THE URUGUAY ROUND AGREEMENT

Although the Uruguay Round officially commenced in 1986, the agreement was only provisionally concluded in December 1993 and formally signed in Marrakesh, Morocco in April 1994. A major stumbling block that delayed conclusion of the Round had been the dispute between the United States and European Union over agricultural subsidies. Another difficulty was the number of trade issues and products that were covered in the Uruguay Round negotiations.

The broad product coverage of the Uruguay Round negotiations included industrial products, agricultural products and services, with separate agreements concluded for each grouping and for specific products in each group. The treatment of trade in services and intellectual property had not in fact been covered by GATT prior to the Uruguay Round. An additional feature of the Round was the negotiation to establish the World Trade Organization (WTO), which is the successor to GATT.^7/

The key features of the Uruguay Round Final Settlement are:

� An agreement on agriculture to increase market access, reduce export subsidies and tariffs and eliminate non-tariff barriers.

� An agreement on textiles that emphasizes in particular the phased removal of quota restrictions.

� Agreements to reduce most import tariffs on industrial products by one third over the next five years; tariffs on some products, including pulp and paper, will be eliminated completely in major developed country markets over the next 8-10 years.

� A commitment to increase the proportion of import tariffs on industrial products that are bound, with developed countries (including transition economies) agreeing to bind virtually all tariffs and developing countries binding 65% of tariffs; one of the largest increases in tariff bindings in developed country markets will be forest products.^8/

� Agreements on secured market access and trade rules for services, trade-related intellectual property rights and trade-related investment measures.

� Improved trade rules controlling the use of subsidies, countervailing duties, anti-dumping measures and safeguards.

� Establishment of the WTO, which will oversee all Uruguay Round agreements, administer the GATT Trade Policy Review Mechanism and provide a permanent forum for discussion of new trade issues, such as trade impacts on the environment, international competition policy and trade in telecommunications.

Recent analyses by the GATT Secretariat, OECD and World Bank indicate that the overall impact of the Uruguay Round on world trade and incomes will be significant (GATT 1994). As a result of the agreement, the level of world merchandise trade is expected to be around 9-24% higher in the year 2005 than it would be otherwise, an increase of approximately US$ 244-668 billion (1992 prices). The largest increases in trade are estimated to occur in clothing (69-192%), textiles (18-73%), non-grain agricultural products (21-22%), and transport equipment (12-30%). The improvements in market access through the Uruguay Round could lead to gains in world income of between US$ 109-510 billion annually.

Implications for Forest Products - Tariffs^9/

In the Uruguay Round negotiations, trade in forest products came under the category of industrial products trade. As the case with industrial products generally, the benefits of the Uruguay Round for forest products will be largely through improved market access, i.e. broadly based reductions in tariffs supplemented by increases in the proportion of bound tariffs.

There are broadly five implications of the Uruguay Round for the trade in forest products:

� Tariff reductions - tariffs on most forest products were reduced, with the recommendation of a general tariff reduction of 33% on a trade-weighted basis.

� Tariff elimination - the major developed countries committed themselves to phasing out tariffs on pulp and paper products over the next 8-10 years; many of these countries are also eliminating the tariffs on furniture imports.

� Reduction in tariff escalation - the extent of tariff escalation for forest products will be reduced in most importing markets, mainly as a result of overall rate cuts.

� Elimination of preferential tariff margins - the tariff distinction between MFN and GSP rates will be eliminated in developed country markets and replaced by a single bound rate.

� Tariff binding - the proportion of bound tariff rates was increased, with developed countries committing themselves to complete binding, largely at reduced tariff rates, and many developing countries opting for bound rates.

The latter commitment is particularly relevant to the forest products trade, as there will be a substantial increase in the number of tariffs bound at lower rates across forest product lines in developed country markets.

Tariff elimination on pulp and paper items was agreed by Canada, the European Union, Japan and the United States, and several other major importers, including Finland, 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 other countries that have not agreed to complete tariff elimination on 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% on 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 8-10 years. Most other countries have also 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). One reason for this favourable comparison is that pre-Uruguay Round tariff rates on forest products were the lowest of all major industrial products group - about 45% 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%) without duty in developed country import markets - almost double the proportion of imports of all industrial goods that have zero tariffs. This again reflects the fact that the agreement has meant that already low developed country tariff rates for forest products have been lowered further.

A major contribution of the Uruguay Round has been to reduce further the degree of tariff escalation faced by forest products in developed country markets (Table 3). For solid wood products, tariff escalation on wood-based panels has been reduced by 30%, semi-manufactures 50% and wood articles 67%. The phasing out of tariffs on pulp and paper products will also eliminate tariff escalation completely on paper and paper board and paper products and reduce escalation by 83% on printed matter. Of the forest products listed in Table 3, only wood-based panels have significantly higher tariff rates than their unprocessed equivalent (i.e. logs).

