Economic Policies

The International Tropical Timber Organization
Trade policy and tariff and non-tariff barriers, including phytosanitary measures
Forest law enforcement, governance and trade
Climate change policy

The International Tropical Timber Organization

The International Tropical Timber Organization (ITTO) was established under the auspices of the United Nations in 1986. ITTO's origins can be traced back to 1976 when the long series of negotiations that led to the first International Tropical Timber Agreement (ITTA) began at UNCTAD IV as part of UNCTAD's Programme for Commodities. The eventual outcome of these negotiations was the ITTA 1983, which governed the Organization's work until 31 December 1996, when it was superseded by the ITTA 1994. Negotiations for a successor to this agreement were recently concluded, again under the auspices of UNCTAD. The ITTA 2006 is expected to come into force in 2008.

ITTO members, 2007

Source: ITTO.

ITTO occupies an unusual position in the family of intergovernmental organizations. Like all commodity organizations, it is concerned with trade and industry, but like an environmental agreement, it also pays considerable attention to the sustainable management of natural resources. Other features include an equal partnership in decision-making, policy formulation and project development between producing members (tropical developing countries) and tropical timber consuming members (mostly developed countries), as well as the active participation of civil society and trade organizations in meetings and project work.

ITTO develops internationally agreed policy documents to promote sustainable forest management and forest conservation, and assists tropical member countries to adapt such policies to local circumstances and to implement them in the field through projects. In addition, ITTO collects, analyses and disseminates data on the production and trade of tropical timber and funds a range of projects aimed at developing industries at both community and industrial scales. For more information on ITTO's action programme, go to ITTO at work, or refer to the ITTO Yokohama Action Plan.

Trade policy and tariff and non-tariff barriers, including phytosanitary measures

Discussions of international trade in tropical timber products tend to focus on tariff and non-tariff measures, especially in relation to the World Trade Organization (WTO) negotiations.

Tariffs

Tariffs on most primary tropical timber products have already been abolished or significantly reduced by previous negotiation rounds. WTO-related import tariffs are already very low and sometimes even zero. Value added products (for example, plywood) face, on average, higher tariffs than less processed products such as logs and sawnwood in developed countries. The overall level of applied tariffs is higher in developing countries than in the industrialized regions, with considerable differences in the applied rates between regions.

For a complete analysis, please refer to: Savcor Indufor. Sustainability Impact Assessment of Proposed WTO Negotiations. Final Report for the Forest Sector Study. 19 June 2005. View pdf (939 KB)

MFN tariff rates (percentage) in developed markets
for tropical timber products

Source: UNCTAD secretariat, based on the Trade Analysis and Information System (TRAINS) database.
Note: TRAINS uses the Harmonized System (HS) of customs classification. HS codes used in the Chart for tropical logs, sawnwood, veneer and plywood are those detailed in the ITTO's Annual Review and Assessment of the World Timber Situation 2005, Explanatory Note to Appendix 3 (pp. 127-129).

Non-tariff measures (NTMs)

Because import tariffs for timber products are already on average low, various NTMs have become relatively more influential in impacting trade. NTMs include laws, regulations, policies and practices designed to control trade to meet various policy objectives. A broad definition includes also subsidies that directly or indirectly impact trade. NTMs are quite difficult to deal with, since there are so many of them, they vary by country, by product and even over time, and their application is not always transparent and consistent.

NTMs related to tropical timber in major consuming regions

Source: ITTO. Draft Report on the Measures to Promote the Expansion and Diversification of International Trade in Tropical Timber. Prepared by R.E. Taylor & Associates Ltd., STCP Engenharia De Projetos Ltda and Lew Wing Hing. ITTC (XXXVII)/10, 11 November 2004.

Sanitary and Phytosanitary (SPS) measures. For the purposes of the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement), SPS measures are defined as any measures applied: to protect human or animal life from risks arising from additives, contaminants, toxins or disease-causing organisms in their food; to protect human life from plant- or animal-carried diseases; to protect animal or plant life from pests, diseases, or disease-causing organisms; to prevent or limit other damage to a country from the entry, establishment or spread of pests. These measures can take many forms, such as requiring products to come from a disease-free area, inspection of products, specific treatment or processing of products.

