CHAPTER TWO JAMES M. BIRKELUND TRADING AWAY FORESTS: INDONESIA AND MALAYSIA Introduction International trade is no longer solely an issue for economists. As nations become more integrated in a global market, there is a growing consensus that trade has a powerful effect on all areas of society and the environment. Recent developments in the international political arena have only just started to take into account the environmental ramifications of trade policies. Although international trade by itself is not a direct cause for environmental degradation, it can profoundly affect patterns of natural resource consumption. In the case of Indonesia and Malaysia, the tropical timber trade has been an influential factor in determining how these countries manage their forests. Not only are the forests being logged for international interests, but the process of logging opens the way for other factors causing forest depletion and environmental degradation in Indonesia and Malaysia. The Importance of Tropical Forests The tropical forests in the Indo-Malaysian region contain some of the world's highest levels of biological diversity. Indonesia alone is estimated to contain 25 percent of the world's fish species, 17 percent of the bird species, 16 percent of the reptile and amphibian species, 12 percent of the mammal species, and 10 percent of the flowering plant species (Ministry of Forestry, 1993). Consequently, there is a strong global environmental movement to protect the forests and maintain the ecological systems that support these diverse life forms. There is also a growing concern that tropical forests should be preserved because they act as natural consumers of carbon dioxide and help prevent global warming. At the local level, the forests play other important roles in preventing soil erosion, protecting watersheds, and maintaining micro-climatic conditions. Economically, the Indo-Malaysian region contains an especially valuable source of tropical timber from the dipterocarp tree species. The dipterocarp produce hardwood with a high commercial value, and the trees grow tall and straight making them easy to cut into long durable planks. The forests in Indonesia and Malaysia contain high percentages of the dipterocarp trees. The Dynamics between Commercial Logging and The Forests The demand for timber on the international trade market provides a direct incentive to log trees for profit. As a result of logging, there is also a high level of secondary damage to the surrounding vegetation. Within any forest there are numerous trees that have no commercial value either because they are too small or because they belong to unprofitable species. The potential for the forest to regenerate after logging depends heavily on the methods of logging extraction and the extent of vegetation left to regenerate itself. Industrial timber companies generally use heavy machinery to take out valuable trees and to establish roads for transporting equipment into the remote areas of the forests. A fair amount of vegetation is destroyed just in the process of getting the logging equipment to the location of the trees. Once there, companies pay little attention to the felling techniques used to cut the trees and as a consequence large trees often fall on and harm the surrounding vegetation. Studies conducted by the International Timber and Trade Organization (ITTO) estimate that 60 percent of vegetation not directly logged is severely damaged or destroyed as the result of logging practices (Collins et al., 1991). Another effect of industrial logging practices is to provide locals with the means to enter otherwise remote areas of the forests. Once the logging companies have left an area, settlers often use the roads to go in and stake land which has already been cleared of trees for agricultural purposes. Settlers also clear additional land beyond the areas exploited for timber. Thus, the logging practices can be seen in conjunction with agriculture as the first step in permanently removing trees in many of these areas which do not have a chance to recover once the logging companies have moved on. Historical Background Before the timber trade, the Southeast Pacific was almost completely covered with tropical rainforests. With few exceptions, the large-scale deforestation of Malaysia and Indonesia did not begin until the 1960's and early 1970's respectively. At this time, multinationals from the United States, Europe, and Japan invested heavily in this region and traded timber back to their home countries. Initially, the governments in both the home and host countries encouraged foreign investment in these tropical forests. As shown in Graph #1 and Graph #2, large-scale logging and the export of unprocessed timber (roundwoods) rose steeply during the 1960s and 1970s. GRAPH #1 GRAPH #2 Commercial logging and the timber trade was beginning to provide a steady income for Malaysia and Indonesia. Oil remained the most profitable export good, but following the Oil Crisis in 1973 both countries started looking for ways to increase their foreign export earnings. Along with utilizing natural gas deposits, these countries targeted the timber industry for development. The governments in Indonesia and Malaysia began charging more for the forest concessions they gave to logging companies. In addition, they also increased the percentage of domestic firms that received these concessions. By the late 1970s, Indonesia had started to restrict foreign investment to promote the growth of their domestic timber industry. Realizing additional profits could be retained by exporting processed timber instead of roundwood, Indonesia banned the export of logs in 1980. This resulted in a domestic increase in the production of sawnwood and panel forest products (Graph #1). In response to international pressures, Indonesia lifted its ban on raw log exports in 1992 (export data after 1991 is unavailable). In Malaysia, the government also attempted to restrict log exports by raising tariffs in the 1980s. However, unlike Indonesia, the Sabah and Sarawak regions of Malaysia continued to rely on the export of unprocessed timber and the overall roundwood exports in Malaysia have steadily increased to the present time (Graph #2). Although attempts to restrict log exports were not as successful in Malaysia as compared with Indonesia, the Asian bloc of countries increased secondary timber production steadily from the 1960s to the 1990s. While the percentage of roundwood and sawnwood exports fluctuated, the percentage of wood-based panels skyrocketed from 41 percent in the 1961 to 90 percent in 1990 (Table 1).
