International trade is no longer solely an issue for economists.  

As nations become more integrated in a global market, there is a growing 

consensus that trade has a powerful effect on all areas of society and 

the environment.  Recent developments in the international political 

arena have only just started to take into account the environmental 

ramifications of trade policies.    

        Although international trade by itself is not a direct cause for 

environmental degradation, it can profoundly affect patterns of natural 

resource consumption.  In the case of Indonesia and Malaysia, the 

tropical timber trade has been an influential factor in determining how 

these countries manage their forests.  Not only are the forests being 

logged for international interests, but the process of logging opens the 

way for other factors causing forest depletion and environmental 

degradation in Indonesia and Malaysia.

The Importance of Tropical Forests

        The tropical forests in the Indo-Malaysian region contain some of 

the world's highest levels of biological diversity.  Indonesia alone is 

estimated to contain 25 percent of the world's fish species, 17 percent 

of the bird species, 16 percent of the reptile and amphibian species, 12 

percent of the mammal species, and 10 percent of the flowering plant 

species (Ministry of Forestry, 1993).  Consequently, there is a strong 

global environmental movement to protect the forests and maintain the 

ecological systems that support these diverse life forms.  There is also 

a growing concern that tropical forests should be preserved because they 

act as natural consumers of carbon dioxide and help prevent global 

warming.  At the local level, the forests play other important roles in 

preventing soil erosion, protecting watersheds, and maintaining 

micro-climatic conditions.

        Economically, the Indo-Malaysian region contains an especially 

valuable source of tropical timber from the dipterocarp tree species.  

The dipterocarp produce hardwood with a high commercial value, and the 

trees grow tall and straight making them easy to cut into long durable 

planks.  The forests in Indonesia and Malaysia contain high percentages 

of the dipterocarp trees.   

The Dynamics between Commercial Logging and The Forests

        The demand for timber on the international trade market provides 

a direct incentive to log trees for profit.  As a result of logging, 

there is also a high level of secondary damage to the surrounding 

vegetation.  Within any forest there are numerous trees that have no 

commercial value either because they are too small or because they belong 

to unprofitable species.  The potential for the forest to regenerate 

after logging depends heavily on the methods of logging extraction and 

the extent of vegetation left to regenerate itself.  Industrial timber 

companies generally use heavy machinery to take out valuable trees and to 

establish roads for transporting equipment into the remote areas of the 

forests.  A fair amount of vegetation is destroyed just in the process of 

getting the logging equipment to the location of the trees.  Once there, 

companies pay little attention to the felling techniques used to cut the 

trees and as a consequence large trees often fall on and harm the 

surrounding vegetation.  Studies conducted by the International Timber 

and Trade Organization (ITTO) estimate that 60 percent of vegetation not 

directly logged is severely damaged or destroyed as the result of logging 

practices (Collins et al., 1991).

        Another effect of industrial logging practices is to provide 

locals with the means to enter otherwise remote areas of the forests.  

Once the logging companies have left an area, settlers often use the 

roads to go in and stake land which has already been cleared of trees for 

agricultural purposes.  Settlers also clear additional land beyond the 

areas exploited for timber.  Thus, the logging practices can be seen in 

conjunction with agriculture as the first step in permanently removing 

trees in many of these areas which do not have a chance to recover once 

the logging companies have moved on.  

Historical Background

        Before the timber trade, the Southeast Pacific was almost 

completely covered with tropical rainforests.  With few exceptions, the 

large-scale deforestation of Malaysia and Indonesia did not begin until 

the 1960's and early 1970's respectively.  At this time, multinationals 

from the United States, Europe, and Japan invested heavily in this region 

and traded timber back to their home countries.  Initially, the 

governments in both the home and host countries encouraged foreign 

investment in these tropical forests.  As shown in Graph #1 and Graph #2, 

large-scale logging and the export of unprocessed timber (roundwoods) 

rose steeply during the 1960s and 1970s.





