Required Report - public distribution

**Date:** 9/2/2004

**GAIN Report Number:** NZ4015

NZ4015

**New Zealand**

**Solid Wood Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David Rosenbloom

U.S. Embassy

**Prepared by:**

Alastair Patterson-

**Report Highlights:**

New Zealand's forestry harvest in 2005 is forecast to decline 10 percent
to 15.4 million cubic meters. Log export volumes next year will decline
approximately 20 percent in the face of lower production levels and
steady domestic demand. Lumber exports in 2005 are likely to remain at
2004 levels. The importation of Pinus and Douglas Fir nursery stock from
the United States into New Zealand was stopped effective February 2004,
following MAF's interception of pine pitch canker on U.S.-sourced
Douglas Fir cuttings.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Wellington \[NZ1\]

\[NZ\]

SECTION I. SITUATION AND OUTLOOK

New Zealand's forestry harvest is forecast to decline 10 percent to 15.4
million cubic meters in 2005. Key forestry organizations, taking a
long-term investment strategy, have decided to tighten supply by
delaying New Zealand's harvesting schedule in response to weak
international demand and poor profit margins. The reduced harvest will
help improve the overall construction quality of New Zealand's timber.
The decrease in timber production is likely to be temporary. The
industry anticipates that forestry owners will return to full harvesting
operations in five to eight years once the age profile of their forests
and export prices improve. Additionally, timber production will likely
respond to the large number of trees planted during the 1980's and early
1990's, which will reach harvestable age by 2010.

Log export volumes are forecast to decline approximately 20 percent in
the face of lower production levels and steady domestic demand. Lumber
exports in 2005, however, are likely to remain at 2004 levels. The
primary cause of the drop in New Zealand's export returns in recent
years has been a substantial decline in import demand for logs in the
Korean market. Korean importers seek to reduce high inventory levels by
adjusting downward their import purchasing programs. Import demand for
both New Zealand logs and lumber remains weak in other key markets.
Strong log and lumber export competition from Russia, and lumber from
Chile and Brazil, also has adversely impacted export profitability.

The importation of Pinus and Douglas Fir nursery stock from the United
States into New Zealand was stopped in February 2004. This follows an
assessment by the Ministry of Agriculture and Forestry (MAF) that no
area in the United States can now be considered free of pine pitch
canker. This conclusion resulted from MAF's interception of pine pitch
canker on Douglas Fir cuttings, imported from the United States in late
2003, which were being propagated in a secure quarantine facility near
Christchurch. Professor Tom Gordon, UCLA Davis, California, confirmed
the diagnosis of Fusarium Circinatum.

The continued expansion of New Zealand's forestry area is critical if
New Zealand is to fulfill its obligations under the Kyoto Protocol
agreement. A current cyclical downturn in New Zealand's forestry
industry has caused the rate of new plantings to dramatically shrink.
The New Zealand government, therefore, is eager to work with New
Zealand's forestry industry to increase the rate of new plantings. If
the Kyoto Protocol is implemented, the New Zealand Government will claim
ownership of most sink credits and their associated liabilities
allocated to New Zealand in recognition of the carbon sink value of
post-1990 forest plantings on previously non-forested land. Forestry
owners feel that it is unfair for the Government to claim ownership of
nearly all carbon credits generated by forestry planted after 1990.
Negotiations between Government and industry to address the New Zealand
forestry industry's contribution to climate change initiatives has
resulted in the 'Forest Industry Framework Agreement' (FIFA) being drawn
up. FIFA proposes to allocate NZ\$ 21.2 million over a 5 year period for
various 'industry good' initiatives. FIFA funding is contingent upon the
forestry industry providing a certain share, as yet unspecified, of
total funding. Implementing a grower levy has been discussed as one
means of raising necessary industry funds, although other methods have
also been suggested.

Large tracts of New Zealand's forestry estate have been purchased in
recent years by overseas investment organizations, most based in the
United States. Currently, there are five U.S. Timber Investment
Management Organizations with investments in New Zealand's North Island.
As of mid-2004, these investment organizations owned approximately
one-third of New Zealand's total commercial forestry resource.

