Nathalie Chalifour

Global Trade Rules and the World's Forests:
Taking Stock
of the World Trade Organization's
Implications for Forests

1997





Georgetown International Environmental Law Review
2000
12 Geo. Int'l Envtl. L. Rev. 575


Global Trade Rules and the World's Forests:
Taking Stock of the World Trade Organization's Implications for Forests


Nathalie Chalifour


Nathalie Chalifour, Trade and Policy Analyst, World Wildlife Fund Canada. J.S.M., Stanford University, 1999; LL.B., University of Western Ontario, 1994. This paper is based on research conducted as part of the Stanford Program in International Legal Studies at Stanford Law School. The author wishes to thank Professors Sophie Pirie, Barton Thompson, Thomas Heller, James Salzman, and Terry Anderson for their assistance and insights. The views in this paper do not necessarily reflect those of World Wildlife Fund.


I. INTRODUCTION

One year ago, most laypersons did not know what "WTO" meant. The Ministerial Meeting of the World Trade Organization (WTO), n1 held in Seattle from November 30 to December 3, 1999, changed that. As the large-scale protests that appeared to derail the meeting were broadcast around the world, n2 "WTO" became a familiar term to many. Policy debates such as those between trade and the environment and trade and labor rights, which have raged among interest groups for over a decade, n3 have emerged into the mainstream. The protests in Seattle highlighted the public's desire for players in the WTO and other trade liberalization regimes to become aware of, and accountable for, the broad implications of these regimes for the environment, labor rights, culture, and other societal issues.

It would be foolhardy for future WTO trade talks to ignore the messages championed by grassroots activists in Seattle that future global trade negotiations must include consideration of labor, social, cultural, and environmental concerns. Of course, no one knows whether future WTO negotiations will better reflect the concerns raised in Seattle. Official post-Seattle statements from the WTO Director-General have been vague, promising only "open and balanced trade negotiations." n4 However, even if the WTO strives to address these issues in  [*577]  future negotiations, the toughest challenges still remain. What is involved, for instance, in reconciling the policies of liberalized trade with the need to safeguard the environment? Before this question can be effectively addressed, there needs to be a better understanding of the links between liberalized trade policy and the environment. It is only after the links are truly understood that policy decisions relating to trade and/or the environment can be fairly evaluated.

A great deal of research aimed at understanding the links between trade liberalization and labor rights -- as well as trade liberalization and the environment -- has been done. n5 Most of the research on the linkages between trade and environment, however, has focused on pollution. n6 Little research has explored the relationship between trade liberalization and conservation of natural resources. n7 This article considers the implications of trade liberalization under the WTO for one very important natural resource -- forests.

Forests provide humans around the world with a wealth of commodities and vital ecological services, and are of great social and cultural value. n8 Despite the diverse values of forests, widespread deforestation and forest degradation has occurred in this century and continues today. n9 What role, if any, has trade liberalization played in this deforestation and forest degradation?

A number of researchers have implicated trade liberalization rules and policies in the loss and degradation of forests. n10 No researcher to date, however, has  [*578]  provided a comprehensive framework of the implications of trade liberalization for forests. Articles that explore the links between trade liberalization and forests have focused mainly on the impact of trade liberalization on the international timber trade, n11 ignoring, among other things, the implications of trade rules regulating things other than timber trade, such as trade in agricultural goods, for forests. The aim of this article is to provide a more comprehensive framework. By mapping out the main connections between trade liberalization and forests, this article provides a preliminary framework of analysis for future research and discussion.

The body of this article is structured in three subsequent parts. Part II provides the background necessary to the analysis; it briefly examines the importance and status of forests and reviews trade liberalization under the WTO. n12 While there are many bilateral and regional trade regimes, such as NAFTA, n13 this article uses the WTO as the representative trade liberalization regime. This article's conclusions, however, are largely adaptable to regional trade regimes because many of the rules of such regimes are similar to the WTO's rules. n14 Part III maps out the links between trade liberalization and forests, highlighting some of the implications of the WTO for forests. The links are divided into two sections, with Section A focusing on the direct effects of the WTO rules on forests and Section B considering the indirect implications of the WTO for forests in the context of economic globalization. While it attempts to be comprehensive, this article does not purport to provide an exhaustive list of all possible implications of the WTO -- or trade liberalization generally -- for forests. Doing so would be impossible given the infinite number of causal links that can be drawn between events. Instead, this article seeks to outline what the author believes are the main linkages. The analysis of each implication is not complete or final. A great deal of data needs to be gathered and analysis conducted before firm conclusions about  [*579]  the implications can be drawn, but this article seeks to assemble the initial framework upon which such analysis may be conducted.

Despite its preliminary character, the article clearly demonstrates that there are many connections between trade liberalization and forests, and that the WTO's rules have a number of complex and interrelated implications for forests. Some of the WTO's rules and effects promote forest conservation, while others lead to further deforestation and forest degradation. The research is too preliminary to draw conclusions about the net impact (which is not necessarily unfortunate, since there may not be much utility in talking about net impact). However, the evidence demonstrating that the WTO's rules and the effects of those rules may, in some cases, contribute to deforestation and forest degradation merits immediate attention and counsels a precautionary approach within the WTO and other liberalized trade regimes.

II. BACKGROUND

This Part will consider first the value and status of the world's forests, and then will provide a brief introduction to trade liberalization under the WTO.

A. THE VALUE AND STATE OF THE WORLD'S FORESTS

There is no question that forests are central to humans all over the world. Consider the products provided by forests: wood constructs homes and furniture, cooks food, and warms people; paper brings the morning news and the books that educate children; and foods, medicines, minerals, and other products from the forest regularly find their way into people's lives. n15 Of course, the forest's benefaction is not only in the form of products, as forests also offer vital environmental and social values. n16 The ecological services provided by forests, such as purifying water and sequestering carbon from the atmosphere, are essential to human life. n17 Forests are also a source of recreation, aesthetic beauty, employment, and culture and provide homes and subsistence for many indigenous communities all around the world. n18

Despite the importance of forests, global forest cover has decreased by approximately one-third to one-half since humans became pastoralists, n19 and  [*580]  forest loss (especially of tropical forests) continues in many parts of the world. n20 The United Nations Food and Agriculture Organization (FAO) reports that, between 1980 and 1995, an area larger in size than Mexico (approximately 200 millions hectares) was deforested, mostly in the tropics. n21 The main cause of this forest loss has been clearing and conversion of forested land to other uses, such as agriculture, urban development, industry, human settlements, and infrastructure. n22 Additionally, the clearing of forests in the process of logging timber also causes considerable loss of forested land. n23

Not only has forest cover decreased, in absolute terms, but the condition of many remaining forests also has changed due to how the forests are managed. Commercial logging is a major agent of change due to management. n24 Logging tends to fragment forests and result in altered species composition from the differential removal of certain tree species to the exclusion of others. n25 Also, forest soil and vegetation is often destroyed when roads are built for logging or transportation equipment. n26 Commercial activities aside from timber harvesting -- such as extracting non-timber forest products, bio-prospecting for pharmaceuticals, and mining and oil exploration -- can also damage forests in ways similar  [*581]  to logging activities. n27 Extracting wood and charcoal for fuel, whether commercially or non-commercially, can also change forest conditions. n28 Of course, changes in forest management to better reflect social and environmental values -- such as reforestation activities, the implementation of sustainable forestry practices, and the establishment of protected areas -- also impact forest condition. n29

Factors outside of forest management, such as global and regional climate change and air pollution, can harm forests. n30 For example, forests in North America, Europe, Asia, and those near cities everywhere have been impacted by acid rain. n31 Fires that burn longer, hotter, and faster due to years of forest fire suppression also degrade forests. n32 Invasion of forests by exotic species, such as Dutch Elm disease or Chestnut Blight, is yet another source of forest degradation. n33 Even recreation, which is often perceived as a benign activity, can lead to forest damage. n34

While the causes of forest loss and degradation are fairly well understood, the factors that underlie these causes are less obvious. Factors such as population growth, increasing per capita consumption rates, corruption, low education levels, inequitable land distribution policies, insecurity of land tenure, and the promotion of international debt by governments and industries have been  [*582]  identified as underlying causes of forest loss and degradation. n35 Trade liberalization is another factor that has been identified as an underlying cause of deforestation and forest degradation. n36

At the same time that forest cover is shrinking and the condition of forests is changing, demand for forest products and the environmental and social values of forests is rising. n37 Though forests outside of protected areas have traditionally been managed primarily for timber production, there is increasing demand for forests to be managed in a way that takes environmental and social values into account. n38 This style of management is known as sustainable forest management. n39

There is a major global policy debate about how to reconcile the divergent and growing demands on the shrinking forest base, which includes a desire for greater consideration of environmental and social values. n40 The forest policy debate is not a simple one. n41 First, because people place different relative values on forests and because forests currently satisfy some values more than others, there is not universal agreement that forest loss or degradation poses a problem -- or, if it does, how serious the problem is. n42 The forest issue is also very complex. It has, for example, many transnational aspects. n43 Some forest values, such as biodiversity or the value of forests as carbon sinks, are largely global. n44 What happens to forests in one country, therefore, can be of interest to people in other countries. n45  [*583]  Further, many of the processes that impact forests are transnational in nature. n46 Decisions affecting forests are made in the context of rapid economic growth and integration, and forests are increasingly susceptible to influence from international dynamics, such as international business practices, foreign financial aid, and international trade. n47 Part of resolving the global forest policy debate is to understand the relationship between these dynamic processes and forests.

B. TRADE LIBERALIZATION UNDER THE WTO

The main rationale for the ongoing liberalization of international trade is to raise global standards of living by increasing economic efficiency, based on the theory of comparative advantage. n48 Negotiators of the pioneer agreement on liberalized trade, the General Agreement on Tariffs and Trade (GATT), n49 were also motivated by an impetus for postwar economic reform that would breed political stability. n50 Today, the GATT, along with a proliferation of agreements that have been negotiated under the auspices of the GATT, is administered by the WTO. n51 Many countries have also negotiated regional and bilateral trade agreements. n52

The WTO regime is based on only a few core tenets. These are (1) the most-favored nation (MFN) policy; (2) the national treatment policy; and (3) the reduction and eventual elimination of barriers to trade. n53 The MFN policy requires that parties to the trading regime grant to every other party the most favorable treatment granted to other parties with respect to export and import of  [*584]  goods. n54 The GATT provides a number of exceptions to the MFN policy. n55 For example, there is an exception for preferential treatment of goods from developing countries. n56 In addition, an exception relates to regional trade agreements, which usually provide greater tariff reductions for the parties to the regional agreement. n57

The national treatment policy is based on a similar non-discrimination rationale. n58 It requires parties of the trading regime to treat goods imported from other parties -- once they have cleared customs and border procedures -- no less favorably than goods produced domestically. n59 This prevents countries from creating policies that benefit domestic industries to the detriment of importing countries. n60

The heart of the WTO regime, however, lies in its obligation to reduce and eventually eliminate barriers to trade. n61 The GATT tackled trade barriers by first requiring parties to quantify non-tariff barriers into tariffs, and second, prohibiting the creation of further non-tariff restrictions. n62 The idea was to quantify all barriers into the same unit -- tariffs -- and then negotiate tariff concessions. n63

Since its inception over fifty years ago, the GATT has had a major impact on reducing tariff barriers. n64 By 1979, overall tariffs had been reduced to a level of approximately 6.3% (based on a weighted average of tariffs on industrial  [*585]  products), compared to much higher pre-GATT levels. n65 Average tariffs are estimated to have decreased to about 3.9% as a result of the Uruguay Round of GATT negotiations. n66

The more challenging aspect of trade liberalization is battling non-tariff barriers, such as technical barriers to trade, and government policies, such as subsidization, that may create trade distortions. n67 The Uruguay Round made significant progress towards eliminating non-tariff trade barriers with an improved agreement for tackling subsidies and an agreement on technical barriers to trade. n68 Negotiators of the GATT carved out a number of exceptions to the liberalized trade provisions in a few special cases where negotiators thought national concerns might outweigh the gains of liberalized trade. Exceptions were thus included for security, health, and protection of the environment. n69 The interpretation of these exceptions is discussed in Section A(1) of Part III.

III. IMPLICATIONS OF TRADE LIBERALIZATION FOR THE WORLD'S FORESTS

To date, very little research has been conducted to determine what the implications of trade liberalization are for forests. What research has been conducted has generally focused on the direct impact of trade liberalization on the timber trade. n70 While the impact of trade liberalization on the timber trade is part of the analysis, the implications of trade liberalization extend beyond its impacts on the trade of forest products.

It is also useful to distinguish between what I will call "direct" and "indirect" implications of trade liberalization regimes for forests. n71 "Direct implications" are those that are due to the specific rules and institutional structures of a trade regime. "Indirect implications" are those that are attributable to economic growth and globalization, powered in part by trade liberalization, but also by other factors, such as improvements in communications, transportation, and technology. It is helpful to distinguish between implications that are directly attributable to a trade liberalization regime's rules, and implications that are only partially attributable to such rules, as these causal relationships are relevant in  [*586]  deciding how implications might be mitigated or fostered. If an implication is only partially due to trade liberalization, attempting to reform trade rules alone may not be the most effective or efficient route for mitigating or fostering an implication.

As noted in Part I, this paper uses the WTO as the representative example of a trade liberalization regime. Therefore, the remainder of this Part will consider the implications of the WTO for forests. Section A identifies a number of WTO rules and regulations that have implications for forests and explores some of these implications. Section B explores two implications that are indirectly caused by the WTO.

