The Japanese Forestry Agency of the Ministry of Agriculture, Forestry and Fisheries (MAFF) has implemented a series of policies designed to increase the use of domestic wood. Over the past decade, these policies and programs promoted the “cascading-use of forest resources” to more fully utilize domestic wood resources, including low-grade woody biomass for biofuel. Thus, these programs expand the overall demand for domestic wood products and provide more economic opportunities for the domestic forestry and forest products industries while helping to develop a globally competitive forestry and forest products sector through economies of scope and scale.

The Ministry of Economy, Trade and Industry (METI) oversees and regularly reviews feed-in tariff (FIT) programs. After the Fukushima Dai’ichi nuclear power disaster caused by the Great East Japan earthquake, METI in July 2012 started providing generous tariffs to support the expansion of biomass power generation. The schedule of tariffs was applied over a 20-year time frame and are guaranteed at a set purchase price following METI’s approval of a biomass power generator. The new FIT program initially set a purchase price of 40 yen/kWh for biomass power plants smaller than 2,000 kW and 32 yen/kWh for power plants larger than 2,000 kW, but only if they use domestically sourced woody biomass derived from forest thinning operations. For bioenergy plants using imported (sustainably sourced) woody biomass, the FIT program initially set a purchase price of 24 yen/kWh. The generous FIT tariffs have resulted in the rapid increase in the number and capacity of biomass power generators all over Japan. However, in order to reduce the energy burden in Japan, METI has begun to reduce the tariffs for newly joining biomass power generators.

Biomass generating facilities range from large-scale coal-biomass co-firing plants (mainly using imported wood pellets), medium-sized biomass power plants (using domestic wood, imported palm kernel shell (PKS) and wood pellets), biomass facilities co-located with wood manufacturing companies (fueled by wood waste and sawdust), to small-scale heat/electricity co-generators that utilize a wide variety of fuels. The supply of domestic unutilized wood or imported ordinary wood (wood pellets, wood chip, PKS and other agricultural residues) is currently sufficient to meet the demand of this rapidly growing biomass sector.  As of December 2019, Japan has approved proposals for biomass power plants with a pooled power generation capacity of 8.5 GW, while the operational capacity of qualifying power plants stood at 2.1 GW.  The lack of supply of biomass for the approved, but not yet operating power plants, is the key limiting factor in Japan’s efforts to increase its use of biomass for energy generation.

In order to increase the demand for domestic wood and help revitalize rural mountain communities, MAFF and METI have developed and implemented a number of strategies designed to subsidize the expansion of woody biomass energy. Developing this new industry is currently an on-going activity and it is likely that success in this area will greatly increase the demand for woody biomass, exceeding the domestic supply of woody biomass (including forest thinnings) and thereby providing new opportunities for foreign wood suppliers. Exporting wood chips, white pellets and torrefied (black) pellets to Japan represents a strong new market for the U.S. forest products industry. Given the growing demand for woody biomass in Japan (as well as CLT panels which can be manufactured using lower quality softwood lumber), there also exists a possibility to expand exports of lower quality logs and lumber from the US.


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Executive Summary
Japan has been one of the largest importers of wood products in the world. However, a large area of domestic plantation forests has matured, and the Japanese government has adopted several policy measures aimed at increasing the supply of, and demand for, domestic wood. The Forest and Forestry Revitalization Plan aims to increase the domestic wood supply and increase Japan’s wood self-sufficiency rate to 50% by 2020. The potential effect of the Revitalization Plan on the Japanese wood market, should be understood based on the competitive situation and substitutability of domestic and imported wood.
This study examined the existence of a cointegration relationship between domestic and imported wood using sawlog and lumber price data. If both woods compete in a single Japanese market, then the law of one price, the necessary condition for substitution between imported and domestic wood to occur, must hold. Markets are said to be integrated if, at equilibrium, the law of one price (LOP) holds and no arbitrage opportunity exists as a necessary condition for price efficiency. If the LOP is upheld then trade models that assume price equilibrium among homogenous products can be used to study the effects that the Revitalization Plan would have on the volume of domestic and imported wood consumed in Japan. On the other hand, if the LOP does not hold to be true, then the assumption of these trade models is violated, and any results yielded by those trade models may not be correct.
Using Johansen’s multivariate cointegration tests, it was revealed that the domestic wood market and the imported wood market had no cointegrating relationships. It was concluded that the market for domestic wood and that of imported wood are not closely connected through price arbitrage and that a price change for one wood product would not necessarily affect the prices of other wood products directly. Thus, the Revitalization Plan might not have a direct effect on the demand for imported wood products. However, in the case where the demand for wood remains constant or declining (as is the case in Japan), it is likely that a substantial increase in the demand for domestic wood would necessarily result in a corresponding decrease in the demand for imported wood.
Perhaps more importantly, the combined impact of the subsidy programs targeted towards the forestry and wood products sectors in Japan will likely adversely impact the demand for imported wood. In this regard, several issues have to be pointed out. First, Japanese housing starts have been decreasing and they are not expected to dramatically increase given that the Japanese population is aging and shrinking. Since lumber demand is highly dependent on the housing industry, the declining trend of housing starts will reduce the total demand for wood in Japan. Given the emphasis of the Revitalization Plan on doubling the supply of domestic wood by 2020, this will inevitably lead to a reduced demand for imported wood.
Second, as log imports decline, domestic sawmills and plywood mills have been switching from imported to domestic logs. This trend is strengthened by the government subsidy programs that support the expansion and modernization of domestic sawmills and plywood mills to replace older processing equipment with newer,

more efficient processing technology that can utilize smaller diameter domestic logs. Thus, the share of imported logs used in domestic sawmills and plywood mills is likely to decline.
Third, Japanese macroeconomic policy affects wood imports. Recent monetary-easing measures have impacted the exchange rate by depreciating the value of the yen by almost 50% since Prime Minister Abe’s election in December 2012. The depreciation of the yen as a result of Japan’s change in monetary policy is likely to lead to a decline in total wood imports into Japan.
Finally, and potentially most importantly, other government subsidy programs targeted to expand the use of domestic wood may distort the market relationships found in this study. In early 2013, MAFF announced a plan to introduce the “Wood Use Points Program (WUPP)” which provides a substantial subsidy to homebuilders who use domestic wood in place of imported wood in the homes they build. If this program is successful, then the huge subsidies provided by the program would effectively expand the demand for domestic wood and the adverse impact of the WUPP Program on the demand for imported wood could be tremendous.

Executive Summary
After the Kobe earthquake in 1995, the Japanese Government introduced a series of changes to improve the integrity of new homes. Part of the changes included a rating system designed to indicate the potential for formaldehyde off-gassing by a variety of primary and value-added wood products. Excessive off-gassing of formaldehyde has been identified as a contributor to a phenomenon known as “Sick House Syndrome” that has resulted in a large number of home owners having to leave their houses. Referred to as the F Four Star system (F****), the program was designed to cover much more than interior air quality and was not targeted at any particular product or building system. However, it is the interior air quality provision that concerns North American firms looking to export laminated products into Japan.
Products covered by the F**** regulation include:

• kitchen cabinets,
• bathroom cabinets,
• finished wood flooring,
• engineered wood flooring,
• wooden doors,
• wall and ceiling paneling,
• fixed shelving in cabinets,
• wooden stair treads and risers,
• wooden countertops and
• edge-glued panels.

The regulation does not apply to the following products:

• lineal wood moulding and millwork,
• door and window casings,
• wooden windows,
• wooden furniture,
• removable wood shelving,
• wooden stair railings, banisters and stringers,
• unfinished solid wood flooring and
• finger-jointed lumber.

There are three ways to ensure that wood products have been approved for sale in Japan:

• the product is on the exempt list shown above;
• use only raw materials in a product that are rated F****; or
• submit a product for Ministerial Approval in Japan after testing it in the US.

Of the two methods related to products that are not listed as being exempt, using F**** raw materials in the manufacture of a product is the easiest and cheapest route for value-added manufacturers to follow. Obtaining Ministerial Approval can cost up to US$5,000.
Value-added wood products manufacturers should ensure they comply with the provisions of this regulation to protect and maintain market access.

​Executive Summary
Green or sustainable building programs incorporate the environment, the economy, and human aspects into the design and construction of a building. Green buildings are created through an integrated process where the site, the building design, the construction, the materials, the operation, the maintenance, and the deconstruction and disposal of a building are all seen as being inter-related with the environment.  As a result of this integrated process, it is thought that buildings can be made more environmentally friendly, more cost-effective and more resource and energy efficient, while providing a healthier living and working environment.  Green building programs are slowly but surely emerging around the world in developed countries.  The focus of this report is on the green building programs in Japan and China.  The Japanese green building program is called CASBEE-Sumai (House) and the green building program in China is the Chinese Evaluation Standard for Green Building (also called the Three Star System).  In addition, two other programs that have the potential to influence materials use in residential housing (the 200 Year House program and the Eco-Points program) have been adopted in Japan.  This report provides an overview of these programs, explains the sections of the programs that relate to wooden building materials, and discusses how these programs could affect the use of wooden building materials in Japan and China.
To better understand builder’s, architect’s and design professional’s perceptions and attitudes towards green building programs in China and Japan, surveys were conducted in both countries.  A total of 406 surveys were collected in Japan and 150 surveys were collected in China.  In addition, a series of informal interviews with building professionals were carried out in each country.  These results of the surveys and interviews are summarized in the following report.
Japan
While Japanese housing starts declined substantially in 2009, they exceeded those in the US for the second year in a row.  With approximately half of its housing starts being constructed from wood, Japan remains an attractive market for US manufacturers and exporters of wooden building materials.  The recent adoption of the CASBEE green building program provides an opportunity to increase exports of wooden building materials from the US to Japan, particularly those that improve energy efficiency.  However, the results of this research suggest that Japanese builders remain reluctant to use the CASBEE program as they perceive that there is little market demand for environmentally friendly houses and even less desire on the part of homebuyers to pay a premium for them, particularly given the slow economy that prevails in Japan.  In contrast, Japanese builders expressed much more optimism about two other programs that could increase the demand for US value-added wood products in Japan, the 200 Year House program and the Eco-Points program.
The results of the survey clearly show that Japanese building professionals perceive wood to be the most environmentally friendly structural building material across all six of the environmental performance measure included in the survey.  In contrast, steel is perceived as being the least environmentally friendly structural building material across most of the environmental performance measures.  Energy efficiency of the house was found to be the most importance environmental attribute and it was rated as being significantly more important than all of the other attributes.  Using water saving appliances and fixtures was found to be the second most important environmental attribute.  Based on the results of this research, it appears that the various green building programs in Japan could provide new market opportunities for a variety of US value-added wooden building materials, including environmentally certified wood, energy efficient windows, water saving plumbing fixtures and insulation materials.
Finally, US government agencies and industry associations should be wary of the potential for CASBEE-Sumai to act as a non-tariff trade barrier by providing preferential treatment for domestic wood products.  For example, the CASBEE program provides preferential points for domestic wood materials while both the national government and an increasing number of prefectural governments provide subsidies to home buyers and home builders for homes built using domestic wood.  These Japanese programs undermine the environmental benefits of wood by promoting an agenda designed to increase the demand for domestic wood relative to imported wood.  In doing so, they ignore the environmental superiority of wood relative to non-wood building materials as clearly demonstrated by a life cycle analysis.  In effect, these programs promote a myopic strategy that pits domestic wood against imported wood in a fight for market share within a fixed market segment.  In contrast, the goal of the wood industries in both countries should be to expand the demand for all wooden building materials by promoting their environmental superiority relative to steel and concrete; an approach which would effectively increase the total market for wood products to the benefit of both domestic and foreign suppliers of wooden building materials.
China
With nearly twice the total floor space of the US and more than four times as much as Western Europe, China was expected to overtake Japan in 2009 to become the second largest construction market in the world. Yet green building in China’s expanding building market is comparatively rare. The China Greentech Initiative, for example, estimates that certified green floor space constituted less that one percent of the new built environment in 2009. Recognizing the benefits of sustainable building, China’s government has set ambitious targets and guidelines for green building, and developers, designers and builders are increasing their use of green materials and building principles.
Set against the backdrop of the global economic downturn, the Chinese housing sector has shown some encouraging signs of recovery. China’s construction industry has grown at an average annual rate of 20% since 1990. Housing markets in major cities have recently started to pick up again thanks in part to the government’s 4-trillion yuan stimulus package. According to China Data Center, investment in new construction between January and May 2009 reached over 2.5 trillion yuan, an increase of 43% compared to the same period last year.
Since 2006, the Chinese government has been working to promote its “4-savings and 1-environmental” housing ideology, which stands for: energy-saving, land-saving, water-saving, raw material-saving and less pollution. The Center for Housing Industrialization was founded in 1998. Since then, it has initiated several key national projects and drafted guidelines for improving productivity of construction and improving the “healthy” and “environmental” properties of residential buildings in urban areas. According to the 11th five-year plan initiated by the Ministry of Housing and Urban-Rural Development (previously, the Ministry of Construction), by the end of 2017 the level of industrialization of the Chinese housing sector will reach 30% from the current 7-8%,  and the average service life of residences will  increase from 50 to 100 years. China has started to develop 10 demonstration housing projects, 10 experimental cities, and 10 model construction enterprises. Currently, most construction in China is concrete and brick, while the market for wood frame construction has been growing very slowly due in large part to the government’s tight restrictions on land use in urban areas. After the Sichuan earthquake last May, the Canadian Wood Association participated in the region’s reconstruction projects and donated $8 million to help build wood frame houses for local residents. This has been reported widely in China and in turn has helped wood frame house win wider market recognition.
The new green building program in China, the Three Star System, has the potential to increase the demand for wooden building materials (both primary and secondary wood products) used in residential construction.  The extent of its impact on demand in China will be influenced by the degree to which it is accepted and utilized by developers, builders, architects and home buyers.  However, the Chinese green building program makes no specific mention of wood as a material of choice, suggesting that the US government and industry groups need to continue working with the Chinese government to encourage the use of life cycle analysis as the basis for future revisions to the green building program.
Despite this shortcoming of the Chinese Green Building Program, green building materials (particularly those related to energy-saving) will be increasingly in demand in China, led by public/commercial buildings and high-end residential projects in major cities such as Beijing, Shanghai and Guangzhou.  These opportunities include energy efficient wood windows for high end apartments and condominiums.  In particular, wood windows with either vinyl or fiberglass cladding on the exterior have strong potential because of their lower maintenance requirements.  Other value-added wood products with strong market potential in China include cellulose insulation, environmentally certified wood, and high quality wood cabinets and flooring produced from certified wood targeted towards high–end apartments, condominiums and detached homes.
In China, almost 95% of respondents have heard of the green building program, a third planned to use the program and just over ten percent have used the green building program.  Chinese builders report that the most important material attribute is using energy efficient products and materials, followed closely by using renewable materials.  Both of these observations suggest that opportunities exist to market energy efficient wood products (e.g., wood windows and cellulose insulation) for use in multi-story, multi-family condominium and apartment buildings.  The survey results obtained for the relative environmental performance of wood, concrete and steel clearly show that Chinese construction professionals perceive that wood and wooden structures provide superior environmental performance across a variety of environmental measures spanning the life cycle of a material.  This trend is similar to the trend observed in Japan.
Finally, it should be noted that the US, Japan and the EU have all passed legislation requiring that importers of wooden products must be able to demonstrate that these products do not contain illegally harvested wood materials.  As a result, we can expect to see the demand for certified wood in China continue to increase, particularly if the Russian government carries through on its intention of increasing its log export tax to 80% in January 2012.
Wood frame houses have increasingly been accepted into the Chinese market. In February 2009, the Shanghai government approved a B.C.-designed roofing system as part of a plan to renovate 10,000 city apartment buildings in the lead-up to the World Expo 2010 in Shanghai. As China moves to develop more and more “green” houses, experts predict that timber structures will continue to gain recognition by the government and construction sectors in China and open up new opportunities for green building materials and engineered wood products. Also, the projects being promoted by the Canadian Wood Association in Sichuan suggest that wood frame houses could be successful in the rural areas of China where land use is less regulated by local governments.
Strategic Recommendations
A number of programs (including green building programs) focused on improving the environmental performance and energy efficiency of homes have been adopted in China and Japan.  At the same time, builders, architects and design professionals in both countries perceive wood to be the most environmentally friendly building material. They also believe that homes built from wood are more energy efficient than homes built from steel or concrete.  These trends set the stage for promoting wood as a superior building technology as well as for promoting the superior environmental performance of value-added wood building materials such as wood windows and doors.  For example, the Eco-Points program in Japan provides a unique opportunity to promote energy efficient US wood windows in both new home construction as well as the growing repair and remodel sector of the housing market (although wood windows must still gain approval under the Japanese fire code to be used within urban fire and quasi-fire zones). 
The results of this research project clearly show that there are a variety of market opportunities for expanding US exports of value-added wooden building materials into both Japan and China.  Perhaps the best market opportunity exists for increasing exports of wood windows given the emphasis in both countries on increasing the energy efficiency of new buildings.  This will be easier to accomplish in China than in Japan where restrictive fire codes require the certification of wood windows used in fire and quasi-fire zones.  In addition, the green building programs in Japan and China provide a good market opportunity to expand exports of cellulosic insulation, structural insulated panels, environmentally certified wood and value-added wood products used in interior applications that are made from certified wood (e.g., wood cabinets and flooring).  Finally, good opportunities exist to increase exports of certified structural wood products such as glue-laminated beams, metric sized lumber, dimension lumber and treated lumber using the new generation of less toxic wood preservatives.
In order to increase the exposure of US value-added wood products among building professionals in Japan and China, US exporters should strongly consider participating in the wide variety of trade shows and trade missions by joining industry associations that are active in international markets and have a proven track record of providing access to qualified buyers in these countries.  For example, the Evergreen Building Products Association offers trade missions to Japan and China several times a year.  Similarly, the State of Washington sponsors trade missions for wood products manufacturers in Japan.  Finally, industry associations such as the Softwood Export Council and the American Hardwood Export Council provide opportunities for US companies to rent booth space within the US Pavilion at trade shows in Japan and China.  All of these associations provide tremendous logistical support for US exporters and manufacturers of wood building materials, allowing them to focus their energy on meeting potential customers for their products (a list of upcoming trade shows and missions is included in Appendix D).

