• Trade Policy in the forest sector
• Proposals for liberalisation
• Benefits to the environment
• Critique of liberalisation proposals
• Trade and sustainable development

Liberalisation raises another set of issues for the ethical trade schemes. The relative prices of wood products and the nature of import and export controls inevitably affect the context for sustainable forest management.

The Rio Declaration and Agenda 21 both state that trade liberalisation if complemented by appropriate environmental policies, can make an important contribution to sustainable development.

Proposals for liberalisation

There are currently proposals for liberalisation of the forest sector to be placed on the agenda for negotiations in the Seattle Round.

Negotiations on liberalisation in the forest sector in the Seattle Round have arisen as a result of an initiative to promote sectoral agreements in the new Round on the part of the APEC's Accelerated Tariffs Liberalization Initiative, tested by the APEC group of nations.

As president of APEC, the New Zealand mission to the WTO presented the proposals of the Accelerated Tariffs Liberalization Initiative thus:

"It aims for the complete elimination of tariffs on all these products thus eliminating the tariff escalation still very present in the sector. The goal is designed to promote higher rates of economic growth, improve price competition, enhance infrastructure development, promote innovation and productivity, and in doing this, provide greater choices for the consumer. Liberalisation will help ameliorate the vulnerability/sensitivity of the sector to fluctuations in the business cycle, promote economies of scale, allow it to respond better to changing patterns in global demand and promote industry investment to improve productivity, respond to new market opportunities and address environmental pressures. Liberalisation will also promote sustainable management of forestry resources to the benefit of both developed and developing economies. Clearly the level of positive impact will be directly correlated to the extent to which economies are able to liberalise trade."
(WT/GC/W/138/Add.1)

Important components of the initiative are:

• It aims for industrialised countries to phase out tariffs by 2002
• Developing countries would phase out tariffs by 2004.
• The proposal covers all forest products - from Rosin, to logs and wood products, ratan products, pulp, paper and paper products, wooden furniture and prefabricated buildings made of wood.
• It aims for the complete elimination of tariffs on all these products thus eliminating the tariff escalation still very present in the sector.

The hope is expressed that liberalisation will make the industry more able to address environmental pressures and to promote sustainable management of forestry resources to the benefit of both developed and developing economies.

Industry associations such as the American Forest and Paper Association and the Canadian Pulp and Paper Association are strongly supportive of the accelerated liberalisation initiative and have made presentations to the WTO to this effect.

See http://www.cid.harvard.edu/cidtrade/

Benefits to the environment

Some liberalisation measures may benefit the environment, e.g. a reduction of production subsidies for agriculture, transport and energy. The economic argument is that if market signals are allowed to work without such distortions, resources will be allocated in an efficient manner and there are likely to be environmental benefits if the formerly subsidised activities harm the environment. However, the transmission of such incentives into decisions about the exploitation of forest resources is not so clear cut because of the influence of factors such as returns on investment, land and other policies. Indeed the removal of subsidies on wood products in the destination market of an exporting wood producer may lead to an increase in logging rates.

Similarly, export restrictions are seen as uneconomic as they may encourage the development of uncompetitive industry (domestic prices are reduced and there are few incentives for the efficient use of resources). Prices are kept low leading to lower revenues for forest management and consequently there are reduced incentives for sustainable forest management (FAO 1999).

The APEC proposal has not explicitly challenged export bans to preserve natural resources; but there is scope for export restrictions to be reduced with increased liberalisation. Kaimowitz notes that despite the environmental rhetoric used to justify log export bans and taxes, they have usually been implemented for economic and social reasons (1999, page 16). The environmental impact of their removal is generally uncertain.

The Overseas Development Institute (ODI) has produced a report outlining the potential for environmental benefits from liberalisation in a number of product areas, including the forest sector (Page, 1998). This focuses on the implications of improvements in market access to northern markets rather than liberalisation in southern markets as this has not yet been a big issue at the CTE.

The environmental benefits of liberalisation in the forest product sector are not clear. In general tariffs for wood products were cut in the Uruguay Round and the extent of tariff escalation was also reduced (i.e. where the tariff increases as a percentage of the value of the produce according to the degree to which it is processed). However an FAO study notes that for certain products such as panel- products, builders' woodwork items and furniture, tariffs can be as high as 10-15 % per cent (Bourke and Leitch, 1998). Non-tariff barriers such as technical standards are more significant than tariffs for wood products, argues Page. In contrast there are high tariffs for many NTFPs and the effect of liberalisation measures are likely to be 'less perverse' than for wood (Page, 1998: 26).

Economic models examining the causes of deforestation fail to provide convincing results with regard to the link between trade liberalisation and logging. Angelsen and Kaimowitz (1999) reviewed studies that show that currency devaluation, trade liberalisation and agricultural subsidies increase deforestation. However these studies tend to use poor data, depend on arbitrary assumptions about responses to price changes and are highly aggregated. Overall, Angelsen and Kaimowitz argue that there is little economic evidence to support claims that economic growth and market liberalisation are good for forests.

In contrast there are high tariffs for many NTFPs and the effect of liberalisation measures are likely to be 'less perverse' than for wood (Page, 1998: 26).

Critique of liberalisation proposals

The main argument against liberalisation measures in the forest sector is that the resulting increased trade will mean that logging rates will increase and forests will be exploited unsustainably. Trade barriers have been seen as an essential part of the strategy to protect forests, especially in the context of increasingly degraded forests throughout the world and growth in demand for wood products over the last 25 years (Bourke and Leitch, 1998).

In addition to concerns about liberalisation increasing the incentives to deforestation there is a fear of standards declining to the lowest common denominator.

Many environmentalists oppose the liberalisation measures for fear that the removal of trade barriers will hasten deforestation. After all, the removal of trade barriers tends to increase trade and many countries would be keen to take advantage of the lowering of tariffs and non-tariff barriers. However, the environmental argument against liberalisation in the forest sector is not so cut and dried. Indeed the removal of subsidies in the forest sector may increase the opportunity cost of logging compared to conservation measures.

Trade and sustainable development

The liberalisers' defence against potential environmental damage, specifically deforestation, following liberalisation measures is that trade contributes to the alleviation of poverty and raising income levels is necessary for sustainable development. A second argument is that it is not trade per se that causes environmental damage but unsustainable production and consumption practices. The 'orthodox' line among international economic institutions is that liberalisation does not necessarily harm the environment and may well produce environmental benefits.

However, the general nature of the APEC proposal offers some cause for concern because of the diversity of forests and anticipated environmental impacts. As Kaimowitz notes:

'the environmental effects of liberalisation in the forest product sector will vary considerably according to location, policy environment and the types of forest involved.....Across-the-board trade agreements that reduce all trade barriers in a uniform fashion are almost certain to cause adverse effects in numerous specific situations (1999, page 15).

Not only would such an agreement cause environmental damage in certain places, it would limit 'the flexibility of national and local policy makers to take decisions that are appropriate for their specific contexts' (Kaimowitz, 1999, page 15).

At the international level there is concern that there is potential conflict between WTO rules on liberalised trade and multilateral environmental agreements, specifically the Convention on Bio-Diversity. The arguments here are as much political as environmental and are linked to concerns about the power of the WTO in relation to other, potentially more democratic, international organisations and agreements.

These concerns are expressed in a joint statement by environmental NGOs including FERN
http://www.fern.org/fern/NGO%20statements/WTO%20liberalisation.htm

Implications

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