        Commercial logging and the timber trade was beginning to provide 

a steady income for Malaysia and Indonesia.  Oil remained the most 

profitable export good, but following the Oil Crisis in 1973 both 

countries started looking for ways to increase their foreign export 

earnings.  Along with utilizing natural gas deposits, these countries 

targeted the timber industry for development.  The governments in 

Indonesia and Malaysia began charging more for the forest concessions 

they gave to logging companies.  In addition, they also increased the 

percentage of domestic firms that received these concessions.  By the 

late 1970s, Indonesia had started to restrict foreign investment to 

promote the growth of their domestic timber industry.  Realizing 

additional profits could be retained by exporting processed timber 

instead of roundwood, Indonesia banned the export of logs in 1980.  This 

resulted in a domestic increase in the production of sawnwood and panel 

forest products (Graph #1).  In response to international pressures, 

Indonesia lifted its ban on raw log exports in 1992 (export data after 

1991 is unavailable).  In Malaysia, the government also attempted to 

restrict log exports by raising tariffs in the 1980s.  However, unlike 

Indonesia, the Sabah and Sarawak regions of Malaysia continued to rely on 

the export of unprocessed timber and the overall roundwood exports in 

Malaysia have steadily increased to the present time (Graph #2).  

Although attempts to restrict log exports were not as successful in 

Malaysia as compared with Indonesia, the Asian bloc of countries 

increased secondary timber production steadily from the 1960s to the 

1990s.  While the percentage of roundwood and sawnwood exports 

fluctuated, the percentage of wood-based panels skyrocketed from 41 

percent in the 1961 to 90 percent in 1990 (Table 1).  

TABLE #1                                                                                                                                  Exports of Timber Products as a Percentage of Production in Tropical  Countries (%)                                                                                                                                                                                                                              1961    1970    1980    1990     All Tropical Countries                                                                   Industrial Roundwood                    15.6    27.1    18.2    11.1             Sawnwood                        15.3    17.3    16.2    12.0             Wood-based Panels                       34.0    33.0    32.5    69.4                                                                      Tropical Africa                                                                  Industrial Roundwood                    23.8    23.3    16.3    9.5              Sawnwood                        32.1    28.5    12.7    12.3             Wood-based Panels                       34.0    33.0    28.6    21.9                                                                      Tropical Central and South America                                                                       Industrial Roundwood                    1.6     1       0.2     0.2              Sawnwood                        14.7    13.6    6.9     3.9              Wood-based Panels                       34.0    33      15.3    19.4                                     1961    1970    1980    1990     Tropical Asia and Oceania                                                                        Industrial Roundwood                    22.2    44.2    33.4    20.4             Sawnwood                        11.9    18.5    24.5    117.5            Wood-based Panels                       40.5    39.9    49.4    89.7                                                                      Source: FAO (1992) in Barbier et al. (1994).

