I.S. Ferguson and P.J. Lloyd
I.S. FERGUSON, Reader in the Department of Forestry, Australian National university, is currently a visiting Fellow in the School of Forestry, university of Canterbury, New Zealand. He is also with New Zealand Forest Products Ltd.
P.J. LLOYD is senior Fellow, Department of Economics, Research School of Pacific Studies, Australian National University.
Relatively little is known about non-tariff distortion to trade in forest products. This article aims at stimulating awareness and understanding of the economic effects of an increasingly widespread trend.
Non-tariff distortions are defined as those measures other than tariffs which distort free international trade by discriminating between locally produced and imported goods or between exported and locally consumed goods. By convention, this definition is normally taken to exclude monetary and fiscal policy measures designed to maintain external balance because these affect all export and import-competing commodities. Also, obstacles to trade resulting from differences in business customs or in language are generally not considered to be non-tariff distortions of trade, nor are obstacles posed by market imperfections or by exchange rate controls.
The term "non-tariff distortion" is preferred as a general description to the term "non-tariff barrier" because some measures lead to over-importing rather than under-importing, or over-exporting rather than under-exporting. The term "non-tariff barrier" suggests instead an exclusive focus on obstacles which reduce trade and, as we shall see, there are some important non-tariff distortions of trade in forest products which have quite the opposite effect.
For at least a decade there has been a growing concern among trading nations and among international bodies such as the General Agreement on Tariffs and Trade (GATT) and the United Nations Conference on Trade and Development (UNCTAD) about non-tariff distortions of trade (see Baldwin, 1970; Curzon and Curzon, 1972; Krauss, 1979; Yeats, 1979). This concern reflects a realization that these non-tariff distortions of trade have, for some time, been significant for tariffs and that they have been rising while the average levels of tariff rates for the world as a whole, and especially for the OECD countries, have been falling.
Statistics prepared by GATT for the recently concluded Tokyo Round showed that in 1970 neither Japan nor any of the developed countries in Europe or North America had an average tariff on industrial products in excess of 11 percent (GATT, 1972). Moreover, the developed countries agreed to reduce tariffs by an average of about 40 percent in the Tokyo Round. In contrast, the new wave of protectionism in developed countries resulting from the slowdown in the growth of the world economy since 1974 has been expressed in more frequent use of nor-tariff distortions such as subsidies, quantitative restrictions on imports and! voluntary restraints. Administrative regulations (see Slot, 1975), state trading (Kostecki, 1979) and other previously little-used forms of non-tariff distortion have also become much more widespread.
Over the same period, there has been increasing concern about non-tariff distortions of trade in agricultural products. Studies by Wipf (1971), Sampson and Yeats (1977), Bale and Greenshields (1978) and Hillman (1978) show that the average levels of assistance going to producers of agricultural products in the United States, the European Economic Community (EEC) and Japan are much higher than those to producers of industrial products and that this agricultural protection comes overwhelmingly from non-tariff distortions.
Unfortunately, all of these studies omitted forest products. Relatively little is known about the nature of non-tariff distortions for this group of commodities or about their magnitude in regard to tariff barriers. The systematic measurement of non-tariff distortions of world trade in forest products would be an enormous task. Our study is an attempt to stimulate awareness of some of the forms of non-tariff distortions affecting this sector and to increase understanding of their economic effects.
Tariff quotas are distortions involving two different levels of tariff, in that a higher tariff operates once imports exceed the quota level. Tariff quotas have been applied to a number of forest products by the EEC. Those relating to newsprint, paper and paperboard, plywood and wood mouldings are good examples of this - form of non-tariff distortion.
Newsprint. The EEC introduced a Community-wide tariff quota of 625000 tonnes of newsprint in 1969 (Rom, 1969), a zero tariff applying below the quota and 7 percent above it. In 1971, EEC imports of newsprint amounted to 2 million tonnes, so the potential effect of the tariff quota was quite marked. However, provision existed for an autonomous nil-duty quota to be opened when it could be established that all possibilities of supply from internal sources had been or would be exhausted (Commission of the European Communities, 1974). As with most clauses of this type, it is difficult to ascertain whether or when this provision was invoked. Even if it did not operate extensively the existence of such an arbitrary arrangement must have increased the risks as perceived by would-be importers and exporters.
