IMPACTS ON FOREST PRODUCTS TRADE

When a tariff is reduced or removed in a market where the quantity of goods traded remains constant then the gains from the change can be distributed in three possible ways. Firstly, if the market price of the good does not change then all gains are captured by suppliers. Secondly, if the market price of the good falls by the full extent of tariff change then all gains are captured by consumers. Most normally, the market price will fall by some proportion (<1) of the tariff change and the benefits of the reduction are shared by buyers and sellers.

The normal and more complicated case with bilateral trade also allows the quantity of goods traded to vary in response to a tariff reduction. Since a tariff reduction means consumers are paying a lower price or suppliers are receiving a higher price, or most usually both, then a greater quantity of goods can be expected to be traded. This is known as the trade creation effect.

In the multilateral trade arena where different tariff rates are applied by a single importing country to production from several exporting countries, a tariff reduction in favour of one exporting country may confer sufficient advantage to that country to enable it to capture market share at the expense of a second country's exports. This is termed the trade diversion effect. In the context of the Uruguay Round this aspect may be observed in relation to changes in the relative GSP and MFN tariff rates applied respectively to developing and developed country exports.

An assessment of trade creation effects and trade diversion effects resulting from the Uruguay Round was done by Barbier (1996)³. In an analysis covering Australia, China, India, Japan, Republic of Korea, Malaysia, New Zealand and Thailand from the Asia-Pacific region, Barbier estimates the potential effects of the Uruguay Round on selected forest products in a range of importing countries. It should be emphasised that due to data limitations it was possible to estimate only the trade impacts on (at best) imports of logs, sawn timber, veneer, particleboard, plywood, fibreboard, wood pulp and newsprint in major markets. For some countries a much more limited list was estimated. Consequently, the impacts of tariff reductions on other forestry products, most notably other paper products, furniture and builders' joinery, are not included in the analysis (and for a number of countries other substantive items) and thus the full impacts of the Uruguay round on forestry are not represented.

Barbier develops two scenarios. Scenario A assumes that pre-Uruguay Round tariffs on imports into developed country markets are at GSP rates for developing country exports and MFN rates for developed country exports. Scenario B assumes that pre-Uruguay tariffs on all imports are at MFN rates. For both scenarios a medium elasticity of demand for imports is assumed. Consequently, while both scenarios can be expected to yield trade creation effects, only Scenario A, which models tariff differentials between developed and developing countries, will yield trade diversion effects. Barbier notes that, in the real world, because not all imports from developing countries are eligible for GSP rates, the actual post-Uruguay Round outcome is likely to lie between Scenarios A and B.

Table 3 shows the results of Barbier's modelling. The most evident, and expected, impact is that the narrowing of tariff differentials between GSP and MFN countries in Scenario A causes significant trade diversion in favour of developed countries and at the expense of developing countries. Trade diversion effects from tariff changes, particularly in the European Union, dominate the results of Scenario A. Consequently, under Scenario A the value of exports from developing countries is shown to decline as a result of the Uruguay Round settlement.

For the Asia-Pacific region, where 80 percent of exports are sourced from developing countries, a real world situation reflective of Scenario A would suggest the Uruguay Round outcome on balance to have been detrimental to the region's exporters. Conversely Scenario B suggests trade gains of a similar magnitude to the losses sustained under Scenario A. Bearing in mind the suggestion that the actual Uruguay Round result is likely to lie between Scenarios A and B, and that trade creation effects in developing country markets in Table 3 total only around US$25 million, the net benefits of the forestry outcome of Uruguay Round for the Asia-Pacific region appear modest at best. This is particularly evident in examining the final two columns which suggest the value of total trade creation gains from the Uruguay Round settlement on forestry is around 0.4 percent of the value of the global forestry trade. This result does, of course, ignore the obvious benefits to exporters and consumers of the reallocation of tariff revenues previously accruing to Governments.

Table 3: Estimated Trade Effects on Selected Forest Products of Uruguay Round Tariff Changes in the Asia Pacific and other key Markets (US$1000)

	Imports from Developing Countries						Imports from Developed Countries						Total Change
Importer	Trade Creation		Trade Diversion		Total Effect		Trade Creation		Trade Diversion		Total Effect		Nominal Change		% of Forestry Imports
Scenario	A	B	A	B	A	B	A	B	A	B	A	B	A	B	A	B
Australia	2042	5073	(256)	0	1786	5073	10871	10871	256	0	11127	10871	12913	15944	1.1%	1.3%
China	4402	4402	0	0	4402	4402	3570	3570	0	0	3570	3570	7972	7972	0.2%	0.2%
India	303	303	0	0	303	303	651	651	0	0	651	651	954	954	0.2%	0.2%
Rep. of Korea	1402	1402	0	0	1402	1402	8486	8486	0	0	8486	8486	9889	9889	0.4%	0.4%
Japan	36701	74759	(16383)	0	20318	74759	37783	37783	16383	0	54166	37783	74484	112543	0.6%	0.9%
Malaysia	569	569	0	0	569	569	146	146	0	0	146	146	715	715	0.1%	0.1%
New Zealand	0	128	(3)	0	(3)	128	560	560	3	0	563	560	560	689	0.3%	0.4%
Thailand	5337	5337	0	0	5337	5337	827	827	0	0	827	827	6164	6164	0.5%	0.5%
United States	0	24472	(604)	0	(604)	24472	24317	24317	604	0	24921	24317	24317	48788	0.2%	0.4%
EU	0	65746	(201756)	0	(201756)	65746	198591	198591	201756	0	400346	198591	198591	264336	0.4%	0.6%

Source: Barbier (1996)

3 Barbier's methodology is detailed in the Annex to Barbier (1996) (pg 45)