Despite the variations in the unprocessed versus processed timber  exports, the international trade of timber products as a whole has  steadily increased from the 1960s to the present day.          Economics- The Driving Factor         As shown in Map #1, the distribution of tropical rainforests is  found primarily in South America, Africa, India, and Asia.  The regional  view of Indonesia and Malaysia shows that both these countries are  heavily endowed with tropical rainforests.  Following David Ricardo's  basic economic theory of comparative advantage, Indonesia and Malaysia  would be well advised to sell tropical forests (which they have in  abundance) on the international market in exchange for other goods and  services.  Modern economics has since expanded on the theory of  comparative advantage, but there remains an underlying economic incentive  for countries in the tropical areas to trade timber.           While in practice the tropical hardwoods exported from all of the  developing countries only account for 3 percent of the total wood removal  from these countries, in certain areas such as Malaysia, it is estimated  that 68 percent of all wood removal enters into the world trade market  (Collins et al., 1991).  More specifically, of the 25 million cubic  meters (mn cu m) of tropical hardwood logs exported worldwide in 1986, 19  mn cu m came from the Sabah and Sarawak regions of Malaysia; seventy  percent of the world trade in sawn hardwood came from SE Asia; and  Indonesia is now the world's largest tropical plywood producer (Ibid.,  1991).            Another worldwide study compiled by Barbier et al. (1994)  measures the amount of forested land in tropical countries and the  percent of area being deforested annually (see Table 2).  
                                                             TABLE #2                                                                                                         Tropical Forest Resources: Status and Changes in thousands of  hectares                                                                                                                                          Area    % of Area                                         Deforested      Deforested                         Land    Forest Area     Annually        Annually                         Area    1990    1981-90 1981-90 Latin America                                                    Brazil          845,651 347,000 3,200   0.92         Peru            128,000 73,000  300     0.41         Bolivia         108,439 55,500  60      0.11         Venezuela               88,205  42,000  150     0.36         Colombia                103,870 41,400  350     0.85         Guyana          19,685  19,300  3       0.02         Suriname                15,600  15,200  3       0.02         Ecuador         27,684  12,300  60      0.49 Africa                                                   Zaire           226,760 103,800 200     0.19         Congo           34,150  21,100  22      0.10         Gabon           25,767  20,300  15      0.07         Cameroon                46,540  17,100  80      0.47         Central African Republic                62,298  3,600   5       0.14         Equatorial Guinea               2,805   1,200   3       0.25 Asia                                                     Indonesia               181,157 108,600 1,315   1.21         Malaysia                32,855  18,400  255     1.39         Philippines             29,817  6,500   110     1.69                                                                                                   Source: Schmidt (1990) in Barbier et al. (1994).                                                
Asia as a region suffered from the highest rate of deforestation  throughout the 1980s with Indonesia, Malaysia, and the Philippines having  the highest rates per country.  To some extent these percentage  statistics are more meaningful when there is a large total area of  tropical forests in the country.  And indeed, Indonesia is second only to  Brazil with a total of 109 million hectares (mn ha) of rain forests.   Combined with Indonesia's 1.21 percent rate of deforestation this results  in a loss of 1,315,000 ha of rainforests every year (Barbier et al.,  1994).  In order to understand why Indonesia and Malaysia are being so  heavily deforested, it is necessary to look at the importance of forest  products to their national economies.         In 1989, the industrial forest sector in Indonesia and Malaysia  accounted for 3-6 percent of the total gross domestic product, and forest  based exports accounted for between 10 and 16 percent of the total  exchange value of all exports.  In comparison, the industrial forest  sector in most countries with tropical forests was less important and  averaged below 2 percent of the total gross domestic product of these  countries (Barbier, et al., 1994).  An explanation for the heavy logging  in Indonesia and Malaysia is the presence of the valuable dipterocarp  species of tree.  Furthermore, this region has the highest density of  tropical forests in the world (see Map #2), and it is relatively easy for  companies to realize profits and reduce transportation costs when trees  are located close to each other.  Both of these factors combine to make  Indonesia and Malaysia the two leading countries in exports of forestry  goods by a large margin over most other tropical countries, many of whom  are net importers of tropical forest goods (Table 3). 
TABLE #3                                                                