Executive Summary
This study presents exploratory research about the transitional Japanese home building industry. The Japanese housing industry changed significantly during and since the “lost decade” of the 1990s because the business environment changed dramatically. The main goal of this study is to classify Japanese builders by their business strategies and business behaviors in order to provide a useful market segmentation strategy for forest products exporters targeting Japanese markets. In order to do so, we first collected extensive secondary information on the background of the Japanese housing industry. Then we surveyed Japanese large builders and analyzed the data.
After its bubble economy burst in the early 1990s, Japan experienced a serious economic slump that lasted over a decade. This period is called the “lost decade” in Japan. During the lost decade, Japan experienced deflationary pressure on land prices, securities, and consumer goods. The Bank of Japan set the interest rate essentially to zero in order to stimulate the economy, and the overnight call rate is still very low. In the past, Japan practiced unique business customs including keiretsu and interdependent collusion between politicians and business, which undermined competition. In order to recover from the economic slump, it was necessary to reform inefficient business practices in Japan. Although political uncertainty between reformists and anti- reformists within and outside the Liberal Democratic Party remains, Prime Minister Koizumi was able to reform some business practices and influence the vertical keiretsu structure, which has been weakening. As the market continues to liberalize, there should be fair competition for all participants, including small- to mid- size enterprises and foreigners, in the Japanese market. These socio-economic changes have contributed to the reform of the Japanese building industry and, as a result, some small- to mid-size builders have grown quickly.
The Japanese residential housing market underwent substantial change during the lost decade as well. The Kobe Earthquake in 1995 led to major changes in the Building Standards Law (BSL), which accelerated the adoption of pre-cut lumber. Pre-cut lumber allowed mid-size builders to lower the cost of post and beam (P&B) construction through labor efficiencies and reduced waste. Many mid-size builders contracted with komuten (small builders) or independent carpenters to expand their businesses. Demographic changes have also played a huge role in the changing housing market in Japan. For example, Japanese Echo baby boomers started buying their first homes, and some mid-size builders targeted their homes to this large population.
Deflationary pressure on land values allowed builders to acquire large parcels of land in suburban Tokyo. Builders then subdivided these parcels and built tract spec P&B houses. Those builders were called “power builders,” and many small- and mid-size builders all over Japan have adopted their business strategy to survive.
The survey results show that many mid-size builders call themselves power builders, but we failed to find statistical significance of a common business strategy among power builders. Over the last few years, many small- and mid-size builders have tried to imitate the business strategies of the original power builders and to emulate one another in order to survive. However, it is not always possible to copy an entire business strategy from other firms. The power builder strategy is currently little more than a marketing slogan used by many firms to attract price-sensitive customers. Yet builders who build a lot of tract houses and have grown quickly in terms of the number of houses that they build still tend to refer to themselves as power builders.
The most important success factor of builders between 2001 and 2005 in Japan was how many tract houses they built. Interestingly, the prices of the homes were not significantly different from those of fast-growing builders and other builders. Tract house builders service a significantly higher percentage of first-time home buyers and tend to build smaller houses than do custom house builders. Other characteristics of tract house

builders are that most prefer to use glulam lumber, and that they do not have a defined land acquisition strategy, tending to acquire any available land in suburban areas.
Since the original power builders’ success in the industry has attracted many imitators and undermined the old market traditions of the housing industry in Japan, it is not useful to focus on the traditional builders categories when developing a marketing strategy. The traditional categories were: 1) national home builders, 2) regional builders, and 3) komuten. In order to reflect the changing nature of the industry, we propose four new strategic groups of Japanese builders: 1) premium big builders, 2) economy big builders, 3) mid-size regional builders, and 4) komuten (independent carpenters).
Firms in the same strategic groups have similar business models, so their supply channel choices can also be expected to be similar. For example, Komuten or independent builders typically construct only a couple of houses a year, and our survey did not cover them. Mid-size regional builders construct between 25 and 100 houses per year and prefer domestic lumber such as sugi or hinoki. They are focused on a local market and usually build post and beam houses. Economy big builders tend to pursue a low-end pricing strategy and this segment of the market increased at an average annual rate of 10.4% between 2001 and 2005. Economy big builders usually build post and beam houses and tend not to import lumber or building materials directly from foreign countries. Finally, premium big builders tend to build value-added houses; they are interested in adopting a marketing strategy based on design differentiation and prominent advertising. Generally, premium big builders sell their houses at a premium price, although their growth rate is less than that of the economy big builders. Some of the premium big builders directly import lumber and building materials from foreign suppliers.
Currently, economy big builders have a strong market share, and this market has grown very quickly. However, they will face substantial difficulties in the near future. The industry is currently going through a period of consolidation, since many builders have attempted to imitate the power builders’ business models. In addition, many echo baby boomers have already purchased their own houses, so this market segment has begun to shrink. Further, the high volatility of the foreign exchange rate creates uncertainties regarding the supply of raw materials. Builders need to re-create their business strategies and adapt to this changing market environment. Their success in changing their business strategies will depend on their management capabilities. U.S. forest products exporters may be able to inspire them, thus enjoying mutual benefits.
Our exploratory research has derived the following strategies for U.S. forest products and building materials exporters:

• U.S. exporters should target economy, big builders.
• U.S. exporters need to approach pre-cutters as well as builders.
• U.S. exporters need to promote the structural performance characteristics of U.S. forest products.
• U.S. exporters need to ensure the reliability of supply to their Japanese customers.
• U.S. exporters should take advantage of the weak U.S. Dollar versus the Japanese Yen to offset slowing lumber demand in the U.S.
• US exporters always need to keep in mind that the business environment is dynamic.

​Executive Summary
With the U.S. housing market at a seventeen year low, it is becoming increasingly important to find global markets for U.S. forest products. One market that values Alaska forest products and offers tremendous opportunity is Japan.  However, due to a previously strong U.S. Dollar, increased competition from Europe, and other factors, Alaska forest products have lost significant market share in Japan.  The purpose of this research project was to examine recent trends that affect Japan’s forest products market and present potential opportunities for Alaska forest products. Data was collected from government and industry organizations and industry experts were interviewed. The research identified five major trends affecting Japan’s forest products market:

• Changing Building Regulations – The Building Standards Law was revised in 2007 requiring certification of the structural integrity of new residential buildings by qualified architects or structural engineers. This revision was in response to a recent building scandal where some architects falsified structural strength documents required by the Japanese government. As a result, a number of buildings in the Tokyo area were declared unable to withstand a moderate earthquake and condemned.
• Changing Timber Supply – Overall, Japan’s lumber and log imports from North America have decreased. In contrast, lumber and log supplies from Europe, Russia, China, and within Japan have increased. However, several recent occurrences are constricting Japan’s timber supply including a Russian log export tariff and increased demand from other regions. Many of the industry experts interviewed pointed out that mills are looking for new suppliers to hedge against disruptions in their traditional timber supply.
• Increasing Green Building and Green Procurement Policies – Japan has developed a green building certification program called the Comprehensive Assessment System for Building Environmental Efficiency (CASBEE). This system consists of various green building criteria. Additionally, the Japanese government has announced a public procurement program that requires all forest products purchased by the government to come from legally harvested timber.
• Changing Exchange Rates – The U.S. Dollar has depreciated approximately 6 percent against the Japanese Yen in the past two years. This makes Alaska and other U.S. forest products more price competitive in the Japanese market.
• Changing Demographics – Two of the most important demographic segments in Japan are the Baby Boomers and the children of the baby boomers or Eco Baby Boomers. The Baby Boomers are retiring and many are looking to improve their houses. Eco Baby Boomers are having families of their own and many are choosing to purchase value priced houses rather than condominiums or renting apartments.

Based on the analysis of Japan’s forest products market, the researchers offered the following recommendations:

• Identify Alaska forest products companies interested in exporting to Japan. The first step to promote Alaska forest products in Japan is to identify companies interested in and qualified to export to Japan. These companies need to have the production capacity to do container load volumes and the commitment of management to pursue the Japanese market. Once these companies are identified, a directory should be created in Japanese to distribute to Japanese forest products buyers. These companies should also be encouraged to participate in the Japan Home Show and trade mission described below.
• Utilize trade organizations to increase awareness of Alaska forest products. Alaska’s presence in the Japanese market has dwindled and needs to be rebuilt. This can be done at a relatively low cost through utilizing resources that are already in place. There are two organizations that the authors recommend Alaska’s forest products industry utilize in Japan. The first is the Softwood Export Council headquartered in Portland, OR and with a Japan office in Tokyo. The University of Alaska is active with the Softwood Export Council and can assist with making connections. The second is the State of Alaska’s Japan Office located in Tokyo. Both of these organizations participate in forest products events held in Japan. The Alaska forest products industry should work closely with both these organizations. The contact information for these organizations is provided in Appendix A.
• Promote WWPA Alaska forest products’ labels in Japan. A coordinated marketing effort should be organized to promote the three WWPA registered labels in Japan: Alaska Hem, Alaska Yellow Cedar, and Alaska Spruce. Each of these should be promoted as a brand with unique attributes. The goal should be to build brand recognition for Alaska species in Japan by promoting these species and their unique attributes. Literature should be developed in Japanese explaining each species, their unique attributes, and the end usage for which they are suitable. It would also be beneficial to include contact information for Alaska forest products companies that can supply each of these species.
• Promote the structural values of Alaska lumber in Japan. The revised Building Standards Law requires builders to certify the structural integrity of their buildings by approved architects. In order to do this, architects will need access to the structural values of members used for structural support. Therefore, the results of the in grade testing program conducted by the Ketchikan Wood Technology Center should be translated into Japanese. Japanese architects responsible for certifying building plans will need access to modulus of elasticity and bending strength calculations for Alaska yellow cedar, hemlock, and Sitka spruce.
• Target the glulam beam industry. One expected outcome of the revision to the Building Standards Law is an increase in market share for glulam beams. Mr. Miyazawa (Miyazawa 2007), of the Japan Housing Newspaper, emphasized the revision to the Building Standards Law will favor glulam beams over solid sawn lumber because the exact structural values are written on each glulam beam. The opportunity for Alaska forest products manufacturers is to target the glulam beam industry with lamstock. Japan’s glulam beam industry has shown strong growth and there are opportunities for Alaska yellow cedar, hemlock, and Sitka spruce (CINTRAFOR 2008).
• Develop a certificate of harvest origin program for Alaska forest products. The Japanese government is starting to require all forest products purchased by government agencies to provide proof that the wood originated from legally harvested timber. This procurement program is still in the initial stages but what is clear is that some documentation will be required. As of now, the Japanese government is being very flexible with the documentation. At the GOHO Wood (Legal Wood) Conference in Japan, the Japanese official explained that companies can develop their own certificate and attach supporting documents such as timber sale receipts. Exporters should work closely with their Japanese customers and make sure that proper documentation is provided.
• Create an Alaska forest products display for the Japan Home Show held annually in November. One of the main conclusions to be drawn from this research is that Japan’s forest products manufacturers are becoming very concerned with the stability of their raw materials supply. Their concern centers on what will happen in the future to Russian and European supply and so Japanese buyers are looking for new suppliers. However, in order for this to benefit Alaska forest products companies, Japanese companies need to be informed of what products exist and how to get them. An excellent venue to meet Japanese buyers and educate them about Alaska forest products is the Japan Home Show. The Japan Home Show is held in November in Tokyo. The Softwood Export Council has a booth each year and allows members to display products. An Alaska forest products display should be designed to display product samples, product literature, and copies of the Alaska Forest Products Directory. 
• Organize a Japan Trade Mission for Alaska forest products companies. As a follow up to the Japan Home show, a Japan trade mission should be organized for Alaska forest products companies interested in the Japanese market. The primary purpose of this trade mission would be to introduce Alaska forest products companies to potential Japanese buyers. The secondary purpose of the mission would be to educate Alaska forest products companies about the Japanese market and the types of forest products used in the market. This trade mission should include Japanese mill visits, a seminar given by an Alaska representative explaining to potential Japanese buyers about Alaska forest products, and a reception to bring Alaska companies together with potential Japanese buyers. The visit should also include a visit to pre-cut lumber mills, laminators, and post and beam construction sites.  This trade mission should be organized in cooperation with the Alaska Department of Trade, the University of Alaska, and the Softwood Export Council.