SECTION II. PS&D TABLES

+-----------+--------+---------+--------+---------+--------+---------+
| ######    |        |         |        |         |        |         |
| # New Zea |        |         |        |         |        |         |
| land Soft |        |         |        |         |        |         |
| wood Logs |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| ######    |        |         |        |         | 1000   |         |
|           |        |         |        |         | CUBIC  |         |
|           |        |         |        |         | METERS |         |
+-----------+--------+---------+--------+---------+--------+---------+
|           | **     | **Re    | **     | **Est   | **     | **For   |
|           | 2003** | vised** | 2004** | imate** | 2005** | ecast** |
+-----------+--------+---------+--------+---------+--------+---------+
|           | **USDA | **Post  | **USDA | **Post  | **USDA | **Post  |
|           | Of     | E       | Of     | E       | Of     | E       |
|           | ficial | stimate | ficial | stimate | ficial | stimate |
|           | \[O    | \[      | \[O    | \[      | \[O    | \[      |
|           | ld\]** | New\]** | ld\]** | New\]** | ld\]** | New\]** |
+-----------+--------+---------+--------+---------+--------+---------+
| **Market  |        | 01/2003 |        | 01/2004 |        | 01/2005 |
| Year      |        |         |        |         |        |         |
| Begin**   |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| **Pro     | 18540  | 18540   | 17980  | 17080   | 0      | 15395   |
| duction** |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| **        | 5      | 5       | 5      | 5       | 0      | 5       |
| Imports** |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| **TOTAL   | 18545  | 18545   | 17985  | 17985   | 0      | 15400   |
| SUPPLY**  |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| **        | 8081   | 8081    | 8191   | 7100    | 0      | 5700    |
| Exports** |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| *         | 10464  | 10464   | 9794   | 9985    | 0      | 9700    |
| *Domestic |        |         |        |         |        |         |
| Cons      |        |         |        |         |        |         |
| umption** |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+
| **TOTAL   | 18545  | 18545   | 17985  | 17985   | 0      | 16185   |
| DISTR     |        |         |        |         |        |         |
| IBUTION** |        |         |        |         |        |         |
+-----------+--------+---------+--------+---------+--------+---------+

  ---------------- ----------- ------------- ----------- -------------- ----------- --------------
  New Zealand                                                                       
  Softwood Lumber                                                                   

                                                                        1000 CUBIC  
                                                                        METERS      

                   **2003**    **Revised**   **2004**    **Estimate**   **2005**    **Forecast**

                   **USDA      **Post        **USDA      **Post         **USDA      **Post
                   Official    Estimate      Official    Estimate       Official    Estimate
                   \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**

  **Market Year                01/2003                   01/2004                    01/2005
  Begin**                                                                           

  **Production**   4472        4472          4104        4200           0           4100

  **Imports**      17          17            17          17             0           17

  **TOTAL SUPPLY** 4489        4489          4121        4217           0           4117

  **Exports**      1856        1856          1760        1630           0           1632

  **Domestic       2633        2633          2361        2587           0           2485
  Consumption**                                                                     

  **TOTAL          4489        4489          4121        4217           0           4117
  DISTRIBUTION**                                                                    
  ---------------- ----------- ------------- ----------- -------------- ----------- --------------

  ---------------- ----------- ------------- ----------- -------------- ----------- --------------
  New Zealand                                                                       
  Softwood Plywood                                                                  

                                                                        1000 CUBIC  
                                                                        METERS      

                   **2003**    **Revised**   **2004**    **Estimate**   **2005**    **Forecast**

                   **USDA      **Post        **USDA      **Post         **USDA      **Post
                   Official    Estimate      Official    Estimate       Official    Estimate
                   \[Old\]**   \[New\]**     \[Old\]**   \[New\]**      \[Old\]**   \[New\]**

  **Market Year                01/2003                   01/2004                    01/2005
  Begin**                                                                           

  **Production**   292         292           296         296            0           290

  **Imports**      7           7             7           7              0           5

  **TOTAL SUPPLY** 299         299           303         303            0           295

  **Exports**      89          89            95          95             0           95

  **Domestic       210         210           208         208            0           200
  Consumption**                                                                     

  **TOTAL          299         299           303         303            0           295
  DISTRIBUTION**                                                                    
  ---------------- ----------- ------------- ----------- -------------- ----------- --------------

Source: MAF and Statistics New Zealand

SECTION III. PRODUCTION, POLICY AND TRADE

PRODUCTION

Forestry Situation/Outlook

New Zealand's forestry harvest is forecast to decline 10 percent to 15.4
million cubic meters in 2005. Key forestry organizations, taking a
long-term investment strategy, have decided to tighten supply by
delaying New Zealand's harvesting schedule as a response to weak
international demand and poor profit margins. Domestic log consumption
in 2005 is forecast to fall nearly 3 percent as New Zealand's building
boom tapers off and the backlog of houses awaiting construction drops
markedly. Log export volumes in 2005 are forecast to decline
approximately 20 percent in the face of lower production and supply
levels. Lumber exports in 2005, however, are likely to remain at 2004
levels.

New Zealand's reduced supply will be beneficial to its forestry industry
as the trees are left to age, improving its overall construction
quality. Harvests in recent years have been characterized by marginally
lower overall quality, as younger timber was harvested to satisfy a
strong export demand. The decline in timber production will be
temporary. The industry anticipates that forestry owners will return to
full harvesting operations in five to eight years once the age profile
of forests and export prices improve. Additionally, timber production
will respond to the large number of trees planted during the 1980's and
early 1990's that will begin reaching harvestable age by 2010.