More detailed analysis of the average pre and post-Uruguay Round tariff rates in selected import developed country markets confirms the general changes discussed above: forest product tariff rates have been reduced substantially, as has the degree of tariff escalation. In addition, the Uruguay Round has led to the end of the tariff distinction between MFN and GSP rates, which have been replaced by a single bound rate. For most countries and products, it is the MFN rate that has been reduced to the new bound rate whereas the GSP rate has been left unchanged. However, where both the MFN and GSP rates have been reduced to the new rate, in all cases it is the MFN rate that has declined more. The trade implications of these tariff changes are significant and are estimated quantitatively in Section 4.

Although developing country tariff rates on forest products have also been reduced, post-Uruguay Round rates in developing country markets are still generally higher than those in developed country markets. In addition, although tariff escalation also appears to be reduced in the main developing country markets, a high degree of tariff escalation still persists in some markets. The exceptions are Chile and Indonesia, which have opted for a uniform (albeit high) bound rate across all forest product imports, and Republic of Korea, which has joined the major developed countries in complete tariff elimination for pulp and paper products.

A major contribution of the Uruguay Round that should not be overlooked is the increase in the number of bound tariff rates applied to forest products. Virtually all the pre-Uruguay Round rates were unbound. The agreement has committed all major developed countries to bind rates for forest products. A high proportion if not the majority of developing countries has also agreed to bind forest product rates. This group includes some of the major developing country importers.

The increased security of bound rates is extremely important for the forest products trade. When a bound rate is accepted and posted by an importing market, a ceiling limit is effectively set on tariffs, which means that they cannot be raised above the bound rate without violating GATT commitments and incurring sanctions. Tariffs on many forest products in major importing markets have now been both reduced to lower levels - in some cases eliminated - and also bound. The gains from these reductions are significant and will be analyzed further in Section 4. Other rates may not have been changed from their pre-Uruguay Round levels but they have been bound. In addition, some countries - often developing economies - have agreed final bound tariff rates for several or even all their forest products that are higher than actual pre-Uruguay Round rates. Although it may appear that an unchanged or a higher post-Uruguay Round rate offers no tangible gain for the forest products trade, the fact that these rates are now bound offers a very real and significant reduction in market risk.

Implications for Forest Products - Non-Tariff Measures

The implications of the Uruguay Round for the proliferation of non-tariff measures applied to the forest products trade in recent years are not easily discernable. As noted above, the main achievements of the Round in terms of improving market access and security were through changes in the import tariff structure faced by forest products. However, two special agreements - the Agreement on the Application of Sanitary and Phytosanitary Measures and the Agreement on Technical Barriers to Trade - do provide the basis for tackling certain non-tariff measures that have been used as trade barriers against forest products.

The Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures aims to eliminate the use of such measures as disguised restrictions on international trade rather than for the legitimate purpose of protecting the health of domestic human, animal and plant populations. In the case of forest products, SPS measures have been used generally for inspection, quarantine and treatment of imported goods that may contain pests or diseases. As noted by Bourke (1988) such measures are a valid means of protecting domestic forest resources from introduced pests and diseases. However, when phytosanitary import controls are overly strict or complex beyond what is necessary for protection of domestic resources or human health, then they constitute a trade barrier. Because the distinction between the legitimate and illegitimate uses of sanitary and phytosanitary measures has not been clarified in past GATT agreements, the scope for using such measures as a disguised restriction of forest product imports in some markets has been a persistent problem in the past.

Table 2. Uruguay Round Tariff Reductions in Developed Countries by Major Industrial Product Group^10/

Table 3. Uruguay Round Change in Tariff Escalation of
Selected Products in Developed Countries

The SPS Agreement encourages governments to establish measures that are both transparent and justified, mainly through conforming with international standards. The international guidelines relevant to forest products are likely to be the recommendations of the FAO International Plant Protection Convention. If no relevant international standards exist, or if countries choose not to base their measures on them, then countries may be required to demonstrate that their SPS measures are based on a scientific assessment of the risks to health involved. The Agreement also indicates which factors should be taken into account in the risk assessment. Moreover, countries developing their own SPS measures are urged to apply those which least restrict trade if they are technically and economically feasible.

The Agreement on Technical Barriers to Trade (TBTs) seeks to end the use of technical regulations as non-tariff restrictions on trade rather than for legitimate purposes of preventing deceptive or illegal practices, protecting human health and safety and preventing environmental degradation. TBTs have been used to limit forest products trade through a diverse range of regulations, including building codes, environmental standards, grading rules, product standards and packaging, labelling requirements and quality controls. Establishing international rules to control and regulate such diverse measures is extremely difficult, particularly as standards vary considerably from country to country.

