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Latin America, a market for Canadian forest products potential and prospects for development Casasempere, Alfonso 1970

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LATIN AMERICA - A MARKET FOR CANADIAN FOREST PRODUCTS POTENTIAL AND PROSPECTS FOR DEVELOPMENT by ALFONSO CASASEMPERE Ingeniero Forestal, Universidad de Chile, 1967 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF FORESTRY in the Faculty of Forestry We accept this thesis as conforming to the required standard UNIVERSITY OF BRITISH COLUMBIA Apri l , 1970 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make i t freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarship purposes may be granted by the Head of my De-partment or by his representative. It i s understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Faculty of Forestry The University of British Columbia Vancouver, Canada Dates April, 1970. i A B S T R A C T The L a t i n American market for forest products i s eva-luated with emphasis on the economic, s o c i a l , and p o l i t i c a l aspects influencing demand and trade. Canada's p o l i t i c a l , c u l t u r a l and commercial r e l a t i o n -ships with L a t i n America are investigated and i t i s concluded that, currently, among the most important factors r e s t r i c t i n g a possible increase i n trade with the area ares Canadian detachment from the Inter-American System and p o l i t i c a l i s o -l a t i o n ; reduced commerce with a l l countries south of the United States? trade patterns imposed by economic growth and by b i l a t e r a l cooperation? and economic integration among the countries of the region. Trends indicate that as L a t i n America increases i t s f i n a n c i a l wealth and income i s d i s t r i b u t e d along more equit-able l i n e s , demand for i n d u s t r i a l f orest products w i l l r i s e considerably. Estimates of demand for 1965, 1975 and 1985 are given. Emphasis i s placed i n distinguishing between six types of forest products? sawnwood? plywood and veneer? p a r t i c l e board? and wood pulp and paper. I d e n t i c a l treatment i s given to the presentation of future estimates of production and net regional d e f i c i t s . Net d e f i c i t s i n forest products 3 are anticipated to be, by 1975? 50 thousand m of plywood 3 and veneer? 150 thousand m of p a r t i c l e board? 400 thousand m3 of f i b r e board? 192 thousand tons of pulp? and 1.279 m i l l i o n tons of newsprint. The sawnwood sector i s expected to supply a l l domestic demand and hopefully export to other regions of the world. Future import requirements are evaluated under the assumption that a l l regional producers w i l l s e l l t h e i r pro-duction i n L a t i n America, therefore, the trade d e f i c i t s forecast are minimal. I f , however, any producing country s e l l s forest products outside the area, net d e f i c i t s are expected to increase. Because Chile i s the only net exporter of i n d u s t r i a l f o rest products i n L a t i n America, i t s future capacity for production i s evaluated. Considerable, and i n some cases t o t a l , competition to Canadian forest products i n L a t i n America should be expected from Chilean exports. The L a t i n American Free Trade Association agreements are the key to the marketing success of such exports. The competitive c h a r a c t e r i s t i c s of Canadian forest products are appraised and compared to those of other i i i important suppliers to L a t i n America. Provided that the present trends i n production and transportation costs r e -main unchanged, Canada should f i n d no great d i f f i c u l t y i n competing with the United States, the B a l t i c countries, or the Soviet Union i n L a t i n America. Canada's po s i t i o n r e l a t i v e to Chile i s also stressed and special references to the Central American common Market and L a t i n America Free Trade Association t a r i f f regimes are made. I t i s concluded that there are