Effects of the Free Trade Area of the Americas on Forest Resources

By Turner, James A.; Buongiorno, Joseph et al. | Agricultural and Resource Economics Review, April 2005 | Go to article overview

Effects of the Free Trade Area of the Americas on Forest Resources


Turner, James A., Buongiorno, Joseph, Zhu, Shushuai, Agricultural and Resource Economics Review


The effects of the Free Trade Area of the Americas (FTAA) agreement on the forest sectors and resources of member countries are investigated. A model of wood supply within the spatial partial-equilibrium Global Forest Products Model is developed to link international trade and deforestation. The direct effects of tariff changes and the indirect effects of income changes induced by trade liberalization are considered. The FTAA has a small positive impact on the region's forest resources. Higher harvests of industrial roundwood in most countries are offset by increased afforestation due to the income effect of trade liberalization (captured by the environmental Kuznets curve).

Key Words: trade liberalization, international trade, forest resources, forest sector trade model

Deforestation, particularly in the tropics, is of considerable importance with regards to the health of the global environment. The global forest area decreased between 1990 and 2000 by 9.4 million hectares per year, the result of 14.6 million hectares per year of deforestation, and 5.2 million hectares per year of afforestation (Food and Agriculture Organization [FAO] 2001a). The cumulative net loss during the 1990s was four times the area of Michigan. Environmental problems associated with deforestation include increased erosion, decreases in the global carbon sink, and loss of biodiversity (Nordstrom and Vaughan 1999).

Concerns about the role of freer trade in deforestation have been raised during negotiations of the Free Trade Area of the Americas (FTAA) agreement (American Lands Alliance 2001). Ratification and implementation of the agreement is set for December 31, 2005, with obligations likely to be phased in over a decade or more (Schott and Hufbauer 1999). For agricultural and forest products, tariff and non-tariff barriers will be progressively reduced, and agricultural export subsidies eliminated (Burfisher and Link 2000). The agreement will also reconcile current sub-regional trade pacts.

There are over 40 regional trade agreements (RTAs) already in force in the Americas, and more than a dozen under negotiation (Stout and Ugaz-Pereda 1998, U.S. International Trade Commission 1999, O'Keefe 2002). Significant existing RTAs are the Andean Community (Colombia, Ecuador, Bolivia, Peru, Venezuela), the Caribbean Community (Antigua, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St. Kitts-Nevis, St. Lucia, St. Vincent, Suriname), the Central American Integration System (Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador, Panama), the Southern Common Market (MERCOSUR) (Brazil, Argentina, Uruguay, Paraguay), and the North American Free Trade Agreement (Mexico, Canada, and the United States). The large number of RTAs in effect in the Americas means that tariffs on forest products in the Americas are relatively low (Table 1).

Diao, Somwaru, and Raney (1998), U.S. Department of Agriculture (1998), Diao, Diaz-Bonilla, and Robinson (2003), and Mattson and Koo (2003) have investigated the potential impact of the FTAA on member country agriculture sectors, and their economies in general. These studies suggest that the FTAA will benefit all member countries in terms of increased incomes and trade. With the exception of Mattson and Koo (2003), these studies consider the benefits of technological spillovers and economies of scale from trade liberalization. The largest gains were predicted for developing countries, which are more likely to capture technological spillovers embodied in trade and capital flows from Canada and the United States (Diao, Somwaru, and Raney 1998). While there has been considerable work analyzing the potential impact of the FTAA on the agriculture sector, the impact on the forest industry and forest resources remains unknown.

Whether or not trade liberalization under the FTAA will increase or decrease forest resources depends on the net impact of three conflicting environmental effects of freer trade: composition, scale, and technique (Fredriksson 1998, Nordstrom and Vaughan 1999).

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