ADVANCE UNEDITED TEXT BACKGROUND DOCUMENT INFORMATION ON TRADE AND ENVIRONMENT This is a non-official document, for information only, prepared by the IFF Secretariat. It is largely based on inputs from The International Tropical Timber Organization (ITTO) as Lead Agency on this Programme Element within the informal, high level Interagency Task Force on Forests (ITFF). It provides additional background information to delegations attending the second session of the Intergovernmental Forum on Forests (Geneva, 24 August-4 September 1998). Published in English only. CONTENTS Executive Summary I. Introduction Global Trade and Forest Resources Trends Outline of Document II. General Overview of IPF Conclusions and Proposals for Action III. Current Status on Trade and Environment in Forest Products and Services Market Access and ■New■ Barriers to Forest Products Trade The Relative Competitiveness of Forest Products Lesser Used Species Certification and Labelling Internalizing the Costs Market Transparency IV. Assessment of Recent Developments Illegal Trade Endangered Species and CITES International Obligations and Agreements Country Certification Recent Market Developments V. Conclusions and Proposals for Action References Executive Summary 1. The following document aims to assist discussion at the Second Session of the International Forum on Forests (IFF) by focusing on the key trade and environment issues outlined in its mandate, and in particular on the major challenges facing the IFF that result from the proposals for actions adopted by the Intergovernmental Panel on Forests (IPF) on trade and environment in relation to forest products and services. 2. Only a small proportion of global timber production is destined for international trade. Approximately one quarter of wood based panels and paper products and one fifth of sawnwood and wood pulp are traded internationally. Nevertheless, the IPF -acknowledged the potential positive relationship between trade in forest products and services and sustainable forest management■ and endorsed -the importance of promoting sustainable forest management through mutually supportive trade and environmental policies, in particular avoiding policies that have adverse impacts on the management, conservation and sustainable development of forests.■ Thus the broad principle that the trade in global forest products could be harnessed to improve the incentives for sustainable forest management was generally accepted by the IPF. 3. The Intergovernmental Panel on forests (IPF) reached an important set of conclusions and proposals for action on achieving a positive and mutually reinforcing relationship between trade and sustainable forest management including: market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency. However, the proliferation of 'new' trade barriers, such as export restrictions, environmental and trade restrictions on production and exports, and quantitative restrictions on imports of 'unsustainably produced' timber products, still pose a potential threat to improved market access. In addition, the IPF also tried to address concerns such as the increasing illegal trade in forest products and the need to reconcile national measures with obligations under international agreements. All these important areas must also become the focus of the subsequent discussions by the IFF on trade and environment. 4. The proliferation of -new■ trade barriers, such as export restrictions by developing countries to encourage domestic processing of tropical timber for export, environmental and trade restrictions on production and exports in developed countries that affect international trade patterns, and quantitative restrictions on imports of 'unsustainably produced' timber products, still pose a potential threat to improved market access. Competition between different wood products and between products from different regions of origin and between wood and non-wood substitutes is inevitable, and should not unduly constrain a global initiative to improve sustainable forest management. Increased utilization of lesser used species (LUS) will occur as some currently commercially exploited species become increasingly scarce relative to their demand; however, this increased utilization must be made compatible and consistent with improvements in the overall sustainable management of production forests. 5. The proliferation of and lack of coordination among schemes are currently hampering the development of an internationally agreed and voluntary timber certification process. There is a need to achieve international harmonization and mutual recognition of standards. To date, the slow progress in timber certification has meant that its potential role in promoting sustainable forest management on a significant scale globally is, at best, still unclear. 6. Public policies continue to be a major barrier to sustainable forest management in producer countries. The result is inappropriate economic incentives creating inefficiencies in timber harvesting and short-term extraction for immediate gain, and a more long term and wide scale effect on the pattern of forest-based industrialization and its implications for the management of the forest resource base as a whole, including the conversion of forest land to agriculture and other uses. Improved market transparency is one key element in progress towards policy reform and full cost internalization to promote sustainable forest management. 7. In addition to dealing with the above challenges, the IFF must consider such recent developments as illegal trade, species extinction, the role of international obligations and agreements and recent market trends. 8. Illegal activities in the timber trade cover a number of widespread practices involving illegal logging, illegal trading (i.e. 'timber smuggling') and illegal pricing and classification of timber. The continuing growth of these illegal activities should be of concern to the IFF, as such activities involve destructive and short-term practices that are damaging to forests, and result in loss of export earnings and revenues that could be invested in improved sustainable management. 9. There has been concern that the listing of commercially important tropical timber species on CITES appendices is being used as a means to control or limit the global forest products trade. It is important to ensure that any trade restrictions imposed through CITES are both necessary for the protection of an endangered tree species and effective in achieving this objective. 10. The issue as to whether the ITTA, or any other forum, should eventually evolve a multilateral agreement to cover all forests must still be addressed by the IFF. In particular, IFF needs to consider the issue as to what international and national policies are required to facilitate sustainable management, and whether these policies need to be endorsed through multilateral agreement and commitments. To make such initiatives effective, it may be necessary to consider country certification, which involves an international commitment by both producer and consumer countries to adopt policies and practices towards encouraging sustainable management of production forests and timber products while simultaneously improving international market access of these products. 11. Finally, the economic impacts of events such as the Asian financial crisis on the region■s forest products trade, and the implications for the global trade need to be monitored in order to determine whether international contingency plans and assistance could support countries and industries to continue developing sustainable forest management plans in the face of such short-term economic crises. 12. The main conclusions and proposals for action of this report are summarized in Section V. I. Introduction 13. At its First Session, the IFF was charged with the following mandate on trade and environment issues: "(b) Consider matters left pending on trade and environment. Analyse the mutually supportive roles performed by the international trade and sustainable forest management and, in that context, issues related to non-discriminatory international trade in forest products from all types of forests, including the role that tariff and non-tariff barriers perform in relation to sustainable forest management, certification issues where relevant and improved market access, taking into account the needs of developing countries, in particular those of the least developed among them. Consider the question of the relationship between obligations under international agreements and national measures, including actions imposed by subnational jurisdictions, recognizing that those matters are also considered in forums whose primary competence is to address trade issues; the relative competitiveness of wood versus substitutes; valuation; and market transparency and the related issue of illegal trade in wood and non-wood forest products." 1/ 14. Some of these issues, such as market access, competitiveness, certification and labelling, full-cost internalization and market transparency, were the initial focus of the substantive trade and environment discussions during the Second and Third Sessions of the Intergovernmental Panel on Forests (IPF). The new issues recognized by the IFF at its First Session include analysis of trade and sustainable forest management, non- discriminatory international trade, the relationship between obligations under international agreements and national measures, and illegal trade in wood and non-wood forest products. 15. The trade and environment issues raised by the mandate of the IFF are very wide-ranging. The following background document aims to assist discussion at the Second Session of the IFF by focusing on the key trade and environment issues outlined in its mandate, and in particular on the major challenges facing the IFF that result from the proposals for actions adopted by the IPF on trade and environment in relation to forest products and services. It also aims to help focus the discussion on analysing and potentially enhancing the important role of international trade in forest products in promoting sustainable forest management. The latter term has been interpreted in many different ways. Here, the chief concern will be with sustainable production and environmental management of those forests currently or potentially exploitable for timber, although there is also a general concern of the impact of timber production and trade on the ■sustainability■ of forest resources generally and the potential values of their goods and services. 16. The main rationale for focusing primarily on the relationship between the international trade in timber products and sustainable management of production forests is that this relationship lies at the heart of the key trade and environment issues that the IFF seeks to address. However, it is also important to recognize that analysis of trade and environment linkages with respect to the global forest products trade is subject to a few limitations. Data availability usually constrains the vast majority of studies to examining these linkages mainly in terms of the trade in wood products - roundwood, sawnwood, plywood, furniture and pulp and paper products. 2/ While charcoal and fuelwood production is significant as a percentage of the volume of total roundwood production, especially in developing countries (i.e. 55%), only a very small percentage (less than 0.3%) of non-industrial roundwood production enters the international trade (FAO 1995). Thus the treatment of fuelwood-environment linkages is generally considered separate from trade and environment issues. At the other end of the forest products spectrum, lack of data has also precluded analysis of how trends in production and trade in higher processed products, such as furniture, doors, construction and joinery items, etc., might impact on sustainable forest management. 17. Trade statistics on non-wood forest products (NWFPs), such as rattans, wildlife products and medicinal plants, are not well established, possibly because of their relatively small contribution in terms of volume and value to international trade. As a rough estimate, the total value of world trade in NWFPs is thought to be around US$1,100 million (FAO 1997). There is also a lack of available statistical information for proper analysis of the key cross-border ecological and amenity services provided by forests, such as ecotourism, watershed management, carbon sequestration and biochemical prospecting. Nevertheless, to the extent that the trade in wood products impacts on the sustainable management of forests, then the potential availability and quality of NWFPs and forest services will also be affected. Where the appropriate data exist, it may also be important to examine this linkage explicitly, especially in the context of determining the sustainability of NWFP exploitation as well as valuable regional and trans- boundary flows of forest services. 18. This problem of data availability for assessing the full range of trade and environment linkages associated with the global forest products trade was recognized by the IPF. For example, the Panel concluded that, although - issues of trade and environment relating to forest products and services should be addressed in a holistic manner,■ the IPF noted that -there was inadequate information on both domestic and international trade in non-wood products and forest services. Further studies and data gathering are needed to overcome these gaps in future.■ Global Trade and Forest Resource Trends 19. Any assessment of the trade and environment issues associated with the global forest products trade must consider the recent trends in that trade and in the forest resource base supporting it. The global forest products trade, particularly the regional trade in Asia, has been badly affected by the very recent economic crisis in the Asia region (Adams and Johnson 1998). In Section IV, the implications of this crisis for the trade and sustainable forest management is discussed further. Here, the more long term trends in the global forest products trade and forest resource base are reviewed. 