excellent opportunities for Canada to increase i t s trade i n forest products with the La t i n American countries, p a r t i c u l a r l y with respect to news-p r i n t and other pulp and paper products. In order to r e a l i z e t h i s p o t e n t i a l , however, i t would be necessary for the Canadian forest industries to develop a more aggressive sales strategy i n the region. iv R E S U M E N E l presente estudio evalua e l mercado Latinoamericano de productos forestales, con especial referenda a las caracteristicas economicas, sociales y politicas que deter-inan su demanda y capacidad de importacion. Por su trascendencia economica tambien se analizan las relaciones politicas, culturales y comerciales de Canada con America Latina, y se cohcluye que entre los factores mas importantes que afectarian un posible incremento de las exportaciones Canadienses a esta region se encuentrans e l desapego del pais del Sistema Interamericano (organizacion de Estados Americanos), y e l aislamiento politico con respecto a las Naciones Latinoamericanas? e l reducido nivel de comercio corrientemente llevado a cabo con l a regi6n? e l sistema de compra y venta impuesto por l a ayuda financiers y tecnica entre paises; y l a integracion economica de America Latina. Proyecciones de l a demanda de productos forestales para America Latina indican que a medida que l a region incremente su poder economico y e l ingreso se distribuya mas equitativamente entre sus habitanlies, e l consumo de estos productos crecera considerablemente. Estimaciones de V deraanda se establecen para los anos 1965, 1975 y 1985, agrupando los productos forestales en t r e s categoriass Madera Aserrada, Tableros de Madera, y Pulpa y Papel. Las estimaciones futuras de producci6n y d e f i c i t s regionales reciben identico tratamiento presentandose las c i f r a s para los mismos anos y categorias de productos. Los d e f i c i t s netos de productos forestales indust-r i a l e s en America Latina se a n t i c i p a que seran en 1975s 50 3 3 mil m de madera t e r c i d a y chapas? 150 mil m de tableros de ' 3 particulas? 400 mil m de tableros de fibra? 192 mil toneladas de pulpa; y 1.279 millones de toneladas de papel de d i a r i o . En madera aserrada Latinoamerica se espera que sea auto-s u f i c i e n t e con un c i e r t o poteneial de exportacion a otras regiones d e f i c i t a r i a s del mundo. Estas necesidades futuras de importacion se han evaluado bajo e l supuesto de que todos los productores de America Latina destinaran su produccion a l abastecimiento de l a region. Por esto, las cantidades aque obtenidas solo corresponden a c i f r a s minimas que deberan modificarse e incrementarse en l a medida que algunos paises exporten extraregionalmente. A continuacion, en razon a l considerable impacto que ejerceran l a s exportaciones de C h i l e en e l mercado regional, v i se establecen tambien las posibilidades futuras de produc-cion de este p a i s . Debibo a l a existencia de La Asociacion Latinoamericana de Libre Comercio se concluye que l a s exportaciones forestales Chilenas ofreceran considerable y en c i e r t o s casos t o t a l competencia a los productos Canadienses en esta region. Habiendose determinado l a existencia de numerosos otros paises interesados en vender productos forestales en America Latina fue necesario establecer las c a r a c t e r i s t i c a s competitivas de l a produccion Canadiense. Asumiendo que las presentes condiciones en costos de transporte y produccion no sufran de cambios bruscos en e l corto plazo, Canada no tendra mayores problemas en competir favorablemente en America Latina contra los productos f o r e s t a l e s que puedan exportar Estados Unidos, l a Union Sovi e t i c a o los paises Escandinavos. Finalmente, se conluye, que existen excelentes oport-unidades para l a exportacion de productos forestales Canadienses a Latinoamerica, especialmente en e l area de papel de d i a r i o y otros productos de pulpa y papel. La r e a l i z -aci6n de este potencial se encuentra sujeta en todo