TABLE #1 Exports of Timber Products as a Percentage of Production in Tropical Countries (%) 1961 1970 1980 1990 All Tropical Countries Industrial Roundwood 15.6 27.1 18.2 11.1 Sawnwood 15.3 17.3 16.2 12.0 Wood-based Panels 34.0 33.0 32.5 69.4 Tropical Africa Industrial Roundwood 23.8 23.3 16.3 9.5 Sawnwood 32.1 28.5 12.7 12.3 Wood-based Panels 34.0 33.0 28.6 21.9 Tropical Central and South America Industrial Roundwood 1.6 1 0.2 0.2 Sawnwood 14.7 13.6 6.9 3.9 Wood-based Panels 34.0 33 15.3 19.4 1961 1970 1980 1990 Tropical Asia and Oceania Industrial Roundwood 22.2 44.2 33.4 20.4 Sawnwood 11.9 18.5 24.5 117.5 Wood-based Panels 40.5 39.9 49.4 89.7 Source: FAO (1992) in Barbier et al. (1994).
Despite the variations in the unprocessed versus processed timber exports, the international trade of timber products as a whole has steadily increased from the 1960s to the present day. Economics- The Driving Factor As shown in Map #1, the distribution of tropical rainforests is found primarily in South America, Africa, India, and Asia. The regional view of Indonesia and Malaysia shows that both these countries are heavily endowed with tropical rainforests. Following David Ricardo's basic economic theory of comparative advantage, Indonesia and Malaysia would be well advised to sell tropical forests (which they have in abundance) on the international market in exchange for other goods and services. Modern economics has since expanded on the theory of comparative advantage, but there remains an underlying economic incentive for countries in the tropical areas to trade timber. While in practice the tropical hardwoods exported from all of the developing countries only account for 3 percent of the total wood removal from these countries, in certain areas such as Malaysia, it is estimated that 68 percent of all wood removal enters into the world trade market (Collins et al., 1991). More specifically, of the 25 million cubic meters (mn cu m) of tropical hardwood logs exported worldwide in 1986, 19 mn cu m came from the Sabah and Sarawak regions of Malaysia; seventy percent of the world trade in sawn hardwood came from SE Asia; and Indonesia is now the world's largest tropical plywood producer (Ibid., 1991). Another worldwide study compiled by Barbier et al. (1994) measures the amount of forested land in tropical countries and the percent of area being deforested annually (see Table 2).