Forestry Products in Selected Countries- Thousands of US Dollars                                                                


                                Imports Exports Net Exports             

Tropical Africa                                                         

        Cameroon                        35,412  99,833  64,421          

        Central African Rep.                    468     29,994  29,526          

        Congo                   4,500   106,087 101,587         

        Ivory Coast                     27,200  236,147 208,947         

        Gabon                   3,655   136,774 133,119         

        Kenya                   23,594  4,054   -19,540         

        Liberia                 1,942   78,264  76,322          

        Madagascar                      8,546   534     -8,012          

        Malawi                  8,085   1993    -6,065          

        Nigeria                 33,083  1,680   -31,403         

        Tanzania                        15,700  1,539   -14,161         

        Zaire                   3,666   17,032  13,366          

        Zimbabwe                        5,765   4,169   -1,596          


Tropical Central and South America                                                              

        Costa Rica                      40,020  21,895  -18,125         

        Cuba                    193,411 1,847   -191,564                

        El Salvador                     21,800  2,725   -19,075         

        Guatemala                       69,410  18,326  -51,084         

        Honduras                        137,921 31,061  -106,860                

        Mexico                  403,605 13,884  -389,721                

        Nicaragua                       10,566  2,569   -7,997          

        Panama                  76,979  3,988   -72,991         

        Bolivia                 4,060   22,160  18,100          

        Brazil                  299,402 1,750,981       1,451,579               

        Columbia                        104,056 20,060  -83,996         

        Ecuador                 157,834 24,373  -133,461                

        Paraguay                        13,055  24,971  11,916          

        Peru                    104,914 2,558   -102,356                


Tropical Asia and Oceania                                                               

        Hong Kong                       1,752,273       705,535 -1,046,738              

        India                   290,967 16,337  -274,630                

        Indonesia                       330,157 3,069,199       2,739,042               

        Laos                    200     10,251  10,051          

        Malaysia                        483,372 3,040,884       2,557,512               

        Myanmar                 4,721   148,084 143,363         

        Philippines                     173,662 123,119 -50,543         

        Singapore                       747,548 663,302 -84,246         

        Thailand                        1,002,371       101,551 -900,820                

        Fiji                    7,804   22,775  14,971          

        Papua New Guinea                        5,504   115,500 109,996         

Source: FAO (1992) in Barbier et al. (1994).

Indonesia is now the leading exporter of processed tropical hardwoods.   In 1992 Indonesia's timber industry was worth 4.6 billion US dollars;  much of this went to directly employing 2.5 mn people in the timber  industry as well as 1.2 mn people in complementary or related businesses  (Ministry of Forestry, 1993).   By 1983, Malaysia accounted for 58% of  the total global export of tropical timber (Cronau, 1993), and in 1988,  timber overtook petroleum as Malaysias main export commodity, valued at  3.6 billion dollars (Davis and Henley, 1990).  Both Indonesia and  Malaysia are prime examples of countries that rely heavily on timber  exports to support their national economies. Exports and Deforestation         The qualitative relationship between exports and deforestation is  captured in Graph # 3.   GRAPH #3   While this only includes roundwoods, there is a strong correlation  between the increase in roundwood exports and the decrease in forested  area from 1961 to 1979.  The notable drop of exports in the early 1980s  corresponds with the sudden ban on raw log exports in Indonesia and, to a  lesser extent, on the higher export tariffs on raw logs in Malaysia.  The  total exports of forestry products, including panel wood and sawnwood,  has continued to increase steadily throughout the 1980s to the present.   Therefore, while the data on exported sawnwood and panel wood is not  available, the relationship between deforestation and exports is very  strong if all forest products are considered.          It should be noted that a direct quantitative relationship  between the exported amount of wood (in cu m) and the associated  deforestation of land (in ha) has not been calculated.  This is a very  difficult relationship to establish for several reasons.  As mentioned in  the section on the dynamics between commercial logging and the forests,  not only are trees removed for direct use, but approximately 60 percent  of the surrounding vegetation is destroyed.  Secondly, logging operations  are seen as part of the process enabling local people to gain access to  closed forests and destroy additional forests for agriculture.  And,  finally, because of the wide practice of illegal logging, the true number  of exported logs is likely to be much higher than the officially reported  measurements.  Logging rules are commonly disregarded and illegal exports  are common.  For example, between 1986 and 1990, the Primary Industries  Minister Lim Keng Yaik of Malaysia reported that four states exceeded  their logging quotas by as much as 300 percent (Lumpur and Tsuruoka,  1991).  According to a study conducted in Indonesia by Skephi, a  non-government environmental organization, "timber transportation  documents are commonly reused two to five times, which would mean that  unreported logging in some areas may range from 100 to 400 percent over  the volume of reported logging" (US Embassy, 1994).  Because of the wide  range of associated uncertainties, it is not possible to calculate a  quantitative relationship between exports and deforestation in Graph #  3.           Even with missing data, the overall growth of roundwood exports  is best characterized by a linear trend that, if it continues, would  reach over 40,000 cubic meters by the year 2010 (see Graph #4).