caso, a l a condicion de que l a i n d u s t r i a f o r e s t a l de Canada emprenda una estrategia y p o l i t i c a comercial mas agresiva en toda l a region. v i i ACKNOWLEDGEMENTS The writer would like to acknowledge the continuous guidance and constructive criticism given to him during his entire stay at the University of British Columbia by his supervisor, Dr. D. Haley. His help, friendliness and en-couragement both within academic circles and outside i s greatly appreciated. Thanks are due to Dr. J . H. G. Smith who suggested the topic for this thesis and later, as did Mr. J. V. Thirgood, offered valuable advice which helped to improve i t s text. Financial assistance granted by the Faculty of Forestry, University of British Columbia i s gratefully acknowledged. Finally, the writer would also like to express his sincere gratitude for the unfailing support of his wife, Karin, throughout the entire study and for the considerable help received from a number of friends, too numerous to mention individually but equally appreciated. v i i i TABLE OF CONTENTS page ABSTRACT . . i RESlSUMElftF 0 0 O O O » 0 « a o O O 0 « O » 0 0 O * 0 0 e O 0 0 0 * * « ' 9 0 * 0 0 O O O « * O 0 0 Q « O 0 0 O * I V ACKNOWLEDGEMENTS , •. v i i TABLE OF CONTENTS v i i i LIST OF TABLES X V LIST OF MAPS xix SECTION I DESCRIPTION AND GENERAL OBJECTIVES OF STUDY. 1 SECTION II PHYSICAL AND SOCIO-ECONOMIC CHARACTERISTIC.. OF LATIN AMERICA 1 0 2 . 1 Physical C h a r a c t e r i s t i c s 1 3 2 . 1 . 1 Geography, Climate and Vegetation.... 1 3 2 . 1 . 2 P o s i t i o n of L a t i n America 2 3 2 . 2 C u l t u r a l C h a r a c t e r i s t i c s ................... 2 7 2 o 2 . 1 E a r l y Natives o o o o o e a o o o o o o . o « . a . . . . o 2 8 2 . 2 . 2 R a c i a l Composition 2 9 2 . 3 Introduction to the Economy of La t i n America 3 1 2 . 3 . 1 Roots of the Economy ................ 3 2 2 . 3 . 2 Factors of the Economy .............. 3 5 c ix page 2.4 Economic Characteristics of Latin America 37 2.4.1 Population Growth 38 2.4.2 Gross Domestic Product .„ 44 2.4.3 National Income 47 2.4.4 Per Capita Income 50 2.4.5 Imports and Exports 53 SECTION III FACTORS AFFECTING THE EXPANSION OF CANADIAN EXPORTS TO LATIN AMERICA 59 3.1 Canadian Detachment from the Inter-American 3.1.1 P o l i t i c a l Isolation ................. 63 3.1.2 Reduced Commerce with Latin America.. 70 3.1.3 Potential for Future Relationships... 72 3.2 Trade Patterns Followed by Less-Developed 3.2.1 Trends Imposed by Economic Growth ... 75 3.2.2 Trends Imposed by Bilateral 3.3 Economic Integration in Latin America 82 3.3.1 Economic Development and Comparative 3.3.2 The Theory of Integration 85 3.3.3 The Latin American Free Trade Association 89 x page 3.3.4 The Central American Common Market... 96 SECTION IV DEMAND FOR FOREST PRODUCTS IN LATIN AMERICA. 100 4.1 Forest Resources of L a t i n America 101 4.1.1 Economic C h a r a c t e r i s t i c s , Geographic D i s t r i b u t i o n and A c c e s s i b i l i t y of the Native Forests 104 4.1.2 Man-made forests 110 4.2 Forestry Trends i n L a t i n America 113 4.2.1 An Expanding Role for Forestry 115 4.2.2 The Forest Industry ................. 120 Sawmilling Industry 120 Wood-based Panel Industry 121 Pulp and Paper Industry 123 4.3 Consumption of Wood and Wood-based Products i n L a t i n America 124 4 o 3 » 1 S clVvTlWOOCl o « 0 o o o « a a « a e * « * e o o < » a o « « « o * o o 124 4.3.2 Wood-based Panel Products 127 4.3.3 Pulp and Paper 128 4.4 Prospects for Increasing Production and Meeting Demand i n L a t i n America 132 4.4.1 Raw Material Requirements 132 R OXlTlClWOOCl a o o o o e » o » a o 9 0 » e » a o t t o o o o o * e o X 3 5 I? IcLXltlcl't J.On£> o e a o * D o e o » * « » o o p » a o » » e o o » 136 x i page 4.4.2 Requirements and Potential Develop-ment of the Forest Industries to X 97 5 o « » o t t o a o o o « « « o e o < i o e e 0 * a e * D e e e e e c 137 FOJT©StlTy o o o « o o o * e o e * o o » e o * o » o « » * e o * o 140 Forestry Industry „ 141 Forest Services 141 In s t i t u t i o n s 141 Investments 141 4.4.3 Requirements for a Continued Develop-ment of the Forest Industries to 1985 143 ScLWirtX l l inCj o * o o e o « o « < > o « e o e o * o » a o o « e e 9 144 Wood-based Panels 145 P V l l p cHlCl PcipGjC o o « o e o o o o « o « e a o e o o o o « o 145 4 © 5 ScllcinGO O f TITCICIG • o o e o o o o o e o o o o o o o o o o v o o o o o o 146 4.5.1 Exports and Imports of I n d u s t r i a l Forest Products 146 SclWflWOOCl • o « o o o « 9 o o e o o o o o « » * o 0 o o o « e o » 147 Wood-based Panel Products 149 Pulp and Paper Products ............. 