Comparative Advantage of Malaysian Wood Products in the European Market

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Environment and international trade

Towards the end of Uruguay Round7, the emerging role of the World Trade Organization (WTO) in the field of trade and environment had been put into focus. Its competence in the field of trade and environment is limited to trade policies and to the trade-related aspects of environmental policies which have a significant effect on trade (WTO, 2004). Therefore, in addressing the relationship between trade and environment, the WTO itself has no answer to the environmental problems. But, somehow, it believes that trade and environmental policies are complementary to each other. Environmental protection preserves the natural resource base on which economic growth is premised, and trade liberalization leads to the economic growth needed for adequate environmental protection (WTO, 2004). Thus with this as a measure, the WTO takes on the role to continue liberalizing trade and to ensure that environmental policies do not become an obstacle to trade and trade rules do not stand in the way of adequate domestic environmental protection. According to the WTO (2004), WTO members are free to adopt national environmental protection policies provided that they do not discriminate8 between imported and domestically produced like products (national treatment principle), or between like products imported from different trading partners (most-favoured-nation clause). Furthermore, WTO members recognize that trade liberalization for developing country exports, along with financial and technology transfers, is necessary in helping developing countries generate the resources they need to protect the environment and work towards sustainable development (WTO, 2004).
In the Preamble to the Marrakech Agreement Establishing of the WTO, the importance of working towards sustainable development was emphasized. During 1994, a Ministerial Decision on Trade and Environment established a Committee on Trade and Environment (CTE). The CTE members consisted of all WTO members and some observers from intergovernmental organizations. The CTE mandates agreed upon identifying the relationship between trade measures and environmental measures in order to promote sustainable development and making appropriate recommendations on any modifications of the provisions of the multilateral trading system (WTO, 2004). In addition, the work programmes of the CTE cover broader issues than previously addressed by the EMIT group. In early 1995, the CTE first convened to examine the different items of its mandates. Starting from that year, it held a meeting and information session with the MEA (Multilateral Environmental Agreement) Secretariat to deepen members’ understanding of the relationship between MEAs and WTO rules (WTO, 2004). In addition, according to the WTO (2004), it is widely recognized that multilateral cooperation through the negotiation of MEAs constitutes the best approach to resolving transboundary (regional and global) environmental concerns.

The Doha Mandates on Trade and Environment

At the Doha Ministerial Meeting organized in November 2001, it was agreed between the meeting members to launch negotiations on some issues related to trade and environment. During the meeting, WTO Members reaffirmed their commitment to health and environmental protection and agreed to embark on a new round of trade negotiations, including negotiations on certain aspects of the linkage between trade and environment (WTO, 2004). The Committee on Trade and Environment Special Sessions (CTESS) was established to conduct the issue. In addition, the CTE and the Committee on Trade and Development were asked to act as a forum in which the environmental and developmental aspects of the negotiations launched at Doha could be debated (WTO, 2004). According to the WTO (2004), the Doha mandate has placed trade and environment work at the WTO on two tracks:
i. The CTE Special Session (CTESS) has been established to deal with the negotiations (mandate contained in paragraph 31 of the Doha Ministerial Declaration- refer to annex 2).
ii. The CTE Regular deals with the non-negotiating issues of the Doha Ministerial Declaration (paragraphs 32, 33 and 51- refer to annex) together with its original agenda contained in the 1994 Marrakesh Decision on Trade and Environment (mandate contained in paragraphs 32, 33 and 51- refer to annex 2).

Labelling requirements and taxes for environmental purposes

The growing complexity and diversity of environmental labelling schemes create difficulties for developing countries in export markets and somehow may reduce the market access for them. In addition, an ecolabelling scheme based on life-cycle analysis, is not easy to conduct and is also related to a few aspects of the process of production or of the product itself. TheWTO members agreed that environmental labelling schemes should be based on voluntary, participatory, market based and transparent to inform consumers about environmentally friendly products. However, environmental labelling schemes could be misused for the protection of domestic markets (WTO, 2004). Therefore, the environmental ecolabelling scheme should not result in unnecessary barriers or disguised restrictions on international trade. To some extent, the processes and production methods (PPMs) become a thorny issue in the ecolabelling debate. Many developing countries argued that measures which discriminate between products based on “unincorporated PPMs”9, such as some ecolabels, should be considered WTO inconsistent (WTO, 2004).
Since all ecolabelling schemes require some level of life-cycle analysis, they may eventually create non-tariff barriers for importers especially for developing countries who see these schemes as protectionist barriers to trade. Resource labelling in forest products has taken the form of forest product certification, a tool for providing credible environmental forest management information to consumers of wood products (Ruddel et al., 1998). Since forest product certification is concerned with the environmental impacts at one location in the forest products supply chain, resource labels provided by forest products certification are sometimes referred to as a single issue ecolabel. According to Ruddel et al. (1998), ecolabelling and forest product certification are potentially problematic within the context of the TBT agreement and the NT10 principle. The TBT agreement seeks to ensure that product standards are not used as disguised protectionist measures and to reduce product standards which may operate as barriers to market access. The environmental benefits communicated by ecolabels and resource labels are not reflected in the products’ physical characteristics (Ruddell et al., 1998). Both ecolabelling and forest product certification rely on non-product related PPM criteria (i.e. environmental attributes) which are prohibited by the TBT agreement.

