Malaysian Raw Wood Export Ban (MALAY)

          CASE NUMBER:          44 
          CASE MNEMONIC:      MALAY
          CASE NAME:          Malaysian Raw Wood Export Ban

1.        The Issue
     Forestry is one of Malaysia's most rapidly growing economic
sectors.  Malaysia is the largest exporter of tropical wood in the
world, accounting for 70 percent of the world's supply of raw-logs.
Sabah and Sarawak, the two Malaysian states on the island of
Borneo, occupy some of the oldest and the most diverse rain forest
in the world.  This forest provides most of Malaysia's exports of
tropical logs.  The increase in large-scale exploitation of
Sarawak's rain forest was largely due to the entry of Japanese
buyers.  A 1990 report by the Yokohama-based International Timber
Trade Organization (ITTO) predicted that the majority of Sarawak's
forests would be gone by 1995 and therefore would be a major wood
importer by 2001.  Consequently, the Malaysian Federal Government
will cut log exports drastically in 1995 and convert the demand to
sawn wood products.
2.        Description
     From 1962 onwards, logging operations in Malaysia steadily
increased, largely due to the entry of Japanese buyers.  Although
more than half of the rain forests on earth have disappeared in the
last fifty years, logging has hit Sarawak so rapidly and with such
drastic consequences that many environmentalists consider it to be
an urgent problem.  Since many countries in south east Asia such as
Indonesia and Thailand reacted to the Japanese logging by enacting
restrictions.  Malaysia and, in particular, Sarawak proved
accommodating hosts for the Japanese importers.  Despite several
measures taken by the Malaysian Federal Government, such as the
intention to totally cut the exports of logs from Sarawak by 1995,
the Sarawak and Sabah state governments maintain a high level of
autonomy in their logging policy (as in the oil industry).  The
constitution of Malaysia grants the legislative and executive
authority over resources to the states.  The role of the federal
government is mainly confined to research and development,
maintenance of experimental forest industries development and
technical assistance to the states.  
     The aim of the federal government is to increase exports of
sawn wood instead of raw logs, to generate increased profit and to
reduce the need to export raw logs.  This will be difficult to
achieve because of resistance by the Sarawak and Sabah state
governments.  The two eastern states fear that foreign investment
in processing industries and financial compensation from Kuala
Lumpur may not be enough to cover a decline in log-export revenues.