151 4.5.2 Value and Di r e c t i o n of Trade i n In d u s t r i a l Forest Products 153 Wood-based Panel Products 155 Pulp and Paper 156 x i i page 4.5.3 Summary of Net Imports and Future Prospects 157 SECTION V CHILE - A COMPETITOR FOR CANADIAN FOREST PRODUCTS IN LATIN AMERICA 164 5.1 Physical and Socio-Economic Characteristics of Chile , 167 5.1.1 Geography and Climate 167 5.1.2 Population 174 5.1.3 Principal Features of the Economy ... 176 5.1.4 Forestry and Economic Development ... 180 5.1.5 Outlook for the Economy 186 5.2 Forestry in Chile „ 188 5.2.1 Forest Resources and Forest Land .... 188 5.2.2 The Forest Industries „. 191 5.2.2.1 General 191 5.2.2.2 Complimentary Investments Needed for a Better Use of the Forest Areas 194 5.2.2.3 Land Ownership and Competit-ive Forestry Activity 195 5.2.2.4 Productive Capacity of the x i i i page 5.3 Forestry Development 199 5.3.1 P o s s i b i l i t i e s for Increasing Forest Production „ 199 5.3.1.1 Ecologic Condition..... 199 5.3.1.2 Costs 200 5.3.1.3 Demand for I n d u s t r i a l Forest 5.3.2 Possible Forestry Production and Exports 201 5.3.3 Implications for Canadian Imports i n L a t i n America 207 SECTION VI PROSPECTS FOR A MORE DYNAMIC MARKETING POLICY IN LATli^ AMERICA 9 * « * o e o o « « o * e * « e a o o o o e e o » * c > 212. 6.1 Significance of the L a t i n American Market to CSn&d& o o « o o « o 0 « « Q O O « o o e e * o o a e o o o o e e o « o o « e o « 211 6.2 Canada's Share of the L a t i n American Market for Forest Products 214 6.2.1 Canadian Exports of I n d u s t r i a l Forest Products to L a t i n America 214 SclWnWOOd o o « o o a o o o o o e « o o a 0 o « O 0 0 0 o e o e e 214 Wood-based Panel Products 215 Pulp and Paper 217 xiv page 6.2.2 Sources of Supply of Industrial Forest Products to Latin America .... 219 6.3 Competitive Character of the Canadian Forest Industry 226 6.4 Influence of LAFTA and CACOMA Tarif f Agree-ments on Canadian Exports to Latin America.. 239 6.4.1 Central American Common Market Ta r i f f Agreements 241 6.4.2 Latin American Free Trade Association Ta r i f f Agreements 244 SECTION VII CONCLUSIONS 253 BIBLIOGRAPHY 2 6 4 APPENDIX I 288 X V LIST OF TABLES Table page 1 L a t i n Americas Total Population 1950-1980 40 2 L a t i n Americas To t a l Population and Growth Rates as Compared to the United States and Canada i n 1980 ... 41 3 Estimates of Gross Domestic Product i n L a t i n America and other Areas 1963, 1965, 1966 46 4 Estimates of National Income i n L a t i n America and other Areas 1963, 1965, 1966 49 5 Estimates of Per Capita Income i n L a t i n America and other Areas 1963, 1965, 1966 52 6 L a t i n Americas International Trade 1965-1968 . 56 7 Canadas Exports to the United States and L a t i n America i n 1968 71 8 L a t i n Americas Forest Land and Useable Forests .... 105 9 L a t i n Americas Growing Stock of Forests, Total Volume of a l l Forest Areas (Including Non-Commercial Species) 107 10 L a t i n Americas Forest Planting by Country I l l 11 L a t i n Americas Apparent Consumption of Sawnwood and Demand Forecasts 126 12 L a t i n Americas Apparent Consumption of Wood-based Panel Products and Demand Forecasts 127 13 L a t i n Americas Apparent consumption of Paper and Paperboard, and Future Prospects 129 14 L a t i n Americas Demand Projections for Paper and Paperboard by Countries 1975 and 1985 131 15 Regional Production of Sawnwood, Plywood and Veneer, P a r t i c l e board, and Fibre board i n 1975 138 xv i