Effects of a Unilateral Tariff Liberalisation on Forestry Products and Trade in Australia: An Economic Analysis Using the GTAP Model

Abstract

Australia has 147.4 million hectares of native forest areas which includes 48.4 million hectares of closed forest and open forest (Bureau of Rural Sciences [BRS], 2010). Some 103 million hectares of native forest areas are either privately owned or leasehold while the balance is multiple use forest (9.4 million hectares), conservation reserves (22.4 million hectares) or other categories of public ownership (12.4 million hectares). Negotiations on trade liberalisation and bilateral agreements between countries and regions suggest that further tariff reductions are inevitable. ... The chapter attempts to verify the findings of previous studies (Gan & Ganguli, 2003; Liu et al., 2005; Sedjo & Simpson, 1999). These studies suggest that further reductions in tariffs on forest products are likely to generate only very modest increases in worldwide trade and production. Moreover, the increased harvest pressures on forests due to tariff reduction should be small (Sedjo & Simpson, 1999). At present, the paper does not explicitly model land use or carbon sequestration. Sohngen et al. (2008) highlight the challenges to computable general equilibrium (CGE) modellers in capturing the full range of potential inter-relationships of the forestry sector to the rest of the economy such as land use changes, carbon sequestration and climate policy. Unlike previous studies, this paper highlights the Australian forestry industry as well as the emerging regions in forestry trade such as the Russian Federation and sub-Saharan Africa. The chapter aims to examine the economic and potential environmental effects of tariff liberalisation on forest products and merchandise trade in Australia using the global trade analysis project (GTAP) general equilibrium modelling framework. The chapter is organised as follows: Section 2 provides recent developments in trade of Australian forestry products. It also highlights Australia's trading partners and the leading countries in merchandise trade. Section 3 describes the theoretical framework employed in this study. Section 4 discusses the model simulations while Section 5 summarises the results.