E.B. Barbier
Edward B. Barbier is a professor at the Department of Environmental Economics and Environmental Management, University of York, Heslington, York YO1 5DD, United Kingdom.
The article is based on a draft report prepared by the author for FAO's Forest Products Division. This article examines the implications of the recently signed Uruguay Round Agreement of the General Agreement on Tariffs and Trade (GATT) for trade in forest products. An estimate is provided of the likely trade impacts on selected forest products of the reduction in tariff rates in key importing markets. The article also discusses the potential contributions of the Uruguay Round to reducing some important non-tariff barriers to forest products trade. Despite the progress achieved in the Uruguay Round, a number of "new" trade barriers are emerging in the forest products trade that could undermine this progress and pose problems for the GATT/World Trade Organization.
Trade in forest products is highly regionalized within three important trading blocs - the Pacific rim, North America and Western Europe (see Table 1). Within each trading bloc the major importers are mainly industrialized countries. More than one-half of global forest products imports by value are accounted for by Europe, and over 25 percent of the remaining imports are to Canada, Japan and the United States (FAO, 1994). Canada and the United States are the major world exporters of industrial roundwood, sawnwood and wood pulp; European countries are the major world exporters of paper products.
In recent years, developing countries, particularly in Asia, have continually increased their share of global imports, mainly logs and semi-finished wood products as raw materials for export-oriented processing industries. Indonesia and Malaysia have emerged as dominant world exporters of non-coniferous wood-based panels, logs and sawnwood, and Brazil, Chile and the newly industrializing countries of Asia are becoming major exporters of wood pulp and paper products. In general, the trade in forest products has shifted towards value-added processed products, with the fastest expansion in processing capacity occurring in Asia, and short- and long-term projections of the forest products trade confirm the increasing importance of developing countries as both exporters and importers of value-added forest products (Barbier et al., 1994).
TRENDS IN PRE-URUGUAY ROUND TRADE BARRIERS TO FOREST PRODUCTS
Trade in forest products has generally benefited from successive postwar GATT agreements. Tariff barriers to forest products trade have continued to decrease in recent years, particularly in the post-Tokyo Round era (Bourke in FAO, 1988). The extent of tariff reductions differs according to the market and the product. With few exceptions, tariff rates in developed country markets had fallen to very low levels even before the Uruguay Round schedules were agreed (see Table 2).
However, tariff escalation - the extent to which tariff levels rise with the level of value-added processing of a forest product - has continued in most developed countries, with specific processed products such as wood-based panels, builder's joinery, coated and corrugated paper, kraft and furniture generally receiving relatively higher rates. In comparison with developed country markets, tariff rates have been consistently higher - often substantially - in developing country markets. Although tariff escalation is also a feature in most developing country markets, some countries have preferred a high uniform rate applied across all forest products.
One important impact of the decline in tariff rates for forest products in developed country markets is that the tariff differential between most favoured nation (MFN) and generalized system of preferences (GSP) rates has been reduced significantly (Bourke in FAO, 1988). Most tariff reductions have led to a general decline in the MFN rate, while the GSP rate (often zero) has been left largely unchanged. This suggests that, for certain forest products, exporters facing the full MFN rates may have gained more from falling tariff rates than developing countries that had previously benefited from the GSP and other preferential schemes.
The most common non-tariff measures applied to forest products trade have been quantitative restrictions and/or quality controls directed at specific products, wood species and even individual exporters. However, a variety of non-tariff measures have been employed, and their use has been both prominent and increasing for some products in the period leading up to the conclusion of the Uruguay Round.
IMPLICATIONS OF THE URUGUAY ROUND FOR THE FOREST PRODUCTS TRADE
The Uruguay Round Agreement signed in Marrakesh, Morocco, in April 1994, has a number of important implications for trade in forest products. Tariff elimination for pulp and paper items was agreed by Canada, the European Union, Japan and the United States, and several other major importers, including Finland, the Republic of Korea and New Zealand. Using the 1986 level of tariffs as the base rate, these countries will halve tariffs by the year 2000 and phase them out completely by 2004. Most of the other countries that have not agreed to complete tariff elimination for pulp and paper products will also be reducing their tariffs, but to a lesser extent.
The major developed country importers are also committed to reducing tariffs by 50 percent for solid wood products on an average trade-weighted basis over a five-year period starting in 1995. In the case of furniture, some major importers such as the European Union, Japan and the United States have agreed to eliminate tariffs completely over the next eight to ten years. Most of the other countries have agreed to reduce tariffs for solid wood products and furniture, or at least to declare bound rates.