Table page 16 Regional Production of Pulp, Paper, and Paperboard i n 1975 139 17 L a t i n Americas Exports and Imports of Sawnwood by Major Countries i n 1965 148 18 L a t i n Americas Exports and Imports of Wood-based Panel Products by Major Countries i n 1965 150 19 L a t i n America? Exports and Imports of Pulp, Paper and Paperboard i n 1965 152 20 L a t i n America; Total Trade i n Sawnwood (millions of Dollars) 154 21 L a t i n Americas To t a l Trade i n Wood-based Panel Products (millions of Dollars) 154 22 L a t i n Americas Total Trade i n Pulp and Paper (millions of Dollars) 158 23 L a t i n Americas Summary of Sawnwood Imports 159 24 L a t i n Americas Summary of Wood-based Panel Products Imports o 160 25 L a t i n Americas Summary of Pulp and Paper Imports .. 162 26 Chiles Population Estimates for the Period 1952 -1970 175 27 Chiles Exchange Rates for the Period 1961-1968 (Escudos per U.S. Dollar) 180 28 Chiles Indices of Manufacturing Production by Com-modity Groups 1964-1966 (1963=100) 183 29 Estimated Demand for Raw Material, Production Capa-c i t y and Annual Production of the Chilean Forest Industries for the Year 1964 197 30 Projection of the Demand for Sawnwood i n Chi l e to 1989 202 Table x v i i page 31 Chiles Demand and Supply of Radiata pine products for the Period 1965-1969 202 32 Chiles Estimates of Total Volumes and Useable Volumes for the Period 1965-1985, based on a Reforest-ation Program of 50,000 hectares a year ............ 204 33 Chiles Potential Radiata Pine Production for the Period 1964-1989 (Based on a Reforestation Program ot 50,000 Hectares a Year) 206 34 Chiles Exportable Surplus for the Period 1965-1989 (1) (Radiata Pine Production) 206 35 Chiles Value of the Exportable Surplus for the Period 1965-1989 (2) (Radiata Pine Production) 207 36 Canadas Exports of Sawnwood to La t i n America and the Rest of the World 1960-1967 215 37 Canadas Exports of Wood-based Panel Products to La t i n America and to the Rest of the World 1960-1967 216 38 Canadas Exports of Pulp and Paper to L a t i n America and to the Rest of the World 1960-1970 218 39 Major Suppliers of Sawnwood to L a t i n America 1967 .. 220 40 Major Suppliers of Wood-based Panel Products to L a t i n America 1967 222 41 Major Suppliers of Pulp and Paper Products to L a t i n America 1967 225 42 Cost of Pulpwood at M i l l and Manufacturing Costs of Sulphate pulp i n D i f f e r e n t Forest Regions of the World i n 1966 232 43 Central American Common Market External T a r i f f for Sawnwood 241 44 Central American Common Market External T a r i f f for Wood-based Panel Products 242 45 Central American Common Market External T a r i f f for Pulp, Paper and Paperboard 243 Table x v i i i page 46 Latin American Free Trade Association Tar i f f Agreements on Sawnwood 246 47 Latin American Free Trade Association Tar i f f Agree-ments on Wood-based Panel Products 248 48 Latin American Free Trade Association T a r i f f Agree-ments on Pulp and Paper 249 xix LIST OF MAPS Map page 1 Physical Map of Latin America 18 2 Latin America Today . 19 3 Rainfall Map of Latin America 21 4 Vegetation Map of Latin America 24 5 The Hemisphere of Latin America „ 25 6 Economic Integration in Latin America 92 7 South America (Chile) 169 8 Chile 171 9 Distribution of the Native Forests and Exotic Plantations in Chile 192 SECTION I. DESCRIPTION AND GENERAL OBJECTIVES OF STUDY George Washington i s quoted as saying, on the occasion of h i s farewell to the American people, The rule of conduct for us i n regard to foreign nations i s , i n extending our commercial r e l a t i o n s , to have with them as l i t t l e p o l i t i c a l connection as possible. So far as we have already formed engage-ments, l e t them be f u l f i l l e d with perfect good f a i t h . Here l e t us stop. This was the attitude of the American nation towards foreign trade for almost a century. However, the time of Washington i s not our time. Progress has marked a l l industry and the domestic past must give way to the int e r n a t i o n a l future. (Allen, 1927). In many ways Canada i s t i e d economically and c u l t u r a l l y to the United States. Variations i n American markets greatly a f f e c t Canada's industry. Despite the fact that these r e l a -tions are expected to i n t e n s i f y i n the future, even to the point of creating a common market, Canada should seek a great-er d i v e r s i f i c a t i o n of i t s foreign markets. In common language, d i v e r s i f i c a t i o n i n trade, both i n the number of commodities and markets, means security against unexpected f l u c t u a t i o n s . 