The primary cause of the drop in New Zealand's export returns in recent
years has been a substantial decline in import demand for logs in the
Korean market. Korean importers seek to reduce high inventory levels by
adjusting import purchasing volumes. Korea is New Zealand's largest log
export market, purchasing twice the volume of the next largest export
destinations, China and Japan. These three markets together account for
90 percent of New Zealand's total log export shipments. Import demand
for both New Zealand logs and lumber also remains weak in other key
markets. Strong log and lumber export competition from Russia, and
lumber from Chile and Brazil, has adversely impacted export
profitability.

Several factors contribute to the currently low profitability of New
Zealand's forestry sector. This includes New Zealand's strong currency,
fluctuating and rising energy costs, and high log freight rates
attributed to a strong demand by China for the class of sea vessels
capable of carrying New Zealand's logs. Lumber has not faced the same
rapid increase in freight costs that logs have witnessed since they
utilize a different vessel class.

Inadequate processing capacity continues to be a constraint on industry
development. The New Zealand Forest Industries Council (NZFIC) estimates
that NZ\$ 3 billion needs to be invested in the industry over the next
10 years to create the processing capacity needed. A lack of investment
in downstream processing, combined with higher import tariffs for higher
value wood products, has driven the rapid expansion in New Zealand's log
exports at the expense of lumber and other value-added wood products.

Constraints to increasing New Zealand's processing capacity include: (1)
an uncompetitive power supply (compared to other competing countries),
(2) a lack of adequate road infrastructure to access large forest
estates, (3) a difficult, costly, and uncertain regulatory approval
process for establishing new wood processing sites, (4) uncertainty for
potential investors created by the long-term effect of New Zealand's
ratification of the Kyoto Protocol, (5) uncompetitive freight rates, (6)
a strong New Zealand currency, and (7) poor labor productivity and high
labor costs. Similar issues deter investment in New Zealand's forestry
infrastructure. Those countries that enjoy lower labor costs and a
closer proximity to customers are able to compete effectively for the
investment capital needed by New Zealand's forestry sector.

TRADE MATRICES

  ---------------------- ---------------- ---------------- ----------------
  New Zealand Log                                          
  Exports by Value                                         

                                          (Millions NZ\$)  

                         **Jul 01-Jun     **Jul 02-Jun     **Jul 03-Jun
                         02**             03**             04**

  **Korea, South**       410.7            335.5            293.4

  **Japan**              157.5            161.4            123.8

  **China**              118.6            134.2            103.6

  **India**              21.5             27.0             19.0

  **Taiwan**             9.3              10.6             11.1

  **Other**              40.5             52.8             13.9

  **Total**              758.1            721.6            564.9
  ---------------------- ---------------- ---------------- ----------------

+---------------------+---------------+--------------+---------------+
| #####               |               |              |               |
| ## New Zealand Lumb |               |              |               |
| er Exports by Value |               |              |               |
+---------------------+---------------+--------------+---------------+
|                     |               | (Millions    |               |
|                     |               | NZ\$)        |               |
+---------------------+---------------+--------------+---------------+
|                     | **Jul 01-Jun  | **Jul 02-Jun | **Jul 03-Jun  |
|                     | 02**          | 03**         | 04**          |
+---------------------+---------------+--------------+---------------+
| **United States**   | 386.7         | 356.1        | 244.4         |
+---------------------+---------------+--------------+---------------+
| **Australia**       | 228.9         | 248.0        | 241.5         |
+---------------------+---------------+--------------+---------------+
| **Japan**           | 78.8          | 77.1         | 62.6          |
+---------------------+---------------+--------------+---------------+
| **China**           | 41.4          | 43.2         | 46.7          |
+---------------------+---------------+--------------+---------------+
| **Taiwan**          | 33.6          | 30.8         | 25.2          |
+---------------------+---------------+--------------+---------------+
| **Vietnam**         | 7.5           | 13.4         | 17.0          |
+---------------------+---------------+--------------+---------------+
| **Philippines**     | 10.7          | 17.5         | 14.3          |
+---------------------+---------------+--------------+---------------+
| **Thailand**        | 10.9          | 13.3         | 12.7          |
+---------------------+---------------+--------------+---------------+
| **Korea, South**    | 13.5          | 10.1         | 9.8           |
+---------------------+---------------+--------------+---------------+
| **French            | 1.6           | 1.2          | 7.2           |
| Polynesia**         |               |              |               |
+---------------------+---------------+--------------+---------------+
| **Hong Kong**       | 19.4          | 12.3         | 7.0           |
+---------------------+---------------+--------------+---------------+
| **Other**           | 31.3          | 32.3         | 37.5          |
+---------------------+---------------+--------------+---------------+
| **Total**           | 864.2         | 855.1        | 725.9         |
+---------------------+---------------+--------------+---------------+