20. Only a small proportion of global timber production is destined for international trade. Approximately one quarter of wood based panels and paper products and one fifth of sawnwood and wood pulp are traded internationally. Only 6-7% of global industrial roundwood output is currently traded (Barbier 1996b; FAO 1997). 21. At a global level, forestry contributes about 2% to world GDP and 3% of international merchandise trade. The regional pattern and direction of the global forest products trade has been fairly stable, with the global forest product market still largely dominated by developed countries, in terms of both exports and imports (FAO 1997). Nevertheless, two distinct trends have become discernible in recent years (Barbier 1996b): 22. First, the trade in forest products is highly regionalised within three important trading blocs, the Pacific Rim, North America and Europe (mainly Western Europe). Within each trading bloc the major importers are mainly developed countries, such as Japan, the United States, Canada and the European Union. However, in recent years developing countries particularly in Asia have been increasing their share of global imports (see Table 1). Much of this demand reflects the increased growth in consumption of industrial wood products in developing countries. Newly industrialized countries with limited forest resources have also been increasing their imports of logs and semi- finished wood products as raw materials for the export-oriented processing industries. 23. Second, the major global exporters of forest products still tend to be developed countries with temperate forest resources and processing industries. However, developing countries such as Indonesia and Malaysia have emerged as dominant world exporters of certain forest product exports, such as non- coniferous wood-based panels, logs and sawnwood (see Table 1). Other developing countries, notably Brazil, Chile and the Asian newly industrializing countries, are beginning to have an impact on the international trade in wood pulp and paper products. In general, the trade in forest products has shifted towards value-added processed products. 24. However, the global forest products trade is still dominated by a few countries. In 1995, five countries accounted for 55% of world exports, and ten accounted for 70%. The top two exporters, Canada and the United States, were responsible for almost one third of the global export market. Similarly, five countries accounted for 48% of global imports, and ten countries for 66%. The top two importers, the United States and Japan, comprised nearly one third of the global import market (Bourke 1998 and Table 1). 25. The trade in forest products has generally benefitted from successive post-war GATT Agreements. Tariff barriers to forest products trade have continued to decline in recent years, particularly in the post-Tokyo Round era (Bourke 1988). The extent of the decline in tariffs differs with the market and product. With few exceptions, developed country markets tariff rates had fallen generally to very low levels even before the Uruguay Round schedules were agreed. For example, pre-Uruguay Round tariff rates for forest products in developed countries averaged 3.5% compared to 6.3% for all industrial products (WTO 1994). 26. The effect of the recently concluded Uruguay Round negotiations is likely to reduce tariff rates on forest products further, including the phasing out completely of tariffs on pulp and paper products in major developed country markets. The extent of tariff escalation for forest products will be reduced in most importing markets, and many tariff rates will be bound. It is estimated that the likely gains in trade for major forest products from this development could be in the range of US$460-593 million, but proportionately this amounts to a gain of only 0.4-0.5% of total forest product imports in the markets analysed (Barbier 1996a and 1997). The implications of the Uruguay Round for the non-tariff barriers increasingly faced by forest products is less clear. However, two special agreements, the Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures and the Agreement on Technical Barriers to Trade (TBT), provide the basis for tackling certain non-tariff measures that have been used as trade barriers against forest products. 27. In terms of the status and management of global temperate and tropical forest resources, the most environmentally important resource is usually considered to be the closed forests (WRI 1992). In tropical countries closed forest resources have been subject to a higher rate of deforestation than in temperate countries. Reforestation is generally higher in temperate countries as well. Recent estimates of total forest loss (net of reforestation) by the FAO (1997) suggest that 12.26 million ha was lost annually over the 1980-90 period, and a further 13.03 million ha was deforested annually over 1990-95 at an estimated 0.65% annual deforestation rate. In comparison, all developed countries (excluding Russia) increased their total forest area by 8.78 million ha, or at an annual rate of 0.12%. 28. This changing pattern of global forest resources is thought to have two important implications for the trade in forest products (Barbier et al. 1994; Sedjo and Lyon 1990): 29. Declining tropical resources and expanding temperate resources will generally offset each other leading to stable prices for wood products, except for highly valued tropical woods. 30. The shift to plantations and second-growth forests versus old-growth stands as the source of timber will continue. The long-term pattern will shift from the Pacific Northwest and the tropics to plantations forests in North America and newly planted Southern Hemisphere forests. European forest resources are also projected to expand, at a net rate of around 1% annually (Pajuoja 1995). 31. Continued loss of old growth forests, and in particular tropical deforestation, will of course also have important environmental implications. Outline of Document 32. This document is organized in the following way. Section II summarizes the key points of consensus emerging from the Report of the Fourth Session of the IPF, as well as the issues that remain unresolved, and discusses briefly the challenges ahead. Section III examines current available evidence on the nature of trade and environment linkages in the global forest products trade, focusing in particular on issues that were initially examined by the IPF and are also of concern to the IFF, such as market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency. Section IV concentrates on more recent developments, such as illegal trade, species extinction, recent market trends and their implications for sustainable forest management, and international obligations and agreements. Section V suggests some conclusions and proposals for action. General Overview of IPF Conclusions and Proposals for Action 33. This section examines the key conclusions and proposals for action reached by the IPF at its Fourth Session, and discusses the issues for which no clear consensus was reached. 3/ 34. The IPF -acknowledged the potential positive relationship between trade in forest products and services and sustainable forest management■ and endorsed -the importance of promoting sustainable forest management through mutually supportive trade and environmental policies, in particular avoiding policies that have adverse impacts on the management, conservation and sustainable development of forests.■ Thus the broad principle that the trade in global forest products could be harnessed to improve the incentives for sustainable forest management was generally accepted by the IPF. 35. This general acceptance of the broad principle in turn poses an important challenge for the global community and for the IFF specifically: how can improvements in trade and environmental policies be made, both nationally and internationally, to ensure that a positive and mutually reinforcing relationship between trade and sustainable forest management takes place? 36. To some extent, the IPF attempted to examine this challenge by debating and reaching a consensus on current issues of market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency. Specifically, the main conclusions reached by the IPF were: 37. Although the IPF noted the reductions in tariff barriers to forest products, especially as a consequence of the Uruguay Round, the Panel expressed concern that -barriers to international trade in forest products, particularly non-tariff barriers, could still impede access of forest products to the international market.■ 38. Given the possibility that market competition among different forest products, and between wood and non-wood substitutes, might have implications for sustainable forest management and for markets for specific forest products in the future, the IPF recommended that -further economic and market studies, therefore, should be carried out to determine how best to use markets and economic instruments to promote sustainable forest management.■ 39. With regard to the attempts by developing countries to develop forest- based industries, the IPF recommended that more effort in these countries - should be geared towards promoting efficient and environmentally sound downstream processing industries and exports of processed products, consistent with sustainable forest management, in order to increase their contribution to sustainable development and to increase export earnings.■ 40. The IPF both acknowledged the progress in promoting lesser used timber species and endorsed further efforts, in particular the inclusion of temperate and boreal species, as long as exploitation was consistent with the principles of sustainable forest management. 41. The IPF -recognized that voluntary certification and labelling schemes are among many potentially useful tools that can be employed to promote the sustainable management of forests■, but also acknowledged that -because of inadequate information and relatively few real world experiences, it is still too early to assess objectively their full potential in promoting sustainable forest management.■ 42. On certification, the Panel concluded that -more studies and information are required to clarify various uncertainties■; that -in view of the potential proliferation of schemes, there is a need to promote comparability and avoid duplication among various voluntary certification and labelling schemes■; that although schemes are generally private and voluntary, governments -have a role in encouraging transparency, the full participation of interested parties, non-discrimination, and open access to voluntary certification schemes■; and finally, that -international efforts should focus on ensuring that existing and new certification and labelling schemes are open and non-discriminatory.■ 43. The IPF recommended with regard to full-cost implementation -that exchange of information on various research findings and experiences in relation to costs and policy mechanisms are encouraged so as to facilitate discussion and policy development.■ 44. Finally, the Panel concluded that -there has been little progress in improving market transparency for trade in forest products■ and that greater efforts are required -to address such issues as illegal international trade in forest products, transfer pricing and market distortions.■ 45. In accordance with the above set of conclusions, the IPF endorsed a number of key proposals of action, at the international and national level, involving both private and public entities. However, the Panel discussed but was unable to obtain consensus on the following options for action: 46. Options for action relating to possible agreement for forest products from all types of forests, based on non-discriminatory rules and multilaterally agreed procedures. 47. Options for action concerning the relationship between obligations under international agreement and national measures, including actions imposed by subnational jurisdiction. 4/ 48. Under the first group of options for action, the following proposals were discussed: 49. To explore the possibility of extending the concept of the Year 2000 Objective of the International Tropical Timber Agreement (ITTA) for all types of forests; 50. To explore the possibility of an international agreement on trade in forest products from all types of forests; 51. To examine the possibilities of further initiatives on trade liberalization within the auspices of the World Trade Organization; and 52. To explore, within an intergovernmental forum on forests, an intergovernmental negotiating committee or other arrangements decided upon at an appropriate time, the possibilities of promoting the management, conservation and sustainable development of all types of forests and trade in forest products in the context of an international, comprehensive and legally binding instrument on all types of forests. 53. Within the second group of options, the following specific proposals were raised and discussed: 54. Urging countries to remove all unilateral measures to the extent that those are inconsistent with international agreements; 55. Urging countries to remove all unilateral bans and boycotts inconsistent with the rules of the international trade system, including those imposed by subnational jurisdiction, in order to facilitate the long-term management, conservation and sustainable development of all types of forests, in accordance with paragraph 14 of the Forest Principles. 56. Recognizing that those matters are also considered in forums whose primary competence is to address trade issues. 