Paper and paperboard. The preferential tariff quotas on paper and paperboard negotiated between the EEC and Sweden, Norway, Finland and Austria under individual free trade agreements in 1973 further illustrate the arbitrary nature of many of the provisions often attached to tariff quotas. Under these agreements, the quota levels were to rise automatically by 5 percent per year, tariffs of 10.5 percent and 12 percent being applicable to imports below and above the quota level. But there were also provisions for freezing the quotas if "abnormal economic conditions arose" (Kalish, 1976). In the aftermath of the recession in 1974 the EEC exercised these provisions and froze quotas on all 14 categories of paper and paperboard imports from Sweden, and on two or three categories from the other countries. Although the differential in the tariffs concerned was not large, it was sufficient to accord domestic producers a considerable edge during depressed market conditions.
Plywood and wood mouldings. The EEC tariff quotas relating to plywood further illustrate the difficulties of administering quotas in a non-discriminating manner. Quotas of 625 000 m³ and 105 000 m³ have been set for coniferous and non-coniferous plywood respectively, the tariffs being zero for imports below and 13 percent for imports above those levels (Jabil, 1979). The quota levels were probably based on the historical pattern of imports from developed countries such as Canada and Finland, while the bulk of non-coniferous plywood comes from developing countries in Southeast Asia and Africa. The magnitude of the differences between these quota levels does not reflect any possible differences in properties of the respective species groups. Moreover, as Floro (1978) points out, developing countries face further difficulties in attempting to increase their penetration of the EEC market because of the provision that a single exporting country is not allowed to supply more than half the duty-free quota of any individual member country.
The situation with the EEC tariff quota on wood mouldings seems to illustrate an even more deliberate discrimination against developing countries. Here, a secret nil-duty quota is maintained on a year-by-year basis for imports from developing countries, a tariff of 5 percent is imposed on imports in excess of that quota (Jabil, 1979).
In recent years exporting countries have progressively imposed quantitative controls to restrict log exports. More recently, Japan has imposed import controls. Japanese imports of logs for plywood manufacture and for sawing dominate world trade in these products, constituting about half of the total world imports. These non-tariff distortions of the log trade are becoming increasingly important.
Log export controls. Indonesia, Sabah, Sarawak, and the Philippines are the major suppliers to Japan of tropical hardwood logs suitable for the manufacture of plywood (Malaysian Timber Industry Board, 1978). In the Philippines, restrictions on log exports were first introduced in 1974 with the intention of banning all exports by 1977. This policy was subsequently modified and current regulations allow "limited and selective exportation of logs . . . which must not exceed 25 percent of the total national allowable cut" (Floro, 1978). In Sabah, government policy is to reduce log exports from 90 percent of the total cut in 1977 to 50 percent by 1981 (Malaysian Timber Industry Board, 1978), and quarterly export quotas were recently introduced to enable closer control than the earlier annual quotas (Anon., 1978a). In Sarawak, the Government plans to reduce log exports to 30 percent of the total cut over an unspecified period (Malaysian Timber Industry Board, 1978). In Indonesia, government policy is to insist that licence holders progressively change from export of up to 80 percent of the cud; in the first two years to 60 percent after six years (Sudjarwo, 1980).
The progressive implementation of these controls provides an example of the deliberate use of one non-tariff barrier on exports in one group of countries in order to retaliate against the high levels of tariff protection ac corded to Japanese plywood and veneer manufacture, present tariffs being 20 and 15 percent respectively (Malaysian Timber Industry Board, 1978). However, a proportion, perhaps 30 percent, of the logs exported by these countries to Japan is used for sawing and the Japanese sawmilling will be affected accordingly.
The more important controls relating to logs for sawing concern North American sources of supply. The historical development of United States restrictions is especially interesting. In 1968. legislation under the Morse Amendment was introduced in the United States limiting log exports from federal :lands west of the 100th meridian to 10 million m³ per year (Darr, 1977). In this case the legislation reflected concern over the potential impact of increasing levels of log exports on the price of logs to West Coast sawmillers and thus on the price of housing. In 1973 it was superseded by a rider to federal agency appropriation limiting the export of logs and cants from federal lands to volumes declared surplus to domestic needs. The effect of this measure was virtually to ban all log exports from federal lands, a substantial restriction in view of the fact that the total curt from federal lands represented about a third of the total cut in the West Coast states (Lindell, 1978). But the aggregate level of exports remained more or less constant as private forest owners increased their exports. In fact these producers were the main beneficiaries of this ban.
There is a new wave of protectionism taking form in many countries that results from the slowdown in the growth of the world economy since 1974. This more subtle protectionism expresses itself in the increasing use of non-tariff distortions of trade such as subsidies, quantitative restrictions on imports and voluntary restraints.
These United States federal restrictions were not the only restrictions on the North American log trade. The Province of British Columbia in Canada had earlier banned the export of all but a very small volume of logs whether from public or private lands (Lindell, 1978) and this ban remains in force. The states of Alaska, California, Idaho and Oregon have also banned the export of logs from state-owned lands, although these restrictions are much less significant in terms of the potential volumes involved.