In the timber industry, strict health and phytosanitary controls concern mainly wooden packaging material. Indeed, there has been increasing concern in recent years about the spread of pests such as the Asian longhorn beetle and the Pine Wood Nematode. Wooden packaging material made of unseasoned (green) wood provides a pathway for the introduction and spread of such pests.

In March 2002, the United Nations Food and Agricultural Organization (FAO) Interim Commission on Phytosanitary Measures adopted the International Standard for Phytosanitary Measures (ISPM) 15 (Guidelines for Regulating Wood Packaging Material in International Trade). Canadian and United States plant health inspection agencies require all wood packaging and crating material to be heat-treated or kiln-dried according to the standard. The EU is implementing ISPM15 from 1 March 2005. While the ISPM 15 is increasingly adopted as a standard worldwide, there is still considerable uncertainty on inspection methods. Costly verification procedures are likely to have a large impact on the use of unprocessed wood for pallets.

Technical barriers to trade (TBT). Requirements that have the potential to be TBTs include other product standards, product quality and grading requirements, as well as building codes and other technical regulations.

In North America, grade stamp certification is required for any sawnwood or panel product that is to be used in structural applications. In the European Union (EU), the most significant TBTs are related to panel products, particularly those intended for construction applications. As of April 2004, structural wood panels sold within the EU must be certified to carry the European Conformity (Conformité Européene (CE)) marking, based on the Construction Products Directive. In Japan, the most significant TBTs for tropical timber products are the Japan Agricultural Standard (JAS) for formaldehyde emissions (products affected are plywood, particleboard, medium-density fibreboard, structural panels, overlaid panel products, flooring and stair treads) and the Japan Industrial Standards (JIS) on fibreboard and particleboard.

Some tropical producer countries have expressed concerns that evolving product standards and technical regulations in consumer markets are restricting the expansion and diversification of the international tropical timber trade. Various TBTs, including the EU’s CE marking scheme, require the producer/exporter to make major structural changes in operation in order to continue doing business in that market. In most cases, such producers/exporters must also absorb significant additional costs in meeting the new requirements.

For more information, please refer to:
Russell Taylor, Ivan Tomaselli and Lew Wing Hing. "How to Hurdle the Barriers," ITTO Tropical Forest Update 2005 No 2. View pdf (189 KB);
The EU Construction Products Directive (Directive 89/106/CE);
JISC - The Japanese Industrial Standards Committee;
The American Lumber Standard Committee Incorporated (ALSC).

Public procurement. Several national Governments in European markets (including the United Kingdom, Belgium, the Netherlands, France, Germany and Denmark) have communicated public procurement policies that include criteria favouring the purchase of certified forest products (CFPs), notably from tropical countries. Similar policies exist at the municipal level in a number of countries. These policies have been developed and implemented in order to assure or enhance the procurement of sustainably managed, or at least legally logged, timber.

Formal efforts to develop public timber procurement policies
in the European Union

Source: UNCTAD secretariat.

Several opportunities and threats have been identified as arising from public timber procurement policies in the European Union:

Source: Excerpted from "Where Is Procurement Heading?", ITTO Tropical Forest Update 16/ 3 2006. Summary of the 2006 Annual Market Discussion held on 31 May 2006.

Furthermore, as with any other proposal aimed at some level of regulation of import and export of timber and timber products, these initiatives also raise the issue of WTO compatibility. WTO obligations (as well as the EU procurement directives) require that the criteria for the selection of suppliers is nondiscriminatory and that the same rules apply irrespective of point of origin. This means that if a government agency decides that the timber to be purchased from a given country must be traceable to the forest of origin to prove "sustainability", then this requirement must be applied equally to timber from other sources. Non-governmental initiatives to encourage use of sustainably-produced products fall beyond the WTO's remit.

For more in-depth analysis, please refer to:

Duncan Brack and Jade Saunders (Chatham House). Public procurement of Timber: EU Member State Initiatives for Sourcing Legal and Sustainable Timber. Discussion paper for workshop on public procurement of timber. Copenhagen, 27 September 2004. View pdf (262 KB).

"Where Is Procurement Heading?", ITTO Tropical Forest Update 16/ 3 2006. Summary of the 2006 Annual Market Discussion held on 31 May 2006. View pdf (178 KB).