2 Price uncertainties and variations i n demands are minimized through an increase of the parties involved i n trade. Apart from Canada's i n t e r e s t i n the United States, Europe, and a recent involvement i n Japan, i t s economic r e l a t i o n s e x i s t i n g with other regions of the world are quite small. Of a l l the major areas, L a t i n America i s where least i n t e r e s t has been demonstrated, despite i t s proximity, population growth, and p o t e n t i a l economic development. Despite the recurrent p o l i t i c a l and commercial i s o l a t i o n i n which Canada has placed i t s e l f i n r e l a t i o n to the Inter-American System, a c e r t a i n amount of trade has always existed between the two regions. This trade, however, has not follow-ed the growth trends experienced by t o t a l Canadian trade, but r e l a t i v e l y has tended to remain stationary between two to three percent of t o t a l trade. Given the r i s e i n trade L a t i n America has experienced i n recent years one can only assume that other parties have been increasing t h e i r influence i n the region. Canada i s known to be competing favourably i n the United States and European markets, therefore, i t should also enjoy favourable trade r e l a t i o n s h i p s with L a t i n America. After a l l , shipping 3 by boat i s not generally a major component of t o t a l cost, and besides, a great number of L a t i n American countries are as near, or perhaps closer to Canada than to Europe. Lack of i n t e r e s t i s , perhaps^ a fundamental factor influencing the present state of a f f a i r s between Canada and L a t i n America. Carrying on foreign trade i s a more complicated a c t i v i t y than domestic transactions. Fundamentally, however, there i s no difference between inter n a t i o n a l , or what i s often termed foreign trade, and domestic trade. Under normal conditions both represent a private merchandising a c t i v i t y which i s carried on for p r o f i t and consists of the purchase and sale of commodities. In international trade, the objects of exchange are sent from one country to another, they usually cover greater distances than commodities moved i n domestic trade, and on t h e i r way to and from markets they must cross p o l i t i c a l boundaries of states. The l e v e l of commercial a c t i v i t y i n general, i s a function of a number of v a r i a b l e s . The greater the knowledge of these variables, the lesser w i l l be the uncertainties and r i s k s involved i n trading with one p a r t i c u l a r party. Among others, these variables include the habits and tastes of the people concerned; t h e i r language and business customs? 4 differences i n currency, weights and measures? import duties and customs regulations? fl u c t u a t i n g foreign exchanges and many other d e t a i l s peculiar to export-import financing. Unfortunately, Canadians appear to know very l i t t l e about L a t i n America, i t has always been easier because of language and culture, for them to look to Europe and to the United States as t h e i r p r i n c i p a l export markets, and not to Latin America. Their general knowledge of the former regions has t r a d i t i o n a l l y been more advanced than that of the l a t t e r Given the influence L a t i n America i s presently experiencing i n the economy of the world, and i t s growing importance i n the eyes of France, Germany, Japan, and the United States ( a