A. WTO RULES WITH IMPLICATIONS FOR FORESTS

The rules now administered by the WTO have resulted in substantial reductions of tariffs, and the next round of WTO negotiations promises to further reduce tariffs -- in some sectors eliminating them altogether. n72 Non-tariff measures are much more difficult to reduce, given that they vary greatly in type and application from country to country. n73 However, the WTO is increasingly working to reduce non-tariff measures considered to be barriers to trade. This section considers some of the effects of the WTO's current and proposed disciplines on tariff and non-tariff measures and concludes that WTO rules have many potential, and often complex and interrelated, implications for forests. These implications merit further research and effort by the WTO to reform its rules in order to mitigate negative and foster positive impacts on forests. The economy is dependent in part on the sustainable use of natural resources, and thus it is in the long-term interest of the WTO to ensure that its rules do not undermine sustainable use of forests.

1. Reduction and Elimination of Tariffs

Tariffs were once widely used by countries to protect their domestic industries from competition. n74 The GATT has significantly reduced tariff rates, from rates as high as 60 or 70% down to single digit rates or elimination in most cases. n75 When tariffs are reduced or lifted, economic and trade theories demonstrate that the price of the imported product will be lowered and the quantity demanded of the good will concomitantly increase. n76

 [*587]  Tariff reductions, therefore, have implications for forests because they can cause increases in the consumption of forest products and other commodities whose consumption affects forests. This section analyzes the implications for forests of tariff changes on forest products and non-forest products. It finds that further tariff reductions are likely to have implications for forests, largely because forest conservation and sustainable management practices are insufficient to safeguard forests in the face of increased demand for products.

a. Reduction of Tariffs on Forest Products

It stands to reason that decreases in price due to tariff reductions might impact forests by increasing demand for forest products. One researcher, Edward Barbier, considered the impact of tariff reduction under the Uruguay Round on trade in forest products. n77 He concluded that tariff reduction would create a small increase in demand, which in turn would lead to some trade creation and trade diversion. n78

i. Trade Creation

Barbier used a partial equilibrium model to first consider the extent to which price decreases from tariff reductions will result in trade creation. n79 He reported that tariffs on most forest products prior to the Uruguay Round were already set low in most countries, with a weighted average of only 3.5% among GATT parties. n80 During the Uruguay Round, most industrialized nations committed to the complete elimination of tariffs on pulp and paper within eight years of the Round, and to further reduce tariffs on other forest products. n81 Barbier concluded that these tariff reduction commitments would lead Post-Uruguay Round tariffs on forest products to a level of 1.1%, on a weighted average basis. n82 He also concluded that these tariff reductions will increase demand for forest products within the GATT regime by between U.S.$ 340 and U.S.$ 472 million. n83 While this is a real increase, the global value of forest products trade in 1991 was U.S.$ 85.6 billion; thus this increase represents only a relatively small increase of 0.4 to 0.5%. n84

 [*588]  One of the proposals before the Seattle Ministerial Meeting was the Accelerated Tariff Liberalization initiative, which among other things proposed to eliminate remaining tariffs on forest products by 2004. n85 Because tariffs on forest products are generally already quite low, eliminating remaining tariffs on forest products will not raise global demand for forest products by a large percentage. There are some notable exceptions, however, where tariffs on forest products are not already low. For example, China, who is not yet a member of the WTO, and Malaysia still have high tariffs on raw forest products. n86 Tariff reductions in these countries will have a greater impact on demand. Also, processed forest products (such as wood furniture) continue to be subject to higher tariffs than raw goods. n87 The Office of the U.S. Trade Representative and the Council on Environmental Quality recently estimated that the Accelerated Tariff Liberalization proposal would increase world trade in forest products by a maximum of 2%, raise world production and consumption of forest products by under 1%, and increase timber harvesting by 0.5%. n88

Assuming that these predictions are correct, what impact will a 0.5% increase in harvesting have on forests? The answer depends significantly on the forest protection and management rules in place in countries that will supply the increased demand. Because most countries do not have an adequate network of protected forests for conserving ecological and biological diversity, or adequate forest management rules to ensure that forest harvests are sustainable, n89 increased demand will likely contribute to some deforestation and forest degradation. The impact of tariff elimination will also depend on whether the increased harvesting comes from primary, secondary, or plantation forests, and whether some of the increased demand is met with greater efficiency in production.

While a global increase in timber harvesting of 0.5% does not seem to constitute a substantial overall impact on forests, it can be argued that even such a slight increase is significant, given the degree of deforestation and forest degradation that has already taken place. In addition, the impact will be greater in those regions where harvesting rates are predicted to rise by more than 0.5%. The study predicts, for example, that timber harvests in some countries -- including Australia, Chile, China, Finland, Indonesia, and Malaysia -- will increase by 2.6  [*589]  to 4.4%. n90 Therefore, reliance on a lower overall global figure may obscure some of the more regional impacts.

ii. Trade Diversion

In addition to increasing demand, tariff elimination on forest products can lead to a shift in market share from developing to developed countries. n91 Many developing countries currently enjoy preferential tariff rates in developed countries. n92 The Uruguay Round, however, resulted in a decrease of MFN rates on forest products such that the difference between MFN rates and preferential rates given to developing countries is almost gone. n93 Barbier concluded that this will cause a shift in market share from developing to developed countries. n94 If tariffs on forest products are eliminated, developing countries will no longer enjoy any preferential rates on forest products, which will likely mean another shift (albeit small, given the minor difference between existing regular and preferential tariff rates) in market share from developing to developed countries. n95

b. Reduction of Tariffs on Non-Forest Products

Accurately assessing the implications of trade liberalization for forests requires analysis of the impacts of tariff changes on forest products. However, it is equally important to consider the implications for forests of changes in tariffs on commodities other than forest products whose trade affects forests.

Tariffs are being reduced and eliminated in all sectors and demand for a multitude of commodities is rising as a result. Increased demand for many of these commodities has potential implications for forests. Consider the case of beef: Increased demand for beef products due to tariff elimination could create more pressure for land and drive deforestation to make room for beef cattle or cause forest fragmentation and degradation due to cattle grazing in regions that do not have intensive beef production methods. The same analysis applies to other agricultural commodities, where increased demand could lead to forested land being converted for agricultural purposes.

Similarly, increases in demand for a variety of manufactured goods could lead  [*590]  to conversion of forested land to build factories or other facilities related to the manufacturing process. Increases in manufacturing could also raise pollution levels or impact climate, with negative implications for forest health. In addition, increased demand for oil or minerals could also lead to changes in the condition of forests that are tapped to meet these demands, depending on how the forests are managed.

The extent to which tariff reduction on non-forest commodities will impact forests depends on a multitude of factors. If effective forest conservation and sustainable management practices are in place, forested land may be shielded from conversion or damage that might otherwise have resulted from extraction of commodities, such as oil or minerals. In reality, however, forest conservation and sustainable management practices are inadequate in most areas, n96 so increased demand for commodities will have an impact on forests. The extent of the impact will depend in part on existing tariff rates. If tariffs are low, the increase in demand from tariff elimination will not be great, though there will be regional and product variations. n97

Although existing low tariff rates limit the likelihood of substantial increases in demand due to tariff elimination, the potential impacts of tariff changes on forests merit further study. The implications for forests of tariff changes on non-forest commodities in particular deserve more attention because these implications have been largely ignored. It is also important for researchers to evaluate the implications of tariff changes for forests holistically. For example, if demand for forest products does not rise, but demand for non-forest commodities such as agricultural goods rises, the opportunity costs of maintaining forested land will rise and more forests may be converted to other uses.

While the implications of tariff elimination are important, disciplines of trade liberalization which are related to non-tariff measures, discussed next, have greater potential implications for forests.

2. Reduction of Non-Tariff Trade Measures

There are many different measures that countries may take to conserve forests, from setting aside protected forest areas to enacting laws regulating forest management practices. To the extent that measures impede international trade, however, they may be limited by trade agreements. For instance, the WTO prohibits the use of quantitative trade restrictions, such as quotas and export bans,  [*591]  with some exceptions. n98 Also, many agreements designed to clarify trade rules and further limit non-tariff trade measures have emerged under the WTO. n99 These, too, have implications for forests. Finally, decisions made in future trade negotiations will further reduce many non-tariff measures. This section explores a number of current and proposed non-tariff measures that have implications for forests.

a. Quantitative Restrictions and Multilateral Environmental Agreements (MEAs)

The WTO's rules relating to trade restrictions may conflict with existing provisions in multilateral environmental agreements (MEAs) that are beneficial for forests. Such conflicts have implications for forests by potentially interfering with both existing MEAs and with the freedom of countries to negotiate provisions in new MEAs that might benefit forests.

Many MEAs contain trade-restricting measures that violate the WTO's rules on their face. Examples of such trade-restricting measures include explicit trade bans for endangered species under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) n100 and trade sanctions against non-signatories to the Montreal Protocol on Substances that Deplete the Ozone Layer. n101 To date, there has been no direct challenge under the WTO to trade measures taken under an MEA. If a challenge were made, an argument could be made that the MEA is saved by Article XX of the GATT, which allows parties to derogate from the general prohibition against quantitative restrictions by applying trade restrictions when necessary to protect animal, human or plant life, or to conserve exhaustible natural resources. n102 Alternatively, an argument could be made under the Vienna Convention on the Law of Treaties n103 that the environmental treaty supercedes WTO rules if it is more recent than the trade rule, or that the rules of the environmental treaty apply because they are more specific. These arguments may fail, however, given the narrow interpretation of Article XX by the WTO thus far, n104 and the possibility that the WTO, established  [*592]  in 1995, would qualify all WTO-administered trade rules as 1995 rules (and therefore "later in time" than most MEAs). n105

The potential conflict between the WTO and MEAs has a number of implications for forests. There are several treaties that contribute to forest conservation. CITES n106 is one example, as its provisions impact a number of tree species. n107 A successful challenge to the provisions of the Montreal Protocol on Substances that Deplete the Ozone Layer n108 would also impact forests, because stratospheric ozone depletion damages forests. n109 Thus, if MEAs such as these were successfully challenged under the WTO, there could be an effect on forests.

Perhaps the greatest impact of the WTO's rules respecting trade-related measures on MEAs is the potential future impact. WTO rules limit the freedom of countries to negotiate trade-related provisions in future MEAs aimed at forest conservation and sustainable forest management, or to use trade sanctions to ensure compliance with international commitments related to forests. Thus countries will have less flexibility in confronting forest issues in the future.

b. Discrimination Based on Production and Processing Methods

The WTO's effective prohibition on discrimination between products based on how they were produced limits the means by which a country might influence the  [*593]  production methods of products sold within their borders towards production that benefits -- or does not harm -- forests.

Most of the environmental impacts attributable to a product occur during the production and processing of the product. n110 From an environmental perspective, it therefore can be important to distinguish between products based on their production and processing methods. Two provisions in the WTO impact the ability of countries to distinguish between products based on how they are produced or processed. The most-favored nation provision, found in Article I of the GATT, requires member countries to treat imported products of a given nation no less favorably than "like" products from other nations. n111 The National Treatment obligation, found in Article III of the GATT, requires countries to treat imported goods no less favorably than "like" domestic goods. n112 Current interpretations of the word "like" by GATT panels n113 make it unclear whether countries may treat products differently based on how they were produced or processed. On their face, Article XX exceptions appear to allow differentiation where necessary to protect animal, plant, or human health, or conserve exhaustible natural resources. n114 However, as noted earlier, these exceptions have been interpreted narrowly within the WTO, n115 and WTO countries are likely to avoid distinguishing between similar products based on how they were produced in order to avoid possible WTO disputes. n116

The implication of these interpretations for forests is that they preclude countries from treating forest products produced sustainably differently than those not produced sustainably. A WTO member country cannot, for example, legitimately restrict the importation of forest products produced unsustainably or, conversely, give preferential treatment to imports that are certified by the Forest Stewardship Council (FSC). n117 Nor may a country restrict the importation of forest products produced using clear-cutting methods. This rule also means that  [*594]  countries cannot give preferential treatment to non-forest products that have been produced sustainably or with superior energy efficiency, which could help reduce the impact of pollution or climate change on forests.

Essentially, current interpretation of the WTO rules relating to processing and production methods means that countries have fewer tools available to them for ensuring the sustainable production of forest products sold within their borders. Because most environmental harm occurs at the production or processing stage of a product, removing the permissibility of distinguishing between products based on their production or processing method in effect precludes a country from taking environmental considerations into account for products processed outside its borders. n118

c. Eco-Labeling and the Agreement on Technical Barriers to Trade

The WTO's rules relating to processing and production methods -- as currently interpreted -- and those relating to technical barriers to trade have implications for forests in their potential to limit the ability, not only of governments, but also of consumers, to distinguish between products based on their impacts on forests.

Eco-labeling is a policy instrument designed to give consumers information about the impacts of a product on the environment and on prospects for sustainable development, so that consumers may make informed purchases. n119 Most eco-labeling programs provide information about the processing and production methods relevant to the product. n120 The extent to which WTO rules apply to eco-labeling programs is a subject of much current debate. n121 The rules are fairly clear if a country imposes differential tariffs based on an eco-label. As noted earlier, WTO rules generally prohibit countries from distinguishing between otherwise "like" products based on how they were produced. n122 Therefore, if a country imposed a lower tariff on products carrying an eco-label, that country would risk violating WTO rules. n123

 [*595]  The applicability of WTO rules in other cases relating to eco-labels is less clear. The European Union (EU) in 1994, for instance, developed an eco-labeling program for paper products that would, among other things, assign penalty points to producers for using virgin wood pulp in their products. n124 Upon reaching a certain number of penalty points, producers would no longer be entitled to an eco-label. n125 While the program was to be entirely voluntary, governments were permitted to use the eco-label as a basis for purchasing preferences. n126 The U.S. forest products industry criticized this initiative on many grounds, including charging that the program relied on distinguishing between products based on production methods and provided misleading characterization of the environmental attributes of non-labeled products. The EU eventually abolished the program. n127 Because the case was resolved before a WTO panel could provide a ruling on the issue, it is unclear whether the panel would have found the government's purchasing preference policy towards labeled products to be in violation of WTO rules.