This worst case scenario would have devastating effects on the remaining 

tropical forests in this region.  Furthermore, even if roundwood exports 

remain at current levels, the tropical forests will still continue to 

disappear at an alarming rate.  Domestic and international trade policies 

will be the critical factor in determining whether forest exports 

increase or decrease in the upcoming years.

Forests in Transition

        Having established some relationships between exports and 

deforestation, it is useful to think of the interaction between the two 

in terms of a forestry transition.  William Drake describes the concept 

of transitions in Towards Building a Theory of Population-Environment 

Dynamics: A Family of Transitions (1993).  To paraphrase briefly, the 

idea behind transitions is that societies are especially vulnerable to 

change in critical time periods which depend in part on the state of the 

population in these societies.  Moreover, government policies can act to 

alleviate the problems associated with these critical time periods.  When 

a sector, such as the forestry sector, enters a transition period it 

undergoes rapid change before returning to a stable state; the forestry 

sector in Indonesia and Malaysia is doing just that.  According to Drake, 

if we can recognize transitions, we can proscribe policies to help reduce 

the negative aspects of the transition and influence the final 

equilibrium state. 

        Applied to this paper, the theory of transitions explicitly 

recognizes that there is a dynamic relationship between deforestation and 

the tropical timber trade.  This relationship started in the 1960s and is 

continuing today.  Judging from the continued rates of deforestation and 

forest exports in Graph #4, the forestry transition is far from over.  In 

regards to population trends, Indonesia and Malaysia reached their peak 

growth rates in the mid 1970s and mid 1960s respectively (see Graphs #5 

and #6).  

        Since then population growth rates have declined and are expected 

to continue declining into the 21st century.  However, because the birth 

rates and death rates in these countries have both fallen at relatively 

the same speed (see Graphs #7 and #8), the total population in these 

countries continues to rise rapidly.  









Thus, the population transition is not yet over and is expected to 

continue into the 21st century. Modernization provides an indirect link 

between population changes and increased timber exports.  As modern 

medicine acted to promote the decline in death rates / birth rates, the 

modern market system acted to promote improvements in the economy, trade, 

and technology (all three are necessary to exploit timber resources).  

Commercial logging in Malaysia began in the 1950s about ten years before 

population growth rates reached a maximum, and commercial logging began 

in Indonesia in the 1960s about ten years before its maximum population 

growth rate.  The same technological and economical advances that spurred 

the logging industry also preceded the beginnings of the demographic 

transition.  The direct link between the demographic and forestry 

transition is easily found by examining the dynamics between logging and 

deforestation.  There are two major connections:

        1.) As the total population rises, landless peasants become more 

numerous and it becomes more difficult to stop them from contributing to 

deforestation as they follow logging operations and convert forested land 

into fields for agriculture.  

        2.) As the total population rises, there is increased pressure on 

the national economy to sustain more people.  In the short-term, this 

pressure can be partly alleviated by supplementing national incomes with 

an increase in the exports of forestry goods.  This in turn increases 


        The effects of the timber trade on deforestation began with 

Indonesias and Malaysias exposure to the Western capitalist market 

system.  Furthermore, the exposure to Western medicine prompted the 

demographic transition which has magnified the problems between the 

timber trade and deforestation in these countries.  In order to 

effectively get through the forestry transition, Indonesia and Malaysia 

need to concentrate on getting through their demographic transitions as well.