Invite potential Japanese customers to Alaska for an Alaska mill tour.  This would be a way to introduce Alaska mill owners to Japanese forest products buyers. Additionally, it would allow the Japanese forest product buyers to educate Alaska mills about what products the Japanese market demands and their product specifications.

​Executive Summary
The Japanese glulam beam market has been growing steadily since the early 1990’s. From 1993 to 2007, total glulam beam usage increased from 199,300 cubic meters to 1,814,100 cubic meters. Japanese glulam beam supply comes from both domestic production and imports.  In 2007, 65% of Japan’s glulam beam production was from domestic manufacturers. However, even though these glulam beams are manufactured in Japan, much of the lamstock lumber used to produce glulam beams is imported. Two of the major imported lamstock species are European whitewood and Russian red pine.
Recently, a number of factors have combined to constrict the imported lamstock supply including a Russian log export tax, the increasing strength of the Euro and Canadian Dollar, and increased demand for wood in Europe and the Middle East. The researchers travelled to Japan and interviewed representatives from Japanese glulam manufacturing facilities. The company representatives were asked what species they are currently using for lamstock, technical specifications, market conditions, and what species they intended to use in the future.
The results of these interviews support the conclusion that there is potential for Alaska hemlock, Alaska yellow cedar, and Alaska Sitka spruce to supply Japan with lamstock lumber. However, the Japanese lamstock market requires that lamstock lumber be kiln dried and milled to exact metric dimensions. In order for Alaska forest products manufacturers to gain entry into the Japanese market, the following recommendations should be considered:
1.  Organize workshops to teach Alaska sawmills about the technical requirements of the Japanese lamstock and glued laminated beam market.
2.  Pre-qualify sawmills in Alaska that have the technical capability to produce kiln dried lamstock for the Japanese market.
3.  Organize a trade mission to visit glulam manufacturers in Japan.
4.  Display Alaska lamstock samples and literature at the Japan Home Show held annually in Tokyo.
5.  Invite potential Japanese customers to visit sawmills in Alaska.
6.  Create Alaska lamstock brands based on the established WWPA registered trademarks. For example, Alaska Hem Lam, Alaska Yellow Cedar Lam, and Alaska Sitka Spruce Lam.
7.  In addition to lamstock, lamstock blanks could also be considered for export to Japan.
 

Executive Summary
Japan is a timber deficit country that requires substantial volumes of imported timber to meet its domestic demand for wood. To a large degree, wood demand in Japan is tied to housing starts where approximately 43% of new homes are framed with wood. This reliance on imported wood has always caused a tension in Japan where forests cover two-thirds of the country and there is an extensive sawmill industry skewed heavily to small, rural sawmills using out-dated technology. A high cost structure has made both the forestry and sawmill industries uncompetitive on a global scale and, as a result, imported softwood lumber has come to dominate the Japanese market. Over the years, the Japanese government and the forest products industry have tried a number of strategies to improve the competitiveness of the forestry and sawmill sectors. Despite the closure of more than 10,000 sawmills over the past twenty years, the Japanese sawmill industry remains uncompetitive and plagued by small, inefficient sawmills located in rural areas far from the main demand markets. It is against this backdrop that the most recent regulatory initiatives to protect the domestic sawmill industry from international competition must be viewed. These regulatory initiatives include: 1) providing preferential treatment for domestic timber within the proposed CASBEE-Sumai green home building program, 2) using subsidies at the prefectural level to increase the share of domestic timber used in post and beam wooden homes to at least 50% and 3) and using subsidies at the national level to target an increase in the market share of domestic timber used in the post and beam industry from the current 30% to 60% by 2015.
Concerns about global warming and the environment and their commitments under the Kyoto Protocol have led the Japanese to develop a green building program, called CASBEE, to reduce the environmental footprint of commercial and residential buildings (CASBEE is the acronym for Comprehensive Assessment System for Building Environmental Efficiency). As part of its commitment as a signatory of the Kyoto Protocol, Japan is committed to reduce its emissions of greenhouse gases through a variety of strategies. The Kyoto Protocol was negotiated in Kyoto , Japan in December 1997 and came into force on February 16, 2005 following ratification by Russia on November 18, 2004. The Kyoto Protocol is an agreement under which industrialized countries commit to reducing their collective emissions of greenhouse gases by an average of 5.2% over the five year period 2008-2012 relative to the year 1990 (Wikipedia 2007). Japan , which became the 73 rd signatory to the Kyoto Protocol on May 31 st , 2002, has a target reduction of greenhouse gas emissions of 6% over the five year period. As part of its strategy to reduce greenhouse gas emissions, Japan has mandated that new commercial buildings incorporate energy efficiency in their design and operation.
The Japanese government has moved to improve the environmental performance of residential buildings with the drafting of the CASBEE-Sumai (Home) green building program. While the aim of the CASBEE-Sumai green building program is to reduce the environmental footprint of new homes, the program suffers from a weakness in that it is not based on a comprehensive Life-Cycle Inventory of the construction materials used to build Japanese homes. Additionally, the CASBEE-Sumai program has incorporated criteria which arbitrarily place imported wood at a competitive disadvantage by implying that wood harvested from Japanese forests is environmentally preferable to imported wood. These weaknesses of the draft program could be a source of confusion to architects and home builders regarding the overall environmental superiority of wood relative to other structural building materials. The two specific features of concern with the CASBEE-Sumai draft green building program are: 1) the specification of locally sourced wood (obtained from within a specific, but as yet undefined, distance from the building site) as being preferable to imported wood and 2) the determination that

domestic timber is de-facto defined as being sustainable and harvested from sustainably managed forests without independent third-party verification of forest management practices.
The de-facto declaration that all domestic (Japanese) softwood is assumed to be derived from sustainably managed forests runs completely counter to the fundamental premise of sustainable certification: transparency in certification programs, third-party verification and certification based on objective science. The lack of credible third-party verification of sustainability and legality also undermines consumer confidence since there is no guarantee that the wood being used is, in fact, legal or sourced from a sustainably managed forest. For example, a recent report in the Kyodo News (2008) on illegal logging in the Akan National Park in Hokkaido , Japan , illustrates the need for independent third-party certification programs, even in Japan . The decision to define domestic wood as sustainable violates the principal of reciprocity and places imported wood at a cost disadvantage in the marketplace since domestic lumber producers will not have to pay for the cost of certification for their lumber.
The fundamental reason for the preference of domestic wood over imported wood within the CASBEE-Sumai program appears to be to provide regulatory support for domestic wood processors whose lumber products are uncompetitive against imported wood. However, the blame for this lack of competitiveness cannot be placed at the feet of foreign manufacturers but rather at the reluctance of the domestic sawmill industry to implement the measures and investments required to achieve consolidation and modernization within an overly large and technically inefficient industry. For example, the pre-cutting industry, which manufactures the structural components for over 80% of the post and beam houses built in Japan , requires kiln dried lumber that is straight and machined to highly accurate tolerances as a raw material input to their manufacturing process. In response, most imported lumber now arrives in Japan kiln-dried and cut to the demanding specifications required by pre-cut manufacturers. However, despite this change in material specifications within the largest demand segment for structural lumber, the domestic Japanese sawmill industry has been extremely slow to invest in new kiln drying capacity. In fact, by 2007, less than one-quarter of the structural softwood lumber produced in Japan was kiln-dried (22.6%) and only 16.5% of Japanese sawmills had invested in kiln drying facilities. Examples such as this clearly show that Japanese sawmills remain reluctant to invest in manufacturing technology to improve their competitiveness, preferring instead to rely on government regulation and subsidies to provide protection from more efficient foreign producers.
Some organizations in Japan have advocated using the CASBEE-Sumai program to provide preferential consideration for domestically manufactured wood products under the rationale that the increased carbon emitted during the international transport of lumber to Japan increases the carbon footprint of imported lumber, thereby making domestic softwood lumber a more environmentally preferable material. However, this argument overlooks the fact that most container ships carrying lumber products are returning to Japan on a backhaul leg after having delivered Japanese exports to their foreign destination. In addition, the argument for local wood further ignores the fact that ocean transport is an extremely efficient mode of transportation given the large size of the bulk ships used to transport logs and the container ships used to transport lumber. As a result, the amount of carbon emissions for these two transport modes (on a cubic meter per kilometer basis) are just 2.7% and 5.9%, respectively, of the carbon emissions generated from transporting lumber by truck in Japan. Thus, transporting the volume of structural lumber used in the typical Japanese post and beam house (14 m 3 ) from North America (either Seattle or Vancouver, BC) to Tokyo generates the same amount of CO 2 as shipping this volume of lumber just 112 km by truck in Japan. This analysis suggests that the international transportation of softwood lumber, at least from North America to Japan , might well produce less of an environmental footprint than transporting domestic lumber given the increase in transportation distance resulting from the widespread acceptance of precut lumber within the post and beam industry. A more detailed analysis of the distribution channels for domestic wood from forest to sawmill to wholesaler to precutting facility to building site should be performed to better understand the carbon trade-offs during transportation between domestic wood and imported wood.
Quantitative Impact of Domestic Wood Programs
There are two programs that could adversely affect the value of US softwood log and lumber exports to Japan . The first relates to the favorable consideration of domestic wood while the second relates to a program being supported by MAFF that aims to increase the market share of domestic wood use in the P&B industry from its current 30% to 60% by 2015. An economic analysis of these scenarios demonstrates that favoring the use of

domestic lumber would not only impact the demand for imported lumber, but the demand for imported logs as well. Since the US is a large supplier of logs to Japan (approximately 2/3 of which are Douglas-fir logs), this would adversely impact both log and lumber imports from the US . The estimated impact of the domestic wood programs being proposed on the value of US lumber exports to Japan over the 2007-2015 period ranges from $84.5 million to $95.6 million. In the case of logs, the value of US exports could potentially drop by between $196 and $735 million over the period 2007-2015. The total impact on US softwood log and lumber exports to Japan ranges from $84.5 million and $735 million, depending on the success of these programs in promoting the increased use of domestic wood in place of imported lumber and the extent to which imported logs are replaced by smaller, lower quality domestic logs. Considering the current constraints on the ability of domestic timber to substitute for imported timber (e.g., timber supply, lower timber quality and lower mechanical strength properties, among others), it is more likely that the lower estimate of the reduction in the value of US log and lumber exports to Japan ($84.5 million) is more accurate. While this analysis is sensitive to a number of assumptions, it clearly shows that a program targeted towards substituting domestic wood for imported wood could have a substantial adverse impact on the US forest products industry.
Strategic Implications
The myopic strategy of protecting the inefficient and uncompetitive forestry and sawmill sectors in Japan through preferential regulatory policies (such as the de-facto specification of domestic wood as being sustainable managed) or by providing subsidies to achieve an arbitrary market share for domestic lumber within the post and beam construction sector ignores the superior environmental performance of wood relative to non-wood building materials. More importantly, these types of preferential programs have been specifically targeted to the post and beam market segment; a shrinking segment of the residential construction industry. As a result, these policies distract attention from opportunities to expand the demand for wood products in non- traditional market segments such as wood multi-family housing, hybrid construction and low-rise commercial construction. Housing start statistics clearly show that whereas the ratio of P&B housing starts has been declining over time, the ratio of housing starts in the multi-family (both mansion and apartments) sectors, where steel and concrete dominate, has been increasing.
If the Japanese forest products industry is truly interested in promoting the environmental benefits of wood, encouraging the adoption of a green building program and expanding the demand for domestically produced structural lumber, then they would do well to consider a strategy that grows the overall demand for structural lumber by promoting the increased use of structural lumber in non-traditional sectors of the market rather than encouraging an artificial competition between domestic wood and imported wood within the shrinking P&B segment of the residential construction industry. This promotional effort would utilize LCI data to document the superior environmental performance of wood frame multi-family and commercial (including hybrid) structures relative to non-wood structures. To support this effort, preliminary research should be done to identify: 1) the relative market shares of steel and concrete structural materials within these non-traditional market segments, 2) the material selection process used by architects and builders and 3) the factors that influence the material selection process.
Given the agenda of promoting domestic wood over imported wood, it is important for US wood products associations to maintain open communication with the CASBEE-Sumai committee to reinforce the message that the CASBEE-Sumai program should focus on rewarding the use of any wood over less environmentally friendly building materials. This should be reinforced by the message that wood houses use a broad range of sizes, qualities and wood species in their construction based on specific structural end-use requirements.
Limiting the material selection to only locally produced lumber severely restricts the material options available to builders and may encourage them to use less environmentally friendly non-wood materials in place of other “non-local” wood products so that they can still meet the 50% local building material requirement and therefore qualify for prefectural subsidies. The bottom line is that these subsidy and regulatory programs distort the market and could encourage architects and builders to make material choices based not on the environmental performance of a specific material but on a set of artificial proxies that reflect a political agenda rather than objective scientific environmental data.