TABLE #2 Tropical Forest Resources: Status and Changes in thousands of hectares Area % of Area Deforested Deforested Land Forest Area Annually Annually Area 1990 1981-90 1981-90 Latin America Brazil 845,651 347,000 3,200 0.92 Peru 128,000 73,000 300 0.41 Bolivia 108,439 55,500 60 0.11 Venezuela 88,205 42,000 150 0.36 Colombia 103,870 41,400 350 0.85 Guyana 19,685 19,300 3 0.02 Suriname 15,600 15,200 3 0.02 Ecuador 27,684 12,300 60 0.49 Africa Zaire 226,760 103,800 200 0.19 Congo 34,150 21,100 22 0.10 Gabon 25,767 20,300 15 0.07 Cameroon 46,540 17,100 80 0.47 Central African Republic 62,298 3,600 5 0.14 Equatorial Guinea 2,805 1,200 3 0.25 Asia Indonesia 181,157 108,600 1,315 1.21 Malaysia 32,855 18,400 255 1.39 Philippines 29,817 6,500 110 1.69 Source: Schmidt (1990) in Barbier et al. (1994).
Asia as a region suffered from the highest rate of deforestation throughout the 1980s with Indonesia, Malaysia, and the Philippines having the highest rates per country. To some extent these percentage statistics are more meaningful when there is a large total area of tropical forests in the country. And indeed, Indonesia is second only to Brazil with a total of 109 million hectares (mn ha) of rain forests. Combined with Indonesia's 1.21 percent rate of deforestation this results in a loss of 1,315,000 ha of rainforests every year (Barbier et al., 1994). In order to understand why Indonesia and Malaysia are being so heavily deforested, it is necessary to look at the importance of forest products to their national economies. In 1989, the industrial forest sector in Indonesia and Malaysia accounted for 3-6 percent of the total gross domestic product, and forest based exports accounted for between 10 and 16 percent of the total exchange value of all exports. In comparison, the industrial forest sector in most countries with tropical forests was less important and averaged below 2 percent of the total gross domestic product of these countries (Barbier, et al., 1994). An explanation for the heavy logging in Indonesia and Malaysia is the presence of the valuable dipterocarp species of tree. Furthermore, this region has the highest density of tropical forests in the world (see Map #2), and it is relatively easy for companies to realize profits and reduce transportation costs when trees are located close to each other. Both of these factors combine to make Indonesia and Malaysia the two leading countries in exports of forestry goods by a large margin over most other tropical countries, many of whom are net importers of tropical forest goods (Table 3).
TABLE #3 Forestry Products in Selected Countries- Thousands of US Dollars Imports Exports Net Exports Tropical Africa Cameroon 35,412 99,833 64,421 Central African Rep. 468 29,994 29,526 Congo 4,500 106,087 101,587 Ivory Coast 27,200 236,147 208,947 Gabon 3,655 136,774 133,119 Kenya 23,594 4,054 -19,540 Liberia 1,942 78,264 76,322 Madagascar 8,546 534 -8,012 Malawi 8,085 1993 -6,065 Nigeria 33,083 1,680 -31,403 Tanzania 15,700 1,539 -14,161 Zaire 3,666 17,032 13,366 Zimbabwe 5,765 4,169 -1,596 Tropical Central and South America Costa Rica 40,020 21,895 -18,125 Cuba 193,411 1,847 -191,564 El Salvador 21,800 2,725 -19,075 Guatemala 69,410 18,326 -51,084 Honduras 137,921 31,061 -106,860 Mexico 403,605 13,884 -389,721 Nicaragua 10,566 2,569 -7,997 Panama 76,979 3,988 -72,991 Bolivia 4,060 22,160 18,100 Brazil 299,402 1,750,981 1,451,579 Columbia 104,056 20,060 -83,996 Ecuador 157,834 24,373 -133,461 Paraguay 13,055 24,971 11,916 Peru 104,914 2,558 -102,356 Tropical Asia and Oceania Hong Kong 1,752,273 705,535 -1,046,738 India 290,967 16,337 -274,630 Indonesia 330,157 3,069,199 2,739,042 Laos 200 10,251 10,051 Malaysia 483,372 3,040,884 2,557,512 Myanmar 4,721 148,084 143,363 Philippines 173,662 123,119 -50,543 Singapore 747,548 663,302 -84,246 Thailand 1,002,371 101,551 -900,820 Fiji 7,804 22,775 14,971 Papua New Guinea 5,504 115,500 109,996 Source: FAO (1992) in Barbier et al. (1994).
