upon the primary forest products of greatest interest as sources of increased export income to developing countries as a whole; that is, those products that are likely to generate large amounts of export income to these countries as a whole, and those which figure as exports from several or many of the countries. It should not be overlooked that individual countries can also participate in the export of products such as particle board and fibreboard which figure only modestly in the developing countries aggregate trade in forest products; or in the nonwood products of the forests and the further-manufactured forms of wood, paper and paperboard - which, as was noted in the introduction; lie outside the scope of this report.

Expansion and diversification of trade

The developing countries' impressive potential for rapid and large-scale expansion of exports of forest products will not be realized to anything like its full extent unaided. Deliberate action to promote this trade will be needed at many levels and in many directions. Because the potential for export expansion is so promising in this product group - one of the most promising of all major areas in which developing countries can or could early develop a major export trade - the necessary actions should rank high in any program designed to expand and diversify the trade of developing countries.

Attention in this section will be concentrated on measures to expand processed products among developing countries' exports of forest products, and particularly those in which large-scale expansion could be achieved in the course of the next 10 to 15 years, or where decisions and actions are needed in the near future to achieve trade expansion in the more distant future.

The subject of ways and means for expanding the export of forest products of developing countries, particularly to developed countries, was considered by an ad hoc joint UNCTAD/FAO Working Party on Forest and Timber Products which met in October/November 1966, and was attended by experts from 30 countries. The Working Party drew attention to a variety of impediments to forest products trade expansion from developing countries, and in its report (UNCTAD/FAO, 1967) recommended a wide range of measures that could contribute to their removal or diminution.

The working party recognized two stages at which action needed to be taken:

1. Building up the forest products export potential
2. Increasing exports of forest products.

Many of the measures, such as training of personnel and improving the quality of the product, are commonly applied in building up most industries and export markets for most products. The following section of this report considers in greater detail some that are of particular significance to forest products and industries. Its intention is to look at the nature of the problems and the impediments; to identify the measures that need to be taken; and to suggest where the action needs to be taken. Particular reference is made to the need and scope for action at the international level, and attention is drawn to the relevant activities of the United Nations agencies and other bodies.

Building up export potential

SURVEYING WOOD RESOURCES

Information about raw material availability is basic to the development of forest industries. One of the principal unknowns regarding many of the lesser used tropical hardwood species is whether they are available in commercial quantities; whether supplies can be sustained over time - at least over the lifetime of a processing plant; and at what cost. Over much of the tropical rain forest area there is a lack of, or insufficient information about, the quantities, qualities and cost of the wood potentially available.

It can be said, however, that the situation is improving in most of the countries concerned some survey work has been or is being carried out, and bilateral and multilateral aid forestry programs have been strongly concentrated on these. For example, to take the United Nations Development Program (UNPD) alone, FAO assisted forest surveys have been completed, are in progress or are in preparation, in 36 developing countries, 29 of which are in tropical hardwood forest areas. Nevertheless, much remains to be done. The rate at which tropical hardwood output is expanding makes it most urgent to know what levels of utilization presently used forests can support, and also what additional wood resources could be brought into use; and, in both cases, at what cost.

JOINT VENTURES IN THE DEVELOPMENT OF EXPORT FOREST INDUSTRIES

Much of the present large extractive industry working the tropical hardwood forests for export logs is closely linked with wood-using industries in importing developed countries and much of it through the direct participation of capital and management of those countries. Very real advantages are also to be obtained from the development of the wood-processing industries through co-operation between enterprises in the developing and the developed countries. Industry in developing countries will gain access to know-how, capital and markets, and that in developed countries to supplies. Given the nature of the products involved, market penetration is in fact likely to be difficult for a producer in a developing country without some form of a link with an established marketing organization.

Joint ventures of this nature might take various forms. The working party proposed that "developed countries might give guarantees for financing of plant in developing countries and might provide for technical advice, managerial and worker training as well as community development, and might consider accepting product as gradual payment for equipment and patents; developing countries might grant duty-free entry for equipment, facilitate the procurement of land, provide public guarantees for investment funds and reduction of public charges and ensure raw material supply."