Another set of WTO rules that may impact eco-labeling initiatives is found in the Agreement on Technical Barriers to Trade (TBT Agreement). n128 The TBT Agreement regulates technical standards that can be applied to imported products and is designed to prevent countries from imposing technical restrictions on products that serve as disguised protectionist measures. n129 It permits countries to impose only the least restrictive technical regulations on imported products, or those based on international standards, creating a case of the lowest common denominator for technical standards. n130 Whether the TBT Agreement's disciplines apply to eco-labeling initiatives depend on whether the TBT Agreement's definition of product standards is interpreted to include standards of eco-labeling initiatives. n131 While there has been a great deal of discussion about eco-labels within the WTO, the eco-labeling issue remains unresolved. n132

The restriction against parties' differentiation of imported products sporting an eco-label, and the potential application of the TBT Agreement's rules to ecolabeling programs, have implications for forests. Forest certification, as administered by the Forest Stewardship Council (FSC), allows consumers to purchase forest products that came from sustainably managed forests. The inability of governments to favor FSC products upon import, however, and recent WTO rules  [*596]  on government procurement which generally preclude governments from preferring FSC certified products in their procurement policies, n133 will limit the FSC's potential to increase the amount of forested land that is managed sustainably. Because the FSC process is voluntary and independent, the program should be safe from WTO challenge. n134 However, some WTO members have argued that even voluntary and independent eco-labeling programs should be subject to WTO discipline. n135

Implications of WTO rules relating to eco-labels for forests extend beyond the FSC. Initiatives like that of the EU, n136 which favored recycled content in paper products, would have lowered demand for products derived from virgin forests. Eco-labeling programs favoring products produced with less pollution could reduce the impact of pollution on forests. Thus, WTO rules impeding such programs also have implications for forests.

The implications for forests of WTO rules that impact eco-labels merit closer attention and negotiation within the WTO. The WTO's rules reach further than they should when they interfere with the right of consumers to make informed choices in their purchases.

d. Invasive Species and Sanitary and Phytosanitary Measures

WTO rules pertaining to sanitary and phytosanitary measures may limit the ability of countries to restrict the importation of invasive species that might damage forests. Most countries rely on border inspections, bans, or other rules to protect against importation of exotic species, such as insects or diseases, which can have devastating effects on native ecosystems. n137 With its aim of reducing and eliminating trade restrictions, the WTO contains many restrictions on the ability of countries to impose rules related to invasive species. n138

The Agreement on the Application of Sanitary and Phytosanitary Measures n139 is the WTO agreement that governs countries' regulations pertaining to the protection of human, animal, and plant health from diseases, pests, additives, toxins, and other health-risking factors. It requires countries to satisfy a number of tests to justify trade-restrictive measures related to health protection. n140 For  [*597]  instance, countries must rely on international standards where they exist. n141 Trade-restrictive measures also must be based on scientific principles and must be imposed in the least discriminatory way possible. n142 In the absence of scientific evidence of harm, countries are not permitted to take a precautionary approach.

The WTO's rules on sanitary and phytosanitary measures have major implications for forests. Invasive species, such as Chestnut Blight, Dutch Elm Disease, and Asian Longhorned Beetles, have caused severe ecological damage to forests. n143 Because countries are not permitted to restrict imports in the absence of definitive scientific evidence of harm -- which is often not available -- more invasive species may make their way into forests around the world, contributing to forest degradation and, in some cases, forest loss. These rules effectively discourage precautionary measures relating to invasive species.

e. Export Bans

The WTO's rules restricting the use of export bans will have an impact on the dynamics of forest products trade. These rules are likely to increase trade and potentially increase timber harvesting in jurisdictions where export bans are lifted.

Export bans are sometimes used by countries in an attempt to encourage domestic processing of raw materials. Several countries currently ban the export of raw logs in order to benefit domestic processing industries or to ensure that domestic industries have an adequate supply of raw logs in the face of declining supplies. n144 The United States, for example, has instituted an export ban on raw logs from public land in a number of western states. n145 British Columbia also has an export ban on raw logs. n146 These export bans may serve to slow rates of forest harvesting, depending on the capacity of processing plants in the jurisdiction subject to the export ban.

Export bans are prohibited by the WTO, n147 though some countries still employ them. With its high demand for wood products, Japan opposes raw log export bans and may challenge these export bans under the WTO. If the bans are successfully challenged, this could affect forests by increasing rates of raw log exports. The impact of higher levels of raw log exports on forests depends, of course, on how the forests supplying the demand are managed. If they are truly  [*598]  managed sustainably, increased export demand should not have a negative impact.

f. Restrictions on Subsidies

The WTO's rules relating to subsidies may have both positive and negative implications for forests. By helping to internalize the environmental and social costs of timber harvesting, the elimination of some subsidies may benefit the forests. These rules may also, however, have negative implications for forests by limiting the use of subsidies that could be used to encourage sustainable forest management.

Broadly defined as financial contributions by government bodies that confer a benefit on a particular enterprise or industry group, n148 subsidies are subject to discipline under the WTO. n149 Export subsidies are prohibited. n150 Most other subsidies are made actionable, meaning that when countries can demonstrate injury to their domestic industries due to subsidized imported products, they can impose countervailing duties in the amount of the injury. n151

Rules relating to subsidies have important implications for forests. First, restrictions on subsidies can help reduce price distortions on forest or agricultural products, which can have an artificially low price when subsidized. Restrictions on subsidies, however, also limit the ability of countries to subsidize industries that are incurring additional costs to implement sustainable forestry practices. Each of these implications is explored further below.

i. Reduction of Price Distortions

Many governments sell timber to forest products companies from publicly owned land at below-market prices. n152 There are claims, for example, that British Columbia is subsidizing its timber industry by over one billion U.S. dollars annually based largely on below-market stumpage fees for timber harvested off of public land. n153 The impact of such subsidization, to the extent it may exist, is to create price distortions that favor the use of a forest to provide timber, rather than for other uses. n154

 [*599]  Eliminating government subsidies on timber can help eliminate price distortions, thus achieving a more efficient allocation of resources and allowing the market to more accurately indicate scarcity. If adhered to, the restrictions on subsidies found within the WTO could help remove price distortions that occur within the forest products industry, which would allow the market to better react to forest loss and degradation (i.e., with higher prices for forest products) and likely cause some shifts in forest use (i.e., from timber harvesting to recreation).

The agricultural industry has been a recipient of government subsidies around the world for many years. n155 Because of the political sensitivity of the agricultural sector in most countries, agricultural subsidies have escaped many of the WTO disciplines relating to subsidies. n156 However, agricultural subsidies, notably export subsidies, were on the agenda at the failed Seattle Ministerial Meeting and are expected to feature in future WTO negotiations. n157 Disciplines to agricultural subsidies would help reduce price distortions on agricultural goods. Bringing truer prices to agricultural goods might lessen the rate of conversion of forested land for agricultural purposes.

ii. "Green" Subsidies

While subsidies create price distortions, their price-distorting impact may be outweighed by their potential social or environmental utility. In some cases, for instance, governments provide subsidies to an industry for costs incurred in reducing environmental impact. These subsidies are often referred to as "green subsidies" or "eco-subsidies." n158 An example relevant to forests would be the case of a government encouraging forest companies to employ sustainable harvesting practices by providing them some relief on stumpage fees or by giving the land managers a tax break for certifying forests under the FSC. Such subsidies, however, are inconsistent with the WTO rules. n159

One exception allowing "green" subsidies was included in the recent Agreement on Subsidies and Countervailing Measures. n160 This provision allows governments to fund or subsidize up to 20% of a one-time capital investment required to satisfy new environmental rules without another country being able to impose a countervailing duty. n161 This rule was clearly designed with the case of pollution regulations in mind (where companies may have to acquire pollution reduction technologies to meet new environmental regulations), and would not  [*600]  apply to a non-compulsory program of encouraging sustainable harvesting practices as mentioned above. The exception could apply if sustainable harvesting practices were legislated and a forest products company incurred capital costs in equipment to comply with the legislation. Aside from this narrow exception, a country's election to subsidize its forest products industry to encourage sustainable forest management remains actionable.

This section has highlighted many WTO rules that have direct implications for forests. The following section will consider the broader, indirect implications of the WTO for forests.

B. IMPLICATIONS OF ECONOMIC GROWTH AND GLOBALIZATION

Along with improvements in communications, transportation and technology, WTO rules contribute to economic growth and the freedom of businesses to choose their geographical location, creating regulatory competition among countries competing for investment. This section explores the implications of economic growth and regulatory competition for forests and argues that income growth (stimulated by economic growth) may have a positive impact on forests by raising demand for environmental and social values of forests. However, the counter-argument is made that increased income may also lead to greater demand for forest products and other commodities, which can have a negative impact on forests unless forests are managed sustainably and adequate protected areas are set aside. This section also argues that regulatory competition among countries may be causing shifts in geographical area of forest product harvests to regions with lower standards of forest management and conservation, as well as acting as a disincentive for countries to require sustainable forest practices and to set aside forest protected areas.

To the extent that income growth and regulatory competition may have negative implications for forests, WTO member countries should take responsibility by undertaking further research to better understand the implications and then take or facilitate the appropriate steps, in collaboration with other stakeholders, where necessary to mitigate the negative impacts. At the same time, positive implications should be recognized and fostered.

1. ECONOMIC GROWTH

The principle rationale of trade liberalization is to improve economic efficiency by allowing countries to specialize in producing what they are efficient at producing, and trading with other countries for commodities they are not efficient in producing. n162 This is said to promote efficiency within a trade regime and has been empirically demonstrated to lead to higher net levels of income within  [*601]  participating countries. n163 It is estimated that trade liberalization negotiated under the WTO will contribute between U.S.$ 184 and U.S.$ 510 billion to the global economy between 1994 and 2005. n164 Of course, trade liberalization is only part of the engine that is driving economic growth (and thereby income growth). Other aspects of economic integration, including improvements in transportation and communication, and the birth of the Information Age, also drive this growth.

Higher income levels can lead to higher consumption levels, although the extent to which consumption levels rise depends on the income elasticity of demand for given products. n165 This raises concerns about the impact of increased consumption on forests. On the other hand, economic growth is often touted by trade advocates as being good for the environment. n166 They argue that economic growth increases income, thereby allowing countries to turn their attention to long-term sustainability issues, rather than having to focus solely on immediate economic and social needs. n167 The question addressed in this section is what implications increased income has for forests. This section identifies and discusses two effects of trade liberalization that have implications for forests: (1) increased demand for commodities and (2) increased demand for non-commodified values of forests.

As the following sections will show, there is not enough data at this time to determine whether increased income has a net beneficial or harmful impact on forests. Member countries of the WTO should agree to conduct full assessments of the impact of economic growth on forests and their ability to manage them sustainably. To the extent positive impacts are identified, these should be fostered. Countries can also then develop strategies for mitigating negative impacts.

a. Increased Demand for Commodities

Increased demand for commodities can have a number of implications for  [*602]  forests. This subsection analyzes two: forest loss and degradation due to direct consumption of forest products, and conversion of forested land to other uses due to demand associated with these other uses.

i. Forest Loss and Degradation Due to Direct Consumption

With more income, consumption levels of most products tend to rise. n168 The extent to which consumption levels increase in response to income changes is based on the income elasticity of demand for a given product. n169 Consumption of some products will go down in response to income increases, as they are replaced by "richer" alternatives. n170

Consumption of forest products is rising significantly. Between 1966 and 1988, production of softwood was up 28% and that of hardwood was up 54%. n171 Demand for industrial roundwood is predicted to rise by 45% between 1985 and 2000. n172 During this same time period, consumption of lumber was predicted to rise by 37%, paper and paperboard by 63%, pulp by 51% and wood-based panels by 117%. n173 Tariff changes in the past are likely to have contributed to some of these increases. Now, however, with tariffs nearly eliminated, most increases in demand are attributable to income growth.

As long as forest conservation and sustainable management standards are insufficient, increased demand for forest products due to increased economic activity and income levels will lead to forest loss and degradation. One case in which higher income levels may lead to less demand for forest products is in the case of fuelwood. Over half of the world production from forests is for fuelwood, mainly consumed as a source of energy in the developing world. n174 With higher levels of income, people are better able to afford alternative energy sources. Because collection of fuelwood often contributes to forest loss and degradation, reduced demand for fuelwood may be good for forests. Of course, if fuelwood energy is replaced by the burning of fossil fuels, which can contribute to climate change, it is less clear whether the reduction in demand for fuelwood produces a beneficial or negative net impact on forests, because forests are also negatively affected by climate change. n175

ii. Conversion of Forest Land to Other Uses

Another implication for forests of increased demand for commodities is the  [*603]  potential conversion of forested land to other uses. As discussed earlier, increased demand for agricultural commodities can lead to forested land being converted to cropland. n176 Increased demand for manufactured goods can generate more pollution, damaging forests, or lead to some forested areas being converted to make room for manufacturing industries. n177

While the extent is not known, it is clear that increased income generates higher levels of consumption of forest products and other commodities, with a number of negative implications for forests. Again, forest protection and management rules are largely determinative of the impact of increased demand for commodities on forests.

b. Increased Demand for Environmental and Social Values of Forests

Increased income has often been correlated with increased demand for environmental quality. n178 The premise is that once citizens with more income satisfy their basic short-term needs for such things as food and shelter, they will be more able to focus on meeting longer-term goals, such as conservation. n179

A major obstacle to translating increased income into a positive force for forests is the failure of the market to capture many of the environmental and social values offered by forests. n180 Some environmental and social values of forests may not be amenable to market capture, either because they are non-excludable or there are valuation problems. This limits the extent to which increased demand for these values can be manifested in the market. n181 Some environmental and social values, such as recreational values of forests, are partially captured in the market, so increased demand for these will be reflected in the market. Other values of forests, such as carbon sequestration or biodiversity values, are already becoming more amenable to market capture because of the  [*604]  Kyoto Protocol and interest in bioprospecting. n182 Even without market capture of environmental and social values, however, a richer public may help to protect these values by supporting conservation organizations that are attempting to influence market and political processes to protect these values. They may also be more apt to purchase products with "eco-friendly" labels, such as forest products certified by the Forest Stewardship Council. n183

Because many environmental and social values can be provided by a forest simultaneously, there is potential for a forest owner to gain by managing the forest sustainably, combining the values in a way that maximizes profits. For instance, a forest owner might carefully manage a forest area to provide a small timber harvest, along with a harvest of non-timber forest products such as mushrooms or medicinal plants, while also opening up the forest to hiking. To the extent that trade liberalization increases opportunities for capturing markets for environmental and social values -- for instance by increasing entrepreneurial behavior -- it may help more forest values (such as carbon sequestration) to be assessed by the market and increase the area of forests managed sustainably. And, as noted earlier, higher income levels are also likely to reduce the amount of fuelwood collected from forests, which can open forests to capitalization by other values.