Log export controls provide protection to the domestic processing industries by lowering the domestic price of logs. But such controls discriminate against log exporters, especially newcomers. In some countries the controls also promote log exports from privately owned forests, creating distortions in log supply between the public and private sectors.
While there are valid arguments for the use of log export controls, mainly as a retaliatory measure against high tariffs protecting the processing industries, they only hold in the short run (Bergsten, 1977). Once retaliation commences in one sector, it invites another retaliation from the other country in some other sector, thereby widening the scope of the trade distortions to the further disadvantage of both countries. Third locations that import logs but export the processed goods, or have no restrictions on imports, are also affected adversely: Singapore, Hong Kong, Taiwan Province of China, and the Republic of Korea being obvious examples in the current context.
Log import quotas. The pattern of development of quantitative controls was interrupted in 1976 by the use of a different form of non-tariff barrier in the log trade between the United States and Japan which will be discussed later. This measure heralded a growing concern in Japan over the level of log imports. Even though United States exports had remained fairly steady, political pressures in Japan to restrict imports were increasing because of the low prices being received by Japanese forest growers for their logs. This concern culminated in 1978 in the introduction of import quotas for logs in Japan. Import quotas are a form of quantitative control which has been widely used in the past in Japan and elsewhere and their revival at this time is yet another sign of the growing tendency to employ non-tariff barriers.
According to press reports (Anon., 1978b), the Forestry Agency was to prepare quarterly estimates of log demand and supply for Japan and to issue import "guidelines" to the 20 major companies which accounted for over 80 percent of log imports. Whether the restrictions which followed were real or largely cosmetic is debatable. Nevertheless, the general effects of import quotas are similar to those of export controls. They tend to raise prices in the restricted market of logs and hence to reduce aggregate consumption of logs and log products. They discriminate against foreign suppliers and especially against newcomers while providing excessive unearned incomes to importers.
Restrictive agreements of the cartel kind do not have the influence in the :forest products trade that they do in the petroleum market because wood is more easily substituted with other materials.
Voluntary agreements between governments or between the producers' associations of different countries are yet another source of non-tariff distortion of trade. Voluntary agreements can take a variety of forms. The most important recent examples involving trade in forest products entail a covert informal agreement between two governments to restrict trade, an overt cartel-like price and quota-fixing agreement between producers' associations, and a formal agreement between two governments designed to increase bilateral trade.
United States-Japan agreement. The United States and Japanese Governments entered into an informal agreement in 1976 to restrict United States exports of logs and cants from all sources to the then current level of about 10 million m³ per year (Etherington, 1977). Exports over the next two years remained close to this level but whether this was a result of the agreement or a result of market conditions is a matter of conjecture. One of the main objections to this type of restrictive agreement is that the secrecy surrounding the nature of the agreement and its administration make its effects difficult to anticipate or to trace. In addition to the now familiar effects of quantitative restrictions on both exports and imports, such an agreement markedly increases the uncertainty attached to the activities of the entire sector in both countries.
SEALPA-JLIA agreements. The South East Asian Lumber Producers' Association (SEALPA) was formed in 1974 by the producers' associations of the major countries exporting logs to Japan. Representatives of SEALPA meet with representatives of their Japanese counterpart, the Japan Lumber Importers' Association (JLIA) every three months. Following these consultations floor prices and export quotas are fixed by SEALPA for the member countries. During the depressed market conditions experienced from 1974 to 1977, these procedures probably had little effect on the quantity traded but did restrict the development of cut-throat competition between the exporting countries. Even now their impact is debatable because of the absence of Sarawak as a member and because of the apparent inability of some members to enforce these controls fully. Nevertheless, SEALPA has been successful in strengthening support among the member countries for plans to reduce log exports progressively. The Federation of Plywood Manufacturers of Korea, Malaysia and Singapore (KOMASI) operates a similar cartel-like arrangement, setting floor prices and quotas in terms of the UK, European, Near East and United States markets. The effectiveness of these controls is also questionable, because "plywood production and marketing is not a field with much scope for manipulative control" (Anon., 1979).
Restrictive agreements of the cartel type represent a mechanism for influencing trade, as experience with the oil-exporting countries has shown. However, the parallels should not be overplayed because of the ready scope for substitution in the case of wood and wood products. While quantitative controls imposed under these agreements distort trade, their role as a retaliatory measure to the protection accorded in the Japanese sawn-timber and plywood industries must be noted too.
