III. Agreement on the Application of Sanitary and
Phytosanitary Measures (SPS) and Agreement
on Technical Barriers to Trade (TBT)

PURPOSE

This module provides a background to the main characteristics of international trade in forest products. It indicates the current level of trade restrictions facing forest products; indicates how these restrictions affect international trade; and provides an assessment of future trends. It identifies where the Uruguay Round and future multilateral trade negotiations may focus, and what effect they might have. Countries and regions are encouraged to identify their own situations, and to consider issues of greatest importance to them.

CONTENTS

13.1 General forestry trade background

13.2 Trade negotiation issues and forestry

13.3 Issues of significance to forestry

13.4 Issues for discussion

KEY POINTS

• Disciplines on trade restrictions on forest products are not covered in the Agreement on Agriculture as they are treated as industrial products.
• Although overall tariff levels on forest products are now low, tariff peaks remain, particularly for wood-based panels (especially plywood), builders' woodwork and furniture.
• Non-tariff barriers such as phytosanitary and technical standards and export restrictions also influence trade in forestry.
• Trade impediments, defined as measures likely to restrict trade often pursued for conservation/environmental reasons but which are voluntary and thus outside current WTO rules, are likely to influence trade in forestry products in the future. Examples include measures limiting trade to forest products made from wood coming from a sustainably managed forest resource and ecolabelling.
• Forthcoming trade negotiations provide developing countries with an opportunity to raise these issues on the negotiating agenda.

13.1 GENERAL FORESTRY TRADE BACKGROUND

13.1.1 Main features of trade in forest products

The extent, form and direction of international trade are an important consideration in the analysis and assessment of the impact of trade incentives and restrictions. Features of international trade in forest products of significance in a discussion of trade negotiations are:

World demand growing but at a slower pace

• Expanded consumption of wood; globally, consumption of both fuelwood and industrial wood has shown substantial growth over the last 25 years. Although the growth in demand in developed countries seems to be slowing down, it continues to rise steadily in developing countries. This situation, however, seems likely to be affected by the recent economic difficulties in some regions of the world. Thus, world demand can be expected to continue to grow, but at a slower pace than anticipated.
• Only some 6-8 percent of production enters international trade as primary forest products. The export value in 1997 was around US$135 000 million, slightly below the 1995 level. The low proportion reflects the fact that about half the roundwood production is used domestically for fuelwood and charcoal. In addition, exports of secondary processed products such as mouldings, doors, furniture, etc., and those of non-wood forest products such as rattan, rubber, Brazil nuts, oils and medicines, also make a substantial contribution.
• Exports of most products have expanded; globally, export volumes of industrial roundwood have increased by 30 percent since 1970 to 120 million cum; sawnwood has almost doubled to 113 million cum, as has wood pulp (to 35 million metric tons); wood-based panels have increased fourfold to 49 million cum; and paper and paperboard has risen fourfold to 87 million metric tons.
• Much of this trade is within regions or between neighbouring countries; for example, much of Europe's trade is within Europe; over 80 percent of the trade in Asia and Oceania is between countries in the region; and there is substantial cross-border trade in North America.

Small share of tropical forest products

• Tropical forest products only represent a small share of total world exports for most products. Tropical industrial roundwood production is about 18 percent of world production. Tropical products account for varying, but generally small, shares of the total exports of different products: 16 percent of the industrial roundwood; 14 percent of sawnwood; less than 7 percent of pulp and paper and paperboard products; and 35 percent of wood-based panels. It does, however, account for 70 percent of plywood exports.
• A few countries account for the bulk of both exports and imports. In 1997 five countries accounted for 53 percent of world exports and imports. Developed countries dominate both imports and exports, and the main importers are also the main exporters. In value terms, developed countries accounted for about 80 percent of total forest product imports and exports in 1997. The largest five exporters are Canada, the United States, Sweden, Finland and Germany; the main importers are Japan and the United States and a number of countries in the European Union, particularly Germany, the United Kingdom, Italy and France. Only plywood exports are dominated by developing countries (70 percent of the world total).

Small share of developing countries in forest trade...

