W. HENSON MOORE, is president and CEO of the American Forest & Paper Assn. (AF&PA). This column is taken from his testimony at a hearing on trade issues with Asia before the U.S. House of Representatives Committee and Ways & Means Subcommittee on Trade, Feb. 24, 1998.

Comment Column

ELIMINATION OF TARIFF BARRIERS A MUST FOR HEALTH OF THE INDUSTRY

The U.S. forest products industry has an important stake in Asia. Asia currently accounts for 40% of our worldwide export sales. Asian producers rank among our most formidable worldwide competitors, and are adding additional capacity at a vigorous rate.

Historically, our companies have faced a formidable array of trade barriers—including tariffs, non-tariff barriers, and discriminatory standards—in these markets. A prime example is the 20% tariff on kraft linerboard (used in the manufacture of corrugated shipping containers) imposed by Malaysia in 1994, expressly designed to preclude foreign competition with a local production facility. For wood products, the issue of tariff escalation—the application of zero tariffs on raw materials and higher tariffs at progressive stages of processing—has meant that market access for our higher value-added products has been restricted.

These tariffs are particularly unfair in view of the fact that U.S. tariffs on paper products are at or near zero, and are very low for wood products. Moreover, a substantial number of these countries benefit from duty-free access to the U.S.

Over the past year, our industry has worked closely with the Office of the U.S. Trade Representative and our industry counterparts in Canada, New Zealand, and Indonesia to craft a comprehensive program which would eliminate tariff and non-tariff barriers, as well as discriminatory standards throughout Asia. The Asia Pacific Economic Cooperation forum (APEC) Forest Products Initiative, which was endorsed at the Vancouver Summit in November last year, offers the potential to establish a truly barrier-free market for our products in the APEC region by 2004. By opening participation to other trading partners, it could create a global free market in this industry.

We view this as a remarkable achievement—a testament to both the extraordinary negotiating skill of Trade Representative Barshefsky and the growing economic sophistication of the APEC member economies. It must be emphasized that the APEC leaders took this decision, in full light of the unfolding financial crisis, precisely and explicitly because they understood that market liberalization is sound economics and that a commitment to achieve completely free trade would send a strong, confidence-boosting signal to world financial markets.

We are further encouraged by the results of recent APEC meetings in Penang, where senior officials reaffirmed their commitment to achieve the goals set. At the same time, however, we note that some of the developed countries in the region—especially Japan and Korea—have so far failed to exercise the leadership which the times and their position in the region require. Winning their early and firm commitment to the APEC sectoral initiative must be a major objective of U.S. trade, financial, and security policy.

We remain concerned that the crisis may be used by protectionists as an excuse to stall trade liberalization. The U.S. forest products industry urges this committee to ensure that the U.S. response to the financial difficulties in Asia goes beyond the immediate need to restore financial stability and focuses on the more fundamental requirement for genuine, market-based reform. Monetary and trade policy interests must be coordinated and integrated. Asian countries must be pressed to open their economies, not only to banking and investment, but to competition in goods.

It must be remembered that protective tariffs, non-tariff barriers, collusive business practices, and state trading are all part of the problem which led to the current crisis. There can be no meaningful, sustainable recovery in the region unless and until these are rooted out.

Where they exist, anticompetitive practices (such as the keiretsu system in Japan; the chaebol in Korea; and the plywood cartel in Indonesia), subsidies, or other non-market-based financial incentives for capital investment which have thwarted market function, and contributed to the current problems, must not continue.

Making such policies transparent is not the answer; they must be eliminated, and markets opened to foreign trade and investment on equal terms. The U.S. and multilateral lending agencies must ensure that needed adjustments are made on the basis of fully open, contestable markets. The discipline of open markets, which the APEC Forest Products Initiative will provide, must be combined with closer scrutiny of lending policies by U.S. government and multilateral donor agencies to ensure sustainability in this sector. Investment and production decisions must be subject to market—not political—forces.

The recent IMF agreement for Indonesia is a step in the right direction. By calling for the dismantling of the plywood cartel and the elimination of export taxes, it opens the way for enhanced competition in panel products’ markets. But, for Indonesia and for other countries in crisis, the IMF must go further. It must press for the elimination of tariff and non-tariff barriers before it can be satisfied that the underlying causes of the current difficulties are being effectively—and permanently—addressed.