Although tariffs were not eliminated for all forest products, the average rate of Uruguay Round tariff reductions for these products in developed country import markets compares favourably with that of other industrial goods (Table 2). Pre-Uruguay Round tariff rates for forest products were the lowest of all major industrial products groups - about 45 percent lower than the average rate across all products. Nevertheless, the absolute decrease in average trade-weighted tariff rates for forest products was the same as the decrease in rates for all industrial goods.
As a result of the Uruguay Round Agreement, on a trade-weighted basis forest products have the highest percentage of all imports (85 percent) without duty in developed country import markets - almost double the proportion of imports of all industrial goods that have zero tariffs (see Table 3). This again reflects the fact that the Agreement has meant that already low developed country tariff rates for forest products have been reduced further.
A major contribution of the Uruguay Round has been to reduce the degree of tariff escalation faced by forest products in developed country markets (see Table 4). For solid wood products, tariff escalation for wood-based panels has been reduced by 30 percent, semi-manufactures 50 percent and wood articles 67 percent. The phasing out of tariffs on pulp and paper products will also eliminate tariff escalation completely for paper and paper board and paper products and reduce escalation by 83 percent for printed matter. Of the forest products listed in Table 4, only wood-based panels have significantly higher tariff rates than their unprocessed equivalent (i.e. logs).
The implications of the Uruguay Round for non-tariff barriers faced by forest products is less clear. However, two special agreements - the Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures and the Agreement on Technical Barriers to Trade (TBT) - do provide the basis for tackling certain non-tariff measures that have been used as trade barriers against forest products. The SPS agreement could reduce the use of inspection, quarantine and treatment of imported forest products as prohibitive measures beyond what is necessary to protect domestic human, animal and plant populations from pests or diseases. The TBT agreement could limit the use of technical regulations on forest products as non-tariff restrictions rather than for legitimate purposes of protecting human health and safety, preventing environmental degradation and ensuring adequate product quality and design standards.
Other provisions of the Uruguay Round that may also help to reduce barriers to the forest products trade include limitations and clarifications on the use of anti-dumping and countervailing duties, customs valuation and licensing procedures and market access restrictions.
A possible indirect impact of the Uruguay Round is that it may have prompted other longstanding non-tariff barriers in individual markets to be lessened. For example, the European Union has recently proposed eliminating for 1995/96 its plywood tariff/quota scheme for GSP beneficiaries.
A recent estimate has been made of the likely impacts of the Uruguay Round tariff reductions on trade in forest products for selected products and markets (Barbier, 1995). As indicated in Table 5, these impacts consist of two effects:
The results of the analysis indicate the total trade effects of the Uruguay Round tariff changes for selected forest products may range from US$340 million to $472 million in key developed and developing country markets (see Table 5). However, these impacts amount to only 0.4 percent of total 1991 forest products imports in the markets analysed, which had an aggregate value of $85 600 million. This suggests that, although the real trade gains from the tariff changes are positive and significant, they may not have a substantial impact on global forest products trade. One factor limiting the gains from the Uruguay Round for forest products is that the pre-Uruguay Round tariff rates for most of these products in major importing markets were already very low.
Perhaps more important than the estimated gains in trade for forest products is that the Uruguay Round will have succeeded in reducing forest product tariff rates in major markets to even lower levels than before, and for some forest products and markets tariffs will be phased out completely. In addition, the new and often lower rates in developed country markets will be bound, as will an increasing proportion of tariffs in developing country markets. Binding a tariff means that a country has agreed officially to a ceiling on the tariff rate.
Finally, as post-Uruguay Round tariffs for forest products in most major markets will be at very low rates, any further reductions in forest products tariff rates that may be agreed in subsequent GATT/World Trade Organization rounds should no longer have a trade diversion effect, as both developing and developed countries should be facing a single tariff rate in most importing markets. As indicated in Table 2, given that tariff rates on forest products in major markets are on average only 1.1 percent, the trade creation gains from additional tariff reductions may be significant but not substantial.
NEW BARRIERS TO FOREST PRODUCTS TRADE
In recent years there has been a proliferation of additional policies and regulations that have the potential of becoming "new" barriers to the forest products trade. These barriers include:
Although only the last two measures could be strictly defined as new, all of these trade measures have been increasingly employed in recent years and have the potential to affect forest product trade flows significantly.
