In the years following World War II, the major industrialized countries developed the General Agreement on Tariffs and Trade (GATT) to establish a framework of rules and guidelines for world trade. The goal was liberalized trade policies free of governmental intervention and restriction, with an immediate emphasis on lowering tariff barriers. In fact, the GATT achieved a fair degree of success in bringing down tariff levels, and international trade blossomed. In the most recent round of multinational negotiations in 1979, known as the Tokyo Round, country representatives continued to emphasize tariff reductions and also began to address nontariff barriers.
But the governmental urge to protect domestic industries against foreign competition is strong, and protectionism once again is on the rise. The GATT and other international agencies have called attention to protectionism's detrimental effects on world economic activity and, in particular, on developing countries, whose opportunities for expanding exports often are much more limited than those of developed countries.
Contradictions abound. On the one hand, countries complain of barriers facing their efforts, while on the other, they maintain or raise barriers to protect their own producers. For example, protectionist policies in the European Community grow while its individual member countries call for greater freedom. And the United States applies increasing pressure on Japan to liberalize restrictions while at the same time tightening barriers affecting developing countries and making threatening moves against Canada. Freer trade apparently demands lip service; the moves toward greater protectionism, particularly because of economic pressures generated by the depressed world economy, have solidified support for a new round of GATT trade negotiations in fall 1987. This article may be thought of as a primer for the forest products segment of those talks.
Tariffs down, not out
Although average tariff rates have been reduced to low levels for much of world trade, rates remain high for a wide range of products in particular markets (table 1). The same is true within some product groups. For example, low average tariff rates for forest products as a whole mask high rates for specific goods. Unprocessed wood products like logs and rough-sawn lumber enjoy low tariffs, semi processed forms like veneers and fiberboards generally face higher rates, and highly processed goods like plywood and furniture usually have the highest tariffs. This phenomenon, known as "tariff escalation," makes it more difficult for exporters to trade in more-processed products. This is a serious problem for developing countries wishing to encourage basic processing activities that can provide the benefits of adding value to raw materials.
Paper and paper products, which require much more capital-intensive, sophisticated processing technology, do not show the same clear-cut evidence of tariff escalation beyond the raw material level. But it is perhaps telling that the basic products of wood chips and pulp have no or low tariffs, while paper and paperboard products usually have higher, if still relatively low, rates.
Table 1. Average 1982 Tariff Rates on Exports from All Sources to the Developed Market-Economy Countries: Major Product Groups
Let us look at specific examples involving Japan, Australia, the European Community, and the United States. As shown in table 2, tariffs on unprocessed products are nonexistent or negligible. Rates on lumber tend to be somewhat higher and in some instances vary with size, wood species, and degree of finishing. For example, Japanese rates on sawn lumber are 10 percent for the main hardwood species and 7 percent for spruce, pine, and fir softwoods, but 0 for other species. Thus, Douglas fir—an important North American species—enters Japan free of duty.
More processed products—such as laminated lumber, planed, tongued, and grooved lumber, and veneer—have rates ranging from 0 to 15 percent, while those on plywood, beadings, moldings, carpentry, and furniture can be as high as 40 percent. Paper and paperboard tariffs vary considerably, depending on the specific category. Newsprint, for example, is free of duty in the United States but faces a 5.4 percent tariff in the European Community. Other types of paper and paperboard tariffs range from 0 to 14 percent.
Special preferences can reduce listed duties. Particularly important is the Generalized System of Preferences scheme, negotiated under the United Nations Conference on Trade and Development, which provides lower duty rates for developing-country exporters. These preferences have enabled many products from these countries to enter developed-country markets free of duty, but for a number of reasons the system's full potential has not been realized. Preferences are not bound levels and can be withdrawn, and each importing country, for example, determines whether or not it is willing to offer preferences, to which countries they apply, which products are eligible, and the period for which they are valid. Many of these allowances also are subject to quotas and other limitations, including market-share criteria. Forest products are a case in point: goods such as panels and manufactured wood products often are excluded from the Generalized System of Preferences or are subject to limitations.
Nontariff barriers rising
Tariffs are only one of the many hurdles exporters may face. Other measures used for protective purposes include direct quantitative controls, like quotas and voluntary export restraints; less-direct controls, like licenses and permits, which may be automatic or used at the discretion of customs authorities; price-level controls, such as minimum prices, price investigations, variable levies, and countervailing duties; and health and technical standards, which may be liberal or highly restrictive in their interpretation. In addition, customs formalities, import deposits, government trading policies, and marking and packaging requirements can bar trade, depending on their application. Many observers also classify internal subsidies as nontariff barriers.