The Missing Element- Reforestation

        Until deforestation begins to level-off and approach 

reforestation, the forestry transition will not reach a stable state and 

logging operations will continue to deplete the tropical forests in this 

region.  At some point, the forestry transition will reach an 

equilibrium.  Where this equilibrium is partly dependent on the ability 

of governments to implement reforestation management.  

        There is very little data on the reforestation of the tropical 

forests of Indonesia and Malaysia.  Much of the available information is 

from the forestry departments of the governments and can be notoriously 

unreliable.  In 1990, the worldwide extent of plantations in the tropical 

areas was estimated at 43.9 mn ha, or less than two percent of the total 

forested area of 1,715 mn ha (Barbier, 1994).  According to the World 

Resources Database (1994-1995), Indonesia and Malaysia respectively had 

8,750,000 and 116,000 ha of plantations in 1990 and were adding to 

plantations at a rate of 474,000 ha a year in Indonesia and 9,000 ha a 

year in Malaysia.  Considering the average annual deforestation rate in 

the 1980s was 1,315,000 ha in Indonesia and 255,000 ha in Malaysia (see 

Table 2), the rate of reforestation to deforestation is less than 25 

percent in Indonesia and less than 10 percent in Malaysia.  The forestry 

transition will not be complete until the rate of reforestation equals 

the rate of deforestation.  

        One drawback to reforested plantations is they often consist of 

only one species of tree.  Sometimes this is not even an indigenous 

species.  For example, the Eucalyptus tree from Australia is a 

fast-growing valuable timber that is often chosen to replace native 

trees.  Plantations do little to preserve the biological diversity of the 

traditional forests and can destroy the soil and water table as well.  It 

is therefore highly desirable for these countries to focus not only on 

reforestation, but also on preserving the integrity of the original 

forests.  Indonesia and Malaysia should attempt to move their logging 

efforts from areas of primary growth to reforested areas of secondary growth.

Domestic Policies

        In the 1983 United Nations Conference on Trade and Development, 

the International Tropical Timber Organization (ITTO) was created to 

address the problems between trade and tropical forests.  Indonesia and 

Malaysia are both members of ITTO and have committed to the goal of 

sustainably managing all tropical forests by the Target Year 2000.  This 

leaves the domestic governments with the task of balancing the short-term 

interests of the economy and logging companies against the long-term 

interests of the future economy and environmentalists.  The governments 

in Indonesia and Malaysia would like to improve the economic efficiency 

of the forestry sector without increasing the raw material growth of 

inputs or over-cutting the tropical forests.  In the past, one strategy 

pursued to promote this goal is to add economic value to their forests by 

restricting roundwood exports and processing lumber into secondary 

products before exporting it on the international trade market. 

        There are several problems with the strategy to export processed 

lumber.  While on the one hand it may be effective at adding monetary 

value to wood products before selling them, it also requires the 

countries to restrict trade on raw log exports.  Initially it might be 

expected that by cutting out foreign sales of raw logs the deforestation 

rates might go down.  However, as seen from the 1980 ban of log exports 

in Indonesia, deforestation rates were not reduced.  Roundwood production 

remained steady while sawnwood and panel wood production rose rapidly 

(see Graph # 1).  From an economic perspective, trade barriers decrease 

the market value of raw logs for the domestic wood processing 

industries.  When the price of logs goes down, domestic companies can 

purchase greater numbers of logs and this could actually cause an 

increase deforestation.  According to the World Bank, Indonesia's ban in 

log exports pushed the price of domestic logs to half the world level and 

resulted in over-cutting and over-investment in secondary wood production 

in Indonesia (Schwarz, 1992a).  When a natural resource loses market 

value it becomes less valuable to protect as a long-term source of 

income.  The second point made by economists is that because domestic 

industries are shielded from competition with foreign wood processing 

companies (foreigners cannot buy raw material from these countries), 

export restrictions cause inefficiencies.  According to Marina Whitman, 

an international trade professor at the University of Michigan, 

international competition is essential for promoting the most efficient 

production of goods on a global level.  Trade restriction have proven 

unreliable for decreasing deforestation and can hinder the development of 

efficient domestic industries.  This runs contrary to the governments 

overall objective of increasing efficiency and maintaining the levels of 

raw material consumption.