Executive Summary
For fifteen years between 1989 and 2004, US exports of softwood lumber were mired in decline. During this period, the volume of US softwood lumber exports plunged from approximately 8 million m 3 to less than 2 million m 3 . This trend was a reflection of the relatively strong dollar which undermined the competitiveness of US softwood lumber, coupled with regulatory changes in major export markets (particularly Japan ) and a strong housing market in the US . This combination of adverse factors influenced many US softwood lumber manufacturers to abandon their traditional export markets. This was especially evident in Japan where US exports of softwood lumber dropped from 3.5 million m 3 in 1989 to just 115,000 m 3 by 2005.
Recent years have seen a rapid reversal in some of the macroeconomic factors affecting the US softwood lumber industry. The US dollar has weakened considerably against both the Canadian dollar and the euro, greatly increasing the competitiveness of US wood products in export markets. Since 2002 the US dollar has weakened by 33.7% against the Canadian dollar (and is now almost at par with the Canadian currency) and by 34.1% against the euro. This alone has substantially increased the competitiveness of US softwood lumber in most markets.
At the same time, demand for softwood lumber in the US has fallen substantially as a result of the weak housing market. Since 2005, housing starts in the US have declined by 12.8% from 2.06 million starts in 2005 to 1.8 million starts in 2006. Housing starts are projected to drop further in 2007 to between 1.5-1.6 million. In response to the weak housing market, demand for softwood lumber in the US dropped by 6.4%, from 64.3 bbf in 2005 to
60.1 bbf in 2006. More worrying is the fact that US softwood lumber demand is projected to drop to 54.2 bbf in 2007 before recovering only slightly in 2008 to 56.7 bbf.
With prices low and demand weak in the US market, many softwood lumber manufacturers have begun looking offshore again. Between 2004 and 2006, the volume of US softwood lumber exports grew by 18.6% to reach 2.2 million m 3 . More importantly, the value of softwood lumber exports has jumped by 35.5% to reach $592 million. Softwood lumber exports have remained strong during the first four months of 2007, with exports increasing by 14.5% in terms of volume and 25.7% in terms of value. Encouragingly, the strong export performance of softwood lumber has not been confined to a small group of traditional softwood lumber export markets but has occurred across a broad range of markets. In the UK , softwood lumber exports are up by 675% in the four months of 2007, propelling the UK from the 14 th largest market to the third largest market for US softwood lumber.
Douglas-fir (DF) lumber used for beam applications ( hirakaku ) continues to enjoy success in Japan . This success can largely be attributed to the superior performance (with respect to strength, straightness, dimensional stability, and visual appearance) of DF relative to other timber species. Thus, DF maintains a reputation as the premier timber species for hirakaku applications. Yet despite its strong reputation, DF has seen its market share slowly eroded by alternative lumber products such as European whitewood and European redwood glulam lumber. The primary basis for this trend has been the shift towards pre-cut housing components as well as the price sensitivity of Japanese home builders and pre-cutting manufacturers.
The objective of this research was to evaluate the use and specification of structural lumber within the Japanese post and beam construction market, particularly with respect to Douglas-fir lumber in beam applications. In addition, this project follows up on the recommendation of an earlier marketing report recommending that US Douglas-fir manufacturers consider the feasibility of developing and introducing branded DF hirakaku lumber in

Japan . In order to develop a better understanding of the potential opportunity for branded DF hirakaku lumber, two focus groups sessions were held with home builders in Japan . The focus group sessions were supplemented by personal interviews with Japanese post and beam home builders and pre-cutters, the two major end-users of DF hirakaku. Finally, visits were conducted to the major DF sawmills in Japan to develop a better understanding of the competitive role of Japanese DF lumber producers in the market and to explore the role of branding in the marketing of domestically sawn Japanese DF lumber.
Material use in the residential construction industry has been affected by several regulatory changes in Japan . In May, 1998 the Building Standard Law of Japan (BSL) received its first major revision since 1950. To a large degree these revisions were in response to the widespread devastation caused by the Kobe earthquake in 1995 and the perception that the structural performance of wooden post and beam homes, as well as the regulation of construction practices, needed to be improved to ensure the safety of homeowners in Japan . However, the single most important factor affecting the use and specification of structural softwood lumber for use in residential construction in Japan has been the Housing Quality Assurance Act (HQAA). The HQAA was promulgated to improve the quality and performance of new homes and provide homebuyers with specific safeguards and rights when purchasing a new home. The HQAA was developed partially in response to the poor performance of post and beam houses in the Kobe earthquake, but also in response to increasing complaints from home buyers about construction defects and the lack of responsiveness on the part of home builders in correcting those defects.
Japan 's domestic lumber industry presents a contrast to the overall low level of timber self-sufficiency. Whereas over 80% of Japan 's total timber supply is derived from imports, only about 40% of Japan 's softwood lumber demand is provided by imports. Despite Japan 's relatively high level of self-sufficiency in softwood lumber, the domestic lumber industry is characterized by declining production levels as smaller, less efficient sawmills have closed down. The domestic sawmill industry was particularly hard hit by the Asian economic crisis, with the number of sawmills declining from 14,028 in 1996 to 12,810 in 2001. These sawmill closures resulted in large declines in productive capacity from 1997 to 1998. Over the past five years, domestic lumber production has declined from 25 million m 3 to less than 14 million m 3 (and the number of sawmills in 2006 has declined to 8,590), while lumber imports have increased to approximately 9 million m 3 . The combination of declining domestic lumber production and slowly increasing import volumes means that self-sufficiency dropped from 74% in 1991 to the current 60%.
Recent developments in Japan and the US have favorably affected the competitive position of US softwood lumber in Japan and renewed US exporters interest in the Japanese market. The weakening of the US dollar relative to its major competitors in Japan , a weak US housing market and the announced export tariffs on Russian logs all bode well for US lumber in Japan . Therefore, it is in the US forest products industry's best interest to work to work with their Japanese customers to convince Japanese home builders and home buyers that using DF hirakaku is worth the small price premium it commands in the market. For example, a promotional campaign emphasizing the strength, durability and natural beauty of Douglas-fir structural lumber could be very helpful in Japan . In the absence of this type of promotional effort, DF hirakaku products can be expected to continue losing market share in the long-term. One recent estimate derived from interviews with pre-cutters and lumber wholesalers suggests that between 2000 and 2010 the market share for DF hirakaku could shrink from 83% in 2000 to 70% in 2010.
There are a number of factors that constrain the competitiveness of solid sawn US DF hirakaku in Japan, including: high cost of kiln drying large size DF hirakaku, the difficulty in shipping green hirakaku to Japan without developing surface mold and discoloration, the difficulty in maintaining a stable moisture content for kiln dried DF hirakaku during the shipping period to Japan, price fluctuations, reluctance to cut to the lengths required by pre-cutters, the size of the domestic Japanese DF sawmill industry, the high cost of maintaining inventory in Japan, the ready availability of lower cost hirakaku products from domestic DF sawmills and foreign glulam suppliers, the extremely large number of hirakaku size combinations that require a huge number of different hirakaku product sizes (approximately 140 size combinations) and the attendant high inventory costs, and the difficulty in establishing an effective distribution system in Japan
Given the serious constraints associated with establishing and maintaining an adequate supply of imported DF hirakaku in Japan , we would recommend that the US industry not develop a branding program for DF hirakaku in Japan . This decision is further supported by the fact that there is currently a large, well established domestic DF

sawmill industry in Japan . The fact that Japanese DF sawmills have already developed branded hirakaku products further supports this recommendation. It is difficult to see where US sawmills would have a competitive advantage over Japanese sawmills producing branded products, particularly considering the well established distribution channels that the Japanese sawmills have already developed within the pre-cutting and home building industries. Despite this, there are substantial opportunities for US DF sawmills to establish direct supply relationships with medium-sized regional homebuilders and larger national homebuilders. These homebuilders have become extremely cost conscious in the past decade and many expressed interest in purchasing building materials directly from US sawmills as a way to reduce distribution channel costs and improve product quality.
In addition, there is a good opportunity to export kiln dried DF glulam lamina to glulam manufacturers in Japan . This is particularly true if the US industry were to promote DF glulam hirakaku as a superior product to either European whitewood or redwood glulam. However, it would be important for US lamstock producers to resolve the forward pricing issue that currently provides European glulam manufacturers with a competitive advantage. There is also an opportunity to export lamstock produced from other species as well. For example, Alaska yellow cedar lamstock for glulam sill plates ( dodai ) and Sitka spruce for glulam hirakaku. Further research would be required to develop a better assessment of the potential for exporting lamstock to Japanese glulam manufacturers.

​Executive Summary
Alaska exports to Japan decreased dramatically during the 1990's. This decline was caused by a variety of factors including the Japanese recession, a reduced Alaska timber supply, exchange rates, a market shift from green lumber to kiln dried lumber, and increased global competition. However, in 2005 Japan 's GDP, stock market, real estate, and consumer price index were up from the previous year indicating a strong economic recovery. Furthermore, the U.S. Dollar has weakened against the Japanese yen and many economists predict that the U.S. Dollar will continue to decline against the yen due to historically high U.S. fiscal and trade deficits. This will give Japanese companies more purchasing power for U.S. forest products.
In addition to economic changes, Japan 's demographics are changing rapidly. In the first half of 2005, Japan 's net population decreased and the population will continue to decline to the 1960's level of 100 million by 2050. While Japan 's general population is decreasing, the percentage of population over 65 is growing rapidly as the baby boomers reach retirement age. According to a survey published in the Nikkei Weekly Newspaper, one area baby boomers expect to spend money on when they retire is their house. The total size of Japan 's remodel market was 7.0 trillion yen (US$ 60.3 billion) in 2003. The remodel market increased in 2003 and is predicted to increase as more baby boomers retire.
As explained above, the Japanese market has shifted from green lumber to kiln dried lumber. Alaska has more than doubled their kiln dry capacity since the late 1990's and this opens up Japan 's kiln dried lumber market. Additionally, the Ketchikan Wood Technology Center has established Alaska-specific lumber grade marks to differentiate Alaska timber species' unique characteristics. The Japanese market has always valued quality and there is now an opportunity to communicate Alaska lumber quality by promoting these new grade marks in Japan
The results of this research suggest that many niche markets exist for Alaska forest products:
1.  Tract housing power builders
Tract housing developments built by a new category of builder called “power builders” have increased in Japan 's urban areas. This is a growing market segment in Japan and these power builders are large enough to import Alaska forest products in large quantities.
2.  Kiln dried lumber
Alaska has substantially increased its kiln dried lumber capacity recently. Japan 's ten year warranty building requirement has increased demand for kiln dried lumber. There is ample demand for kiln dried lumber in both the 2x4 and post and beam housing markets.
3.  Lamstock market
There has been an increase in demand for engineered wood and the number of Japanese glulam manufacturers. The results of the Ketchikan Wood Technology Center Alaska species testing program have shown Alaska lumber has superior strength properties compared with many other species making it suitable for lamstock.

4.  Pre-cut lumber market
Almost 75 percent of Japanese post and beam starts used pre-cut lumber. Japan 's pre-cut lumber mills are a strong market to target with lumber sizes that could be used with their pre-cut lumber machines. The lumber sizes vary based on the application.
5.  Alaska yellow-cedar for sill plate ( dodai )
Due to its natural decay resistant properties, Alaska yellow-cedar is very popular for sill plates and other structural lumber used in ground contact applications in Japan .
6.  Alaska yellow-cedar for garden accessories and tubs
Alaska yellow-cedar's decay resistant properties make it an excellent species for outdoor garden accessories such as decking and decking accessories, benches, gazebos, and lattice. As explained earlier, there are a lot of retirees in Japan and this number will be increasing. Many retirees spend more time in their gardens and the demand for garden accessories is expected to increase.
Also, Alaska yellow-cedar is considered a substitute for hinoki , (Japanese falsecypress). Japanese people traditionally take a bath daily. Soaking tubs are especially popular in Japan and most detached houses have one. An Alaska yellow-cedar tub could be developed and positioned as an upscale alternative to a hinoki tub.
7.  Home improvement market for retirees
Japan 's baby boomers are approaching retirement age. Many Japanese retiring workers receive a large lump sum payment, which they often use to improve their house. The senior home improvement market is expected to grow substantially as baby boomers start to retire.
8.  Remodel market
The remodeling market is expanding. There is an opportunity for lumber producers to collaborate with builders specializing in remodels, architects, and designers to develop higher quality products to sell to Japan .
9.  Wood Chips
It has been estimated that over 2.3 million acres of timber have been affected in the Kenai Peninsula by the spruce bark beetle. One potential application for beetled killed spruce is wood chips. Japan has one of the largest pulp and paper markets in the world.
10.  Gift Market
Japan 's gift market has strong potential for smaller wood products and craft items. This market offers tremendous opportunity for smaller wood products that can be packaged and shipped easily. It would also make the gift more attractive if wood items are bundled with other “made in Alaska ” items, such as smoked salmon.
11.  Brand Strategy
As described above, the Ketchikan Wood Technology Center has registered proprietary grade marks for Alaska species. These grade marks are “Alaska Hem”, “Alaska Yellow Cedar”, and “Alaska Spruce”. These three grade marks should be developed into a brand that communicates the quality of Alaska forest products to forest products manufacturers, pre-cutters, and homebuilders.

​Executive Summary
Despite the poor economy in Japan, there remain promising niche markets for Alaskan softwood lumber.  The unique characteristics of Alaskan softwood species are well suited to the demands of the Japanese market in general and Japanese post and beam home builders in particular.  In addition, Alaskan species, particularly Sitka spruce and Alaska yellow cedar, enjoy a good reputation in Japan.  For example, as a result of recent regulatory changes in the residential construction sector, it may be advantageous for Alaskan producers to supply kiln-dried lumber and glu-lam products milled to the specific dimensions required by the post and beam industry.  Given that Alaskan producers cannot compete solely on the basis of price, a more effective strategy is to differentiate their products using non-price attributes that are valued in Japan.  The primary aims of this research were to identify niche market opportunities for Alaskan timber species in the Japanese post and beam industry, describe those market opportunities and provide recommendations to help Alaskan sawmills evaluate the niche opportunities in Japan and objectively assess how those market opportunities match their own production and sales capabilities.  The market opportunities in specific niche markets are described below.
Residential Construction
The Housing Quality Assurance Act of 2000 requires that all builders provide a 10 year warranty on their homes, including the structural components used to frame-in the house.  This requirement has had a significant impact on the species of lumber specified for structural components that are used in ground contact applications.  In the future, Japanese builders are expected to increase their use of naturally durable timber species in an effort to reduce their liability and increase the performance of their homes.  A second factor influencing material specification in residential construction has been the homebuyers’ increasing awareness of, and concern about, “sick house syndrome”.  Sick house syndrome has received extensive coverage within the Japanese media and, while it is primarily attributed to off-gassing of volatile organic compounds (VOC’s) from carpeting, paint, and vinyl wall coverings and their adhesives, this concern on the part of some homebuyers has caused a growing number of builders to reduce or discontinue their use of engineered wood products and pressure treated wood.  The combination of these two factors provides Alaskan sawmills with a unique opportunity to increase their sales of Alaska yellow cedar lumber in both the post and beam as well as the 2x4 segments in the home building industry.
Lamina For Glue-Laminated Beams
Currently there are six glu-lam beam manufacturers in Japan that utilize Alaska yellow cedar lumber to produce laminated dodai and posts.  Alaska yellow cedar glu-lam ground sills tend to be used in higher end homes, although some builders of mid-price homes use yellow cedar glu-lam ground sills as a way of demonstrating the high quality of their houses and differentiating their homes from their competitors.  In addition to ground sills, there are also opportunities to export lamstock produced from Sitka spruce and hemlock for use as posts and structural beams.  This is particularly true because Alaskan timber species tend to be slow growth with narrower growth rings and correspondingly higher strength characteristics than the same species growing in other parts of the Pacific Northwest.
Lumber For Shoji Components
Traditional Japanese homes typically have a tatami room.  The tatami room may be where the family gathers or it may serve as a bedroom at night.  Tatami rooms use a large volume of appearance grade wood in exposed applications such as beams, shoji screens, and moldings.  While there are fewer tatami rooms being built in Japanese homes today, there is still a good demand for high quality yellow and red cedar, as well as Sitka spruce and white spruce, for shoji components.  In addition, the price premiums obtained for shoji grade lumber make this a good market for lumber manufacturers.
This research has demonstrated that there are a number of potential market opportunities in Japan for softwood lumber from Alaska.  These range from rough green lumber to planed and kiln-dried lumber to laminated yellow cedar sill plates (dodai).  The most promising opportunities were found to be yellow cedar dodai for the post and beam market, 2x4 and 2x6 yellow cedar dimension lumber for sill plates in the 2x4 market, Alaska yellow cedar, Sitka spruce, and hemlock lamina for the laminated beam industry, and rough, green or planed, kiln-dried yellow cedar, western red cedar, Sitka spruce, and white spruce lumber for the shoji manufacturing industry.  Having identified a series of market opportunities for softwood lumber from Alaska is not enough though.  A more important factor is to provide sawmill managers in Alaska with a series of marketing recommendations that will allow them to objectively assess and determine if exporting softwood lumber to Japan makes strategic sense for their company and, perhaps more importantly, that will assist them in determining whether their company is prepared to make the commitment of time and resources that are critical to achieving success in the Japanese market.  A series of ten strategic marketing recommendations developed during the course of this study are presented and discussed.
 

