Recent trends in the world production and trade in forest products2/ provide some key insights to understanding the implications of the Uruguay Round for the trade as well as indicating the major trading blocs most likely to be affected by the agreement.
The Food and Agricultural Organization of the United Nations (FAO) segregates timber products into 5 general categories: roundwood, sawnwood and sleepers, wood-based panels, wood pulp, paper and paperboard. The sub-category "roundwood" is composed of both "industrial roundwood" (i.e. saw logs and veneer logs, pulpwood and particles) and "non-industrial roundwood" (i.e. fuelwood and charcoal). All further processed products (such as furniture, window frames and doors) are referred to as "higher processed products". Trade statistics on the latter products are not routinely provided by FAO, however.
While charcoal and fuelwood production is significant as a percentage of the volume of total roundwood production, especially in developing countries (i.e. 80%), only a very small percentage (less than 0.3%) of non-industrial roundwood production enters the international trade. The value of imports of fuelwood and charcoal compared to the value of imports of all timber products is also very small - less than 0.2%. For these reasons, and because fuelwood rarely qualifies as a traded good due to its low value per unit of volume, it is excluded from further consideration in this study. In the following overview of the global trade in forest products, lack of comprehensive and current data has also precluded discussion of statistics and trends in higher processed products.
The production of, and trade in, forest products on a global level has been expanding throughout the last few decades. The volume of industrial roundwood produced has grown steadily to reach 1,600 to 1,700 million m3 in the early 1990s, of which around 6-7% enters the international trade. In contrast, approximately 17-18% of wood pulp and 20-25% of sawnwood, wood-based panels and paper and paper boards are traded internationally. Although since the 1960s the proportion of wood pulp production that is traded has remained fairly constant at around 16-17%, the share of sawnwood and wood-based panels traded has doubled (from 11.8 to 20.8% and 12.0 to 26.2% respectively). The proportion of paper products that is traded has also gone up substantially from 16.5 to 24.9%.
While the value of industrial roundwood imports has been rising steadily over time, the share of logs in the total forest products trade has halved from a peak of around 20% in the 1970s to 10% in the early 1990s. The shares of wood pulp and sawnwood in the global forest products trade have also declined steadily since the early 1960s (from 19.4 to 13.8% and 27.2% to 19.2% respectively). In contrast, over this period the share of wood-based panels increased from 6.4 to 10.1% and paper and paper board from 33.1 to 45.5%. These trends reflect the increasing importance of higher valued forest products to the global trade.
Although forest product prices have risen steadily, the real forest product price index has been fairly stable since the 1960s.3/ The index fell gradually in the early 1980s but has been increasing since 1985. Within the broad forest products category, the real price of tropical logs has followed a rising trend since the early 1970s; prices briefly declined between 1979 to 1985, only to pick up again thereafter (FAO 1992). The real price of tropical sawnwood has followed a similar trend, although with larger fluctuations and a steeper decline in the mid-1980s and a more rapid rise recently. The real price of other industrial timber products, including wood-based panels, pulp, and paper and paper board, have sustained this rise throughout the 1980s. The real price increases may reflect increasing product scarcity due to declining forest inventories and increasing demand for tropical timber products, whilst the recent downturn in some real prices may reflect the depressed state of the global economy during the late 1970s and early 1980s.
The global forest product market is largely dominated by developed countries, in terms of both exports and imports.4/ Less than 20% of world imports occur in developing country markets, and the overwhelming majority (i.e. around 65%) of this share is in Asian countries. Over half of world imports are accounted for by Europe, although Canada, Japan and the United States together account for over 25% of global forest products imports. With the exceptions of Japan and Africa, in both developed and developing country markets the largest share in the total value of forest products imports is for paper products.
The share of developing countries in world forest products exports is just over 16%, with the vast majority (i.e. around 70%) coming from Asia. Wood-based panels, predominantly plywood, account for the largest share by value (i.e. 31%) of all developing country exports. Asian countries alone contribute approximately 90% of developing country and 50% of global wood based panel exports. Asian exporters also dominate developing country trade in logs (60%), sawnwood (73%) and paper products (70%). Latin American countries are the major developing country exporters of wood pulp (86%).