        Another problematic domestic issue is the abuse and corruption 

that undermine the enforcement of logging regulations.  The governments 

in Indonesia and Malaysia are notorious for accepting bribes and showing 

preferential treatment to logging companies with personal connections to 

powerful officials.  Enforcement of national logging rules is poor at 

best.  As noted earlier, the illegal export of raw logs is also 

widespread.  The governments need to make a firm commitment to stopping 

corruption and enforcing their own logging regulations.

        Finally, the domestic policies for granting timber concessions to 

logging companies need to be reviewed.  Typically the governments grant 

timber concessions to logging companies for relatively short periods of 

time -- approximately 20 years.  This encourages companies to take as 

much as they can from the forest before they lose their timber 

concessions.   It takes 35 to 40 years for dipterocarp trees to re-grow 

to commercially valuable sizes.  Therefore, the companies are not 

expected to get a second harvest from any particular concession (Schwarz, 

1991).  There is little concern by business for the future productivity 

of their forest concessions.

International Policies

        Until recently, the international political structures affecting 

deforestation in Indonesia and Malaysia were mainly due to market demand 

in other countries.  Companies in industrial nations would purchase 

tropical timber for their own hardwood processing and subsequently sell 

products to consumers in industrialized nations.  Although this continues 

to be the case, in the past two decades, a number of new political actors 

(international organizations) have started to put pressure on Malaysia to 

sustainably manage its tropical forests.

        Internationally, the response to concerns over the global 

destruction of tropical forests have led some foreign countries, such as 

those in the European Union, to impose trade restrictions-- import 

tariffs or non-tariff barriers on tropical forest products.  In 1986, the 

European Union imposed restrictions on the import of tropical wood.  

These restrictions required timber to be "certified" from "sustainable 

forests".  Most of the logs exported from Indonesia and Malaysia can not 

meet these requirements (Tasker and Ai, 1994).  If implemented on a 

global level, trade sanctions could theoretically limit the amount of 

forestry products exported from Indonesia and Malaysia and potentially 

reduce deforestation rates.  However, as the demand for trees goes down, 

the forests become less "economically valuable", and much of the 

financial impetus for sustainable management disappears.  According to 

Alastir Fraser, a Briton working with Indonesia's Ministry of Forestry, 

"It would be tragic if trade stopped.  The forests would become less 

valuable and there would be less incentive to protect them" (Schwarz, 

1992b).  Foreign trade restrictions can distort the true economic value 

of the forests in to these countries.  Instead of reducing deforestation, 

foreign trade restrictions in the long-term could decrease the economic 

incentives to preserve the forests.  Admittedly, some policy makers are 

not convinced trade restrictions are a cause for environmental damage and 

would argue that Indonesia and Malaysia make more money from restricting 

log exports and selling secondary wood products instead.

        However, even if trade restrictions were effective at reducing 

deforestation, the General Agreement on Tariffs and Trade (GATT) is 

slowly working to phase tariffs and other trade restrictions out of the 

global economy.  In 1992, the lift in the ban on log exports in Indonesia 

was partly the result of pressure from the GATT.  Thus, it would be 

difficult to coordinate a world-wide trading ban on forest products 

produced in this region.  This would go against the predominantly free 

trade atmosphere currently advocated in international politics and the GATT.