57. In summary, the IPF formulated an important set of conclusions and proposals for action that need to be implemented if serious progress is to be made on developing trade related incentives for improved sustainable management of forests, in particular on market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency. In addition, the IPF also tried to address some more recent concerns, such as the increasing illegal trade in forest products and the need to reconcile national measures with obligations under international agreements. All these important areas must become the focus of the subsequent discussions by the IFF on trade and environment issues of relevance to the global forest products trade. 58. However, the lack of consensus in the IPF on certain proposals on market access suggests that these proposals are generally concerned with establishing a commitment by all countries either to: i) accept an internationally binding agreement on all forests which cover trade or ii) ensure that national forest trade policies conform with global trading rules and international agreements. That is, although there is an emerging international consensus for endorsing measures to improve the trade-related incentives for sustainable forest management, the international community is not yet prepared to enshrine this principle in a binding international agreement to cover all the world■s forests or subordinating all national and subnational policies that affect the forest products trade to strict accountability under international trade rules and agreements. 59. Thus two distinct challenges for the IFF emerge from the conclusions and proposals for action reached by the IPF, namely 60. First, what is the scope for furthering the recommendations of the IPF on market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency, in light of the current status and developments in the global forest products trade? 61. Second, to what extent are more recent developments, such as illegal trade, species extinction, recent market trends and their implications for sustainable forest management, and international obligations and agreements, factors in influencing the objective of improving the trade-related incentives for sustainable forest management? III.Current Status on Trade and Environment in Forest Products and Services 62. Implication that were initially examined by the IPF and are also of concern to the IFF, such as market access, relative competitiveness of forest products, lesser used species, certification and labelling, full-cost internalization and market transparency. Trends in each of these areas will be discussed with a view to assess progress in the implementation of the IPF proposals for action. Market Access and ■New■ Barriers to Forest Products Trade 63. The trade in forest products is highly susceptible to changes in market access and trade barriers. By affecting the returns to forest production and exports, including the comparative returns with respect to non-wood substitutes, restrictions on market access and trade barriers can have an important influence on sustainable management of forest resources. 64. While noting the substantial progress on reducing tariffs on the forest products trade as a result of the Uruguay Round, the IPF expressed concern that new types of barriers to the trade, particularly non-tariff barriers, could still impede market access for many products as well as lead to new forms of ■protectionism.■ This concern is not misplaced, as in recent years there has been a proliferation of additional policies and regulations that have the potential of becoming 'new' barriers to the forest products trade. These include: 65. export restrictions by developing countries to encourage domestic processing of tropical timber for export; 66. environmental and trade restrictions on production and exports in developed countries that affect international trade patterns; 67. quantitative restrictions on imports of 'unsustainably produced' timber products; and 68. the use of eco-labelling and 'green' certification as import barriers. 69. Although only the last two measures could be strictly defined as 'new', all of these trade measures have been increasingly employed in recent years and have the potential to affect forest product trade flows significantly. The issue of certification will be discussed in more detail in the next section. The first three barriers will be briefly discussed below. 70. Developing countries continue the use of export restrictions on wood in rough and semi-processed products to support domestic processing industries and improve export prospects for higher valued forest products. Several studies on the role of export taxes and bans in encouraging forest-based industrialization and sustainable timber management in tropical forest countries have indicated that timber export taxes and bans have proved only moderately successful in achieving the desired results in Southeast Asia. 5/ For example, although expanded processing capacity was established in Malaysia, the Philippines and Indonesia, it was achieved at high economic costs, both in terms of the direct costs of subsidization as well as the additional costs of wasteful and inefficient processing operations. 71. Despite the losses in terms of economic inefficiencies and the implications for the management of their forest resource base, developing countries are unlikely to end such policies but may instead employ them more extensively. Many log-producing countries see the use of export taxes and bans as the means to compensate domestic processing industries for import barriers faced in developed economy markets. However, with the post-Uruguay Round decline in tariff escalation and barriers in import markets for forest products, this argument is less valid. 72. Developed countries are increasingly employing a variety of environmental regulations in their forest industries - both alone and in conjunction with export restrictions - that may have significant trade implications. Whether or not such regulations are being used intentionally for this purpose, they may lead to trade distortions and discrimination. For example, the combination of trade and environmental restrictions on logging in the Pacific Northwest of the United States - such as the spotted owl reservations coupled with the state-level log bans - produced significant domestic and global trade impacts, including increases in global sawlog prices and regional shifts in production with related effects in major sawnwood and plywood markets (Flora and McGinnis 1991 and Perez-Garcia 1991). 73. In many developed countries domestic policies to promote waste paper recovery and recycling have had important trade implications, particularly where they involve mandatory restrictions on the levels of virgin fibre and pulp use. For example, Bourke (1995) and Elliot (1994) discuss the trade implications for Canada - the world's largest producer and exporter of newsprint - of US state and federal recycled content laws for newsprint. In particular, the US recycled content laws may provide an unfair cost advantage to domestic producers because of the greater availability of used newsprint in the United States than in Canada. Similar problems apply to packaging and reuse requirements, such as the recent European Union Packaging Directive and the Japan■s regulations for recycling of paper, logging residues and dismantled houses. Such regulations all have the potential of being used as non-tariff barriers to competing paper product imports, particularly if there are requirements on suppliers to recover packaging or to impose deposit and refund schemes (Bourke 1995; Weaver et al. 1995). Potential problems exist with other environmentally oriented regulations, such as the increasing restrictions on trade in wood panels using formaldehyde glue, regulations banning or controlling certain timber preservation processes and materials, and controls on processing materials - e.g. the use of chlorine in bleaching pulp. 74. Although there are legitimate uses of all the trade policy measures discussed above, the rate at which they are being implemented and the frequency with which they have led to trade distortion and discrimination suggests that their use must be examined carefully. International agreements and rules governing their use should also be negotiated, and the interface and possible conflicts between multilateral environmental agreements and trade rules need to be explored through the auspices of the WTO. What clearly needs to be avoided is indiscriminate and widespread application of 'new' barriers to the forest products trade that could easily over-ride the gains in market access resulting from the recently concluded Uruguay Round. 75. What further advances the IFF can make in ensuring that national governments reconcile their individual trading policies with established international trading rules and agreements, and whether this requires the need for a new international agreement covering all forests, are important issues. The next section will return to these issues. The Relative Competitiveness of Forest Products 76. The IPF also recognized that the degree to which forest products from different regions compete among themselves and with non-wood substitutes for import markets is an important determinant to the long-run returns to forest products, and thus a potential influence on efforts to establish sustainable forest management. 77. The degree of substitution between tropical and temperate products in consumer markets illustrates the extent to which the markets for these two types of products are inter-related, or whether there are essentially two different markets for two distinct commodities. The available evidence indicates that the elasticities of substitution between temperate and tropical wood products are very low (Barbier et al. 1994). This suggests that there are two distinct markets, and tropical producers of these products would have difficulty in penetrating the larger temperate market. That is, temperate softwoods from different regions are still closer substitutes than softwoods and tropical hardwoods; equally, for tropical timber products there are strong substitution effects between products from different tropical regions or countries. In general, substitution by origin for tropical sawnwood and plywood in certain importing countries appears to be very high, especially for plywood. This would suggest that importers can substitute between sources of origin with relative ease but also that exporters can easily capture market share through price competition. There is also evidence that in some major processing markets imports of tropical logs are subject to substitution by domestic softwood logs and by technical change. 78. Forest products may also be substituted by non-wood products in end uses and final markets. Although there is increasing anecdotal evidence of this occurring in many consumer markets, particularly in construction and furniture industries, estimating the magnitude or scale of this effect has proven more difficult. However, for specific products this substitution effect may be significant. For example, plywood is believed to face severe competition from solid synthetic panels, with price strongly influencing the choice of product in the construction industry. In addition, substitution may be more of a problem for wood-based composites, such as particle board, fibreboard and reconstituted panels, and wood pulp. 79. Thus the available empirical evidence indicates that producers as a group may enjoy significant market power. If all producer countries instigate sustainable forest management and this leads to higher prices for timber products across the board, then there may not necessarily be any significant loss of market share by any country. However, if only a few producers instigate sustainable management and this leads to higher prices for their forest products, then substitution away from these products is more likely to occur. Lesser Used Species 80. The IPF has suggested that, provided markets exist and harvesting can be conducted sustainably, there is substantial potential for expanding utilization of forest resources, particularly in tropical countries, by exploiting commercially lesser used species (LUS). For example, recent FAO statistics suggest that only about 26% of the potential standing volume in tropical harvest areas is being felled. In general, the forest products industry is based on the utilization of large-sized logs from commercially important species (e.g., logs for sawnwood, plywood and veneer). Over the 1988-92 period saw and veneer logs comprised 92% of the total industrial roundwood harvest in Indonesia, 97% for Malaysia and 93% for Papua New Guinea (Drake et al. 1995). 81. If LUS are to play an expanded role in both the temperate and tropical forest products industry, it is unlikely that this additional supply would be suitable for traditional solid wood products such as sawnwood and plywood. Instead, the likely use of LUS would be for wood pulp and reconstituted wood products such as fibreboard, particle board and reconstituted panels. At least one set of projections, for the Asia-Pacific region, suggest that the potential gains to producers of developing capacity to manufacture composite panel products and other engineered wood products might be substantial, and could offset the negative impacts on the forest products industry of declining supplies of forest resources for sawnwood, plywood and veneer (Drake et al. 1995). 82. However, there are important considerations for any global strategy to promote LUS. 83. First, as discussed above, reconstituted wood products and wood pulp are currently some of the most competitive and volatile markets for timber products. Reconstituted wood panels are highly susceptible to substitution in import markets by semi-wood composites, such as cement fibreboard, composites made from agricultural and other recycled wastes, and a variety of non-wood substitutes. Any new form of virgin wood pulp would be competing in terms of quality and price with more traditional sources but also from recycled pulp. As noted above, the problem of market access for any new products generated from LUS is further exacerbated by the increasing proliferation of environmental, health and other regulations specifying the composition and quality of both reconstituted wood and paper products in consumer markets. 