1. GENERAL ECONOMIC SITUATION
The New Zealand economy grew by 4.4 percent in the year ended December 2002. The economy continues to perform well in comparison to major trading partners. Consumer spending was up 2.0 percent for the December quarter. Household expenditure has been buoyant for the last 12 months, with annual spending on durable goods up 8.3 percent, new housing investment rising 20.5 percent and New Zealand residents' overseas spending increasing 8.8 percent. Increased business investment, up 4.0 percent, and a lift in exports also contributed to the December quarter's rise in economic activity. Internal demand in the December 2002 quarter is now 4.0 percent higher than in the same quarter of the previous year.
Inflation is running around 2.7 percent. Unemployment fell from 5.4 percent to 4.9 percent during the year. Robust domestic growth and relatively high interest rates (the official cash rate is currently 5.75 percent) have led to a sharp appreciation of the New Zealand dollar which is penalizing forestry exports. Uncertainties with the future security and price stability of energy markets are also of concern for the industry.
2. PERFORMANCE OF THE PAPER AND WOOD INDUSTRY
Overview
The New Zealand forest industry is based on 1.8 million hectares of sustainably managed, highly productive plantation forests and has a total turnover in excess of NZ$5 billion per year, including NZ$3.7 billion in export sales. It accounts for 4 percent of New Zealand's GDP, is the third largest export sector and employs over 23 000 people (and indirectly, a further 100 000). New Zealand currently supplies, respectively, 1.1 percent and 8.8 percent of global and regional Asia-Pacific forest products trade from an annual harvest area equivalent to 0.0009 percent of global forest cover.
Investment
Annual new plantation development in 2002 was 23 200 ha plus 35 800 ha of replanting. Average new plantings over the past 30 years have been around 43 500 ha per year.
Investment in wood processing amounted to NZ$124.7 million in 2002 with further investment planned to reach $445.6 million between 2003 and 2009.
Harvest levels
New Zealand's annual harvest to the year ended December 2002 was 22.6 million cubic metres compared with 15.3 million cubic metres in 1998 - an increase of 48 percent in four years. Almost all of the additional seven million cubic metres of harvested timber was exported. New Zealand is well on the way to achieving a harvest of 40 million cubic metres by 2020.
Exports
Total value of forest products exported for the year ended December 2002 was NZ$3.709 billion, an increase of 2.4 percent over the previous year (NZ$3.623 billion). Forest products exports represent 12.5 percent of New Zealand's total exports. Forestry is New Zealand's third largest export sector.
The estimated total of all forestry products exported for the December 2002 year, expressed in roundwood equivalents, was 15.6 million cubic metres. Compared to the previous year this increased by 6.6 percent.
Main export destinations were as follows:
December 2002 Year |
December 2001 Year | |||
(Provisional) |
||||
NZ$million |
% of Total |
NZ$million |
% of Total | |
Australia |
945 |
25.5 |
940 |
25.9 |
Japan |
707 |
19.1 |
765 |
21.1 |
USA |
570 |
15.4 |
495 |
13.6 |
Korea, Republic of |
493 |
13.3 |
486 |
13.4 |
China |
383 |
10.3 |
353 |
9.7 |
Philippines |
114 |
3.1 |
83 |
2.3 |
Taiwan |
88 |
2.4 |
97 |
2.7 |
Indonesia |
74 |
2.0 |
66 |
1.8 |
Hong Kong |
54 |
1.5 |
59 |
1.6 |
All other countries |
281 |
7.4 |
279 |
7.9 |
Total |
3,709 |
3,623 |
||
Export destinations and the product mix are illustrated in the graphs below.
Graph 1: Destinations of exported forestry products by value for year ended 31 December 2002 (provisional)
Graph 2: Exports of forestry products by value for year ended 31 December (provisional)
3. ISSUES OF PARTICULAR INTEREST
a. Illegal logging
Industry position: The New Zealand industry supports international and national moves by governments and industry bodies to address illegal logging.
Government position20: New Zealand supported the establishment of the Forest Law Enforcement and Governance (FLEG) East Asia Ministerial conference in Bali in September 2001. New Zealand participates in the FLEG process, both directly and through being an active member of the ITTO, which also participates in FLEG. On the domestic front, the New Zealand Government has identified that measures may be needed to strengthen the timber provisions of its procurement policy. This would be done working together with the initiatives of timber importers and environmental groups. This is in conjunction with the government's active participation in international discussion about sustainable management in forestry and was one of the recommendations of the UNFF planted forests meeting held in New Zealand in March 2003.
b. Environmental aspects - climate change
Industry position: Industry supports international action to address climate change but opposed the decision of the New Zealand Government to ratify the Kyoto Protocol. The industry's principal objections were because of the additional costs ratification would impose on the economy at a time when the industry's competitors in other countries would not face similar binding obligations. The industry also opposed the Government's decision to impose a carbon tax and to assume ownership of forest sink credits.
Since ratification, the industry has sought to negotiate with the government a Forest Industry Framework Agreement (FIFA) which would recognize the industry's contribution to greenhouse gas abatement through forest sinks and development of new technologies such as bioenergy.
The industry has also sought to ensure that the other supporting Kyoto policies are implemented in ways that do not detract from the industry's ability to generate further investment required to process the increasing forest harvest in New Zealand.
Government position: The New Zealand Government ratified the Kyoto Protocol in December 2002. New Zealand's future prosperity is to a large extent dependent on its stable and temperate climate. Consequently the threat of climate change poses a significant risk for New Zealand. The government considers it in New Zealand's national interests - including the interests of future generations - to take action to address climate change as part of a multilateral global effort.
