Nematode Pine Ban by EC (NEMATODE)



          CASE NUMBER:          50 
          CASE MNEMONIC:      NEMATODE
          CASE NAME:          Nematode Trade Dispute

A.        IDENTIFICATION
1.        The Issue
     In 1990, the European Community (EC) imposed a ban on the
importation of untreated, green (or raw) softwood lumber.  The ban
was a means to avoid the inadvertent importation of the pinewood
nematode into Europe, thus preventing destructive affects on the
environment.  Until recently, both the United States and Canada
possessed a derogation to this ban, therefore allowing the export
of Canadian and U.S. softwood to continue, provided that special
certifications of inspection and debarking standards were met. 
This derogation was scheduled to formally end on October 1, 1993. 
The EC, however, imposed the ban on Canada which became effective
on August 15, 1993, sparking Canadians to call for trade
retaliation.
2.        Description
     In 1983 Finland announced that it had discovered nematodes in
a shipment of wood chips from North America.  Since the nematode
is indigenous only to North America (the United States and Canada),
Korea, Taiwan, and Japan, both Finland and the EC was alarmed by
the possibility that this destructive microscopic organism could be
imported in green softwood lumber and other wood products. 
Europe's historical experience with Dutch Elm disease and the
documentation of the nematode's role in the "severe destruction of
Japanese forests" swiftly prompted the EC to take action against
the nematode in order to protect European forests.
     From the very beginning, Canada, a major softwood timber
exporting country, challenged the measure.  The kiln-drying
requirement of the EC's ban has been labelled as a non-tariff
barrier by the Canadian timber industry, since this process "...
would add an estimated $72 million to the operating costs of lumber
mills," thus raising the cost of Canadian lumber and eroding
Canadian competitiveness with respect to the Scandinavian lumber
industry.  In addition, there is concern that the drying process
simply makes the wood unsuitable for certain uses, since the
removal of moisture makes the wood less pliable.
     Canada also has been at the forefront of scientific research
to determine the actual risk of nematode transmission.  In fact,
Canada has argued that the EC's measure against green softwood
imports is overly harsh and simply unfair, since 99.9 percent of
green lumber is free of the pinewood nematode insect.  New time
and cost effective ways to inspect the wood to ensure that the
nematode is eliminated have also been investigated.  Furthermore,
Canada has argued that, although pine and other related species (40
percent of its timber exports) are subject to nematode infestation,
other varieties of softwood are not.  For example, in the case of
hemlock and cedar, these softwood species should not be subjected
to this ban, since a visual inspection should be a sufficient
precaution.
     Despite Canadian efforts, the EC implemented a ban in 1990,
"on the import of all green lumber that does not go through a kiln-
drying process, which is considered by the Community as the only
means to ensure the destruction of...the pinewood nematode that
lives off the bark of lumber."  Since the ban, the United States
and Canada have continued exporting, without adhering to the kiln-
drying standards.  This was possible by agreeing "...to a special
certification process to guarantee that their lumber is nematode-
free, through debarking lumber exported to the EC."  After years
of negotiations and extensions, these derogations were finally
scheduled to end as of October 1, 1993.
     Canada, however, was outraged by the EC's decision to
implement the ban on Canada, effective August 15, 1993, in response
to the discovery of several sawyer beetles (the host insect to the
nematode) in two shipments of timber to the United Kingdom from
Canada.  Although the years of being allowed a derogation
provided the opportunity to invest in kiln-drying technology and
search for alternative markets, Canada still felt that it was being
unfairly singled out by the EC.  The added costs necessary in order
to circumvent this ban are predicted to hit Canada unevenly.  The
already suffering Atlantic provinces would be the hardest hit,
while British Columbia (a wealthier province) either would absorb
the new drying costs or shift its attention to U.S. and Asian
markets.  Amid this frustration, Canadians, including the Forests
Minister of British Colombia, have called for trade retaliation in
the form of removing French and German wines from stores.  The
EC's enforcement of its raw softwood timber ban effects a $1
billion market.
3.        Related Cases
	HAWAII case

     Keyword Clusters         
     (1): Trade Product            = WOOD
     (2): Bio-geography            = TEMPerate
     (3): Environmental Problem    = DEFORestation
4.        Draft Author:  Christina M. Patterson
B.        LEGAL Filters
5.        Discourse and Status:  DISagreement and COMPlete
     Canada and the United States disagree with the EC ban on
importation of untreated or green softwood.  The ban has been
implemented without derogations, effective October 1, 1993, but
Canada continues to object to the provision.
6.        Forum and Scope:  EURCOM and REGION
     Since 1990, the EC has adhered to an import ban, as well as
regulations, requiring softwood timber (from areas in which the
nematode is indigenous) to be kiln-dried as a precaution against
transporting the pinewood nematode to Europe.  Although the United
States and Canada have previously held derogations, they expired as
of October 1, 1993.
     The ban on untreated or green softwood lumber began as an
informal multilateral agreement among the EC's twelve member
states.  Even though the United States and Canada held derogations,
Ireland and Denmark chose not to accept the special certification
procedure in exchange for kiln-dried lumber.  By 1993, however,
harmonization of standards within the Community became a priority
and the responsibility for the implementation of this measure fell
upon the EC.