​Executive Summary
Background to the Study
The lack of competitiveness of Japan’s wood producers, continued growth in imported lumber and wood products, and a growing unmanaged timber stock on Japanese national and private forests spurred the Japanese government to review lumber imports and its relation to its depressed wood products market.  Although the initial Ministry of Agriculture, Forestry and Fisheries inquiry into how exports of wood products from the US and other regions of the world have proven injurious to the domestic industry never reached a pan-ministry consensus, at the time of this writing some lumber products are still on the MAFF’s list of products for potential WTO safeguard protection.  A Safeguard Action under WTO guidelines requires that the Japanese government: (i) identify the affected industry, be it the forestry sector or the wood-processing sector; (ii) identify the affected product and its relation to substitute import products; (iii) determine how the sharp increase in imports resulted in injury to the affected industry; and (iv) determine how Safeguard measures would improve the competitiveness of the affected industry over the 4 to 8 year period it is in effect.
Study Objectives
This study, through in-country interviews, literature review, and data analysis, sought to analyze the state of the competitiveness of the Japanese forestry and wood products industries, and, using the CINTRAFOR Global Trade Model, to determine the impact of a protectionist trade policy on the domestic industry’s competitive strength and upon Japanese home-buying consumers.
Summary of Findings
During the period of the writing of this report it appeared that the threat of a WTO Safeguard Action subsided. However, as of July 2001 lumber products are still officially listed by MAFF for a potential safeguard action. Though this is not a study regarding the impact of protectionism on US or foreign exports to Japan the consequence of such a protectionist action on US and foreign wood exports to Japan is large. As the study findings suggest the benefit of trade restrictions to the domestic industry is mixed with the main burden of such an action being shouldered by the Japanese consumer.  Many of the reasons for the lack of Japanese forestry and wood product sector competitiveness have more to do with internal systemic issues than with external issues traceable to exports.
Potential Impact of a Safeguard Action
Although the intended objectives of the Government of Japan forestry and forest products policies and subsidies is to realize “an era of domestic timber, a Safeguard Action may have the opposite effect by increasing log imports 44%.

• A simulated 25% increase in tariffs under a Safeguard Action, causes a 20% increase in domestic lumber production and a 7% increase in domestic log production.
• Consumers of lumber products lose approximately $3 billion dollars annually. This is more than double the Forestry Agency subsidy monies supporting the forest and wood processing industry.
• The 16% increase in the price of lumber resulting from a Safeguard Action has the potential to increase home construction costs by ¥264,000 yen per house.
• Sawmills processing imported logs tend to have a higher level of average production, suggesting that a Safeguard Action may lead to consolidation in the industry, negatively impact the smaller mills that rely on domestic logs.

Forestry Industry: Internal Systemic Issues

• Japan has an unusually high cost of forestry compared to other regions of the world.
• Poor profitability in forestry is due in part to geography, such as steep terrain, which makes forest management challenging and increases the cost of harvest and extraction
• The low profitability is reflected in a Forestry Agency study which estimates that the internal rate of return from a sugi plantation has declined from 6.3% in 1965 to 4.1% in 1975 to 2.1% in 1985 to 0.9% in 1993.
• The exceedingly small size of private forests, most around 5 hectares, makes it difficult for owners to raise capital and manage efficiently.
• The depopulation and aging of the forestry and wood products workforce seriously impacts productivity and efficiency of the forestry industry. According to one survey 57% of forestry workers are over the age of 55 while less than 10% are under the age of 35.

Wood-processing Industry: Internal Systemic Issues

• Japan’s harvesting and delivery costs to the mill are now nearly three times more than those costs in the US Pacific Northwest region and six times larger than those in Scandinavia and the southern hemisphere.
• Imported log prices, energy and labor costs combined with a decreasing log processing efficiency results in Japan’s sawmills being high cost producers of lumber relative to their competitors.
• Electrical rates for the saw-milling sector in Japan are 3 to 4 times higher than other producers.
• The small size and scale of sawmills in Japan contribute to their lack of profitability. Production cost estimates for 1996 indicate that Japanese costs are approximately 156% higher than a sawmill in British Columbia, Canada.  While labor, energy, and capital costs are less than 50% higher than BC, stumpage prices for sugi are 250% higher than hemlock.
• The performance based regulatory environment surrounding the housing industry (Housing Quality Assurance Act and the 10-Year Housing Warranty) is altering the product and species mix, displacing some domestic species. For example, demand for yellow cedar and treated lumber in ground sill (dodai) applications has also increased as a result of the 10-year Housing Warranty.

Conclusion: Protection is Not the Path to Competitiveness
Since 1955, Japan has seen its self-sufficiency in wood products decline from approximately 95% to below 20% by 2000.  While there are a variety of factors that have contributed to this decline, the net effect has been that domestic forest products manufacturers have lost tremendous market share to imported wood products.  Similarly, the competitiveness of the forestry sector has declined significantly relative to imported softwood logs.  The dominance of the timber market by imported timber has contributed to a fundamental structural change within the forestry and forest products sector.  Analysts and politicians have charged that these structural changes in the forestry and forest products sector have not only adversely affected the competitiveness of the domestic forest products sector but that they have severely restricted the ability of forest owners to actively manage forests in Japan, both private and public.  In an attempt to rectify this inability to manage its forests and to bolster the competitiveness of its forestry and wood-products industries the Government of Japan has considered a Safeguard. However, the conclusion of this study is that given the burden that this trade restriction will likely cause to the Japanese consumer coupled with the probability of a significant increase in log imports, protection is not the road to profitable and well-managed forests and wood products industry.  Perhaps more importantly, given the internal systemic issues described earlier, there appears to be little likelihood that a Safeguard would result in the increased competitiveness of the sawmill industry.
 

​Executive Summary
Japanese housing starts reached a high of 1.64 million in 1996 as homeowners rushed to beat the consumption tax increase scheduled for 1997.  The Asian economic downturn and various other factors caused housing starts to fall to 1.2 million in 1998.  The decline in housing starts, in conjunction with a Japanese recession, contributed to a dramatic decrease in imports of wooden building materials.  Japan, the most important export destination for PNW solid wood products, accounts for almost 31% of PNW exports.  During the economic downturn, Japanese imports of PNW primary wood products fell 30%, to $670 million in 1998 while exports of secondary wood products fell 36%, to less than $100 million.
Events that occurred before and during the recession have caused structural changes in the flow of wood products to Japan.  During the downturn, the Japanese yen weakened against the US and Canadian dollar, effectively raising the price of US wood products in Japan.  The consumption tax rate increase, strong US dollar, and the extended economic recession combined to heighten price sensitivity among Japanese consumers.  These factors combined to reduce the competitiveness of US wood products in the Japanese market.
The majority of firms engaged in exporting wooden building materials to Japan were affected by the Japanese recession.  While most firms reported a decline in export revenues from Japan, some firms experienced increases in their exports to Japan.  This anomaly prompted an investigation into why some firms were successful in increasing their exports while other firms were not.  The objectives of this study were to document the perceptions of PNW exporters and manufacturers on the importance of services offered to Japanese customer, to discover the key characteristics of successful exporters and to identify the impact of the marketing mix on export performance.  A mail and fax survey was designed to elicit specific information on the demographic and operational characteristics of exporting firms in the Pacific Northwest.
The survey population included firms that exported or manufactured and exported wooden building materials to Japan.  The survey was administered by fax with follow up faxes and letters.  Of the 163 US and 71 Canadian firms, 44 US (27%) and 15 Canadian (21%) firms were judged to have gone out of business.  Out of 173 viable firms, 72 returned completed surveys for a response rate of 41.6%.  US firms returned 41 surveys from a population of 119 for a return rate of 34.5%; while 31 of the 54 Canadian firms returned surveys for a response rate of 57.4%.
An open-ended question prompted the respondents to identify the factor that had the greatest impact (positive or negative) on their business in Japan.  The most frequently mentioned factors were the Japanese recession and the strong US dollar, while marketing factors, such as distribution and services were mentioned less frequently.
The survey data suggests that shorter channels were used more often than the traditional Japanese multi-layered channel.  On average, 58% of the respondents export sales went directly to Japanese homebuilders, while an additional 7% went through a company sales office.  Other distribution channels included Japanese distributors, Japanese wholesalers and other trade intermediaries.  Respondents perceived a significant advantage to having a sales office and sales/technical representatives in Japan.  They also perceived a significant advantage to using a Japanese distributor to take control of product distribution.  Overall, the survey data suggests that distribution channels for wooden building materials to Japan are becoming shorter.
Softwood lumber was the most commonly exported product (22%), followed by wooden doors (17%) and wooden windows (16%).  The remaining products exported included prefabricated housing components (10%), structural panels (8%), cabinets (8%), and glulam beams (3%), while other products accounted for 16% of the export mix.
Survey respondents were asked several questions related to the importance of the offering specific services to their Japanese customers.  In general, the importance of providing these services was perceived to be significantly more important by the firms that provide them relative to the firms that do not provide them.  The services included in the survey were:  warehousing spare parts in Japan, offering a product warranty, providing translated product information, providing translated installation instructions and providing translated maintenance instructions.  Of 68 respondents, 53% reported that they provided translated product information, 46% provided translated installation instructions, and 36% supply translated maintenance instructions.  An analysis of the data suggests that as the product becomes more technically complex, there is a lower likelihood that the exporter will provide translated technical information.
Nearly all of the survey respondents reported that their Japanese customers had become more price sensitive.  Most firms reported that this increased price sensitivity had a negative impact on their export performance.  However, a small set of respondents indicated that their exports to Japan increased despite the increased price sensitivity of their Japanese customers.
A comparison of US and Canadian firms revealed some basic differences in the products and distribution channels used to service the Japanese market.  Canadian firms shipped 71% of their total exports to Japan, while the US only shipped 53%, a significant difference.  Canadian firms also tended to ship a larger volume of primary wood products through shorter channels than their US counterparts.  US firms were more likely to ship value-added products through longer distribution channels.  Finally, Canadian firms were more likely to know the segment of the residential construction industry in which their products were used.
The distribution channel and product mix of firms that successfully exported to Japan during the Asian downturn differs greatly from the unsuccessful exporters.  The firms that did well had export product mixes containing high amounts of wooden prefabricated building components and other value added products.  Unsuccessful exporters tended to focus more on lumber, structural panels and doors.  Successful exporters tended to report a higher use of short distribution channels, often exporting directly to the homebuilder or to a company sales office.  Finally, successful exporters tended to supply a higher percentage of their products to post and beam builders and into other (non 2x4) segments of the construction industry.
Market knowledge appeared to play a vital role in export success as unsuccessful firms were over three times more likely not to know how their products were used.  This lack of market knowledge makes offering after market sales support difficult and successful promotion within those market segments almost impossible.  This research suggests that the firms that were successful during the downturn exported more than twice the amount of products into other market segments (primarily post & beam, prefabricated homes and log homes) than did unsuccessful firms.  These segments of the housing market may be less sensitive to changes in the overall economic conditions than are the larger post and beam and 2x4 housing segments.
Analysis of total sales by export success reveals some interesting patterns.  The medium-sized firms (export sales revenues between $1 million and $5 million) appear to have done much better than both small firms (export sales revenues less than $1 million) and large firms (export sales revenues above $5 million) (Figure 5.5.7).  It is interesting to note that a much higher percentage of the medium-sized firms reported an increase in export revenues.  Fully two-thirds of the companies who reported an increase in export revenues were medium-sized firms.  In contrast, the firms who reported a decline in export revenues were fairly evenly distributed, although almost forty percent of these firms were large firms while just 13% of the successful firms were large companies.  As mentioned previously, exports tend to be a much higher percentage of the total sales revenue of the small- and medium-sized firms in contrast to the larger firms who tend to have a heavy focus on the domestic market with exports rarely comprising more than 10% of their total sales.  Thus, we might conclude that the medium-sized firms are more committed to the export market and have developed a marketing strategy that provides them with a greater chance of succeeding in Japan even when the markets are poor.  While smaller firms are also more focused on their export markets it would appear that they do not have the financial and marketing resources to withstand a significant decline in the export market, as indicated by the fact that 83.3% of the small firms reported declines in export sales revenues in Japan.
A factor analysis reduced the larger number of eleven marketing factors into just three factors.  The average importance ratings for each factor clearly show that not all of the factors were perceived to be equally important in marketing wood products in Japan.  The factor with the highest average importance rating was “Providing translated product information to Japanese customers” which received an average importance rating of 5.52.  The second factor, “Providing customized in-country services”, was considered to be somewhat important with an average importance rating of 3.94.  The third factor related to the use of specific distribution strategies in Japan, was perceived to be the least important of the three factors with an average importance rating of 3.42.
This study has documented structural changes in the trade of PNW wooden building materials with Japan.  It has also provided quantitative and qualitative insights into the impacts of the Asian downturn on the performance of exporters in the PNW.  The Asian downturn may have served to accelerate the changes occurring in the distribution channels, product mix, and services offered to the Japanese housing market.  Changes in the demands of the Japanese consumers have opened new areas and created new opportunities for firms to develop or increase their competitiveness.  These changes include shortening the distribution channel and shifting the export mix to include more value-added products.  Also, providing more after-sales support, primarily translated product information was also perceived to be important.  While some of these strategies may not be suitable for all firms, exporters should realize the need for increasing their competitiveness in the expanding global economy.

Executive Summary
In response to weakened demand for imported wood building materials within the 2x4 segment of the housing industry, a number of US exporters have begun to explore opportunities in the post & beam and prefabricated housing markets. In order to develop a better understanding of the problems and opportunities confronting US wooden windows in the post & beam segment of the Japanese residential construction industry, this project was designed to integrate with the ongoing market development programs being undertaken by OTED. The objectives of this project are to: 1) describe the factors driving technological change in the Japanese post and beam industry, 2) characterize and describe the major construction technologies used in the post and beam industry, 3) document the technical specifications and construction details required for wooden windows within the post and beam industry, and 4) recommend strategies for increasing the competitiveness of US wooden windows in the Japanese post and beam industry.
This results of this project support the idea that standard US wooden windows can be incorporated into the post and beam construction system used in Japan. However, product design and accessories as well as the range of support services offered by Japanese window manufacturers have a substantial impact on the competitiveness of US windows in Japan. US wooden window manufacturers (including clad wood windows) need to ensure that their windows are properly installed, finished, and maintained in order to ensure that their long-term durability and performance meets Japanese expectations. Significant technical and installation issues exist and US manufacturers must take the initiative to develop training programs and strategies to effectively address these issues so that window performance meets homeowner expectations.
While the fire codes in Japan describe the performance standards that windows must meet, it is interesting to note that the fire codes specify that aluminum is a non-combustible material and therefor exempted from the performance standards. Several people in Japan noted that, although it is difficult for wooden windows to meet the performance standards specified in the fire codes, to date approximately 15 wooden windows have been certified as meeting the fire code criteria. In contrast, they noted that most aluminum windows used in Japan, if exposed to the test criteria described in the fire tests, would melt and fail early on in the test process. It is obvious that the exemption of aluminum as a non-combustible material has played a critical role in providing aluminum window manufacturers with their dominant position in the industry.
During our visits to construction sites it was noted that the majority of windows had not been sized to fit the rough opening between adjacent posts. Rather, the rough opening for these windows was often framed in between the posts to accommodate the size of each window. Given this practice of in-fill framing for windows, it would be no more difficult for Japanese carpenters to frame in US standard size windows than Japanese metric size windows, a fact that our discussions with Japanese builders and carpenters confirmed. However, the different post sizes used in post and beam construction means that the casing width used to frame out the window in the wall varies based on the size of post being used. To address this complication, Japanese carpenters usually rip the window casing from a wide piece of casing after the window has been installed in the rough opening. So what is limiting the specification and use of US wood windows in Japan? Certainly price is one factor. But beyond this, product design and the range of services offered are equally important factors.
Another factor that impacts the window specification decision relates to the fact that Japanese home builders are usually provided with a range of services by domestic window manufacturers and wholesalers that are often not available from US manufacturers and exporters. These services include extended credit (tegata), on-site product delivery, on-site installation crews, and locally available parts and replacement windows.
This research suggests that standard US window sizes can be easily accommodated within the post and beam construction system used in Japan. However, product design and the range of services being offered have a substantial impact on the competitiveness of windows in Japan. US wood window manufacturers should at least consider the following factors to increase the competitiveness of their products in the future: 1) establishing of training and education programs for Japanese builders and carpenters, 2) developing a certification program for Japanese window installers and carpenters, 3) producing and distributing a generic window installation manual in Japanese, and 4) maintaining technical support, parts and product inventory in Japan. This research clearly shows that with a well thought out strategy, US wood window manufacturers could be competitive in the Japanese post and beam segment of the residential construction industry.