Source: Statistics New Zealand

STRATEGIC INDICATOR TABLE -- FOREST AREA

+-------------------------------------------------+------+-----+------+
| ####### New Zealand Forest Area 2004            |      |     |      |
+-------------------------------------------------+------+-----+------+
|                                                 | Prev | C   | Fore |
|                                                 | ious | urr | cast |
|                                                 |      | ent |      |
|                                                 | 2002 |     | 2004 |
|                                                 |      | 2   |      |
|                                                 |      | 003 |      |
+-------------------------------------------------+------+-----+------+
| Total Land Area (million hectares)              | 27   | 27  | 27   |
+-------------------------------------------------+------+-----+------+
| Total Forest Area (million hectares)            | 8.21 | 8   | 8.23 |
|                                                 |      | .23 |      |
+-------------------------------------------------+------+-----+------+
| \--Of which, Commercial (\'000 hectares)        | 1814 | 1   | 1842 |
|                                                 |      | 827 |      |
+-------------------------------------------------+------+-----+------+
| \-\-\--Of commercial, tropical hardwood (\'000  | 0    | 0   | 0    |
| hectares)                                       |      |     |      |
+-------------------------------------------------+------+-----+------+
| \-\-\--Of commercial, temperate hardwood (\'000 | 54   | 55  | 56   |
| hectares)                                       |      |     |      |
+-------------------------------------------------+------+-----+------+
| \-\-\--Of commercial, softwood (\'000 hectares) | 1760 | 1   | 1786 |
|                                                 |      | 772 |      |
+-------------------------------------------------+------+-----+------+
| Forest Type                                     |      |     |      |
+-------------------------------------------------+------+-----+------+
| \--Of which, virgin (\'000 hectares)            | 6.4  | 6.4 | 6.4  |
+-------------------------------------------------+------+-----+------+
| \--Of which, plantation (\'000 hectares)        | 1814 | 1   | 1842 |
|                                                 |      | 827 |      |
+-------------------------------------------------+------+-----+------+
| \--Of which, other commercial (regrowth) (\'000 | n/a  | n/a | n/a  |
| hectares)                                       |      |     |      |
+-------------------------------------------------+------+-----+------+
| Total Volume of Standing Timber (thousand cubic | 39   | 398 | 40   |
| meters)                                         | 0000 | 000 | 0000 |
+-------------------------------------------------+------+-----+------+
| \--Of which, Commercial Timber (\'000 cum)      | n/a  | n/a | n/a  |
+-------------------------------------------------+------+-----+------+
| Annual Timber Removal (\'000 cum) 1/            | 1    | 18  | 1    |
|                                                 | 6557 | 540 | 7080 |
+-------------------------------------------------+------+-----+------+
| Annual Timber Growth Rate (\'000 cum)           | 2    | 25  | 2    |
|                                                 | 5000 | 000 | 5000 |
+-------------------------------------------------+------+-----+------+
| Annual Allowable Cut (\'000 cum)                | n/a  | n/a | n/a  |
+-------------------------------------------------+------+-----+------+
|                                                 |      |     |      |
+-------------------------------------------------+------+-----+------+
| 1/ If Removals exceeds growth rate, analyze     |      |     |      |
| impact in text.                                 |      |     |      |
+-------------------------------------------------+------+-----+------+

Source:
[MAF](http://www.maf.govt.nz/statistics/primaryindustries/forestry/release-description.htm)

NEW ZEALAND'S FORESTRY INDUSTRY

The New Zealand forestry and logging sectors account for 1.2 percent of
national economic activity. Further processing of wood and wood
products, paper, and pulp manufacturing account for an additional 4
percent of GDP. Forestry directly employs approximately 23,000 people.
Forests cover 8.2 million hectares, approximately 30 percent of New
Zealand's total land area. Of this area, 6.4 million hectares are
indigenous or natural forests and 1.8 million hectares represent
commercial plantation forests. Of the commercial area, seventy percent
is located in the North Island and thirty percent in the South Island.
Eighty-nine percent of all commercial forests are planted with radiata
pine and 6 percent in Douglas Fir. The balance consists of hard woods (3
percent) and other softwoods (2 percent). Plantation forests account for
more than 99 percent of New Zealand's total timber production.
Approximately 15,000 hectares of new forest were planted in 2003, well
below the 30-year average of 43,500 hectares per annum. For more
information, see MAF's [National Exotic Forest
Description](http://www.maf.govt.nz/statistics/primaryindustries/forestry/forest-resources/national-exotic-forest-2003/index.htm)
and MAF's [forestry
statistics](http://www.maf.govt.nz/statistics/primaryindustries/forestry/release-description.htm).