2. Regulatory Competition

Improvements in transportation and communication over the last few decades, combined with reductions in trade barriers, have effectively created a global marketplace where businesses have the freedom to locate their production processes in countries where profits are optimized. n184 This emergence of a global marketplace generates competition among countries that want to provide industry with an attractive regulatory environment, and among industries that have to compete in an international market. n185 There is a body of scholarship that argues that this competitiveness leads to more efficient regulation, n186 and an emerging body of scholarship arguing that competition breeds efficiency and innovation within industries. n187 There is also a body of scholarship that argues that  [*605]  competition can create a downward pressure on environmental regulations in countries as they compete to maintain or attract industry. n188 This section examines the implications for forests of these two effects, which are products of trade liberalization and other factors.

a. Competitive Efficiency

Competition may have positive implications for forests by leading to slower rates of timber harvests, due to improved security of land tenure (which has been associated with lower rates of deforestation) and to improved efficiency in forest product production.

With businesses free to locate in the jurisdictions that provide the greatest advantages, countries face competitive pressures to maintain an attractive regulatory environment. n189 The more beneficial the regulatory environment, the more likely a jurisdiction is to maintain existing -- and to attract new -- investment. n190 All other factors being equal, jurisdictions offering political stability and secure property rights, for example, are more competitive than jurisdictions without such assurances. n191 Competition from other jurisdictions may entice countries to offer a more competitive environment by improving efficiency, or by providing more security of land tenure. The potential implications of such increased competitiveness on forests may be to help slow rates of deforestation in some cases, because insecurity of land tenure has been correlated with higher rates of deforestation. n192

By expanding the marketplace, trade liberalization also increases competition among industries. n193 Facing greater competition, industries are likely to innovate and improve efficiency of production. n194 Another inevitable result of a more global marketplace, with more industrial relocation and global communications, is the spread of information and technology. n195 While technologies are often guarded and sold commercially, as production facilities locating around the world and technology transfers and sales increase, technological information inevitably spreads. n196

This competitive efficiency has a number of implications for forests. Forest products companies faced with increasing competition are finding innovative  [*606]  ways to make more product with less wood. n197 Thus, competition may impact forests by improving production efficiency within the forest products industry. n198 The spread of technology has implications for forests as it may help spread efficiency in the production of forest products. The spread of even basic information, such as the value of certain woods in the market, may have an impact on forests. One writer gives the example of a report that in an area of the tropics, wood being used as crating material was of greater value than the goods being crated. n199 Greater access to information, which can be due in part to increased movement of companies due to trade liberalization, thus has implications for forests.

While competition can be painted as a negative force for forests, as will be discussed below, the foregoing demonstrates that arguments exist to support competitiveness as a force with positive implications for forests, largely due to increasing the efficiency of use of the resource.

b. Race Towards the Bottom

The counter-argument to the proposition that competitiveness has positive implications for forests by increasing efficiency and spreading information is the argument that competition may keep countries from raising forest management standards, or may even entice them to lower such standards, in an effort to maintain existing and attract new forest industries and investment. n200 The question of whether relatively lower environmental regulations in one country gives that country a sufficient comparative advantage to entice industrial relocation and, if so, whether such industrial relocation would be sufficient to create a "regulatory chill" on environmental standards in competing countries, is a major issue within the trade and environment debate. n201

Many researchers have considered this issue and, to date, have generally found no empirical link between environmental regulations and industrial shifts. n202 There is an emerging hypothesis n203 that environmental compliance costs do not  [*607]  end up being determinative in location decisions because companies find ways to avoid the costs legally through innovation in production design, rather than relocation. n204 These studies, however, have focused primarily on identifying movements of companies in response to pollution laws. n205 Much less attention has been focused on examining the possible link between regulation and competitiveness in the context of laws that aim to protect natural resources. n206 However, industrial flight or outsourcing -- the sourcing of raw material inputs from other countries -- and the consequent "chill" on regulation, may be more likely to occur in response to natural resources regulation than to pollution laws and regulations. n207 This is because laws related to natural resources affect the cost and availability of raw material inputs, which may be more likely to motivate relocations than pollution laws.

There are two main implications of such competition for forests: (1) shifts in geographical area of harvest and (2) the resulting chill on regulations for sustainable forestry practices and forest protected areas. While competitiveness could impact forests by impacting supply and demand dynamics for many commodities and non-commodified values, the scope of analysis in this section is limited to the forest products industry.

i. Shifts in Geographical Area of Harvest

A number of pollution laws in many countries apply to the forest products  [*608]  industry and create compliance costs. n208 But based on the conclusions of the studies noted above, it would be safe to conclude that forest products companies are not likely to relocate or outsource based on pollution laws. n209 What about regulations, however, that limit the supply of timber?

The forest products industry depends on the supply of wood as its primary raw material input. As countries take steps to institute sustainable forestry practices, there will be a reduction in the timber supply. n210 Limited availability of a resource usually leads to an increase in its purchase price as a raw material, and consequently to an increase in the costs of producing the resource-based commodity. n211 If the increase in input price is market-wide, producers will pass the costs of the increase on to consumers in the form of higher prices. n212 However, if the input price increase is not market-wide, the market price will not change, and will thus have to be borne by producers. n213

Markets for timber products are now largely global, due in part to trade liberalization and decreased costs of transportation and communications, with prices generally set in the global market. n214 Therefore, a simple analysis suggests that increased prices of raw wood in one region will have to be borne by producers, unless producers find a cheaper source of wood.

Production techniques that produce more product from less wood could help forest industries offset the impacts of increased input prices. Indeed, the forest products industry has developed a number of production techniques that increase production efficiency. n215 It has been suggested, however, that the potential range of production innovations has been largely exhausted. n216 If so, there is a limited possibility for increasing timber input prices to be offset by more efficient use of  [*609]  the wood in the future. It is logical to conclude, therefore, that forest product companies will relocate or source timber from another region if the prices of timber inputs go up enough to outweigh the costs of such relocating or outsourcing.

There is also evidence of shifts in geographical areas of harvest due to reduced timber supply. n217 Late last century, a substantial amount of timber in the United States was sold from federal forests. n218 The amount of timber sold from federal public lands in the United States, however, is declining. n219 In 1988, public forests in the Western United States supplied 23% of the U.S. industry's lumber. n220 By 1994, this amount was reduced to 6%. n221 In response to this decreased supply, many U.S. forest product companies have shifted their supply sources to the Southeastern United States, where many forests are privately owned. n222

Even with relocation or outsourcing as a viable option due to trade liberalization and globalization, not all forest product companies faced with a potential timber shortage will choose to shift geographical area of harvest. A company making the decision to relocate or outsource, or where to set up shop if the company is not yet running, will take a number of factors into consideration. The availability of labor, quality of infrastructure, political stability, proximity to markets, and ease of access to more distant markets could all be relevant considerations. n223 The various objects of a corporation -- in theory a rational actor aiming to maximize profits -- include finding the best combination of variables that minimize cost and maximize revenue, taking account both of the short and the long-term. n224

With global forest cover having declined considerably this past century, and continuing to decline, n225 some forest product companies are choosing to employ sustainable forestry practices in an effort to safeguard the resource. n226 Market mechanisms such as forest certification -- and other opportunities to capitalize  [*610]  on forest values other than timber -- may also be encouraging a shift to sustainable forestry practices instead of a shift in geographical area of harvesting. The forest products industry is also responding to tightening wood supplies by increasing its use of trees from plantations. n227 Increased use of plantations may, however, also lead to geographical shifts because of more advantageous short-term conditions for plantations in the South than in the North. n228

No comprehensive empirical studies have yet demonstrated the extent to which the forest industry is making geographical shifts in timber harvesting. Anecdotal evidence, however, strongly suggests that there is a shift, and that the shift will continue until wood supplies in other regions are similarly tightened. n229 With wood supplies in North America predicted to decline by more than half between 1990 and 2010, timber companies in these regions are expected to increasingly find their supplies of wood in other regions. n230 Russia, Oceania, and Latin America are the most likely regional candidates to supply this wood. n231

ii. Regulatory Chill on Regulations for Sustainable Forestry Practices and Forest Protected Areas

The possibility of losing business investment to other jurisdictions with less stringent forest management standards may cause a "regulatory chill" or "political drag" on sustainable forestry standards, or on regulations to set aside protected forest areas. The corollary of this regulatory chill effect is the possibility that countries will actively lower their forest standards in order to attract investment. n232 As noted earlier, there is no strong empirical link to support the claim that forest product companies are relocating to avoid pollution laws. The  [*611]  implication is, therefore, that if countries exercise caution in their policy-making relating to pollution laws out of fear of industrial flight, they do so without sufficient justification. The case, however, is likely quite different in the case of sustainable forestry regulations.

Given the freedom of forest products companies to source timber from the region where it is most profitable, these companies can, if desired, escape regulations for sustainable forest management by displacing their production to a country where such practices are not required. As a result, countries have less ability to influence the forest management practices of companies within their jurisdiction. Even if countries want to implement rules for sustainable forest management, there may be a disincentive for doing so for fear of lost competitiveness.

No consensus yet exists among forest experts as to whether the threat of companies shifting locations to avoid stricter environmental regulations actually causes a regulatory chill on the creation and maintenance of environmental laws and policies. n233 This uncertainty is not surprising, as the issue will depend on a number of variables. n234 At least four factors are relevant to determining whether regulatory competition creates a regulatory chill on sustainable forestry regulations: (1) whether a threat of outsourcing or relocation, either real or perceived, exists; (2) the importance of the forest products industry in question relative to the country's overall economy; (3) the value ascribed to competing uses of the resource; and (4) institutional capture.

A. EXTENT OF THREAT

Actual outsourcing or industrial relocation, due to existing laws, will have more impact on future laws than only a perceived threat of potential outsourcing or relocation. However, governments appreciate that it is difficult to establish a causal link between relocation and the effects of particular laws, and so they may choose to take a precautionary approach to avoid what may be a potential loss of industry or investment. There are indications that this happens in practice. In 1991, for instance, several multinational corporations operating in the  [*612]  Netherlands threatened to leave the country if the government increased energy and environmental taxes any further. n235 The government capitulated to their demands. They did not put the companies to the test to see if they would relocate -- the threat was sufficient. No one will know whether the threat was genuine or mere puffery, but in the final analysis, this is not as important as the fact that the Dutch government responded to the perceived threat.

Another case in which the threat of industrial relocation had an impact on laws (in this case a multilateral trade agreement) was during the NAFTA negotiations. The Canadian and U.S. environmental lobbies generated a concern that polluting industries in Canada and the United States would migrate to Mexico in the event of a free trade deal. n236 Some empirical evidence was offered to demonstrate this proposition, n237 and the threat of outsourcing or relocation, combined with the strength of the environmental lobbies, resulted in a change in the agreement -- and the negotiation of an environmental side agreement -- to address the concerns. n238

B. IMPORTANCE OF THE INDUSTRY

The importance of the industry to the economy of the country considering the enactment of the protective law is also relevant. Albrecht argues that the determinative factor in whether a country will be disinclined to enact environmental laws is how much comparative advantage it would lose if some companies relocated or outsourced. n239 He suggests that the greater the country's export diversification, the less of a regulatory chill the threat of industrial relocation or outsourcing will create. n240 This claim has some intuitive appeal, and Albrecht  [*613]  provides empirical support for it using data from over 107 countries. n241

Canada is the world's largest exporter of lumber, n242 and the export value of Canadian forest products is greater than that for any other country. n243 One in fifteen Canadian jobs is linked to the forest products industry. n244 In the United States, on the other hand, the forest products industry accounts for a relatively smaller percentage of overall exports. n245 Applying Albrecht's logic, this would suggest that the threat of industrial relocation of forest products companies in Canada would be more likely to create a regulatory chill than a similar threat in the United States. This may explain, in part, why the United States has been decreasing the timber available from public lands more so than the Canadian provinces have done.

C. VALUE OF COMPETING USES

The relative importance of other uses for forests in a country is another factor that can be influential in determining whether a threat of geographical shift may create a regulatory chill on standards. In the United States, for instance, environmental groups have strongly lobbied the government to set forests aside for other uses, such as recreation and wildlife habitat, and to limit the amount of timber sales. n246 Threat of relocation by the forest products industry is thus counter-balanced in part by pressure on the U.S. government to support other uses for forests. While people in Canada value other uses of forests, the environmental lobby has not been as powerful, often focusing on particular forests. n247 The amount of pressure on the Canadian provincial governments (which own most of the forested land in Canada) from interests representing other uses for the forests may therefore be outweighed by the influence of the forest products industry.

