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A description of nafta the timber industry and some consequences in agricultural trade policy

Non-tariff distortion of international trade in forest products I. Relatively little is known about non-tariff distortion to trade in forest products.

This article aims at stimulating awareness and understanding of the economic effects of an increasingly widespread trend. Non-tariff distortions are defined as those measures other than tariffs which distort free international trade by discriminating between locally produced and imported goods or between exported and locally consumed goods. By convention, this definition is normally taken to exclude monetary and fiscal policy measures designed to maintain external balance because these affect all export and import-competing commodities.

Also, obstacles to trade resulting from differences in business customs or in language are generally not considered to be non-tariff distortions of trade, nor are obstacles posed by market imperfections or by exchange rate controls.

The term "non-tariff distortion" is preferred as a general description to the term "non-tariff barrier" because some measures lead to over-importing rather than under-importing, or over-exporting rather than under-exporting.

The term "non-tariff barrier" suggests instead an exclusive focus on obstacles which reduce trade and, as we shall see, there are some important non-tariff distortions of trade in forest products which have quite the opposite effect. This concern reflects a realization that these non-tariff distortions of trade have, for some time, been significant for tariffs and that they have been rising while the average levels of tariff rates for the world as a whole, and especially for the OECD countries, have been falling.

Moreover, the developed countries agreed to reduce tariffs by an average of about 40 percent in the Tokyo Round. In contrast, the new wave of protectionism in developed countries resulting from the slowdown in the growth of the world economy since 1974 has been expressed in more frequent use of nor-tariff distortions such as subsidies, quantitative restrictions on imports and!

Administrative regulations see Slot, 1975state trading Kostecki, 1979 and other previously little-used forms of non-tariff distortion have also become much more widespread. Over the same period, there has been increasing concern about non-tariff distortions of trade in agricultural products.

Studies by Wipf 1971Sampson and Yeats 1977Bale and Greenshields 1978 and Hillman 1978 show that the average levels of assistance going to producers a description of nafta the timber industry and some consequences in agricultural trade policy agricultural products in the United States, the European Economic Community EEC and Japan are a description of nafta the timber industry and some consequences in agricultural trade policy higher than those to producers of industrial products and that this agricultural protection comes overwhelmingly from non-tariff distortions.

Unfortunately, all of these studies omitted forest products. Relatively little is known about the nature of non-tariff distortions for this group of commodities or about their magnitude in regard to tariff barriers.

WORLD TRADE ORGANIZATION

The systematic measurement of non-tariff distortions of world trade in forest products would be an enormous task. Our study is an attempt to stimulate awareness of some of the forms of non-tariff distortions affecting this sector and to increase understanding of their economic effects. Tariff quotas Tariff quotas are distortions involving a description of nafta the timber industry and some consequences in agricultural trade policy different levels of tariff, in that a higher tariff operates once imports exceed a description of nafta the timber industry and some consequences in agricultural trade policy quota level.

Tariff quotas have been applied to a number of forest products by the EEC. Those relating to newsprint, paper and paperboard, plywood and wood mouldings are good examples of this - form of non-tariff distortion. The EEC introduced a Community-wide tariff quota of 625000 tonnes of newsprint in 1969 Rom, 1969a zero tariff applying below the quota and 7 percent above it. In 1971, EEC imports of newsprint amounted to 2 million tonnes, so the potential effect of the tariff quota was quite marked.

However, provision existed for an autonomous nil-duty quota to be opened when a description of nafta the timber industry and some consequences in agricultural trade policy could be established that all possibilities of supply from internal sources had been or would be exhausted Commission of the European Communities, 1974.

As with most clauses of this type, it is difficult to ascertain whether or when this provision was invoked. Even if it did not operate extensively the existence of such an arbitrary arrangement must have increased the risks as perceived by would-be importers and exporters.

The preferential tariff quotas on paper and a description of nafta the timber industry and some consequences in agricultural trade policy negotiated between the EEC and Sweden, Norway, Finland and Austria under individual free trade agreements in 1973 further illustrate the arbitrary nature of many of the provisions often attached to tariff quotas.

Under these agreements, the quota levels were to rise automatically by 5 percent per year, tariffs of 10. But there were also provisions for freezing the quotas if "abnormal economic conditions arose" Kalish, 1976.