Europe and North America account for nearly 95% of developed country exports of forest products. Paper products account for the largest share in the value of all developed country exports (over 54%) and are particularly prevalent in exports from Europe and Japan (over 65% and 96% respectively). Industrial roundwood is the major export from Australia and New Zealand, as well as the former USSR. North America (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 and are the second largest source of sawnwood (after North America) and wood-based panels (after Asian developing countries).
Differentiation by product type shows that the paper products alone comprise approximately 49% of global export revenues (in value terms) from forest products. As noted, this market is dominated by developed countries who account for 93% of the revenue raised by exports of paper products. The next largest global markets are those for sawnwood (18%) and wood pulp (13%), followed by wood-based panels (11%) and industrial roundwood (9%). It is only in the latter two global markets that exports from developing countries contribute a substantial share, 46% and 35% respectively.
In terms of the total value of imports, the United States is the largest importer of forest products, largely from Canada, closely followed by Japan and Germany. Together these three countries account for over 45% of all developed country imports of forest products. Western European countries and Canada comprise the other main developed country importers. Although paper products are the main category of forest product imports for the major developed country markets, Japan's imports are largely dominated by logs followed by sawnwood.
There are seven major developing country importers of forest products, which with the exception of Mexico and Egypt are in Asia. P.R. China (including Taiwan) is by far the largest single importer and accounts for over 20% of all developing country imports. The main feature of these major developing country importers is that they are rapidly industrializing or have large and growing populations or both. Paper products tend to be the primary category of imports into P.R. China, Hong Kong, Mexico and Singapore. In contrast, Thailand imports mainly sawnwood and industrial roundwood, Republic of Korea industrial roundwood and wood-based panels and Egypt sawnwood. All countries have expanded their forest products processing capacity in recent years.
With the exception of Japan and Russia, the major developed country exporters are from North America and Europe. The top five exporters - Canada, the United States, Sweden, Finland and Germany - have significant forest resources as well as a highly developed forest-based industry. Of the remaining major exporters, only Russia and Norway have substantial domestic forest resources. For virtually all the developed countries, paper products are the main source of export earnings. The exception is Russia, which earns much more from logs and sawnwood. In addition to being the world's largest exporter of paper products, Canada is also by far the biggest sawnwood exporter with over 46% of the global market. The United States is the leading global exporter of industrial roundwood with nearly 28% of the market.
The major developing country exporters are generally from Asia, led by Indonesia and Malaysia. The two non-Asian countries in this group are both from Latin America - Brazil and Chile. Of the eight major developing country exporters, three have substantial tropical timber resources (Indonesia, Malaysia and Brazil) one has substantial temperate resources (Chile), and one moderate temperate resources (P.R. China). All eight countries have rapidly developed export-oriented processing capacity in recent years. Indonesia is the world's largest exporter of wood-based panels by volume (27%) and by value (29%), and Malaysia is the third largest by value (7%). Malaysia is also the world's second leading exporter of logs, with nearly 16% of the global market, and the fourth leading exporter of sawnwood, with over 7% of the global market. Brazil is the world's fourth largest exporter of wood pulp (5%), and with Hong Kong (a transit centre), the leading developing country exporter of paper products.
The pattern of forest products trade is highly regionalized into North American, European and Pacific Rim blocs.
The North American bloc includes substantial trade between Canada and the United States but also increasing imports from the United States into Mexico. Continued development of this forest products trading bloc will be enhanced by the North American Free Trade Agreement (NAFTA), and will most likely continue to involve major Latin American importers and exporters, particularly if NAFTA is extended into a wider regional trade agreement.