• Developing countries only account for 15 percent of world forest product exports, and trade by developing countries is dominated (75 percent) by Southeast Asian countries - mainly Indonesia, Malaysia and P.R. China.
• Trade has moved from logs (and to a lesser extent sawnwood) towards more processed products such as plywood and secondary wood products, although there is still substantial trade in unprocessed logs and woodchips by some countries. Wood pulp's share has declined steadily to 13 percent, and sawnwood has also declined slightly to the current 19 percent. By contrast the share of wood-based panels has increased to 12 percent, while the greatest change has been in paper and paperboard which moved from 35 percent in 1970 to 48 percent. Additionally, exports of furniture components, mouldings, etc., have increased substantially, a trend that is largely driven by a few countries.

...though trade between developing countries is increasing

• There has been increasing trade between developing countries. In addition to the major flow in Asia to Japan, increasing trade is now taking place between neighbouring developing countries such as P.R. China, Republic of Korea, the Philippines, Thailand, Indonesia, Malaysia and Myanmar. Some of these have moved from being net exporters to being net importers. In addition, a number of these Asian countries have increased their imports from outside the region.

Figure 1: Global Forest Product Imports by Region, 1997
(Total Imports US$138.7 billion)

 

Source: FAO.

13.2 TRADE NEGOTIATION ISSUES AND FORESTRY

13.2.1 Multilateral trade negotiations

Forest products covered by general WTO Agreements

In the Uruguay Round, forest products were not included in the Agreement on Agriculture. They were, instead, covered as industrial products. For this reason a number of the provisions and rules relating to agricultural products that are included in the Agreement on Agriculture do not apply to forest products. However, just as in agriculture, there were detailed negotiations on tariff levels and Non-Tariff Measures (NTMs). In addition, there were negotiations on various other Agreements. While these were not specifically focused on forest products, the terms and conditions of them apply equally to forest products. Of particular relevance to forestry are the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) and the Agreement on Technical Barriers to Trade (TBT), although Agreements such as that on Subsidies also have some (small) relevance.

13.2.2 Main benefits expected from the Uruguay Round for forestry

Improvements in access conditions are closely tied to the specific products and markets involved, and some countries could benefit while others may actually suffer.

The main benefits are:

Modest impact of tariff reductions...

• Reduction in tariffs. A reduction, or complete elimination, of many tariffs, will be phased in over a period of years. The actual reductions offered by countries vary considerably reflecting such things as:
• the product concerned and its importance to the country;
• changes that the country agreed to for other products;
• the level of the particular tariff prior to the Uruguay Round;
• the extent of offers made by other countries;
• whether or not the tariff was bound previously; and
• what the base level being used for the new binding was.

Although the trade gains from the Uruguay Round are likely to be positive and worthwhile for forestry¹, the impact on global forest products trade may not be substantial, especially in the case of tariffs since these were already relatively low for many forest products before the Uruguay Round began. The main benefits seem likely to accrue to the developed countries.

An FAO study has estimated quantitatively the impact of the Uruguay Round tariff removals on international trade in forest products². The study noted that the Uruguay Round would lead to a reduction in tariffs. Reductions by importing developed country markets would be greatest for pulp and paper products - by an average of 100 percent on paper and paper board and paper particles and by 83 percent on printing papers. The extent of tariff escalation would fall for many products, notably for solid wood products, where tariff rates would fall on average by 31 percent for wood-based panels, 50 percent for semi-manufactures and 67 percent for wood articles.

The study estimated the value of gains in additional trade in forest products (the "trade creation" effect) as a result of tariff changes, as well as the value of the trade diverted from developing countries on account of the narrowing margin between the Generalized System of Preferences (GSP) tariff rates and the Most Favoured Nation (MFN) rates. Under different likely scenarios the study estimated a net global increase in trade in forest products ranging from US$340 - US$472 million by the end of the implementation period. These resulted from an increase in trade for developed countries and a decrease for developing countries. The study concluded that the reality may lie somewhere between the two estimates (i.e. US$340 and US$472 million).