Executive Summary
Since the early 1980s, the US has worked to persuade Japan to open its wood products market to US products through various channels including bilateral talks, multilateral negotiations, and regional alliances. In response, Japan has reluctantly liberalized and deregulated its wood products imports through tariff reductions, building standards revisions, and foreign product standards recognition over the last fifteen years. Although the US-Japan trade dispute has been a widely discussed topic in general, the dispute over trade liberalization and market deregulation of the wood products sector has been often neglected or seldom mentioned. At a time when discussions of new multilateral trade talks are beginning within the WTO, and Japan is reevaluating its stance toward liberalized wood products imports by initiating a preliminary investigation to the possible implementation of a safeguard action against softwood lumber imports, it will be useful to look back and understand the process through which the US-Japan wood products trade dispute has progressed, the outcomes it has achieved, and the lessons that can be drawn from this experience.
The objectives of this study are 1) to describe the historical development of the US-Japan wood products trade dispute, 2) to summarize the trade liberalization and market deregulation measures taken in Japan as a result of these trade negotiations, 3) to analyze the performance of US products in Japan’s mix of wood products imports, and 4) to conduct a preliminary evaluation of US trade liberalization and market deregulation initiatives on Japan’s wood products market.
Historical Development of the Us-Japan Wood Products Trade Dispute
The US-Japan wood products trade dispute began in the early 1980s under the conditions of a growing US trade deficit with Japan, the economic recession in the US, and the relative decline of the wood products industry in the western US. In 1985, Japan’s wood products sector was chosen as a target for the MOSS talks, mainly due to Japan’s strong opposition to the reduction of tariffs on veneer and plywood. Both countries reached an agreement to reduce specific wood product tariffs and to modify product standards so as to meet the requests of the US.
In spite of the trade policy changes achieved in 1985, US legislators remained dissatisfied with the growing trade deficit with Japan and legislated the Omnibus Trade and Competitiveness Act of 1988, including the Super 301 provision. Due to US industry frustration with Japan’s reluctance toward continuing the MOSS process, Japan’s wood products sector was identified as a "priority practice" under the Super 301 provision in 1989. Under the threat of retaliation, both countries concluded the "1990 Agreement on Wood Products." Although the Agreement did not deal with tariff issues directly, it required an overhaul of Japan’s building standards and products standards.
After the completion of Super 301 negotiations, the US wood products industry turned to a new trade issue: the zero-for-zero initiative in the GATT Uruguay Round, by forming the Zero Tariff Coalition in cooperation with other industrial sectors. Although several industrial sectors achieved mutual tariff elimination during the Uruguay Round, the wood products sector failed to achieve tariff elimination primarily due to Japan’s opposition.
Following the end of the GATT negotiations in December 1993, the US continued its pressure on Japan to eliminate tariffs on wood products. Due to Japan’s resistance, coupled with the failure of the Framework talks in February 1994, the US revived the Super 301 provision to name Japan’s wood products sector in the watch list, forcing Japan to compromise. With Japan’s promise to fully implement the 1990 Agreement and new initiatives in Japan’s housing sector that was partly stimulated by the Kobe Earthquake disaster, the US industry finally allowed the removal of Japan from the Super 301 watch list in 1996.
Although the tariff elimination issue was also discussed during the bilateral negotiations following the Super 301 revival, it was eventually transferred to the regional discussions held within APEC. While the elimination of wood products tariffs was successfully included in the EVSL initiative, Japan refused to participate in the wood products tariff measure citing the APEC principle of voluntarism. Finally, APEC members agreed to move the renamed ATL initiative to the WTO, hoping to reach agreement during the Third WTO Ministerial Meeting in Seattle. However, no progress was made on the ATL initiative, or on the initiation of the WTO New Round.
Results of Trade Liberalization and Market Deregulation
The US industry succeeded in the trade liberalization and market deregulation initiatives in Japan’s wood products sector. As the result of fifteen years of negotiations, Japan reduced tariffs on wood products, changed its building standards from prescriptive to performance-based, and recognized wood products graded in the US for construction use in Japan.
First, regarding tariffs, the MOSS agreement reduced tariffs on specific products including veneer and plywood, and the Uruguay Round Agreement reduced tariffs on most wood products by approximately 30% from the applied level in 1993. The final bound rates were implemented in 1999 following a five-year staging period. However, due to shifts in Japan’s wood products imports from logs to processed products, the trade-weighted average of wood products tariffs increased slightly during the 1985-1999 period.
Second, in 1999, Japan revised its Building Standard Law from a prescriptive to a performance-based system, as promised in the 1990 Agreement on Wood Products and the 1996 Emergency Priority Program. Additionally, Japan immediately implemented specific building standard measures listed in the ANNEX of the 1990 Agreement. It is expected that the revised BSL will increase the number of 2x4 wood frame housing starts and promote the use of imported value-added wood products for post and beam homes.
Third, Japan introduced new systems, which recognized imported wood products for construction use in Japan. Regarding JAS, MAFF implemented the FTO system, which permitted the use of test data conducted by recognized foreign testing organizations for the mill certification and product testing process as a result of the MOSS agreement. Later, in 1999, MAFF revised the JAS Law to incorporate the RCO/RFCO system which authorized specific (foreign) certification organizations to certify (foreign) manufacturers to test their own products and self-label them as JAS approved. At the same time, MOC reached a mutual recognition agreement with the US industry which recognized the use of dimension lumber, MSR lumber, and finger-jointed lumber bearing the grademark of US testing agencies for 2x4 wood frame construction in Japan.
These measures will surely provide easier access for foreign products, not limited to just US products, in Japan’s wood products market.
Effects of Trade Liberalization and Market Deregulation
In spite of its success in the trade liberalization and market deregulation initiatives, the US wood products industry has been losing market share in Japan’s imports of softwood lumber, softwood plywood, softwood veneer, structural laminated lumber, wood doors, and wood windows. In some cases, the US increased its exports to Japan, but exports from other countries, mostly Canada and EU, increased more rapidly than those from the US, resulting in a lower market share for the US. This trend indicates that as the US industry was negotiating trade liberalization and market deregulation initiatives in Japan, structural changes were occurring that would adversely impact the competitiveness of the US wood products industry. These structural and market changes include changing material preferences in Japan toward kiln-dried products, the strength of the US dollar relative to Canadian and European currencies, and higher transportation costs from the US to Japan than from the EU. In addition, it should be noted that some studies indicated that other successful countries made substantial efforts to develop a better understanding of Japanese market conditions and accommodate Japanese customers’ extra requirement for products and services.

Preliminary Evaluation
The declining share of US products in Japan’s wood products imports can be attributed to two factors: an increase in US domestic consumption of wood products, and the reduced international competitiveness of US wood products. First, wood products exports have become less important to the US industry with the increasing consumption of wood products under the strong economic growth of the 1990s. Second, the US industry has been slow to develop its advantage relative to its competitors in Japan, where some market conditions, including a shift in material preferences toward kiln-dried products, less favorable changing exchange rates, and higher transportation costs, have adversely impacted the competitiveness of US wood products.
If the US industry wants to increase its wood products exports, it would be advisable for the industry to develop its advantages relative to its competitors in addition to improving market access. Important factors for success include developing a better understanding of the market, making stronger efforts to match product offerings with changing customer preferences, accommodating customers’ extra requirements for products and services, improving product quality, and offering competitive prices. Additionally, the US industry may wish to reconsider their export strategies in response to increasing domestic consumption and constrained resource availability and the impact of these factors on their ability to commit to long-term relationships with their foreign customers.
At this time, it is too early to reach a final conclusion regarding the competitiveness of the US wood products industry. Given Japan’s changing market conditions, new opportunities could emerge for the US wood products industry to further penetrate Japan’s import market. In that case, future success is dependent upon the US industry’s efforts to develop its advantages relative to their competitors.
 

Executive Summary
Japan is the largest export destination for the US and the second largest export destination for Canada (after the US).  The Japanese residential construction housing industry is the main driver of forest products exports to Japan.  There were 1.4 million residential housing starts in Japan compared to 1.5 million starts in the US in 1997.  Japan has roughly the same level of housing starts as the US but has only half the population on a land mass the size of California.
North American-style 2x4 housing has grown at double-digit rates over the past 10 years.  In 1996, 2x4 houses commanded 13% of the wooden house market share and 6% market share of the overall housing industry.  2x4 housing starts are expected to grow further because of active promotion of imported housing by the Japanese government, deregulation of the industry, and increasing appreciation for western design by Japanese consumers.
2x4 home construction in Japan has been observed to be less efficient and accurate than in North America.  The differences in construction techniques increase the cost and tome of construction of the house, and decrease its overall quality.  Various strategies are currently used by North American companies to provide technical assistance in 2x4 construction technology to Japanese construction industry professionals.  This technical assistance allows Japanese professionals to be more aware of proper construction techniques to reduce costs and increase the overall quality.
This project was undertaken to identify the technology transfer strategies that North American companies use, which of them are most effective, and which parties should be the most important targets of technology transfer training programs.  An understanding of the most effective technology transfer methods would allow various parties involved with exporting 2x4 houses to Japan to implement more successful training programs.
Survey of North American companies involved in the 2x4 housing industry in Japan
A census of all companies in the Pacific Northwest involved in North American-style 2x4 construction projects in Japan was conducted.   A total of 270 companies based in the US (191 firms) and Canada (79 firms) were mailed a four page survey regarding their delivery of North American 2x4 construction technology transfer to Japanese construction industry professionals.  The response rate for US and Canadian companies was 48% and 58%, respectively, with an overall response rate of 52%. 
Overall quality of 2x4 housing built by Japanese construction industry professionals
The respondents indicated that the overall quality of 2x4 houses built by Japanese construction industry professionals, relative to North American standards was only average.  In addition, respondents reported that the quality of structural framing was also average while the quality of architectural design ranked well below average.
Understanding of 2x4 construction technology
Survey respondents were asked to rank Japanese contractors’ understanding of 14 components of 2x4 construction technology.  The components least understood were drywall, ventilation and architectural design.  To improve the overall quality of a 2x4 house built in Japan, these three components should have more emphasis during technical transfer training activities.  The components of the 2x4 construction system that were best understood included interior carpentry, roofing, flooring, doors, windows, exterior finishing, and weatherproofing.  In an open-ended question, the respondents most often identified the structural framing of 2x4 houses as the one area where Japanese construction industry professionals have the weakest understanding, with 19% of all open-ended responses.
Respondents were next asked to rank which components of the 2x4 construction system they emphasize when providing technical assistance to Japanese construction industry professionals.  All of the components except foundation and roofing were identified as being important.
Promotion of 2x4 construction technology
Despite the fact that 2x4 houses have been built in Japan for over 25 years, the overwhelming majority of respondents indicated that continued efforts to promote 2x4 construction technology are very important, with 63% indicating that was very important.  There were few major differences between US and Canadian companies, and despite the double digit growth rate of 2x4 housing starts over the past 10 years, North American builders and exporters still feel that it is important to continue promoting technical transfer of the North American 2x4 construction system.
Respondents were asked to rank their use of eight different training methods.  It was found that hands-on construction in Japan and employing North American site supervisors in Japan were the two methods respondents most frequently use.  Instructional videos, hands-on construction training in North America, and classroom seminars in Japan and North America were rarely used.  When asked to identify the single most effective strategy for achieving technology transfer, 20% of the respondents identified hands on construction training in Japan.
Respondents felt that North American construction companies and North American building material exporters would be the most effective in promoting technology transfer.  North American construction companies were the most frequently cited group, with 27% of the open-ended responses.  The organizations that were perceived to be least effective in promoting technology transfer were Japanese building material distributors and both North American and Japanese colleges.
Factors restricting export potential of 2x4 houses
The most important factors restricting the export potential were a lack of builder and carpenter familiarity with imported building materials and 2x4 construction technology.  In terms of non-technology transfer related factors, the current severe economic condition was mentioned most often.  The idea that “2x4 housing [is] a fad that will fade” was not an important factor restricting exports.
Conclusion and Recommendations
This study suggests that North American builders and building material exporters perceive that many Japanese construction professionals do not have strong technical understanding of the North American-style 2x4 construction technology.  The vast majority of respondents indicated that they have developed technical training programs for their Japanese customers.  However, several recent technical assessments of 2x4 construction projects in Japan suggest that this lack of technical understanding is much more pervasive and the extent of technical deficiencies in 2x4 homes built in Japan is much greater than exporters are aware.  These studies suggest that it is time for North American builders and building materials exporters to work with the Japanese construction associations to develop a comprehensive technical training program to ensure that 2x4 homes are built correctly in Japan.  The recently passed Housing Quality Assurance and House Inspection Laws further emphasize the need for a comprehensive and effective 2x4 technology transfer training program.  The alternative, sporadic and uncoordinated technical transfer programs provided by individual companies, will not lead to effective and widespread transfer of the North American-style 2x4 construction technology in Japan.  Ultimately, it is in the best interest of North American and Japanese companies to ensure that 2x4 homes are built properly in Japan.  Otherwise, consumer perceptions that 2x4 homes in Japan are inferior in terms of overall quality or long-term performance, relative to other types of housing technologies, will lead to the decline of this important segment of the residential construction market in Japan.
 

