RESEARCH PAPER MNEMONIC: XTROP14

RESEARCH PAPER NAME: TROPICAL TIMBER TRADE

I. ABSTRACT

The countries of the North and South are entwined in a bitter debate over the future of the world's forests. Both are cognizant of the fact that these natural resources must be preserved, however, stark disagreements on how to achieve this end overshadow any progress that has been made. On examination, prevalent and divergent trends emerge that illustrate the various domestic and international pressures the developing world faces: on one hand, in order to maintain continual economic growth, developing countries have a tendency to bend to domestic pressures; on the other hand, however, industrialized countries have the propensity to levy import restrictions in order to coerce developing countries into implementing environmentally sound programs which may negatively impact their economies. Developing countries are therefore in a more precarious position because industrialized countries can easily turn to secondary sources, such as their own internal markets, to fulfill their immediate needs. Therein the problem lies, and it has become imperative that a compromise be reached in which the South can cultivate economic growth and the North can satisfy its concerns over environmental degradation.

II. ISSUE

As the economic gap between industrialized and developing countries deepens, leaders of the developing nations have begun to implement trade policies which aim to significantly reduce this separation. Despite these gains, their policies have proven to be false panaceas, for they have inadvertently created long-term negative effects on the surrounding environment. This has given birth to a paradoxical situation in which these leaders are faced with the choice between immediate, short-term gains and their perennial ramifications. Although some developing countries have recognized the significance of the environment and have created policy mixes in attempt to preserve these habitats, most of the burden for environmental conservation has fallen onto the shoulders of the industrialized world. With many developing countries advocating environmentally detrimental practices for ephemeral profits, industrialized countries have been forced to invoke a variety of policies in order to curb environmental degradation such as the promotion of sustainable managed forests or product labeling schemes. These environmentally conscious policies, however, have not been impervious to criticism by other countries who perceive these standards as non-tariff barriers disguised by a "green" facade, and moreover, the extraterritoriality of these measures which flies in the face of an individual countries sovereign rights. The GATT and the WTO, two institutions that has been criticized as being extremely environmentally unfriendly, have also scrutinized such regulations siding more often against environmental soundness then not. The Tuna Dolphin Case and Austria's mandatory labeling of tropical hardwoods are prime examples of what the GATT perceives as infringements on Article XI:

No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, imports or exports licenses of other measures, shall be instituted or maintained by any contractual party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.

The dilemma facing national leaders is twofold: first, at what price to the environment does one induce greater trade, and secondly, at what lengths does one go to protect the environment at the cost to trade? As the various other cases used in this analysis illustrate, countries of the developing world had, in the process of reaping extensive benefits through increases in international trade, also attained levels of environmental deterioration that encroached upon their economic welfare. Their concerns were equally matched in the developed countries who were more worried about the global environmental side-effects such as deforestation and the depleting ozone layer. A noticeable policy shift emerges on both sides: developing countries begin implementing export measures on wood products to provide sustainable production -- a stabilizing effect which operates counter to their historical experiences of glut and shortage as natural resources were depleted and then restored; industrialized countries begin enforcing import measures in order to promote sustainable managed forests as well as product labeling schemes that will insure the consumer that the product is environmentally safe. However, both exporting and importing countries, who have not found it in their best interest to participate in these programs such as Nigeria and Burma, have fought to breach what they consider substantial barriers to trade. Wood exporting countries in both the North and South assert that sustained management and product labeling programs impose added costs which are translated to the consumer in terms of higher prices that effectively cut into the exporting country's profit margin. They also contend that it creates an unfair playing field by decreasing their competitiveness and thus their access to major markets. Although exports from developing countries account for a modest share of the total value of world exports, it nevertheless represents a significant amount of GNP for these countries. With the implementation of import restrictions such as ecolabels, it is clear why these countries are concerned.

A prime example is the EU ecolabeling program enacted on a "voluntary" basis in 1991. Between 1985 and 1991, imports from developing countries (majority of which are comprised of timber products) increased 43.7%, while after 1991, imports began a precipitous decline from $96.3 billion to $91.8 billion in just two years with significant decreases predicted to follow. Importing countries maintain, however, that export measures (such as Indonesia's differential export tax on tropical wood) add value- added to the cost of the product which is passed on in price to consumers. Although consensus has become terribly difficult to attain, it does indicate a positive harbinger of things to come: as public support for environmental initiatives remain unwavering, there has become a growing understanding among governmental leaders that the goals of economic integration are unattainable without particular attention to the environmental dimensions (Zaleke, Orbuch, Housman, 1993, pg. 96).