New Zealand-Australia agreement. The New Zealand-Australia Free Trade Agreement provides an example of a formal agreement designed to increase trade between two countries. Forest products were the major commodity group covered by this limited agreement. Following initiation of the agreement in 1965, most tariff and official non-tariff barriers to trade in forest products were progressively removed, along with those affecting some manufacturing commodities. A Joint Consultative Council on Forest Industries was established, comprising government and industry representatives from both countries. Subsequently, bilateral negotiations between the major pulp and paper firms were fostered to overcome some of the difficulties in this sector.
Contrary to the success experienced in increasing trade in other products, the real values of trade in forest products between the two countries grew very little between 1966 and 1975 (Fenton, 1979). This failure of the agreement in relation to trade in forest products is attributable to a number of causes. In the pulp and paper sector, however, the high degree of monopoly power which the major companies possessed in their own domestic markets played a major role. Bilateral agreement between the two countries proved ineffective whenever the commercial self-interest of these companies dictated otherwise, because the agreement failed to enforce the arrangements fully through penalties or to control them by way of incentives Indeed, under the Free Trade Agreement a Joint Panel on Sawmilling was established which, with the approval of the governments of the two countries. has restricted trade in these for products (Lloyd, 1976, p. 82-85).
Administrative procedures relating to the valuation of imports and the assessment of duties by customs authorities frequently represent non-tariff distortion of trade. The use of bylaws in the Australian Customs regulations, manufacturing under bond in Australia, and problems relating to the Brussels Nomenclature for tariff classification are three examples involving forest products.
By-laws. Tariff legislation in Australia includes provision for imports entering under by-laws. These bylaws provide a legal means of reducing the duty payable, provided certain prescribed conditions are met. For example, under the New Zealand-Australia Free Trade Agreement, Australian importers have to take 75 percent of their pulp from New Zealand or pay a duty of 15 percent on imports from other sources (Fenton, 1979). While this is clearly a trade-expanding device in relation to Australia New Zealand trade, it does discriminate against other countries. Some further distortions followed because pulp exporters elsewhere regarded Australia as a New Zealand market for pulp in the future and, consequently, seemed rather reluctant to channel supplies into Australia during times of scarcity (Conway et al., 1974).
Much depends on the way in which the prescribed conditions are administered or revised. Imports of thick plywood from Papua New Guinea are subject to a concessional nil-duty quota under by-law provisions in Australia. Originally, this device could probably be regarded as trade expanding in intent. However, failure to increase the quota appreciably has meant that it has become a restrictive device. This illustrates a problem common to many provisions which allow administrative discretion. Whatever the original intent, the discretion attached to them invites their use as a restrictive device
Plywood production and marketing are not a field with much scope for manipulative control.
Manufacturing under bond. Manufacturing under bond is another special provision included in tariff legislation in Australia and in a number of other countries. Under this provision, cants of timber imported into Australia from North America and Malaysia were re-sawn and dressed into finished products under bond in a licensed "warehouse". Wastage in sawing and dressing amounted to at least 5 to 10 percent by volume, thereby effecting a corresponding saving on the duty paid. This obviously discriminates against timber which was not re-sawn under bond.
Tariff classification. The Brussels Nomenclature for tariff classification has been the subject of review in recent times. Although not parties to the original system, the United States and Canada participated in this review, honing to achieve a uniform system. Differences in the interpretation of a number of common terms in forest products trade emerged, including "kraft." "newsprint," "wood-free" and "sack" kraft (Robinson, 1977).
Clear and unambiguous - definitions for customs officers to apply are absolutely necessary because duties can direr from one product to another within the same group. The definition of "sack" kraft is a good example. In North America and Japan, sacks are exclusively multi-wall and hence -it is the strength of the final assembled product that counts. In Europe, sacks are often single-wall, made from a single layer of kraft which must therefore have a high stretch factor and. be very resistant to bursting. These burst and stretch characteristics are unnecessary in North America and Japan but vital in Europe.
Timber grading standards. For North American timbers, the Japanese authorities translated the National Grading Rules of the United States, carefully reviewing their derivation and consulting with United States and Canadian representatives before drafting the Japanese rules for North American species. Even so, differences relating to the treatment of knots and wane emerged between the two sets of rules. Trial grading of parcels of timber by both sets of rules (Roberts, 1975) indicated that these differences could result in downgrading of about 11 percent of the North American material to conform with Japanese standards. Most of these differences have been resolved following recent negotiations (Penoyar, 1980).