 [*614]  D. INSTITUTIONAL CAPTURE

Institutional capture is a final factor that can be relevant in ascertaining whether there may be a regulatory chill on proposed law. In many countries, various government agencies and departments have been designed and have evolved to manage forests primarily for timber harvesting. n248 The mere existence of these agencies may precipitate a disproportionate institutional response to a threat of relocation or outsourcing by the forest products industry, thereby creating a regulatory chill on legislation greater than would occur if the agencies did not exist. Among the reasons for this idiosyncratic institutional response may be the fact that the agencies' mandate would be compromised should the forest products industry collapse or relocate. While it is obvious that agencies may evolve over time to effectively administer forests for primary uses other than timber, n249 intervening institutional resistance to change may impede the passage or enforcement of legislation that might bring these other uses into the picture.

Diminishing wood supplies in some regions are likely causing geographical shifts in timber harvesting. This shifting pattern is likely to continue until wood supplies are limited globally. There are two main implications for forests. First, forest products companies may be able to avoid complying with sustainable management regulations in some countries by shifting the timber supply source to another jurisdiction without such regulation. Second, actual or potential supply shifts may create a regulatory chill on the enactment, maintenance, and tightening of sustainable forest management regulations, particularly in countries like Canada where the threat of industrial relocation is of great significance to the country's economy. Green subsidies to compensate the forest products industry for the higher production costs that prompt supply shifts could remove the incentive to shift supply. However, as noted earlier, the use of such subsidies is largely restricted. n250

IV. CONCLUSION

Many decisions to further liberalize world trade and clarify current trade rules will be made in future WTO negotiations, as well as within other existing or emerging regional or bilateral liberalized trade blocks. These decisions will have profound implications not only on the economy of this century, but also on social  [*615]  and cultural policies and on the environment. The public made it clear at the Seattle Ministerial Meeting that trade negotiations must take these broader implications into account.

This article demonstrates that the WTO has many serious implications for forests, some direct and others indirect, some positive and others negative. While the rules relating to tariff measures on forest products are not likely to have a serious global impact, there are likely to be important regional impacts. Further, rules reducing tariffs on products other than forest products will also have implications for forests, and these should be further explored before more tariff reductions are made. The WTO's disciplines relating to non-tariff measures have a multitude of implications for forests. Important multilateral environmental agreements could come under attack from WTO rules. Restrictions and uncertainty on the ability of countries to treat products differently based on their processing and production methods have major implications for forests, reducing the capacity of countries to ensure that forests are sustainably managed, as well as limiting the potential success of market mechanisms, such as forest certification. Similarly, rules limiting the use of trade restrictions on invasive species could have a serious impact on forests, which are highly vulnerable to exotic pests and diseases. Disciplines on subsidies have positive implications for forests, potentially reducing price distortions on forest products, though they also limit the extent to which governments can subsidize forest product companies employing sustainable forest practices.

Though the particular rules of other trade liberalization regimes, whether or not yet in existence, will not be exactly the same as those of the WTO, there will undoubtedly be substantial similarities, given the premises of liberalized trade. Many of the issues raised in this paper, therefore, apply to these other regimes as well.

While not solely attributable to the WTO, income growth and regulatory competition also have implications for forests. Income growth may benefit forests by increasing their value as providers of environmental and social goods. However, income growth also increases demand for forest products, which can be negative for forests if they are not managed sustainably. Regulatory competition may be shifting geographical patterns of forest production to areas without sustainable forest management, and thus act as a disincentive for governments to mandate sustainable forest practices. Competition may also, however, increase efficiency in production, with positive consequences for forests.

In conclusion, the WTO has many implications for forests, positive and negative, most of which are not well understood. In particular, the implications for forests of rules impacting trade in non-forest commodities require further investigation. Before further decisions are made within the WTO, member countries should take stock of the implications of the WTO's current and proposed rules for forests and ensure that its rules are reformed to lessen negative impacts on forests and bolster positive impacts. Similarly, negotiations relating to  [*616]  existing trade regimes, or intended to develop new trade agreements, should take these implications into account. Countries have an obligation to current and future generations to be informed about the implications of their decisions on trade for forests. To be informed, they must further study the implications raised in this paper and others that may exist.

Only once the implications for forests of trade liberalization are fully appreciated can informed policy choices truly be made and evaluated. With a full understanding of the links between trade liberalization policy and the future of forests, policy-makers will be in a position to capture synergies between the two policy goals. Policy-makers will also need to make compromises between values. However, those compromises should not be made in the absence of information. At the Seattle Ministerial Meeting, some countries proposed a conference of the WTO parties to discuss reform of the WTO. Such a conference would be an opportune time for WTO countries to demonstrate responsibility and stewardship by undertaking to ensure the world trade system promotes sustainable trade for a sustainable economy. An important element of doing this will be to assess the WTO's implications for forests.

FOOTNOTES:
n1 See Marrakesh Agreement Establishing the World Trade Organization, LEGAL INSTRUMENTS -- RESULTS OF URUGUAY ROUND, 33 I.L.M. 1125 (1994) [hereinafter WTO].

n2 See, e.g., CNN Headline News (CNN television broadcast, Nov. 30, 1999); The National (CBC television broadcast, Dec. 1, 1999).

n3 See, e.g., DANIEL C. ESTY, GREENING THE GATT: TRADE, ENVIRONMENT, AND THE FUTURE 1 (1994) (introducing the trade and environment policy debate); LORI WALLACH & MICHELLE SFORZA, PUBLIC CITIZEN'S GLOBAL TRADE WATCH, WHOSE TRADE ORGANIZATION? CORPORATE GLOBALIZATION AND THE EROSION OF DEMOCRACY 173-76 (1999) (discussing the trade and labor rights policy debate).

n4 See Michael Moore, Seattle Conference Doomed to Succeed (Nov. 30, 1999) <http://www.wto.org/wto/seattle/english/press_e/press156.htm>.

n5 For examples of research on the links between trade and labor rights, see STEVEN SHRYBMAN, THE WORLD TRADE ORGANIZATION -- A CITIZEN'S GUIDE 93-110 (1999); WALLACH & SFORZA, supra note 3. For examples of research on the links between trade and the environment, see ESTY, supra note 3; DAVID HUNTER ET AL., INTERNATIONAL ENVIRONMENTAL LAW AND POLICY (1998); PIERRE MARC JOHNSON & ANDRE BEAULIEU, THE ENVIRONMENT AND NAFTA: UNDERSTANDING AND IMPLEMENTING THE NEW CONTINENTAL LAW (1996); HAKAN NORDSTROM & SCOTT VAUGHAN, WORLD TRADE ORGANIZATION, SPECIAL STUDIES ON TRADE AND THE ENVIRONMENT (1999); TRADE AND THE ENVIRONMENT (Alan M. Rugman et al. eds., 1998); Daniel C. Esty & Damien Geradin, Market Access, Competitiveness, and Harmonization: Environmental Protection in Regional Trade Agreements, 21 HARV. ENVTL. L. REV. 265 (1997); John H. Jackson, World Trade Rules and Environmental Policies: Congruence or Conflict?, 49 WASH. & LEE. L. REV. 1227 (1992).

n6 See Konrad von Moltke, Environmental Protection and Competitiveness, in DIFFICULT LIAISON -- TRADE AND THE ENVIRONMENT IN THE AMERICAS 5, 7-10 (Heraldo Munoz & Robin Rosenberg eds., 1993) (noting that little of the research on trade and the environment has discussed natural resources).

n7 See id.

n8 See JANET N. ABRAMOVITZ, WORLDWATCH INSTITUTE, PAPER NO. 140, TAKING A STAND: CULTIVATING A NEW RELATIONSHIP WITH THE WORLD'S FORESTS 9-10 (1998) (describing some of the values of forests); Randy Molina et al., Special Forest Products: Integrating Economic, Social and Biological Considerations into Ecosystem Management, in CREATING A FORESTRY FOR THE TWENTY FIRST CENTURY 315, 315-16 (Kathryn A. Kohm & Jerry F. Franklin eds., 1997).

n9 See DIRK BRYANT ET AL., THE LAST FRONTIER FORESTS: ECOSYSTEMS & ECONOMIES ON THE EDGE (1997); NIGEL DUDLEY ET AL., BAD HARVEST? THE TIMBER TRADE AND THE DEGRADATION OF THE WORLD'S FORESTS 16 (1995) (citing forest loss and degradation as one of the most critical environmental issues facing the world); FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS, STATE OF THE WORLD'S FORESTS 1999, at 1 (1999) [hereinafter STATE OF THE WORLD'S FORESTS] (documenting changes in forest cover over the last 15 years).

n10 See, e.g., HANS J.H. VEROLME & JULIETTE MOUSSA, BIODIVERSITY ACTION NETWORK, ADDRESSING THE UNDERLYING CAUSES OF DEFORESTATION AND FOREST DEGRADATION: CASE STUDIES, ANALYSIS, AND POLICY RECOMMENDATIONS 3-19 (1999), available at <http://www.igc.org/bionet/uc/uc-rpt.html> (suggesting that international trade and consumption, international economic relations, and financial flows contribute to deforestation); Conservation International, Conservation Resources: Natural Resource Extraction in the Latin American Tropics (last modified Feb. 2, 2000) <http://www.conservation.org/web/cilib/publicat/polpapr/brief1/trends.htm>; World Rainforest Movement, Underlying Causes of Deforestation (visited Mar. 12, 2000) <http://www.wrm.org.uy/english/u_causes/>.

n11 See, e.g., Conservation International, supra note 10; Paul Stanton Kibel, Reconstructing the Marketplace: The International Timber Trade and Forest Protection, 5 N.Y.U. ENVTL. L.J. 735, 738 (1996).

n12 See supra note 1. The World Trade Organization (WTO) was created in 1994 to be the institutional body that governs the General Agreement on Tariffs and Trade, opened for signature Oct. 30, 1947, 61 Stat. A-3, 55 U.N.T.S. 187 [hereinafter GATT], and several other trade agreements that have been negotiated under the auspices of the GATT. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15, 1994, LEGAL INSTRUMENTS -- RESULTS OF THE URUGUAY ROUND vol. 1 (1994), 33 I.L.M. 1125 (1994); see also JOHN H. JACKSON, THE WORLD TRADE ORGANIZATION: CONSTITUTION AND JURISPRUDENCE 1 (1998).

n13 North American Free Trade Agreement, Dec. 8, 1992, Can-U.S.-Mex., 32 I.L.M. 289 [hereinafter NAFTA].

n14 See JOHNSON & BEAULIEU, supra note 5 (discussing NAFTA).

n15 See ABRAMOVITZ, supra note 8, at 9-10; Molina et al., supra note 8, at 316-17.

n16 See DUDLEY ET AL., supra note 9, at 5-6 (reviewing the social values of forests); NATURE'S SERVICES: SOCIETAL DEPENDENCE ON NATURAL ECOSYSTEMS 215-35 (Gretchen C. Daily ed., 1997) (describing the ecological services provided by forests) [hereinafter NATURE'S SERVICES].

n17 See NATURE'S SERVICES, supra note 16, at 215-35.

n18 See DUDLEY ET AL., supra note 9, at 5-6.

n19 There is estimated to be approximately 3.4 billion hectares of current global forest cover. See BRYANT ET AL., supra note 9, at 9; STATE OF THE WORLD'S FORESTS, supra note 9, at 135. Estimates of the amount of forest cover about 8000 years ago, before humans began cutting down large sections of forest, range between five billion hectares, see Jutta Brunnee, A Conceptual Framework for an International Forests Convention: Customary Law and Emerging Principles, in GLOBAL FORESTS AND INTERNATIONAL ENVIRONMENTAL LAW 43 (Canadian Council on International Law ed., 1996), and 6.2 billion hectares, see BRYANT ET AL., supra, at 9. Total loss in global forest cover is therefore between 32% and 45%, depending on which figure of original forest cover is used. Most of the loss is estimated to have taken place in temperate regions, followed by tropical and boreal regions. See RICHARD H. WARING & STEVEN W. RUNNING, FOREST ECOSYSTEMS: ANALYSIS AT MULTIPLE SCALES 298 (2d ed. 1998); Brunnee, supra, at 42.

n20 The global rate of forest loss today is estimated by the FAO to be approximately 0.3% loss annually. In the tropics, the rate of loss is estimated to be approximately 1% annually. See STATE OF THE WORLD'S FORESTS, supra note 9, at 135.

n21 See id. at 16. Most of this loss took place in seven countries: Brazil, Indonesia, the Democratic Republic of Congo, Bolivia, Mexico, Venezuela, and Malaysia. In contrast, forest cover in temperate zones is increasing, due to reforestation and afforestation. The temperate rain forests of North America, mangrove forests, and tropical dry forests have, however, experienced large losses. See ABRAMOVITZ, supra note 8, at 21.

n22 See STATE OF THE WORLD'S FORESTS, supra note 9, at 1. Agriculture is the primary cause of forest loss in developing countries, while infrastructure and urban expansion are the primary causes in developed countries. See id.; see also BURTON V. BARNES ET AL., FOREST ECOLOGY 436 (4th ed. 1998); David Pearce, Global Environmental Values and the Tropical Forests: Demonstration and Capture, in FORESTRY, ECONOMICS AND THE ENVIRONMENT 11, 14 (Wicktor L. Adamowicz et al. eds., 1996).

n23 Logging may result in forest loss if the forested area is not replanted and natural regeneration does not occur or, if replanted, soil erosion or other conditions prevent regeneration, or if the land is put to another use after clearing. See BARNES ET AL., supra note 22, at 433-36 (considering the impacts of logging); DUDLEY ET AL., supra note 9, at 78.

n24 See DUDLEY ET AL., supra note 9, at 84-90; Elaine L. Hughes, Forests, Forestry Practices and the Living Environment, in GLOBAL FORESTS AND INTERNATIONAL ENVIRONMENTAL LAW, supra note 19, at 86.

n25 See BARNES ET AL., supra note 22, at 435-36.