Effects of Trade Liberalization on the Environment

For developing countries, international trade is considered as an important means to gain benefit in increasing the exports and improving the income of a country. To some extent, trade liberalization contributes to the economic development of a country with the incoming foreign investment in certain sectors. Therefore, it is assumed that trade liberalization in certain sectors has the potential to bring benefits for trading partners. The removal of the trade restrictions and distortions should be emphasized by the WTO members. According to the FAO (1995), some environmental interest groups argued that by contributing to economic growth and increasing the world’s demand for natural resources, trade liberalization is a cause of the problem and not the solution. Some groups proposed trade restrictions to protect the environment. They supported trade barriers and tighter restrictions in multilateral agreements to control excessive resource depletion and protecting consumers from hazardous imported products (FAO, 1995).
On that issue, in 1992, the United Nations Conference on Environment and Development (UNCED) outlined a work programme on trade and the environment and established a guideline for trade and the environment to encourage member governments to work towards national trade and environmental policies that are more compatible with each other (FAO, 1995). Following that in 1993, the United States, Canada and Mexico signed an agreement on an environmental adjunct to NAFTA that subjects trade agreements to environmental review. In 1994, a committee on trade and the environment within the WTO was set up to ensure that trade rules were responsive to environmental objectives. This is where Committee on Trade and Environment of the WTO came into the picture. The WTO Secretariat prepared a background note to address the fact that trade liberalization is not the primary cause of environmental degradation, nor are trade instruments the first-best policy for addressing environmental problems (WTO, 2004). Also the CTE has the responsibility of promoting sustainable development and making appropriate recommendations on any modifications of the provisions of the multilateral trading system (WTO, 2004).

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Environmentally Related Standards as Non-tariff Barriers

Recently societies have increasingly become aware of the problems of environmental degradation, pollution and disruption of ecosystem at local, national and global level. Scientific and technological advances have increased greatly the understanding of the causes and consequences of environmental degradation and the global nature of the environmental problems. Liberalized trade and investment also may improve the exchange of environmental engineering and treatment technologies and services among countries, helping them to better address environmental problems. However, developing countries remain concerned that developed countries have used and will use environmental standards and related trade measures to protect their domestic markets. In tandem with that issue, it is widely recognized that non-tariff barriers (NTBs) to trade have been increasingly widespread since the 1980s. These include quantitative restrictions or subsidies in agriculture, textiles and other sectors, voluntary restraint agreements, such as those in the steel sector and tariffs that increase according to the trade item’s level of processing (Lallas et al., 1992). It is assumed that some of these measures may have significant implications for environmental protection and economic development. Furthermore, strong pressure on developing countries to export natural resources and other products to service international debts or for some other reasons places additional stress on the environments of developing countries.
According to Ruddell et al. (1998), several developments in market access and trade in forest products have the potential to become new non-tariff barriers. To some extent, environmental regulations and standards may act as trade barriers especially for developing countries in adapting to these standards. The following issues might create unnecessary non-tariff barriers in forest products (Ruddell et al., 1998):
i. Environmental and trade restrictions on production and export in developed countries that might affect international trade patterns.
ii. Quantitative restrictions on imports of “unsustainably produced” timber products.
iii. The use of ecolabelling and “green” certification as import barriers.
The WTO has sent a strong message that countries having high domestic environmental standards cannot use trade policy to force their standards on the rest of the world even if the countries imposing the trade policy apply the same requirement on their domestic products. Furthermore, the agreement on TBT (GATT Standards Code) adopted in the Tokyo Round of GATT Negotiations is designed to prevent countries from using product-related standards and technical regulations to create unnecessary obstacles to trade and to encourage countries to harmonize standards at the international level. The GATT Standards Code was negotiated in order to further develop rules and disciplines to prevent “implicit discrimination” against imports through the use of “product standards”.

Asia: Major Destinations for Malaysian Tropical Timber Products

From the exports statistics of timber and timber products, it is evidenced that Asia was the major market for Malaysia taking up about 50 percent of the total exports from Malaysia relative to the world. The geographical locations of the countries were grouped into Eastern Asia12, South Central Asia13 and South East Asia14 for this analysis (Figure 14). The highest values of Malaysian timber export went to China, Japan and Korea which are considered the real market for Malaysian timber products in Asia.

Table of contents :

Chapter One: Trade and environment
1.1 Background
1.2 The emergence of trade and environmental debate
1.2.1 Environment and international trade
1.3 The Doha Mandates on Trade and Environment
1.4 The Relationship between MEAs and the WTO
1.5 Market Access and environmental requirements
1.5.1 Labelling requirements and taxes for environmental purposes
1.6 Effects of Trade Liberalization on the Environment
1.7 Recent Trends in the International Trading System
1.8 Environmentally Related Standards as Non-tariff Barriers
1.9 Conclusion
Chapter Two: Malaysian Timber Export: An Overview of the European Market
2.1 Background
2.2 Malaysia as a Key Player in the International Tropical Timber Trade
2.3 Asia: Major Destination for Malaysian Tropical Timber Products
2.4 Europe: Traditional Market for Malaysian Timber Products
2.5 Issues and Challenges Influencing Malaysian Timber Trade in Europe
2.6 Conclusion
Chapter Three: Comparative Advantage of Malaysian Wood Products in the European Market
3.1 Introduction
3.2 Comparative Advantage
3.3 Malaysian Wood Products in the European Market
3.4 Balassa Approach
3.5 Results and Discussion
3.6 Conclusion
Chapter Four: Willingness to Pay for Wood Flooring: Case Study of French Consumers
4. 1 Introduction
4.2 Valuation of Non-market Goods
4.3 Stated Preferences Approach
4.4 Sustainable Management and Willingness to Pay
4.5 Materials and Methods
4.6 Econometric Model of Choice Experiment
4.7 Data and Results
4.7.1 Simple conditional logit model
4.7.2 Conditional logit interaction model
4.8 Conclusion
Chapter Five: Discussion and conclusion of thesis 
Primary Bibliography 
Secondary Bibliograph


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