84. Second, in many countries particularly in tropical regions, the potential for identifying let alone exploiting LUS is limited by lack of basic information on the availability and commercial viability of these species. This in turn reflects the limited human and technical resources devoted to inventorying and assessing the forest resource base of the timber industry. Forest Resource Accounting (FRA) has been promoted as a means for tropical producer countries to assess regularly their forests, including the identification of LUS for potential commercial exploitation through sustainable forest management (Kemp and Phantumvanit 1995). Basic assessment of this kind is essential if LUS are to be utilized more in the forest products industry. 85. Thirdly, although it is generally assumed that exploitation of LUS is advantageous as it would increase stand harvesting yields and thus reduce per unit costs, and possibly lower regeneration costs by removing more of the residual stems, greater utilization of the standing volume of timber is not always compatible with sustainable forest management. A critical issue is whether there is a considerable loss of forest services such as biodiversity and watershed protection, if more species and hence stems are removed. Clearly, more needs to be learned about the potential ecological effects on forests of increasing the rate of utilization of LUS and the resulting impacts of greater stem removal from stands. Again, a FRA might be a first step in determining the capacity for exploiting LUS through sustainable management practices. However, further analysis of market demand and the costs of exploitation and utilization is required to determine the commercial viability of these species. 86. Finally, exploitation of LUS must be considered in relation to the problem of increasing scarcity and depletion of key timber species. This issue is discussed further in the next section. Certification and Labelling 87. As noted by the IPF, the number of eco-labelling and certification initiatives applied to the forest products trade has increased rapidly in recent years. Generally, the aim of these initiatives is to distinguish 'sustainably' produced forest products or to ensure that forest product imports conform to domestic environmental standards and regulations. As the IPF acknowledged, there is considerable concern among producer countries and forest-based industries that certification and labelling will be used as non- tariff barriers limiting access to key import markets. Provided that such regulations and schemes are non-discriminatory, transparent and justified, are agreed mutually between trading partners or through multilateral negotiations, comply with GATT/WTO rules and conform with internationally recognized guidelines, then their potential use as trade barriers will be drastically reduced. However, the possible role of voluntary and non-discriminatory timber certification in promoting sustainable forest management on a significant scale globally is, at best, still not clear. 88. The term ■certification■ has been used indiscriminately to cover a wide range of processes. In this document the term timber certification will be used to mean a process which results in a written statement, i.e. a certificate, attesting to the origin of wood raw material and its status and/or qualifications, often following validation by an independent third party (Baharuddin 1995). To be effective in reassuring consumers that wood products originate from ■sustainably managed■ sources, timber certification requires both certification of the product process and certification of the sustainability of forest management practices. The former involves inspection of the entire product processing chain of custody from the forest to final product, through domestic and export markets if necessary. The latter requires verification of the forest management system in the country of origin, including the environmental and social impacts of forestry practices, against specified sustainable management criteria and standards. 89. Proponents of certification argue that it can assist potentially in promoting sustainable forest management while simultaneously reassuring consumers. A properly designed, voluntary and independently accredited certification scheme at the global level can be a means by which the various stakeholders can hold producers accountable; it can provide a market-based incentive to the individual producer to improve management; it can meet consumer demands for wood from well-managed forests without creating trade discriminations; and it can be a mechanism for monitoring multiple factors involved in forest use (Dubois, Robins and Bass 1995). 90. However, others suggest that the evidence for considerable additional demand for certified wood products is unproven and the only in certain small 'niche' markets may customers be willing to pay more for certified timber (Varangis, Crossley and Primo Braga 1995). In fact, there is concern that the impacts of certification on production and distribution costs might reduce the competitiveness of wood products in consumer markets. It is also argued that, although certification requires sustainable forest management as a necessary prerequisite, implementation of sustainable forest management does not require certification to take place (Kiekens 1995 and 1997). The promotion of certification globally should not either displace or divert resources from ongoing efforts in the major timber supplying countries to implement national forest policies, regulations and standards in accordance to international and national commitments to sustainable forest management. Finally, it is argued by some that the necessary but stringent conditions required for an accredited global certification scheme are bound to have only a limited impact on a small proportion of global timber production, and equally, on the sustainable management of a limited area of forests (Baharuddin and Simula 1994; Kiekens 1995). 91. Recent estimates of the total global forest area certified are depicted in Table 2. Total production amounts to around 3.5 million m3 from about 5.1 million ha of certified forests. In fact, certified production accounts for only 0.23% of the world■s industrial roundwood production. It is unlikely that the supply of certified timber and timber products will expand very fast. Even under optimistic projections, only 15% of traded wood products are expected to be affected by certification by the year 1999 (Baharuddin and Simula 1996). In fact, recent progress in certification appears to have slowed. A survey in March 1997 revealed that, although the number of certified forests had nearly doubled from 25 to 58, the total area of certified forests had fallen from 5.1 to 3.1 million ha. The main reason for this decline is that a number of large forest concerns did not have their certificates renewed. On the other hand, total production of roundwood estimated from certified forests is now estimated to be 9.5 million m3 annually (Baharuddin and Simula 1997). 92. One of the additional benefits of certification might be that it will allow timber exporters to avoid losses of market share and revenues in environmentally sensitive markets. An attempt to estimate these benefits for tropical timber certification has been conducted by Varangis, Crossley and Primo Braga (1995). The results are depicted in Table 3. The total gain from certification of tropical timber products is estimated to be US$428 million, or 4% of current developing country timber product exports. An interesting aspect of this estimate is that the vast majority of the gains from certification arises from avoiding losses in markets and revenues in the absence of certification and not from the additional gains of any ■green premium■ - despite the generous assumption that the latter might be as high as 10% and with no substitution effects. 93. It has been suggested that if both tropical and timber products were certified, more markets would certainly be affected, and as a result around 15-25% of the total share of global forest trade could be influenced by certification (Baharuddin and Simula 1996). However, critics argue that the growing importance of domestic markets in tropical countries and the dominance of markets where consumers are less interested in certified timber, limit the potential market effects of this instrument for tropical timber products (Bourke 1998; Kiekens 1997). In the case of European temperate forests, it is argued that the only forests suitable for certification are public forests and a few large-sized private forests, mainly located in Sweden, but to date any certification of these forests has not led to any improvement in forest management or improved market access for certified products (Kiekens 1997). 94. There is also the issue as to whether timber certification inevitably leads to higher prices for timber products in final consumer markets. This issue has proven difficult to resolve conclusively, and it relates to the evidence concerning the overall costs of certification. It is useful to distinguish two costs: the direct costs of certification in terms of implementing such schemes and the indirect costs of certification through any trade losses and diversion in final consumer markets as a result of substitution between certified and non-certified products. 95. For example, for tropical products the costs of assessing or auditing have been estimated at about US$ 0.3 and US$ 1 per hectare per year in developing countries, and the costs of certifying the chain of supply for processing could be up to 1% of border prices (Baharuddin and Simula 1994). For temperate products in developed countries, cost estimates for certifying forests are roughly similar - US$ 0.3 to 0.6 per hectare (Varangis, Crossley and Primo Braga 1995). Dubois, Robins and Bass (1995) suggest as a rough approximation the minimum costs of certifying forest management would be a fixed assessment cost of US$ 500 plus US$ 0.40 per ha for the initial assessment and US$ 0.15 per ha for each subsequent visit. In addition, to meet established certification criteria forest management costs in North American temperate and boreal forests will rise by 20-30%, and could be as high as 100%. Finally, there are likely to be some indirect costs in terms of trade losses and diversion for certified timber products in importing markets - although the precise magnitude of these indirect costs of certification are difficult to determine presently. 96. There is now an emerging international opinion that an adequate international framework is needed both to ensure harmonization and mutual recognition of certification systems and to ensure an effective international accreditation process of certification bodies. The important criteria for any internationally accredited certification body is that it is independent; impartial; and able to demonstrate that its organization and personnel are free from any commercial, financial or other pressure (Dubois, Robins and Bass 1995). Equally, to achieve harmonization and mutual recognition, a voluntary international certification system must: i) be comprehensive and cover all types of forests and wood products; ii) be based on objective and measurable criteria; iii) produce reliable assessment results and thus be fully independent from any vested interests; iv) be transparent and involve a balanced participation of the interested parties and stakeholders thereby ensuring their commitment; v) represent all involved parties; and vi) be goal oriented and cost-effective (Baharuddin and Simula 1996). 97. A major problem affecting progress on certification appears to be the duplication and poor coordination of efforts on developing internationally recognized criteria and indicators of sustainable forest management (Baharuddin and Simula 1997). There are at least eight intergovernmental processes, some closely linked and others overlapping, that are attempting to derive such criteria. In addition there are numerous national-led initiatives that are being developed more or less independently and without necessarily conforming to internationally agreed common criteria. Only one recent initiative, implemented by the Centre for International Forestry Research (CIFOR), appears to be evaluating and developing criteria and indicators for sustainable forest management at the forest or forest management unit level, and which could be used as the basis for assisting various national efforts in determining how close their forest management efforts are conforming to sustainability standards. 98. Establishment of an international framework covering all existing and proposed timber certification schemes, as well as a common core set of criteria and indicators for sustainable forest management on which such schemes can rely, is clearly a long term process. As a multinational forum, the IFF could endorse this process and encourage the parallel and cooperative development of existing and proposed international schemes, as well as the related national and regional schemes, with the overall objective of achieving international harmonization and mutual recognition of standards. In addition, the international community should support WTO■s efforts to ensure that existing and new certification and eco-labelling schemes for wood products are not used in a discriminatory way as a form of ■disguised protectionism■. The purpose of timber certification should be to reinforce the positive incentives for sustainable forest management and not to penalize or restrict production and trade in timber not meeting standards. 