New Zealand accounts for 0.05 percent of the world's forest resource and
1.1 percent of world trade. New Zealand's major competitors are South
Africa, Russia, Chile, Brazil, Argentina, and Uruguay. Approximately 35
percent of New Zealand's harvest is exported as logs. The remainder is
either milled or used in the production of pulp, paper, or other wood
products such as medium density fiberboard (MDF) and panel products. The
volume of logs exported as a proportion of New Zealand's total harvest
continues to increase due in large part to industry processing capacity
constraints.

POLICY

Pine Pitch Canker

The importation of Pinus and Douglas Fir nursery stock from the United
States into New Zealand was stopped in February 2004. This follows an
assessment by the Ministry of Agriculture and Forestry (MAF) that no
area in the United States can now be considered free of pine pitch
canker. This resulted from MAF's interception of pine pitch canker on
Douglas Fir cuttings, imported from the United States in late 2003,
which were being propagated in a secure quarantine facility near
Christchurch. Professor Tom Gordon, UCLA Davis, California, confirmed
the diagnosis of Fusarium Circinatum. Imports of sawn timber or poles
from these species are also prohibited unless they have been treated to
70 degrees Celsius (core temperature) for four continuous hours or
kiln-dried to less than 20 percent moisture content at temperatures
exceeding 56 degrees Celsius.

See
<http://www.maf.govt.nz/biosecurity/imports/forests/emergency-measure.htm>
for more information.

The Kyoto Protocol and the Forestry Industry Framework Agreement

The continued expansion of New Zealand's forestry area is critical if
New Zealand is to fulfill its obligations under the Kyoto Protocol
agreement. A current cyclical downturn in New Zealand's forestry
industry has caused the rate of new plantings to dramatically shrink.
The New Zealand government, therefore, is eager to work with New
Zealand's forestry industry to increase the rate of new plantings.

If the Kyoto Protocol is implemented, the New Zealand Government will
claim ownership of most carbon (sink) credits and their associated
liabilities allocated to New Zealand in recognition of the carbon sink
value of post-1990 forest plantings on previously non-forested land.
This will occur for at least the first commitment period, with the
Government meeting deforestation and harvesting liabilities for these
forests. The Government has opted to be liable up to a specified cap of
21 million tons of CO~2~ emissions for forests planted before 1990 and
then harvested without being replanted during the Kyoto Protocol's first
commitment period. The Government has also declared that forestry owners
who establish new permanent ('non-harvest') commercial forest sinks will
receive fully tradable Kyoto Protocol compliant emission units. This
creates an opportunity for landowners, probably of largely marginal
land, to gain financially by re-establishing permanent forests.

Forestry owners feel that it is unfair for the Government to claim
ownership of nearly all carbon credits generated by forestry planted
after 1990. Negotiations between Government and industry to adhere the
New Zealand forestry industry's contribution to climate change
initiatives resulted in the 'Forest Industry Framework Agreement' (FIFA)
being drawn up. FIFA proposes to allocate NZ\$ 12 million over a 5 year
period to a regional and industry market development program.
Additionally, NZ\$ 2.8 million will be provided by FIFA for funding a
bio-energy program, NZ\$ 5 million directed to industry labor and skill
development and NZ\$ 1.4 million for market access issues. The industry
will also benefit from a Government NZ\$ 23 million allocation for
regional transport development. FIFA funding is contingent upon the
industry providing a certain share, as yet unspecified, of total
funding. Implementing a grower levy has been discussed as one means of
raising industry funds, although other methods have also been suggested.

See
[http://www.climatechange.govt.nz](http://www.climatechange.govt.nz/)
for more details.

Industry Levy

Three of New Zealand's forestry industry organizations: New Zealand
Forest Industries Council ([NZFIC](http://www.nzfic.org.nz/mainsite/)),
New Zealand Forestry Owners Association
([NZFOA](http://www.nzfoa.nzforestry.co.nz/)) and New Zealand Farm
Forestry Association ([NZFFA](http://www.nzffa.org.nz/main.html)), are
attempting to build support for the introduction of a compulsory
commodity levy on forest growers. Industry participants express a
growing concern for what is generally described as a lack of unity
within New Zealand's fragmented forestry industry. They hope that an
industry-wide levy will serve as a useful tool in addressing problems
and issues that the sector as a whole is confronted with. In June 2004,
NZFIC, NZFOA, and NZFFA released the results of a study prepared for
them by the international forestry consultancy group Jaakko Poyry. This
study gauged the attitudes and opinions of key stakeholders regarding
the introduction of a levy under the Commodity Levies Act (CLA).

These three industry organizations are currently reviewing the
conclusions of this report. An industry vote on a producer levy may
occur in 2005. Many within the industry view the implementation of a
producer levy as a critical factor in enabling forestry to surpass the
dairy sector as New Zealand's largest export industry.

New Zealand's Commodity Levies Act allows a producer referendum to
determine what type of 'industry good' activity will be undertaken using
levy funds. Producer levy rates are in force for a period of 5 years.
Industry good activity in New Zealand is a broad categorization that
includes market development efforts, market access, and research and
development. NZFIC, NZFOA, and NZFFA propose to use potential levy funds
for market development, research, and industry training.