Concern is often expressed by developed countries and the industries there that growth in processing tropical hardwoods in the developing countries of origin will mean a decline in the supply of roundwood for export, upon which some of their industries are by now so heavily dependent. This is apparently one of the considerations underlying the cautious approach toward entering the processing-at-source stage sometimes evident in some parts of the wood-using industry in developed countries. The fact, brought out earlier, that even the most rapid growth in industry in the wood-producing countries will not even match the growth in quantities required for import, should therefore be stressed. Log exports will decline, and are already declining, in some countries; but in aggregate the flow of tropical hardwood roundwood appears sure to continue to grow for at least a further 10 years. Growth in processing in the developing countries is not likely to disrupt most existing imported-log-based industries in developed countries, which should have ample time to adapt to the change, logically by "backing-up" to the source of raw material and participating in the build-up of processing capacity in the wood-producing countries.

Much existing export capacity in developing countries has in fact been established with the assistance of enterprise or capital from developed countries. This flow is accelerating in the last few years forest industries in the developed countries have shown a rapidly mounting awareness of and interest in the possibilities available in developing countries. Some of the larger companies have now embarked upon systematic exploration of development opportunities in which they might participate. Bilateral' and multilateral aid programs have assisted in helping to gather resource and other data needed to identify and evaluate investment prospects; in carrying out feasibility studies of specific prospects; in disseminating this information among possible participants in developed countries; and in encouraging and facilitating participation.

At the international agency level the number of UNDP/FAO forest and forest industry preinvestment projects completed, under way or in preparation has grown to 19, of which 11 are in areas which are, or are expected to become, exporters of processed forest products. In order to accelerate and intensify the expansion of industries related to agriculture, forestry and fisheries in developing countries, and to help promote investment in projects where such preinvestment work had shown industrial expansion to be viable, FAO in 1966 set up its FAO/Industry Cooperative Program. A number of forest products companies are among the industrial firms which are already part of this program, the object being "to participate actively in the development of FAO related industry in developing countries."

However, the burden of the problem remains that of bringing to the attention of most of the constituent firms in the relevant industries in developed countries the existence and nature of the possibilities that exist for advancement through participation in such ventures. Much could be done by industrial associations and government departments at the national level in assisting interested companies to participate.

STRENGTHENING DOMESTIC MARKETS

It is usually difficult to build up an export trade without domestic markets to complement export outlets and reduce the impact of fluctuations in the international market. As has been noted earlier, this is reinforced in the case of the tropical hardwood-using industry by the need to find outlets for more of the lesser known species available in the forest; for the lower grades of product which are unavoidable in these processes; and for the large quantities of usable wood residues. Most wood-rich developing countries offer relatively small domestic markets for any product. But even the limited wood-use potential that exists is seldom being developed. As regards construction, which in most countries is by far the largest outlet for wood, little processed wood is used in most modern building in many of the wood-rich countries of the tropics. Bias against wood as a constructional material on ground of fire risk, poor durability, etc., has been carried over from other times and other conditions. Though these reported disadvantages of wood are often no longer applicable, or may be eliminated through preservation methods, fireproofing, etc., the bias is now usually entrenched in building codes, building loan policies, etc., not to speak of the attitudes of architects and builders and the consumers themselves.

Wood products need to be vigorously promoted domestically in the hardwood-rich developing countries in order to broaden the range of usage in order to complement export outlets.¹⁶ While research may frequently be needed to solve utilization problems, very often it is simply a matter of advice and guidance such as the preparation of layouts for precutting, impregnation and production of prefabricated housing components, or the preparation of designs, which are required to make wood readily applicable for use in low-cost housing. In recognition of this, and of the contribution sound low-cost housing could play toward improving standards in many developing countries, FAO and the United Nations Center for Housing, Building and Planning, in close collaboration with the International Union of Forestry Research Organizations (IUFRO), are planning to hold a world symposium in 1969 on wood in structures and housing, with particular emphasis on low-cost housing.