​Executive Summary
Introduction
The Japanese market for prefabricated homes and wooden building materials has tremendous potential for US firms, particularly those located in the Pacific Northwest.  For example, exports of prefabricated housing to Japan increased by 51% from 1994 to 1995, with 81% of these exports originating from the Pacific Northwest.  Despite this success, Japan is a relatively new market to most US firms and more information is required before US firms can fully take advantage of the opportunities that exist.  This research project was developed to provide a broader understanding of the Japanese market for prefabricated homes and wooden building materials, and to identify the problems that exporters must overcome in order to compete effectively in Japan.
The objectives of this project were:  (a) to perform a competitive assessment of the Japanese market for imported prefabricated housing and wooden building materials,  (b) to identify those marketing strategies that are being employed by US manufacturers to compete successfully in Japan, and  (c) to identify the tariff and non-tariff barriers that are perceived to adversely impact the competitiveness of US firms in Japan.
The results of this research study were derived from a census of prefabricated housing manufacturers, export consolidators, and Japanese trading companies currently exporting their products to the Japanese market.  The final sample frame included sixty-six firms:  fifty-one in Washington and fifteen in Oregon.  Sixteen of the companies manufactured prefabricated housing, while thirty-four were export consolidators, and sixteen were subsidiaries of Japanese trading companies. The final response rate for the survey was 70%, with responses being received from 75% of the prefabricated housing manufacturers, and 79% of the export consolidators, but just 47% of the Japanese trading companies.
Results
Prefabricated housing exporters in Washington and Oregon can be characterized as being small to medium-sized firms with annual sales of less than $10 million and employing less than 25 employees.  Most of the firms have been exporting to Japan for a relatively short time, usually less than five years.  However, prefabricated housing manufacturers appear to be highly involved in the Japanese market, as indicated by the fact that approximately half of the respondents generated more than 50% of their annual sales revenue from exporting to Japan.
The promotional strategies used by the survey respondents were fairly limited, a fact which might be attributed to the small size of the respondents and their limited financial resources.  A majority of the respondents indicated that they relied on product brochures, word-of-mouth referrals, and trade shows to promote their products.  Promotional strategies that required a higher commitment of financial resources, such as establishing a model home or product showroom in Japan, were employed less frequently than the other strategies.
In general, the distribution channels for wood products exports in Japan are complex, consisting of several layers of intermediaries.  However, the results of this research indicate that many of the prefabricated housing manufacturers and export consolidators have been successful in bypassing the traditional Japanese distribution channels.  Approximately half of the respondents indicated that their primary channel of distribution involves selling their products directly to Japanese home builders.  This strategy provides these firms with substantial cost savings, helping to increase the competitiveness of US prefabricated homes and building materials in the Japanese market.
Most respondents considered the establishment of a strong personal relationship with their Japanese customers as one of the most important factors for succeeding in the Japanese market.  This factor was rated as being more important than any other single marketing factor by each of the three groups of respondents included in the study.  Other marketing factors that were perceived to be important included providing after-sales service, short delivery times, and technical assistance to the customer.
Product adaptation was also considered to be an important factor for succeeding in Japan.  In fact, all of the prefabricated housing manufacturers and 88% of the export consolidators reported that they modify their product to some extent for their Japanese customers.  The most common types of product adaptation included changing the design of the home to include a tatami room and/or a genkan (Japanese-style entryway), utilizing higher quality materials in those products exported to Japan, and translating product brochures, installation instructions, and technical information into Japanese.
JAS and JIS product certification of building materials and the Japanese building code were perceived to be non-tariff trade barriers that had a substantial negative impact on the competitiveness of US prefabricated houses and building materials in Japan.  Two other factors, the difference between US/Japan construction technology and inefficient transfer of US construction technology, were also perceived to be non-tariff barriers that restricted the competitiveness of US firms in Japan.  It is interesting to note that in many cases the US subsidiaries of Japanese trading companies perceived the various trade barriers as having a greater impact on competitiveness than did the US firms.  This was particularly true with respect to the complexity of the distribution channels in Japan and the import tariffs for prefabricated houses and building materials.
The vast majority of the prefabricated housing units exported from the US to Japan are manufactured using 2x4 construction technology.  This poses a problem given the fact that most of the survey respondents reported that Japanese architects, contractors, and carpenters do not possess a strong understanding of 2x4 technology.  In addition, many respondents stressed the fact that Japanese residential contractors seldom utilize the construction management techniques that are widely used in the US residential construction industry.  As a result, construction costs are more than twice as high in Japan as in the US.  But perhaps more important from a long-term strategic market development perspective is the fact that this basic lack of understanding regarding 2x4 construction technology can adversely impact the quality of 2x4 homes built in Japan and reduce their long-term performance.  Either of these factors could potentially erode the competitive position of US prefabricated housing and wooden building materials in the event that substandard products and/or product performance adversely affect Japanese consumer perception of US products.
Not surprisingly, survey respondents indicated that the efficient transfer of 2x4 construction technology was an important component of their marketing mix, with approximately 85% of the respondents utilizing some type of strategy to address the issue of technology transfer.  The three most widely employed types of technical assistance were:  providing customers with installation instructions and/or product brochures, providing customers with seminars and/or on-site technical training, and sending over carpenters and/or construction site supervisors to ensure the quality of the construction work.  Unfortunately, current Japanese immigration law makes it very difficult for US contractors and carpenters to obtain the work visas that are required to work in Japan.  When asked to indicate what strategy would be most effective in transferring 2x4 construction technology to Japan, almost half of the respondents indicated that they favored providing training for Japanese construction professionals.
The results of this study indicate that prefabricated housing manufacturers and export consolidators in the Pacific Northwest are strategically poised to take advantage of current housing policies in Japan that promote imported housing and building materials.  Despite the fact that many of the participants in these industries are relatively new to the Japanese market, a large number are already experiencing success.  In particular, these firms have demonstrated the ability to take advantage of the new competitive environment in Japan by developing strong business relationships with their customers and partners and developing distribution channels that bypass the traditional extended and costly distribution system.  Given the strengthening Japanese economy, the opportunities for imported housing and building materials in Japan appear to be bright.

​Executive Summary
Japan has long been Asia's largest importer of softwood sawlogs and lumber and is the major destination for U.S- Pacific Northwest wood product exports. In the period lasting from 1980 to 1993, 3apan imported an annual average of 15.2 million CUM of softwood sawlogs and 5.4 million CUM of softwood lumber. The country's major softwood suppliers are the Pacific Northwest states of the U.S., British Columbia in Canada, and the Russian Far East and Siberia. In recent years, New Zealand and Chile have also supplied increasing volumes of softwood products to Japan, mostly in the form of Radiata pine flowing from these countries' expanding conifer plantations. Recent changes in the supply structure within Japan's foreign supplier countries promise to significantly 'impact the Japanese softwood market In particular, reductions in North American harvests related to conservation and a general depletion of old-growth stock will increasingly limit the availability of high quality Douglas fir and Western hemlock sawlogs and lumber, products which have long been the mainstay of Japan's softwood import market. Similarly, moves to restrict exports of raw logs from North America, Southeast Asia and elsewhere have increasingly threatened the supply of both softwood sawlogs and hardwood peelers to Japan's lumber and plywood mills. At the same time, growing quantities of lower quality Radiata pine from New Zealand and Chile, as well as potential increases in medium quality Russian spruce and larch, will likely be available to the Japanese in the near future. While no shortage of softwoods is predicted, higher quality softwood products are expected to be increasingly scarce.
The Japanese softwood market is, in reality, a highly differentiated market where different species and grades of softwood meet specific end market requirements. Prices for different softwood products vary greatly, and substitution between sources and types of wood is often restricted. Japan has long paid significant price premiums for old-growth and higher quality second-growth Douglas fir and Western hemlock products. In view of impending supply restrictions for high quality softwoods, these premiums. can be expected to persist Firms wishing to take advantage of these premiums, either through forest management practices designed to increase quality, or through the export of processed lumber, need to consider not only the nature of their targeted market, but also the strengths and weaknesses of potential competitors. if national concerns over log exports results in a reduction of softwood roundwood exports, it cannot automatically be assumed that standard U.S. grades of commodity lumber can replace or substitute for the decrease. Rather, a more complete understanding of specific Japanese market requirements is needed to best exploit the comparative advantage of higher valued North American wood products.
Japanese Housing Market
The bulk of Japanese softwood swag and lumber imports is used in residential housing construction. Due to demographic factors, increasing income, and a comparatively rapid turnover in housing stock, Japan has one of the highest residential construction rates in the world both in gross and in per capita terms. Over the last decade, new housing starts in Japan have averaged over 1.4 million units per year. Predictions for 2000-2010 likewise foresee a level of around 1.3 million units per year. while in the two decades leading up to 1980 the share of non-wooden housing starts prim ferro-concrete multiple unit dwellings) increased substantially, shares of wood and non-wood starts have stabilized over the last decade with each commanding approximately half of the total market for housing units. This combined with predictions of stable overall demand for housing leads to the expectation of continued strong Japanese demand for softwood lumber.
Wooden housing styles and construction techniques in Japan can be divided into two general categories: traditional post and beam" housing, and Western "2x49' platform housing as well as related prefabricated construction techniques. Traditional post & beam housing currently accounts for over 85 percent of Japan's wood housing market. Since this construction style features a great deal of exposed wood particularly the posts and beams which constitute the major structural elements of the house), aesthetic as well as structural lumber characteristics are extremely important Pacific Northwest Douglas fir and Western hemlock have been used extensively in Japanese traditional housing construction, and it is this market, more than any other, which has supported the price premiums enjoyed by North American timber exporters in the past.
Since its introduction to Japan in 1974, Western style 2x4 housing construction has made steady gains. At approximately 56 thousand units in 1993, 2x4 housing now commands 8 percent of Japan's total wood housing market In addition to its cost advantage over traditional methods, 2x4 housing has enjoyed. substantial promotion from North American governments, industrial associations and other organizations. Though the market penetration of 2x4 housing has been less than originally hoped for by its promoters, its progress has been consistent, and continued increases in market share should be expected. As North American suppliers have virtually monopolized the supply of dimension lumber to this market, benefits of the expansion of 2x4 housing in Japan to U.S. Pacific Northwest producers have been immediate. There is, however, no reason to believe that other producers will not begin to supply this market in the medium-term, North American suppliers to the 2x4 market can expect to face increasing competition from mills in Japan and elsewhere cutting lower priced Russian species and perhaps Radiata pine. Due to its demand for higher quality lumber, the traditional housing market will be more insulated from increasing competition from these other suppliers.
In 1992, wooden prefabricated housing stood at 15 thousand starts, accounting for about 5 percent of the total market for wooden units. This represents a strong increase over 1980 levels. Japanese prefabricated housing is generally associated with Japan's major home-building corporations, and it often incorporates factory pre-construction with modular building techniques using "unit-bathrooms" and similar products. Some of the firms engaged in this form of housing construction have developed their own proprietary standards, and foreign firms wishing to export to this market will have to work in close cooperation with their Japanese customers.
Japan's Major Softwood Sawlog and Lumber Suppliers
Japanese Domestic Production
Japan itself is the single largest supplier of softwood logs to its own domestic market In 1993, Japanese domestic production supplied 15.9 million CUM of softwood sawlogs to Japan’s. sawmills. This represents a slight decline from the 17.7 million CUM supplied in 1980.
For many years the Japanese have predicted an increase in domestic roundwood production based on the over 10 million hectares of maturing conifer plantations possessed by the country. Economic factors, however, have mitigated against any substantial expansion in domestic harvest The most pressing problem is the high labor intensity of Japanese forestry combined with a chronic shortage of forest labor and a more than fourteen-fold increase in wages since 1960. In light of these and other problems, predictions of domestic harvest increases are becoming less common, and it is assumed that Japanese softwood production will continue at current or slightly lower levels well into the next century.
The Japanese domestic sawmiling industry is likewise in decline. Between 1980 and 1992, the number of sawmills in Japan fell by 28 percent to approximately 15 thousand mills. Gross material inputs for sawmills likewise fell by 25 percent, though much of this decline has been in the last few years. Currently, Japanese mills are struggling under increased prices for their mainstay Douglas fir and Western hemlock sawlogs as well as increased lumber imports from abroad. Continuing declines in domestic sawmills and production capacity are predicted, and this, in turn, will yield greater opportunities to foreign producers interested in exporting lumber products to Japan.
The United States
The U.S., and particularly the Pacific Northwest states of Oregon and Washington, are Japan's largest foreign supplier of softwood logs. The U.S. has long maintained over half of the total market share of Japanese softwood log imports. Since 1990, however, U.S. export volumes have fallen sharply from 10.9 million CUM to 7.6 million CUM, with market share declining from 63 percent to 52 percent.  After making steady gains throughout most of the 1980s, U.S. softwood lumber exports to Japan have experienced similar declines since 1990. In the case of lumber, gross export volumes (2 million CUM in 1993) and market share (24 percent in 1993) are considerably lower those for logs. Continuing harvest restrictions related to the Spotted owl and other conservation issues promise to further limit harvests in the Pacific Northwest region and thereby reduce the amount of U.S. timber available for export to Japan. Likewise, calls for increased restrictions on raw log exports in the hopes of increasing domestic U.S. processing could further decrease the availability of softwood sawlogs to Japanese mills. In the fixture, U.S. exporters to Japan will face increased competition for raw materials and, perhaps, increased pressure to raise the value added content of their exports. This, in turn, will give added incentives to producers to find the highest value Japanese market niches for their products..
Siberia and the Russian Far East
Siberia and the Russian Far East constitute the second largest softwood log supplier to Japan. After declining throughout much of the 1980s and early 1990s log exports from these regions showed their first signs of recovery in 1993. In that year Japanese log imports from Russia increased to 4.5 million CUM, a gain of 26 percent over the previous year. Russian market share of Japanese log imports likewise increased from 24 percent in 1992 to 31 percent in 1993. Much of this is seen as a response to resource constraints in the United States. Russian productive capacity and the ability of Russian species (mostly larch, spruce and fir) to substitute for Pacific Northwest Doug]as fir and Western Hemlock however, is limited. Inadequate infrastructure and a chronic shortage of capital currently restricts increases in production, and the quality of Russian timber generally does not meet Japanese specifications for the main structural components used in traditional housing. Japanese imports of lumber from Russia have been relatively insignificant The same sort of processing capacity and quality constraints pertaining to logs apply to lumber as well.
Canada
Except for a brief period in the mid to late 1980s, Canadian exports of softwood logs to Japan have remained well under 1 million CUM. For the most part, this is due to long-standing restrictions on raw log exports from British Columbia (the province supplying the overwhelming majority of Canadian wood product exports to Japan). Canadian exports of softwood lumber to Japan, on the other hand, comprise well over half of the total share of Japanese softwood lumber imports. In 1993, Japan imported 5.4 million CUM of softwood lumber from Canada, representing a 65 percent market share and a 23 percent increase in volume over 1992 levels. Strong increases in Canadian lumber exports to Japan are evident throughout the late 1980s and early 1990s, but continued expansion is limited by resource constraints and conservation issues similar to those in the U.S. Pacific Northwest British Columbia does have a large available forest resource, but much of this is in the interior where lodgepole pine and other lower valued species predominate. Though this wood may be suitable for the production of dimension lumber, it is doubtful that much of it will find its way into Japan's traditional housing sector.
New Zealand
In 1993 New Zealand softwood log exports to Japan stood at 1.7 million CUM, accounting for a 12 percent share of Japan's softwood log import market and making New Zealand Japan's third largest softwood log supplier. This 1993 volume was nearly seven times greater than New Zealand's log export volume to Japan for 1986, reflecting strong annual in creases from 1987 to 1992 followed by a 7 percent decline in 1993. Over 85 percent of 1993 exports were Radiata pine. Given the species composition of New Zealand’s forest resource, this percentage is expected to continue or even increase. Total New Zealand sawlog production is predicted to increase to approximately 16 million CUM in the first decade of the next century (as compared to a 1986-1992 average of roughly 6 million CUM of softwood sawlogs). New Zealand has devoted a great deal of effort to increasing the quality of Radiata pine products through intensive forest management and new lumber production techniques To date, however, Radiata pine is used in Japan primarily for packaging materials and other lower valued end-uses (this provides an explanation for the volume decline in 1993, as the Japanese recession impacted the packaging industry more than the relatively robust housing construction industry). New Zealand lumber exports to Japan in 1993 stood at 235 thousand CUM and were likewise dominated by Radiata pine
Chile
Chile also has a large plantation resource planted predominantly in Radiata pine Significant increases in Chile's softwood production are predicted beginning in the late 1990s, with total production expected to reach a level of between 21 and 27 million CUM by the turn of the century. The majority of this wood is also expected to be Radiata pine. In 1993 Chile exported 201 thousand CUM of softwood logs to Japan for a market share of only 1.5 percent Softwood lumber exports to Japan, however, stood at 398 thousand ~UM for a share of 4.7 percent of Japan' S softwood lumber import market This reflects strong increases in Chilean lumber exports to Japan throughout most of the 1980s. Most of these exports are thought to be in the form of cants and flitches for remanufacture in Japan into the same sort of products for which New Zealand Radiata pine is used (i.e. packaging materials and other low priced end-uses). In the case of both New Zealand and Chile, increased exports of Radiata pine are expected to. continue to supply the packaging materials market as well as compete with lower-valued products in the residential construction market However, the species is not thought to be an adequate substitute in the higher-valued end-uses, which Pacific Northwest and Japanese domestic species have dominated in the past
Other Factors Affecting Softwood Supply
Other factors affecting future softwood supplies available to Japan include rapid economic growth in China and other Asian nations, export restrictions and supply constraints for Southeast Asian hardwoods, and technological innovations in softwood lumber production. Cross border trade in softwood logs from the Russian Far East to China has been substantial, and New Zealand has reported sharply increased exports to China and Korea in the last few years In general, China and Korea do not possess the same preference for high quality lumber products (residential housing in both Korea and China is constructed manly of brick and stone), and continued economic growth in these countries is expected to most strongly impact the lower end of the softwood market Similarly, export restrictions of Indonesian and, more recently, Malaysian hardwood logs have led to rapid price gains in Japan for Lauan logs used in plywood manufacture. Increasingly, the Japanese have substituted softwood plywood in uses previously dominated by hardwoods. With expected technological improvements, this substitution will continue to expand, thus increasing demand for softwood plywood, veneers and other softwood panel products.
While the previous two factors will tend to increase demand for softwood products, technological innovations in the production of lumber will extend softwood supplies through greater efficiencies or, perhaps more importantly in the context of this report, allow for the substitution of lower-priced species in end-uses currently demanding higher priced softwoods. New laminating technologies that allow for the production of the larger squares commonly used in Japanese traditional housing is one prominent example. Here, clear veneers may be attached to cores produced from lower priced softwoods or composite materials.
Conclusion and Recommendations
In light of supply constraints, it is important that U.S. Pacific Northwest producers locate and fully exploit the best market opportunities for their products. Japan has long provided such an opportunity in the past, but primarily in the form of unprocessed log exports. Given Japan's strong economy (and Yen),stable demand for new housing and well defined preference for quality softwood products, it will continue to provide substantial market opportunities to Pacific Northwest producers in the future. To realize this potential, Northwest producers will increasingly need to understand the characteristics of Japan's differentiated market for processed timber and devise strategies to best exploit the comparative advantage of Pacific Northwest species in higher valued Japanese market niches.
As in the past, the highest premiums will go to those suppliers who can provide the Japanese market with high quality Douglas fir and Western hemlock logs and sawnwood. These premiums, in turn, may justify increased forest management efforts aimed at the production of clearwood and other quality characteristics. Likewise, they may help ameliorate some of the costs entailed in longer rotation lengths and intensive thinnings called for in new forest management regimes designed to produce environmental benefits as well as timber.
While benefits to U.S. Pacific Northwest lumber mills and value-added product exporters from the expansion of 2x4 construction in Japan have been considerable, the current marketing and policy emphasis on expanding the use of western 2x4 construction in tat country should be reexamined to include traditional post and beam market niches. A 2x4-only strategy virtually ignores the lion's share of the Japanese wooden residential construction market, and most 2x4 applications do not necessarily highlight the aesthetic and structural characteristics of Pacific Northwest Douglas fir and Western hemlock Traditional post and beam housing, on the other hand, has resulted in a strong Japanese preference for high quality North American softwoods and has been the driving force behind U.S. softwood exports to Japan and the price premiums associated with this trade. Moreover, in that it allows for increased substitution using lower priced softwoods, 2x4 construction in Japan will, in the future, be more open to competition from the other Pacific Rim producers considered in this study. This is not to argue that the promotion of 2x4 construction in Japan should be abandoned altogether, but rather that greater marketing efforts aimed at expanding lumber and value-added product exports to the Japanese traditional housing market are also called for.
 