Joint UNECE/FAO Policy Forum. Public Procurement Policies on Wood and Timber Products (5 October 2006, Geneva, Salle VII).

Royal Institute for International Affairs (Chatham House) Illegal-logging.info, section on procurement.

Subsidies. Definitions of subsidy vary depending on context. In their simplest and most transparent forms, subsidies are direct payments or income transfers (grants or low-interest loans, tax rebates or preferential tax treatment, etc.) given to a specific class of producers to make it more profitable. The most commonly referenced "official" definition of subsidies is used within an international trade context and is contained in the WTO Agreement on Subsidies and Countervailing Measures (SCM). The SCM specifies that a subsidy exists if "there is a financial contribution by a Government or any public body within the territory" of a member Government that "confers a benefit". The WTO definition and rules require specificity: if a financial incentive is not specific to an industry or sector and is widely available in an economy, then it is not likely to be actionable under WTO rules. Most SCM defined subsidies are not prohibited automatically, but they are actionable if challenged and shown to cause economic injury to producers in another country.

Subsidies directed specifically at the forestry and forest products sector can take a number of direct and indirect forms and can be motivated by environmental, social or economic rationales, or a combination thereof.

Subsidies potentially affecting tropical forests and forest products

Source: Alberto Goetzl. "Subsidy or Incentive?" ITTO Tropical Forest Update No. 16/ 3 2006.

Trends in tropical timber demand are affected by competition from non-tropical species (including those from fast-growing plantations), composite wood panels and non-wood products, some or all of which might benefit from subsidies. Subsidies to these sectors might bear indirectly on tropical timber markets.

Subsidies for competing products

Source: Alberto Goetzl. "Subsidy or Incentive?" ITTO Tropical Forest Update No. 16/ 3 2006.

For a complete analysis of subsidies affecting the tropical forest sector, please refer to Alberto Goetzl. "Subsidy or Incentive?" ITTO Tropical Forest Update No. 16/ 3 2006 (from which this section is drawn). View pdf (276 KB).

Forest law enforcement, governance and trade

Issues related to forest law enforcement, governance and trade (FLEGT) are primarily those linked to the illegal logging problem and illegal trade in forest products. Illegal logging refers to the removal of logs in a manner that is against the provisions of relevant laws (national or sub-national). The context of the application of these laws is forest management or sustainable forest management (SFM). Illegal trade in forest products can be domestic or international, or both, and involves not only national forest laws but also other relevant national and international laws, including laws on corporations, trading, banking, auditing, customs, taxes, etc. A non-exhaustive list of illegal practices in the forestry sector is provided below.

Examples of illegal practices in the forestry sector

Source: Food and Agriculture Organization of the United Nations and International Tropical Timber Organization. Best Practices for Improving Law Compliance in the Forest Sector. FAO Forestry Paper 145. Rome: FAO, 2005.

In many countries where illegal logging occurs, the volumes of illegally harvested wood may exceed the official annual wood harvest. In 2001, the World Bank estimated that the loss of revenue due to illegal logging costs Governments $5 billion annually, with a further $10 billion lost to the economies of producing countries. Other figures confirm that the illegal timber trade is worth more than $15 billion per year and that more than half of all logging activities in particularly vulnerable regions such as the Amazon Basin, Central Africa, South-East Asia, the Russian Federation and some of the Eastern European countries are illegal. A study commissioned by the American Forest and Paper Association in 2004 suggested that illegal logging constitutes about 8 to 10 per cent of global production and trade of logs, lumber and wood panels.

Reliable information on the extent of illegal timber trade is hard to obtain. Comparing declared exports and the corresponding import statistics can in some cases be used to estimate the extent of illegal international trade. When discrepancies are large, occur systematically for a number of years, and cannot be explained by other factors, there is a strong presumption that a large proportion of wood has been illegally traded.

Selected Indonesian trade flows with China and Malaysia (1,000 m3)

Source: International Tropical Timber Organization. Annual Review and Assessment of the World Timber Situation 2004. Yokohama, Japan: ITTO, 2005.

Illegal logging is currently quite high on the agenda of many international bodies and processes.

