Executive Summary
Reports that a substantial proportion of wood raw materials, used by Chinese and Vietnamese manufacturers, are from illegal sources have drawn concern from major consumer countries who recently implemented timber legality regulations. These regulations, which include the Japanese ‘Goho-wood’ policy, the U.S. Lacey Act, the EU Timber Regulation and the Australian Illegal Logging Prohibition Act restrict the import of illegally harvested wood and are expected to have a direct impact on major wood processing countries, such as China and Vietnam.
 
This study focused specifically on the wood products industry and business practices in these two processing countries, targeting individual furniture and flooring manufacturers and wood products traders, as a way to clarify and evaluate the effects of timber legality regulations.
 
Surveys were conducted at trade shows in Ho Chi Minh, Shanghai and Guangzhou in 2013 and 2014 to assess how these regulations influence attitudes and perceptions regarding regulations, firms’ use of chain of custody certification, and impacts on the material sourcing and export market decisions of industry managers. Survey responses were evaluated using descriptive statistics, regression analyses, cluster analysis, non-metric multidimensional scaling and analysis of similarity.
 
The analysis showed that as firms increase in size they reduce domestic sales and show increased awareness and support for regulation, and that firms’ awareness of timber legality regulations plays a significant role in whether a firm decides to obtain certification. Analyses showed that Vietnamese firms have lower awareness of regulations while being more supportive of regulations. Chinese firms have higher awareness while having a more negative attitude towards regulations. The findings also highlighted a split between firms with a domestic focus and firms which export to foreign markets suggesting a split in the market which may reduce the impact of regulations. This segmenting of the Chinese market and to a lesser extent the Vietnamese market supports the idea that regulatory leakage is taking place, wherein sales of wood products from suspicious sources are shifting away from regulated markets and towards unregulated markets which are experiencing rapid increases in demand for wood products.
 

​Executive Summary
The overall goal of this study was to develop a better understanding of US residential homebuilders’ and remodelers’ perceptions and use of Green Building Programs (GBPs), Environmentally Certified Wood Products (ECWPs), construction materials (i.e., wood, steel and concrete), and other innovative green technology and products.
Green building refers to a structure built using a process that is environmentally responsible and resource efficient throughout its life-cycle: from design and siting, to construction, operation, maintenance, renovation, and demolition. Since it is difficult to assess the sustainability of houses, a number of organizations have developed standards, codes and rating systems that let regulators, building professionals and consumers embrace green building concepts and practices with confidence. Collectively, these rating systems and standards are known as green building programs (GBPs). In the US, the National Association of Homebuilders’ National Green Building Standard (NGBS) and the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) for Homes have become the two major competing GBPs at the national level.
Each GBP employs a different rating system to award compliance for the use of sustainable materials, building products, and technology. As green building practices in residential housing become more popular in the US, the influence of LEED for Homes and NGBS on the choice of materials by construction professionals is of fundamental interest for forest resource professionals. Since a large volume of wood is consumed by the US building industry, it is important to understand the adoption of green products and technologies by US homebuilders and remodelers.
A survey targeting US homebuilders and remodelers was developed and the probability sampling frame was carefully designed in order to ensure reliable and valid statistical inferences. The results of the survey suggest that a great majority of homebuilding professionals are aware of GBPs in the US. Although less than a quarter of homebuilders had actually used either LEED for Homes or/and NGBS, many non-users were planning to use one of the programs in the future. The main reasons why homebuilders adopted GBPs were: to differentiate their homes in the market, the home buyer specified that they wanted a green house, and there is strong demand for homes built using a GBP. Those builders who have used a GBP favored the NGBS program over the LEED for Homes program, because they perceived NGBS as being less expensive and easier to use than LEED for Homes, although LEED for Homes was rated as being superior in terms of brand recognition and effectiveness in helping to sell homes.
Wood is a renewable natural resource with a smaller carbon footprint than other construction materials, such as steel or concrete. Wood products from responsibly managed forests should be an ideal fit for most GBPs. In order to communicate to consumers that a wood product comes from forests managed in accordance with environmental and social standards, some organizations have launched forest certification systems.
Environmentally certified wood products (ECWPs) are usually associated with eco-labeling and chain-of- custody programs that are designed to ensure that wood products are harvested from sustainably managed certified forests. There are a number of forest certification programs around the world, but several major certification programs in the US have become the de facto standard, including the Forest Steward Council (FSC) and the programs endorsed by PEFC (the Sustainable Forestry Initiative (SFI) and the American Tree Farm System (ATFS)). ECWPs certified by FSC and SFI are considered rival products in the market place. The LEED for Homes GBP has accepted FSC for the forest certification credit, but has not recognized SFI or ATFS. In contrast, the NGBS GBP allows the use of any third party certified wood. Consequently, forestry

experts, government officials and environmental NGOs are interested in how the two major GBPs might influence the demand for certified wood.
The survey results show that only about 10% of homebuilders used environmentally certified wood products (ECWPs) on a regular basis while another quarter of homebuilders used ECWPs occasionally. When asked to compare the two major certification programs, a great majority of ECWP users did not differentiate between FSC and SFI. Roughly 30% of homebuilders were still unaware of major wood certification programs.
As a result of increased interest in green building practices and GBPs, companies continually evaluate a wide variety of new green building products and technologies, including ECWPs. However, the US residential construction industry has long been criticized for being slow to adopt new products and technologies. A variety of attributes can influence a builder’s adoption of green building products and technology. The survey results show that the most important attributes for influencing product specification are the economic or technical performance of the products including, price, availability, durability, low maintenance, ease of installation, energy efficiency and consumer demand. On the other hand, the less important attributes tend to be those related to the environmental performance of the product. Finally, the survey shows that wood is clearly viewed by residential construction professionals as being the most environmentally friendly building material when compared to either steel or concrete across a wide range of performance attributes.
This study offers the first detailed look at residential construction professionals’ perceptions and use of a variety of environmentally oriented building programs and products in the US. It establishes a baseline for the use of GBPs and ECWPs by US homebuilders and remodelers. While the current awareness and use of these programs and products is often low, the results suggest that their use will increase in the future as the awareness of both construction professionals and consumers increases.

​Executive Summary
Since 1970, Japan has increasing relied on imports to meet its domestic demand for wood products. This reliance on imported wood has always caused a certain tension in Japan where forests cover two-thirds of the country. This tension is caused by the fact that along with the plentiful supply of wood, there is an extensive sawmill industry in Japan. Despite the closure of more than 13,000 sawmills over the past twenty five years (from 20,256 in 1983 to 5,927 in 2012), the Japanese sawmill industry remains uncompetitive and plagued by small, inefficient sawmills located in rural areas far from the main demand markets. High production and transportation costs have made both domestic logs and lumber uncompetitive within the domestic market and, as a result, lower cost imported wood products have become the primary source of supply within Japan. 
 
Over the years, the Japanese government and the forest products industry have proposed a number of subsidies and policies designed to improve the competitive position of domestic wood products as well as the forestry and sawmill sectors.  A recent regulatory initiative, the Forest and Forestry Revitalization Plan, proposes to develop an extensive system of subsidies and regulations designed to increase the volume of timber harvested from domestic forests while promoting the expanded use of domestic wood over imported wood in the construction of both public buildings and residential homes. Clearly any program designed to raise the market share of domestic wood in Japan will adversely impact the competitiveness of imported wood and would have serious implications for forest products manufacturers in the Pacific Northwest, many of whom are located in rural, timber-dependent communities which were particularly hard hit by the recent economic crisis.  With the US economy still feeling the effects of the housing crisis, and housing starts remaining at historically low levels, export markets have been the one bright spot in an otherwise dismal economic landscape for the forest products industry.  Total US forest products exports have increased by 46% since 2009, rising from $5.2 billion in 2009 to $7.5 billion in 2012.   Japan is the third largest destination for US wood exports, with exports of wood products increasing from $517 million in 2010 to approximately $730 million in 2012. With the introduction of the new Forest and Forestry Revitalization Plan in Japan it is critical that the US undertake research to better understand the potential implications of the subsidy programs on the competitiveness of US wood products in Japan.
 
This research project was designed to gain a better understanding of how the newly implemented Forest and Forestry Revitalization Plan would impact the overall demand for wood products in Japan in general and the competitiveness of US wood products specifically.  The objectives of the proposed research include the following:  1) describe the forest resource in Japan and assess the factors that influence the supply and demand of domestic wood products in Japan;  2)  provide an overview of the major wood industries in Japan (lumber, plywood and glue laminated lumber);  3) provide an overview of the housing sector;  4)  assess the changing demographics in Japan;  5)  assess the broad range of forestry and wood subsidies and support programs in Japan  and 6) assess the potential impact of the domestic wood policies and programs on wood use in Japan and the demand for imported wood products from the US.

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
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
Forest certification is becoming an important issue within the forest products industry and also a new trend in forest products markets. Although forest certification was initiated to confront the severe deforestation of tropical rain forests, certified forests are unbalanced in geographical locations, with 60% of certified forests being located in North America and 36% in Europe in 2006. The end markets for certified forest products, especially certified wood products, are also concentrated in European countries (particularly the United Kingdom, Germany, Belgium and the Netherlands) and North America, because the price premium for environmentally friendly products is only available in these mature and value-added markets. In manufacturing, countries such as Germany, Italy, the Netherlands, Poland, United States, Brazil, Japan and China are competitive in the area of certified wood products.
China is attracting more attention for its increased use of certified timber in wood products manufacturing. In accordance with its leading status in traditional labor intensive manufacturing industries, the Chinese forest products industry has an advantage in low cost labor, convenient infrastructure, and favorable export trading policies. The number of Chain-of-Custody (CoC) certified companies, mostly wood products manufacturers, soared between 2004 and 2006, reaching 200 by the end of 2006. Certification of forest farms in China , however, has been relatively slow and difficult, with only four forests (less than 1% of all the FSC certified forest area in the world) having obtained Forest Management (FM) certification by 2006, representing a total area of 439,630 ha.
This study consists of two sections: a case study of a certified state-owned forest farm and its downstream wood products manufacturers located in Northeast China, and an email survey of all FM/CoC and CoC certified companies in China , including manufacturers, forest farms with wood mills, and traders. Unless mentioned specifically, FSC is the default forest certification program in China because of its widespread use within the country (to the virtual exclusion of all other certification programs).
Case StudyYouhao Forest Bureau is currently the largest certified forest farm in China with two associated certified furniture manufacturers, Hualong and Huali factories, mainly supplying solid wood furniture for IKEA. The certification of Youhao's forest farms and the Hualong and Huali factories helped to maintain product orders from IKEA, which has committed itself to sourcing its wood materials from certified forests through the four steps of the IKEA Forest Action Plan (FAP). Although the high cost of certification determines that profits from certified wood products are often lower than non-certified wood products, both the forest farms and manufacturers view certification as a new trend in the forest products industry, and hope the niche market for certified wood products will grow in the future, assuring a higher price premium.
Governmental administration played an important role in the certification of Youhao through administrative commands and favorable policies. As a country with diverse forest resources, China 's central and local governments actively initiated forest certification, took part in the process of certifying two important state-owned forest farms, organized training projects on forest certification in several more state-owned forest farms after Youhao and Baihe's certification, and drafted the “Criteria and Principles of Forest Certification for China ”.
While these actions made certification favorable for state-owned forests, complicated forestry property rights reform and unstable tenure length represent significant obstacles to the certification of privately owned forests.