¹⁶ But not to divert wood which might be exported. At present wood use in many producing countries is unnecessarily extravagant, with woods of high export value being used for low value domestic products.

INVESTING IN FUTURE WOOD SUPPLIES

Man-made forests are rapidly growing in importance as sources of industrial wood. As was pointed out earlier in this report, the prospects of developing countries becoming exporters of such products as pulp and paper rests largely upon their superior conditions for growing wood for this purpose at lower cost than is possible in the developed countries. Also the more valuable hardwoods of the tropics can probably usually be much more effectively renewed in the form of homogeneous man-made forests than by perpetuating heterogeneous natural forests. The scale on which planting will be needed is in fact very large, and will escalate rapidly.

However, reforestation and reforestation - the creation or renewal of the wood raw material-has in the past failed to attract much investment. The length of the production process for wood affects wood-growing as an investment in a number of ways which tend to conflict with banking criteria in the evaluation of investments. This is particularly true when planting is required in order to provide for industries yet to come - that is, to build up a source of raw material for a mill planned for the future. There is an urgent need to widen the scope of the lending criteria applied by private and public financing bodies, so as to cover the financing of economically sound planting and reforestation projects.

At the international agency level, FAO has established during the past four years, co-operative agreements with the International Bank for Reconstruction and Development (IBRD) and the regional development banks, in order to mobilize public investment funds for development in FAO related sectors in developing countries. The recently constituted FAO/IBRD Cooperative Program has devoted much of its attention on the forestry side to the problem of financing forest establishment. Attention has been directed toward identifying economically viable afforestation projects, and to appraising and presenting them in terms that permit their evaluation as bank investments. Projects in this range have already been identified in six developing countries.

At the same time, as tree planting is labor- rather than capital-intensive, and imposes little in the way of foreign exchange costs, it is a development area which can be expanded more readily than most from resources available within national economies. The greater part of the planting effort will need to be financed at this level. Furthermore, the industries that expect to use the wood produced have a very real interest in its creation, and a role to play in its financing. There is one reason in particular why the user industries should be brought in, where possible, at the stage when a forest is established - to ensure that it produces woods that industry can use, in a location where they can be made economically available. All too much of past planting has failed to meet these requirements it is essential that new planting does meet them.

RESEARCH FOR THE TROPICS

Too little is known about the forestry and wood-using problems peculiar to the tropics, and too little effort is devoted to seeking their solution. Tropical countries are still heavily dependent upon methods and technologies developed to meet quite different conditions. In an era of economic growth in which the momentum of that growth rests upon the continuous emergence of new technology, this limitation could become critical. A much more intensive research effort is required to adapt existing technologies and to develop new techniques appropriate to tropical conditions and wood resources. In this effort the developed countries can make a major contribution. If for no other reason than their interest in the potential of the tropical hardwood forests for supplying their fast-growing markets, governments and forest industries of these countries should seek to make available some part of their own research facilities and resources for the task of accelerating and expanding the research tropical countries need. Subjects that require urgent attention include the following:

1. Economics and techniques of pulping tropical hardwoods from both the natural forest and from plantations

2. Methods of work and equipment to improve efficiency and so reduce costs in harvesting and sorting the outturn from mixed tropical forests

3. Techniques and applications to use wood products more widely and effectively in tropical countries, in particular in low-cost housing and other construction

4. The best species and cultivation techniques for, and the economics of, plantations to provide wood for industry, with particular attention to the need for low-cost wood for pulping in the coastal regions of the humid tropics where export-oriented industries might be built up

5. Economics and management methods appropriate to raising the yield from natural forests.

Expanding exports of forest products

BETTER MARKET INTELLIGENCE AND PROMOTION

A major impediment to the expansion and diversification of forest products trade from developing countries is that users or potential users in developed countries lack information about what the producing countries can supply in commercial volume and that producing countries are correspondingly ignorant about the requirements of the markets, and prospective markets.