Japan appears to be the centre of the Pacific Rim trading bloc in forest products, which includes the major producing regions of the Pacific Northwest, South East Asia and Siberia. The United States and Canada are the leading source of imports into Japan but are closely followed by Malaysia and Indonesia. The majority of Russia's export earnings of forest products is also from the Japanese market. Other major Asian importers that also benefit from the Pacific Rim trade in forest products appear to be the rapidly industrializing countries of P.R. China, Hong Kong, Republic of Korea, Singapore and Thailand. As these latter countries continue to develop their processing capacity for both domestic consumption and export, they can be expected to be increasingly important to the regional trade in forest products.
The centre of the West European trading bloc in forest products is the European Union, particularly Germany, the United Kingdom, Italy, France, the Netherlands and Belgium-Luxembourg. Not only is there significant trade in forest products within the European Union, but the major European Union importers are also important markets for other Western European exporters, such as Sweden, Finland and Austria. Russia also exports substantial forest products to the European Union, which is expected to increase. The expansion of the European Union to include Finland and Sweden, and the increasing economic ties between Western Europe, Eastern Europe and the former USSR countries will no doubt further expand this regional trading bloc.
A number of recent studies have attempted to forecast future trends in supply and demand in the forest sector on a global and a regional level.5/ A comprehensive review of many of these studies is provided by Barbier et al. (1994), who identify the following consensus on trends:
· Demand for industrial wood is projected to grow substantially at an annual average rate of 15 to 40% from approximately the mid-1980s over the next 15 year period. Developing countries will take an increasing share of this growth, although developed countries will continue to dominate the market in absolute terms.
· Changes in technology and preferences will favour the growth in consumption of reconstituted products as opposed to that of solid products such as sawnwood.
· Hardwood consumption will grow faster than softwood consumption at least initially, although some analysts predict that the relative scarcity and rising prices for tropical hardwoods may limit their consumption over the long term.
· Tropical resources will decline, but expanding temperate resources will be more than sufficient to lead to stable real prices for wood products, except possibly for products dependent on tropical hardwoods.
· Much of the projected growth in demand will be met by plantations; "unexpected" increases in demand could be met by additional resources in central Canada, northern Europe and eastern Russia.
· The shift from old growth stands to utilization of planted and second growth forests will continue. The focus will shift from the North American Pacific Northwest and the tropics to forests in the southern and northeastern U.S. and newly planted temperate resources in the Southern Hemisphere.
· Japan and Western Europe could become increasingly self-sufficient, while parts of the developing world may need to increase their imports.
Taken as a whole, these trends suggest that the tropics are expected to be increasingly less important to the overall forest products trade (Arnold 1991 and Barbier et al. 1994). As temperate countries look more to their own forest resources to meet their needs and domestic consumption in tropical producer countries grows, the international trade in tropical timber is likely to decline. Whilst the total volume of the tropical timber trade may decline, producer countries may export a higher proportion of value-added wood products, and thus any decline in the value of the trade may be less significant. In addition, an increase in South-South trade - particularly in sawnwood - will act as a counteracting force. Asia will continue to be the dominant producer and exporter of tropical timber, although with proportionately less log exports and more value-added timber products. As a result of Asian producers moving into downstream markets, Africa and Latin America may become relatively more important sources of log and sawnwood exports respectively.
Given the increasing importance of developing countries both as sources of value-added forest products exporters and importers, recent projections of supply, demand and trade in hardwood timber products were made using a model of the global forest sector, developed by the Center for International Trade in Forest Products (CINTRAFOR).6/ Baseline short term projections to the year 2000 reveal a number of significant trends:
· Decreasing commercial inventory of tropical timber is beginning to constrain harvests significantly, particularly in Malaysia. There is no comparable shortage of temperate hardwoods, which supply large consuming country markets in the US, Europe and other non-Asian markets. Even with increased sawlog production in Indonesia and Brazil, two tropical hardwood suppliers with a large inventory, the tropical hardwood share of all hardwoods will begin to decline.