Indonesia is now the leading exporter of processed tropical hardwoods. In 1992 Indonesia's timber industry was worth 4.6 billion US dollars; much of this went to directly employing 2.5 mn people in the timber industry as well as 1.2 mn people in complementary or related businesses (Ministry of Forestry, 1993). By 1983, Malaysia accounted for 58% of the total global export of tropical timber (Cronau, 1993), and in 1988, timber overtook petroleum as Malaysias main export commodity, valued at 3.6 billion dollars (Davis and Henley, 1990). Both Indonesia and Malaysia are prime examples of countries that rely heavily on timber exports to support their national economies. Exports and Deforestation The qualitative relationship between exports and deforestation is captured in Graph # 3. GRAPH #3 While this only includes roundwoods, there is a strong correlation between the increase in roundwood exports and the decrease in forested area from 1961 to 1979. The notable drop of exports in the early 1980s corresponds with the sudden ban on raw log exports in Indonesia and, to a lesser extent, on the higher export tariffs on raw logs in Malaysia. The total exports of forestry products, including panel wood and sawnwood, has continued to increase steadily throughout the 1980s to the present. Therefore, while the data on exported sawnwood and panel wood is not available, the relationship between deforestation and exports is very strong if all forest products are considered. It should be noted that a direct quantitative relationship between the exported amount of wood (in cu m) and the associated deforestation of land (in ha) has not been calculated. This is a very difficult relationship to establish for several reasons. As mentioned in the section on the dynamics between commercial logging and the forests, not only are trees removed for direct use, but approximately 60 percent of the surrounding vegetation is destroyed. Secondly, logging operations are seen as part of the process enabling local people to gain access to closed forests and destroy additional forests for agriculture. And, finally, because of the wide practice of illegal logging, the true number of exported logs is likely to be much higher than the officially reported measurements. Logging rules are commonly disregarded and illegal exports are common. For example, between 1986 and 1990, the Primary Industries Minister Lim Keng Yaik of Malaysia reported that four states exceeded their logging quotas by as much as 300 percent (Lumpur and Tsuruoka, 1991). According to a study conducted in Indonesia by Skephi, a non-government environmental organization, "timber transportation documents are commonly reused two to five times, which would mean that unreported logging in some areas may range from 100 to 400 percent over the volume of reported logging" (US Embassy, 1994). Because of the wide range of associated uncertainties, it is not possible to calculate a quantitative relationship between exports and deforestation in Graph # 3. Even with missing data, the overall growth of roundwood exports is best characterized by a linear trend that, if it continues, would reach over 40,000 cubic meters by the year 2010 (see Graph #4).
GRAPH #4 This worst case scenario would have devastating effects on the remaining tropical forests in this region. Furthermore, even if roundwood exports remain at current levels, the tropical forests will still continue to disappear at an alarming rate. Domestic and international trade policies will be the critical factor in determining whether forest exports increase or decrease in the upcoming years. Forests in Transition Having established some relationships between exports and deforestation, it is useful to think of the interaction between the two in terms of a forestry transition. William Drake describes the concept of transitions in Towards Building a Theory of Population-Environment Dynamics: A Family of Transitions (1993). To paraphrase briefly, the idea behind transitions is that societies are especially vulnerable to change in critical time periods which depend in part on the state of the population in these societies. Moreover, government policies can act to alleviate the problems associated with these critical time periods. When a sector, such as the forestry sector, enters a transition period it undergoes rapid change before returning to a stable state; the forestry sector in Indonesia and Malaysia is doing just that. According to Drake, if we can recognize transitions, we can proscribe policies to help reduce the negative aspects of the transition and influence the final equilibrium state. Applied to this paper, the theory of transitions explicitly recognizes that there is a dynamic relationship between deforestation and the tropical timber trade. This relationship started in the 1960s and is continuing today. Judging from the continued rates of deforestation and forest exports in Graph #4, the forestry transition is far from over. In regards to population trends, Indonesia and Malaysia reached their peak growth rates in the mid 1970s and mid 1960s respectively (see Graphs #5 and #6). Since then population growth rates have declined and are expected to continue declining into the 21st century. However, because the birth rates and death rates in these countries have both fallen at relatively the same