These impacts, however, are small on the whole, amounting to only about 0.5 percent of total trade in forest products. This modest impact was mainly because tariff rates prior to Uruguay Round were in general already low. A further implication of this is that any subsequent cuts in tariff rates are not likely to have a significant impact on trade diversion since by then both the developed and developing countries should be facing a single tariff rate, i.e. there would be no preferential margins left.

...and disciplines on non-tariff measures

• Disciplines on Non-Tariff Measures (NTMs). The impacts on NTMs will be more variable but some benefits may arise for forestry - particularly through the SPS Agreement, which could improve conditions surrounding inspection and quarantine; and the TBT which could limit the use of technical regulations for other than legitimate health, safety, product quality and environmental protection purposes. Some slight benefits may also result for forestry from other Agreements covering subsidies, the use of anti-dumping and countervailing duties, market access conditions, and customs valuation and licensing procedures.

13.2.3 Other trade liberalization moves

Forestry trade covered by regional integration agreements

In addition to the WTO/GATT negotiations there have also been many other recent actions underway to encourage trade liberalization. The global reductions agreed to in the Uruguay Round have been supplemented by reductions stimulated by regional trade agreements establishing preferential terms of trade or, often, free-trade blocs. All of these include reductions affecting forestry. The list includes: the European Union, North American Free Trade Agreement (NAFTA), Asia Pacific Economic Co-operation (APEC), Association of Southeast Asian Nations (ASEAN), Southern Common Market (MERCOSUR), and Caribbean Community and Common Market (CARICOM), to name a few.

APEC, for example, has proposed a timetable for the liberalization of trade across the region under which member economies would commit to creating a region of free and open trade and investment no later than 2010 for industrialized economies and 2020 for developing economies. Forest products were selected as one of the 15 sectors for Early Voluntary Sectoral Liberalization (EVSL).

Concern has been expressed that a proliferation of regional trade agreements such as these may adversely affect global trade liberalization efforts.

13.3 ISSUES OF SIGNIFICANCE TO FORESTRY

13.3.1 Tariffs

Some tariff peaks remain

With the exception of some products in some markets, tariffs for forest products in developed countries are not high (less than 5 percent for most products). Despite this though, even after the Uruguay Round levels have been achieved, rates for some products will still be high (in the range 10-15 percent). In particular, this will be the case for wood-based panels (especially plywood), builders' woodwork and furniture.

Many tariff rates in developing countries will also be lowered by varying degrees - some substantially from the current high levels - but most rates may still be considerably higher than for developed countries.

Preferential access important...

Many exporting countries are able to avoid full tariff rates by benefiting from special preferences which apply to specified countries. Members of regional groupings get benefits from others in the group, and some countries give special rates to countries that they have close trade or political ties with (e.g. NAFTA [North American Free Trade Agreement], ASEAN, European Union-ACP [African, Caribbean and Pacific Group of States], New Zealand-Australia, etc.), while most (but not all) developing countries get the benefits of the Generalized System of Preferences (GSP).

The GSP conditions vary widely. Each importing country which offers GSP preferences sets its own conditions. Countries can therefore be very selective both as to the product and the exporting country they apply to. Each country can individually decide when, to whom, or under what conditions the preferences apply, and when they may be withdrawn or modified. Some countries curtail, or completely remove, eligibility for GSP treatment from countries when they reach a certain level of economic development or achieve a certain share of the market in the product. For example, Taiwan Province of China, Republic of Korea, China Hong Kong and Singapore, which account for the bulk of the developing country forest product exports of value-added products, have had GSP privileges removed by many developed countries and must face the higher MFN rates. One feature of the GSP benefits is that they are limited for most of the products which still have high tariffs, i.e. various panel products, builders' woodwork items, and furniture.

...but lower MFN rates erode benefits

As MFN rates decline the benefits of preferences for developing countries will become less valuable.