In the aftermath of the recession in 1974 the EEC exercised these provisions and froze quotas on all 14 categories of paper and paperboard imports from Sweden, and on two or three categories from the other countries.

Although the differential in the tariffs concerned was not large, it was sufficient to accord domestic producers a considerable edge during depressed market conditions. Plywood and wood mouldings. The EEC tariff quotas relating to plywood further illustrate the difficulties of administering quotas in a non-discriminating manner.

The quota levels were probably based on the historical pattern of imports from developed countries such as Canada and Finland, while the bulk of non-coniferous plywood comes from developing countries in Southeast Asia and Africa. The magnitude of the differences between these quota levels does not reflect any possible differences in properties of the respective species groups.

Moreover, as Floro 1978 points out, developing countries face further difficulties in attempting to increase their penetration of the EEC market because of the provision that a single exporting country is not allowed to supply more than half the duty-free quota of any individual member country. The situation with the EEC tariff quota on wood mouldings seems to illustrate an even more deliberate discrimination against developing countries. Here, a secret nil-duty quota is maintained on a year-by-year basis for imports from developing countries, a tariff of 5 percent is imposed on imports in excess of that quota Jabil, 1979.

Quantitative controls In recent years exporting countries have progressively imposed quantitative controls to restrict log exports.

More recently, Japan has imposed import controls. Japanese imports of logs for plywood manufacture and for sawing dominate world trade in these products, constituting about half of the total world imports. These non-tariff distortions of the log trade are becoming increasingly important.

Indonesia, Sabah, Sarawak, and the Philippines are the major suppliers to Japan of tropical hardwood logs suitable for the manufacture of plywood Malaysian Timber Industry Board, 1978. In the Philippines, restrictions on log exports were first introduced in 1974 with the intention of banning all exports by 1977.

This policy was subsequently modified and current regulations allow "limited and selective exportation of logs. In Sabah, government policy is to reduce log exports from 90 percent of the total cut in 1977 to 50 percent by 1981 Malaysian Timber Industry Board, 1978and quarterly export quotas were recently introduced to enable closer control than the earlier annual quotas Anon.

In Sarawak, the Government plans to reduce log exports to 30 percent of the total cut over an unspecified period Malaysian Timber Industry Board, 1978. In Indonesia, government policy is to insist that licence holders progressively change from export of up to 80 percent of the cud; in the first two years to 60 percent after six years Sudjarwo, 1980. The progressive implementation of these controls provides an example of the deliberate use of one non-tariff barrier on exports in one group of countries in order to retaliate against the high levels of tariff protection ac corded to Japanese plywood and veneer manufacture, present tariffs being 20 and 15 percent respectively Malaysian Timber Industry Board, 1978.

However, a proportion, perhaps 30 percent, of the logs exported by these countries to Japan is used for sawing and the Japanese sawmilling will be affected accordingly.

The more important controls relating to logs for sawing concern North American sources of supply. The historical development of United States restrictions is especially interesting.

In this case the legislation reflected concern over the potential impact of increasing levels of log exports on the price of logs to West Coast sawmillers and thus on the price of housing. In 1973 it was superseded by a rider to federal agency appropriation limiting the export of logs and cants from federal lands to volumes declared surplus to domestic needs.

The effect of this measure was virtually to ban all log exports from federal lands, a substantial restriction in view of the fact that the total curt from federal lands represented about a third of the total cut in the West Coast states Lindell, 1978. But the aggregate level of exports remained more or less constant as private forest owners increased their exports. In fact these producers were the main beneficiaries of this ban.

There is a new wave of protectionism taking form in many countries that results from the slowdown in the growth of the world economy since 1974. This more subtle protectionism expresses itself in the increasing use of non-tariff distortions of trade such as subsidies, quantitative restrictions on imports and voluntary restraints.

These United States federal restrictions were not the only restrictions on the North American log trade. The Province of British Columbia in Canada had earlier banned the export of all but a very small volume of logs whether from public or private lands Lindell, 1978 and this ban remains in force.

The states of Alaska, California, Idaho and Oregon have also banned the export of logs from state-owned lands, although these restrictions are much less significant in terms of the potential volumes involved. Log export controls provide protection to the domestic processing industries by lowering the domestic price of logs.