speed (see Graphs #7 and #8), the total population in these countries continues to rise rapidly. GRAPH #5 GRAPH #6 GRAPH #7 GRAPH #8 Thus, the population transition is not yet over and is expected to continue into the 21st century. Modernization provides an indirect link between population changes and increased timber exports. As modern medicine acted to promote the decline in death rates / birth rates, the modern market system acted to promote improvements in the economy, trade, and technology (all three are necessary to exploit timber resources). Commercial logging in Malaysia began in the 1950s about ten years before population growth rates reached a maximum, and commercial logging began in Indonesia in the 1960s about ten years before its maximum population growth rate. The same technological and economical advances that spurred the logging industry also preceded the beginnings of the demographic transition. The direct link between the demographic and forestry transition is easily found by examining the dynamics between logging and deforestation. There are two major connections: 1.) As the total population rises, landless peasants become more numerous and it becomes more difficult to stop them from contributing to deforestation as they follow logging operations and convert forested land into fields for agriculture. 2.) As the total population rises, there is increased pressure on the national economy to sustain more people. In the short-term, this pressure can be partly alleviated by supplementing national incomes with an increase in the exports of forestry goods. This in turn increases deforestation. The effects of the timber trade on deforestation began with Indonesias and Malaysias exposure to the Western capitalist market system. Furthermore, the exposure to Western medicine prompted the demographic transition which has magnified the problems between the timber trade and deforestation in these countries. In order to effectively get through the forestry transition, Indonesia and Malaysia need to concentrate on getting through their demographic transitions as well. The Missing Element- Reforestation Until deforestation begins to level-off and approach reforestation, the forestry transition will not reach a stable state and logging operations will continue to deplete the tropical forests in this region. At some point, the forestry transition will reach an equilibrium. Where this equilibrium is partly dependent on the ability of governments to implement reforestation management. There is very little data on the reforestation of the tropical forests of Indonesia and Malaysia. Much of the available information is from the forestry departments of the governments and can be notoriously unreliable. In 1990, the worldwide extent of plantations in the tropical areas was estimated at 43.9 mn ha, or less than two percent of the total forested area of 1,715 mn ha (Barbier, 1994). According to the World Resources Database (1994-1995), Indonesia and Malaysia respectively had 8,750,000 and 116,000 ha of plantations in 1990 and were adding to plantations at a rate of 474,000 ha a year in Indonesia and 9,000 ha a year in Malaysia. Considering the average annual deforestation rate in the 1980s was 1,315,000 ha in Indonesia and 255,000 ha in Malaysia (see Table 2), the rate of reforestation to deforestation is less than 25 percent in Indonesia and less than 10 percent in Malaysia. The forestry transition will not be complete until the rate of reforestation equals the rate of deforestation. One drawback to reforested plantations is they often consist of only one species of tree. Sometimes this is not even an indigenous species. For example, the Eucalyptus tree from Australia is a fast-growing valuable timber that is often chosen to replace native trees. Plantations do little to preserve the biological diversity of the traditional forests and can destroy the soil and water table as well. It is therefore highly desirable for these countries to focus not only on reforestation, but also on preserving the integrity of the original forests. Indonesia and Malaysia should attempt to move their logging efforts from areas of primary growth to reforested areas of secondary growth. Domestic Policies In the 1983 United Nations Conference on Trade and Development, the International Tropical Timber Organization (ITTO) was created to address the problems between trade and tropical forests. Indonesia and Malaysia are both members of ITTO and have committed to the goal of sustainably managing all tropical forests by the Target Year 2000. This leaves the domestic governments with the task of balancing the short-term interests of the economy and logging companies against the long-term interests of the future economy and environmentalists. The governments in Indonesia and Malaysia would like to improve the economic efficiency of the forestry sector without increasing the raw material growth of inputs or over-cutting the tropical forests. In the past, one strategy pursued to promote this goal is to add economic value to their forests by restricting roundwood exports and processing lumber into secondary products before exporting it on the international trade market. There are several problems with the strategy to export processed lumber. While on the one hand it may be effective at adding monetary value to