​Abstract
 
Despite Japan’s relatively small size, residential housing starts have exceeded those in the US throughout the 1990s, totaling 1.57 million units in 1994.  However, the cost of residential housing in Japan is substantially higher than in other developed countries.  In an effort to address this problem, the Japanese Ministry of Construction (JMOC) recently announced an action program to reduce the cost of residential housing 33% by the end of the century.  Numerous factors have been cited as contributing to the high cost of residential housing in Japan, including high labor costs and low labor productivity, a lack of skilled carpenters familiar with the 2x4 system, non-standardized building materials, a lack of competition in the construction industry, restrictive building regulations, high building material costs, inadequate construction management systems, and an inefficient and extended distribution system from imported building materials.  Many industry observers in both the US and Japan feel that one way to reduce residential construction costs would be through the adoption of North American 2x4 construction technology as an alternative to the more traditional but less efficient post-and beam construction technology.
US construction professionals familiar with the Japanese construction industry indicate that the small segment of Japanese contractors currently building 2x4 houses have modified the 2x4 system to fit their traditional construction system.  These modifications have resulted in a hybrid construction technology that fails to achieve the production and cost efficiencies inherent in the North American system.  Exploratory interviews with building professionals who have worked on residential construction projects in both the US and Japan identified a number of areas where the Japanese 2x4 construction system differs from its US counterpart in terms of these efficiencies.  The primary areas where significant differences were noted included foundations, interior wall finishing, ceiling framing techniques, finish carpentry, labor specialization, and project management skills.
In order to take full advantage of the efficiencies inherent in the North American 2x4 construction system, it is important that Japanese designers, contractors, and carpenters develop a basic understanding of the North American 2x4 system.  This implies that the transfer of 2x4 technology should occur at a variety of skill levels within the Japanese residential housing industry.  At a minimum it is important that four groups be included in a any 2x4 technology transfer programs:  designers/architects, carpenters, construction site supervisors, and project managers.
The process of effectively transferring 2x4 construction technology requires that US contractors and carpenters be allowed to work with their Japanese counterparts.  However, the perceived and real difficulties involved in obtaining work visas for US construction professionals in Japan have effectively restricted this component of technology transfer.  A review of existing policies related to the issuance of work visas for US construction professionals and skilled workers would support total technology transfer and provide benefits for both the residential construction industry and home buyers in Japan.  This strategy would provide the basis for rationalizing construction costs and management systems within the Japanese residential construction industry.

​Abstract
This paper examines Japanese forest products production, consumption and net trade trends, and the factors that have influenced these trends, from 1879 to the present.  Prior to 1964, only industrial wood products are considered.  After 1964, sawnwood and plywood are included.  The reasons for the development of Japan’s dependence on foreign forest resources are explained.  Domestic wholesale and imported industrial wood prices are considered key factors.  Rapidly rising prices following World War I and during the 1950’s let to the promotion of imports.  During the 1960’s, Japan’s economy outgrew the potential of its forest resource supply.  Foreign competition and high domestic costs caused Japan’s domestic production to stagnate during the 1970’s and 1980’s.  Japan’s major trading partners are also outlined.
Executive Summary
Historical Background
Early Developments: 1879-1921
Japan entered the global forest products market as a net exporter of industrial wood during the 1860's. The introduction of modern pulp and paper technology during the 1890's caused domestic woo4 prices to rise. As a result, many tree plantations were established at the turn of the
By 1907, net exports of industrial wood reached a peak of 1.0 million cubic meters. Japan's rapid economic development placed a constantly increasing demand on the nation's forest resources. New sources of energy allowed fuelwood production to decline, while industrial wood production increased. Until World War I, prices remained stable as net exports declined. century.
Earthquakes: 1921-1930
During World War I, domestic industrial wood prices increased significantly. In 1920, a large earthquake hit Tokyo. This increased the demand for wood and added further upward pressure on prices. In 1921, the Japanese government responded by lowering the tariffs levied on imported wood and Japan became a net importer of industrial wood for the first time. In 1923, the Kanto Earthquake and Fire devastated the Tokyo-Yokohama region. So much wood flowed into the Tokyo port that by 1924 Japan was importing 29 percent of the wood it consumed. The price of imported wood was falling as a result of the increased supply, causing domestic production to stagnate. In response, the Japanese government raised the import duty on imported timber five times between 1926 and 1933.
The Depression and Recovery: 1931-1 939
During the 1930's, Japanese production of industrial wood reached new peak levels. By 1938, Japan was again a net exporter. Throughout this time Japanese colonial expansion increased its forest resource base. In 1940, production reached a peak of 34.0 million cm
The War Era: 1940-1954
As a result of World War II, Japan lost its colonial resources and a significant portion of its wood processing capacity. In 'addition, the lack of foreign exchange forced Japan to depend entirely on its own forests during the. first ten years of reconstruction. Thus, by the mid-1950's Japan's forests were degraded and prices were rising. At this time many tree plantations were established. In order to help generate foreign currency at this time, Japan began importing logs from the Philippines and manufacturing plywood to be exported to the United States.
Era of Increased Trade: 1955-1973
By 1961 Japan's economy was demanding more wood than domestic resources could supply. In response, the government adopted a policy of promoting imports. Throughout the 1960's, Japan's GNP grew 10 percent per year on average. The volume of imported wood grew substantially as a result. Domestic production of industrial wood grew steadily until reaching a peak of 51.8 million cm in 1967. By this time Japan's forests had been exhausted.
In 1973, imports accounted for 58 percent of consumption which reached a peak level of 99.6 million cm. Fuelwood and other industrial wood production was reduced to the 1.0 million cm level in favor of producing pulpwood and sawlogs.  Sawlogs and wood chips accounted for most of the imports. With these resources, Japan produced almost all of the lumber, plywood and pulp it consumed during this period.
The increased consumption of imported wood stabilized prices, while the costs associated with forest management in Japan increased. As a result, the annual area of forested land has declined since 1960. The most noticeable drops in afforestation occurred between 1970 and 1975.
Post Oil Crisis Stagnation: 1974-1990
The Oil Crisis in 1973 brought about a global recession. By 1975, Japanese forest production had declined to 34.2 million cm. Although the Japanese economy recovered from 1976 to 1979, domestic production remained practically constant while imports increased to meet consumption. In 1979, imports accounted for 64 percent of Japan's industrial roundwood consumption. in fact, Japanese industrial roundwood production has remained consistently near the 33 million dm level since 1975. Therefore, it appears that Japanese forest production is comparatively insensitive to market fluctuations.
Following a recession during the early 1980's the Japanese economy resumed expansion. Housing starts peaked In 1990 at 1.7 million units. Forest products imports increased as well, however the import profile has shown signs of change during this period.  Imports of manufactured products such as conifer sawnwood and plywood have increased significantly. On the other hand, hardwood sawlog imports declined and softwood sawlog imports increased only slightly. Thus, Japan has increased its imports of value-added products. The primary factors influencing this change have been supply constraints within exporting nations and the stagnation of Japan's forest sector.
Foreign Suppliers
Japan has imported most of its conifer wood from the United States, Canada and the Soviet Union. The U.S. and USSR have supplied most of the imported sawlogs since the 1960's. Recently, U.S. exports have remained stable, while
Soviet exports have declined. Canada has historically banned most log exports. Japan has imported most of its conifer lumber from Canada and the U.S., with Canada holding the largest market share.
Japan's hardwood Imports have come from Indonesia, Malaysia and the Philippines. By the mid-1970's Philippine exports dropped significantly as resources were reduced. Through the 1970's Indonesia supplied about halt of Japan's hardwood Imports. However, by the 1980's Indonesia had successfully banned log exports. As a result, Malaysia has held more than a 90 percent share of the hardwood import market since the early 1980's.
Conclusion
Recent trends are likely to continue. During the 1990's many Japanese houses, that were poorly built 20 to 30 years ago, are expected to be rebuilt with higher quality materials and more wood. Thus, demand Is expected to remain stable.
Foreign log supplies are expected to remain tight, although New Zealand and Chile have increased exports recently. Producers in supplying countries are likely to continue competing for larger shares in the Japanese lumber and plywood markets. Wood chip demand is also expected to remain strong. Given the current state of the Japanese economy, forestry costs will remain high. Unless prices rise substantially, Japan's forests will remain uneconomic to harvest. Therefore, Japan's foreign dependence on forest products is not likely to change.  

​Abstract
This paper presents a reassessment of the productive potential of Japan's forest resources along with a qualified refutation of several recent studies in which Japanese domestic timber production is predicted to rise in the medium to long term. After an examination of the biological dimensions of Japan's forest resources and their relation to the studies being questioned, the main argument of the paper is made, concentrating upon economic and political factors surrounding the Japanese timber industry, factors which we see as presenting a substantial barrier to increased production. Of these, three are examined in depth: 1) rising labor costs which, in conjunction with low labor productivity, have seriously eroded profitability in the forestry sector, 2) the Japanese wood products market which we see as being unable to support increased consumption of domestic wood products at prices which Japanese timber production currently demands, and 3) Changing attitudes within the Japanese populace at large which emphasize alternative forest uses and ecological values over and against timber production. It is concluded that, barring major changes in the world market for wood products, Japanese timber production will most likely continue to decline in spite of a growing stock of harvestable timber. This conclusion has direct implications for timber producers in the U.S. Pacific Northwest and bears heavily upon the environmental and economic aspects of Japan's participation in the global wood products market.
 

​Summary
Log measurement systems vary widely among different countries and regions within a country, sometimes with large and Inconsistent differences. A lack of understanding of these systems and their differences can sour buyer-seller relationships and cause confusion far analysts who work with trade data.
Historically, major log trade flows have been between Japan and other countries, primarily the US for softwoods and southeast Asia for hardwoods.  Recently, Japan's log sources have diversified to include New Zealand, Chile, and the USSR. This paper describes Japan's log measurement systems and traditional (koku) and metric units of measure. It also presents information on log measurement systems in supplier countries and clarifies how these are treated and reported in Japan.