n26 See Hughes, supra note 24, at 86-90. Logging has numerous other impacts on forest ecosystems, and can also impact riparian ecosystems and wildlife species that depend on forest habitat. See generally ELIZABETH MAY, AT THE CUTTING EDGE: THE CRISIS IN CANADA'S FORESTS 39-50 (discussing threats to Canada's forests and threats from the forest industry); DUDLEY ET AL., supra note 9, at 40-49 (reviewing the impacts of logging on the environment and society).

n27 See id. at 90-91; LESTER R. BROWN ET AL., WORLDWATCH INSTITUTE, STATE OF THE WORLD 1999, at 60-61 (1999).

n28 See Hughes, supra note 24, at 90. Much of the fuelwood used non-commercially by families for subsistence is collected as dead wood. While removing dead wood from forests causes less forest change than taking out live trees, the removal of dead wood has ecological implications. See id. at 90-91.

n29 Protected forest areas have recently been established in the Philippines, China, Suriname, Canada, and Brazil, and many countries, including Brazil, Cambodia, New Zealand, and the United States, have restricted or banned timber harvesting in primary forests. See STATE OF THE WORLD'S FORESTS, supra note *, at 13-14.

n30 See id.; BROWN ET AL., supra note 27, at 60-61.

n31 See HUNTER ET AL., supra note 5, at 523-26. Pollution weakens trees, making them more susceptible to drought, pests, disease, and nutrient deficiencies. See id; STATE OF THE WORLD'S FORESTS, supra note 9, at 21.

n32 See Parks Canada, Fire in Canada's National Parks (last modified June 21, 1997) <http://parkscanada. pch.gc.ca/library/Fire/Fire_e.htm>. Most forests have evolved to deal with naturally occurring fires. In fact, some tree species, such as the Jack Pine, have evolved to depend on fire for their regeneration. See BARNES ET AL., supra note *, at 417. However, fire suppression policies over many years have resulted in dramatic crown fires in forests that would not have occurred under natural conditions. Examples include the 1988 fires in Yellowstone National Park and the more recent fires in Indonesia and Mexico during 1997 and 1998. The Indonesian government states that 80% of the fires that burned there in 1998 were started by pulp and palm oil plantation owners in their efforts to clear natural forests to make room for their crops, and by timber operations covering illegal activity. Another instigator of the fires was a project sponsored by the government to clear one million hectares of peat swamp forests to cultivate rice. In the end, about two million hectares of forest were burnt. See ABRAMOVITZ, supra note 8, at 36. For more information on the Mexican fires, see David Barkin & Miguel Angel Garcia, The Social Construction of Deforestation in Mexico: A Case Study of the 1998 Fires in the Chimalapas Rain Forest (visited Feb. 27, 2000) <http://www.wrm.org.uy/english/u_causes/regional/l_america/Chimalapas.html>.

n33 See Hughes, supra note 24, at 90.

n34 The use of off-road vehicles, for instance, can harm forests. Also, some recreational activities require infrastructure, such as roads or trails, that can degrade a forest. See GEORGE CAMERON COGGINS ET AL., FEDERAL PUBLIC LANDS AND RESOURCES LAW 256 (1993).

n35 See BRYANT ET AL., supra note 9, at 17-18; DUDLEY ET AL., supra note 9, at 11-13; DAVID HUMPHREYS, FOREST POLITICS: THE EVOLUTION OF INTERNATIONAL COOPERATION 14 (1996) (on file with author).

n36 See Christine Elwell, "Sustainably Priced" Trade in Forest Products and Ecological Services: Some Legal Standards and Economic Instruments, in GLOBAL FORESTS AND INTERNATIONAL ENVIRONMENTAL LAW, supra note 19, at 195-96; Kibel, supra note 11, at 738; World Rainforest Movement, supra note 10.

n37 In the last three decades, demand for industrial roundwood (wood in the rough) has grown by one third, demand for fuelwood and charcoal has grown by two thirds, and paper consumption has almost tripled. Demand for forest products is predicted to be on an upward spiral. See BROWN ET AL., supra note 27, at 60. It is more difficult to quantify demands for environmental and social values, but the increasing pressure that is being applied to governments and land managers around the world to protect these values is a testament to the fact that demand for them is rising. See id. at 61.

n38 See Kathryn A. Kohm & Jerry F. Franklin, Introduction, in CREATING A FORESTRY FOR THE TWENTY FIRST CENTURY, supra note 8, at 1. Kohm and Franklin suggest that "if 20th Century forestry was about simplifying systems, producing wood, and managing at the stand level, 21st Century forestry will be defined by understanding and managing complexity, providing a wide range of ecological goods and services, and managing across broad landscapes." Id. at 1-2.

n39 Sustainable forestry refers to the management of forests to provide commodity values without substantial compromise of environmental and social values. While the annual timber harvest in a sustainably managed forest may be smaller than if the forest was managed primarily for timber, the long-term quality of timber may improve. See STATE OF THE WORLD'S FORESTS, supra note 9, at 12-33.

n40 See ABRAMOVITZ, supra note 8, at 8-9.

n41 See HUMPHREYS, supra note 35, at 21-28.

n42 See id. at 21 (suggesting that the forest issue is complicated because there is no widely accepted formulation of the problem).

n43 See id. at 24 (claiming that the forest issue is complicated by the fact that there is a lack of understanding about the transnational causes of forest loss).

n44 See Brunnee, supra note 19, at 45-46.

n45 See id.

n46 The trade in timber, for example, is increasingly international. See DUDLEY ET AL., supra note 9, at 17. The form of pollution that has the greatest impact on forests, acid rain, is in part a transboundary phenomenon. See HUNTER ET AL., supra note 5, at 523-24.

n47 See ABRAMOVITZ, supra note 8, at 22-38 (canvassing the impacts of international trade in forest products and development projects on forests); VEROLME & MOUSSA, supra note 10, at 6-9 (suggesting that international trade and consumption, international economic relations, and financial flows contribute to deforestation).

n48 Trade liberalization is said to improve economic efficiency by allowing nations to capitalize on the fact that they each have different advantages in producing goods and services, such as differences in factor endowments (e.g., climate and mineral resources) to differences in human capital, and industrial and technological infrastructure. The theory of comparative advantage holds that allowing countries to specialize in what they are good at producing and trade with other nations for commodities they are not efficient in producing maximizes efficiency, thereby increasing aggregate global wealth. The pioneer of this theory was economist David Ricardo. See VEROLME & MOUSSA, supra note 10, at 14-20.

n49 See GATT, supra note 12.

n50 See JACKSON, supra note 12, at 13.

n51 See id. at 1.

n52 See id. at 1-2. The European Union and North America are examples of regions that have emerged as liberalized trade blocks. See id. at 100-04 (discussing the European Union); JOHNSON & BEAULIEU, supra note 5, at 1 (discussing North America). With fewer countries involved in the negotiation process, concessions can be negotiated faster than in the global WTO process. For example, it was only ten years after Canada and the United States entered into a trade liberalization agreement that they eliminated tariff barriers on products traded between them. See Canada-United States Free Trade Agreement, 27 I.L.M. 281 (1988). Under NAFTA, trade within North America will be tariff-free by 2009. See NAFTA, supra note 13, art. 302.

n53 See GATT, supra note 12, arts. I, III & XI; see also HUNTER ET AL., supra note 5, at 1182.

n54 See GATT, supra note 12, art. I. The rationale behind this policy is to prohibit favoritism, ensuring countries fair treatment in the competitive arena. See JACKSON, supra note 12, at 157.

n55 See JACKSON, supra note 12, at 163-67.

n56 This exception was first encapsulated under the General System of Preferences program (between 1971 and 1981) and is now authorized under an understanding negotiated at the Tokyo Round, called the "Enabling Clause." See id. at 164.

n57 When regional agreements include GATT parties, these parties treat the imports of certain countries (those that are part of the regional agreement) more favorably than other GATT parties, thereby violating the MFN policy. GATT Article XXIV provides an exception to the MFN policy for free trade areas, or agreements leading to such. See id. at 165-66.

n58 See id. at 213.

n59 See GATT, supra note 12, art. III.

n60 See JACKSON, supra note 12, at 213.

n61 See Organization for Economic Co-Operation and Development, Methodologies for Environmental and Trade Reviews, OCDE/GD(94)103, at 7 (1994). There are two categories of trade barriers. Tariff barriers are essentially customs duties or fees imposed upon importation at the border. Non-tariff barriers include all other barriers to trade, ranging from import quotas and bans to more subtle barriers, such as policies that give domestic industries an unfair advantage. See id. at 6.

n62 See JACKSON, supra note 12, at 139.

n63 See id. The negotiation of tariff reductions under the GATT was at first an arduous process, involving parties negotiating for reductions item by item in what ended up being very complicated negotiations. The process was advanced by the MFN policy, however, because once a party agreed with any other party to reduce its tariffs on certain goods to a certain level, this lower tariff rate had to be applied to all parties. Therefore, progress was made, but the process was highly political and slow. During the Kennedy Round of GATT negotiations in the 1960s, GATT parties shifted to negotiating tariff reductions on a linear basis or "across the board," making the process much less time-consuming and thereby leaving time in negotiation rounds for discussion of other trade issues, such as attacking remaining non-tariff barriers. See id. at 144-54.

n64 See id. at 141.

n65 In the early 1800s, and again between 1860 and 1914, tariffs averaged around 60%. See id. at 140-41.

n66 See id.

n67 See JOHNSON & BEAULIEU, supra note 5, at 14. It has been suggested that as tariff barriers are eliminated, countries are crafting new non-tariff barriers in their stead. Difficult to identify, these non-tariff barriers are also difficult to eliminate. See JACKSON, supra note 12, at 154.

n68 These Agreements are the Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, LEGAL INSTRUMENTS -- RESULTS OF THE URUGUAY ROUND, and the Agreement on Technical Barriers to Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, LEGAL INSTRUMENTS -- RESULTS OF THE URUGUAY ROUND [hereinafter TBT Agreement].

n69 The GATT's environmental exceptions are found in Article XX. See GATT, supra note 12, art. XX(b), (g).

n70 See supra note 11 and accompanying text.

n71 The author wishes to thank and acknowledge Professor James Salzman, American University, Washington College of Law, for proposing such a distinction.

n72 See OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE AND COUNCIL ON ENVIRONMENTAL QUALITY, ACCELERATED TARIFF LIBERALIZATION IN THE FOREST PRODUCTS SECTOR: A STUDY OF THE ECONOMIC AND ENVIRONMENTAL EFFECTS (1999), available at <http://www.usia.gov/wto/tf1102b.htm> [hereinafter USTR].

n73 See JACKSON, supra note 12, at 154.

n74 See id. at 138.

n75 See id. at 140-01.

n76 When a tariff is reduced or eliminated, the price of the affected imported product is lowered. The lower price generally leads to an increase in consumption of that good, depending on the price elasticity of demand for that item. The more price elastic demand is for an item, the more demand will rise in response to a price decrease. See id. at 142; ROBERT S. PINDYCK & DANIEL L. RUBINFELD, MICROECONOMICS 312-18 (4th ed. 1998).

n77 See EDWARD B. BARBIER, IMPACT OF THE URUGUAY ROUND ON INTERNATIONAL TRADE IN FOREST PRODUCTS (1996).

n78 See id. at 1.

n79 See id. at 45-50.

n80 See id. at 17.

n81 See id. at 14. The recommended tariff reduction on forest products was 33%. See id.

n82 See id. at 17.

n83 See id. at 24-25. The two different estimates arise from the use of two scenarios, each relying on a different assumption of price elasticity of demand. See id.

n84 See id. at 26.

n85 See USTR, supra note 72, at 3.

n86 Malaysia's tariffs on wood products can be as high as 45%, while those in China can be as high as 22%. See American Forest and Paper Association, Tariffs on Selected Wood Products (visited Mar. 14, 2000) <http://www.afandpa.org/news/tariffs_woodprod.html>.

n87 The phenomenon of placing higher tariffs on processed goods is known as Tariff Escalation, and is usually implemented by countries to encourage processing within their borders. Rates on some panel products and other processed products, such as woodwork and furniture, are typically between 10 to 15%. See I.J. BOURKE & JEANETTE LEITCH, FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS, TRADE RESTRICTIONS AND THEIR IMPACT ON INTERNATIONAL TRADE IN FOREST PRODUCTS (1998), available at <http://www.fao.org/forestry/fop/foph/bkleich/b98-1.stm>.

n88 See id. at 4-6.

n89 See generally BRYANT ET AL., supra note 9; DUDLEY ET AL., supra note 9.

n90 See USTR, supra note 72, at 5. The prediction is based on a scenario analysis using large-scale trade models. See id. App. V (describing the models used for the analysis of the impacts of the ATL).

n91 See BARBIER, supra note 77, at 25.

n92 Preferential tariffs for developing countries are one of the exceptions to the MFN requirement. See supra note 56 and accompanying text.

n93 See BARBIER, supra note 77, at 24.

n94 See id. at 25. Under the assumption that developing countries benefited from preferential rates in developed country markets pre-Uruguay Round, Barbier estimates that the Uruguay Round will divert about U.S.$ 219 million of trade in forest products from developing countries to developed countries, most of which are in the European Union. See id.

n95 See id.

n96 See generally BRYANT ET AL., supra note 9; DUDLEY ET AL., supra note 9.

n97 Tariff concessions under GATT on agricultural commodities have been slower than on other products (because of protectionism over agricultural industries). See JACKSON, supra note 12, at 315. Negotiations are ongoing within the WTO to reduce agricultural tariffs. This will lead to some increase in consumption of agricultural goods. However, price elasticity of demand for most agricultural products is likely low, so tariff reductions on agricultural goods may not have any greater implications for forests than other commodities.

n98 See GATT, supra note 12, art. XI; see also JACKSON, supra note 12; SHRYBMAN, supra note 5, at 11.

