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Non-tariff barriers to New Zealand forest products trade

Non-tariff barriers to New Zealand forest products trade

Even in markets where import tariffs are low or non-existent, non-tariff barriers (NTBs) can be a major impediment to trade.

This is especially true of New Zealand’s exports of forest products, which face significant NTBs in many major markets. Many of these barriers can easily be identified, but it is a great deal more difficult to calculate their precise impact on our export returns and what their removal might mean for our forest industry.

One thing is certain, our forest products exports are not competing on a level playing field.

NTBs are defined as government measures, other than tariffs, that distort international trade. Typically they either protect domestically produced products from the full weight of foreign competition or artificially stimulate exports of those products.

They may include quantitative restrictions, administrative procedures, phytosanitary and technical regulations and standards, price control measures, subsidies, forest management certification and product labelling, and illegal activities.

According to the World Trade Organisation (WTO), the number of reported NTBs is steadily growing.

Their diversity and complexity make them the ‘new frontier’ of trade policy – as important in their content as in how they are implemented. Some are introduced for legitimate reasons – such as to protect public health or the environment – but if they are poorly designed they may impede free and fair trade. Others have no legitimate purpose other than to protect domestic manufacturers or to pander to vested interests.

A particular concern for major wood processors is the adoption by major markets of building codes and product standards which do not provide for NZ radiata pine.
Sawn timber exporters say the import value-added-tax (VAT) differential between logs and sawn wood in China has a major impact on their ability to compete in both China and third markets. The VAT on sawn wood is set at 17%, whereas the VAT on logs shipped to some Chinese ports can be as low as zero. In addition, Chinese mills enjoy a myriad of other state-funded benefits including access to subsidised raw materials, power and loan interest rates.

India is worse. Their import tariff on sawn timber stands at 26%, compared with logs at 5%. India also has a host of bureaucratic measures designed to hinder imports of processed wood products from New Zealand and elsewhere.

India and China have large ‘informal’ wood products sectors that draw their raw materials from illegal loggers and timber smugglers. This reduces costs to their domestic wood processors, making them more competitive in both domestic and third markets.

Canada has extensive measures to protect its domestic wood processors, including restrictions on log exports, and government-funded export market development programmes.
In order to minimise the effects and future risks of NTBs on the forestry sector, the following recommendations are made for consideration by the Wood Council and the New Zealand Government:

Recommendations

1. In the negotiation of future bilateral and multilateral trade agreements, New Zealand trade negotiators should take into account the impacts of NTBs on the forestry sector. The removal of NTBs will potentially have higher gains for the NZ economy than the removal of tariff barriers.

2. Government agencies should prioritise trade negotiations with China to level the playing field for imports of radiata-based wood and paper products from New Zealand. New Zealand exporters are operating at very low margins in a price-conscious market and any issue that influences price, such as differentials in VAT paid by NZ versus domestic manufacturers, will reduce their ability to compete.

3. Government agencies should clarify international definitions and requirements for legal products, including the risk that Australian importers will require proof of legality for wood products imported from New Zealand. Advise exporters how to obtain acceptable evidence of legality.

4. Government agencies in co-operation with the Wood Council should regularly publish market intelligence about trade barriers in key markets, including their impacts on the forestry sector. This information should be provided to the forestry industry, members of parliament and policy makers.

5. Government agencies should negotiate with major markets so there are acceptable alternatives to the methyl bromide fumigation of export logs in place, prior to the 2020 deadline for phasing out this chemical.

6. The government should increase New Zealand’s international involvement in combating illegal logging and trade.

7. The government should improve the level of R&D support to the forestry sector, recognising the very high comparative levels of R&D support provided to the forestry sectors in competitor countries.

ENDS

WOODCO_TRADE_BARRIERS_Final_Report_March_2016.pdf

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