Survey ResultsA survey of all the FSC (CoC) certified companies in China was conducted to investigate the basic issues related to forest and chain-of-custody certification and their influence on the international trade of forest products in China. Although there are only 200 certified companies, a general pattern on this new trend within the industry was obtained. Out of the population of 200 companies, 41 usable responses formed the sample of certified companies, including 2 forest farms with wood mills, 31 wood products manufacturers, and 8 trading companies. Most of the certified companies in China are located along the eastern and southern coast of China , from Guangdong Province to Jiangsu Province . Nearly half of the companies (46.3%) are domestic private companies, and 29.3% are wholly foreign-owned enterprises. More than half of the companies (53.7%) have over 500 employees, indicating a labor intensive production process. Evaluated by annual sales, more than half of the companies (51.2%) achieved annual sales of more than US$13 million (RMB ? 100 million) in 2006, which can be viewed as medium to large sized companies.
Product mix of certified wood products
The mix of certified wood products made by survey respondents can be divided into ten major categories: indoor furniture and accessories, craft products, stationeries and toys, outdoor furniture and accessories, wood material, garden and BBQ tools, flooring, doors and windows, logs, pulp and paper, and others. Most of the certified wood products are small piece, uni-material, finished products. This is natural as large, mutil-material, semi-finished products would increase the complexity of production, management and the percentage calculation according to CoC requirements.
End markets for certified wood products
The two biggest export markets for certified wood products were Europe and the United States , accounting for 54.6% and 29.8% of exports respectively. The giant DIY chain stores such as Home Depot and B&Q are important retail markets for certified wood products. Furniture retailers, pulp and paper companies, public procurement by governments, and other users form a niche market for these products. A recent report showed that from 1999 to 2000, annual sales of all certified wood products by retailers in Britain increased from £351 million (1.8% of total forest products annual sales) to £629 million (3.4% of total forest products sales). No similar data was found for the United States .
Certified wood raw materials
The US is currently the most important source of certified wood raw materials for wood products manufacturers in China , with 24.9% of certified wood originating from the US . Other countries supplying certified wood raw materials are New Zealand (with 18.5%), Brazil (12.4%), and European countries (10.8%). Domestic forest farms in China supply about 14.5% of the raw material mix for domestic manufacturers. The species of certified wood is almost evenly distributed among conifer species, tropical broadleaf species and semitropical/temperate broadleaf species. More than half (56.4%) of the companies in China indicated that they are now facing a shortage of supply for certified wood raw materials.
Cost and benefit analysis
The costs and benefits of using certified wood products is inevitably the critical problem confronting all certified companies. The issue of profitability can be viewed from several different perspectives: the market share of certified wood products; the market growth rate; the increased cost of certified wood; the small price premium obtained for certified wood products; and the lower profit margin for certified wood products relative to non- certified wood products. The profitability of certified wood products will influence both the short-term and long- term marketing strategies of companies considering selling certified wood products.
The market for certified wood products in the world is relatively small, and the total sales of these products by all the certified companies in China were estimated to be around US$697 million. The market for certified wood products is growing, with nearly 39% of the sampled companies reporting that their sales increased about 22.7% between 2005 and 2006, while just 2.4% of companies' reported that their sales decreased. There are increased costs that contribute to the higher price of certified raw materials, including the cost of certification (both the initial evaluation and a semiannual audit fee) and the cost of production updating and management adjustment for certification. The increased cost of using certified raw materials is the most significant cost factor, with the

average price of certified wood being 22.3% higher than non-certified wood. The cost of certification varies dramatically between forest farms gaining forest management certification and wood products manufacturers obtaining CoC certification. The cost of certification for forest farms was reported to be about ten times higher than the cost of certification for manufacturers. The average cost of certification for all certified companies including the two forest farms was about $9,037 per year, while the average cost of certification without the forest farms was around $5,912 per year. However, it is important to note that the annual cost CoC certification is likely to decline over time as the initial adjustments in management and manufacturing practices that are required for certification are implemented and they become part of the routine operating procedures for the companies.
Certified companies obtained an average 6.3% price premium for certified wood products in European markets, a 5.1% price premium in the United States and a 1.5% price premium in Canada . About 24.4% of the companies reported that the profit margin for certified wood products was 6.7% higher than for non-certified wood products, while 39.0% of the companies reported a loss of about 5.6%. The profit margin for certified wood products is highly dependent on the price premium companies can achieve. A simple linear regression model was developed to estimate the profit margin based on the price premium. The regression model results suggest that as long as the price premium obtained for certified wood products exceeds 11% (relative to non-certified wood products), the profit margin for certified wood products will exceed that of non-certified wood products.
Attitudinal evaluation on certification
Certified companies expressed a positive attitude towards most of the survey statements regarding forest certification and its influence on the industry. Statements viewed positively included the belief that certification can help companies enter new markets (especially markets in Europe and North America); certification can help maintain a company's existing markets if new requirements on environmental issues are implemented; certification is helpful in enhancing the competitiveness and public image of companies; and companies were optimistic about the increased market share and profits that would be generated from selling certified wood products over the next two years.
This study focused on FSC certification in China because there were only four companies that had received certification from programs other than FSC (i.e. PEFC). Therefore, FSC is currently the dominant certification program in China for the forest products industry. The survey respondents were asked an open-ended question about their reasons for choosing FSC certification, and their reasons can be summarized into three main categories: specific requirements dictated by their buyers; specific strategies companies took for entry into new markets; and FSC's highly credible reputation.
Current problems
Some common problems that certified companies in China face relate to the cost and supply of certified wood raw materials. Lacking domestic accredited certification bodies not only increases the cost of certification, but also hinders the improved communication and training among foresters and manufacturers about certification issues.
Due to the supply shortage of certified wood, companies have to communicate with importers more efficiently to obtain reliable information about the origin and supply of certified wood from foreign countries. Although domestic forest farms are in the process of being certified, which may alleviate the dependence on imported raw materials to some extent, the complexity and ambiguity of the forestry property rights reforms being considered and implemented in China will slow the privatization and consolidation of local forests, and further impede the process of certifying private forests.

​Executive Summary
The economic liberalization policies initiated in 1991 have led India along the path of increased economic growth and greater macroeconomic stability. Real GDP growth averaged 6% over the period 1997-2001, exceeded 8% from 2002-2005 and is projected to be about 9.2% in 2006. This rapid economic growth has been supported by a loosening of trade restrictions which have contributed to a rapid increase in both imports and exports. Between 2000 and 2005, imports increased from $US50 billion to $US149 billion while exports increased from $US36 billion to $US103 billion. Future economic growth may be tempered by rising inflation, which is projected to be almost 7% in 2006, and rapidly increasing wage rates for skilled labor. For example, food price inflation rose by 10% in 2006. In addition, poor infrastructure (especially roads, ports and electrical power distribution), restrictive labor laws and poor quality public services (especially in education and health) also pose serious challenges to continued high levels of economic growth in India . It is estimated that almost 40% of India 's fruit and vegetable harvest rots before reaching market due to inadequacies in the transportation and electrical distribution infrastructure. India will continue the process of opening its economy due to the fact that it must create on the order of 15 million new jobs every year simply to provide employment for young people entering the job market. However, future economic growth is dependent on reducing (and eventually eliminating) subsidies and providing improvements in the road and electrical distribution infrastructure, particularly in the rural areas of India .
The forest cover in India is estimated to be 637,293 km 2 ; 19.4% of the total land area. India 's forests are mostly state owned; only 10% of the forests are classified as community or private forests. A recent survey by domestic and international organizations revealed a moderate increase in India 's forest cover. Forest plantations play a very important role as a source of raw material to the domestic wood-based industry. Since adopting the National Forest Policy of 1988 (NFP), there has been a ban on the felling of trees in all forests located above an altitude of 1,000 meters. In addition, high priority has been given for planting fuelwood and deciduous fodder producing trees in government forests. Finally, industrial wood production was restricted to farms and wastelands. As a result, there was a drastic reduction in timber harvest volumes as a number of states stopped timber harvesting and a ban was announced on all harvest operations in the national parks and protected sanctuaries.
The NFP emphasized meeting the fuelwood, fodder and small timber needs of local communities rather than the raw material requirements of the wood-based industry. It should be noted than even before the NFP was implemented in 1988, the existing forest policy was more conservation oriented than industry oriented. The raw material crisis for the wood-based industries became more acute following the adoption of the NFP. As a result, the forest-based industries have had to increase their dependence on private forests and bamboo from natural forests (bamboo harvesting from natural forests is permitted) for their raw material supply. Though large reforestation programs were proposed in conjunction with the NFP budget, constraints prevented the forestry department from meeting the reforestation targets. To meet the community demand for fuelwood, small timber plantations were designed which provided timber products that were less useful for industry. In order to improve the availability of raw materials, the NFP proposed the liberalization of log, chips and pulp imports.
The Indian forest products industry, both the wood products sector and the paper and paperboard sector, have been constrained by severe raw materials shortages. This raw material shortage for the forest products industry has been further accentuated as a result of a Supreme Court ruling limiting the felling and movement of timber within the country. In an effort to alleviate the raw material shortage, the forest products industry is increasingly relying on imported logs, chips, wood pulp and waste paper. Hence, for the wood-based industries, imports have become a very important component of their raw material mix.
The graduated structure of tariffs applied on wood product imports clearly indicates that the Indian government encourages the import of unprocessed lumber that can be used by the wood-based industries as raw material inputs. Higher tariff rates are imposed on imported finished and value added products to protect the less efficient domestic manufacturers from international competition. In addition to the basic import tariffs, India also imposes duties such as surcharges, additional customs duties and special additional duties. Other additional levies can be imposed on imported wood products depending on the nature of the product. These additional levies include countervailing duties, anti-dumping duties and safeguard duties. Other non-tariff barriers include state taxes, which can be as high as 18% of the value of imports and various port of entry restrictions which might add up to a large mark-up on imported items. Such tariff and non-tariff barriers by the government make imported products less competitive in India . Over the past decade the tariff rates and the non tariff barriers have been reduced dramatically and India has started importing large volumes of forest products.
Indian trade in forest products has increased tremendously over the period 1999-2005. This is in response to both the decline in the domestic timber harvest as well as the increased demand for wood products within the domestic wood processing industry. Over the period 2000-2005 Indian exports of wood products jumped from $US30 million to $US99 million, a 230% increase. In contrast, imports of wood products went from $US528 million to $US957 million, an 82% increase over the same period. As a result, India saw its balance of trade in wood products worsen from $US498 in 2000 to $US858 million in 2005. It is important to note that over 88% of India 's wood imports were logs, primarily from Malaysia and Myanmar .
Housing has long been neglected in India 's national 5-year plans. The unfulfilled demand for housing was estimated to be approximately 50 million units in 2001 and was projected to be increasing at a steady rate. This housing shortage stems from a lack of government funding and the inadequacy of financial institutions, coupled with an increase in building material, labor and land costs. In the tenth five-year plan, from 2002 – 2007 special emphasis has been given to the housing sector and some state governments have announced a target of achieving “shelter for all” by 2012. Efforts have also been made to reform the allied institutions in an attempt to provide support to the housing sector. The government is beginning to view the housing sector as a very important driver of economic expansion and increased employment. These new initiatives by the government and the huge latent demand for housing, coupled with an expanding economy, should result in higher housing starts in the country over the next decade.
The middle class population in India , which is almost the size of the US population, is becoming more exposed to the western life-style and is showing an interest in western style doors, windows and kitchen cabinets. India has a centuries old tradition of wood use, particularly for interior design and furniture. Although structural wood is rarely used for construction, outside observers have noted that India uses more interior wood than Japan . Recent estimates suggest that the market for high end imported value-added wood products is increasing steadily as a result of continuing economic prosperity in India . This represents one of the largest emerging markets for value-added wood products in the world. New residential construction, primarily multifamily units, are increasingly going to standardized sizes for doors, windows, and interior fittings. This has led to an increased demand for imported doors, windows and cabinets. The total annual demand for furniture in India is estimated to be $US1.25 billion of which 90% is for wooden furniture. The market for branded (higher quality) wooden furniture is estimated to be $US37 million and growing at an annual rate of 15%.
Imports of wood products into India have been growing rapidly, although the demand for wood products is heavily skewed towards raw materials such as logs, chips and pulp. While the middle class in India is growing and becoming more open towards using imported value-added wood products, much work needs to be done to take advantage of this demand. For example, India must accelerate their rationalization of import tariffs and remove those non-tariff barriers designed to protect inefficient domestic manufacturers from international competition. This will not only ensure compliance with their WTO obligations but will also force the domestic processing industry to invest in more efficient processing technologies. In addition, there remain long-term opportunities to introduce North-American wood frame construction technology in India . The combination of a severe housing shortage and interest in developing energy efficient housing both provide impetus for working to gain acceptance for wood frame construction. However, in order to achieve the successful introduction and adoption of wood frame construction it is important that the US government and industry associations work with the Indian government to develop and adopt wood frame building codes. Finally, acceptance of wood frame construction technology is dependent on increasing the familiarity and understanding of this construction technology within the architect and construction communities. A key element to gaining this acceptance could be in educating architects and residential builders on the superior environmental performance and energy efficiency of North-American wood frame construction technology.  