The case analysis concerning the European Union's ecolabeling scheme and its effects on the timber trade implies unilateral action, however this is not always the case. The Community, while not abandoning its strident efforts to curb environmental degradation, has narrowed its efforts to allow developing countries to maintain the strength of its import sector. It has done this through a multilateral process of sustainable management which includes among other things, the introduction of national and regional policies, the development of long-term responsibility on the part of various countries by modifying the ways in which land and forest products are appropriated, and the implementation of a sustainable form of managing natural forests which would involve fulfilling the legitimate needs of tropical countries and their populations and preserving natural resources for future generations. In fact, Cameroon (whose tropical timber logs represented 28% of Europe's total imports in 1992) has already evolved into a benchmark country for sustainable management programs which other developing countries have been quick to emulate.

Although these countries agree on the end result- continuous, unimpeded trade within an environmentally conservative context- their main disagreement lies with the means in which these goals are obtained. The role of international organizations such as the GATT/WTO's Trade and Environment Committee and the International Timber Trade Organization have increased consumer and governmental awareness and formed international agreements for cooperation on such matters. The reality of the situation dictates, however, that these policies will have to tow a precarious line which fulfills the specific needs of each participant whether it be lessening the strain on the environment or promoting increased revenue through greater trade.

III. RELEVANT CASES

The fifteen cases listed below are important to the scope of this analysis in that they all deal with wood importing and exporting and its environmental effects. The cases range from the EU's ecolabeling program to how the GATT views environmental protection measures. These particular cases were selected on the basis that they dealt with various concerns over deforestation and environmental debasement, and how governmental officials have gone about reversing environmentally threatening trends.

1. Africa Case:
The eleven member countries of the African Timber Organization (ATO) are aware not only of the economic potential of forest resources but also of the danger of their uncontrolled depletion. About 7.5 million hectares of closed forest and 3.8 million hectares of African forests are cleared each year for a variety of purposes and the Food and Agricultural Organization (FAO), estimates that 13,000 square kilometers of African forest disappear every year through forest clearing. The West African rain forests are especially being depleted. FAO predicts that if the present trends continue, the tropical rainforests of the Ivory Coast, Nigeria and some other West African rainforests could completely disappear by the year 2020. For this reason, ATO countries have amended their forest laws since independence in order to obtain a practical and consistent regulation for the protection of their rainforests, including trade in wood.

2. Bendl Case:
Nigeria's tropical forest is depleting fast because of human influence. This is a problem at the macro and micro -level; such depletion is the result of government activities such as road development, arable farming, and land clearing for pasture. Statistic has shown that there is a negative correlation between exploitation of the forest and conservation in Nigeria, and according to Osemeobo, "the deficits in timber supply increased pressures on logging and the illegal trade (Osemeobo, 319)."

3. Brazil Case:
Although the primary cause for deforestation in the Amazon Basin lies in domestic forces -- agricultural production, cattle ranching, commercial logging and local demand for fuelwood --trade does play an important marginal role both in destroying the rain forests and possibly saving them. Exports of non-raw wood products are permitted in Brazil and is a widely traded commodity. International demand for forestry products also plays a large role in the process of deforestation. Beginning in 1990, Brazil has tried to eliminate all non-tariff barriers and reduction of tariffs on exports of wood and wood products. On the other hand, other tradeable products taken from the rain forest, such as nuts, can provide important economic benefits to indigenous peoples and encourage the saving of trees.

4. Indonesia Case:
Indonesia instituted a log export ban to slow the rate of deforestation in the country, especially on the island of Borneo. However, the supposed environmental purpose in doing so has been questioned because of the huge state subsidies to the value-added wood export industry, particularly plywood. Many question the commitment of the government to conservation, believing Indonesian government policy is simply a means of keeping more value-added in the country. This case involves a U.S. pencil manufacturer who submitted a petition for retaliation under section 301 of U.S. trade law against Indonesia. Indonesian pencil makers enjoy an inherent market advantage because the government forbids the export of raw hard wood, including Jelutong, the preferred wood for making pencils. The U.S. Trade Representative decided against accepting the petition.

5. Malaysia Case:
Forestry is one of Malaysia's most rapidly growing economic sectors. Malaysia is the largest exporter of tropical wood in the world, accounting for 70 percent of the world's supply of raw-logs. Sabah and Sarawak, the two Malaysian states on the island of Borneo, occupy some of the oldest and the most diverse rain forest in the world. This forest provides most of Malaysia's exports of tropical logs. The increase in large-scale exploitation of Sarawak's rain forest was largely due to the entry of Japanese buyers. A 1990 report by the Yokohama-based International Timber Trade Organization (ITTO) predicted that the majority of Sarawak's forests would be gone by 1995 and therefore would be a major wood importer by 2001. Consequently, the Malaysian Federal Government will cut log exports drastically in 1995 and convert the demand to sawn wood products.