For example, developing countries are continuing to use export restrictions on wood in rough and semi-processed products to support domestic processing industries and improve export prospects for higher-valued forest products (Barbier et al., 1994). Although an expanded processing capacity was established in Malaysia, the Philippines and Indonesia, it was achieved at high economic costs, both in terms of the direct costs of subsidization as well as the additional costs of wasteful and inefficient processing operations. A recent simulation analysis of the prohibitive sawnwood export tax in Indonesia indicates that the policy not only may fail to encourage higher-valued processing for export but also may have little significant impact on timber-related deforestation (Barbier et al., 1995). Despite the losses in terms of economic inefficiencies and the implications for the management of their forest resource base, developing countries are unlikely to end such policies in the near future but may instead employ them more extensively.
Developed countries are also beginning to employ a variety of environmental regulations in their forest industries - both alone and in conjunction with export restrictions - that may have significant trade implications (Barbier, 1994). Whether or not such regulations are used specifically for this purpose, they may lead to trade distortions and discrimination. For example, Perez-Garcia (1991) found that trade and environmental restrictions on logging in the Pacific Northwest of the United States combined to have significant domestic and global impacts, including increases in global sawlog prices and regional shifts in production with related effects in major sawnwood and plywood markets.
Many developed countries are also under pressure to adopt quantitative restrictions to limit the import of "unsustainably" produced forest products or to impose countervailing duties on imported products that benefit from an "environmental" export subsidy - unsustainable forest management that leads to lower harvesting costs and thus lower export product prices. This may result in an attempt to amend GATT/WTO rules to allow exceptions for quantitative restrictions and countervailing duties on these environmental grounds. For example, Arden-Clarke (1991) has argued that the General Agreement on Tariffs and Trade should be amended to allow contracting parties to:
Such an approach would clearly allow nations to invoke the full range of policy measures available to them for intervention in the timber trade. For example, as noted above, the United States has already imposed environmental restrictions on its own Pacific Northwest logging operations. Given this policy, and under amended GATT/WTO rules, the United States Government would be able to limit timber imports from other countries that did not maintain similar environmental standards for their timber operations. Alternatively, the United States could choose to subsidize plywood and sawnwood mills in the region and elsewhere in the country for their loss of "international competitiveness" as a result of the environmental restrictions.
Moreover, under the amended GATT/WTO rules, any importing country or trading bloc could impose trade sanctions on producer countries that appeared to be producing timber or timber products "unsustainably". To the extent that unsustainable management leads to lower harvesting costs and thus lower export product prices, importing countries would have the right to impose tariffs as a means of correcting this environmental export subsidy. If such a broadening of the GATT/WTO rules is achieved, then the use of quantitative restrictions and even countervailing duties by importing countries - to restrict imports of timber products that are not sustainably produced or to counter perceived environmental export subsidies - will increasingly become a feature of the forest products trade.
Finally, the number of ecolabelling and certification initiatives applied to the forest products trade has increased rapidly in recent years although few schemes have been put into practice so far. Generally, the aim of these initiatives is to distinguish sustainably produced forest products or to ensure that forest product imports conform to domestic environmental standards and regulations. Provided that such regulations and schemes are non-discriminatory, transparent and justified, are agreed mutually between trading partners or through multilateral negotiations, comply with GATT rules and conform with internationally recognized guidelines, then their potential use as trade barriers will be drastically reduced.
Although there are legitimate uses of all the above policy measures, the rate at which they are being implemented and the frequency with which they have led to trade distortion and discrimination suggests that their use must be examined carefully. International agreements and rules governing their use should also be negotiated. Indiscriminate and widespread application of these trade measures as new barriers to the forest products trade could easily override the gains resulting from the recently concluded Uruguay Round.
CONCLUSION
The Uruguay Round Agreement has continued the substantial progress made during recent decades in reducing barriers to the trade in forest products. In fact, because tariff rates for most forest products in importing markets were already somewhat low, estimates of the gains in trade from the additional reductions achieved in the Uruguay Round suggest that net impacts on trade may not be substantial compared with the overall volume of trade. However, further gains to the trade may occur through reducing uncertainty by the binding of tariffs in major importing markets and the continuing improvement in the degree of tariff escalation. In addition, some progress was made in curtailing some important non-tariff and other barriers that have affected the trade in forest products in the past. However, all of these potential benefits of the Uruguay Round to the trade in forest products may be overshadowed by the new trade barriers to forest products identified in this paper. Tackling these barriers could be an important task for the World Trade Organization as well as subsequent rounds of GATT negotiations.
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