Executive Summary
Forests play three central roles in the carbon cycle. Forests act as sinks and sources of carbon. Second, harvested wood products (HWP) from forests store carbon over their life cycle. Third, wood products conserve fossil fuels through energy substitution and by their lower fossil-fuel usage during their manufacture. International governmental bodies have recognized these roles in their discussions. The current United Nations Framework Convention on Climate Change (UNFCCC) methodology used to prepare national greenhouse gas (GHG) inventories provides the suggested default assumption that all forest biomass harvested be recorded as an immediate source. Additionally, the convention also recognizes that the wood product sink can be included if it can be documented that existing stocks are increasing. Our study focuses on the second role -- HWP and their function in forest carbon accounting.
Past studies estimated carbon additions and emissions under alternate accounting approaches and analyzed their impacts using case studies. We calculated the emissions associated with three alternative approaches for 30 regions comprising the global forest sector and reported results for the globe and regions. We briefly investigated alternative methods to calculate the additions and emissions under alternate approaches by examining the sensitivity of alternative assumptions on landfill pools. We also investigated economic implications associated with the alternative approaches by imposing costs on the global forest products industry for national emissions of the forest carbon account.
Three approaches to calculate stock changes and estimated emissions associated with HWP proposed by IPCC are the stock change approach, the production approach and the atmospheric flow approach. The stock change approach estimates the net annual change in carbon stocks in the forest and wood products pool within national boundaries. Briefly stated, stock changes in the forest pool are accounted for in the producing country. Stock changes in HWP pool are accounted for in the consuming country. The production approach also estimates net annual changes in the forest and HWP carbon stocks. Producing nations account for forest stock changes and the changes in carbon from HWP that came from domestic harvests including exported wood products. The atmospheric flow approach estimates carbon flows between the atmosphere and the forest and HWP pools within the national boundary. Producing nations account for forest growth carbon and consuming countries count emissions from wood and wood products.
We examined the overall effect of the approaches on national emissions to compare the results to those obtained using the IPCC default. For sake of clarity, we divided the national account into the forest account and the HWP account. All that we were interested in the forest account was that portion of emissions calculated by measuring stock changes affected by the HWP accounting approaches.
Within each accounting approach there may be more than one estimation method that can be applied with different levels of complexity, depending on data availability. Two examples are alternative assumptions on the fraction of wood product leaving the in-use pool every year and degrading half lives. We examined the sensitivity of IPCC good practice guidelines default assumptions changing the default parameters associated with half-lives of discarded products. Other sensitivities are possible given the data base created but not pursued for this study.
We used an economic model of global forest sector to extend the calculations of carbon emissions under the different approaches to 2016. Economic equilibria to production, consumption, traded volumes and prices were calculated for coniferous and non-coniferous sawn wood and plywood. We maintained industrial roundwood

material balances in the production of these products using estimated input/output coefficients such that equilibrium amounts produced, consumed and traded for saw logs were also calculated for the years 2004 to 2016. Projections of other panels and paper and paperboard products and their use of industrial roundwood were required as input by the economic model so as to maintain material balances at the roundwood level. Paper and paperboard projections were made using estimated income elasticities and gross domestic product (GDP) projections differentiated regionally.
Scenario assessment was employed to examine the trade and competitiveness implications associated with alternative approaches. We imposed a cost in the country in the form of an emission tax. The tax level was determined by using the calculated forest sector removals/emissions for the default and three alternative approaches. The impact of the emission tax for each approach was then compared with the IPCC default approach. We chose to limit the analysis of economic impacts to the softwood lumber sector since other wood product sectors accounted for in the model do not use equilibrium methods to determine stock inflows in response to a cost increase. We investigated a carbon price of $10 and $35 per tonne of CO 2 .
We summarize our conclusions as follows.

• Using available forestry data and IPCC accounting methods that consider carbon in HWP, it is demonstrated that HWP pools are increasing globally. By 2002, global carbon stocks in products in use had accumulated to approximately 4,508 Tg C, and were increasing at a rate of 1.2% per year. Global carbon stocks in landfills were estimated to be 3,447 Tg C and were increasing at 2.4% per year.
• Different accounting approaches (i.e. the current IPCC default, stock change, production, and atmospheric flow) led to different national accounts of emissions. Compared to alternative approaches, the IPCC default approach resulted in higher national emissions for all nations, with the possible exception of a few regions where much of the harvest is used for fuel wood. The stock change approach produced lower emissions for large net importers of HWP. The production and atmospheric flow approaches led to lower emissions for large net exporters of HWP.
• If the forest products industry became financially responsible for HWP carbon emissions, the selection of an accounting approach could significantly affect the industry. In particular, the current IPCC default approach could result in lower global industry output and higher lumber prices than the three alternatives (i.e. stock change, production, and atmospheric flow). The differences between the three alternative approaches, do not appear to be significant at the global level (differences in wood costs of $0.25 per m 3 or less). In some countries, however, the differences between the three alternatives can be more than $10 per m 3 of wood.
• The stock change approach can give rise to the elimination of accounted HWP emissions when import levels lead to increasing HWP pools that are greater than domestic harvest emissions.
• Calculating the land-filled pool using alternative values of half-lives led to relatively small changes in emission accounts. These changes were relatively constant across accounting approaches.
• The economic impact of emission changes depended on the level of these charges
• High carbon prices led to persistent change in coniferous sawlog harvest levels and higher prices in softwood lumber markets. We expect similar responses in other forest product markets including pulp and paper. Their raw material costs would increase since the emission tax increases harvesting costs, and lower output by the softwood lumber sector reduces residual supply to pulp mills.
• Low carbon prices led to higher price in these markets as consumption levels recovered.
• Higher prices under both low and high carbon values could signal product substitution.

Executive Summary
In recent years, China has become a vital market for many US wood exporters. Now the fourth largest export destination for US wood products, exports from the US to China have increased an average of 30 percent per year over the past 10 years. From 1999-2004, US exports of softwood lumber increased from $1.2 million to $27.5 million and exports of hardwood lumber increased from $29.9 million to $150.8 million. While China predominately imports raw materials, exports of value-added products are increasing. For example, in 2004, US suppliers exported almost $4 million in builders’ joinery to China, replacing Canada as the leading supplier. Sales of wood furniture from the US are also increasing. Between 1999 and 2005, wood furniture exports from the US increased from $1 million to $6.8 million.
China’s plentiful supply of cheap labor and comparatively low capital costs have made it arguably, the world’s workshop. China consumes billions of dollars in raw materials and re-exports even more in value-added wood products. As the world’s third leading importer of forest products, China has inevitably drawn the attention of the supplying nations and competition for China’s business has become intense. Russian and Canadian suppliers dominate China’s softwood lumber market and Southeast Asian suppliers are extremely competitive in China’s hardwood market. US companies, however, are competitive suppliers of high quality raw and finished building materials. For US suppliers to maintain and improve their competitiveness in China however, they must understand what US products are in demand, the sales process, the distribution system, and their competition.
While raw materials, such as logs and lumber used in China’s furniture factories, remain China’s leading wood imports, the country is rapidly transitioning from a raw materials market to a diversified market with rising demand for value-added imports. Locally produced building materials dominate the regionally fragmented and price-sensitive market, yet US building materials are making inroads into certain niche markets. Yet, China remains a challenging market that can easily consume exporters’ time and money. In order to improve their competitiveness, US suppliers must identify appropriate niches for their products, navigate through thousands of specifiers, and negotiate a fair contract. In addition to understanding market opportunities and competition, exporters must understand the markets for US products and how to introduce products into these markets.
This report presents information about opportunities, market size, factors affecting competitiveness, and makes recommendations for improving competitiveness and product positioning. These issues will be discussed throughout this paper and suggestions will be made to help US suppliers enter the Chinese market and increase their sales in China. Distribution systems for raw materials and value-added building materials will be presented and the purchasing process used by developers and contractors will be discussed. The information used for this report is a combination of secondary trade data and primary information derived through in-person interviews
Conclusions and Recommendations
Understanding government policy and directions of investments is critical for firms with long-term resource commitments in China. Although the Chinese government readily embraces the capitalist ideology, a number of housing developments are controlled by local government agencies and China has yet to develop an open exchange of information. Therefore, good relations with government officials and large real estate companies are extremely helpful for firms in obtaining project and bidding information. Most, if not all of the successful US building materials exporters spend a great deal of time developing contacts in government offices to learn about new government housing development contracts.