7.        Decision Breadth:  14 (EURCOM, USA, and Canada)
8.        Legal Standing:  TREATY
     Although each member state originally held jurisdiction over
the implementation of this law, as of 1993 the EC Commission has
ultimate authority.
C.             GEOGRAPHIC Filters
9.        Geographic Locations
     a.   Geographic Domain :  North America [NAMER]
     b.   Geographic Site   :  West North America [WNAMER]
     c.   Geographic Impact :  European Community [EURCOM]
10.       Sub-National Factors:  NO
11.       Type of Habitat:  TEMPerate
D.        TRADE Filters
12.       Type of Measure:  Import Standard [IMSTD]
     The EC has not completely banned the importation of softwood
lumber, but rather restricted imports by declaring that softwood
from areas known to possess the nematode must be kiln-dried in
order to eliminate any nematodes (see APPLE case).
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  DEFORestation 
15.       Trade Product Identification:  WOOD
     The product type is raw wood.  Since North America possesses
the two key components connected to this ban, softwood timber and
pinewood nematodes, both the United States and Canada stand to lose
from the EC's ban or new import standards.  "Canada exports some
$700 million in lumber to the EC each year while the United States
exports only $170 million."  Therefore, the United States and
Canada, in particular, stand to lose these exports, if unable or
unwilling to make the adjustments necessary to adhere to the
specifications of the EC's ban, or if the costs of drying the wood
raise the price so it's no longer competitive (see USCANADA case).
16.       Economic Data
     Although Canada traditionally exports $700 million annually in
softwood lumber to the EC, in 1993 the value of these Canadian
exports to the EC have declined to $250 million as the timber
industry has sought alternative markets in light of the pending
ban.  Despite this decrease, the EC continued to be Canada's
third largest export market.  The impact of the ban will be felt
differently across the Canadian provinces, because the lumber
industry in British Columbia (B.C.) is diversified geographically
in its lumber export markets. "Last year the B.C. forest industry
sent 15% of its lumber shipments to Japan and only 6% to Europe.
But Atlantic Canada companies export 60 percent of untreated lumber
shipments to Britain [let alone the rest of the EC] and many do not
have the equipment [or money] needed to comply with the new
rules."
     Another interesting economic indicator is price.  In 1992 the
timber industry witnessed a 4.2 percent rise in revenues mostly due
to an increase in lumber prices which went from $187 per thousand
board feet in 1991 to $235 in 1992.  Although some fear exists that
lumber prices will decline if lumber is diverted from the EC to the
United States, none are sure of the price competitiveness of
Canadian kiln-dried timber in the European market.  Even the
Canadian proposal of heat treating the wood, as opposed to kiln-
drying it, is expected to increase production costs by 8 to 15
percent.  The kiln-drying method is considered more expensive and
thus prices Canadian softwood lumber out of the EC market.  In
fact, the Scandinavian timber industry has long argued for the
implementation of the EC's ban, since it will help eliminate
competitors.  Sweden, which exports at least 80 percent of its
lumber to the EC, welcomes the ban on green lumber from Canada,
since it would allow for further expansion of Swedish timber
exports (which are cheaper since they do not have to adhere to
nematode standards) in the EC market.  Some suggest that the
impending European Economic Area (EEA) between the EC and the
European Free Trade Association (EFTA) has been an incentive for
the EC to implement its ban as a protectionist measure to the
benefit of its new EFTA partners.
17.       Impact of Measure on Trade Competitiveness: BAN
     The economic cost of the EC's ban on untreated softwood timber
could be looked at in several ways.  If considered a complete ban,
then the cost could be the value of Canadian and U.S. softwood
exports to the EC which have been listed at $700 million and $170
million, respectively.  In addition, other costs could be needed to
circumvent the import ban and regain access to the EC market. 
Canada has estimated that purchasing the kiln facilities would
initially cost $500,000 and add approximately $72 million to the
production costs of lumber mills.  Canada has a dependence on
wood for approximately 40 percent of its exports and therefore the
coverage of the EC's ban would seem likely to be anywhere from 25-
40 percent.
     The price effect of the measure is based on the Canadian
proposed heat method, which is thought to be more time and cost
effective, and increases production costs by 8-15 percent.  In
comparison, the EC mandated kiln-drying method could increase costs
from anywhere between 16 and 40 percent.
18.       Industry Sector:  WOOD
19.       Exporter and Importer:  CANADA and EURCOM
E.        ENVIRONMENT Filters
20.       Environmental Problem Type:  DEFORestation
     In an indirect way the EC's ban on untreated softwood timber
is related to deforestation.  The EC is not concerned about general
deforestation effects of the lumber industry, but rather the impact
of the pinewood nematode on European forests. 