13.3.2 Non-Tariff Measures (NTMs)

NTMs with the most effect on forest products are:

Tariff quotas important in some markets

a) Quantitative restrictions such as various type of quotas (e.g. quotas allocated to a specific country or a quota limiting eligibility for a particular tariff rate) exist in some markets. The European Union imposes import quotas on board and panel products. While imports of non-coniferous plywood from countries that are eligible for GSP treatment pay duty at a lower rate than MFN recipients (70 percent of the full duty rate) on all their volume, coniferous plywood is still controlled through a duty-free global annual quota. The European Union also has tariff quotas or tariff ceilings on newsprint, fibre-building boards, builders' woodwork and some furniture items.

b) Phytosanitary and technical regulations and standards continually change, and while not necessarily trade barriers, are clear obstacles to trade. In particular, regulations and standards which relate to environmental issues are important issues for forestry. While few of the standards and codes discriminate specifically against imports and are therefore not strictly trade barriers, they do create much greater problems for exporters than domestic producers. The latter have easier access to testing procedures, greater information, less documentation to complete, and easier access to the organizations controlling the system. Additionally, domestic standards which differ from those of potential competitors can form an effective protective mechanism for a domestic industry which is producing for home consumption.

Technical regulations can limit trade

Phytosanitary regulations are not a major problem for forest products, but problems do exist in specific situations. Of particular note are the technical regulations and standards which are environmentally motivated. Examples include: restrictions on wood panels which use formaldehyde glues, a glue with human health risks; restrictions on certain timber preservation processes and materials; controls on processing methods (for example, in the bleaching of pulp where there have been widespread moves to encourage or force companies to replace chlorine, which produces extremely toxic by-products, with other more environmentally friendly bleaching agents); and packaging regulations.

Some have resulted in major trade disputes between countries. Most are obstacles to overcome, rather than deliberate attempts to block trade. Whether they are in fact being used as trade barriers can be very difficult to determine. It does, however, seem likely that in some cases the regulations and/or the way in which they are administered are excessive.

Export restrictions also impact on trade

c) Export Restrictions. Although import restrictions are the most obvious form of restriction in forest product trade, export restrictions, including export taxes or levies, export bans and other controls, also exist and have an impact on trade. Export tariffs are common in most exporting developing countries and in some developed countries - notably on logs, sawnwood and plywood. Export charges have typically been used for many of the same reasons as import tariffs: raising revenue (especially if this method of collection is more efficient than other instruments); encouraging/forcing/protecting domestic processing; and most recently to protect forests from overuse. In some cases developing countries justify them on the basis of compensating for the restrictions that developed importing countries have placed on the import of processed products. As noted, the most recent reason for export duties is as a means of limiting harvest levels to sustainable levels. Controls on harvest levels are in place or scheduled in many countries. Since export bans are technically illegal under Article XI of GATT, many countries are turning to other variations - ranging from export taxes to permits and licenses, in place of direct quantitative controls.

The use of indirect charges in the form of royalties and reforestation levies has also increased. In recent years the focus has shifted to placing export controls on intermediate products such as sawnwood.

Some improvement in NTMs seems likely, but they will continue to have important impacts on trade. Continual attention and pressure will be necessary to address them, both through surveillance, and possible modifications to the TBT and SPS Agreements. Export restrictions will continue, since some countries find them the most direct way of controlling some of the undesirable practices that exist in their forestry sectors.

13.3.3 Trade impediments

a) Introduction

Definition of trade impediments

In addition to formal restrictions there are many measures which may be considered to be impediments to trade rather than formal trade restrictions as discussed above. Trade impediments are actions which are either legal under GATT/WTO rules, or largely outside the boundaries of existing international agreements as presently defined. These restrictions differ from others in two main ways: (1) they are being promoted for conservation/environmental reasons rather than for the usual reasons of protecting or encouraging domestic industries, saving foreign exchange, raising income, etc., and (2) they are (so-called) voluntary measures. Thus they usually have no direct links to official government regulations, though in a number of instances they may be unofficially encouraged by governments. While having many of the characteristics, and intentions, of formal trade barriers, they are generally outside formal trade rules. Nevertheless, they have many similarities, often have a similar effect, and in many cases their intention is the same - i.e. to restrict trade.

b) Restrictions relating to sustainably managed forests

Often driven by environmental concerns

A number of trade impediments are related to environmental issues, since concern over the relationship of forestry with the environment has increased significantly in recent years. Some of the policies related to environmental issues concern transport, processing and consumption, including pollution from processing plants; the use of polluting materials in the production processes; energy requirements for processing; patterns of excessive or uncontrolled consumption; and problems of waste disposal³. The most recent, however, are measures aimed at limiting trade to forest products made from wood coming from a sustainably managed forest resource.

