Institute for forestry and forest products, SBH

Netherlands�s Timber Trade Association (VVNH)

Ministry of Housing, Spatial Planning and Environment

Ministry of Economic Affairs

Netherlands� Paper and Board Association, VNP

Since the beginning of 1999 the global economic environment has constantly improved. A substantial part of this improvement is the result of the very favourable economic development of the United States. In the first half of 2000 the growth of the US economy was - again - higher than expected, which meant a continuation of high economic growth in combination with a moderate inflation development. GDP growth for this year is expected to be about 5�%. For 2001 a deceleration of GDP growth to about 3�% is forecasted (�soft landing�).

On the contrary, economic growth in Europe as a hole has been relatively low in the last few years. Growth of the EU economy is expected to rise from 2.3% in 1999 to about 3�% in 2000 and 3�% next year. As in the past years there will be differences in growth rates of the several members of the Euro-economies.

Both the economic developments and forecasts of the emerging economies have constantly improved since last year. Many countries recovered rather quickly form the international financial crisis and some of them, like Korea, have even shown a remarkable high economic growth.

Since 1996 the growth of the Dutch economy has been 3% or more. As shown in table 1, the Dutch economy also performed very well in 1999. Economic growth accelerated slightly from 3.7% in 1998 to 3.9% in 1999. For both 2000 and 2001 GDP growth is expected to stay at a high level. Both consumption and investment are expected to bring a somewhat smaller contribution to economic growth. Specifically investment growth is forecasted to decline from 9.4% in 1999 via 7% in 2000 to 5�% in 2001. Consumer spending has been the engine for economic growth in 1998 and 1999, boosted by the increase in wealth of households from rising house- and stock prices and the substantial employment growth. It is expected that growth of consumption spending will decrease somewhat in the course of 2000. On the other hand are exports expected to pick up, due to the recovery of economic growth of the European Union economy and world trade.

These various developments result in an estimated economic growth of 4�% in 2000 and 4% in 2001.

The flourishing economy has resulted in a massive rise of employment. Ultimo 1999 employment (measured in labour years) was 12.2% higher than at the beginning of 1996. In 1999 the number of people employed has risen with nearly 3% (more than 200.000 persons). In line with the higher economic growth, the rise in employment is expected to continue in 2000-2001. However, the number of new jobs will be somewhat lower than in the past years, as it has become more and more difficult to find new workers. Although official unemployment is already at a very low level (4,0% in 1999) it is expected to fall somewhat further (3% in 2001). The frictions on the labour market are reflected in an acceleration of wage increases from 2.6% in 1999 to 3% in 2000. As a result of the substantial tax relief in 2001 wages are not expected to accelerate further. In the past tax cuts resulted in a moderate wage development.

In 2000 inflation will increase slightly to 2�% (2.2% in 1999), which is partly due to higher oil prices. In 2001 consumer prices will rise sharply (to 3�%) as a consequence of the tax reforms. The VAT and eco-tax increase, which are part of this reform, will contribute approximately 1%-point to inflation in 2001.

Total domestic demand for pulpwood and chips increased slightly in 1999. Both roundwood and chips consumption increased by 4.000 m3. The input of Dutch roundwood decreased sharply with almost 15%.

The production of newsprint and to a lesser extent that of folding boxboard, determines the demand on domestic pulpwood. The industry expects a somewhat higher consumption in 2000: 5% more non-coniferous wood.

The export of fibrewood for the pulp and paper- and fibreboard and particleboard industry has decreased by 15%. About 26% was re-export.

Whereas in 1998 the turnover of the Dutch paper and board industry increased more than sales, the situation was the reverse in 1999 when the turnover increased by 1.9 percent to NLG 4.3 billion and sales increased even more, i.e. by 2.4 percent to 3.25 million tonnes.

The industry started the year somewhat hesitantly but the market picked up as the year progressed. In view of the fact that raw material prices of waste paper and pulp increased considerably in the course of 1999, companies were unable, or if so with great difficulties, to maintain their margins in spite of the major cost savings. As in previous years, reorganisations and process improvements considerably increased the efficiency.

For the paper- and board industry, domestic sales lagged somewhat behind the growth of the national economy in 1999. Growth was mainly in sales abroad.

In 1999, the European paper and board industry grew by 2.9 percent on average and in doing so exceeded the Dutch average, i.e. 2.4 percent. The growth in Europe is comparable to America and Japan.

Some subjects are clearly nationally inspired. Co-operation agreements are entered into with (chain)partners for instance communication, recycling and competence development. Covenants in the field of environment, energy and health and safety are clearly national. Important themes such as raw materials are dealt with internationally. There is contact, for instance, between the Forest-Based and Related Industries (FRI) and the European Commission. An important assignment in this is to ensure a �level playing field�: companies competing with each other with the help of government measures needs to be avoided.

The development in the Dutch paper and board industry is given in table 4.

The increased production of the construction industry caused a considerable increase in the consumption of sawn softwood in 1998. The increase in sawn wood consumption was supplied by imports and using existing stocks. In 1999 the growth of the Dutch economy continued, also the consumption of sawn and planed softwood increased.

The draft legislation of the Dutch Parliament on �red and green labelling� of timber and paper products sold in the Netherlands has been subject of discussion again. After the bill was accepted in 1998 by The Lower House of Parliament The Upper House requested for notification by the European Union and World Trade Organization. In the same year this notification resulted in a strong international opposition against the bill from six WTO countries, eleven countries of the European Union and from the European Commission itself.

All countries and the European Commission have raised objections: the proposed measure of the Dutch Parliament is an obstacle to international trade and incompatible with the articles 30-36 of the EC Treaty and also with WTO rules ( Articles 2.2 and/or 2.5 of the Agreement on Technical Barriers to Trade).

This spring the Dutch Lower House completed the notification procedure by sending an extensive reaction to Brussels and to WTO headquarter. None of the international comments was accepted, only on minor points the bill was changed. The arguments behind the Dutch reaction can be summerized as follows:

" The progress achieved by means of the current policy based on voluntary certification is limited and is so slow that it is doubtful whether and, if so, when the aim ( no deforestation in the world) will ever be achieved. The actual trend in relation to deforestation indicates that this will in any event not be in the short or medium term. The imperative requirement of European law, namely retention and sustainable development of forests, is not currently be met. The protection of the global environment requires that substantial progress must be achieved. Measures which go beyond the current pursuit of voluntary certification are therefore required." And:

"With an obligatory mark there is, in juridical words, a restriction of free trade, but there is no infringement of the nature of free movement of goods. Crucial is, there is no measure which ánd contributes to the specified aims (protection of forests for the benefit of biodiversity and climate control) ánd which gives less negative trade effects than a compulsory mark. By that the proposed measure is proportional and not in conflict with Articles 30-36 of the EC Treaty."

After the Dutch Parliament published her reaction on the notification it became clear that not only all wooden but also paper products were involved. This resulted in a broader opposition of Dutch organizations and companies against this draft bill. In August about fifty with wood and paper related organization and individual companies send their objections to the members of The Lower House. Thereupon the trade and industry was invited by The Lower House to give their views on the subject. In the meantime the Lower House has accepted the amendment of the law on 14 September after an extensive discussion. The draft bill will now be discussed in The Upper House of Dutch Parliament. She will examine the law on consistency with the international conventions, soundness of the law in relation with the desired effects and also the verifiability. The Dutch Timber Platform incites the European Commission and all EC and WTO countries to comment again on the Dutch draft law on "sustainable wood production"