World Bank-supported FLEG initiatives. The World Bank has promoted a series of regional Ministerial Conferences on Forest Law Enforcement and Governance (FLEG) to foster political commitment and facilitate cooperation to fight illegal logging and trade. The first regional FLEG Ministerial Conference took place in the East Asia and the Pacific region and was held in September 2001 in Bali, Indonesia. Subsequently, a Ministerial process was instigated in Africa, culminating in a Ministerial Conference in October 2003, in Yaoundé, Cameroon. A similar process is underway in Europe and North Asia. Initial scoping activities for a potential FLEG initiative in Latin America and the Caribbean are also underway.

European Union FLEGT Initiative. Adopted by the European Commission in May 2003, the EU Action Plan (View pdf 280 KB) for Forest Law Enforcement, Governance and Trade (FLEGT) outlines a series of measures to address illegal logging both in the countries concerned and within the EU as a timber importer. The plan promotes voluntary partnership agreements (VPA) with timber-producing countries ("partner countries") that wish to eliminate illegal timber from their trade with the EU. These agreements involve establishment of a licensing scheme under which specified timber products exported from a partner country and arriving in the EU must be covered by a FLEGT licence issued by the partner country, stating that the timber products have been produced from domestic timber that was legally harvested or from timber that was legally imported into a partner country in accordance with national laws as laid down in the respective VPA. The agreements are voluntary. This means that timber-exporting countries can decide whether or not to sign up, although once they do so the licensing scheme is obligatory. Proposals for a regulation and a mandate that would authorize the European Commission to negotiate agreements with potential partner countries were finalized in 2005 (Press Release No. 258, Agriculture and Fisheries Council, Luxembourg - View pdf (242 KB)).

Useful information for potential FLEGT partner countries and others with an interest in the initiative is provided in the following FLEGT Briefing Notes:

1. What is FLEGT? View pdf (248KB).
2. What is legal timber? View pdf (305 KB)
3. A timber legality assurance system View pdf (934 KB)
4. Wood tracing systems and chain of custody View pdf (335 KB)
5. Legality assurance systems: requirements for verification View pdf (454 KB)
6. Voluntary Partnership Agreements (VPA) View pdf (415 KB)
7. Guidelines for independent monitoring View pdf (566 KB)

More information on the EU FLEGT initiative, including links to key documents, is available on the following websites:
Chatham House Illegal Logging Website - FLEGT; and
European Commission - FLEGT.

CITES. One area in which action has recently been stepped up is through the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). CITES provides for different rules governing international trade in species listed in Appendixes I, II and III, each including species endangered to different degrees. Currently, relatively few timber species are included in the CITES appendixes, but the recent inclusions of mahogany (Swietenia macrophylla) and ramin (Gonystylus spp.) in Appendix II have led to stricter controls on the harvest and international trade of these species.

ITTO's work on forest law enforcement. Improving law compliance in the forestry sector is primarily the responsibility of Governments in the affected countries. ITTO supports several tropical countries in designing and implementing programmes for forest law enforcement. ITTO's contributions to the development of criteria and indicators for sustainable forest management, as well as its ongoing work on timber certification and its role in forest management planning, are also relevant here. Furthermore, ITTO recently initiated a series of case studies on the export and import data of various countries. These studies serve two objectives: shedding light on undocumented trade, and improving statistical reporting on timber in both producing and consuming countries.

G-8 Action Programme on Forests. In March 2005 the G-8 Environment and Development Ministers issued a statement recognizing the impacts of illegal logging, and identifying steps that both timber producing and consuming countries could take to address trade of illegal timber (read the press release and the official statement on the outcomes of the meeting). Subsequent to the G-8 statement, Germany presented a draft law that would outlaw import or marketing of wood sourced illegally in non-EU countries. As with any other proposal aimed at some level of regulation of trade of timber and timber products, this initiative raises the issue of WTO compatibility.

Other bilateral and multilateral initiatives between individual consumer and producer countries to curtail illegal logging and illegal trade include the Asia Forest Partnership (AFP), the Congo Basin Forest Partnership (CBFP), the United States President's Initiative against Illegal Logging, and the United Kingdom's Illegal Logging Programme.