99. However, there is also the issue as to whether the IFF should consider a different sort of certification scheme altogether, such as a country-level certification scheme that has been proposed recently (Barbier et al. 1994). Similarly a new kind of certification for forest is under discussion in the International organization for Standardization in connection with the already agreed ISO 14001 standard for environmental management system (EMS) which applies to all sectors not only forest sector. EMS certification is verifying that the right system is in place. Canada is moving ahead with implementing a certification scheme for certifying forests under EMS. Section IV will discuss the country-level scheme in more detail. Internalizing the Costs 100. The IPF came to the conclusion that full-cost internalization may contribute to sustainable forest management in the long run, and there needs to be more studies globally to assess the costs of unsustainable forest use. However, assessing these costs is difficult because the impacts of unsustainable harvesting are pervasive. Unsustainable extraction of timber from forests can lead not only to a decline in standing timber stocks but also wider environmental effects. These external effects include the loss of other consumptive uses (e.g. harvesting and hunting non-wood products and recreational uses), of ecological functions (e.g. watershed protection, carbon storage and microclimatic role) and of other non-consumptive values (e.g. ecotourism, genetic or biochemical information, and ■existence■ values) of the forest. In addition to these direct impacts of timber extraction on the environment, timber production can influence more widespread deforestation indirectly. This indirect impact may occur through the opening up and improvement of access to the forests, which may then interact with other socioeconomic factors encouraging activities that degrade the environment. However, due to the intricately interconnected relationship of the various causes of deforestation, it is extremely difficult to identify how much of the deforestation process is due to timber production. 101. Moreover, a background document for the IPF noted that to a large extent the unsustainable management of forests has become ■institutionalized■ in many countries and regions as a result of long-standing and widespread policy distortions leading to inappropriate incentive mechanisms (Barbier 1996b). Several important points emerge from this review. 102. First, inadequate and often distortionary public policies are a major barrier to sustainable forest management in producer countries. The result is inappropriate economic incentives at the stand level that lead to inefficiencies in timber harvesting and create the conditions for short-term extraction for immediate gain, while at the same time failing to ■internalize■ the direct and indirect environmental impacts of forestry operations. Improper policies also have a more long term and wide scale effect on the pattern of forest-based industrialization and its implications for the management of the forest resource base as a whole, including the conversion of forest land to agriculture and other uses. 103. Thus policy reform to improve sustainable forest management may not only reduce the direct and indirect environmental impacts of forestry operations but may also be justified on economic efficiency grounds for long-term development of the forestry industry and the use of forest resources. The result is that producer countries may incur significant short term costs from encouraging policy reforms and regulations to encourage sustainable forest management, but they are also likely to gain substantially in the long run from a more efficient forestry sector. Even in the short run, the reduction in subsidies, preferential tax breaks and other inducements may be an additional financial benefit of policy reform. 104. Equally, the transition to sustainable forest management may impose additional costs at the stand level for residual stand management and increased environmental protection. For example, Baharuddin and Simula (1996) suggest that the increased costs may derive from five different sources: i) setting aside of areas; ii) lower harvesting yields; iii) additional silvicultural and harvesting costs; iv) additional costs of planning and monitoring; and v) different distribution of costs and benefits over time. Low-intensity harvesting will generally mean less timber extracted per hectare in the short term. However, these costs can be at least partially offset by improved harvesting techniques and better planning that lower operating costs. In addition, the current income foregone with reduced yields initially may be more than compensated over the long run from improved stand productivity and yields as a result of reduced residual damage and better stand regeneration and recovery. Too often, assessment of the costs of sustainable forest management focuses on the short-term costs of implementing improved management and fails to take into account the potential long-term gains in stand productivity and income. 105. Estimating the additional costs to both timber operations at the stand level and forestry industries at the national level of implementing sustainable forest management practices is therefore extremely difficult. However, the available evidence does suggest that on the whole: 106. the transition to sustainable management is likely to impose some increase in production costs in the short term, both at the industry-wide level and the stand level 107. the additional costs may be higher for tropical than temperate countries 108. it may no longer economically worthwhile to harvest some forests, and large areas of some countries■ forest resource base may have to be ■set aside■ from production which could result in some income losses, and 109.increases in costs and stumpage prices at the stand level do not necessarily mean significantly higher prices for final forest products. 110. The costs of implementing sustainable forest management are likely to vary significantly across forests, countries and regions. A range of 5% to up to 50% additional production costs is possible (Baharuddin and Simula 1996). For temperate and boreal forests, the available estimates suggest generally an increase of around 20-30% in costs (Dubois, Robins and Bass 1995). For tropical countries, the variation in estimates is much wider but on average higher than for temperate regions. Most estimates suggest that the costs of sustainable forest management per cubic metre of log produced lies between 10-20% of the current average international tropical log price of about US$ 350 (Varangis, Crossley and Primo Braga 1995). 111. The higher costs of sustainable forest management on overall timber production are likely to make it infeasible to harvest some forest areas that would have otherwise been logged. This makes perfect sense in cases where the failure to ■internalize■ the environmental and long-run costs of timber operations has meant that these operations remain financially profitable even though they are socially inefficient. A comparison of the private and social returns to selective logging on steeply-sloped (30%-50%) old-growth forest in the Philippines illustrates this point (see Table 4 and Paris and Ruzika 1991). The magnitude of the estimated damage to downstream activities indicates that the Philippines would be better off by not harvesting old- growth forests on such steep slopes, even though the private concessionaire would gain financially from unsustainable harvesting on the steep terrain. 112. On the other hand, the widespread implementation of sustainable forest management across many regions in country could result in the removal of many forest areas from potential production. Although there would no doubt be substantial environmental gains, the economic costs to producer countries could be significant, particularly for tropical timber exporting countries. This was demonstrated in a recent policy simulation that indicated the additional economic impacts to tropical forest countries of 'setting aside' 10% of their forest resource base (Perez-Garcia and Lippke 1993). The simulation indicates that such reductions in supply would result in a loss of wealth for tropical timber producing countries. Over the long run, permanent set asides would mean that the remaining production forest inventory could not support as high a level of sustainable harvest as under base case projections. 113. Finally, it is sometimes argued that the higher additional costs of sustainable forest management will make many timber products uncompetitive in final markets. However, although harvesting costs are often a large proportion of the stumpage value of logs, for most processed forest products the costs of the wood raw material is a small proportion of the total costs of harvesting. This is particularly the case for products traded globally; for example, typical stumpage values in tropical countries of US$ 6-30 per cubic meter of log equivalent end product often represents less than one percent of the final value of the product being sold in foreign consumer markets (Barbier et al. 1994). As a consequence, even reasonably large increases in harvesting costs and the stumpage value of timber can have little or only a modest impact on the final product price in consumer markets. Thus the evidence for both traded tropical and temperate wood products suggest that a doubling of harvesting costs may lead to an increase of 10 to 15% of the costs at the importer or wholesaler level and less than a 10% increase in the retailer■s cost (Barbier et al. 1994; Dubois, Robins and Bass 1995). 114. A model of Indonesia's forestry sector developed by Barbier et al. (1995) was used to simulate a policy initiative by Indonesia to implement more 'sustainable' management of its remaining production forests. As shown in Table 5, scenarios depicting 25% and 50% increases in harvesting costs across Indonesia■s forestry sector were examined. Although domestic log prices are affected significantly by the increased harvest costs, any resulting impacts on the rest of Indonesia's forestry sector seem to be somewhat dissipated. Indonesia's sawnwood and plywood exports seem to be the least affected by the increased harvest costs, which would suggest that external demand factors exert an important counter-acting influence. Market Transparency 115. Improved market transparency is a key element in progress on the three key areas that the IPF considered: reducing trade barriers to market access; international harmonization and mutual recognition of standards on timber certification; and policy reform and full cost internalization to promote sustainable forest management. Without greater market transparency, progress in all these areas is likely to be hampered. 116. For example, earlier in this section it was suggested that a potential threat to the trade in forest products was the development of ■new■ non-tariff trade barriers, ranging from export restrictions by developing countries to encourage domestic processing of tropical timber for export; environmental and trade restrictions on production and exports in developed countries that affect international trade in forest products; and the use of quantitative restrictions on imports of ■unsustainably produced■ timber products. Similarly, the potential use of timber certification as import barriers through ■disguised protectionism■ was also discussed. Finally, the lack of detailed information on the distribution of costs and rents in the global forest products trade makes it difficult to assess accurately the likely economic impacts of sustainable forest management and any loss of consumer markets. 117. This suggests that progress in developing trade-related incentives for sustainable forest management globally would benefit from improvements in market transparency in the following ways: 118. Countries importing forest products should routinely review and make publicly available information on domestic environmental, health, building and other standards and regulations that are likely to affect the import of forest products and patterns of international trade generally. Where such regulations are considered a legitimate means by the importing country to restrict access to its domestic market on environmental or health grounds, then this information should not only be made publicly available but also periodically assessed by an appropriate international authority, such as the WTO. 119. Countries that use export restrictions to promote value added processing should also routinely review and make available detailed information on such policies. The latter should also be periodically reviewed and assessed by an appropriate international body, such as the WTO. 120. a.International harmonization and mutual recognition of standards on timber certification will require detailed information on both forest management practices globally and the process chain of custody from the forest stand in producer countries to final product in consumer countries for the wide variety of timber products traded internationally. Although some of this information can be gained from end use studies directed at the final consumer and from assessments of forest-level harvesting practices, more information needs to be made available from intermediate processors, exporters, importers and wood-based manufacturers to supply the information on which improved international standards on timber certification can be developed. 121. Assessments of the costs of implementing sustainable forest management in producer countries, as well as of the long-term impacts on patterns of forest- based industries in these countries, use of the forest resource base, the returns to different harvesting systems and the competitiveness of forest products in consumer markets will require more market information being made available from producing country, consumer country and industry sources. Again, cooperation on providing this information may be more forthcoming if such assessments were officially sanctioned through an internationally agreed process, such as country certification. 