These same Japanese grading rules have been applied to imports of radiata pine from New Zealand, despite the fact that they were not developed for this species. New Zealand authorities claim that classification of Pinus radiata in the spruce-pine-fir strength group is inappropriate, as is the maximum allowable ring width of 6 mm for structural grade timber (Foley, 1979). These provisions have the effect of eliminating 40 to 70 percent of the potential supply of New Zealand timber, depending on the forest of origin. Even if these problems can be overcome and radiata pine is a located to the more appropriate hemlock-fir strength group without a maximum ring width, amendment of the Japanese building code will be required before radiata can be used as a structural timber (Foley, 1979). Japanese inspection and labelling procedures further complicate the issue for imported timber. Incoming shipments must be sampled at the port by the official inspection authority and each piece of timber labelled in Japanese (Roberts, 1975). Labelling of each piece is also required of most domestic timber so this is not strictly a non-tariff barrier. Imported timber, however, must be graded by the official agency at the construction site, it being the responsibility of the user in Japan. The practice involves very high costs because of the small volumes involved and scattered locations. Negotiations have been initiated (Foley, 1979) to overcome these problems but they illustrate the way in which technical standards and related administrative procedures can constitute substantial non-tariff barriers to trade.
Quarantine regulations. Quarantine regulations illustrate a case where it is not so easy to determine whether a non-tariff distortion is involved. Australia, among a number of countries, has especially strict quarantine controls for imported wood products. Any material containing bark or bark remnants must be fumigated. All wood products imported from countries where the khapra beetle is found must also be fumigated. Otherwise fumigation is only required where visual evidence of insect activity is found. Logs may only be imported through a few specified Australian ports and must be processed within a specified distance of the port concerned. The intent of these regulations was undoubtedly to reduce the very real threat posed by the introduction of certain exotic insects and diseases. Exporting countries, not unnaturally, tend to see them as a non-tariff barrier. However, Wylie and Yule (1977) have argued the need for even stricter measures, following their discovery of potentially dangerous insects around timber-handling facilities at certain ports. Before introducing such measures it would be desirable to evaluate the marginal social cost and the marginal social benefit, giving appropriate recognition to the risks involved.
Production subsidies. Most developed countries with mixed economies provide subsidies to private forest growers and cooperatives by way of low-interest loans, taxation incentives, technical assistance or direct grants. The details of these subsidies are too varied to even summarize here but the prevalence of subsidies, some large, some small, is not in doubt. Some countries also subsidize forest production on publicly owned land either by direct grants or low-interest loans.
Governments that understand how countries are interdependent on trade will recognize that there are better ways to increase real consumption and the welfare of people than many of the existing non-tariff distortions to international trade.
One common form of subsidy to wood-using industries arises when the state sells logs at prices below their market value (Douglas et al., 1980). This results in pure profits to the favoured industry, increased consumption of state logs and less efficient utilization of them, and reduced investment in forest growing by the private sector. To some degree, the subsidies to private forest growers often represent an attempt by governments to redress the investment distortions in private forest growing induced by state sales of logs at low prices. Thus, the taxpayer is being left to carry the burden of both distortions.
Production subsidies have the advantage of providing protection for the domestic industry without discriminating between domestic suppliers and exporters. Nor do they alter the prices consumers pay and hence domestic consumption is not affected. But they are an explicit and obvious form of protection to producers at the expense of other taxpayers. This is a disadvantage, politically, and may explain why they are not used more widely in place of other forms of protection.
Export subsidies. Although generally outlawed by GATT because of their adverse effects on the exports of third countries, export subsidies are used quite widely. Taxation incentives introduced in New Zealand in 1978 (Devonport, 1980) provide a good example of export subsidies which bear heavily on the forest products trade. These incentives involve a direct credit of income tax for export performance by companies or individuals in certain approved construction, agriculture, fishing or forestry projects. A tax credit of up to 11.9 percent of the net foreign exchange earnings remitted to New Zealand, or saved from being remitted, is allowed. Additional incentives are also payable for expenses incurred in the development of export markets and in investment in plant and machinery used for exports. In the absence of domestic price controls, the effects of export subsidies are similar to those of production subsidies except that they do discriminate between domestic suppliers and exporters. Where price controls are employed, as in the case of plantation grown sawntimber in New Zealand, further distortions may arise in the domestic markets because producers may prefer to export rather than accept a lower domestic price. Like production subsidies, export subsidies are trade increasing.