wood products before selling them, it also requires the countries to restrict trade on raw log exports. Initially it might be expected that by cutting out foreign sales of raw logs the deforestation rates might go down. However, as seen from the 1980 ban of log exports in Indonesia, deforestation rates were not reduced. Roundwood production remained steady while sawnwood and panel wood production rose rapidly (see Graph # 1). From an economic perspective, trade barriers decrease the market value of raw logs for the domestic wood processing industries. When the price of logs goes down, domestic companies can purchase greater numbers of logs and this could actually cause an increase deforestation. According to the World Bank, Indonesia's ban in log exports pushed the price of domestic logs to half the world level and resulted in over-cutting and over-investment in secondary wood production in Indonesia (Schwarz, 1992a). When a natural resource loses market value it becomes less valuable to protect as a long-term source of income. The second point made by economists is that because domestic industries are shielded from competition with foreign wood processing companies (foreigners cannot buy raw material from these countries), export restrictions cause inefficiencies. According to Marina Whitman, an international trade professor at the University of Michigan, international competition is essential for promoting the most efficient production of goods on a global level. Trade restriction have proven unreliable for decreasing deforestation and can hinder the development of efficient domestic industries. This runs contrary to the governments overall objective of increasing efficiency and maintaining the levels of raw material consumption. Another problematic domestic issue is the abuse and corruption that undermine the enforcement of logging regulations. The governments in Indonesia and Malaysia are notorious for accepting bribes and showing preferential treatment to logging companies with personal connections to powerful officials. Enforcement of national logging rules is poor at best. As noted earlier, the illegal export of raw logs is also widespread. The governments need to make a firm commitment to stopping corruption and enforcing their own logging regulations. Finally, the domestic policies for granting timber concessions to logging companies need to be reviewed. Typically the governments grant timber concessions to logging companies for relatively short periods of time -- approximately 20 years. This encourages companies to take as much as they can from the forest before they lose their timber concessions. It takes 35 to 40 years for dipterocarp trees to re-grow to commercially valuable sizes. Therefore, the companies are not expected to get a second harvest from any particular concession (Schwarz, 1991). There is little concern by business for the future productivity of their forest concessions. International Policies Until recently, the international political structures affecting deforestation in Indonesia and Malaysia were mainly due to market demand in other countries. Companies in industrial nations would purchase tropical timber for their own hardwood processing and subsequently sell products to consumers in industrialized nations. Although this continues to be the case, in the past two decades, a number of new political actors (international organizations) have started to put pressure on Malaysia to sustainably manage its tropical forests. Internationally, the response to concerns over the global destruction of tropical forests have led some foreign countries, such as those in the European Union, to impose trade restrictions-- import tariffs or non-tariff barriers on tropical forest products. In 1986, the European Union imposed restrictions on the import of tropical wood. These restrictions required timber to be "certified" from "sustainable forests". Most of the logs exported from Indonesia and Malaysia can not meet these requirements (Tasker and Ai, 1994). If implemented on a global level, trade sanctions could theoretically limit the amount of forestry products exported from Indonesia and Malaysia and potentially reduce deforestation rates. However, as the demand for trees goes down, the forests become less "economically valuable", and much of the financial impetus for sustainable management disappears. According to Alastir Fraser, a Briton working with Indonesia's Ministry of Forestry, "It would be tragic if trade stopped. The forests would become less valuable and there would be less incentive to protect them" (Schwarz, 1992b). Foreign trade restrictions can distort the true economic value of the forests in to these countries. Instead of reducing deforestation, foreign trade restrictions in the long-term could decrease the economic incentives to preserve the forests. Admittedly, some policy makers are not convinced trade restrictions are a cause for environmental damage and would argue that Indonesia and Malaysia make more money from restricting log exports and selling secondary wood products instead. However, even if trade restrictions were effective at reducing deforestation, the General Agreement on Tariffs and Trade (GATT) is slowly working to phase tariffs and other trade restrictions out of the global economy. In 1992, the lift in the ban on log exports