1. Overview of proposed research
Estimating the impact of global trade distortions on New Zealand’s log supply
Overview of proposed research
John Ballingall
Presentation to WPMA conference
4 April 2019

2. The five Senses…

3. The challenge: NZ processing productivity and export growth is suffering due to a lack of well-priced supply of logs
A longstanding concern of New Zealand wood processors is that their overseas competitors are getting government assistance to purchase logs from New Zealand, compromising the domestic supply of raw materials.
In addition, overseas processors benefit from log supply and price management policies that help them access logs at artificially low cost.
Consequently, the New Zealand processing industry is suffering from a lack of investment in new, modernised capacity, and faces a competitive disadvantage when competing in global markets.
This is retarding a shift away from commodity exports to higher-margin processed wood products and poses a threat to regional economic development.
New Zealand is not alone in this concern. US wood processors have made similar complaints, with one saying “US log exporters are going to force US mills out of business” because they are exporting directly to subsidised mills in China rather than selling domestically. See

4. The global market for logs and timber faces plenty of NTM distortions…
Source: WTO I-TIP database

5. …and tariff escalation is common
Source: WTO tariff database

6. The result: processed wood exports lagging behind logs
Source: Stats NZ

7. Impact of unquantified trade distortions
Our task: identify how trade distortions are affecting log and lumber exports
Exports
Observed exports
Impact of unquantified trade distortions
Expected exports
Time

8. I had to put in one equation…
Expected exports
Fixed effects
GDP
Trade frictions
Cost/prices
Analysis will be done by export market
We’ll use available data to explain as much as we can of observed trade flows
The difference between actual and observed exports is an indication of the extent of trade distortion caused by factors that we can’t include in our model
The first objective of the empirical analysis should be to determine if volumes of log and lumber exports, from New Zealand, are larger than we would expect given factors that usually predict trade flows such as:
• distance to market
• incomes and relative size of markets
• trade agreements
• tariff and non-tariff barriers
• relative prices or real exchange rates
• other ‘gravity’ variables like common language.
The corollary of larger-than-expected export volumes from New Zealand is lower-than-expected domestic supply, the scale of which is ultimately what we are seeking to explore.
The second objective is to estimate prices (e.g. subsidies or deviations from observed export prices) that are commensurate with any unusually high export volumes. This can be done using established estimates of import demand elasticities and determining how much observed prices need to change to have caused observed import volumes.2

9. Out of scope
Options available to WPMA or NZ government if we identify material trade distortions
Detailed qualitative analysis of other countries’ policy settings
Commentary on NZ’s regulatory settings

10. Any questions?