122. Improved market intelligence for forest products is also required generally, as this intelligence is lacking for most wood-based products. Both consumers and producers would benefit from better market intelligence that would lead to more competitive and efficient markets. IV. Assessment of Recent Developments 123. Although the IFF will face a number of similar ongoing trends and challenges that the IPF also considered, there have been some recent developments that may pose both new opportunities and challenges. These include illegal trade, species extinction, recent market trends and their implications for sustainable forest management, and international obligations and agreements. Illegal Trade 124. Illegal activities in the timber trade cover a number of widespread practices involving illegal logging, illegal trading (i.e. 'timber smuggling') and illegal pricing and classification of timber (see Table 6). For obvious reasons, assessing the extent of these activities is extremely difficult, and estimates can vary widely. For example, a recent review of studies by the Environmental Investigation Agency (EIA 1996) noted that the World Bank has estimated that on a global scale 5,000 km2 of tropical forests were being logged each year during the early 1990s, an area nearly the size of the Indonesian island of Bali. However, a report by the Worldwide Fund for Nature (WWF) claims that virtually all logging for export currently taking place in India, Laos, Cambodia, Thailand and the Philippines is illegal; and much logging in Malaysia and Indonesia could be classified as illegal. Although most of the recent concern has been with illegal activities in tropical countries, and the consequent loss and degradation of tropical forests, there is also evidence of significant illegal harvesting and other practices in temperate countries as well. 125. Although difficult to verify conclusively, there is some evidence that the scale of illegal trade in logs is continuing unabated and possibly even increasing. For example, ITTO's Annual Review of member countries' trade has indicated a perpetual problem of under-reporting of log exports, i.e. some countries reported exports of logs are consistently and significantly below the corresponding level of imports reported by trading countries. Trade statistics for some importing countries have indicated sizeable log imports from countries where a complete log export ban is supposed to be in force. Publicizing such discrepancies can have an impact. For example, as a result of the evidence of under-reporting in ITTO's Annual Review, Papua New Guinea has undertaken to tighten controls over its log exports. 126.To some extent, the growing illegal trade in logs is a consequence of many developing countries implementing export bans and restrictions, as well as prohibitively high tariffs, as a means of encouraging a shift in the composition of their exports away from logs to more highly valued processed timber products. The loss of export earnings and government revenue from any resulting increase in illegal log exports is yet another significant cost of such policies. 127.However, illegal logging and trade is also a serious setback for promoting sustainable forest management practices. By their very nature, such activities involve destructive and short-term practices that are damaging to forests. In addition, the loss in export duties, timber royalties and income taxes to developing country governments means less revenues available to promote sustainable forest management and improve forest departments and institutions. Endangered Species and CITES 128. According to the 1994 IUCN threat categories and criteria, to date over 7,000 tree species have been documented as threatened. Nearly half of these species are considered vulnerable, and a particularly wide range of tropical tree species fall in this category as a result of increased tropical deforestation over the past 150 years. 129.Because of the concern over these trends, a number of developed countries, strongly supported by conservation groups, have attempted to have various commercially important tropical tree species placed in one of three appendix listings of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). An Appendix I listing essentially prohibits trade in a species; an Appendix II listing requires an export permit to be issued by the CITES Authority in the country exporting the species; and an Appendix III listing permits commercial trade provided that export permits are issued for the country or countries listing the species, or a certificate of origin is issued from other countries that re-export the species. Table 7 shows the timber species currently listed in the CITES appendices. Only two are traded internationally in significant volumes: Pericopsis elata (Appendix II) and Swietenia macrophylla (Appendix III). 130.The recent attempts to have more commercially important tropical species listed have been controversial. Many trade and forestry interests, including exporting countries affected by the listings, have questioned whether some of the species proposed for listing are really endangered or threatened, and whether the procedures used to determine this are sound, given the generally poor information on the inventory of species in tropical forests and on the actual species composition of traded timber products. Given that the listing of a species - even in Appendix III - is considered to have a substantial negative impact on trade in that species, there is general concern that CITES is being used as a means to control, if not limit, the trade in tropical timber products. Because of these concerns, CITES has recently established a Timber Working Group to monitor and make recommendations concerning both the listing of timber species as well as the implementation of the appropriate export controls on a listed species (FAO 1997). 131. However, a further problem with a CITES listing, as noted in the previous sub-section, is that it can create inducements to increase illegal trade in a species. A CITES listing places a large burden on the CITES Authorities in countries involved in the trade of the listed species to implement the required controls. Without significant support by the relevant governments and trade interests, CITES controls on trade may be less effective. 132. For example, a recent review of the implementation of CITES Appendix III for Swietenia macrophylla (big-leafed mahogany, native to Central and South America) found that the controls have been somewhat effective with regard to trade between the key producer and consumer countries (Buitro'n and Mulliken 1997). However, the failure of several range States to implement CITES import controls have undermined their effectiveness. In addition, the Appendix III listing does not specifically require certificates of origin or re-export to be presented at the time of export, thus limiting its usefulness with regard to export controls. Although the Timber Working Group recommended changes in this scheme, it did not ask that the name of the exporter be included on the certificate of origin. Thus, the system of controls is vulnerable to abuse, such as the transfer of CITES documents from one exporter to another without the CITES Authority granting permission. 133. There is a genuine need to control trade in endangered species. However, it is important to ensure that any trade restrictions imposed are, first of all, necessary to guarantee protection of an endangered species, and second, capable of improving the survival of a species that would otherwise be endangered by commercial trade. It is not obvious that many timber species fall into both of these categories. International Obligations and Agreements 134. As noted in Section II, the IPF discussed but could not reach consensus on proposals for action leading to a possible international and non- discriminatory agreement for forest products from all types of forests. In particular, one initiative proposed was to explore the possibility of extending the ■Year 2000 objective■ of the International Tropical Timber Agreement (ITTA) for all types of forests. 135. The ITTA was adopted in November 1983 and came into force on 1 April 1985, and its Secretariat, the International Tropical Timber Organization (ITTO), was established in November 1986. The ITTO has a current membership of 53 countries, of which 26 are tropical timber producer countries and 27 are consumer countries representing the world■s major importers of not just tropical timber but all forest products. The 'Year 2000 objective' is an important objective of the International Tropical Timber Organization (ITTO) as specified in the new International Tropical timber Agreement (ITTA) of 1994. 1/ 6/ 136. The new ITTA was agreed in 1994, and became operable on 1 January 1997 for an initial four years, with a possible extension to ten years. During the process of negotiating the new agreement, the issue as to whether the ITTA should be broadened to cover all the world■s forests was debated. Although the new ITTA has not been strictly altered beyond its original mandate to cover just tropical forests, the terms of the new agreement does allow some scope for such broadening of the ITTA mandate beyond tropical forests. For example, in several key paragraphs, the new ITTA replaces the term ■tropical forests■ with ■timber producing forests■, and stresses that some ■obligations■ under the treaty are required by ■all members■ and not just ■producer members■. Thus, the new statement on the ■Year 2000 Objective■ commits the ITTA -...to enhance the capacity of members to implement a strategy for achieving exports of tropical timber and timber products from sustainably managed sources by the Year 2000", and -to encourage members to develop national policies aimed at sustainable utilization and conservation of timber- producing forests.■ Already, many consumer member countries - who are also major exporters of temperate forest products - have indicated that they are willing to follow similar commitments as the ■Year 2000 Objective■ to ensure sustainable management of their forests for the timber trade. 137. The issue as to whether the ITTA, or any other international forum on forests, should eventually evolve a multilateral agreement to cover all forests, and in particular, to commit all producer and consumer countries to ensure that the global forest products trade is derived from sustainably managed sources, is still an important proposal that the IFF must address. In particular, the issue as to what international and national policies are required to facilitate the long-term management, conservation and sustainable development of all types of forests that are sources for the global forest products trade, and whether these policies need to be endorsed through multilateral agreement and commitments, is an important area for the IFF to consider. Country Certification 138. Any development of a multilateral agreement or commitment to support and encourage producer countries to develop national policies aimed at sustainable utilization and conservation of timber-producing forests must consider very carefully the best means of attaining this objective. 139. As timber certification is currently influencing only a very small proportion of the global trade in forest products and an equally limited area of the world■s production forests, it cannot be considered the main instrument for promoting sustainable forest management globally. Given the pressing need to promote sustainable forest management globally, it is imperative to develop urgently other instruments complementary to timber certification that are more directly aimed at wholesome and timely improvements in forestry management policies and regulations in producer countries. The need for such instruments is essential if any multilateral agreement or commitment to ensure that all forest product exports are from sustainably managed sources is to be realistically implemented. 140. One such approach is the concept of country certification. Originally proposed in a report to ITTO (Barbier et al. 1994), country certification involves certifying through explicit bilateral or multilateral recognition all timber products from a country that can prove it is complying with an internationally agreed objective, such as a sustainable forest management target. Such a scheme could be enacted for all timber producer countries through an international agreement on global forests (Barbier 1996b). It may also require additional assistance for developing countries with inadequate financial resources to achieve, implement and monitor the key policy objectives. To be effective, country certification would require two broad sets of policy commitments from timber producing and consuming countries respectively. 141. The first set of policies would require producer countries to undertake substantial reviews of their forest sector policies and to correct those policy distortions that work against sustainable timber production objectives, as such distortions are believed to be at the heart of inefficient and unsustainable forest sector development and timber-related deforestation (see Section III). The second set of policies would require a commitment by consumer countries to remove any remaining tariff and non-tariff barriers to timber imports into domestic markets, for those producer countries that demonstrate a commitment to forest sector policy reform, to promote actively the use of tropical timber imports from exporting countries that are implementing 'sustainable management' policies, and to remove any of the ■new barriers■ identified in Section III to the imports from participating producer countries. 