6. Solomon Case:
The Solomon Islands, a country of the western South Pacific, have seen drastic increases in logging in recent years, to unsustainable levels that could decimate the nation's tropical forests within a decade, endangering indigenous flora and fauna.

The government has moved to regulate the logging companies, which are principally Malaysian, instituting a moratorium on new export licenses and planning a ban on log exports. However, the extent of the problem, and the necessary countermeasures, are matters of political contention in the country.

7. Teak Case:
This case analysis examines the growing timber (specifically the hardwood teak) trade along the Thai-Burmese border from 1988 to present. Dramatic events in these two respective countries in late 1987 and 1988 led to a monumental shift in the scope and amount of trade among these two partners and their trade relations abroad. The trade has brought about untold suffering to the peoples of the region both through state sanctioned human rights abuses and the loss of a once vital and abundant ecosystem that provided for tribal agricultural practices. Many unilateral policies have been pursued by the Thai government but the recalcitrant authoritarian SLORC (Burma's ruling party) has profited from the trade and utilized the proceeds for its long standing dispute with Thailand over border territories. More recently, ASEAN has taken interest but so far to no avail.

8. Thailog Case:
On January 10, 1989 Thailand banned harvesting of timber in the country following the worst flooding there in nearly a century. Thailand had long been a traditional exporter of raw logs and in more recent years had begun to develop a competitive furniture industry. Despite the ban on harvesting, Thailand's furniture industry has continued to climb in terms of total output and export value. The country now imports large amounts of raw teak and other wood from Myanmar and Cambodia. This trade is not documented nor is it always even carried out with the permission of the governments in Yangoon and Phnom Penh, respectively. In fact, these two countries are now experiencing some of the highest deforestation rates in the world.

9. Austria Case:
Austria implemented mandatory regulations in September, 1992 requiring labels on all tropical timber imports and a tariff of 70 percent. This eco-labeling law, the first of its kind in the country, was protested by major tropical wood exporting countries. Pressure orchestrated by Malaysia, in particular, within the Association of South East Asian Nations (ASEAN), brought this case to the attention of the International Tropical Timber Organization (ITTO), the General Agreement on Tariff and Trade (GATT), and the world. Threats of boycotts on Austrian products by ASEAN members and a lack of support by other West European countries, forced Austria to reconsider and eventually to revoke its ground-breaking law on "eco-labeling."

10. Dutchwood Case:
The Netherlands instituted a national policy on environmental and trade matters conforming with EC law. However, some locales have initiated additional restrictions beyond the scope of the EC law. This is particularly true with respect to the use of tropical hardwoods, in projects where there is an interest on the part of the locale. Some locales have banned the use of certain tropical hard woods in construction projects, and these are especially imports from Malaysia and to a lesser extent Indonesia, who in turn threatened to retaliate against Dutch products. These local policies are at odds with EC policy.

11. EU Label Case:
A 1992 EU regulation, the European Council Regulation EEC 880/92 (based upon a current German policy enacted in 1991) encourages "environmentally-friendly" packaging of all products traded within the EU, earning them an "eco-daisy" stamp of approval. Some manufacturers see the measure as discriminatory and a barrier to free trade, especially in the wake of Germany's large- scale failure to recycle its supposedly "green" packaging. Despite large-scale approval and nationwide enactment of the policy, the German policy has proven too costly to be effective. Others, however, see the European policy as a helpful step toward an environmentally-sound Union.

12. Ghana Case:
Deforestation has claimed an enormous toll through the ages in environmental damage, economic deterioration and human misery. For various reasons such as logging and clearing for cash crops cultivation, the rainforest in Ghana has been decreasing rapidly and significantly. Since 1981, the annual rate of deforestation in Ghana has been two percent/year or 750 hectares each year. Ghana's tropical forest area is now just 25 percent of its original size. The major buyer of Ghanaian timber is the European Union. The impact of deforestation is widespread, affecting the livelihoods of local people, disrupting important environmental functions and severely disturbing the biological integrity of the original forest ecosystem . There is a serious concern in the region about climatic change, soil erosion and large-scale desertification.