Although many address legitimate concerns these could, deliberately or by default, result in increasing trade distortions and difficulties which might counteract some of the benefits resulting from the Uruguay Round negotiations. Examples are certification and ecolabelling, and restrictions or bans and boycotts by local municipalities and the retail trade.

The general difficulties and some of the issues involved in the trade-environment debate are exemplified by efforts underway in WTO's Committee on Trade and Environment (CTE). In that Committee, members have been discussing a wide range of issues related to trade and the environment, including ecolabelling, market access, the effects of trade liberalization and the trade and environment effects of WTO Agreements (such as the SPS and the TBT). Some of the issues under dispute and/or debate in the CTE have relevance to forestry. Although the CTE's main focus is largely on the general issues involved, rather than on specific sectors, forestry is emerging as one of the sectors where many of these issues come together. This is because most aspects of forestry have clear links to the environment.

While formal barriers are set to come down, trade impediments will continue to exist and seem likely to grow in significance. Many could, deliberately or by default, result in increasing trade difficulties.

(i) Local government bans and boycotts

Uncertain status of local government bans

In parts of Europe, the United States and to a limited extent in Australia, restrictions or bans on the use of timber have been put in place by regional and local councils; some retailers and a few timber traders have taken decisions to cease handling products; and some unknown level of consumer resistance to buying wood products exists. An important, and as yet unresolved question, is the extent to which these actions are, or may be, a restriction on trade by discriminating either intentionally or unintentionally amongst producers. Much discussion and debate relates to whether actions taken for environmental reasons which act as trade barriers are legitimate within internationally agreed international trade rules, and whether those taken by sub-national governments are GATT/WTO-legal.

(ii) Certification of forest products

Certification as yet marginal to trade...

Forest product certification is currently an important, and somewhat controversial, issue for forestry. Certification seeks to link trade to the sustainable management of the forest resource, by providing information on the production status of the forests from which the timber came. The hope is that users may only purchase products made from timber from sustainably managed forests.

Certification and associated eco-labelling activities is still in its infancy, with main interest being in Europe, especially Germany, the Netherlands and the United Kingdom, where environmental groups are active and where some retail interests see a potential market advantage from providing certified products. Exporting countries such as Canada, Sweden, Finland, Malaysia and Indonesia are actively developing their own certification schemes, both as a defensive market strategy and a means of improving their forest management practices. The effect on trade so far has been limited, but a considerable degree of market uncertainty is being generated in many markets. Both the range of products and the volume of trade covered by operational certification schemes is insignificant in global or regional terms, being less than 0.5 percent of the wood entering international trade and a negligible proportion of total wood used for industrial purposes.

A number of issues have arisen concerning certification. From an exporter's viewpoint, considerable doubt exists as to whether and to what extent the switch to production methods and standards as required by the certification scheme brings net benefits. The view is that unless there is a substantial demand for products from sustainably managed forests, and importers are prepared to pay a premium in some form (e.g. higher prices, greater market access), benefits may not offset the additional costs. A further issue is that, unless carefully implemented, certification may act as a non-tariff barrier to trade through discrimination, either intentionally or otherwise, against those producers unable or unwilling to meet the required forest management standards. In particular, the risk is that it may disadvantage a number of developing countries who lack such a capacity. Certification may favour developed countries where, at least at present, forest management practices tend to be closer to sustainability goals.

...but likely to grow in importance

It is likely that support for the idea of certification will grow in the future, as has happened with many "green" movements of similar nature, in which case it might have important implications for trade patterns and also for the types of forest products traded.

The deciding point on the impact of the various trade impediments will be how many importing countries impose them, and how severe the conditions imposed are. In particular, if adopted widely, their effect could be far more significant than current formal restrictions.