142. As with timber certification, any country certification scheme needs to be voluntary and internationally agreed. If poorly implemented without sufficient international transparency, recognition or commitment, a country certification scheme would have little impact on improving sustainable forestry management globally. It would neither take advantage of the trade- related incentives needed for encouraging sustainable management of forests nor provide the stimulus for fostering further cooperation in related areas, such as timber certification. In addition, an important precondition for implementing country certification would be the development of internationally recognized and agreed criteria and indicators of sustainable forest management, so that all producer countries would have a common core set of criteria and indicators for assessing how well their forest management efforts and policies are measuring up to agreed sustainability standards and targets. Recent Market Developments 143. Encouraging trade-related incentives for sustainable forest management is a long term process. Attainment of such a long run goal may be affected by major disruptions to key markets and price trends. This is particularly the case in the case of trade-related incentives for sustainable forest management, as the whole rationale for this approach is based on the presumption that there are significant long-term trade gains to be made from producing and selling timber products from sustainably managed sources in international markets. Moreover, in order for producer countries to invest in further improvements in the management of their forests over the long term, the timber trade must continue to be a reliable source of income and government revenue for the necessary long-run private and public investments required. 144. The recent economic and financial crises in East and Southeast Asia may have affected the progress in this region towards sustainable management of forests for the timber trade. Beginning with the severe Thai currency devaluation in June 1997, the crisis has spread rapidly through the region, affecting virtually every country. Not only have the major Asian timber producing countries - Indonesia, Malaysia, Papua New Guinea, Thailand, the Philippines and the Solomon Islands - experienced major economic disruptions, but the crisis has affected several key Asian consumer countries as well - Japan, China, Singapore, South Korea, and Hong Kong. As indicated in Table 1, some of the latter countries are major world importers of forest products, from both producers in Asia and elsewhere in the world. Thus the Asian economic crisis has certainly affected the regional forest products trade, and is starting to have an impact on the global trade as well. 145. For example, the combined effects of falling currencies and weakening market demand for forest products in Asian consumer countries has had a major impact on all producers from the region (Adams and Johnson 1998). With sharply falling exports and prices, the worst affected appear to be the two largest Asian exporters, Malaysia and Indonesia. However, there is also evidence that other major tropical producers outside of the region, such as Brazil, are also being severely affected by the decline in demand from Asian consumers. Part of the problem is that, despite falling prices for most raw and semi-processed timber products, demand in other sizable consumer markets, such as the European Union, appears to be too sluggish to absorb the excess supply of these products. Already, the impact on Asian forestry industries is becoming severe, with reports throughout the region of concessionaires ceasing operations, mills closing and workers being made redundant. 146. There is a need to -shock events■ such as the economic impacts of the Asian market crisis on the region■s forest products trade, and the implications for the global trade. Although it is too early to determine the long term impacts of this crisis, and in particular its implications for the objective of improving trade-related incentives for sustainable forest management, the short term indications are not good. The vulnerability of Asian and other developing country forest industries to such crises could make it extremely difficult for such industries to plan and implement long term strategies for ensuring that their trade is from sustainably managed forest sources. There is a need to consider ways in which the international community could develop contingency plans and assistance to support countries and industries to retain a long-term perspective on sustainable forest management in the face of severe short term economic crises, such as the recent Asian difficulties. V. Conclusions and Proposals for Action 147. The IFF can build on the proposals for action advanced by the IPF, and consider further proposals for action in line with recent developments concerning trade and environment issues of importance to the world■s forests. The main objective of the trade and environment is to encourage all countries to achieve trade in forest products from sustainably management forests, and to use this trade as an incentive for making the transition to sustainable forest management. 148. Thus, the IFF may wish to consider the following key areas for policy action that could improve the role of trade-related incentives in encouraging sustainable forest management globally: 149. Support continued efforts by the World Trade Organization (WTO) to encourage all its member countries to reduce further tariff and non-tariff barriers to trade in forest products. In addition, the WTO should be urged to focus its attention on the proliferation of ■new■ barriers to the forest products trade, such as the use of export restrictions by developing countries to encourage domestic processing of tropical timber for export; environmental and trade restrictions on production and exports in developed countries that affect international trade patterns; and quantitative restrictions on imports of 'unsustainably produced' timber products. 150. Support efforts by the WTO, FAO, ITTO, UNCTAD, EU and other international institutions to conduct more independent market and economic analyses of potential competition between different wood products and between products from different regions of origin and between wood and non-wood substitutes, analysing in particular the likely substitution effects of any forest product price rises accompanying a global initiative to improve sustainable forest management. 151. Call upon producer countries to ensure that any policy for exploiting lesser used species (LUS) and increasing the volume of timber removed from stands is compatible and consistent with improvements in the overall sustainable management of production forests. The ITTO may be called upon to coordinate activities to further promote LUS. 152. Encourage current international efforts to promote the parallel and cooperative development of international timber certification initiatives, as well as the related national and regional schemes, with the overall objective of achieving international harmonization and mutual recognition of standards for timber certification. In this regard, recent work by CIFOR, to evaluate and develop a common core set of criteria for evaluating sustainable management at the forest management unit level are notable. 153. Support the efforts of the World Trade Organization (WTO) to ensure that existing and new certification and eco-labelling schemes for wood products in importing and consumer markets are not used in a discriminatory way as a form of ■disguised protectionism■. 154. Support efforts by the WTO, FAO, CIFOR, ITTO, UNCTAD, EU and other international institutions to develop more independent market and economic analyses of the potential additional stand-level and industry-wide costs resulting from the transition to sustainable forestry management and policy reforms. Such analyses should also examine the potential long-term benefits of improved efficiencies and sustainability at all levels of the forestry industry, as well as the development and coordination of international efforts for improved market intelligence. 155. Encourage greater market transparency to ensure the objectives on improved market access for timber products, international harmonization and mutual recognition of standards for timber certification, international commitments to a country certification process and assessing the international financial and technical assistance needed by developing countries. In addition, market transparency is essential for providing information to facilitate the independent market and economic analyses of the market competitiveness and long-run substitution of forest products and of the costs and benefits of implementing sustainable forest management in producer countries. 156. support on-going efforts by the WTO, FAO, ITTO, EU, UNCTAD and other international institutions to improve market transparency and intelligence. 157. Reaffirm the IPF■s proposal for action, which asked countries -to provide an assessment and share relevant information on the nature and extent of illegal trade in forest products, and to consider measures to counter such illegal trade,■ support on-going efforts by the WTO, FAO, ITTO, EU, UNCTAD, the World Bank and other institutions to monitor and investigate the illegal trade, and encourage these institutions to coordinate their efforts. 158. Urge the Timber Working Group of CITES to work with member countries to ensure that CITES is not used as a means to control or limit the forest products trade, and to ensure that any trade restrictions imposed through CITES are necessary to guarantee the protection of a species, can be effectively and efficiently implemented, and capable of improving the survival of a species. 159. Continue to examine the issue as to whether the ITTA, or any other international forum on forests, should eventually evolve a multilateral agreement to cover all forests that would commit all producer countries to ensuring that the global forest products trade is derived from sustainably managed sources. In particular, the issue as to what international and national policies are required to facilitate sustainable forest management globally, and whether these policies need to be endorsed through multilateral agreement and commitments, is an important area for the IFF to consider. 160. Consider a country certification process involving an international commitment by both producer and consumer countries to adopt policies and practices towards encouraging sustainable management of production forests and timber products while simultaneously improving international market access of these products. 161. Recognize the need to monitor closely the events such as economic impacts of the Asian market crisis on the region's forest products trade, and the implications for the global trade and promote consideration of ways in which international contingency plans could assist and support countries and industries to retain a long-term perspective on sustainable forest management in the face of severe short term economic crises, such as the recent Asian difficulties. 162. The above tasks clearly build upon existing efforts and work being conducted by several international institutions, such as the WTO, FAO, CIFOR, ITTO, ITC, UNCTAD, EU, the World Bank and others. There is considerable scope for these different institutions to collaborate and coordinate activities on these tasks, as well as jointly identify additional areas for further work. Thus the IFF could play a coordinating roll in ensuring that all relevant agencies related to the trade in forest products and services collaborate in tackling the above tasks. 103. References Adams, M. and Johnson, S. 1998. Turmoil in Asian Markets.■ ITTO Secretariat,Yokohama, Japan. Baharuddin, H.G. 1995. Timber Certification: An Overview.■ Unasylva 46(183):18-24. Baharuddin, H.G. and Simula, M. 1994. Certification Schemes for All Timber and Timber Products. Report for the International Tropical Timber Organization,Yokohama. Baharuddin, H.G. and Simula, M. 1996. Study of the Development in the Formulation and Implementation of Certification Schemes for all Internationally Traded and Timber Products. Report to the International Tropical Timber Organization, Yokohoma. Baharuddin, H. and Simula, M. 1997. Timber Certification: Progress and Issues. Report to the 23rd Session of the International Tropical Timber Council, 1-6 December, Yokohama. Barbier, E.B. 1996a. Impact of the Uruguay Round on International Trade in Forest Products. FAO, Rome. Barbier, E.B. 1996b. - Trade and Environment Relating to Forest Products and Services: Consultant■s Background Report.■ Paper prepared on behalf of the International Tropical Timber Organization for the Third Session of the Intergovernmental Panel on Forests, 9-20 September, Geneva. Barbier, E.B. 1997. - The Effects of the Uruguay Round Tariff Reductions on the Forest Product Trade: A Partial Equilibrium Analysis.■ Paper prepared for the ESRC Conference -International Dimensions of Tax and Environmental Policies.■ University of Warwick, Coventry, UK, 11-12 July. Barbier, E.B., Burgess, J.C., Bishop, J.T. and Aylward, B.A. 1994. The Economics of the Tropical Timber Trade. Earthscan Publications, London. Barbier, E.B., Bockstael, N., Burgess, J.C. and Strand, I. 1995. "The Linkages Between the Timber Trade and Tropcial Deforestation - Indonesia." World Economy 18(3):411-442. Bourke, I.J. 1988. Trade in Forest Products: A Study of the Barriers Faced by Developing Countries. FAO Forestry Paper 83, FAO, Rome. Bourke, I.J. 1995. - International Trade in Forest Products and the Environment.■ Unasylva 46(183):11-17. Bourke, I.J. 1998. - Prospects and Challenges in the Supply and Demand of Timber in the Global Market.