The TBTs Agreement also encourages governments to improve justification and transparency of their measures by basing their regulations wherever possible on relevant international standards. The Agreement also seeks to establish greater control over the use of TBTs by i) tightening obligations to ensure that technical regulations and conformity assessment procedures do not create unnecessary TBTs; ii) extending those obligations more clearly to sub-national government authorities and non-governmental bodies; iii) encouraging Mutual Recognition Agreements between countries of their technical regulations and conformity assessment procedures; and iv) imposing new obligations on voluntary standard setting. In short, the main aim of the TBTs Agreement is to ensure that technical regulations are not being used to discriminate against imported products on technical or quality grounds but are instead employed to prevent imports that are of such a poor technical or quality standard they may endanger human health or the environment. For example, technical or labelling requirements imposed unilaterally by an importing country that discriminate against certain processing or harvesting technologies employed in the production of imported forest products might fall foul of the TBTs Agreement, but such requirements may be considered legitimate if it can be shown that the products once imported will have detrimental impacts - e.g. poor quality of furniture construction, chemical leaching, inadequate insulation material, and so on.

Other Uruguay Round agreements and commitments that may have some effect on forest products trade include:

� Agreement on Dumping - aims to tighten existing rules governing the initiation and conduct of anti-dumping investigations; the criteria for determining dumping and damage to the domestic industry; the imposition and collection of duties; and the duration of anti-dumping measures.

� Agreement on Subsidies and Countervailing Measures - seeks to clarify the "prohibited" and "actionable" categories of export subsidies liable to countervailing measures; the guidelines governing the initiation and conduct of countervailing duty investigations; the calculation of the amount of subsidy liable to a countervailing duty; the determination of damage to the domestic industry; the imposition and duration of countervailing duties; and the preferential treatment accorded developing countries on both export subsidies and countervailing duties.

� Agreement on Import Licensing Procedures - seeks to limit the administrative burden on traders applying for non-automatic licenses to only what is necessary and sets a 60-day deadline for consideration of their applications; it also aims to increase the transparency and predicability of import licensing procedures.

� Agreement on Customs Valuation - aims to establish detailed rules over international customs valuation methods, and to make valuation procedures more transparent and conform to international standards.

� Minimum Access Commitment - Where non-tariff barriers have restricted imports significantly, a commitment to minimum access in the form of tariff quotas at reduced tariff levels must be established so that imports rise to 5% of base year domestic consumption at the end of the implementation period; however, this problem is thought to be less prevalent for forest products than for agricultural commodities such as meat, cereal and dairy products.

In addition to these specific agreements and commitments negotiated, the Uruguay Round may have been at least indirectly responsible for the lessening of non-tariff barriers to the forest products trade in individual importing markets. For example, during the Uruguay Round the European Union came under pressure to modify its tariff-quota system for plywood. On 19 December 1994 the European Commission finally made a decision which abolished the GSP quota system for panel products including plywood. Under this decision panel products are given "sensitive " status and GSP countries will pay 70% of the full duty rate. Thus from 1 January 1995 the rate of duty for GSP plywood is 6.5-7% depending on the product (TTJ 1994).^13/ Under the new scheme all wood-based panels from GSP countries are subject to quotas, but will pay a slightly lower rate of duty than non-GSP suppliers.

Conclusion

Although complete elimination of tariffs on forest products was not achieved, the Uruguay Round has had a considerable effect on reducing overall tariff rates and escalation. In addition, the commitment by major developed country importers to phase out tariffs on pulp and paper products was an important achievement. Equally, the establishment of bound rates may prove significant in terms of reducing market risk.

The actual impacts of the Uruguay Round tariff reductions in terms of forest products trade creation and diversion will depend not only on the magnitude of the tariff change for each product but also on the relative adjustments of the pre-Uruguay Round MFN and GSP tariff levels to the new bound tariff. Until both the starting date and the phasing of these reductions are determined, it will be difficult to forecast accurately the likely benefits for the forest products trade or to suggest when such benefits are likely to occur. Despite these difficulties, preliminary "order of magnitude" estimates of the trade creation and diversion effects of tariff reductions can be made, and such estimates are provided and discussed for the forest products trade in the next Section.

The implications of the Uruguay Round for the non-tariff barriers increasingly faced by forest products is less clear. Additional security for the negotiated tariff reductions of the Uruguay Round were provided by a variety of additional Agreements and commitments that aimed to tackle a number of non-tariff barriers that may be used in place of tariffs to restrict imports. The SPS and TBTs Agreements may prove particularly important to safeguarding improvements in market access for forest products. Other provisions of the Uruguay Round that may also help to improve 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.

Finally, a possible indirect impact of the Uruguay Round is that it may have prompted reductions to other long-standing non-tariff barriers in individual markets to be lessened. For example, the European Union has recently modified its GSP plywood scheme.