(iii) The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES)

Further trade restrictions may follow if forestry species listed in CITES

CITES is an international agreement which deliberately has trade-restrictive elements. It uses a system of permits issued by designated authorities in member countries to regulate international trade in endangered species. Species, sub-species or populations may be listed in one of three appendices to the Convention and as a result face varying degrees of trade restriction: Appendix I essentially prohibits commercial trade; Appendix II requires an export permit issued by the Authority in each exporting country; Appendix III requires commercial trade to have export permits for the country(ies) listing the species, or a certificate of origin from other countries.

CITES has recently surfaced as a controversial issue for forestry, due to attempts by developed countries, strongly supported by conservation groups, to have a number of commercially important forestry species found in tropical developing countries placed in CITES appendices. Concern has been expressed by forestry and trade interests that CITES is being used to stop or limit trade, and that the mere fact of having a species listed - even in Appendix III - will have a negative impact on trade in that species.

c) Some important unresolved issues of importance to forestry are:

• whether actions that are being taken for environmental reasons and which act as trade barriers are legitimate within internationally agreed trade rules; and how exceptions under Article XX (which allows general exceptions from the main trade rules for environmental protection reasons) might be viewed in the case of forestry issues;
• whether boycotts or bans taken by sub-national rather than national governments are GATT/WTO-legal. There are differing opinions on this. Although there is no clear evidence whether they are in fact inconsistent or not, the GATT/WTO rules do give governments an obligation to make all efforts to ensure that actions taken by sub-national bodies are consistent with the government's obligations. What this actually means in law is, however, far from clear.

13.4 ISSUES FOR DISCUSSION

A number of the above issues are being discussed and debated in WTO and will be raised in any future negotiations. Since forest products are not in the Agreement on Agriculture there is no requirement that they should be addressed in another Round - although it seems certain that industrial goods (and hence forest products) will be covered.

There are also still many issues that affect forestry that are currently being discussed in WTO concerning environmental issues which are still far from resolution. They need more discussion and debate, and possibly even modification of some of the WTO/GATT rulings and interpretations. Many concern issues connected with TBT and SPS, or market access issues.

Issues for individual countries

Some issues and questions that should be considered by those who will be involved in multilateral discussions include:

a) how to ensure developing countries share in the benefits from the Uruguay Round;

b) how to ensure the Uruguay Round changes are effectively implemented before new ones are introduced;

c) the identification of areas where current policies and practices are discriminatory and/or trade restrictive and require improvement;

d) how to address the problems discussed above as trade impediments, especially those which concern environmental issues, while achieving some of their goals;

e) how to ensure that issues of special significance to developing countries are addressed; and

f) what the significance of other regional and bilateral agreements is.

REFERENCES

Barbier, E.B. 1996. Impact of the Uruguay Round on International Trade in Forest Products. (Available on FAO Web site).

Bourke, I.J. Global Overview of Equitable Trading Practices. Proceedings of the Third Annual Conference on Timber and Forestry, Kuala Lumpur, Malaysia. 9-10 September 1997. (Also published in Asian Timber, Sept. 1998).

Bourke, I.J. Global Trends in Marketing of Environmentally Certified Forest Products. Proceedings of the National Agricultural and Resources Outlook Conference, Canberra 6-8 February 1996, Vol. 1 Commodity Markets and Resource Management, pp. 168-176. Australian Bureau of Agricultural and Resource Economics, Canberra.

Bourke, I.J. 1995. International Trade in Forest Products and the Environment. Unasylva, Vol. 46 No. 183, p. 11. (Available on FAO Web site).

Bourke, I.J. 1988. Trade in Forest Products: A Study of the Barriers Faced by the Developing Countries. FAO Forestry Paper 83. Rome.

Bourke, I.J. & Leitch, Jeanette. 1998. Trade Restrictions and their Impact on International Trade in Forest Products. (Available on FAO Web site).

Brown, C. 1997. The Implications of the GATT Uruguay Round and Other Trade Arrangements for the Asia-Pacific Forest Products Trade. Asia-Pacific Forestry Sector Outlook Study. (Available on FAO Web site).

Iqbal, M. 1995. Trade Restrictions Affecting International Trade in Non-Wood Forest Products.

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¹ See papers by Barbier (1996) and Brown (1997) for an assessment of the impacts.

² See Barbier (1996) for full details.

³ See Bourke (1995).