This is particularly so with respect to tropical hardwoods. Of the multitude of species to be found in the tropical high forests, a large number, when tested and tried out, have been found to be usable commercially. Yet very few are used in volume in the export markets. A species accepted in one market is by no means always accepted in others. There is great scope for penetration of even proven tropical hardwoods into new uses and markets.

As has been pointed out earlier, much of the information needed to establish the suitability of lesser known species exists, though more needs to be known about their availability. What are lacking are the channels for adequately disseminating this information and the mechanism for the promotion of these woods in export markets. This lack is of course largely due to the small size and early stage of development of most producing countries which cannot afford adequate market intelligence and promotion services.

The nature and structure of the products, the trade and the industries involved also militate against effective market intelligence and promotion. Sawnwood, veneer and plywood - and of course sawlogs and veneer logs - are producer goods. The primary producer of these products is therefore separated from the final consumer, and from the architects, quantity surveyors, builders, public works departments, etc., who determine the choice of material. At the same time, in many of the importing countries, saw-milling and, to a lesser extent, the plywood industries are themselves composed of comparatively small units, few of which have the resources to maintain market intelligence and promotion services. At the producing end the small unit size in the logging and milling industries (and the links which often exist with specific importers) mean a poor base, and little incentive, for expanding into new markets.

The importance of improving marketing intelligence and promotion for an expanded forest products trade from developing countries was emphasized strongly by the experts who participated in the joint UNCTAD/FAO Working Party on Forest and Timber Products. As is pointed out in the report of the working party, a number of improvements might be effected through existing channels. More information could be collected and disseminated through existing organizations. Expertise in forest products could be strengthened and added to commercial trade services. There could be more frequent interchange of trade missions, and greater participation in trade fairs in importing countries. Most of these improvements can appropriately be introduced through bilateral assistance from the importing developed countries.

A promising possibility for advance lies in co-operation among several exporting developing countries in order to establish an effective market intelligence and promotion service for their forest products in one or more of the principal market areas. Such a venture is likely to be difficult to establish and maintain. Experience shows that to be effective it requires a high degree of expertise, must be well funded, and must be sustained over a considerable period of time. Very clearly it would have to be subjected to a careful prior study to establish whether or not it is feasible and, given a reasonable probability of success, its precise functions, location, form of financing, etc. Equally clearly, with its promise of being able to lead to major improvements, the idea should be studied carefully. The proposal, first recommended by the UNCTAD/FAO working party, has been selected in subsequent meetings of the Committee for Manufactures and the Trade and Development Board of UNCTAD for further evaluation.

REDUCING COSTS OF DELIVERY TO THE MARKET

On products which are as heavy, bulky and low in unit value as most wood products exported by developing countries, the costs of transportation and of the accompanying handling can add heavily to the cost at market this is particularly the ease with exports of roundwood raw material. As has been noted earlier, between west Africa and western Europe freight costs can amount to as much as 60 percent of the c.i.f. price. Even on logs of high value freight rates on this route are usually equivalent to some 30 percent of the c.i.f. price. For the shorter route between the Philippines and Japan¹⁷ the corresponding figure for logs is 20 percent.

¹⁷ This trade, by contrast to the Africa-Europe trade which is largely carried by Conference Line ships, is to a great extent carried by chartered ships in relatively large volumes per sailing.

TABLE 9. - APPROXIMATE PRE- AND POST-KENNEDY HOUND TARIFFS ON SELECTED WOOD PRODUCTS IN MAJOR IMPORTING COUNTRIES (Percent ad valorem, except where otherwise stated)

	United States		United Kingdom		Japan		ECE common external tariff
	1	2	1	2	1	2	1	2
Sawlogs and veneer logs	0	0	0-8	0-4	0-5	0-5	0	0
Sawn softwood	³$0.35-1.50	0	48	0	0-10	0-10	0	0
Sawn hardwood	³$1.50-3.00	0-$0.75	0-10	0-5	0-20	0-10	0	0
Veneer sheets	8-16 2/3	4-10	10	5	15-20	15-20	8	7
Plywood	20	10	10	5	20	15	14-15	13

SOURCE. Information made available by the GATT secretariat.