Shipping regulations. Shipping regulations are but one example of a general government measure which can result in severe distortion of trade in forest products under certain circumstances. Under the Jones Act in the United States, foreign flagships cannot be used for intercoastal shipment of sawntimber or other products. As a result, British Columbia sawmillers have enjoyed a substantial advantage in transportation costs to the East Coast markets of the United States over their counterparts on the West Coast of the United States (Austin and Darr, 1975). While this has not been the only cost advantage enjoyed by British Columbia sawmillers, it :has been an historically important factor in determining the entire pattern of trade in timber in North America when the East Coast and southern forests were producing small quantities of sawntimber.
This selective - survey shows that non-tariff distortions of trade in forest products have some characteristics in common with non-tariff distortions of trade in other agricultural and manufactured products; that there are a variety of instruments of control and a variety of objectives, and that the instruments are readily variable and arbitrary. The impact of a non-tariff distortion, which protects domestic producers from import competition or increases exports, can best be assessed by calculating the nominal rate of assistance it provides to producers. Conceptually, the underlying notion is simple. The nominal rate of assistance provided by some non-tariff distortion is the level of the tariff in ad valorem or percentage terms (or the export subsidy in the case of products which are exported) which would cause an equivalent change in production. A product may also receive assistance through subsidies on inputs, or lowered duties on imported inputs, which lower the costs of production. Some examples were given above. The more refined concept of "effective" rate of protection gives the net assistance to producers through both output and input changes (see Corden, 1971). The rates of assistance may be negative, as when taxes of some form penalize producers. And some interventions may assist some producers and simultaneously harm competitors or downstream users of the product within the industry. In such cases they distort the structure of the industry.
Despite its conceptual simplicity, the implicit tariff (or export subsidy) equivalent may be difficult to determine, especially where imperfect competition, price control, or quantitative control of production, imports, or exports exist. In some cases a true tariff equivalent may not exist. This may arise in the case of a production subsidy because no tariff, even one which is sufficiently high to prohibit all imports, can yield as much stimulus to production as some subsidies. One result of this property of "non-equivalence" is that a sufficiently large production subsidy may convert a commodity-which would otherwise be an import commodity-into an export commodity (Lloyd, 1973). Because of the prevalence of seemingly innocuous production subsidies in forest production, the problem of nonequivalence deserves careful attention in evaluating effective rates of protection in this sector. We can find only one attempt to calculate the rate of protection for a non-tariff distortion involving a specific forest product, an example which is largely incidental to the primary purpose of the study. Jager and Lanjouw (1977) estimated the effective rates of protection for newsprint in the Netherlands over the period 1951 to 1974, the non-tariff distortions being various quantitative restrictions and tariff quotas. The results show great variability in the effective rates of protection from year to year, lending support to the thesis that quantitative restrictions impose greater uncertainties on importers and exporters than do tariffs.
Further work of this kind is badly needed because forest products have the characteristics of both primary products and manufactured goods. The likely magnitude of rates of protection on processed forest products therefore cannot be inferred by analogy to either of these groups; the combined effects of protection on forest production and on the processing industries may be quite different.
Barriers to trade are unlikely to be reduced by referring to the principle that free trade maximizes real world consumption or even to the more subtle derivative principle that, with :few exceptions, unrestricted trade for a particular country in a world which otherwise restricts trade maximizes that country's real consumption. Politicians who are concerned with the interests of individual groups of electors or who consider that equity as well as efficiency are consequences of legislation will continue to intervene in ways they think appropriate.
Today the approach to the analysis of non-tariff distortions emphasizes the relationship between the particular objective the intervention is intended to achieve and the total effects of the intervention on suppliers and consumers of the commodity. It recognizes that a modern state may wish to intervene for any one of a number of reasons-to assist particular groups of income earners, to protect the environment, to maintain safety in standards of construction, etc.-and that the state has a right to do so. It. concentrates on finding the most efficient instrument to achieve a given objective. This means that we need to be able to rank alternative instruments. But to be able to rank them, we need to measure their effects-hence the need for estimates of the rates of assistance. The concept of equivalence is also relevant to the ranking because non-tariff distortions affect the demand for the product or the level of imports. It is the difference between these effects for a non-tariff distortion and for that tariff which produces the same effect on production which allow us to rank the alternative instruments. As an example, consider a comparison between a tariff and a subsidy on domestic production of some commodity. A tariff has the same effects on all variables as the combination of a tax on the consumption of the commodity by all buyers and a subsidy on all domestic production, provided tax and subsidy are levied at the same ad valorem rate and trade is not prohibited. Thus, a tariff and a subsidy on production alone cannot be equivalent in all results. They differ because of the consumption tax effect of the tariff, which raises the price of the commodity to domestic buyers, compared to a production subsidy. If the purpose of the intervention is to assist producers the production subsidy would be ranked as preferable to the tariff because it avoids the incidental and harmful effect of raising prices to buyers. Consequently, the tariff and the subsidy which are designed to assist domestic producers both reduce imports but the tariff has the greater effect on imports because it reduces total domestic demand for the product. This approach produces a simple but extremely powerful guideline as to what form of government intervention is best for a given objective, the best being the one that operates directly on the variable which is the source of the problem (see Bhagwati, 1971).