in Indonesia was partly the result of pressure from the GATT. Thus, it would be difficult to coordinate a world-wide trading ban on forest products produced in this region. This would go against the predominantly free trade atmosphere currently advocated in international politics and the GATT. In the place of trade restrictions, the GATT is promoting multinational trade agreements that involve all countries. In the Uruguay Round of GATT negotiations, environmental issues have become increasingly important in discussions, although substantial global environmental regulations have not been established. As it relates to Indonesia and Malaysia, the obvious advantage of multinational agreements over unilateral trade restrictions is to take into account the views of both importing and exporting nations. This does not necessarily mean environmental protection. But, environmental solutions for reducing deforestation could be framed by GATT in an economically and socially beneficial system for both Indonesia and Malaysia with international support. This might entail international financial support to implement management programs that provide viable alternatives to using old growth forests. Management programs that focus on reforestation and intensification of land that has already been deforested. This would reduce the pressure to log old growth forests. ITTO is an example of an international organization that has encouraged developed nations to co-operate with developing nations with the common goal of promoting the sustainable management of tropical forests. The World Bank is currently looking at a proposal to employ a foreign company to help Malaysias government monitor logging operations. However, to really have an impact, international organizations need to make stronger commitments to support these countries in their attempts to curb the current problems of deforestation. GATT, ITTO, and the World Bank have not yet had a big effect on deforestation rates in Indonesia and Malaysia. Conclusions Although the international timber trade is undoubtedly an important part of the economies in Indonesia and Malaysia, it is difficult to quantify the exact relation between exports and forest deforestation. Given the limitations of data, the relationship of exports to the forestry transition is captured in Graph #3. There are two major areas affecting the forestry transition in these countries: the demand for exports and the lack of reforestation. In effect, if exports continue to increase or even remain at constant levels without improved rates of reforestation, the forests in Indonesia and Malaysia will rapidly disappear. There are several domestic policies that should be advanced to reduce deforestation rates. Because of the geographical, environmental, demographical, and political similarities between Indonesia and Malaysia, both countries are in very analogous positions and should follow the same general strategies to prevent deforestation. First, they should remove any remaining restrictions on the export of raw logs. This will provide the economic conditions that favor the most efficient use of timber goods on a global level. While the domestic industries may lose money in the short-run, in the long-run the country will benefit from utilizing its resources more efficiently. If these countries continue to restrict timber exports, they will face retaliation measures from the international community and the GATT. Trade retaliation could harm the other important sectors of their economies including oil and natural gas exports. In addition, the domestic governments need to cut down on corruption and improve enforcement of the current logging regulations. This will involve a financial commitment to enforce logging rules and a moral commitment by government officials to decline bribes from powerful logging industries. And finally, the current terms of granting short-term forest concessions should be increased to provide an incentive for companies to start reforesting and sustainably managing the forests. Changing the policies for granting logging concessions is beneficial to all parties involved and should be relatively easy to implement. Finally, Indonesia and Malaysia both need to work on controlling population growth. If populations continue to increase rapidly, their will be pressures to use deforested land for agriculture instead of reforesting it for future timber production. From the international level, countries need to move away from unilateral restrictions and work towards developing common forest management goals. ITTO is a step in the right direction, but negotiations could start to include mechanisms for enforcement as well. The GATT, while still a long-way from having an international enforcement arm, could provide this service sometime in the future. To be pro-active, the international community needs to provide more financial aid to these countries to help with the costs of sustainably managing forests. It is also possible to develop a set of internationally agreed upon forestry practices, whereby the demand for forestry exports could be reduced to what can be provided consistently over generations. The sooner this agreement is reached, the more tropical rainforests will be left when the forestry transition is over. 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