¹ Base tariff (1964). -² GATT concession tariff (post Kennedy Round). -³ Per thousand board feet. -⁴ Per standard.

Clearly one fundamental means of reducing the heavy incidence of freight costs on wood products is by eliminating surplus weight and volume by processing before shipping - a principal argument in favor of expanding the processing industries in the producing countries. However, levels of freight rates are of course affected by much more than just weight and volume. Availability of shipping space, suitability of carriers, frequency of shipping, presence or absence of suitable complementary and back-haul cargoes; and port facilities, charges and efficiency are but some of the principal contributing factors. Improvements in handling and shipping are much more likely with processed forest products than with roundwood.¹⁸

¹⁸ However, as was noted earlier, there has recently been a major development in the movement of wood raw material - in chip form. To date the chips shipped commercially have been predominantly produced from processing residues. But trials are in progress to determine the viability of large scale chipping of roundwood for pulp at source, with subsequent shipment in chip form.

Logs, an awkward cargo, do not lend themselves to packaging in any form. Sawnwood, veneer and plywood on the other hand can be packaged and, if sizes can be standardized, the packages can be handled the same way as containers, with the use of mechanized loading and unloading and appropriate carriers. But the transformation may involve heavy investment in terminals, handling equipment and carriers, only warranted given trade flows in large volume. Only now is the much larger trade in sawn softwood between developed countries being substantially transformed in this way.¹⁹

¹⁹ Once changed over to mechanized handling of packaged cargoes it will be difficult for a port facility to handle loose goods. Though by no means all terminals handling timber are going to make this change, the substantial shift that is under way may well limit capacity for dealing with imports of loose timber - including tropical hardwood.

In recognition of the importance of freight rates on trade in tropical hardwood logs, sawnwood, veneer and plywood, UNCTAD, with the assistance of FAO, is carrying out a study on the maritime transport of timber. Its object is to evaluate the effect of the level and structure of freight rates on the trade of these wood products, and to throw light on the factors influencing freight rates charged, cargo-space availability, and related matters.

ELIMINATING TARIFF BARRIERS

Table 9 summarizes the present and prospective (post-Kennedy Round) tariffs on forest products from the developing countries imported through the principal markets of the developed countries. There are few tariffs on hardwood logs; where there are they are low, have generally not been applied in recent years, and most were removed in the Kennedy Round. Tariffs on sawnwood also tend to be low where they exist at all and most of those affecting imports from developing countries were removed in the Kennedy Round - though Japan maintained its 10 percent rate of lauan and other dipterocarp sawnwood - the principal woods produced by Far East exporters - and the United States only halved its (very low) duty on many of these woods.

There are tariffs on veneers into all four major importing countries, which vary from 5 to 10 percent except in the case of Japan where they are 15 to 20 percents²⁰ In the Kennedy Round, the United Kingdom halved its 10 percent duty, and the United States halved all its duties except its 10 percent duty on lauan veneers and veneers from similar woods, even though very large quantities of these veneers are imported as raw material for the United States plywood industry. (However, most supplies come from the Philippines and are subject to only 40 percent of the MEN²¹ duty.) The European Economic Community lowered its duty but only from 8 to 7 percent, though again large quantities are imported for the plywood industry (but mainly from countries associated with EEC, which have duty-free access). Japan, which imports very little veneer, but very large quantities of veneer logs, maintained its high 15 and 20 percent duties on all but teak veneers (which are duty free).

²⁰ And 16 2/3 percent on decorative veneers into the United States.

²¹ MFN - Most favored nation.

Tariffs on plywood are generally high, often sufficient to provide protection to domestic industries against the higher costs of imported log raw material. As is shown in Table 10, the effective rate of protection - that is, the protection of value added in the industries in the developed countries - ranges from about 39 percent in the United Kingdom to about 44 percent in Japan and the United States.

