The United States is the world's largest producer and importer of forest products and the second largest exporter after Canada. However, U.S. forest products producers face increased competition in foreign markets from Brazil, Chile, Finland, Indonesia, and Sweden, among others, reports the U.S. International Trade Commission (ITC) in its publication Conditions of Competition in U.S. Forest Products Trade.

The ITC, an independent, nonpartisan, factfinding federal agency, recently completed the report for the U.S. Senate Committee on Finance. As requested, the ITC reported on the competitive factors affecting the U.S. forest products industry, foreign markets for forest products, and competition from other important forest products producing countries. Following are highlights of the report:

• During 1994-98, the value of U.S. forest products exports increased by 5 percent. Forest products exports peaked at $23.3 billion in 1995, and then declined by 16 percent to $19.5 billion by 1998. Canada, Japan, and Mexico were the principal export markets, accounting for 52 percent of U.S. exports in 1998.

• U.S. forest products exports to Japan have been declining since 1995 and reached a 10- year low in 1998; they were down by 35 percent during 1994-98. U.S. exports of forest products to Japan decreased by 27 percent in 1998 when compared with 1997. Japan was the largest market for U.S. forest products exports until 1997, when it fell to second behind Canada. U.S. exports to Canada increased by 37 percent between 1994 and 1998.

• The value of U.S. imports of forest products reached $28.6 billion in 1998, an increase of 33 percent over 1994-98, the period covered by the report. Canada, by far the most significant supplier, accounted for over 70 percent of 1998 imports. The next largest suppliers, Mexico, China, Brazil, and Finland, each accounted for about 3 percent of U.S. imports.

• Malaysia and Indonesia have utilized their significant forest resources to develop sizeable forest products industries. Indonesia and Malaysia are both net exporters of forest products. Indonesia is a large exporter of plywood, pulp, and paper, and Malaysia is a large exporter of logs, lumber, and plywood.

• The Asian economic crisis that began in mid-1997 reduced demand for forest products in most Asian countries during 1998. Forest products producers in the region struggled in an environment of falling output and prices.

• Indonesia and Malaysia are two forest products producer nations that experienced sharp currency devaluations relative to the U.S. dollar after mid-1997. The devaluations of Indonesian and Malaysian currencies relative to the U.S. dollar may have diverted world import demand from U.S. forest products toward Indonesian and Malaysian products, insofar as the devaluation's effects on imported input prices did not cut into production levels.

• Trade and industry sources in Europe have indicated that increased quantities of forest products, especially pulp and certain papers, have been entering Europe from Indonesia and Malaysia in 1998-99. These trade and industry sources generally attributed the increase in imports to the Asian financial crisis and the resulting decline in Asian demand, as products that would normally have been sold in Asia (especially Japan) were instead sold in Europe.

• Tariffs on imports of raw materials (logs, wood chips, and pulp) are free or low in most countries, but increase on value-added products. Tariffs on wood and wood products are generally higher than those for paper and paper products. Tariffs on wood panels are among the highest, ranging from 5 percent to 20 percent.

• As forest product tariffs have been reduced, nontariff barriers have become more prevalent. Types of nontariff barriers identified include regulatory restrictions (product standards), certification programs (nongovernment product standards), government intervention (forestland ownership and industry assistance programs), and export restrictions (taxes, quotas, bans).

Conditions of Competition in U.S. Forest Products Trade (Inv. No. 332-400, USITC Publication 3246, October 1999) will be available on the ITC's Internet server at www.usitc.gov. A printed copy may be requested by calling 202-205-1809 or by writing the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Requests may be faxed to 202-205-2104.