21.       Name, Type, and Diversity of Species 
     Name:          Softwoods
     Type:          Plant/Angiospermae/Dicot
     Diversity:     544 higher plants per 10,000 km/sq (Norway)
     Softwood timber encompasses cedar, hemlock, pine and other
related species.  Although the EC's ban affects all softwood
timber, the Canadians argue that the pinewood nematode is really
only a danger to the pine and some of its related species.  Any
plant and animal life dependent upon softwood timber and forests
would also be affected.
22.       Impact and Effect:  LOW and REGULatory
     The resource impact is difficult to determine.  On the one
hand, Japan experienced a similar infestation and this case
illustrated the speed at which the pinewood nematode can decimate
large areas of forest.  Canada does not seem to view the nematode
as a vital threat.  Some even argue that the threat is even further
diminished by the fact that the nematode is not indigenous to
Europe and, indeed, may not even be able to survive or sustain
itself on that continent.
23.       Urgency and Lifetime:  LONG and 20-40 years
     Having experienced the problem of forests being weakened by
the impact of acid rain, it is understandable that Europeans may be
alarmed by the accounts of a microscopic organism's destructive
capabilities to large tracks of softwood timber forests.
24.       Substitutes:  RECYCling
VI.       OTHER Factors
25.       Culture:  NO
26.       Trans-Border:  YES
     The problem is in both the United States and Canada.
27.       Rights:  NO
28.       Relevant Literature
"British Columbia Softwood Lumber Industry Explores New Method to
     Fight EC Export Ban."  International Trade Reporter (BNA,
     September 1, 1993).
"Business in Brief."  Calgary Herald (July 14, 1993).  C4.
"Canada: Canadian Lumber Faces EC Ban."  Euromoney Trade Finance
     and Banker International (Reuter Textline, January 28,
     1992).
"Canada Unhappy with EC Softwood Lumber Ban."  The Reuter
     Business Report (July 13, 1993).
"Canada, U.S. Hope to Defuse Conflict with EC over Green Wood 
     Lumber Limits."  International Trade Reporter (BNA,
     August 12, 1992).
"Canadian Lumber Still in EC Limbo."  The Gazette (Montreal)
     (July 2, 1993): C9.
"EC Ban on Canadian Softwood Lumber Does Not Affect US Exports, 
     EC Says."  International Trade Reporter (BNA, July 21,
     1993).
"EC Panel Agrees to Extend Authorization to Import Green Lumber
     From U.S., Canada."  International Trade Reporter (BNA,
     January 1, 1992).
"EC Panel Delays Decision on Authorizing Green Lumber Imports 
     from U.S., Canada."  International Trade Reporter (BNA,
     November 27, 1991).
Francis, Diane.  "Time to Storm Fortress Europe."  The Financial
     Post (August 10, 1992): S3.
Geddes, John.  "Ottawa Hopes for Overturn of EC Lumber Ban."  The
     Financial Post (July 1, 1993): 5.
Hamilton, Gordon.  "EC Bugaboo over Green Softwood has Last Ship
     En Route: Lumber Ban is Effective on August 15."  The
     Vancouver Sun (July 6, 1993): D5.
Hamilton, Gordon. "Pull European Wines from B.C. Stores,
     Miller Says." The Vancouver Sun (June 30, 1993): C1.
Hamilton, Gordon and Kim Bolan.  "Europeans Impose Ban on B.C. 
     Green Timber."  The Vancouver Sun (June 29, 1993): A9.
Hogben, David.  "Canada Wants to Heat-Blast Bugs to Continue
     Green Lumber Exports: Pasteurization Cheaper than Kiln-
     Dry Option."  The Vancouver Sun (October 10, 1992): C7.
Kennedy, Peter.  "Atlantic Mills Fear Results of EC Lumber Ban." 
     The Financial Post (July 17, 1993): 6.
"Lumber Industry Obtains Four-Month Extension for Non-Pine Timber
     Exports to Europe."  Canadian Newswire (June 1, 1993).
"Miller Certain EC Plan is to Ban Our Timber: Canadian, British
     Officials Deny Move Set."  The Vancouver Sun (July 2,
     1993): D3.
Parfitt, Ben.  "Lytton Counters Threat of Green Lumber Ban with 
     New Product Line."  The Vancouver Sun (March 24, 1992):
     D9.
Parfitt, Ben.  "EC Green Lumber Ban Waived for a Year."
     The Vancouver Sun (December 17, 1991): D4.
Purnell, Sonia.  "Nematodes in the Hole Threaten Pine Imports:
     The EC and Canada at Loggerheads over the Threat to
     European Trees of Disease Spread by Parasitic Worms." The
     Daily Telegraph (April 3, 1993): 29.
Schreiner, John.  "New War on Canadian Lumber: Foreign Consumers
     Will Pay High Price for Trade Barriers."  The Financial
     Post (November 26, 1991): 14.
Simon, Benard.  "Canada Accuses EC over Lumber Ban."  Financial
     Times (July 13, 1993): 26.
"Swedish Firms Cheer EC Ban on Canadian Lumber."  The Reuter
     European Community Report (July 14, 1993).
"U.S. Softwood Lumber Exports at Risk from Proposed Kiln-Drying
     Requirement."  International Trade Reporter (BNA, April
     11, 1990).


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