Over the past decade, China has invested heavily in fixed assets to maintain the country’s recent level of economic growth. According to the Eleventh Five-Year Blueprint (2005-2010), the central government will recommit investments to “building a harmonious society” by improving people’s living standards, particularly those of rural and low-income individuals. Therefore, analysts expect housing developments for middle- and upper-income consumers will gradually slow and subsidized affordable housing projects will increase. Land use restrictions for single family developments were expected to limit the number of luxury developments, but most of the large builders have already secured enough land with permits to enable them to continue to build.
Maintaining market presence is critical. Most US firms don’t have inventory capacity in China and are selling their products via a variety of intermediaries such as: trading companies, sales offices, timber markets, distributors and home centers
Key findings of this report include: 1) policies enacted to achieve an economic “soft-landing” after years of double digit economic growth could curtail demand for housing and wood-based building materials, 2) distribution channels vary greatly depending upon the product and region, 3) distribution channels for value- added products are more complicated than those for raw materials, 4) long lead times and high prices hinder US suppliers’ ability to compete with domestically produced building materials, 5) locating an aggressive local partner has an important influence on export success, particularly for technical products (e.g., treated lumber and wood windows) where technology transfer programs are required to educate builders, developers and architects, and 6) although competition from domestically produced building materials is intense, there are niche-market opportunities for hardwood lumber, hardwood veneer, windows, engineered roof truss systems, glulam bridges, treated lumber and naturally durable species, and high-end fine furniture from the US.
Hardwood lumber and hardwood veneer
While wages in China are increasing, China still has an ample supply of low-cost labor to fuel its value-added wood manufacturing plants, which will continue to drive demand for US hardwood and softwood lumber. US red oak, cherry, alder, maple, and walnut are among the most popular species for furniture manufacturing in China.
Yellow poplar lumber and cherry veneer are also in high demand, due to an increasing shortage of supply. The American Hardwood Export Council (AHEC) has predicted double-digit export sales growth in the Chinese non- structural markets over the next few years.
Wood Windows
US wood windows have many advantages over their competitors in China, including high energy efficiency. As the Chinese government promotes energy-efficiency in buildings and building materials, Chinese window manufacturers face rising costs and high market-entry barriers with respect to window technology, quality and performance. The current market for wood windows is high-end villa projects located in the major Chinese cities. However, in the future, rapid urbanization is likely to provide new opportunities in second tier cities such as Chongqing and Nanjing.
Engineered Roof Truss Systems
As a major part of the government’s campaign to renovate older urban districts, flat roofs of aged residential buildings are to be replaced with sloped roof systems. Slope roof modification has many advantages over flat roofs, including energy-efficiency and visual appeal. For most Chinese people, it is also a design that provides increased storage and living space in the house. This initiative could provide market opportunities for US engineered roof and truss systems.
Glulam Bridges and Beams
Outdoor applications such as bridges may be an opportunity since local wood is generally of lower quality compared to imports. Current uses for glulam timbers include bridges and clubhouses in upscale golf course developments as well as structural components in the outdoor walkways built around the water features that are becoming more prevalent in upscale residential developments.
Treated SYP and naturally durable species
Although competition is intense in the treated lumber market, there is a potential for US treated softwood lumber if the market is well educated and US standards are well recognized. Critical to the success of this product market

is educating Chinese construction professionals about the importance of proper lumber treatment on the long-term durability and performance of treated lumber. This is particularly challenging given the price sensitivity of this market. Another option is the use of naturally durable wood species such as western red cedar, Alaska yellow cedar, eastern white cedar and redwood. While these species provide attractive options for builders, availability and cost can be an issue.
High-end fine furniture
Import tariffs on furniture imports were totally removed in 2005. US furniture brands, such as La-Z-Boy and Ethan Allen, can already be found at the retail level in major Chinese cities. Buyers of imported furniture are largely limited to overseas expatriates and upper income Chinese who are pursuing western lifestyles. With China’s increasing integration into the global economy, and continued economic growth, this high end segment of the market is expected to increase substantially.

​Abstract
Approximately 85 percent of all single family homes in the US include a deck or deck-like structure (e.g., patio, porch, or balcony), which is equivalent to roughly 30 million decks. Sixty percent of all new homes are constructed with a deck, while nearly 2.75 million decks are replaced on an annual basis (the average deck has a life expectancy of about eleven years). Furthermore, slightly over 4 percent of all households add a deck to their home on an annual basis, resulting in another 3 million new decks. Collectively, over 6.5 million new decks have been constructed throughout the US on an annual basis since 1995, which represents approximately $3 billion spent annually in deck materials. During the decade of the 1990s, the deck market grew at an average annual rate of 8.1 percent. Assuming a constant rate of growth of 8.1 percent, the deck market in 2010 could be as large as $6.5 billion. Despite the enormous size and healthy growth of the residential deck market in the US, very little research has been conducted evaluating consumer perceptions of the various deck materials available to them in the market. The objective of this study was to review secondary information regarding the residential deck material market in the US. Additionally, a survey of residential homebuilders in the US was conducted to characterize the industry’s use of various deck materials, as well as to assess the industry’s perceptions of these deck materials.

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
The South Korean (Korea) market for wood frame housing and building materials has gained more attention from US manufacturers and exporters in recent years. From the end of the Korean War until the recent Asian economic crisis, the Korean economy demonstrated strong growth, making it the eleventh leading economy in the world. Rising consumer incomes have enabled more families to purchase single- family homes. Within this sector, wood frame homes are becoming more prevalent. The Korean government has almost reached its goal of providing a 100% housing supply. The Ministry of Construction and Transportation (MOCT) is redirecting its previous mission to focus more attention on building and promoting higher quality housing and more aesthetically pleasing living environments. As such, attention to wood frame housing as an alternative to high-rise concrete construction is increasing.
Despite the Korean government’s activities to allow greater access to its consumer markets, US exporters still face many challenges. Some of these obstacles are specific to wood construction, such as inadequate building codes and lack of technical training. Other obstacles are more generic, including limited information about the import and distribution process, limited port facilities, and domination in the housing sector by concrete construction. Few market reports regarding the wood frame housing industry exist; many that exist are outdated. In order for US exporters to improve their competitiveness in this market they must develop a better understanding of the residential construction industry, business practices, and consumer and government perceptions regarding wood frame housing in Korea. The US wood products industry is also in need of information regarding building codes and safety and testing requirements for wooden building materials as a means to encourage the MOCT to modify Korean building codes to accept wood as a safe building material.
The Asian economic crisis has had a profound impact on consumption of luxury goods, particularly wood frame homes and building materials.  The Korean economy suffered a loss in investor confidence as a series of corporate bankruptcies occurred and the accumulation of bad loans revealed unstable business practices among several of the country's largest corporations and lending organizations. Consequently, domestic production and consumption declined, unemployment increased, and the overall health of the economy declined. The Korean won devalued against the US dollar, causing the price of imported goods to double. Industry experts estimate that the economy will begin to recover within 2-4 years. Therefore, this report has been written in light of this assumption and describes the wood products industry for the most part during its growth phase, which immediately preceded the Asian economic crisis.
This report is the result of a market research project conducted in Korea from February 21-March 6, 1998. Two researchers traveled to Korea and interviewed builders, importers, and members of academia involved in the wood housing construction sector to learn about tariff and non-tariff barriers to wood frame housing and wood construction materials. The researchers also investigated the prevailing building codes related to wood frame housing and future market opportunities. This report offers background information about the Korean market for wood products, the building construction sector, and the environment for foreign businesses, in addition to suggestions for approaching this market.
Findings from this project indicate that the consumer perception of wood frame homes is generally positive. Korean people view wood homes and wood in general as healthy and aesthetically pleasing.

However, the high cost of building materials and restrictive financing limits single-family home ownership to the affluent.
Although a mortgage system exists, interest rates are approximately 20% and the terms are for only a few years. Korean mortgages require the consumer to pay 70-80% of the home cost at the time of purchase and pay the remaining debt within 5-20 years. Recently, some banks have started extending special loans of up to 70% of the home price. However, even though personal savings rates are high, the typical income of a potential buyer cannot support high monthly payments. Efforts to make wood frame homes and townhomes affordable could increase the expansion of wood frame housing.
Aside from the fact that many families cannot afford wood frame homes, there are several non-economic factors that affect the widespread adoption of wood frame housing in Korea. One issue that hinders the expansion of US wooden building materials in Korea is limited product promotion in print advertising and home shows. The American Forest and Paper Association (AF&PA) Korea office has been very active in promoting the US wood products industry in Korea through trade shows, trade missions, an annual carpenter training program, wood frame construction seminars, and technical and promotional publications. These activities have contributed to the perception that US manufacturers produce high quality building materials. However, there still appears to be a general lack of knowledge among Korean construction firms regarding what specific products and services are available and which US suppliers exist. Thus, many Korean housing companies use multiple suppliers from around the world.  This indicates that there is a need for individual firms to place more emphasis on marketing their goods and services in this market as a means of developing name or brand recognition. In addition, homebuilders, architects, and homeowners lack understanding of the proper use, storage, and maintenance of wood products. It is important that US product literature be translated into Korean so Korean builders will understand proper material handling, storage, and product use. The AF&PA Korea office currently distributes technical information in Korean on the use of specific species and engineered wood products with information from The Western Wood Products Association, the Softwood Export Council, APA-The Engineered Wood Products Association, and the Southern Forest Products Association.
Technical transfer is another important issue. Korean carpenters are either good at concrete work (very rough carpentry) or good at finish work (very fine carpentry); they are less skilled with framing. Framing training, in addition to instruction regarding proper handling and storage of materials is critical to the long- term success of wood frame construction in Korea. One way to disseminate information about proper construction techniques within Korea is to train architects, professors, and construction workers in the US. Training should include architectural design, engineering design, framing techniques, and maintenance.
For the past three years the AF&PA Korea office has organized an annual two-week long 2x4 construction training program near Seoul in cooperation with the Korean Wood Frame Construction Institute and the Home Builders Institute. The program trains approximately 40 to 50 students about US wood frame construction techniques through classroom and hands-on instruction.  Carpenter training is also being taught by a private architect who owns and operates a wood frame design studio in Seoul. However, there are still many carpenters who do not understand the engineering and construction principles associated with properly building a 2x4 wood frame home. It is important for technical transfer to be an integral part of promoting wood frame construction in Korea.
The Korean building code represents another challenge to the widespread adoption of high-quality wood frame housing in Korea. The existing building code places restrictions on the accepted height and total floor area of the building, yet it does not include detailed requirements for structural aspects such as proper engineering principles, material use, and foundations (Appendix A). The lack of a detailed building code leaves room for the possibility that construction companies that do not have a complete understanding of wood frame housing may build substandard homes. The impact of poorly built homes may be compounded by the absence of building inspectors for wood frame housing. Instead, Korean law mandates that the builder or architect is liable for any damages resulting from substandard construction. While builders who construct dangerous homes can be criminally charged for any gross injuries, it may be that building codes are enforced only after major damages are incurred. A more likely scenario associated with poor construction is a dissatisfied customer. Given the small size of the wood frame home industry and the

reliance on word of mouth advertising, the reputation of a few poorly constructed homes can be widespread.
Discussions with MOCT engineers indicate that there may be genuine interest in developing a more complete wood frame building code.  The Ministry of Finance has asked the director of the Architecture and Housing Bureau of the MOCT to identify problems associated with accepting a wood frame building code. It must be understood that the MOCT is not staffed to undertake such an effort. Therefore, it is incumbent upon those interested in such a project to push it forward by demonstrating the safety aspects of wood-frame construction through fire and stress tests first applied in the US then again for MOCT in Korea.  Encouraging MOCT to expand its wood frame construction building code would be greatly aided by support either from a large construction company or the industry as a whole. There appears little willingness for the MOCT to act unless there is a request from an influential Korean company or organization for such action. MOCT engineers and the division director made it clear that political pressure from non-Korean sources to change the building code would not be effective.
The Korean-based Wood Frame Construction Association (WFCA) is working with the AF&PA to promote proper 2x4 wood frame construction in Korea and to help develop a more comprehensive wood frame building code. The committee has drafted a proposed wood frame building code and submitted it to the MOCT for review and approval.
In addition to developing working relationships with Korean 2x4 wood frame construction advocates such as the WFCA, the US should begin fire and structural testing in the US, in order to be prepared to replicate these tests in Korea. Such tests would demonstrate to the MOCT that wood construction can be fire and earthquake resistant. Fire tests of wall and floor assemblies using the Korean fire standard should be implemented. The Korean fire standard differs from the US standard, and it is imperative that American engineers understand the performance of US systems under the Korean test procedure. These tests may be initially conducted in the US, where researchers can design a system to meet the Korean code. However, final fire testing must be conducted at a Korean testing facility.
In the meantime, trade missions that bring members of Korea's wooden home industry to the US should continue. There is a need to educate Korean experts, particularly those proposing to write Korean building codes. It may also be an opportune time to introduce large construction firms (e.g., Samsung, Daewoo) to wood frame housing as opposed to steel frame construction. Support from large Korean conglomerates may help influence the MOCT to focus more attention on modifying existing building codes to accept multi-story wood frame housing.
Four recommendations for US industry in the Korean market are made. First, the US should initiate fire and earthquake testing of wooden wall systems using Korean testing standards to take place in the US. These findings can be replicated later in Korea to demonstrate to the MOCT the safety of wood frame homes. Second, additional housing demographic surveys should be completed in order to assess Korean consumer preferences. There is still a gap of knowledge between what consumers report they want and their actual spending behavior regarding wood homes. Third, cooperative training programs should be established to educate Korean professors, architects, and carpenters at technical schools in the US. Finally, US manufacturing companies should focus on marketing their products in Korea through print ads and trade-shows even in light of the Asian economic crisis. Korean consumers are greatly influenced by advertising, yet there is limited advertising featuring US wood products. While economic recovery is not predicted to begin for at least two years, US producers may use this time to increase awareness of US products in Korea.