In addition to government-driven processes, a range of private or quasi-governmental initiatives has taken shape to address illegal logging. This includes initiatives by environmental NGOs (including Global Witness, Global Forest Watch, the Environmental Investigation Agency and the Nature Conservancy - WWF alliance), the timber trade itself, and research institutions such as the United Kingdom's Royal Institute for International Affairs (Chatham House).

For further information on forest law enforcement, governance and trade:

Download the FAO/ITTO publication on Best Practices for Improving Law Compliance in the Forestry Sector;

Refer to the Joint UNECE/FAO Workshop on Illegal Logging and Trade of Illegally-derived Forest Products in the UNECE Region (16-17 September 2004, Palais des Nations, Geneva);

The UNECE/FAO Forest Products Annual Market Review provides a description of government policies affecting forest products markets, including policies aimed at improving law compliance in the forest sector.

Browse and download ITTO's publications related to forest law enforcement.

Climate change policy

Growing forests are generally net CO2 sinks; they absorb more carbon than they give off, and thus accumulate carbon. This is true for newly planted forests, but also for established forests if the harvest rate and/or disturbance rate is less than forest growth. In countries where growing stocks are increasing, this could be a relatively low-cost way to gain carbon credits – although it can also be risky if these forests later become a CO2 source, generating debits instead. According to the Intergovernmental Panel on Climate Change (IPCC), tropical deforestation is responsible for 20 to 25 per cent of annual global carbon dioxide emissions. However, the Kyoto Protocol has not adopted any mechanism for considering tropical forest conservation or prevention of deforestation as an action for mitigating climate change.

The Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) came into force in February 2005. The agreement established a binding target for greenhouse gas reductions of 5 per cent below 1990 levels for industrialized (Annex I) countries, to be met in the first commitment period (2008 to 2012). Although developing (non-Annex I) countries have made a general commitment to reduce emissions in the first commitment period, their obligation has not been quantified. This follows the principle of common but differentiated responsibilities, by which the historical polluters of the atmosphere should take responsibility for initiating emission reductions.

Under the Kyoto Protocol, the most important mechanism for forests in tropical countries is the Clean Development Mechanism (CDM), which allows developed countries to meet a part of their greenhouse gas reduction obligations through offset projects in developing countries. However, projects to reduce deforestation or forest degradation are not eligible: afforestation and reforestation are the only carbon sequestration activities allowed (see the box below). To avert criticism of large-scale forest plantations under the CDM and to help meet the goals of food security and rural development, the CDM contains a small-scale category with simplified conditions and reduced fixed costs. The rules and procedures for full-scale forestry projects under the CDM were clarified at the ninth Conference of the Parties (COP-9) of the UNFCCC, and those for small-scale projects were only defined at COP-10.

The definition of forest, afforestation and reforestation decided by COP-9

Source: N. Masripatin, "Preparing the Ground: Indonesia's Arrangements for Forestry Projects under the Clean Development Mechanism," Unasylva Vol. 56, No. 222 (2005/3): 12-18. View pdf (314 KB). See further, for the definition of "afforestation" and "reforestation", the UNFCCC glossary of CDM terms. View pdf (194 KB).

As of 04 June 2007, 689 CDM project activities were registered in all sectors. Of these, less than 1 per cent were afforestation and reforestation projects. No forestry projects have been registered yet under the CDM in ITTO producer countries. There are several reasons for this: the rules and procedures established by the COP decisions could not readily be implemented because of inconsistencies with existing national regulations; there have been difficulties in finding eligible land that meets the CDM definitions for forest, afforestation and reforestation; and the complexity of CDM rules and procedures has dampened the interest of project proponents in CDM forestry.

Distribution of registered project activities by scope

Source: UNFCCC website, CDM Statistics.
Note: As of 04 June 2007. A project activity can be linked to more than one sectoral scope.

For further analysis, please refer to: Food and Agriculture Organization of the United Nations, "Forests, Climate and Kyoto," Unasylva Vol. 56, No. 222 (2005/3). All issues of Unasylva are available online free of charge at: www.fao.org/forestry/unasylva.

You may also download [Flash, 993 Ko]: Centre de coopération internationale en recherche agronomique pour le développement (CIRAD), Changement climatique - Quelle contribution des forêts et des plantations tropicales? (in French).

More information about the Kyoto Protocol, CDM and related issues can be found at the UNFCCC web site.