Forest products are less affected by these barriers than are other products. Quantitative restrictions, price controls, and other nontariff barriers are not wide-spread, and voluntary export restraints—an increasing problem for autos, textiles, and other goods—are uncommon for forest products. But less affected does not mean unaffected. For example, a number of forest products entering Japan and the European Community are subject to tariff-quota limitations. European Community imports of newsprint and plywood are controlled in this manner, as are several wood products entering Japan under the Generalized System of Preferences.
Table 2. Most-Favored-Nation Tariff Levels for Selected Forest Products in Australia, the European Community, Japan, and the United States (as of December 1985)
Table 3. Potential Trade Increases from Removing All Tariff and Main Nontariff Barriers Facing Developing Countries in the United States, the European Community, and Japan
Health and technical standards and import authorizations often act as barriers to trade, but the distinction between those used for legitimate health and safety reasons and those used to control trade often is difficult to determine. That the definition of a "reasonable" standard can be highly subjective is attested to by a 1984 GATT report that standards are the barriers most often cited by exporting countries. A good example is the disagreement between U.S. exporters and Japan over tolerance levels in softwood plywood for "white pocket," a fungal disease of Douglas fir.
Although subject to considerable uncertainty, estimates for seventeen developed-market economies suggest that nontariff barriers affect nearly 19 percent of their wood and wood-product imports. By comparison, the figure for all imports is 27 percent, and for all industrial imports, it is 16 percent. The average for wood and wood products, however, is heavily influenced by high levels for the European Community, particularly France, and the United States; although most of the seventeen countries analyzed are in the range of 12 percent to 20 percent, the estimates for the United States and France are 84 percent and 90 percent, respectively. Furthermore, only a limited range of barriers are involved—antidumping investigations in the case of the United States, and antidumping investigations together with discretionary licensing and tariff-quotas in the case of France. (Antidumping investigations restrict imports because they introduce uncertainty into exports and because temporary duties may be applied and costs incurred in defending the accusations. Moreover, many investigations appear to be used to create difficulties rather than because a legitimate case exists.)
Not surprisingly, developing countries also use tariffs and nontariff measures to influence imports. Indeed, their tariff rates generally are higher than those imposed by developed market economies, and, because they need to control foreign exchange flows and their governments are heavily involved in managing the economy, they tend to resort to nontariff barriers even more frequently than do developed nations. Global volume controls are used most widely, particularly monitoring measures, quotas, and discretionary licensing. In the case of wood and wood products, the most common- nontariff barriers are monitoring measures and other quantitative restrictions, like quotas and discretionary licensing.
Import restrictions may be the best known and most widespread form of trade control, but in the forest products area export restrictions currently are of at least equal significance. A number of countries, including Canada and the United States, long have used such controls to encourage a move from the export of logs or of roughly squared lumber to the export of more highly processed forms. Similarly, Indonesia, Malaysia, and the Philippines have used export controls for many years, but commitments on the part of their governments and industry have been sporadic. In the last few years, however, these countries have tightened their policies, with Indonesia in particular moving rapidly toward eliminating the export of logs. Already, Indonesia—once a major importer of tropical logs—has become the largest exporter of plywood.
As tariffs have declined, nontariff barriers have become of greater concern. In many cases, they are substituted for tariffs because of their variety, ease of modification when conditions change, greater certainty of effect, and lower transparency. While this situation is less true for forest products than for many others, nontariff measures do have significant effect on selected products, especially plywood.
Lowering trade barriers
All trade barriers, obvious as with high tariffs or subtle as with hard-to-identify nontariff measures, should be subjected to international attention and pressure to limit any additional protectionist activity. Individual countries, too, must come to recognize the consequences of any protectionist actions they may take.
Better yet, countries both individually and collectively might ask what would happen were the barriers to free trade to disappear. According to a 1983 estimate by the United Nations Industrial Development Organization, removing all tariffs facing wood and wood products would generate more than $700 million in new trade between the developed countries and an additional $150 million in new exports for developing countries. A 1985 study by the United Nations Conference on Trade and Development suggests that removing all tariffs on imports from developing countries by the European Community, Japan, and the United States and eliminating the main nontariff barriers as well would result in additional trade (over 1980 trade levels) ranging from 0.2 percent for sulphate wood pulp to 60 percent for furniture (table 3). In absolute terms the value of trade created would range from $5.5 million for pulp to $1,030 million for furniture.
Although only approximate, the figures suggest that dismantling many of the barriers facing forest products would generate substantial increases in trade. At the very least, it would seem worthwhile to make lower barriers for forest products one of the principal goals of the forthcoming multilateral trade negotiations.
I. J. Bourke, as Andre Mayer Fellow of the Food and Agriculture Organization of the United Nations, spent much of 1985 in residence with the RFF Forest Economics and Policy Program. He is affiliated with the New Zealand Forest Research Institute.
A version of this article appeared in print in the June 1986 issue of Resources magazine.