■ Paper presented to the International Timber Conference ■98, Kuala Lumpur, Malaysia, 5-7 March. Buitro'n, X. and Mulliken, T. 1997. CITES Appendix III and the Trade in Big-Leafed Mahogany. A Traffic Network Report. Traffic, Cambridge, UK. Drake, P., Haid, D., Hammons, E.J. and Williams, D. 1995. Analysis of Macroeconomic Trends in the Supply and Demand of Sustainably Produced Tropical Timber from the Asia-Pacific Region Phase II. Report to the International Tropical Timber Organization, Yokohoma. Dubois, O., Robins, N., Bass, S. 1995. Forest Certification. Report to the European Commission. International Institute for Environment and Development, London. Elliot, G. 1994. "The Trade Implications of Recycled Content in Newsprint: The Canadian Experience." In Organization for Economic Cooperation and Development (OECD), Life-Cycle Management and Trade. OECD, Paris. Environmental Investigation Agency (EIA). 1996. Corporate Power, Corruption and the Destruction of the World's Forests: The Case for a New Global Forest Agreement. EIA, London. Flora, D.F. and McGinnis, W.J. 1991. Effects of Spotted-Owl Reservations, The State Log Embargo, Forest Replanning and Recession on Timber Flows and Prices in the Pacific Northwest and Abroad, unpub. review draft, Trade Research, Pacific Northwest Research Station, USDA Forest Service, Seattle. Food and Agricultural Organization of the United Nations (FAO). 1995. FAO Forest Products Yearbook 1993. FAO, Rome. Food and Agricultural Organization of the United Nations (FAO). 1997. State of the World■s Forests 1997. FAO, Rome. Kemp, R.H. and Phantumvanit, D. 1995. -1995 Mid-Term Review of Progress Towards the Achievement of the Year 2000 Objective.■ Report to the International Tropical Timber Council XIX Session, 8-16 November, Yokohoma. Kiekens, J.-P. 1995. - Timber Certification: A Critique.■ Unasylva 46(183):27-28. Kiekens, J.-P. 1997. Eco-Certification: Tendances Internationales et Implications Forstie`res et Commerciales, E'tude re'alise'e pour le Ministe`re de l'Environment, des Ressource Naturelles et de l'Agriculture de la Re'gion Wallonne (Belgique), Brussels. Pajuoua, H. - The Outlook for the European Forest Resources and Roundwood Supply.■ UN_ECE?FAO Timber And Forest Discussion Papers. ECE/TIM/DP/4. United Nations Economic Commission for Europe, Geneva. Paris, R. and Ruzicka, I., 1991. Barking Up the Wrong Tree: The Role of Rent Appropriation in Sustainable Forest Management, Asian Development Bank Environment Office Occasional Paper No.1. Perez-Garcia, J.M. 1991. An Assessment of the Impacts of Recent Environmental and Trade Restrictions on Timber Harvests and Exports, Working Paper No. 33, Center for International Trade in Forest Products, Univ. Washington, Seattle. Perez-Garcia, J.M. and Lippke, B.R. 1993. Measuring the Impacts of Tropical Timber Supply Constraints, Tropical Timber Trade Constraints and Global Trade Liberalization, LEEC Discussion Paper 93-03, London Environmental Economics Centre, UK. Sedjo, R.A., and Lyon, K.S., 1990. The Long-Term Adequacy of World Timber Supply, Resources for the Future, Washington D.C. Varangis, P.N., Crossley, R. and Primo Braga, C.A. 1995. - Is There a Commercial Case for Tropical Timber Certification?■ Policy Research Working Paper 1479. The World Bank, Washington DC. World Resources Institute (WRI). 1992. World Resources 1992-93. Oxford University Press, New York. World Trade Organization (WTO). 1994. The Results of the Uruguay Round of Multilateral Trade Negotiations. Market Access for Goods and Services: Overview of the Results. GATT, Geneva. Vincent, J.R. 1992. "The Tropical Timber Trade and Sustainable Development", Science, 256:1651-1655. Weaver, P.M., Gabel, H.L., Bloemhof-Ruwaard, J.M. and Wassenhove, L.N. 1995. - Optimising Environmental Product Life Cycles: A Case Study of the European Pulp and Paper Sector.■ CMER Working Papers 95/29/EPS/TM. Centre for the Management of Environmental Resources, INSEAD, Fountainebleau, France. Table 1. The Global Forest Products Trade - Major Importers and Exporter, 1995 IMPORTERS US$ millions EXPORTERS US$ million United States 22 448 Canada 27 787 Japan 19 486 United States 18 148 Germany 10 94 Finland 11 953 Italy 8 637 Sweden 10 850 France 8 198 Germany 7 779 United Kingdom 8 084 France 5 851 Netherlands 5 163 Indonesia 4 728 Korea (Republic of) 4 972 Malaysia 4 226 Belgium-Luxembourg 4 066 Brazil 3 547 Taiwan 3 840 Austria 3 361 Spain 3 826 Russia 3 231 China 3 840 Netherlands 3 017 Canada 2 953 Italy 2 874 Switzerland 2 857 Belgium-Luxembourg 2 791 Hong Kong 2 796 Norway 2 179 Source: FAO. Table 2. Certified Global Forests 1/ Region Production Area Percentage Percentage (m 3) (ha) 2/ of Total of Total Production 3/ Area 4/ ______________________________________________________________________________ Africa 5/ NA 6,000 NA 0.45% Plantation NA 6,000 NA North America 502,408 617,000 0.09% 0.14% Natural 502,408 617,000 0.14% Latin America 6/ 101,350 672,940 0.12% 0.10% Natural 101,350 597,000 0.09% Plantation NA 75,940 1.05% Asia 7/ 738,810 2,847,394 0.85% 1.66% Natural 1,310 12,610 0.01% Plantation 737,500 2,834,784 31.8% Europe 8/ 2,135,000 916,720 9.7% 8.43% Semi-natural 2,135,000 916,563 8.43% Plantation NA 157 NA World Total 3,477,568 5,060,054 0.23% 9/ 0.14%10/ Natural 2,740,068 2,143,173 0.06% /Semi-natural Plantation 737,500 2,916,881 10.12% NA = not applicable or not available. Notes: 1/ Based on Baharuddin and Simula (1996), unless specified otherwise. 2/ In some cases includes non-forest land as well. 3/ Percentage of total industrial roundwood production in 1993 for the countries specified, from FAO (1995). 4/ Percentage of total forest area, natural forest area and plantation area for the countries specified, from WRI (1994). 5/ Certified forest is located in South Africa. 6/ Certified forests are located in Costa Rica, Brazil, Guyana, Honduras and Mexico. 7/ Certified forests are located in Indonesia, Malaysia, Papua New Guinea and Solomon Islands. 8/ Certified forests are located in Poland and the United Kingdom. 9/ Total production from certified forests expressed as a percentage of total world industrial roundwood production in 1993, from FAO (1995). 10/ Total certified forest, natural/semi-natural forest and plantation areas expressed as a percentage of total world forest, natural forest and plantation areas in 1980, from WRI (1992). Total world plantation area excludes plantation area from Europe, North America and the former Soviet Union. Table 3. Estimated Revenues from Tropical Timber Certification in European and North American Markets Source of Revenue Export Share of Revenues Developing Gained Country Wood (US$ million) Exports 1/ 1. Incremental revenue from European and American ■niche■ markets 2/ 62 0.58% 2. Avoidance of net revenue losses without certification (a. - b.) 366 3.43% a. Loss of European and North American markets 3/ 622 5.83% b. Gains from diversion to other markets 4/ 256 2.40% 3. Total net revenue gain (1. + 2.) 428 4.02% Notes: Based on 1991 trade flows and values. 1/ Developing countries excluding China, Argentina, Chile and Near East countries. Total value of forest product export revenues in 1991 estimated at around US$ 10.66 billion, of which US$ 9.02 billion from non-coniferous logs, non-coniferous sawnwood and wood- based panels and US$ 1.64 billion from furniture and processed wood products. 2/ Assumes a 10% increment in revenues due to a ■green premium■ from certification affecting 10% of the North American and 20% of the European markets. 3/ Assumes that the markets in 1/ will be lost in the absence of certification. 4/ Assumes that developing country exports would increase by 8.8% to non-European/North American markets in the absence of certification. Source: Varangis, Crossley and Braga (1995). Table 4. Private and Social Efficiency: Logging in the Philippines (US$1 = 27.7 Philippino Pesos (P)) (Figures in Philippino Pesos per ha per year) Sustainable Management Scenario a/ ______________________________________________________________________________ Value of log harvest b/ 5,720 Road building, harvesting and transportation costs -2,369 Net financial return to short run timber harvesting 3,351 Internalizing cost of sustainable timber management: Cost of protection, timber stand improvement and enrichment plantingc/ -1,000 Net returns to 'privately efficient' timber harvesting 2,351 Shadow pricing adjustments: Adjustment to market price of logs d/ 572 Adjustment to local harvesting costs e/ 474 Social costs of degradation of non-timber values: Cost of marginal offsite damage to downstream activities f/ -6,245 Net returns to 'socially efficient' timber harvesting g/ -2,848 NOTES: a/ Old growth forest selectively logged and subsequently protected. b/ Legal operations using existing selective logging systems assumed. Private profits of illegal operators will be higher. Different combinations of yield and price are possible to capture the variations in the quality of standing forest. Assumption is that one hectare of old growth forest of 30-50% slope sustainably yields 100 cum every 35 years or 2.86 cum per year. Market price is 2,000 Philippino Pesos per cum. c/ P1,000/ha for one year to ensure sustainability of production on the one hectare in question. d/ Equal to market price adjusted upwards by 10% to account for low cost illegal supplies. e/ Standard conversion factor 0.8 applied. f/ P2,600 for 3 years discounted at 12%. Off-site damage assumed to be limited in duration instead of being sustained in perpetuity. Damage resulting from the selective logging of a single plot. The high magnitude of the estimate is a result of logging on very steep slopes. g/The overall returns are only a rough indication and are based on estimates prepared in 1990 as part of the formulation of the Philippine Master Plan for Forestry Development. Source: Adapted from Paris and Ruzicka (1991). Table 5. Indonesia - Timber Trade and Tropical Deforestation Simulation Model Policy Scenario - Sustainable Timber Management (% Change over Base Case) Key Variables 25% Rise in 50% Rise in Harvest Costs Harvest Costs ------------------------------------------------------------------------------ 1. Prices (Rp/m 3) Log border-equivalent price (unit value) 41.59% 83.06% Sawnwood export price (unit value) 4.04% 8.09% Plywood export price (unit value) 2.86% 5.72% 2. Quantities ('000 m 3) Log production - 0.94% - 1.87% Log domestic consumption - 1.37% - 2.73% Sawnwood production - 1.89% - 3.77% Sawnwood exports - 1.03% - 2.05% Sawnwood domestic consumption - 2.28% - 4.55% Plywood production - 0.87% - 1.73% Plywood exports - 0.38% - 0.75% Plywood domestic consumption - 3.12% - 6.24% 3. Deforestation (km 2) Total forest area 0.02% 0.04% Annual rate of deforestation - 2.28% - 4.23% Source: Barbier et al. (1995). Table 6. Illegal Practices in the Forest Products Trade 1. Illegal Logging - Logging timber species protected by national or international law, such as the Convention on International Trade in Endangered Species of Fauna and Flora (CITES) - Logging outside concession boundaries - Logging in protected areas such as forest reserves - Logging in prohibited areas such as on steep slopes, river banks and catchment areas - Removing under/over-sized trees - Extracting more timber than authorized - Logging without authorization - Logging when in breach of contractual obligations - Obtaining concessions illegally 2. Illegal Trading - Export/import of tree species banned under national or international law - Illegal log export/import in contravention of national bans 3. Illegal Timber Pricing and Classification - Transfer pricing (i.e. internal over or under pricing of timber products) by a company to transfer profits abroad, usually to avoid tax in the country where a timber operation is occurring - Under-grading, under-valuing and misclassification of species by a company to avoid royalties and duties by declaring a lower value for timber extracted from concessions Source: Adapted from EIA (1996). Table 7. Timber Species Listed in CITES Appendices Appendix I Araucaria araucana (Argentina), Fitzroya cupressoides, Pilgerodendron uviferum, Dalbergia nigra, Abies guatemalensis, Podocarpus parlatorei, Balmea stormiae Appendix II Araucaria araucaia (Chile), Caryocar costaricense, Oreomunnea pterocarpa (also referenced as Engelhardia pterocarpa), Pericopsis elata, Platymiscium pleiostachyum, Pterocarpus santalinus, Swietenia humilis, Swietenia mahogoni, Prunus africana, Taxus wallichiana, Aquilaria malaccensis, Guaiacum officinale, Guaiacum sanctum Appendix III Talauma hadgsonii, Swietenia macrophylla, Podocarpus nerifolius, Tetracentron sinense Source: FAO (1997). FOOTNOTES 1/ See page 5 of E/CN.17/IFF/1997/4 2/ Most available information on the international trade in wood products has been assembled by the Food and Agricultural Organization of the United Nations (FAO), and it is this information that will be used primarily in this document. Following FAO's convention in the following document, wood or timber products will also be referred to as forest products generally. 3/ The reference for this section is Report of the Ad Hoc Intergovernmental Panel on Forests on its fourth session, New York, 11-21 February 1997, E/CN.17/1997/12. 4/ See E/CN.17/1997/12, op. cit., paragraphs 129 and 130. 5/ See for example, Barbier et al. (1994) and (1995; Vincent (1992). 6/ It is generally accepted that the actual target year 2000 may be unrealistic for many poorer producer countries to attain; thus the "Year 2000 objective" has been more appropriately interpreted as requiring all producer members to achieve exports of forest products from sustainably managed sources as rapidly as economic and financial conditions will allow them to fulfill this objective. Notes 1/ It is generally accepted that the actual target year 2000 may be unrealistic for many poorer producer countries to attain; thus the >Year 2000 objective= has been more appropriately interpreted as requiring all producer members to achieve exports of forest products from sustainably managed sources as rapidly as economic and financial conditions will allow them to fulfill this objective. 1.
This document has been posted online by the United Nations Department of Economic and Social Affairs (DESA). Reproduction and dissemination of the document - in electronic and/or printed format - is encouraged, provided acknowledgement is made of the role of the United Nations in making it available.
Date last posted: 5 December 1999 15:45:34