Moreover, the two states enjoy a certain level of independence,
both financially and politically, from the federal government. 
(This is also true in other federal republics such as Germany,
Canada, and the United States.  See some of their case studies.) 
In addition to the fear that financial compensation from Kuala
Lumpur may not be enough to cover a decline in log export revenues,
politicians and the wealthy timber merchants of Sarawak do not wish
to lose revenues and benefits.  
     A complex and uneasy alliance between two groups has been
mainly responsible for the huge amounts of deforestation which
Malaysia has suffered over the last several decades.  The first
group consists of Chinese business interests.  The second is the
state bureaucracy, mostly Malay.  Most of the concessionaires are
Sabah and Sarawak politicans who receive substantial "fees" for
logging contracts (there is speculation that $20 million is needed
to gain a single contract is not unusual).  These concession
holders are given little reason to care whether or not productivity
is maintained for future harvests.  In December, 1992, the federal
government imposed a temporary freeze on raw-log exports from
Sabah.  At the time, the opposition United Sabah Party that
controls the state government cried foul.  Officials in the Sabah
government, which derives more than half its annual revenue
(Malaysian Ringgits of 1.3 billion or $507 million) from timber-
export royalties, suspected that the federal government was trying
to undermine the state's finances because of political differences.
     Another major source of Sabah and Sarawak's high rate logging
is the voracious Japanese appetite for tropical hardwood which has
turned Sabah and Sarawak into something resembling a Japanese
plantation.  In 1990, Japanese imports of Sarawak's logs jumped by
20 percent and represented 53 percent of Japan's total tropical-log
import volume.  The Japanese, the leading importers of raw-logs,
use the wood mainly in the construction industries.  Over 75
percent of the tropical hardwood coming into Japan ends up as
plywood, primarily as disposable forms for molding concrete. 
Large Japanese trading companies are involved in all stages of
exploitation, as partners and financiers of logging
concessionaires, and as importers and processors.  Why would Japan
use this wood for such a lowly purpose as construction's plywood
that quickly winds up on the scrap heap?  The answer is "price". 
In defiance of logic, it costs less to cut down a tree in Sarawak
and process it into plywood than to make plywood from an inferior
softwood tree growing in Japan.  Part of the explanations stem from
the scarcity of Japanese forest and labor.  European countries also
import Malay hardwood, but these operations are being curtailed
(see DUTCHWD case).
     Apart from the destruction of a valuable natural resource and
the extinction of countless plants and animal species, the high
rate logging in the two Malaysian states has led to negative
impacts on many native people.  Most adversely affected are the
10,000 Penan people who live in the forest.  The Penan are nomads
or semi-nomads and have been in the forefront of an immense battle
to defend the forest.  They have set up barricades on the roads and
the trails that lead into the forest.  With the state government's
opposition, their action has not managed to stop logging in any
significant way.  However, it has made the world aware of the human
as well as ecological problem.
     In addition to the internal problems mentioned above, another
issue lies in the international economic system; the push for free
trade in the GATT.  The Malaysian federal government contends that
in order to save the rain forests, strong regulation is required. 
This is in juxtaposition to trends in trade where barriers are
being lowered.  The two trends, between free trade and
environmental protection, are contradictory. 
3.        Related Cases
     Keyword Clusters         
     (1): Trade Product            = WOOD
     (2): Bio-geography            = TROPical
     (3): Environmental Problem    = DEFORestation
4.        Draft Author:  Nik Balanakura
B.        LEGAL Filters
5.        Discourse and Status:  AGReement and INPROGress
     An export ban by the Malaysian Federal Government has been
enacted but not fully adopted by the two state governments. 
6.        Forum and Scope:  MALAYsia and UNILATeral
7.        Decision Breadth:  1 (Malaysia)
8.        Legal Standing:  LAW
C.        GEOGRAPHIC Filters
9.        Geographic Locations
     a.   Geographic Domain : ASIA
     b.   Geographic Site   : Eastern Asia [EASIA]
     c.   Geographic Impact : MALAYsia
10.       Sub-National Factors:  YES
     This is essentially a state rather than a federal issue
because of the construction of the Malaysian constitution.  Sabah
and Sararawk have considerable leeway in setting policy and, along
with substantial oil earnings, are responsible for a large portion
of the country's foreign exchange income.
11.       Type of Habitat:  TROPical
D.        TRADE Filters
12.       Type of Measure:  Export Ban [EXBAN]
13.       Direct vs. Indirect Impacts:  DIRect
14.       Relation of Measure to Environmental Impact
     a.  Directly Related     : YES  WOOD
     b.  Indirectly Related   : NO
     c.  Not Related          : NO
     d.  Process Related      : YES  DEFORestaion
15.       Trade Product Identification:  WOOD
     Malaysia exported $1.7 billion of wood products in 1989 and
timber was Malaysia's largest export to Japan, accounting for 33.6
percent of Japan's total wood exports in 1990 (see AUSTRIA case).
16.       Economic Data
     1.  The Malaysian log export ban will result in an
     estimated loss of revenue of approximately $400 million.
     2. Japan is the two Malaysian states' biggest importer,
     accounting for over 60 percent of their log exports.
     3.  In the first eight months of 1990, the drop in log
     exports from Malaysia enlarged the nation's trade deficit
     with Japan, which totaled $1.6 billion.
     4.  At the end of March 1989, Japan's investment in wood
     and pulp industries in Asia amounted to $247 million or
     2 percent of Japan's total manufacturing investment in
     the region.
     5.  In 1990, Sabah and Sarawak supplied 90 percent of
     Japan's tropical timber and 35 percent of Japan's total
     log imports.
     6.  Japan's investment in the wood related industries in
     Malaysia accounts for less than 5 percent of Japan's
     total investment in the country.
     7.  Japan's import of tropical timber has remained steady
     at 11-13 million cubic meters in recent years and the
     government predicted that national demand would reach 100
     million cubic meters by 1994. 
17.       Impact of Measure on Trade Competitiveness:  BAN
18.       Industry Sector:  WOOD
19.       Exporter and Importer:  MALAYsia and JAPAN
E.        ENVIRONMENT Filters
20.       Environmental Problem Type:  DEFORestation
     This is primarily a problem of deforestation but other
problems are also evident.  The inefficient logging practices and
the careless use of equipment leads to the erosion of the soil and
the pollution of the river system.  Logging also contributes to
global warming because deforestation accounts for between 7 percent
and 31 percent of global CO2 emissions which in turn prohibits the
escape of infrared radiation, heating the planet.
21.       Name, Type, and Diversity of Species 
     Name:          Tropical Hardwoods
     Type:          Plant/Angiospermae/Dicots
     Diversity:     4,890 higher plants per
                    10,000 km/s (Malaysia)
22.       Resource Impact and Effect:  HIGH and SCALE
23.       Urgency and Lifetime:  LONG and 100s of years
     In 1993, only 20 percent of Sabah and Sarawak's virgin forest
remained.  If the logging continues, both states will be logged out
by the year 1995 and will need to become log importers. 
24.       Substitutes: RECYCling and LIKE products
VI.       OTHER Factors
25.       Culture:  YES
     The Penan are a forest people and the forest contains many
important cultural attributes for them.
26.       Trans-Border:  NO
     This is really a problem on the entire island of Borneo.
27.       Rights:  YES
     The Penan people have protested logging for human rights
reasons -- losing the valuable forest resources with little or no
28.       Relevant Literature
"Deforestation in The Topics."  Scientific American (April 11, 
"Environmental Activism in Tropical Asia" The Futurist
     (March-April, 1992): 53-54.
FAO Yearbook 1988: Forest Products.  Rome: FAO/United Nations, 
"Fighting To Save Rainforest and the World Environment."  Los
     Angeles Times (July 29, 1990).
"International Conference on Forest Biology and Conservation in
     Borneo."  Kota Kinabalu, Malaysia, July 30, 1990.
"Logging the Rain Forest," The New Yorker 67 (May 27, 1991):
"Malaysia Leads Fight on Timber-Import Bans."  World Wood 
     (February 1993).
"Our Vanishing Forests...It's not Just the Amazon."  World Press
     Review 36 (October 1989): 40-41.
"Proceedings of Seminar on the Future Role of Forest in the
     National Economy of Sabah, Malaysia."  December 4, 1987.
"Proceedings Seminar on Forest Plantation Development in 
     Malaysia."  July 9, 1984.
"Sabah Timber-Export Ban Riles Kuala Lumpur."  Far Eastern
     Economic Review (June 3, 1993): 66-67.  
"Statistics of Timber Products."  State of Sarawak, Kota
     Kinabalu, Malaysia. 
"The Promotion of Sustainable Forest Management: A Case Study in
     Sarawak, Malaysia."  Report Submitted to The
     International Tropical Timber Council.  May 16, 1990.
"Tropical Heat."  The Economist (February 15, 1992): 3-4.
"Wood for the Trees."  Far Eastern Economic Review
     (June 6, 1991): 57-58.


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