TABLE 10. - NOMINAL AND EFFECTIVE TARIFFS ON WOOD PRODUCTS GROUPS IN MAJOR IMPORTING COUNTRIES, 1964

	United States		United kingdom		EEC		Japan
	Nominal	Effective	Nominal	Effective	Nominal	Effective	Nominal	Effective
Wood simply worked	0.7	1.1	7.9	21.5	3.2	4.5	5.9	13.3
Plywood	17.1	43.7	17.5	38.7	15.0	32.5	20.0	44.2
Wood manufactures	12.8	26.4	14.8	25.5	15.1	28.6	19.5	33.9
Wood pulp	0	-1.8	0	-4.3	4.7	5.4	5.0	6.3
Paper and paper articles	3.1	5.0	6.6	13.5	10.3	19.0	10.5	18.5

SOURCE. The structure of protection in the industrial countries and its effects on the exports of processed goods from developing nations (TD/B/C.2/36).

There was little in the way of significant reductions in the Kennedy Round. Japan, the largest user but a very small importer of tropical hardwood plywood - hardwood logs are generally imported to be processed in Japan - maintained its high 20 percent duty on hardwood plywood. The United States maintained its 20 percent duty on plywood of lauan and related woods, which make up most of its plywood imports from developing countries²² on other plywoods it halved its rate. The European Economic Community reduced its duty, but only from 15 percent and 14 percent to 13 percent. The United Kingdom, which imports mainly in processed form, halved both its 20 percent and 10 percent rates.

²² Despite this duty, the processing of imported tropical hardwood logs has proved not competitive in the United States - with long and costly transportation from the log-producing countries and high labor costs in domestic processing industries. Nearly all of its tropical hardwood imports are in processed form.

The market for hardwood plywood and veneer in developed countries is potentially the most important forest products market for developing countries in the short and medium term. It is generally both the biggest and fastest growing among forest products markets for which many developing countries have both the wood resources and/or the capability to process competitively. But even after the Kennedy Round concessions, tariffs generally remain discouragingly high.²³ A first priority should be given to a further substantial downward revision of tariffs on developing countries' exports of veneer and plywood to developed countries when any program is discussed to expand and diversify such forest products exports.²⁴

²³ As was noted earlier with respect to veneer, the impact of these tariffs on plywood (and on logs and sawnwood) has been limited in the ease of tropical woods by a variety of preferential arrangements. Commonwealth countries have duty-free access to the United Kingdom for these products, and countries associated with EEC to that group of countries. Philippines exports of sawnwood, veneer and plywood are subject to only 40 percent of the MFN duty in the United States. Recent temporary arrangements have extended some of the tariff concessions on roundwood and sawnwood - but not on plywood and veneer - to all tropical producers.

²⁴ On the other major group of forest products, pulp and paper, factors other than tariffs limit developing countries' capacity to export to developed countries. Woodpulp and the mass grades of paper and paperboard which figure most prominently in international trade are usually subject to zero or low tariffs. The opening by EEC of a 625,000-ton duty-free quota for newsprint was the most important single pulp and paper concession in the Kennedy Round. The Community also made a 25 percent cut in the duty on some other papers, and a 50 per cent reduction on paper pulp. Tariff reductions by other participants were more limited in scale.

An across-the-board removal or reduction of tariffs on plywood, and on veneer and sawnwood, applicable to imports from all suppliers would of course be of only limited value to developing countries, as it would equally benefit developed country exports - including their exports manufactured from imported tropical hardwood logs. The general case for preferential tariff treatment of developing countries' exports of manufactured and semimanufactured goods is well known and need not be repeated here. It is pertinent to point out once more, however, that the developing countries' trade in the processed products of tropical hardwoods is one which could be rapidly and massively expanded without causing major disruption of existing competing industries in developed countries. Demand for these products is growing so rapidly in the latter as to accommodate both. Preferential encouragement of trade in these products from developing countries will result more in trade creation than trade diversion.