13. Nematode Case:
In 1990, the European Community (EC) imposed a ban on the importation of untreated, green (or raw) softwood lumber. The ban was a means to avoid the inadvertent importation of the pinewood nematode into Europe, thus preventing destructive affects on the environment. Until recently, both the United States and Canada possessed a derogation to this ban, therefore allowing the export of Canadian and U.S. softwood to continue, provided that special certifications of inspection and debarking standards were met. This derogation was scheduled to formally end on October 1, 1993. The EC, however, imposed the ban on Canada which became effective on August 15, 1993, sparking Canadians to call for trade retaliation.

14. Tuna- Dolphin I Case:
The United States banned imports of Mexican tuna because Mexico had not taken steps to reduce the number of Eastern Pacific Tropical dolphins killed each year due to tuna fishing. Mexico appealed the case to the General Agreement on Tariffs and Trade (GATT), where the panel ruled in favor of Mexico. The ruling was in part due to the discriminatory manner in which the United States implemented the measure and in part due to the GATT resistance to cases where the process of production is a major factor. Furthermore, the panel found that the U.S. labeling of "Dolphin Free" tuna did not conform to GATT standards. The case was, however, solved bilaterally between the United States and Mexico.

15. Tuna- Dolphin II Case:
The U.S. Marine Mammal Protection Act placed bans on imports of tuna harvested by a method called purse seining which results in killings of marine mammals in excess of U.S. standards. It placed embargoes on countries such as Mexico to restrict imports from countries that import tuna from Eastern Tropical Pacific and export that tuna to the United States. It was in the first panel (GATT I) that Mexico challenged the MMPA. GATT found that the United States violated Article XI of GATT, by adopting quantitative restrictions on imports. The United States in turn used GATT's Article III:4 as an instrument in arguing the restrictions were internal regulations.

This argument was rejected by GATT I's panel on the grounds that Article III restrictions were only to be applied to "products" and not "processes" by which products were produced. Thus, the panel concluded that Article III:4 was not relevant. Three years later the GATT Tuna-Dolphin II case occurred, a separate panel from the first, and it came to the same conclusion about Article III:4. GATT II decided the embargoes were not helpful in furthering U.S. conservation objectives. Also, these objectives could have been achieved only if the primary exporter changed its policies and practices. France and the EC were among the 34 countries who demanded that the GATT Council adopt a dispute panel report condemning the U.S. legislation on banning imports of "non-dolphin friendly tuna", or in other words tuna caught with purse seine driftnets. They argued that "the issue needs a multilateral base because if one nation enforces strict regulations for protection of dolphins," then the actions of all nations will be obstructed.

** SPECIAL NOTES** The Tuna Dolphin Cases, although not pertaining directly to deforestation, do in fact illustrate the GATT/WTO's priority of free and fair trade practices over environmental considerations. They also show that the future of mandatory import restriction policies are based on shaky legal ground.

IV. COMPARISON AND CONTRAST

The table below lists the specific cases and separates them by type of restriction or measure, the cultural factors stemming from the situation and which geographic area is impacted the greatest. Categorizing by measure type gives an indication of who is taking the responsibility of promoting and practicing environmentally sound policies. Cultural factors give indicate domestic impacts and implications -- a micro examination. Geographic location is more of a macro-view, citing a region or continent that will suffer the greatest risk to the environmental problems listed in each case.

TABLE 1: Case Content, Compare/ Contrast

CASE	MEASURE	CULTURE	CONTINENT
Africa	Export	Depletion	Africa
Bendl	Export	Depletion	Africa
Brazil	Export	Depletion	Latin America
Indonesia	Export	Deforestation	Asia
Malaysia	Export	Depletion	Asia
Solomon	Export	Depletion	Asia
Teak	Export	Indigenous	Asia
Thailog	Export	General	Asia
Austria	Import Label	Deforestation	Asia
Dutchwood	Import	Deforestation	Asia
Eulabel	Import Label	General	All
Ghana	Import EU label	Deforestation	Africa
Nematode	Import	Parasite	North America
Tuna1/Tuna2	Import Standard/Label	Moral Issue	America
Woodlbl	Import Label	Deforestation	All

Measures:
Despite the unique characteristics of each individual case, they all contain pertinent aspects which significantly relate to environmental concerns with the tropical timber industry. All of the cases fall into two general categories: export and import restrictions. Of these restrictions, five import regulations contain labeling programs such as the European Union's ecolabel. As previously mentioned, the Community's ecolabeling scheme is a voluntary measure, however, Austria and the United States discovered how contentious these policies can be if implemented on a mandatory basis. In both cases, the WTO ruled that mandatory labeling programs run contrary to the spirit of the GATT, and Austria and the United States were subsequently forced to reduce these measures.

