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Committee on Financial Services

United States House of Representatives

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U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING
HEARINGS ON ASIAN FINANCIAL ISSUES

FEBRUARY 3, 1998

STATEMENT BY W. HENSON MOORE
PRESIDENT & CEO
AMERICAN FOREST & PAPER ASSOCIATION (AF&PA)

 

My name is Henson Moore. I am President and CEO of the American Forest & Paper Association (AF&PA). AF&PA, the national trade association of the forest, pulp, paper, paperboard, and wood products industry, represents more than 100 companies. The vital national industry which AF&PA represents accounts for 8% of total U.S. manufacturing output. The industry employs approximately 1.6 million people and ranks among the top 10 manufacturing employers in 46 states. Its annual payroll is about $50 billion, and sales of forest and paper products top $200 billion annually in the U.S. and abroad. We are the largest producer of forest products in the world.

It is a privilege for me to testify today on a matter of urgent concern to our member companies.

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

Historically, our companies have faced a formidable array of trade barriers -- including tariffs, non-tariff barriers, and discriminatory standards -- in these markets.

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

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

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

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

In recent months, however, we have become increasingly concerned that the crisis may be used by protectionists as an excuse to stall trade liberalization in the region. The U.S. forest products industry urges this Committee to ensure that the U.S. policy response to the current financial difficulties in Asia goes beyond the immediate need to restore financial stability and focuses on the more fundamental requirement for genuine market-based reform.

Monetary and trade policy interests must be coordinated and integrated. Asian countries must be pressed hard to open their economies, not only to banking and investment, but to competition in goods . The U.S. must use its leverage, including its position in multilateral institutions, to this end.

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

Where they exist, anticompetitive practices (such as the keiretsu system in Japan; the chaebol in Korea; and the plywood cartel in Indonesia) subsidies or other non-market based financial incentives for capital investment which have thwarted market function, and contributed to the current problems, must not be allowed to continue. Making such policies transparent is not the answer; they must be eliminated, and markets opened to foreign trade and investment on equal terms. The U.S. and multilateral lending agencies must ensure that needed adjustments are made on the basis of fully open, contestable markets.

The discipline of open markets, which the APEC Forest Products Initiative will provide, must be combined with closer scrutiny of lending policies by U.S. Government and multilateral donor agencies to ensure sustainability in this sector. Investment and production decisions must be subject to market--not political--forces.

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

This is not a unilateral U.S. quid pro quo. The APEC sectoral initiatives represent the collective economic wisdom of all 18 member economies, including those which have been most severely impacted by the crisis. The message is not "open your markets to U.S. products;" rather, it is "stay the market-oriented course you have set."

The benefits for the regional economies are clear: The elimination of tariff and non-tariff barriers, and the rationalization of building standards, would mean lower input costs for export oriented industries; reduced prices to consumers on products ranging from housing and furniture to printed materials; improved efficiency in the utilization of precious forest resources; more realistic selection of investment projects and improved returns on capital invested; and wider markets for value added wood and paper products.

These outcomes would appear to be necessary ingredients in any recovery program and are especially important in view of the significance of the forest products industry in some of the hardest hit countries of the region such as Indonesia, Malaysia, and the Philippines.

In fact, the opportunity side of this particular crisis may be that it diminishes the perceived economic risk for these countries in eliminating tariff and other trade barriers. The sharp devaluation of their currencies has made producers in these countries hyper competitive. There may be no better time to eliminate tariff barriers than the present.

Indeed, the U.S. can ill afford any delay in opening these markets. Economists are agreed in their predictions of substantially increased exports from Asian countries to the U.S. But the U.S. cannot afford to stand alone as the market of first and last resort for the Asian export machine. Particular pressure must be put on Japan, as the premier developed country in the region, to open its markets to regional suppliers. Korea, Taiwan and even China have a role to play as well.

The U.S. forest products industry has consistently supported U.S. policies designed to open world markets. During the 1980's, we initiated the zero-for-zero concept, offering to completely eliminate U.S. tariffs on our products. This past year, we worked closely with the Congress to obtain fast track authority which would have made new trade initiatives possible.

We believe that open markets must be the hallmark of Asian recovery. We urge this Committee to ensure that the U.S., and the multilateral institutions which we support, place greater emphasis on market opening measures, and the APEC sectoral initiatives in particular, as critical elements in achieving long term stable growth in this important region.

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