n99 Examples of such agreements include the TBT Agreement, supra note 68, and the Agreement on the Application of Sanitary and Phytosanitary Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, LEGAL INSTRUMENTS -- RESULTS OF THE URUGUAY ROUND [hereinafter SPS Agreement] (both discussed later in this section).

n100 Convention on International Trade in Endangered Species of Wild Fauna and Flora, Mar. 3, 1973, 993 U.N.T.S. 243 [hereinafter CITES].

n101 Montreal Protocol on Substances that Deplete the Ozone Layer, Sept. 16, 1987, 26 I.L.M. 1541. The Montreal Protocol was amended on June 29, 1990; Nov. 25, 1992; Dec. 7, 1995; Sept. 17, 1997; and Dec. 3, 1999. A revised text including the first four amendments is available at <http://www.unep.org/ozone/mont_t.htm>.

n102 See GATT, supra note 12, art. XX.

n103 Vienna Convention on the Law of Treaties, May 23, 1969, art. 30(3), 1155 U.N.T.S. 331.

n104 The breadth of the Article XX exceptions was tested in the Tuna-Dolphin Decision. In this case, Mexico's challenge of a U.S. restriction on the importation of tuna caught without the use of dolphin-friendly nets was upheld on the basis that the United States was discriminating between "like" products (tuna) even though they were produced or obtained using different methods. The Panel further held that the Article XX exceptions were not applicable to the United States because these exemptions do not excuse trade measures taken to protect the environment outside the country's jurisdiction. See GATT Dispute Panel Report on U.S. Restrictions on Imports of Tuna (Sept. 3, 1991), 30 I.L.M. 1594 (1991). A subsequent GATT dispute settlement panel upheld this decision. See GATT Dispute Panel Report on U.S. Restrictions on Imports of Tuna (June 1994), 33 I.L.M. 842 (1994). Article XX exceptions were given a more favorable interpretation in a more recent WTO decision considering the U.S. restrictions on importation of shrimp caught without the use of turtle excluder devices. While this Panel found against the United States in this case, its finding was based on a less narrow reading of Article XX, but instead on how the United States instituted the trade restrictions. The Appellate Body suggested that the United States was discriminatory in applying the restrictions by not giving Asian shrimp producers adequate opportunity to redress the situation before imposing trade measures. See WTO Report of the Appellate Body, United States - Import Prohibitions of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (Oct. 12, 1998). The Shrimp-Turtle decision suggests that Article XX may be given a broader reading in future decisions. Because there is no stare decisis in Panel and Appellate Body decisions, however, the future interpretation of Article XX remains uncertain.

n105 Unlike the WTO, NAFTA recognizes the legitimacy of specified MEAs and permits the use of trade-restrictive measures, such as sanctions, bans, or restrictions, under these treaties as an exception to NAFTA rules.

n106 See CITES, supra note 100.

n107 Examples of commercial tree species listed in CITES include Alerce (Fitz-Roya cupressoides) and Brazilian rosewood (Dalbergia nigra). See WORLD CONSERVATION MONITORING CENTRE, CHECKLIST OF CITES SPECIES 251, 258 (1998).

n108 See Montreal Protocol, supra note 101.

n109 See LAKSHMAN D. GURUSWAMY, INTERNATIONAL ENVIRONMENTAL LAW AND WORLD ORDER 467-68 (1994).

n110 See ESTY, supra note 3, at 51.

n111 See GATT, supra note 12, art. I.

n112 See id. art. III.

n113 See discussion supra note 104.

n114 See GATT, supra note 12, art. XX(b), (g).

n115 See discussion supra note 105.

n116 The rationale for the narrow interpretation of the exceptions is to prevent countries from using environmental rationales inappropriately to serve protectionist goals. See ESTY, supra note 3, at 45; see also HUNTER ET AL., supra note 5, at 1186.

n117 The Forest Stewardship Council (FSC) is an international non-profit organization created in 1993 to independently certify forests managed sustainably. The FSC has developed a set of principles and criteria that delineate how a forest area or plantation must be managed to meet the goal of being managed in a socially and environmentally responsible way. The FSC provides accreditation to certifying organizations to act as independent assessors of the forest management practices of a given unit of forest. The accrediting agencies, which can be either profit or non-profit based, respond to voluntary applications for certification by owners or managers of forested lands, applying the FSC's predetermined standards of sustainable forestry to determine whether the forest can be certified. See CERTIFICATION OF FOREST PRODUCTS: ISSUES AND PERSPECTIVES 5, 11, 70 (Virgilio M. Viana et al. eds., 1996); see also Forest Stewardship Council, Who We Are? (visited Feb. 27, 2000) <http://www.fscoax.org/html/who_we_are.html>.

n118 See ESTY, supra note 3, at 51.

n119 See Elliot B. Staffin, Trade Barrier or Trade Boon? A Critical Evaluation of Environmental Labeling and its Role in the "Greening" of World Trade, 21 COLUM. J. ENVTL. L. 205, 209 (1996). The FSC, supra note 117, is one example of an eco-labeling program.

n120 See id.

n121 See WALLACH & SFORZA, supra note 3, at 36-38.

n122 See supra notes 111-116 and accompanying text.

n123 In 1992, Austria passed a law requiring all tropical timber within the country to be labeled as such. It also imposed a 70% tariff on all imports of tropical timber. Austria's eco-labeling law was short-lived, however. It failed when Southeast Asian nations that export tropical wood put up vehement, and ultimately successful, resistance to the approach. The Association of South East Asian Nations (ASEAN) argued that Austria's policy violated the GATT because it treated tropical wood differently from other wood. With ASEAN's support, Malaysia brought the case to the attention of the GATT and the International Tropical Timber Organization (ITTO). Facing a threat of boycotts from ASEAN members and receiving little support from other West European nations, Austria revoked the program before the case was heard before either the GATT or ITTO. See Shawn L. Bryant, Environmental Labeling's Effects on the Timber Wood Industry (visited Mar. 14, 2000) <http://www.american.edu/projects/mandala/TED/projects/tedcross/xtrop14.htm>.

n124 See Elwell, supra note 36, at 212.

n125 See id.

n126 See id.

n127 See id.

n128 TBT Agreement, supra note 68.

n129 See HUNTER ET AL., supra note 5, at 1208; WALLACH & SFORZA, supra note 3, at 36-38.

n130 See TBT Agreement, supra note 68.

n131 See WALLACH & SFORZA, supra note 3, at 37.

n132 See id. at 38.

n133 See id. at 172.

n134 Voluntary and independent actions are not captured by the WTO rules, which are applicable to government actions.

n135 Canada, for instance, recently suggested to the WTO Committee on Trade and the Environment that the FSC process should be subject to WTO rules. See SHRYBMAN, supra note 5, at 66.

n136 See supra notes 124-126 and accompanying text.

n137 Invasive species are thought to be the second greatest cause of species extinction. See WALLACH & SFORZA, supra note 3, at 38.

n138 See id.

n139 SPS Agreement, supra note 99.

n140 See WALLACH & SFORZA, supra note 3, at 57.

n141 See id.

n142 See id.

n143 See Hughes, supra note 24, at 90.

n144 See SHRYBMAN, supra note 5, at 60.

n145 See STEVEN LEWIS YAFFEE, THE WISDOM OF THE SPOTTED OWL: POLICY LESSONS FOR A NEW CENTURY 161 (1994).

n146 See SHRYBMAN, supra note 5, at 60.

n147 See GATT, supra note 12, art. XI.

n148 The financial benefit can vary from a direct transfer of money, forgiven loan, or service conferred. See JACKSON, supra note 12, at 291.

n149 See, e.g., GATT, supra note 12, art. XVI; Agreement on Subsidies and Countervailing Measures, supra note 68.

n150 See id., arts. VI, XVI; see also JACKSON, supra note 12, at 293-300.

n151 See Agreement on Subsidies and Countervailing Measures, supra note 68, art. 10.

n152 See BROWN ET AL., supra note 27, at 76-77, 171-72.

n153 See SHRYBMAN, supra note 5, at 62-65.

n154 Claims that Canada subsidizes its timber industry have been the subject of a series of complex disputes between Canada and the United States over the last two decades. See MAY, supra note 26, at 52-55 (summarizing the disputes).

n155 See BROWN ET AL., supra note 27, at 171-72.

n156 See World Trade Organization, Agriculture (1)-The Issues (visited Feb. 28, 2000) <http://www.wto.org/wto/seattle/english/about_e/07ag_e.htm>.

n157 See id.

n158 See ESTY, supra note 3, at 170; HUNTER ET AL., supra note 5, at 121.

n159 See supra notes 149-151 and accompanying text.

n160 See Agreement on Subsidies and Countervailing Measures, supra note 68, art. 8.2(c).

n161 See id.

n162 See JACKSON, supra note 12, at 14-20.

n163 See id. at 141. Note, however, that while net income is higher in most countries as a result of trade liberalization, the income rises are not necessarily distributed equally or fairly. See Louis Marc Ducharme & Marc Prud'homme, Canadian Economic Structural Change in the Age of NAFTA: Proceedings: Introduction (Feb. 2, 1998) <http://www.statcan.ca:80/english/freepub/61-532-XIE/02-intro.html> (noting that trade liberalization agreements can influence patterns of income distribution within a country).

n164 See JACKSON, supra note 12, at 142; World Trade Organization, Frequently Asked Questions (visited Feb. 27, 2000) <http://www.wto.org/wto/faqs/faq.htm>.

n165 Income elasticity refers to the degree to which demand for goods will rise with an increase in income. The more income elasticity, the more demand will rise as a result of an increase in income. See PINDYCK & RUBINFELD, supra note 76, at 33.

n166 See, e.g., Steve Globerman, The Environmental Impacts of Trade Liberalization, in, NAFTA AND THE ENVIRONMENT 26, 40 (Terry L. Anderson ed., 1993) (on file with the author); Bruce Yandle, Is Free Trade an Enemy of Environmental Quality?, in NAFTA AND THE ENVIRONMENT, supra, at 1 (proposing that liberalized trade under NAFTA will lead to higher environmental quality).

n167 It is suggested that in the early stages of a country's development, pollution levels increase, but that after a certain income level is reached, pollution levels decrease. This phenomenon is referred to as the environmental Kuznet curve. See NORDSTROM & VAUGHAN, supra note 5, at 47.

n168 See PINDYCK & RUBINFELD, supra note 76, at 33.

n169 See id.

n170 For instance, the demand for potatoes is likely to decrease as income rises due to greater demand for more expensive foods.

n171 See DUDLEY ET AL., supra note 9, at 17.

n172 See Elwell, supra note 36, at 199.

n173 See id.

n174 See STATE OF THE WORLD'S FORESTS, supra note 19, at 34.

n175 See BROWN ET AL., supra note 27, at 60-61; DUDLEY ET AL., supra note 9, at 78.

n176 See supra note 22.

n177 See id.

n178 See supra note 166.

n179 Whether the demand is for recreation, more wilderness or conservation of option values (i.e., the options for future use offered by the continuing existence of forests), greater demand of these values is likely to create incentives for sustainable forest management. There is little evidence to demonstrate this phenomenon. Perhaps the fact that income increases tend not to be evenly distributed within society, see supra note 163, offers a possible explanation for why higher income may not translate evenly into more interest in environmental and social values or sustainable forest management.

n180 See Emery N. Castle, Pluralism and Pragmatism in the Pursuit of Sustainable Development, in FORESTRY, ECONOMICS AND THE ENVIRONMENT, supra note 22, at 1-9. Researchers have suggested, however, that if forests were managed to capitalize upon such values (ex. recreation) these values would often outweigh the value of using the forest for timber harvesting. For instance, recreation in National Forests in the United States is estimated to lead to 28 times more revenue and 34 times more jobs than logging. In Bintuni Bay, Indonesia, when the values of fish, locally used products and erosion control provided by an intact mangrove forests were summed, the values added up to U.S.$ 4,800 per hectare, while timber harvesting netted a value of U.S.$ 3,600 per hectare. See ABRAMOVITZ, supra note 8, at 7, 9-10.

n181 Also, subsidies provided to other forest uses, such as timber production, impact the extent to which preferences in the market will be accurately reflected.

n182 See Kyoto Protocol to the United Nations Framework Convention on Climate Change, December 10, 1997, 37 I.L.M. 22 (1998) [hereinafter Kyoto Protocol]; see also ABRAMOVITZ, supra note 8, at 15.

n183 See supra note 117.

n184 See ESTY, supra note 3, at 21-22.

n185 See Michael E. Porter & Claas van der Linde, Toward a New Conception of the Environment-Competitiveness Relationship, 9 J. OF ECON. PERSPECTIVES 97, 97-98 (1995); Richard L. Revesz, The Race to the Bottom and Federal Environmental Regulation: A Response to Critics, 82 MINN. L. REV. 535, 538-40.

n186 See, e.g., Richard L. Revesz, Rehabilitating Interstate Competition: Rethinking the "Race to the Bottom" Rationale for Federal Environmental Regulation, 67 N.Y.U.L. REV. 1210 (1992); Revesz, supra note 185.

n187 See, e.g., Adam B. Jaffe et al., Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?, 33 J. ECON. LIT. 132, 133 (1995); Porter & van der Linde, supra note 185, at 97-98.

n188 See, e.g., Esty & Geradin, supra note 5, at 3; von Moltke, supra note 6, at 5, 7-10.

n189 See Revesz, supra note 185, at 538-39.

n190 See id.

n191 See ROBERT T. DEACON, DEFORESTATION AND THE RULE OF LAW IN A CROSS-SECTION OF COUNTRIES 16-17 (Resources for the Future, Discussion Paper 94-23 1994); Seth W. Norton, Property Rights, the Environment, and Economic Well-Being, in WHO OWNS THE ENVIRONMENT? 37, 37-39 (Peter J. Hill & Roger E. Meiners eds., 1998) (discussing the importance of secure property rights for economic prosperity).

n192 See DEACON, supra note 191, at 18.