New Zealand Forestry Certification

As of June 2003, 42 percent of New Zealand's forests were certified on
an interim basis under the [Forest Stewardship
Council](http://www.fsc.org/fsc) (FSC) forestry certification system.
FSC is an independent, non-profit, non-government organization based in
Bonn, Germany. It provides standard setting, trademark assurance, and
accreditation services for companies and organizations interested in
responsible forestry. Certification under FSC in New Zealand was
initiated in 2001 following an industry expression of interest in
creating a national certification system. The establishment of a
separate national certification system is now being developed by Forest
Certification New Zealand Incorporated (FCNZI), although the process has
currently stalled.

Most forestry industry participants believe that forest certification is
vital to establishing a successful export market development strategy
for New Zealand's wood products. Forest certification entails the
verification that wood is harvested under conditions acceptable to a
credible third party's certification system.  Its principal purpose is
to ensure that New Zealand's harvest can be sustained by natural or
human-induced regeneration. It also assesses the effect that forestry
operations have on local ecological, cultural and social structures. 
Forestry companies whose operations are 'certified' as meeting the
criteria can use the certifying agency's brand on their timber when it
goes to market. Other environmentally sensitive New Zealand initiatives
to date have included the 1991 Forest Accord and the 1995 Principles of
Commercial Forest Management.

FCNZI is a financially independent group that develops and manages a
system of standards for the sustainable management of New Zealand's
plantations and indigenous forests.  The Interim Standard for Plantation
Forest Management in New Zealand was prepared following guidelines set
out in the FSC National Initiatives Manual available from the FSC
website ([www.fscoax.org](http://www.fscoax.org/)). These guidelines are
designed to be used under other certification authorities as well as
FSC. The Standard will provide a system that enables third party
verification that New Zealand's forest management practices meet
acceptable standards recognized by major overseas wood products markets.
FSC is one such scheme, but forest managers may use these standards for
certification under other authorities.

TRADE

China

China is currently New Zealand's fifth largest export market for wood
and wood products. New Zealand exports to China were valued at more than
NZ\$ 300 million in 2003. Industry participants believe that the poor
image of Pinus Radiata as a building material in China has greatly
hampered their ability to take advantage of emerging sales
opportunities. After much difficulty, New Zealand was successful this
year in getting Pinus Radiata recognized in China's new Building Code.
New Zealand's marketing strategy in China focuses on improving the image
of Pinus radiata by making potential consumers/buyers aware of its full
range of applications and uses.

Trade and economic framework discussions for a Free Trade Agreement
(FTA) with China were initiated in January 2004. This will be followed
by a feasibility study for a FTA. New Zealand hopes that this will lead
to negotiations on a trade deal. Both countries have expressed a desire
to conclude a FTA in 2005. New Zealand's efforts to reach a trade accord
with China were enhanced by its willingness to meet China's demand to be
recognized as a market economy. This provides China with relief from the
anti-dumping provisions it accepted when it joined the WTO.

Sale of New Zealand Forestry Estates and Company Restructuring

Large tracts of New Zealand's forestry estate have been purchased in
recent years by overseas investment organizations, most based in the
United States. Currently, there are five U.S. Timber Investment
Management Organizations (TIMOs) with investments in New Zealand's North
Island -- Harvard Management, Hancock Natural Resource Group, Prudential
Timber Investments, Ontario Teachers' Plan and Global Forest Partners.
As of mid 2004, these investment organizations together owned
approximately one-third of New Zealand's total commercial forestry
resource. TIMOs are generally regarded as having a positive influence on
the industry since their long-term view allows forests to mature
properly, improving the construction properties of New Zealand's timber.
In the short-term, however, concern exists for job losses at harvesting
organizations as a result of TIMO decisions to reduce harvesting
operations. Also, problems may arise once normal harvest levels are
resumed if an adequate supply of skilled labor is no longer available.
Carter Holt Harvey (51 percent owned by International Paper of the
United States) continues to be New Zealand's largest individual forestry
owner. It is now considering the sale of some of its forestry assets.

Fletcher Challenge Forests/Tenon

In early 2004, Fletcher Challenge Forests (FCF) sold its 106,000 hectare
forestry estate for NZ\$ 725 million to Kiwi Forests Group (KFG), which
is a consortium of local investors and non-New Zealand TIMOs. At a
special FCF shareholder meeting in February 2004, shareholders voted to
sell the bulk of FCF's forestry estates in the North and South Islands
for NZ\$ 560 to KFG. FCF's 20,700 hectare Tarawera Forestry rights
(located in the central North Island) were sold in April 2004 to KFG on
behalf of Hancock Natural Resource Group, a U.S. company. This completed
FCF's divestment of its forestry estate.