For example, suppose conservation of a particular forest type against logging is at issue, as is currently the case in a number of countries. Government measures to control or ban exports of the wood concerned are clearly not the best form of intervention because they do not control the sale of wood to local buyers. Indeed, if the domestic demand for wood is large in relation to foreign demand, or if the restriction on foreign demand forces down the local price, thereby increasing local demand, these measures may have a negligible effect on total demand. The most appropriate form of intervention is that which bears directly on all logging and therefore involves deliberate forest management measures. The options might include a total ban on logging, a reduction of it, or the introduction of measures to ensure regeneration and healthy subsequent growth, and regulation of the aggregate level of cut accordingly.
These principles of policy making are as relevant to non-tariff distortions of trade in forest products as they are to other non-tariff distortions. They require that we first examine the objective which any existing or proposed distortion is intended to pursue. Rarely will a restriction on exports or imports be the best form of intervention because rarely will the basic source of the problem lie with foreign trade flows. Some issues in the forest products trade relate to problems of resource scarcity and these should be approached directly by appropriate policies of forest management. Others relate to problems involving the real incomes of some domestic producers and these should be addressed by measures which affect all of the producers, but only producers. Here, restrictions on trade often impose substantial costs on domestic users of the commodity or on buyers in downstream industries which further process or use the commodity. Moreover, the experience of many countries in the recent recession was that restrictions on trade were not even effective in protecting the incomes of the producers concerned, in the face of a permanent shift in the demand for the commodity. Non-tarif restrictions on trade are also particularly harmful to buyers and to producers in other countries because it is often very difficult to gauge the extent to which they raise prices.
Partly for this reason they are often very high. Finally, administrative border controls are not bound by international agreements and are highly flexible. This frequently introduces great variability and uncertainty into the levels of assistance which they imply for domestic producers and the levels of restrictions for importers or overseas suppliers.
However selective and incomplete, our review has shown that many forms of non-tariff distortion of trade in forest products exist, some of which have a considerable impact on world trade. Thus, numerous opportunities exist for governments to increase real consumption and welfare in their countries by replacing these distortions with more suitable forms of intervention. Such changes must necessarily be gradual because of political and other difficulties. It must be recognized, for example, that the consequences of some changes may not be well understood due to the complexity of our economic systems, especially when numerous different distortions exist. Nevertheless, the basic principles of policy making outlined here provide some clear guidelines. Considerable progress can be made if governments will appreciate the interdependence of their countries in foreign trade and will recognize the potential benefits to their own countries and to others of employing more suitable forms of intervention in place of many of the existing non-tariff distorsions.
ANON. 1978a 65 Plywood mills gone bankrupt or closed down under recession. Japan Lumber J., 19(12): 12-13.
ANON. 1978b Timber import to be controlled under governments' guidance. Japan Lumber J., 19(12): 16.
ANON. KOMASI 1979 meets in London. Timber Trade Review, 8(4): 50.
AUSTIN, J.W. & DARR, D.R. 1975 The Jones Act and the Douglas-fir region softwood timber industry in perspective. J. For., 73(10): 644-648.
BALDWIN, R.E. 1970 Non-tariff distortions of international trade. Wash., D.C., Brookings Institution.
BALE, M.D. & GREENSHIELDS, B.I. 1978 Japanese agricultural distortions and their welfare value. Amer. J. Agric. Econ., 60: 5964.
BERGSTEN, C.F. 1977 Access to supplies and the New International Economic Order. p. 199-218 in J.N. Bhagwati (Ed.), The new international economic order: the north-south debate. Cambridge, MIT Press.
BHAGWATI, J.N. 1971 A generalized theory of distortions and welfare. p. 6990 in J.N. Bhagwati, R.W. Jones, R.A. Mundell & J. Vanck (Eds), Trade, balance of payments, and growth. Amsterdam, North-Holand.
COMMISSION OF THE EUROPEAN COMMUNITIES. 1974 Communication to tile Council on the problems of the pulp, paper and paperboard industry. The author, SEC (74) 1215 Final, Brussels, 28 March 1974.
CONWAY, M.J., CURRIE, J.T. & Hos-KING, M.R. 1974 Production and export potential of New Zealand forestry. Paper prepared for Forestry and Wood-Board Industries Conference (FORWOOD), Canberra, 1974.