n193 See Jaffe et al., supra note 187, at 133; Porter & van der Linde, supra note 185, at 97-98.

n194 See Jaffe et al., supra note 187, at 133; Porter & van der Linde, supra note 185, at 97-98.

n195 See HUNTER ET AL., supra note 5, at 67-68, 1168-69.

n196 See id.

n197 See Propper de Callejon et al., Sustainable Forestry Within an Industry Context, in THE BUSINESS OF SUSTAINABLE FORESTRY: CASE STUDIES 2-15 (Sustainable Forestry Working Group ed., 1998).

n198 See id. at 2-12 to 2-15 (discussing the globalization of the forest products industry and its impact on increasing production efficiency).

n199 See ABRAMOVITZ, supra note 8, at 32-33.

n200 See ESTY, supra note 3, at 21-22; von Moltke, supra note 6, at 7-10; Esty & Geradin, supra note 5, at 265 (each discussing the "political drag" or "regulatory chilling" that may be caused by a real or perceived threat of industrial flight due to stringent environmental laws).

n201 See ESTY, supra note 3, at 21-22; GUNTHER G. SCHULZE & HEINRICH W. URSPRUNG, ENVIRONMENTAL POLICY IN AN INTEGRATED WORLD ECONOMY 67-83 (1997) (on file with author); von Moltke, supra note 6, at 7-10 (setting out the framework of the environmental regulation and competitiveness controversy).

n202 See JOHAN ALBRECHT, ENVIRONMENTAL COSTS AND COMPETITIVENESS: A PRODUCT-SPECIFIC TEST OF THE PORTER HYPOTHESIS 3 (1998) (on file with author); Jaffe et al., supra note 187, at 157 (surveying over 100 studies on environmental regulation and competitiveness in the U.S. manufacturing industry).

n203 This argument is known as the Porter Hypothesis, named after the Harvard professor who first popularized the idea in the economics literature. See MICHAEL PORTER, THE COMPETITIVE ADVANTAGE OF NATIONS (1990); see also ALBRECHT, supra note 202, at 11-18 (testing the Porter Hypothesis by applying it to the chlorofluorocarbon (CFC) manufacturing industry, with a positive result).

n204 In the case of performance-based pollution regulations, for instance, companies are innovating their production design to prevent the creation of pollution in the first place. See SCHULZE & URSPRUNG, supra note 201, at 79; Porter & van der Linde, supra note 185, at 102. By creating less pollution, these companies may not have to purchase potentially costly pollution screening technologies that normally apply at the "end of the pipe." See Jaffe et al., supra note 187, at 158. Innovations in production design will not always be capable of reducing pollution emissions to a level that would no longer require pollution abatement technology at the "end of the pipe." Some industries are clearly "dirtier" than others, such as primary metals, chemicals, and paper industries, and may not be able to innovate themselves out of substantial pollution reduction costs. See id.; ALBRECHT, supra note 202, at 3-4. The argument that innovation can help companies avoid costs of complying with environmental regulations is also somewhat less convincing when it is applied to environmental regulations other than performance-based pollution reduction rules. For instance, innovation would not be as much of a factor if the regulation in question required all industries in a certain sector to use a particular pollution-reduction technology, regardless of emissions or production process. While innovation to reduce pollution might help create efficiency gains in output, it would not obviate the need for such a company to purchase the required technology.

n205 See ALBRECHT, supra note 202, at 3; Jaffe et al., supra note 187, at 157. For criticisms of the conclusion that pollution laws generally do not prompt industrial relocation to "pollution havens," see SCHULZE & URSPRUNG, supra note 201, at 67-69 (discussing the methodological challenges of measuring the stringency of environmental regulations); Esty & Geradin, supra note 5, at 5 (arguing that the studies to date which do not establish an empirical link between strict environmental regulation and industrial location may not be conclusive because of changing factors, such as equalization of the costs of other variables). The Jaffe study also contains some caveats regarding its conclusions. See Jaffe et al., supra note 187, at 158-59.

n206 See Jaffe et al., supra note 187, at 136 (noting that "economists have paid little attention to the effects of environmental regulation on competitiveness in the natural resources sector"); von Moltke, supra note 6, at 8.

n207 Konrad von Moltke also makes this argument. See von Moltke, supra note 6, at 8.

n208 The Clean Air Act, 42 U.S.C. §§ 7401-7671q (1994), and the Clean Water Act, 33 U.S.C. §§ 1251-1387 (1994), are two examples in the United States.

n209 See supra notes 202-204 and accompanying text. The pulp and paper industry is known to be highly polluting, so it is possible that the costs of complying with regulations could sometimes justify relocation. Of course, innovations in production design may help curb compliance costs. See ALBRECHT, supra note 202, at 3; Jaffe et al., supra note 187, at 158 (discussing the role of innovation in curbing compliance costs).

n210 See STATE OF THE WORLD'S FORESTS, supra note 9, at 14; Propper de Callejon, supra note 197, at 2-7. Wood supplies are predicted to continue declining. See id.

n211 See PINDYCK & RUBINFELD, supra note 76, at 277-78. Input prices in the forest products industry are also impacted by demand (i.e., housing starts), which follows a cyclical pattern. While fluctuations in market demand have an impact on price of inputs, these fluctuations may not motivate industrial relocations or outsourcing given their cyclical nature. In other words, the costs involved in relocating or outsourcing might be greater than the cost of waiting out the price fluctuation.

n212 This is the long-term effect of an increase in costs within a competitive market. See id. at 271-73.

n213 See id. at 318-25.

n214 See ROGER A. SEDJO & KENNETH S. LYON, THE LONG-TERM ADEQUACY OF WORLD TIMBER SUPPLY 55-56 (1990).

n215 See Propper de Callejon, supra note 197, at 2-14, 2-15. Advances in technology have made it possible for forest products companies to engineer wood panels from a variety of different woods. This not only allows the company to produce products with much smaller pieces of wood (once considered refuse), but the end product is also said to be of better quality due to improved engineering. See id.

n216 See id. at 2-15.

n217 See id.

n218 See Ted Blackman & Thea D.D. Hillman, The Year in Review, in 1996 DIRECTORY OF THE WOOD PRODUCTS INDUSTRY I, I (David Pease et al. eds., 1997).

n219 See id.

n220 1997-98 NORTH AMERICAN FACTBOOK 4 (David Pease et al. eds., 1998).

n221 Timber supply in the Pacific Northwest of the United States has decreased in part due to old growth forests being set aside as habitat for the Northern Spotted Owl. See id. at 2. Another factor causing the Forest Service to decrease timber sales over all of its lands is the gradual move it is making to a management approach that takes environmental and social values into greater account. Thus, land that might have been set aside for timber use in past years may, with this new approach, be set aside to provide ecosystem services such as watershed protection. See JOHN J. BERGER, UNDERSTANDING FORESTS 116-18 (1998).

n222 Commercially valuable species, such as the Southern Yellow Pine, can be found in the Southeast. See Blackman & Hillman, supra note 218, at 126-27.

n223 See PINDYCK & RUBINFELD, supra note 76, at 252-53; GERALD M. MEIER, LEADING ISSUES IN ECONOMIC DEVELOPMENT 455-56 (6th ed. 1995).

n224 See id.

n225 See supra notes 19-21 and accompanying text.

n226 See Jeff Romm, Pursuit of Innovation, in THE BUSINESS OF SUSTAINABLE FORESTRY, supra note 197, at 1-1.

n227 See Propper de Callejon, supra note 197, at 2-10. A plantation is a stand of trees grown through direct seedling or by planting seedlings. See CANADIAN FOREST SERVICE, THE STATE OF CANADA'S FORESTS 1995-1996, 108 (1996) [hereinafter CANADIAN FOREST SERVICE].

n228 In the South, for instance, plantation trees grow much faster and on smaller plots of land. For example, in Brazil, it takes 50,000 hectares of plantation to supply 500,000 tons annually of pulp. In British Columbia, it takes 1,600,000 hectares of plantation forests to supply the same amount. See CANADIAN FOREST SERVICE, supra note 227. Lower labor and land costs in the South also give the South a production advantage. However, soils in tropical regions may be less suitable for plantation forestry in the long-term.

n229 See id. at 2-13 (describing the increased globalization of the industry over the last 20 years, so that now "it is not uncommon for an international paper company to sell its equity in Tokyo, grow its fiber in Brazil, purchase papermaking equipment in Europe, and sell its products worldwide").

n230 See id. at 2-6.

n231 See id. at 2-7.

n232 See supra note 200 and accompanying text; see also Herman E. Daly, Problems with Free Trade: Neoclassical and Steady-State Perspectives, in TRADE AND THE ENVIRONMENT: LAW, ECONOMICS AND POLICY 147, 148 (Durwood Zaelke et al. eds., 1993). In response to concerns about the possibility that NAFTA would drive environmental standards down in Mexico, as well as in Canada and the United States so they could compete with Mexico, NAFTA negotiations led to the inclusion of a provision stating that it is "inappropriate" to relax, waive, or derogate domestic health, safety or environmental measures in order to attract investment. See NAFTA, supra note 13, art. 1114(2). While the provision does not activate the formal dispute resolution process if it is violated (transgression of the rule leads only to consultation), the problem is at least recognized.

n233 Compare Esty & Geradin, supra note 5, at 3-4, and Kibel, supra note 11, at 759-62 (suggesting that the threat of industrial flight is having a chilling effect on environmental laws), with ALBRECHT, supra note 202, at 5, and Organization for Economic Co-operation and Development, Report on Trade and Environment to the OECD Council at the Ministerial Level, OCDE/GD(95)63, at 5 (1995) (pointing out that no empirical evidence has firmly established a link between environmental regulations and competitiveness, and arguing that competitiveness has no chilling effect on regulation).

n234 Even if a specific case is examined, trying to determine whether there is a link between environmental regulation and competitiveness is very challenging. For instance, it is difficult to measure the relative stringency of environmental regulations or, conversely, the availability of the "environment" as a production factor. A measure of the costs of complying with an environmental regulation might include only the costs of the technology applied to meet the demands of the legislation, or might include all capital spent in furtherance of improving production design to prevent pollution, such as funds expended on research and development. See SCHULZE & URSPRUNG, supra note 201, at 67; Jaffe et al., supra note 187, at 158.

n235 See ESTY, supra note 3, at 23.

n236 See JOHNSON & BEAULIEU, supra note 5, at 43.

n237 The main evidence of industrial location in Mexico causing greater pollution was the maquiladora program. Established in 1965, the program involved an agreement between the Mexican and U.S. governments to allow tariff-free shipment of raw materials from the United States to Mexico and finished products from Mexico to the United States for a number of jointly-owned (between the U.S. and Mexican interests) factories that would be established along the border. Over 2500 such factories have been established. The U.S. companies were enticed by the comparative advantage of inexpensive labor and poorly enforced environmental rules (the latter unspoken) in the Mexican factories, while the Mexican factories gained from the foreign investment. As a result of the activities along the border and Mexico's lack of enforcement of its environmental laws, the waterways around the border are highly contaminated from direct dumping of hazardous and other wastes by some factories. See HUNTER ET AL., supra note 5, at 1223.

n238 NAFTA negotiators ended up incorporating some environmental provisions into the agreement and negotiating a side agreement on the environment. See North American Agreement on Environmental Cooperation, Sept. 14, 1993, U.S.-Can.-Mex., 32 I.L.M. 1519. The provisions in both the main text and the Side Agreement require NAFTA countries to adequately enforce their environmental laws. See JOHNSON & BEAULIEU, supra note 5, at 119-26; see also supra note 232.

n239 See ALBRECHT, supra note 202, at 7.

n240 This is because the more products a country exports, the less important one specific sector is to the country's economy and overall trade performance. See id.

n241 See id. at 7-11.

n242 See MAY, supra note 26, at 51.

n243 See Brunnee, supra note 19, at 51.

n244 See id. In British Columbia, 50% of the province's merchandise exports are derived from the forest sector. See Ross Howard, Is B.C.'s Economic Backbone History?, TORONTO GLOBE AND MAIL, Dec. 11, 1998, at A6.

n245 United States exports of forest products in 1999, excluding pulp and paper, were less than 0.1% of total exports of goods. See Foreign Agricultural Service, U.S. Exports of Forest Products (excluding pulp and paper) (visited Apr. 5, 2000) <http://www.fas.usda.gov/scriptsw/bico/bico.idc?doc=280> (showing forest product exports, excluding pulp and paper, valued at U.S.$ 5,967,900,000 in 1999); see also Bureau of Economic Analysis: International Accounts Data, Exports of Goods 1999 (visited Apr. 5, 2000) <http://www.bea.doc.gov/bea/di/tradgs-d-htm#Exports> (showing total exports of goods from the United States in 1999 valued at U.S.$ 670,246,000,000).

n246 See YAFFEE, supra note 158, at 72-81 (describing the U.S. environmental lobby's influence on public lands in the West during the Spotted Owl controversy).

n247 For example, a great deal of attention was focused on the old growth forests of Clayoquot Sound in British Columbia from 1990 until just last year. See DUDLEY ET AL., supra note 9, at 66.

n248 The U.S. Forest Service in the United States and the Ministry of Forests in British Columbia, Canada are examples. See BERGER, supra note 221, at 53 (discussing the responsiveness of Forest Service bureaucrats to Members of Congress beholden to the forest products industry); PATRICIA MARCHAK, LOGGING THE GLOBE 64 (1995) (discussing provincial resistance in Canada to reductions in logging due to historical dependence on the forest resource and institutional inertia).

n249 The U.S. Forest Service, for instance, has evolved over time to become a management agency not focused solely on managing forests for timber, but also for managing them for other uses, such as recreation. See BERGER, supra note 221, at 58-60.

n250 See supra notes 158-161.








Prepared: February 1, 2001 - 12:02:29 PM
Edited and Updated, February 2, 2001


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