Many question the commitment of the government to conservation, believing Indonesian government policy is simply a means of keeping more value-added in the country. This case involves a U.S. pencil manufacturer who submitted a petition for retaliation under section 301 of U.S. trade law against Indonesia. Indonesian pencil makers enjoy an inherent market advantage because the government forbids the export of raw hard wood, including Jelutong, the preferred wood for making pencils. The U.S. Trade Representative decided against accepting the petition. Pencil slat is the wood that encases the lead and is coated with paint and usually capped with an eraser.
American producers export nearly two thirds of their annual pencil production to other countries.
American producers allege that through a series of strategies including differential export taxes, substantial underpricing of government owned timber, and failure to enforce terms of timber concessions, Indonesian exporters of pencil slat are able to undersell their non-Indonesian competitors in third country markets. As a result, American producers of pencil slat have seen a decline in their exports to such countries as Germany, Mexico, Japan, Korea, the United Kingdom and Italy. The Indonesian government imposes a prohibitive export tax on the logs and lumber from which pencil slat is made in Indonesia. They contend that the government promotes exports through its system of differential export taxes. Indonesia currently imposes a steep export tax on the Jelutong logs and lumber used to make pencil slat.