​Executive Summary
The objectives of this study were to identify and characterize high-value wood products manufacturers in Europe, to search for opportunities for possible delivery of North American wood to Europe, and to obtain a basic understanding of the legal resources utilized in typical agreements for US wood exports to Central Europe and Italy.
Five successful European manufacturing firms are briefly characterized as examples of European firms which provide high-quality wood products. All firms profiled used design--structural and aesthetic--as an important way to distinguish theft products. Each firm adhered to exacting technical specifications. Several companies were vertically integrated to a greater degree than many North American wood manufacturers.
One market segment, European wood windows, was also examined. This is part of a larger joinery market which is in need of high-quality raw material. While there appear to be opportunities for semi-finished wood products in this area, particularly for laminated frame stock, contacts between European manufacturers and U.S. suppliers are apparently infrequent. The technical specifications required in Europe are demanding and are not necessarily North American. A mechanism for insuring compliance with such specifications is needed to assure that these seemingly mundane, but crucial, aspects of the export transaction are executed.
The European technical education system necessary to support high European technical manufacturing standards is discussed and several schools visited are described. This system appears to be providing a well-trained work force for the high-value wood manufacturing firms in Europe. Currently there appears to be no equivalent training available in the U.S.
A new waterway for transportation of bulk goods from the North Sea to the Black Sea has just opened in 1992: the Rhine-Main-Danube waterway. This system may offer the possibility of sending containerized semi-finished North American wood products deep into Central Europe.
Since Austria appears to be the emerging legal center for Central European trade, an overview of the Austrian legal system is provided. Profile interviews with legal and trade professionals in Austria, Hungary, and Italy provide more detailed information about doing business in these countries, and illustrate some socio-cultural requirements for successful legal transactions with European entities. The Europeans' successful use of a form contract developed for wood import-export transactions between Italy, Austria, and Scandinavia is explored, including the possibility for development of such a contract for use in US-European transactions.
At the present time, there is great social, political, and economic upheaval and reform in Europe. Undoubtedly, there are a number of opportunities for North American wood export; European markets are greatly affected by cultural and economic legacies, and these must be considered when searching for business opportunities. The most important lesson learned in this investigation was that Americans who want to do business in. Europe must view Europe through European eyes.
 

​Highlights:

• U.S. manufacturers who wish to be more competitive in European markets should shift from traditional production-oriented manufacturing of industrial commodity products to more market-oriented production of specific products.
• Opportunities exist for increased U.S. export of value-added wood products to Europe, particularly components for furniture and windows
• U.S. wood manufacturers can improve their image as suppliers of higher value-added products in Europe by learning more about the market, meeting customers' specific demands, and understanding cultural differences dictating how business is conducted.
• German customers are very concerned about consistent dimensions, rapid delivery and consistency in pricing. Italians are particularly interested in long-term relationships with their suppliers, consistent supply, and close customer relations. Industrial end-users in the Netherlands value quality of wood drying, long-term commitments, and close contacts with their suppliers.

U.S. lumber suppliers who wish to be more competitive in European markets must understand the European definition of quality.  Quality is much more than accurate grading.  Other factors like dimension accuracy, consistent supply, and customer service are also very important.  Customers in European countries do hot have the same preferences as U.S. customers.
The objectives of this study have been 1) to investigate how industrial end-users of lumber, importers and agents in Germany, Italy and the Netherlands, define quality, and -2) to present factors that may contribute to the success of American lumber exporters in the European market.
 
U.S. Export of Wood Products to Europe
There was a slight increase in the export of wood products from the United States to Europe during the 1980’s. The European Community (EC) is a very important export market for U.S. sawmills, having imported $1.1 billion of wood products from the U.S. in 1991. Approximately 41 percent of U.S. hardwood lumber exports and 22 percent of softwood lumber exports were shipped to the European Community in 1991.
 
Distribution Channels -
The trend at many-European manufacturers of furniture, cabinets, windows and doors is for fewer, closer wood suppliers. This results in more direct sales and reduced involvement of -intermediaries.  Today approximately 10 percent of softwood lumber and 30 percent of hardwood lumber is imported directly to the industrial end-users, who are primarily larger manufacturers of furniture and windows.
Even if direct sales are a preferred sales strategy, there may be advantages, particularly for small -and mid-size firms in the U.S., in contacting a European intermediary. Agents and importers have an understanding of the culture and the traditions dictating how business is done. They can also help small producers find customers, follow design trends, and deal with complaints.
 
The Swedish Sawmilling Industry
In this project, U.S. export strategies are compared to the strategies practiced by Swedish exporters.
Sweden has for many years exported large quantities of lumber to the countries in the European
Community and therefore has extensive experience in trading in these markets. The European
Community (EC) imports almost 22 percent of its softwood lumber from Sweden compared to four percent from the U.S.
 
Closeness to the market is an advantage Swedish lumber producers have over North American producers.  In today's fast-changing market and with importers and end-users interested in minimizing their inventory, it is crucial to be able to meet orders with short notice, arrange fast shipments and offer just in-time deliveries. Knowledge of the market and a better understanding of the business culture are often mentioned as major differences between Swedish and North American exporters.
 
Perhaps the most important advantage the Swedes enjoy is the long-term relationship they have shared with many of their customers. These old relationships result in loyalty, reliable business relations, and relatively stable prices over business cycles.
 
Opportunities for U.S. Wood Exporters
There is an increased interest in Europe for buying more finished wood products from the United States. European industrial end-users want to be less involved in the primary wood process and spend more time and effort on developing new products, marketing and distribution.
United States hardwood species like cherry, walnut, red alder, oak and ash can be promoted as substitutes for tropical hardwoods in furniture, cabinets, paneling and flooring. U.S. manufacturers also should promote some species and products that are unique to North America, for example, thick and wide dimensions with clear wood from species such as Douglas-fir, red cedar and hemlock. A preferred strategy is to promote products that are less sensitive to price and encourage end-user loyalty to suppliers.
 
Germany
The unification of East and West Germany has increased investment in the repair and remodeling sector. This has resulted in strong demand for wood products such as construction lumber, windows and doors. Although clear solid wood is preferred, glued and finger-jointed products are becoming increasingly accepted due to decline in the quality of lumber imported from both North America and Northern Europe. Preferred North American species are hemlock, Douglas-fir, lodgepole pine, spruce and oak.
The increased activity in the renovation sector has resulted in a higher frequency of special orders and demand for custom-cut components. The do-it-yourself market, which is already the largest in Europe, has also seen an expansion, particularly in eastern Germany. Opportunities also exist for hardwood lumber and components for furniture and flooring.
 
Italy
Imports of semi-finished and customized wood products to Italy are expected to increase, particularly for use in windows and furniture. Italy is one of the largest producers of furniture in the world. Opportunities exist for lumber and components of red oak, red alder, yellow-poplar. walnut, white ash and black cherry.
Old-growth Douglas-fir is the species preferred by many window manufacturers in Italy. However, there is an increased interest in alternative species since the wood quality of Douglas-fir has declined and the price has increased in recent years. Two alternative species of interest are hemlock and red cedar. There is also an increased market for three-layer laminated window stock made from second-generation Douglas Fir and southern yellow pine.
 
The Netherlands
The Dutch Timber Information Centre promotes U.S. species such as Douglas-fir, hemlock, southern yellow pine, red oak and white oak for increased use in such areas as construction, furniture and windows. Because 0.1 bans on use of tropical hardwoods for certain products, U.S. ash, white oak and red oak are increasingly substituted.
With the increasing price for clear wood; acceptance of laminated window stock is growing. Opportunities exist for use of three-layer components from Douglas Fir, western red cedar and hemlock.
 
QUALITY IN EUROPE
"Quality" is a buzzword often used by marketers of forest products today, especially if there are plans for expanding sales to the European market. It is important to remember that customers in Europe do not have the same preferences as U.S. customers. Before spending too much time and effort on advertising and promotion overseas, it is crucial for U.S. wood suppliers to understand how Europeans define quality': For European wood users; quality stands for a synergism between wood quality, manufacturing quality and quality of service.
 
German customers of lumber and wood components are very concerned about consistent dimensions, rapid delivery and consistency in pricing. Germans also desire that imported wood originates from sustainably-managed forests. Italians are particularly interested in long-term relationships with their suppliers, consistent supply, and close customer relations; Industrial end-users in the Netherlands value quality of wood drying, long-term commitments, and close contacts with their suppliers. The large fluctuations in exchange rates between. the guilder and the dollar are a major Dutch concern.
 
ADVANTAGES FOR PACIFIC NORTHWEST MANUFACTURERS
Manufacturers in the U.S. have higher labor costs than many other countries now producing commodity lumber. In order to be more competitive, U.S. manufacturers should therefore concentrate on manufacturing value-added products of high quality. Low-quality products and bulk-type producti6n can be made less expensively in other countries with lower salaries. Today, Pacific Northwest wood manufacturers have some advantages over their Scandinavian counterparts. These include lower labor costs1 lower raw-material costs, larger logs, larger components of 6lear wood and a greater variety of species.
 
ENTERING THE EUROPEAN MARKET
U.S. wood manufacturers can change their image in Europe by learning more about the market, meeting the customers' specific demands, and understanding the cultural differences dictating how business is conducted. It will take some time and effort in traveling to meet the customers and determine their specific needs. lt rnay also be necessary to invest in new equipment.
 
Some important key issues U.S. manufacturers should consider when exporting to Europe are:
 
Try to develop a strong relationship with the industrial end-user.
 
Look to the European market as a long-term investment, not a market to turn to when the U.S. economy
is down.
 
Develop a long-term strategy to seek loyal customers rather than always trying to sell at highest price.
 
Promote products that are less sensitive to price and encourage end-users to be loyal to their supplier.
 
Concentrate on a few markets and customers, create a healthy niche, then try to service them well.
 
Ensure a high quality of drying, as this is very important to European customers.
 
Sort the lumber according to customer demands. Better sorting requires relatively tittle extra effort.
 
EXPORTING TO EURQPE
 
Even though Europe will be a single market ft would be a mistake to adhere to a single "European" marketing strategy. To be successful in this large market, ft is necessary to have a country-specific marketing strategy. Each country will continue to have specific product demands, design trends, and cultural differences dictating how business is conducted. These differences will not be significantly altered by the European integration.
 
To be more successful in the European market, U.S. manufacturers can change strategy from traditional production-oriented manufacturing of industrial commodity products to more market oriented production of specific products. There will be a large demand for wood components in Europe in the future. Increased export opportunities exist for U.S. manufacturers if they can define quality and adjust to new market conditions.
 