The Government developed a proposed package of climate change measures for implementation between 2002/03 and the end of the first commitment period in 2012. This policy package aims to provide practical and transitional solutions, allowing the economy time to adjust to a new greenhouse gas constrained world.
New Zealand is in the fortunate position of having substantial forest sink credits, which will help meet its Kyoto Protocol obligation. These credits are allocated to the Crown, which has decided to retain them as it considers this will create the best overall value for New Zealand.
A summary of the key components of the package are as follows:
• The Crown will retain ownership of forest sink credits and their associated harvest liabilities (up to a maximum of 10 percent deforestation).
• A carbon charge on emissions will be introduced in mid-2007 to approximate the world price for emissions, but it will be capped at NZ$25 per tonne of CO2 equivalent
• A Projects Mechanism will be introduced (probably from 2003) to encourage investment in projects that deliver defined reductions in greenhouse gases over the first commitment period.
• Firms whose competitiveness is at risk, including existing, expanding and prospective new firms will be able to negotiate firm and specific agreements (`negotiated greenhouse agreements') with the government to protect their competitiveness while moving towards world's best practice in emissions management.
• There will be no charge on agricultural emissions of methane and nitrous oxide, which combined make up 55 percent of New Zealand's greenhouse gas emissions.
The government has also agreed to develop a Forest Industry Framework Agreement to look at how climate change policies and other government initiatives can be brought together in the best interests of the environment, wood processors and forest growers.
c. Progress in sustainable forest management and mutual recognition
Industry position: The New Zealand industry supports the development of market-based mechanisms to promote sustainable forest management. These mechanisms should be available to as many operators as possible and provide for mutual recognition between different schemes.
Currently, some 42 percent of New Zealand's planted forest area has Forest Stewardship Council (FSC) certification.
In May 2001, a New Zealand National Initiative to develop forestry management performance standards for third-party audit and certification was launched. This was organized by the New Zealand Forest Industries Council, New Zealand Forest Owners Association, Greenpeace New Zealand, Royal Forest & Bird Society and WWF New Zealand. It also involved other stakeholders including social groups and representatives of Maori, the indigenous people of New Zealand who are substantial forest owners. Industry representation came from both the plantation and indigenous forestry sectors. Stakeholders have been grouped into four `chambers' (Economic, Environment, Social and Maori).
A draft National Standard for Plantation Forest Management in New Zealand (the Standard) has been prepared following the guidelines set out in the FSC National Initiatives Manual. The purpose of the standard is to provide a system to enable third party verification of forest management practices to an acceptable standard recognized by international wood products markets. FSC is one such scheme but the rules for the operation and management of the standard leave open the possibility of recognition by other schemes.
The National Initiative Working Group (NIWG) is managing the development of the plantation standard and is considering a process for development of an indigenous forestry standard.
Government position: The New Zealand Government endorses the use of certification as a means of promoting good management practices (the concept of "well managed forests"), which in turn is more likely to lead to SFM. The Government does not, however, sanction any particular certification scheme, leaving it to the market to decide which scheme(s) are more appropriate in what circumstances. Throughout the world there are now five key certification systems operating and the Government also approves of the development of mutual recognition between existing schemes as a means of further promoting SFM while reducing entry and compliance costs through eliminating unnecessary duplication.
d. Doha Development Agenda
Industry position: Forestry is New Zealand's third largest export sector contributing around 12 percent of the country's exports. The New Zealand forestry industry operates without direct government assistance or subsidy and in the context of an open market for imports.
The New Zealand industry attaches high importance to trade liberalization for forest products and supports the New Zealand Government's active role in the Doha negotiations including the elimination of all tariffs for non-agricultural products (including forestry) and more effective disciplines on non-tariff barriers including phytosanitary requirements, product standards and subsidies. The industry is particularly keen to ensure that there is no discrimination against the products of plantation forestry or against the radiata pine species in national legislation affecting the building industry (i.e. building codes).
The industry has also advocated the establishment of a forest industry interest group in the WTO both to develop and advance specific proposals and also to achieve an overall outcome from the Doha negotiations that is substantive in terms of the sector's interests.
The industry also supports moves to clarify the relationship between trade and environment instruments so as to better address issues of sustainable forest management in international trade.
Government position: As a country heavily dependent on trade, New Zealand is fully committed to the liberalization of the multilateral trading system. New Zealand also recognizes that strong protection of the global and national environment is necessary to maintain a natural resource base in order to ensure long-term economic vitality. New Zealand strongly supports multilateral efforts to make trade and the environment mutually supportive. New Zealand's position is based upon the principles endorsed by the international community at UNCED and successor fora and enshrined in relevant trade agreements.
Trade liberalization is consistent with, and a necessary complement to, New Zealand's market-led domestic economic reforms of the past decade. A non-discriminatory trade policy will assist in achieving sustainable forest management by helping to ensure forest resources are appropriately valued.
The removal of forestry tariffs and non-tariff barriers (NTB) is a high priority for New Zealand negotiators. New Zealand is advocating the elimination of all remaining tariff and non-tariff barriers. It is estimated that New Zealand forestry exporters pay in excess of NZ$40 million annually in tariffs. Quantifying the trade-distorting effects of non-tariff barriers is more difficult, but it is much larger than that for tariffs and, according to a broadly based survey, of the order of at least NZ$175 million. A primary focus of work on reducing NTBs will be Asian building standards.
Negotiations to date have focussed on how countries will remove tariffs. New Zealand negotiators anticipate the use of a general tariff reduction formula supplemented with sectoral agreements and bilateral negotiations to speed up trade liberalization.
20 Statements of the Government's position have been provided by the Ministry of Agriculture and Forestry.