        In the place of trade restrictions, the GATT is promoting 

multinational trade agreements that involve all countries.  In the 

Uruguay Round of GATT negotiations, environmental issues have become 

increasingly important in discussions, although substantial global 

environmental regulations have not been established.  As it relates to 

Indonesia and Malaysia, the obvious advantage of multinational agreements 

over unilateral trade restrictions is to take into account the views of 

both importing and exporting nations.  This does not necessarily mean 

environmental protection.  But, environmental solutions for reducing 

deforestation could be framed by GATT in an economically and socially 

beneficial system for both Indonesia and Malaysia with international 

support.  This might entail international financial support to implement 

management programs that provide viable alternatives to using old growth 

forests.  Management programs that focus on reforestation and 

intensification of land that has already been deforested.  This would 

reduce the pressure to log old growth forests.  ITTO is an example of an 

international organization that has encouraged developed nations to 

co-operate with developing nations with the common goal of promoting the 

sustainable management of tropical forests.  The World Bank is currently 

looking at a proposal to employ a foreign company to help Malaysias 

government monitor logging operations.  However, to really have an 

impact, international organizations need to make stronger commitments to 

support these countries in their attempts to curb the current problems of 

deforestation.  GATT, ITTO, and the World Bank have not yet had a big 

effect on deforestation rates in Indonesia and Malaysia.


        Although the international timber trade is undoubtedly an 

important part of the economies in Indonesia and Malaysia, it is 

difficult to quantify the exact relation between exports and forest 

deforestation.  Given the limitations of data, the relationship of 

exports to the forestry transition is captured in Graph #3.  There are 

two major areas affecting the forestry transition in these countries: the 

demand for exports and the lack of reforestation.  In effect, if exports 

continue to increase or even remain at constant levels without improved 

rates of reforestation, the forests in Indonesia and Malaysia will 

rapidly disappear. 

        There are several domestic policies that should be advanced to 

reduce deforestation rates.  Because of the geographical, environmental, 

demographical, and political similarities between Indonesia and Malaysia, 

both countries are in very analogous positions and should follow the same 

general strategies to prevent deforestation.  First, they should remove 

any remaining restrictions on the export of raw logs.  This will provide 

the economic conditions that favor the most efficient use of timber goods 

on a global level.  While the domestic industries may lose money in the 

short-run, in the long-run the country will benefit from utilizing its 

resources more efficiently.  If these countries continue to restrict 

timber exports, they will face retaliation measures from the 

international community and the GATT.  Trade retaliation could harm the 

other important sectors of their economies including oil and natural gas 

exports.  In addition, the domestic governments need to cut down on 

corruption and improve enforcement of the current logging regulations.  

This will involve a financial commitment to enforce logging rules and a 

moral commitment by government officials to decline bribes from powerful 

logging industries.  And finally, the current terms of granting 

short-term forest concessions should be increased to provide an incentive 

for companies to start reforesting and sustainably managing the forests.  

Changing the policies for granting logging concessions is beneficial to 

all parties involved and should be relatively easy to implement.  

Finally, Indonesia and Malaysia both need to work on controlling 

population growth.  If populations continue to increase rapidly, their 

will be pressures to use deforested land for agriculture instead of 

reforesting it for future timber production.

        From the international level, countries need to move away from 

unilateral restrictions and work towards developing common forest 

management goals.  ITTO is a step in the right direction, but 

negotiations could start to include mechanisms for enforcement as well.  

The GATT, while still a long-way from having an international enforcement 

arm, could provide this service sometime in the future.  To be 

pro-active, the international community needs to provide more financial 

aid to these countries to help with the costs of sustainably managing 

forests.  It is also possible to develop a set of internationally agreed 

upon forestry practices, whereby the demand for forestry exports could be 

reduced to what can be provided consistently over generations.  The 

sooner this agreement is reached, the more tropical rainforests will be 

left when the forestry transition is over.

        As a whole, this paper serves to reinforce the importance of the 

relationship between international trade and the forests of Indonesia and 

Malaysia.  Hopefully future studies can provide additional data to 

support the general policies proscribed here and provide more specific 

guidelines for the domestic governments and international community.  The 

relationship between trade and the environment is still an evolving study 

with many unanswered questions.



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