​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
Wood product markets are subject to substitution by lower cost non-wood materials. Alternative materials such as aluminum and vinyl are generally more fossil fuel intensive and have different environmental impacts from renewable wood resources. Increased attention to environmental impacts has drawn increased attention to substitution of wood by non-wood products.
 
This study surveys the available research on explanations for substitution related to economic and technological change, then models substitution within a particular end-product market. The question of whether substitution can be explained by prices of technological change almost independent of prices is an important factor in analyzing the impacts of policies on the environment.
 
This report uses as a case study the United States residential window market, where wood and aluminum windows have been competing for the past five decades. Prior to World War II, wood windows dominated the window market. Since then aluminum windows have increased market share. By 1982, wood windows held only 26 percent of the market. Throughout much of this period, not only were wood windows more expensive than aluminum windows, but the price differential steadily increased.
 
Substitution models based on distributed lags of relative p4ces appear to provide more accurate and detailed information on market share changes than models that rely on arbitrary technological innovation formulations. While the short-run own-price and cross-price market share elasticities may be low, the long-run elasticities suggest that direct substitution between competitive products, such as wood and aluminum windows, can exceed 1.0. The case study shows a 1.7 percent change in wood window market share in the long-run for every one percent change in relative price. This high long-run price elasticity of substitution may have significant implications for carbon mitigation analysis and other environmental policy issues.
 
The primary differences between wood and non-wood alternatives used in residential and light commercial construction are the energy requirements involved and carbon emissions related to fossil fuel consumption in production. When all of the aspects of extraction, transportation, processing and production were considered, wood products were found to require less energy in manufacture (CORRIM, 1976). The exact amounts differed for each end-product.
 
Several studies have examined the environmental impacts arising from the production of wood, plastics, aluminum, steel and concrete. Each of these industries has substantial extraction impacts. The manufacturing of steel, aluminum and plastics was judged to create more significant problems than sawn-wood and cement (Alexander and Greber, 1991). Furthermore, wood has the unique attribute of being a renewable resource which can be managed over many rotations.
 
The most significant effect of forest management on the level of carbon dioxide in the atmosphere will come from the substitution of wood materials for more energy-intensive materials. New approaches to forest production and more intensive forest management practices requiring forest investment would be necessary to increase the production of higher-quality logs needed in order to increase the substitution of wood for non-wood products. While shortages of wood products due to forest preservation constraints may reduce wood demand and forest investment on one hand, carbon taxes on fossil fuels could have the impact of increasing demand and forest investment resulting in the substitution of wood for non-wood products on the other. In effect, environmental policies need to consider substitution issues which are likely to show a strong advantage for the use of renewable resources.

Executive Summary
During 1997 South Korea (Korea) imported almost $300 million in primary and secondary wood products from the US, making it the third largest export market for US wood producers. While almost 41% of the value of wood product exports was derived from unprocessed logs, this number is down 85% since 1983. The standard of living for most South Koreans has improved phenomenally since the end of the Korean War, and expenditures on housing and secondary processed wood products imported from the US have increased. The value of wood frame homes and secondary wood products from the US increased 203% from $14.5 million in 1990 to $43.8 million in 1997. As a result, exports of secondary processed products to Korea, as a share of total solid wood exports, increased from 3.9% in 1990 to 14.6% in 1997.
While access to the Korean market continues to improve and demand for wood products appears to increase, US exporters still face many challenges. While some barriers are specific to wood products (i.e., restrictive and inadequate building codes), others are more generic (i.e., complicated distribution system, cultural differences, a complex business permitting system). The challenge confronting US exporters is to develop a better understanding of the Korean residential construction industry; viable end-markets for US wood producers; the extent of repair and remodel activity in residential and commercial structures;
Korean business practices; the competitive position of US wood products in Korea; consumer preferences; and marketing strategies that may provide US wooden building materials with a competitive advantage in this market.
This report is based on information gathered during May 1998 through interviews of Korean industry analysts, importers and distributors, architects, construction companies, editors of trade publications, and manufacturers. US manufacturers were also interviewed in order to gather information about specific obstacles that US companies face and strategies they may employ. The result is a compilation of supply and demand trends, import statistics, primary competitors, competitive factors, information about the distribution system for wood materials within Korea, and analysis of risks involved with exporting to Korea. Finally, recommendations for companies either currently selling products to Korea or for those interested in entering the market are provided.
The Korean Housing Market: Viable Markets and BarriersThe most promising sector for solid wood interior products appears to be the single-family and low-rise multi-family residential construction sector. Single-family and low-rise multi-family homes comprise approximately 20% of the housing units built in Korea in 1997. While the majority of consumers live in high-rise concrete apartments, more single-family homeowners are purchasing higher-priced, solid wood products.  Among single family homeowners product appearance and quality are more important than price. Wood frame homes are becoming increasingly popular among upper income consumers.  The number of homes built was rapidly increasing until the Korean economy took a downturn in late 1997. The number of western-style wooden housing starts increased from 97 units in 1994, to approximately 800 units in 1996, and an estimated 1,100 homes in 1997. Many importer/wholesalers and industry analysts in Korea expected the number of wood frame homes in 1998 to have reached 1,500 if Korea had not entered a recession.

US manufacturers supply approximately 60% of the 2x4 wood frame construction sector. According to interviews of wood frame construction companies, consumers generally use interior wood products from the same country that produced their home. Therefore, while no statistics exist, it is estimated that US manufacturers maintain approximately 60% of the interior wood products market within the 2x4 wood frame home sector as well. US interior wood product manufacturers are significantly less competitive in the high-rise apartment sector, where solid wood and composite products manufactured by lower-cost domestic and Southeast Asian producers are popular. The Korean mortgage system requires consumers to pay approximately 80% of the home price up front, and pay the remaining loan in 5-20 years. Therefore, many consumers cannot afford to purchase expensive finishes when they initially buy their apartment.
The system of awarding contracts to supply materials to construction projects in Korea can make it very difficult for small, particularly foreign, companies to succeed. About 30 large construction firms build approximately 70% of apartments. Small companies hired by condominium associations build the remaining apartments (CERIK 1998c). Large construction companies purchase not only products, but also product installation from the same company. In high-rise apartments, approximately half of all construction work is subcontracted in this manner. In addition, the subcontractor or supplier provides financing to the construction company. The key to winning a contract may not be subcontractor ability or low price, but the ability to extend financing. If a company is too small to be able to provide financing, they may partner with a product manufacturer.
Problems may arise when subcontractors cannot purchase materials for upcoming jobs because they have not received payment from past contracts they financed. It is common for large construction companies to obtain financing from multiple companies, then pre-sell the apartment units and use the funds received from the financing for other construction projects or financial ventures. Prior to Korea’s economic crisis, many large corporations used financing from smaller suppliers to leverage other investments and business ventures. When these investments failed, many large firms declared bankruptcy and defaulted on debts, forcing many smaller companies who had provided financing into bankruptcy as well.
Opportunities Created by the Korean RecessionWhile the Asian economic crisis sharply curtailed prior financial growth in Korea, it appears that the current economic crisis may have positive long-term impacts on future foreign investment and trade. President Kim Dae Jung and his cabinet launched one of the most aggressive economic restructuring campaigns in Asia. Many of the Korean government's reforms are supplementary to reforms required by the International Monetary Fund (IMF). In an effort to stimulate the domestic economy by attracting foreign capital, the Ministry of Finance and Economy (MOFE) instituted several economic reform policies that will relax real estate and foreign investment laws to attract foreign capital. First, the MOFE instituted a policy to increase the maximum allowable foreign ownership of domestic companies from 55% to 100%. The limit on government-run companies has been expanded from 25% to 30%. Second, new legislation called the "Law on Land Acquisition by Foreigners,” adopted in May 1998, allows foreign companies to purchase and develop land in Korea. Residential land development, which was strictly confined to government and public land development, is now open to both domestic and foreign private sector development and all land ownership restrictions imposed on foreigners have been removed. Fourth, administrative procedures for foreign investment in real estate are being streamlined. To facilitate land transactions of government-held debt properties, a series of asset-backed securities was issued starting in July 1998, after approval from industry experts and foreign investment banks. Fifth, the Korea Trade Investment Promotion Agency (KOTRA) was established as a one-stop office for processing and facilitating real estate transactions for foreign investors (Construction and Economy Research Institute of Korea (CERIK) 1998a). Finally, hostile mergers and acquisitions by foreign corporations of domestic firms are now allowed (Korea Trade and Investment 1998).
While the Korean economy has not been restored to pre-recession conditions, economic reform measures are causing the economy to recover at a faster rate than projected. Economic recovery is in part a result of US $58.35 billion in relief funds from the IMF, the World Bank, and the Asian Development Bank. In an effort to restructure the banking system, the MOFE also announced that unstable banks will be merged with relatively healthy banks or will be obliged to transfer their assets and liabilities to viable banks. Financial

institutions and large corporations were also required to establish cost accounting systems as a means of making their business operations more transparent (Korea Trade and Investment 1998a).
The combination of foreign financial aid and domestic restructuring in the financial sectors has resulted in tangible changes in Korea's economy. Since first quarter 1998, the Korean government converted US
$21.8 billion of outstanding foreign short-term debt to medium-term debt (AF&PA 1998b). By May 1999, the Korean stock market reached the 842 points, or 1.4 million won, the highest point in almost three years. The purchasing power of the won has also rebounded. The won-US dollar exchange rate increased from low of 1,960 won per US dollar in December 1997, to 1,184 won per US dollar in June 1999, Korea's strongest exchange rate since November 1997 (US Federal Reserve Board 1999). Market interest rates also dropped from a peak of 40% to 10-12% in July 1998. Projections for further economic recovery are also promising. The Organization for Economic Cooperation and Development (OECD) raised its growth forecast for the Korean economy from a 0.5% to 4.5%, while other official and private researchers also agreed on a 4% range of growth for Korea in 1999 (Korea Times 1999). J.P. Morgan, a US-based investment firm, forecasts 4% growth for the Korean economy for 1999, and 4.5% growth for 2000 (Korean Trade and Investment 1999).
Foreign investment has also surged. According to Korean Ministry of Commerce, Industry, and Energy analysts, foreign investment is expected to reach US $15 billion by the end of 1999 after reaching a record US $8 million in 1998 (Korea Trade and Investment 1999).
The consumer market is also starting to improve.  Consumer prices increased 8.6% during first quarter 1998 compared to first quarter 1997. However, by March 1998 consumer price increases decelerated slightly due to the decline in domestic consumer demand and a gradual improvement in the stability of the won (Bank of Korea 1999). Despite a 0.05% decrease in the monthly average income per household, average urban household consumption rose 8.9% during the first three months of 1999 compared to 1998, according to the National Statistical Office. This was the first time since the onset of the economic crisis in late 1997 that urban household consumption recorded positive growth (MOFE 1999a). Imports have also increased. By the end of 1998, total imports declined almost 36% and imports of wood products declined almost 60%. During the first quarter 1999, however, imports of wood products increased from 30% to 200% (depending upon product) from year-end 1998 levels. Forecasts for housing starts predict that 460,000-500,000 will be constructed during 1999, an 80% increase from 1997. Industry analysts expect the demand for wood products from the US to follow the upward trend in the housing sector (AF&PA 1999).
Despite improvement in consumer prices and spending, the unemployment rate continues to increase. Unemployment reached 1.88 million or 8.6% by first quarter 1999, the highest since July 1982 when Korea started to record employment statistics (MOFE 1999). Analysts state that the increase is the result of the aftermath of the economic slump combined with the impacts of business restructuring (Digital Chosun 1999). Government officials expect that the unemployment rate will begin to contract following the overall strengthening of the economy starting during the second quarter 1999 (MOFE 1999a).
ResultsKorea's economy is undergoing a dramatic transition that promises to restructure the financial system, construction sector, and business environment comprehensively. Banks and chaebol, or large Korean conglomerates, are being required to make their accounting systems more transparent. Chaebol are also being forced to raise capital by divesting some of their business holdings. The government has also lifted limits on foreign investment and business partnerships. The result will likely be an open business market where consumers are given more products to choose from, and where international products will be more competitive with Korean-made products. This is an opportune time to begin educating consumers and advertising the benefits that consumers can get by using wood products. When housing was in short supply, construction companies were able to use low to moderate quality building materials and still sell units. Now that there is an oversupply of housing, consumers realize they have a choice and they expect higher quality alternatives.
An open market is likely to have significant implications for product marketing. Korean consumers are very fashion conscious and are influenced by popular trends in advertising. Consumers tend to purchase products they see on television shows, in print advertising, or endorsed by celebrities. Journalists from