CORDEN, W.M. 1971 The theory of protection. Oxford, Oxford Univ. Press.
CURZON, G. & V. CURZON. 1972 Global assault on non-tariff trade barriers. Thames Essay No. 3. London, Trade Policy Research Centre.
DARR, D.R. 1977 Floating exchange rates and log export policy. J. For., 75(2): 88-90.
DEVONPORT, F. 1980 Taxation issues - incentives, allowances and benefits. Paper prepared for the Forestry Accounting Seminar, Univ. of Canterbury, July 1980.
DOUGLAS, J.J., BYRON, R.N. & SAR, N.L. 1980 The pricing of wood in Australia. Bureau of Agricultural Economics, Industry Economies Monograph, Canberra, Australian Gov. Publ. Service. (In press)
ETHERINGTON, R.L. 1977 Development in foreign markets: the case of Japan. For. Prod. J., 27(10): 59-61.
FENTON, R.T. 1979 Trans-Tasman forest products trade after a decade of NAFTA, 1966-75. N.Z. J. of For. Sci., 9(1): 1 00 - 123.
FLORO, M.S. 1978 Export processing- the Philippines wood industries. Unpubl. M.Ec. thesis, Dept of Econ., Monash Univ., Melbourne.
FOLEY, T.A. 1979 New Zealand radiate pine suitability for construction. Paper prepared for Japan Seminar, Sept./Oct. 1979, sponsored by N.Z. Government and Industry, 10 p.
GATT. 1972 Basic documentation for the tariff study. The author, Geneva.
HILLMAN, J.S. 1978 Non-tariff agricultural trade barriers. Univ. of Nebraska Press.
JABIL, M. 1979 Value-added timber products from Peninsular Malaysia. 10 p., in K.R. Shepherd and M.V. Rickter (Eds), Forestry in national development, production systems, conservation, trade and aid. Development Studies Centre Monograph No. 17, Australian National University, Canberra.
JAGER, H. & LANJOUW, G.J. 1977 An alternative method for quantifying international trade barriers. Welt-wirtschaftliches Archiv., 13: 719739.
KALISH, J. 1976 The EEC's freeze and what it means. Pulp and Paper international, Jan. 76: 70.
KOSTECKI, M.M. 1979 The role of public agencies in western trade of agricultural products. Paper pres. at Conf. on State Trading in the Industrialized and Developing Countries, Centre for International Business Studies, Montreal, April 1979.
KRAUSS, M.B. 1979 The new protectionism: the welfare state and international trade. London, Basil Blackwell.
LINDELL, G.R. 1978 Log export restrictions of the western states and British Columbia. USDA Forest Service General Technical Report PNW-63.
LLOYD, P.J. 1973 Non-tariff distortion of Australian trade. Canberra, Australian National University Press.
LLOYD, P.J. 1976 Economic relationships between Australia and New Zealand. Department of Economics, Research School of Pacific Studies, Australian National University, Canberra.
MALAYSIAN TIMBER INDUSTRY BOARD. 1978 A report on the Malaysian technical timber mission to Japan. Kuala Lumpur, MTIB.
PENOYAR, W.E. 1980 The Japanese market for solid wood products. Forest Products Review, Spring, 1980: 17-20.
ROBERTS, H.A. 1975 Developing the Japanese market for framing lumber. Chapter 3, p. 75-84 in V.S. White (ed.), Modern sawmill techniques, Vol. 5, Proc. 5th Sawmill Clinic, Portland, Oregon. San Francisco, Miller Freeman Publications Inc.
ROBINSON, L. 1977 International customs tariffs: the problems of definition. Pulp and Paper International, Jan., 1977: 54.
ROM, M. 1969 The role of tariff quotas in commercial policy. London, Macmillan Press.
SAMPSON, G.P. & YEATS, A.J. 1977 An evaluation of the Common Agricultural Policy as a barrier facing agricultural exports to the European Economic Community. Amer. J. Agric. Econ., 59: 99-106.
SLOT, P.J. 1975 Technical and administrative obstacles to trade in the EEC. Sijthoff.
SUDJARWO. 1980 Indonesia aims for maximum output. Timber Trades J., 14 June 1980: 25.
WIPF, L.J. 1971 Tariffs, non-tariff distortions, and effective protection in US agriculture. Amer. J. Agric. Econ., 53: 423-430.
WYLIE, F.R. & YULE, R.A. 1977 Insect quarantine and the timber industry in Queensland. Aust. For., 40(3): 154-1 66.
YEATS, A.J. 1979 Trade barriers facing developing countries. London, Macmillan.