Location:
As expected, the continents most heavily impacted by these regulations have been the major tropical timber producers: Latin America (6% of all cases), Africa (20%), and Asia (46%). Thirteen percent of the cases, Tropical Wood and Eulabel, impact all continents while the Nematode case impacted the US and Canada exclusively and the Tuna-Dolphin cases impacted only Mexico.

Cultural Factors:
Cultural factors play a critical role in the lesser developed countries of Africa, Asia, and Latin America as well. Whether it be concerns over rainforest depletion, decreasing acres of arable land, or the destruction of habitat for either animals or indigenous populations, the cases illustrate how measures are beginning to be implemented in order to conserve these increasingly depleted resources. One unique case, the Nematode case, shows how the European Union imposed restrictions on timber from the US and Canada infected with a wood parasite in order to preserve Europe's own forests. This is in stark contrast with other programs which the Community as levied that are intended to preserve these resources at their point of origin.

The cases in this analysis exemplify how officials have become aware that at the current rate, the world's forests will be quickly depleted causing far-reaching impacts on agriculture, trade, and cultures. In the Thailog case, one observes how current practices have effected the general population as well: heavy logging has over the years reduced a natural barrier which aids in the prevention of mass floods thereby jeopardizing the lives of the entire populous. All countries involved agree that sustainable methods, methods that meet the needs of the present without compromising the ability of future generations to meet their own needs, are the means in which forest preservation must be met; this is obvious by the variety of policy mixes each individual country has implemented. However, unilateral interventions tend to be discriminatory (as Austria and the Tuna-Dolphins), arbitrary, and possibly unworkable. They may also probe to be ineffective in reducing either tropical deforestation or the trade in "unsustainable" timber, and may in fact be counter productive (Barbier, et al, pg. 126).

V. POLICY

Policy solutions are extremely contentious because middle ground is so hard to achieve when trade and the environment are concerned. "Greens" are usually the first to dispel legislation as being to weak while developing countries contend that they are to burdensome and constricting. What is good for one, in this case, is not necessarily good for the other. The following solutions have been postulated by scholars and politicians in attempt to find a compromising position. These include unilateral import restrictions, mainly by industrialized countries, unilateral or bilateral export restrictions similar to variable export restraints, and finally, a multilateral approach to sustainable management and development.

Unilateral Import Restrictions

The problem with international organizations such as the GATT/WTO and the ITTO lies in the absence of an enforcement mechanism. Without a clear, tangible means in which to effectively implement and administer these policies and judgements, countries, especially the smaller countries of the lesser developed regions, will have the propensity to "piggy-back" or "free-ride", that is, invoke the privileges of membership without fulfilling any responsibilities or incurring any costs. What has been a most effective tool and will be so for time to come in the prevention of such behavior has been unilateral restrictions either import or export oriented. The combining of these various regulations into a multilateral arrangement which takes into account the concerns of each viewpoint is a more viable option for both sides.

Sustainable Management and Development

Along the guidelines established by the United Nations Conference for Environment and Development in Rio (June 1992), the aim of the European Union is to "promote a form of tropical forest management that reconciles conservation constraints with the social and economic development needs of tropical countries." Although outright boycotts of tropical timber is illegal under GATT due to their discriminatory nature , it would also have devastating effects on the producer countries' economies who heavily rely on the export of raw timber and timber products to sustain their economies. A balanced solution is called for which would be to award the ecolabel to timber from forests which are managed on a "sustainable basis" and to only admit in the EU market timber which bears this label to encourage the use of such timber through sustainable measures. Therefore, it would be the forest management, and not the product itself, which would be guaranteed, thus leaving the ultimate responsibility in the hands of the producing countries. These measures would also skirt WTO restrictions on mandatory labeling, however, the problem lies in how to define a sustainable managed forest. To help developing countries comply to these standards, the EU has earmarked certain funds to be made available to these countries which would alleviate the initial start-up costs to implement these programs. Given the EU's historical relationship with many of these countries, such assistance is viewed as a prerequisite for future growth.

Export Restraints

For the producing countries, wood export bans tend to be too harsh due to the dependence of their economies on trade in these products. Protective legislation is nevertheless a must, so the promotion of sustainable managed forests would prove to be the most fastidious way to promote environmental conservation while simultaneously leaving trade flows unimpeded. The promotion of sustainable managed forests is an initiative that takes into account the interests of both the importing and exporting countries and will prove to be the most viable solution in light of the GATT's negative view of outright bans or quotas.

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