· The combination of expected strong economic growth in tropical timber producing countries, more modest demand growth in other consuming countries and declining supply of tropical hardwood logs will produce a substantial shift away from export to domestic markets by the major tropical hardwood suppliers. Declining log exports will be offset only partially by increased product exports.
· Declining tropical hardwood inventory will lead to steadily rising saw log prices, reaching levels 60 to 80% above 1990 levels by the year 2000, in real terms. Most of this price increase is anticipated to occur in South East Asia. Prices in countries with adequate temperate hardwood sources will remain more stable.
· While product prices will increase with rising log prices, the availability of other supply sources in the more developed consuming countries, in conjunction with lower demand growth, will constrain product price increases which in turn will squeeze profits for processors of tropical timber. The trend in the developed consuming countries is therefore for a reduction in log imports and the processing of imported tropical logs, and increased product imports with more substitution away from tropical products.
Long-term projections to 2040 show that the commodity in short supply continues to be tropical hardwood logs. With the available tropical hardwood inventory in several countries declining rapidly by the year 2000, either harvest levels will be reduced quickly to more sustainable levels or they will drop even more abruptly just a few years later with the depletion of the inventory. Long term projections also suggest that tropical sawlog prices will continue their upward trend but product price increases will not keep pace. While consumer countries are forced to accept slightly higher prices and do change their consumption patterns with those high prices, tropical log prices are unlikely to flatten out and decline significantly unless increased investment in sustainable forest management can support increased harvest levels. Higher prices for tropical logs should stimulate such investment in the long run.
Recent production and trade patterns in forest products suggest a number of important trends that are relevant to any assessment of the effects of trade barriers and their removal on this trade.
First, the trade in forest products in highly regionalized within three important trading blocs, the Pacific Rim, North America and Western European. Within each trading bloc the major importers are mainly developed countries, such. However, in recent years developing countries particularly in Asia are increasing their share of global imports. Much of this demand reflects the increased growth in consumption of industrial wood products in developing countries; however, mainly newly industrialized countries with limited forest resources have been increasing their imports of logs and semi-finished wood products as raw materials for the export-oriented processing industries.
Second, the major global exporters of forest products still tend to be developed countries with temperate forest resources and processing industries. However, developing countries such as Indonesia and Malaysia have emerged as dominant world exporters of certain forest product exports, such as non-coniferous wood-based panels, logs and sawnwood. Other developing countries, notably Brazil, Chile and the Asian newly industrializing countries, are beginning to have an impact on the international trade in wood pulp and paper products. In general, the trade in forest products has shifted towards value-added processed products.
Finally, short and long term projections of the forest products trade confirm the increasing importance of developing countries both as sources of value-added forest products exporters and importers. Although there may be an increasing scarcity of tropical hardwood resources, particularly given current rates of exploitation and consumption in South East Asia, both temperate resources, secondary forests and plantations are expected to meet any global shortfalls in supply, as well as new sources of tropical hardwood resources in Latin America and Africa. The extent to which the scarcity of tropical hardwood resources may become a constraint on processing activities as reflected in increased real prices for tropical logs and sawnwood will depend on the willingness of major developing country producers to pursue sustainable management of remaining old growth production forests and coordinate processing capacity with supply (Barbier et al. 1994).
2 / The trade figures indicated were the latest available at the time the report was prepared.
3 / See FAO (1992) for details.
4 / The FAO (1994) classification of developing and developed countries is used here. The latter consist of Australia, Canada, Israel, Japan, New Zealand, South Africa, United States, all East and West European countries, and the former USSR countries. All other countries are considered to be "developing".
5 / Cardellichio et al. (1989); ECE/FAO (1986, 1989 and 1990); FAO (1988); Kallio et al. (1987) Perez-Garcia and Lippke (1993); Sedjo and Lyon (1990) and USDA Forest Service (1990).
6 / For full details on the results of the CINTRAFOR projections and policy simulations see Perez-Garcia and Lippke (1993), which are also examined and summarized in Barbier et al. (1994).