As is the case with industry in general, some developing countries have progressed further in building up competitive forest industries than others. For example, fewer countries have reached the stage of being able to manufacture plywood or sawnwood furniture for the international market than have reached the stage of being able to produce veneer and sawnwood. It may be that a preferential system would have to differentiate between such stages in order to encourage exports of the one as much as the other. In any event it should be kept in mind that several of the export flows from developing countries, particularly of the simpler products, have been built up behind the protection of existing preferential systems. An elimination of tariffs against other developing countries' exports will broaden the competition they have to face, which may be disruptive of the orderly development of their industries unless phased so as to permit time for adjustment. If a preferential tariff system applicable to exports of all developing countries were to consist only of reduction and not of removal of existing tariffs, together with the elimination of the present geographically limited preferential arrangements, the beneficiaries under the latter scheme would be worse off than before, unless some form of compensatory arrangement were to accompany the change.

A satisfactory preferential tariff system applying to the forest products of developing countries could consequently be quite complex. Nevertheless, the benefits it would bring are likely to be such as easily to outweigh any drawbacks arising from such complexity.

Summary and conclusion

In 1953-55 developing countries exported about $185 million of forest products²⁵ annually to developed countries. By 1963-65 this had grown to $600 million. The greater part of this trade was in products of tropical hardwoods, and it is expected that by 1975 the developed countries will require one half to two thirds as much again of these woods annually as in 1963-65. By that time the centrally-planned countries could also be drawing upon these woods. By 1975 developing countries could in aggregate be exporting in excess of $1,000 million of forest products to developed countries.

²⁵ Main wood products only. Excludes manufactures and nonwood products of the forest. See Table 4 for the products covered.

At present about two fifths, by value, of developing countries' exports of forest products to developed countries is in processed form. By 1975 this share could and should increase considerably. The processing industries can be widely established competitively in developing countries, and trade in the processed among the hardwood products alone could double in a decade from now. Processed forest products thus present unusually favorable prospects for early, rapid and large-scale expansion of exports from developing countries. Furthermore the trade can expand without major disruption of existing competing industries in developed countries demand for these products in the latter countries is likely to expand sufficiently to accommodate both.

Action is needed in order satisfactorily to realize this potential for expansion. Action is also needed to equip developing countries to take advantage of their longer term potential for entering the much larger and more valuable trade in pulp and paper. The list of priorities given below is by no means exhaustive, nor does it look beyond what is required in the immediate future in order to achieve the desirable development of exports of forest products from developing countries. It merely attempts to summarize the more important factors bearing upon this very important potential for growth.

IN DEVELOPING COUNTRIES

1. Securing the available wood raw material - appraising its availability and cost; enacting and enforcing legislation to secure and protect it; and ensuring its appropriate management.

2. Creating and renewing future wood supplies - in particular to exploit the superior conditions of many developing countries for producing the woods industries require, in locations where they can use them at low cost.

3. Establishing conditions that encourage outside investment in the build up of industries that can process wood for export.

4. Ensuring the quality of the products produced - for example by establishing and applying grading rules.

5. Strengthening the base for sound industrial expansion by widening domestic usage of wood products - more species and grades used, in a wider range of uses.

6. Co-ordination of development among industries and countries where sound expansion requires a larger scale of action - for example in some branches of pulp and paper, in shipping, in market promotion in developed countries.

IN DEVELOPED AND CENTRALLY - PLANNED COUNTRIES

1. Provision of training, technical assistance and capital to the forestry sector in developing countries which could export processed forest products.

2. Researching solutions to the problems and conditions peculiar to the tropics and tropical woods.

3. Participation through joint ventures in building up developing countries' export forest industries.

4. Extending market acceptance of lesser known tropical woods and processed wood products.

5. Removal of tariff and other obstacles to increased trade in processed and further manufactured forms of forest products.

J. E. M. A.