major daily newspapers are also very influential in guiding consumer preferences. Therefore, newspapers can be very effective in terms of educating Korean consumers about products. After the Korean market is open, product literature, articles, and advertising should focus on the benefits that can be derived from using US products in general or a particular company's product. Advertising that highlights innovation is directly related to product success. Since individuals did not have a wide range of high-quality affordable products prior to the market restructuring, special features and benefits derived from the product should be highlighted. Since US suppliers cannot compete with many domestic and Southeast Asian producers on the basis of price, product marketing should focus on quality, durability, and design attributes.
In general, US companies can increase sales if they market their products in Korea more aggressively. The market for solid wood interior products is far larger than the US market share. For example, according to Korean respondents, US manufacturers have not aggressively marketed kitchen cabinets. In 1997, US companies supplied only 0.02% of the $118,000 imported kitchen cabinet market. On the other hand, US manufacturers have actively marketed wood frame homes through advertising and trade shows. As such, they maintain 60% of the imported wood frame housing market and an estimated 60% of the interior products used in wood frame homes. US companies can take advantage of the recent economic downturn to educate Korean consumers and builders about the benefits of using US wood products. If US companies establish brand recognition in Korea now when the economy fully recovers Korean consumers may be primed to purchase US goods.
Both Korean and US respondents agree that Europeans, and Italian manufacturers in particular, are more aggressive in their approach to the Korean market, which has translated directly into greater market share. Many trade magazine editors derive the content of the magazines from product literature and promotional articles from manufacturers. US manufacturers do not appear to be capitalizing on trade magazines as a means of advertising. The importance of architects in selling products also appears to be overlooked by US manufacturers. Architects most frequently specify materials. As high-income apartments become more prevalent, architects may be the best route to enter the apartment sector. They rely upon trade magazines, product literature, and trade shows to learn about products, yet based on interview response, US firms do not appear to be reaching this segment. According to architects interviewed, they find most information on US products by attending trade shows in the US.
Foreign companies must also invest time and resources to learn about Korean consumer preferences and product needs. For example, Korean consumers do not like do-it-yourself projects. Instead, retailers provide full service with the goods they sell, often assembling break-down furniture as part of after-sales service.
While the majority of consumers live in high-rise concrete apartments, this may not be the most viable sector for US solid wood products. It can be both complicated to understand the distribution system and to establish a contract with large companies. It can also be financially risky to try to sell materials to these firms. More viable markets include 2x4 wood frame homes, wood townhomes, non-wood single-family and low-rise multi-family homes, and the remodeling sector.
While North American interior wood products dominate the single family 2x4 wood frame home market, a limited number of individuals are capable of affording single family homes and the larger lot size that a single family home requires. The desire to own a wood frame home, however, is widespread, particularly among the younger population. According to a survey conducted by the KyungHuan Daily Newspaper and LG Advertising, many young people indicate that they prefer wooden homes in a suburban setting even if it means a long commute to their jobs (AF&PA 1999). Therefore, the market for American-made interior wood products may increase if US policy-makers and builders are able to increase the number of affordable townhomes. The current building code in Korea places height and construction restrictions on wood frame housing, which requires builders to modify their building plans to include more fire protection measures.
However, a new building code that more closely resembles US codes is currently being reviewed by the Ministry of Construction and Transportation (MOCT; AF&PA 1999a). The Korean government has already made land available in outlying areas around Seoul to encourage the development of "Satellite Cities.” Builders might look to these areas for sites for townhome developments. The benefits of making wood frame housing affordable are two-fold. By building and marketing townhomes as an affordable

alternative for wood frame homes, builders may not only reach a larger segment of the population, but since Korean consumers are heavily influenced by fashion trends and word of mouth advertising, townhomes may catch on as a popular new trend.
Another aspect to consider is product presentation. Many US companies that sell products to Korea commonly sell materials to US exporters and consolidators who supply the wood frame home market. One US company found that exporters were not packaging their products with complementary goods, therefore, only components were being supplied to the Korean market, which added one more obstacle to winning Korean customers. If a consumer wants to use US made materials they may go through the extra work required to locate, purchase, and make them fit with Korean appliances. However, most consumers select their flooring, kitchen cabinets, moulding, appliances, and other home products from retail outlets that carry all of these goods in one place.
US companies may stimulate local sales by using multiple product showrooms. Product showrooms offer a way to reach consumers, contractors and builders. Since architects specify materials used, and contractors make recommendations to customers, it is important to focus on reaching these individuals. Showrooms and trade shows allow these important customers to see products first hand. Showrooms may also help companies develop brand recognition. If consumers see products at showrooms they may be more likely to specify US products to their contractor when upgrading their homes. It may be useful for US firms to partner with Korean firms to open a showroom featuring products from the US and Korea that work together. For example, if a US kitchen cabinet manufacturer partnered with a Korean appliance and fixture supplier, customers could pair a variety of cabinet styles with appliances. A drawback of showrooms is capital investment. A stair manufacturer estimated a showroom would require approximately $80,000 in inventory for its product alone.  The opportunity to realize far larger returns is great however.  During 1996, the stair manufacturer sold $350,000-$400,000 without a showroom. Since product showrooms help manufacturers reach more consumers, the potential to increase sales further could be great.
Further research is also needed to understand how North American building components such as doors and windows can be used in traditional post and beam construction. This research would require a greater understanding of the structural aspects of post and beam construction and the distribution system and selection process for materials within this sector. This type of endeavor would also require more interaction between US wood industry promotional associations and Korean architects in order to encourage architects to incorporate US products into homes of traditional design.
There is a definite need to educate consumers and builders about US products and product attributes. As income has increased, the public knows that it wants wood homes and interiors. However, consumers base their decisions about quality primarily on appearance and are unaware of species differences. US firms should market their products to trade magazines, architects, builders, and consumers based on cost competitiveness, product innovations and benefits derived from using a particular brand or species.
US products are not generally cost competitive with Southeast Asian products on a volume basis, yet less wood can be used to deliver equivalent durability. Therefore, suppliers and manufacturers need to teach builders how to use US products efficiently. For example, instead of using a 1 9/16" thick door frame (40 mm), US suppliers and agents can teach Korean builders that 1 1/4" door jambs are structurally sound and cost competitive.
The reluctance to extend credit also appears to hinder use of US products in Korea. Korean importers reported that it is easy to source a wide variety of wood products, but they are constrained by the fact that invoices must be paid in full upon delivery. Several Korean respondents stated that suppliers in other countries extended 90-180 day payment invoices, which has helped introduce their products to the Korean market. However, there can be significant risks involved with extending credit to firms that do not have an established credit history with the supplier. US suppliers reported both positive and negative experiences with extending financing to Korean firms. Some stated that it had "proved over the years to be a credit risk,” and that some Korean companies tried to re-negotiate the price of goods after they were received.
Other companies reported that they had not had problems receiving payment. Most US firms were willing to extend credit to firms with which they had a long working relationship. In light of the Asian economic crisis and its impact on the construction industry, the risk of extending credit in hope of expanding sales may be excessive.
The decision to select a particular country as a supplier seems to depend heavily upon the agent the Korean company interacts with. Some Korean builders base their opinions about finished products from the US on past experiences with lower grades of lumber that have been common in Korea. Thus, opinions about the quality of US products vary greatly from company to company. While most importers reported that producers in the US and Canada provide the highest quality temperate hardwood and softwood products, others cited other countries such as Switzerland, Germany, and Russia. These varying opinions may be a case of a supplier or agent failing to provide materials that are appropriate for the intended final use. It is important in an emerging market such as Korea where reputation is highly dependent upon word of mouth advertising, that agents and sales people take the time to understand what their customers' product needs are before supplying the product.  Attentive after sales service is also vital.  It is vital to understand if and why a customer is not satisfied with the product. Without an active customer satisfaction evaluation, customers are more likely to switch suppliers than voluntarily explain product problems.

