While several of the agreements subsidiary to the Uruguay Round settlement are of importance to forestry, most notably the Agreement on Technical Barriers to Trade and the Agreement on the Application of Sanitary and Phytosanitary measures, the most significant measures for forestry relate to direct improvements in market access, i.e. broadly based reductions in tariffs supplemented by increases in the proportion of bound tariffs.
Barbier (1996) notes five broad implications of the Uruguay Round for the trade in forest products:
1. Tariff elimination - The major developed countries committed themselves to phasing out tariffs on pulp and paper products over the next 8-10 years. Several other products, including furniture in the major developed markets, also saw tariffs eliminated.
2. Tariff reductions - tariffs on most forest products were reduced with the recommendation of a general tariff reduction of 33 percent on a trade-weighted basis.
3. Reduction in tariff escalation - the extent of tariff escalation for forest products will be reduced in most importing markets.
4. Reduction/elimination of preferential tariff margins - the tariff distinction between "Most Favoured Nation" (MFN) and "General Scheme of Preferences" (GSP) rates will be reduced and in some cases eliminated.
5. 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.
Uruguay Round negotiations on forest products took place in a separate sectoral forum. A major part of the discussion focused on the zero-for-zero proposals for complete elimination of forest products tariffs. Zero-for-zero refers to the bargaining essence of the proposals. That is, a particular country will agree to remove its forest products tariffs if a sufficient number of other countries made a similar commitment. Zero-for zero agreements were discussed separately for the tariffs of both wood products (Chapter 44) and pulp and paper (Chapters 47 and 48).
A number of Asia-Pacific countries or territories indicated support or interest in participating in a wood products zero-for-zero agreement including Australia, Hong Kong, Republic of Korea, New Zealand, Singapore, and Thailand. However, after considerable discussion the wood products zero-for-zero proposal was abandoned. The pulp and paper zero-for-zero proposal was more successful with a number of countries agreeing to eliminate tariffs on pulp and paper items. The participants included Japan, Hong Kong, New Zealand, Republic of Korea and Singapore from the Asia-Pacific region.
Largely as a result of the pulp and paper tariff eliminations the proportion of forest products imported duty-free into countries of the Asia-Pacific will increase from around 45 percent to approximately 52 percent (applying 1994 proportionate values of imports). For markets outside the region, Barbier (1996) notes that on a trade-weighted basis forest products have the highest percentage (85 percent) of duty free imports of any class of goods in developed country markets. This is of notable significance for Asia-Pacific exporters.
In addition to tariff elimination on certain products, a number of countries in the region made significant reductions (to non-zero levels) on existing tariffs. Japan made a number of adjustments to solid wood tariffs including reductions to its Spruce-Pine-Fir (SPF) planed and sanded sawn timber tariff and reductions to a number of panel products tariffs. Australia implemented a standard five percent tariff to processed solid wood products which involved substantive reductions to several lines. Thailand implemented wide-ranging reductions, and China and New Zealand also made some smaller adjustments.
Tariff escalation refers to a widespread practice of levying higher tariffs on relatively more-highly processed products. Consequently, escalation favours domestic processors since it enables them to import raw materials at lower rates of duty but provides protection from imported processed products (which pay duty both on their raw material content and their additional "processed values"). Tariff escalation thereby confers a higher rate of effective protection than the nominal tariff rate indicates (since foreign manufacturers' competitive advantage in processing must be sufficient to absorb tariff charges levied both on the raw material and processing components of their product).
For example, in the production of sawn timber the proportion of log costs to final cost is around 50 percent. Consequently an importing country applying no tariffs to log imports but a nominal tariff of 5 percent on sawn timber, in fact, provides an effective rate of protection of 10 percent. Ignoring variation in the prices of non-tradable inputs, an exporting sawmill must be 10 percent more efficient than its protected counterpart to overcome the tariff.
Tariff eliminations and reductions have mitigated, to some extent, tariff escalation in Asia-Pacific countries. Moves by countries such as Australia, Korea and Indonesia to apply equal (or less disparate) tariff rates across all lines of wood products have assisted in ameliorating tariff escalation.
One of the key provisions of the Agreement is the Most Favoured Nation (MFN) principle which guarantees that generally all World Trade Organization (WTO) members are given equal market access on all product lines. That is, if a tariff concession is offered to any one GATT member then it must also be offered to all others. Some important exceptions to this principle are customs unions and free trade areas, for example, the ASEAN free-trade area allows its members preferential access to each other's markets. A second important exception, of particular significance to trade in the Asia-Pacific region, is under the Generalised System of Preferences (GSP) which allows for preferential treatment of developing countries. That is, a set proportion of a developing country's exports of a particular product may be permitted to enter a developed market at a rate of duty below the prevailing MFN rate.
GSP provisions are of considerable importance in the Asia-Pacific forestry sector, since the region encompasses most of the major GSP beneficiaries with respect to forest products. Only Japan, Australia and New Zealand are ranked as developed countries, consequently all other countries are eligible to receive favourable tariff treatment on their exports. In this regard, the Uruguay Round, which reduced MFN rates while GSP provisions remained effectively constant, may well have been disadvantageous to a number of Asia-Pacific exporters.
The tariff summary tables in Appendix 1 show a number of developing countries apparently increasing tariffs in the Uruguay Round settlement (comparing the pre-Uruguay tariff with the post- Uruguay tariff). This is a very misleading impression requiring explanation of the distinction between applied and bound tariff rates. The pre-Uruguay rate is more appropriately termed the applied rate meaning it is the most recent known rate at which a tariff was actually being levied. The post- Uruguay rate is more appropriately known as the bound rate. The bound rate provides a fixed ceiling which the applied rate may never exceed. Where the applied rate is lower than the bound rate the applied rate will generally continue to operate for the immediate future irrespective of the bound rate listing. A country may vary its applied rates (either increasing or decreasing its applied rates) to achieve a desired level of protection. However, a country may never increase its applied rate for a particular item beyond the bound rate. Consequently, although tariff binding does not provide a tangible tariff gain of itself, it constitutes a very real reduction in market risk.