But such controls discriminate against log exporters, especially newcomers. In some countries the controls also promote log exports from privately owned forests, creating distortions in log supply between the public and private sectors.

While there are valid arguments for the use of log export controls, mainly as a retaliatory measure against high tariffs protecting the processing industries, they only hold in the short run Bergsten, 1977. Once retaliation commences in one sector, it invites another retaliation from the other country in some other sector, thereby widening the scope of the trade distortions to the further disadvantage of both countries.

Third locations that import logs but export the processed goods, or have no restrictions on imports, are also affected adversely: The pattern of development of quantitative controls was interrupted in 1976 by the use of a different form of non-tariff barrier in the log trade between the United States and Japan which will be discussed later.

This measure heralded a growing concern in Japan over the level of log imports. Even though United States exports had remained fairly steady, political pressures in Japan to restrict imports were increasing because of the low prices being received by Japanese forest growers for their logs.

This concern culminated in 1978 in the introduction of import quotas for logs in Japan. Import quotas are a form of quantitative control which has a description of nafta the timber industry and some consequences in agricultural trade policy widely used in the past in Japan and elsewhere and their revival at this time is yet another sign of the growing tendency to employ non-tariff barriers.

According to press reports Anon. Whether the restrictions which followed were real or largely cosmetic is debatable. Nevertheless, the general effects of import quotas are similar to those of export controls. They tend to raise prices in the restricted market of logs and hence to reduce aggregate consumption of logs and log products.

They discriminate against foreign suppliers and especially against newcomers while providing excessive unearned incomes to importers. Restrictive agreements of the cartel kind do not have the influence in the: Voluntary agreements Voluntary agreements between governments or between the producers' associations of different a description of nafta the timber industry and some consequences in agricultural trade policy are yet another source of non-tariff distortion of trade.

Voluntary agreements can take a variety of forms. The most important recent examples involving trade in forest products entail a covert informal agreement between two governments to restrict trade, an overt cartel-like price and quota-fixing agreement between producers' associations, and a formal agreement between two governments designed to increase bilateral trade.

Exports over the next two years remained close to this level but whether this was a result of the agreement or a result of market conditions is a matter of conjecture. One of the main objections to this type of restrictive agreement is that the secrecy surrounding the nature of the agreement and its administration make its effects difficult to anticipate or to trace. In addition to the now familiar effects of quantitative restrictions on both exports and imports, such an agreement markedly increases the uncertainty attached to the activities of the entire sector in both countries.

During the depressed market conditions experienced from 1974 to 1977, these procedures probably had little effect on the quantity traded but did restrict the development of cut-throat competition between the exporting countries. Even now their impact is debatable because of the absence of Sarawak as a member and because of the apparent inability of some members to enforce these controls fully.

Nevertheless, SEALPA has been successful in strengthening support among the member countries for plans to reduce log exports progressively. The effectiveness of these controls is also questionable, because "plywood production and marketing is not a field with much scope for manipulative control" Anon. Restrictive agreements of the cartel type a description of nafta the timber industry and some consequences in agricultural trade policy a mechanism for influencing trade, as experience with the oil-exporting countries has shown.

However, the parallels should not be overplayed because of the ready scope for substitution in the case of wood and wood products. While quantitative controls imposed under these agreements distort trade, their role as a retaliatory measure to the protection accorded in the Japanese sawn-timber and plywood industries must be noted too.

The New Zealand-Australia Free Trade Agreement provides an example of a formal agreement designed to increase trade between two countries. Forest products were the major commodity group covered by this limited agreement. Following initiation of the agreement in 1965, most tariff and official non-tariff barriers to trade in forest products were progressively removed, along with those affecting some manufacturing commodities.

A Joint Consultative Council on Forest Industries was established, comprising government and industry representatives from both countries. Subsequently, bilateral negotiations between the major pulp and paper firms were fostered to overcome some of the difficulties in this sector. Contrary to the success experienced in increasing trade in other products, the real values of trade in forest products between the two countries grew very little between 1966 and 1975 Fenton, 1979.

This failure of the agreement in relation to trade in forest products is attributable to a number of causes.