​Executive Summary
This report provides a descriptive account of the secondary wood products manufacturing industries in Washington State. Secondary industries are defined as those adding value to standardized commodity wood or wood-based materials through the production of specialty finished or semi-finished products.  This study focuses upon six major product groupings--engineered building components, mill work remanufactured lumber products, pallets, cabinets, and furniture--based upon the number and types of firms responding to the questionnaire. Primary data for this study were collected using a mail questionnaire, administered during the summer of 1989.  Questionnaires were returned by 33% of the firms receiving them.  Additional employment and business income information used in this report was obtained through published state agency data.
The Secondary Industries
The industries assessed in this study contribute significantly to Washington State's economy, employing 13,200 people in the state and providing $1.2 billion in gross business income to the over 630 firms operating in this sector in 1988.  Approximately one in five jobs in wood products and associated industries in Washington, including the paper and paper sector, are found in the secondary solid wood products industries, while about 1 in 8 gross business dollars we generated by this sector.  Excluding the pulp and paper and logging industries, .39% of the employment and 28% of the income in wood products processing was generated by the secondary manufacturing industries in 1988.  This collection of industries produced nearly the same amount of business income as the logging sector during that year, but directly employed nearly 25% more people.
The firms in these industries are diverse, from small shops of highly skilled woodworkers crafting custom furniture or cabinetry, to larger facilities remanufacturing lumber into cutstock, resembling sawmills both in productive capacity and in size.  Almost all of the secondary manufacturing firms produce specialty rather than standardized commodity products.  Small business activity is critical in this sector. None of the firms returning questionnaires employed more than 500 people, and 86% of the business establishments in this sector have fewer than 50 employees.  The secondary manufacturing industries are fragmented in terms of products manufactured and company size.  Washington firms tend to be geographically concentrated, however, in or around the states urban areas. Ninety percent of the 150 largest secondary manufacturing companies are located in Washington’s manufacturing and finance counties.
Raw Materials
An evaluation was made of each manufacturing group's use of wood raw materials produced from Pacific Northwest tree species versus materials imported from other areas.  Groups seemingly most dependent upon Pacific Northwest raw materials include, in decreasing order:  pallet and container manufacturers, structural component manufacturers, remanufacturers, and millwork producers.  Regional raw material supply problems were evident in the survey responses; of the 58 manufacturers responding from these four categories, one half of them (29 of 58) cited raw material supply or cost as a serious problem.
The other two groups delineated in the study, cabinet and furniture manufacturers, were more dependent on exogenous wood sources, including composite materials such as particleboard as well as eastern hardwood veneers and hardwood component stock.  Less than one fifth (13 of 67) of firms in these two groups regarded raw material supply or cost as a serious problem affecting their business.  Regional wood supply problems may not be affecting these groups as much as they do other manufacturers.  The price premiums paid for higher value added products such as furniture and cabinetry may also result in raw materials being a lower relative variable cost compared to labor costs incurred in manufacture, and thus partially explain why raw material supply or cost is generally considered a lesser problem in the cabinet and furniture industries.  The furniture and cabinet producers reported the two lowest relative average monthly raw material costs of all manufacturing groups, while reporting the two highest relative labor costs.
Technology
Technology was perceived to be changing at a moderate rate by 70% of the survey respondents. Major constraints to new investment were the availability or cost of capital, the high risk of capital investment, and availability or cost of skilled labor.  Over 70 percent of the respondents listed at least one important piece of equipment they were planning to purchase over the next two years.  A surprisingly large amount of used equipment is bought and sold by firms in the secondary manufacturing industries; used equipment comprised over 33% of the equipment purchased during the two years preceding the survey.
Marketing
The customers targeted for sales by secondary wood products manufactures vary across the delineated groups.  Remanufacturers of specialty lumber products tend to sell their products directly to other industrial manufacturers and to wholesalers or distributors who do not stock their products.  Millwork manufacturers S primarily to stocking wholesalers or distributors, and to a lesser extent to building contractors.  The cabinet industry, in contrast, relies upon direct flies to building contractors for most of its sales volume, and also up direct flies to retail customers.  Furniture manufacturers sell through wholesalers or distributors who do not stock their products, and also directly to retail customers.  Pallet and container sales are primarily to retail customers and to other industrial manufacturers, while manufacturers of wood structural components sell directly to building contractors and to non-stocking wholesalers or distributors.
The secondary manufacturing industries in Washington can be described as relatively under-promoted personal selling efforts by sales staff and distribution channel members may be perceived as more important manufacturers than direct promotional efforts, evidenced by the frequent use of business cards and word-of-mouth promotional tools.  Product brochures, trade shows, and the efforts of industry associations are lesser used means of promotion.  Only about one-fifth of the respondents reported using media advertising, advertising in trade journals, or direct customer mailings.
International Trade
Fifty percent of the firms surveyed (81 firms) considered their principal target markets to be within the Pacific Northwest; 41% (67 firms) consider domestic US markets outside of the Northwest region to be important to them.  International trade does not appear to be a key activity for many of the responding companies.  While 38% of the survey respondents reported using imported wood raw materials and 24% exported products in 1988, only 14 firms, or 8%, considered export markets principal markets.  No company exported more than half of its sales volume.  Japan was the country purchasing products from the greatest number of companies in the sample; export volume and value levels were not measured in this study.  Forty-seven firms (28%) purchased Canadian wood for production of their products, while only 12 firms (7%) reported 1988 exports to Canada.
Problems and Concerns
Problems and concerns facing the secondary wood products industries in Washington were evaluated through survey responses and open ended questions.  Problems rated as the most serious include government taxation, raw material supply or cost, the high cost or limited availability of capital, labor supply or cost, ant government restrictions or policies.  These problems may all be characterized as business environment factors existing outside of any one firm's control.  Several company-internal factors such as quality control problem financial difficulties, the high cost of new product development, and possessing an outdated production facilities and sales and marketing problems were also rated relatively important, but by fewer respondents.  Other company-internal problems rated as relatively unimportant by the majority of respondent companies include lack of computer skills, distribution problems, difficult labor relations, limited wood processing expertise, and being located too far from major markets.
 

​Executive Summary
The wood products industry in Washington has exhibited little growth in real value of output in the last decade, and increases in employment are small as new technologies boost worker productivity.  Meanwhile, firms face competitive challenges from foreign producers as well as competitors in other regions of the United States.  Wood supplies are not assured either. The U.S. Forest Service is implementing new land management policies and responding to environmental concerns such as providing habitat for the spotted owl.  Private land management is also an issue, since some private land owners may not be interested in managing lands to produce a stable long-term timber supply.
To remain healthy in the long run, these firms need new markets and improved technologies, a capable labor force, reliable wood supplies, and an adequate supply of capital. None of these crucial factors is assured in our rapidly growing and swiftly changing economy.
A demonstrated, successful strategy for maintaining the vitality of small businesses is to link small firms to­gether to accomplish commonly needed tasks such as marketing, research and development, employee training, or production of goods and services. This organization of firms is formed along sectoral linkages either horizontally (several firms producing similar products) or vertically (firms linked as a set of buyers and suppliers).  This concept, known as Flexible Manufacturing Networks ~MNs), originally arose in Europe. Many countries now devote considerable resources to the promotion and servicing of FMNs through sector-specific institutes and programs, much of it privately financed by the firms receiving the services. Denmark and Italy have advanced industrial economies with a size distribution more heavily favoring small and mid-size firms than in the U.S. They provide useful models for examining the Washington wood products industry and determining strategies for strengthening the subsectors in the industry.
Primary and secondary research has been performed on the wood products industry in Washington to identify key issues and problems faced by the small and mid-size firms and to assess the feasibility of implementing FMNs and other similar strategies. The manufacturing sectors (SIC 24 and 25) of the industry exhibit strikingly similar characteristics to that of many of the manufacturing sectors in Europe in which FMNS have been successfully implemented. Wood products manufacturing is more heavily dominated by smaller firms that show sub sectoral concentrations in many of the state's rural counties, use labor-intensive processes, and produce goods that have great potential as specialized and high quality products and niche market penetration in the in­ternational economy.
A randomly selected sample of firms in Grays Harbor, Lewis, and Spokane' counties was surveyed to gain a deeper understanding of their attitudes, operations, and needs.  This helped to assess the industry potential for network development.  Among the aspects examined were the size and distribution of firms, growth trends, the state of technology, the quality and availability of the labor force, major markets and products, significant competitive challenges, and evidence of prior collaborative behavior among firms in the industry.
For analytical clarity, the industry is bifurcated into its primary and secondary processing sectors. The former is composed of firms performing milling of raw logs or manufacturing boards, panels and roofing products that are used as inputs in further processing or construction. Secondary processors are those creating finished products such as doors, windows, trusses, modular homes, and furniture from milled timber. Both groups exhibit concerns about many of the same issues, such as timber supply and government regulations and support, and are in need of unskilled, trainable labor. However, the extent and focus of their concerns, and individual firm characteristics, are distinctly different between the two groups.
Relative to secondary, primary processors tend to consist of larger firms with a more national and interna­tional market focus, are more dependent on local timber, exhibit greater rural concentration, and possess more diversity in their level of technological sophistication (running along subsectoral and firm size divisions). They are greatly concerned about access to timber supply, and generally displeased with the lack of federal effort to help U.S. firms compete against the Canadian and Asian wood processing industries. While secondary proces­sors have been faring well in local and regional markets, only a select few subsectors within the secondary proc­essing sector show a larger market focus. Often the small size and lack of marketing skills and capital of these firms are limiting factors in their ability to grow and expand. Forms of collaboration have remained rather informal in both sectors, with smaller firms exhibiting a greater tendency to work cooperatively. Yet, in general, firms tend to exhibit a fear of the risk that accompanies joint ventures. Finally, there is a definite wariness toward governmental (federal or state) assistance and intervention in the affairs of small business.
Washington has developed a solid foundation of public sector business assistance programs and service providers, upon which programs for Flexible Manufacturing Networks can be built. Out of a well-managed public effort stimulating private sector firms and associations to become involved, flexible network structures can be developed in the wood products industry. Obstacles to be overcome include firms' fiercely independent attitudes, concerns about collaboration9 and their lack of time or money to put towards network development. In addition, a much better outreach effort must be made to smaller firms, for which networks are most suited. Many of these firms have either been unaware of or ignored by existing assistance operations.
The public service providers must also have a greater knowledge of the wood products industry, its technology and specific issues of its firms, and develop programs that require less perceived risk to the firms involved. By concentrating state assistance efforts and consolidating the retailing of assistance programs into a small number of knowledgeable providers working in the field, a public sector structure is created that will better work to involve firms into the economic development programs and can introduce network service and facilities centers into the private sector with greater ease than presently exists.
Each type of firm, primary and secondary, can benefit from forms of government assistance, but the programs must be tailored to each sector specifically. Initial strategies to assist firms may not involve formal network operations, but in time, and with increased public sector experience and private sector familiarity and acceptance, they can be developed into privately supported Flexible Manufacturing Networks. Specific programs which can be developed for secondary processors include marketing research designed to assist the smaller firms who possess little knowledge about potential markets for their products, and the development of programs to more fully promote and utilize Washington wood and wood products as specialty, high quality products.  In addition, primary processing firms need assistance in obtaining the full extent of available technologies in the industry, which can help reduce reliance upon specific log species and sizes. By creating state economic development strategies which address specific issues in each sector and reach the firms in greatest need with sectorally specific field agents and service centers, the state could create a foundation of public and private strategies that can encourage the process of Flexible Manufacturing Network building.
 

​Executive Summary
The Italian market is a high-value market for U.S. softwood lumber.  One of the primary Italian uses of U.S softwood is for the manufacturing of wood windows and doors.  The preferred species for such manufacturing is Douglas-fir.  The imported U.S. wood is resawn and shaped to produce Italian window and door components.  Blemishes on the wood--checks, cracks, knots, and in particular, blue stain (an Italian anathema)—reduce the quality of the final product in the eyes of the demanding Italian customer.  Fine-grained, knot-free wood from the Pacific Northwest region of North America is particularly well suited for this market.
 
Other areas of wood use in Italy include construction, packaging and furniture.  Very little wood is used as structural members in construction except as scaffolding, temporary bracing and concrete forms.  Wood used in these applications is of low quality and is supplied by Austria, Czechoslovakia and Russia.  Packaging also consumes considerable amounts of low quality wood for crates, boxes and pallets.  The furniture industry is large and requires a substantial amount of wood; most of which is tropical hardwoods and temperate hardwoods from Europe.
 
It appears that a “market orientation” approach to selling lumber in Italy is worthy of consideration.  End-user needs should be understood and satisfied.  Financial arrangements should be developed to insure long range partnerships.  At present a “commodity product orientation” exists.  North American firms produce sizes and adhere to standards which have some to the market but do not entirely satisfy customer needs.  These practices are traditional and are probably resistant to change.
 
The opportunities for more wood exports to Italy are good.  The country lacks an indigenous source of wood and will rely on exports to satisfy its raw material demand.  The manufacturing capability of the country is very strong and over the past few decades the economy has been growing steadily despite periodic setbacks.  This trend should continue into the future.
 
Wood export opportunities in Italy may not necessarily be similar to opportunities in North America.  Many Italian products employ sophisticated design concepts.  Utilization of design to add value is a national characteristic and may be crucial to finding new market niches for exp

​Introduction
Wood has been an important commodity in world trade for centuries.  Over 4500 years ago Lebanon exported wood to Egypt and Christopher Columbus carried mahogany from his explorations of the New World back to Europe.  The continued significance of world wood flows is evident by a total value of global forest products trade in 1980 of $34 billion (Radcliffe & Sedjo, 1984).
 
As would be expected, wood products trade flows from wood surplus to wood deficit regions.  Relatively few nations export forest products, as their domestic wood supply is used for meeting domestic requirements.  Even though extensive forest resources exist in many nations, forest products exports are possible only if economic demand justifies the extraction and shipment of that wood.  Presently, the two countries most heavily involved in forest products export trade are the United States and Canada.
 
Major Forest Products Flows are explored by commodity.