FCF now plans to focus its business strategy on wood processing and
distribution operations. It maintains that forest ownership is best
suited to institutional investors that take a long-term investment
horizon. In order to complete the deal with KFG, FCF broke an earlier
deal with Campbell Group of the United States. FCF paid a NZ\$ 17
million fee to the Campbell Group for not completing their sales
agreement.

FCF was renamed Tenon at a special shareholder meeting held in February
2004. Rubicon, already owning 20 percent of FCF's outstanding shares,
successfully completed its takeover bid of Tenon in June 2004.

Carter Holt Harvey

Many industry analysts speculate that Carter Holt Harvey (CHH) will
follow Tenon's lead and sell at least a portion of its forestry assets.
No sales announcements, however, have been announced. Campbell Group,
having failed to purchase FCF's forestry estate, is reportedly
interested in purchasing some of CHH's forestry estate.

CHH sold its tissue operation to the Swedish company Svenska Cellulosa
for NZ\$ 1 billion in March 2004. The sale included CHH's 50 percent
share of Sancella, a feminine hygiene products joint venture between the
companies. In June 2004, CHH announced its intention to invest U.S.\$
134 million to acquire an 85 percent stake in the Chinese company
Plantation Timber Products. This company owns two fiberboard and
flooring plants in China. This acquisition represents CHH's strategy to
expand its operation outside New Zealand.

Central North Island Forests Partnership

Harvard University's Pension fund purchased the Central North Island
Forests Partnership's 165,000 hectare forestry estate in 2003 for
approximately NZ\$ 613 million. This is New Zealand's largest plantation
forest estate. Part of the 165,000 hectare sale figure consists only of
cutting rights for existing trees, with the remainder of the sale
transferring land title.

TARIFFS AND SUBSIDIES

+--------+--------------+---------+---------+--------+-------+-------+
| ##     |              |         |         |        |       |       |
| ###### |              |         |         |        |       |       |
|  New Z |              |         |         |        |       |       |
| ealand |              |         |         |        |       |       |
|  Fores |              |         |         |        |       |       |
| t Prod |              |         |         |        |       |       |
| uct Ta |              |         |         |        |       |       |
| riffs  |              |         |         |        |       |       |
| and Ta |              |         |         |        |       |       |
| xes (p |              |         |         |        |       |       |
| ercent |              |         |         |        |       |       |
| ) 2004 |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
|        | Product      | Tariff  | Tariff  | Other  | Total | E     |
|        |              |         |         | Import | Cost  | xport |
+--------+--------------+---------+---------+--------+-------+-------+
| H/S    | Description  | 2004    | 2005    | Taxe   | of    | Tax   |
| Code   | 1/           |         |         | s/Fees | I     |       |
|        |              |         |         |        | mport |       |
|        |              |         |         |        | 2/    |       |
+--------+--------------+---------+---------+--------+-------+-------+
| 4401   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4403   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4404   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4405   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4406   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4407   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | Sanded or    | 7       | 7       | n/a    | 7     | Free  |
|        | Finger       |         |         |        |       |       |
|        | Jointed      |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
| 4408   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.10.09   | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.31.90   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.39.90   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.90.08   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.90.19   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4408.90.29   | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4409   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | Molded Wood  | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4410   |              | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4411   |              | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4412   |              | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.22.90   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.23.00   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.29.90   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.92.10   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.92.90   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.93.00   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4412.99.90   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4413   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4414   |              | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4415   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4415.2       | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4416   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4417   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4417.00.11   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4417.00.21   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4418   |              | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4415.5 |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4418.9       | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4419   |              | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4419.00.09   | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4420   |              | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4420.10.09   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4420.90.01   | 5       | 5       | n/a    | 5     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4420.90.09   | 6.5     | 6.5     | n/a    | 6.5   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4421   |              | 7       | 7       | n/a    | 7     | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4421.90.01   | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4421.90.09   | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
|        | 4421.90.11   | Free    | Free    | n/a    | Free  | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4422   |              | n/a     | n/a     | n/a    | n/a   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4423   |              | n/a     | n/a     | n/a    | n/a   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4424   |              | n/a     | n/a     | n/a    | n/a   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| 4425   |              | n/a     | n/a     | n/a    | n/a   | Free  |
+--------+--------------+---------+---------+--------+-------+-------+
| Pr     |              | n/a     | n/a     | n/a    | n/a   | n/a   |
| e-fabr |              |         |         |        |       |       |
| icated |              |         |         |        |       |       |
| H      |              |         |         |        |       |       |
| ouses, |              |         |         |        |       |       |
| a      |              |         |         |        |       |       |
| subs   |              |         |         |        |       |       |
| ection |              |         |         |        |       |       |
| under  |              |         |         |        |       |       |
| c      |              |         |         |        |       |       |
| hapter |              |         |         |        |       |       |
| 96     |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
|        |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
| 1/     |              |         |         |        |       |       |
| Insert |              |         |         |        |       |       |
| addi   |              |         |         |        |       |       |
| tional |              |         |         |        |       |       |
| lines  |              |         |         |        |       |       |
| for    |              |         |         |        |       |       |
| Com    |              |         |         |        |       |       |
| modity |              |         |         |        |       |       |
| tariff |              |         |         |        |       |       |
| id     |              |         |         |        |       |       |
| entifi |              |         |         |        |       |       |
| cation |              |         |         |        |       |       |
| should |              |         |         |        |       |       |
| t      |              |         |         |        |       |       |
| ariffs |              |         |         |        |       |       |
| vary   |              |         |         |        |       |       |
| within |              |         |         |        |       |       |
| the    |              |         |         |        |       |       |
| four   |              |         |         |        |       |       |
| -digit |              |         |         |        |       |       |
| desig  |              |         |         |        |       |       |
| nation |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
| for    |              |         |         |        |       |       |
| major  |              |         |         |        |       |       |
| pr     |              |         |         |        |       |       |
| oducts |              |         |         |        |       |       |
| ex     |              |         |         |        |       |       |
| ported |              |         |         |        |       |       |
| by the |              |         |         |        |       |       |
| U.S.   |              |         |         |        |       |       |
| (e.g., |              |         |         |        |       |       |
| 44     |              |         |         |        |       |       |
| 12.19: |              |         |         |        |       |       |
| so     |              |         |         |        |       |       |
| ftwood |              |         |         |        |       |       |
| p      |              |         |         |        |       |       |
| lywood |              |         |         |        |       |       |
| 3%,    |              |         |         |        |       |       |
| 44     |              |         |         |        |       |       |
| 12.XX: |              |         |         |        |       |       |
| other  |              |         |         |        |       |       |
| pl     |              |         |         |        |       |       |
| ywood, |              |         |         |        |       |       |
| 9%).   |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+
| 2/     |              |         |         |        |       |       |
| Cal    |              |         |         |        |       |       |
| culate |              |         |         |        |       |       |
| as     |              |         |         |        |       |       |
| tariff |              |         |         |        |       |       |
| plus   |              |         |         |        |       |       |
| other  |              |         |         |        |       |       |
| import |              |         |         |        |       |       |
| taxe   |              |         |         |        |       |       |
| s/fees |              |         |         |        |       |       |
| as     |              |         |         |        |       |       |
| suming |              |         |         |        |       |       |
| a      |              |         |         |        |       |       |
| com    |              |         |         |        |       |       |
| modity |              |         |         |        |       |       |
| value  |              |         |         |        |       |       |
| of     |              |         |         |        |       |       |
| \$100. |              |         |         |        |       |       |
+--------+--------------+---------+---------+--------+-------+-------+

WOOD PRODUCTS SUBSIDIES

  -------------------------------------------------- ---------- --------- ----------
  New Zealand Wood Product Subsidies 2004                                 

                                                     Previous   Current   Forecast

                                                     2002       2003      2004

  Total Solid Wood Export Subsidy Outlay (\$US       n/a        n/a       n/a
  million)                                                                

  Is there a ban on the export of logs, lumber, or   No         No        No
  veneer? 1/                                                              

  Are there export taxes (yes/no)? 2/                No         No        No

  Total Wood Production Subsidy (\$US million)       n/a        n/a       n/a

  Scope (thousands of hectares)                      1814       1827      1842

  Are there other wood products export expansion     No         No        No
  activities? 1/                                                          

                                                                          

  1/ If yes, describe in report.                                          

  2/ If yes, identify in Tariff and Tax Strategic                         
  Indicator Table.                                                        
  -------------------------------------------------- ---------- --------- ----------

FURTHER INFORMATION

New Zealand Forestry Industry Facts and Figures

<http://www.nzfoa.nzforestry.co.nz/facts_figures.asp>

MAF Forestry Statistics

<http://www.maf.govt.nz/statistics/primaryindustries/forestry/index.htm>

MAF National Exotic Forest Description and other publications

<http://www.maf.govt.nz/forestry/publications/>

New Zealand government and the Kyoto Protocol

[http://www.climatechange.govt.nz](http://www.climatechange.govt.nz/)

Forest Stewardship Council

<http://www.fsc.org/fsc>

New Zealand Forestry Industry Council

<http://www.nzfic.org.nz/mainsite/>

New Zealand Forestry Owners Association

<http://www.nzfoa.nzforestry.co.nz/>

New Zealand Farm Forestry Association

<http://www.nzffa.org.nz/main.html>

Tenon (formerly Fletcher Challenge Forests)

<http://www.tenon.co.nz/>

Carter Holt Harvey

[http://www.chh.com](http://www.chh.com/)

New Zealand Forestry Industries magazine (includes statistics)

<http://www.nzforest.com/>