l l great exporters), only sheer misunderstanding of the region's a f f a i r s can e a s i l y explain Canadian detachment. In other words, Canadians are not interested i n increasing r e l a -tions with L a t i n American countries because they do not know they could, and should, be interested i n doing so. This thesis, working at both a general and specialized l e v e l , represents an e f f o r t to introduce L a t i n America to the interested sectors i n the Canadian economy, with p a r t i -cular emphasis on i t s pot e n t i a l as a market for the products of the Canadian wood-based i n d u s t r i e s . A number of questions 5 are explored, but probably the most important ones ares Where can Canada s e l l i t s extra forestry production south of the border of the United States and Mexico? Should Canada increase i t s promotion of wood products consumption i n L a t i n America? How large i s the L a t i n American market for imports of fo r e s t r y related commodities? How important i s Chilean competition i n L a t i n America? The importance of these questions i s better appreciated i f we consider that Canada manufactures wood and wood-based products mainly for export. In 1969 t o t a l forest production (Gross Value) i s estimated to have amounted to more than C$ 6.5 b i l l i o n , of which roughly 35% was exported to foreign markets, these being p r i n c i p a l l y , the United States, the United Kingdom, and Japan. The relevance of international trade i n forest products (almost e n t i r e l y i n exports) to the Canadian wood using industry i s even better established by looking at i t s most developed sector, pulp, paper, and paper board products. During 1968, gross production of pulp and paper m i l l s amounted to C$ 2.455 b i l l i o n . Exports of these products were made i n the order of C$ 1.729 b i l l i o n (70.4%). With a gross value of t o t a l domestic exports of C$ 13.22 b i l l i o n , the r a t i o of pulp and paper exports to t o t a l domes-t i c exports was 13.08%. 6 Therefore, although Canada should maintain and expand i t s major overseas markets, i t i s quite possible, that t h i s might not be enough i n the years to come. E f f o r t s should also be made i n other regions of the world. Among these and because of i t s proximity i s L a t i n America, where c a r e f u l con-sideration should be given to serving the p o t e n t i a l l y great but presently r e s t r i c t e d demand of i t s vastly increased popu-l a t i o n . Canada should not forget that by 1980, L a t i n America w i l l hold more than 364 m i l l i o n people, t h i s i s 100 m i l l i o n people more than the population of the United States and Canada combined. I t i s for these reasons that I have selected L a t i n America as the f i e l d of my work, and by pointing out some of the s p e c i f i c p o s s i b i l i t i e s for the expansion i n sales of f o r -estry r e l a t e d commodities, I hope I may evoke both i n the Canadian manufacturer and others who read these pages, a desire for a greater involvement i n the area. Perhaps everything that should have been said has not been mentioned', nevertheless, i t i s also hoped by the author that these areas which at times have purposely remained un-touched w i l l serve as encouragement for others to work i n the f i e l d . Among the most important ones should be mentioned the 7 potential for s e l l i n g Canadian forestry equipment and machinery i n L a t i n America, and the p o s s i b i l i t y that some wood-based industries might advantageously export both c a p i t a l and tech-nological s k i l l s to the area. This i s s p e c i a l l y true i n the pulp and paper sector where, undoubtedly, there are very good prospects for investments. The creation of mixed L a t i n American-Canadian corporations could serve the purpose of i n -creasing the wealth of the industry and help gain access to markets heavily protected by t a r i f f s and customs duties. Section I acquaints the reader with the methods and goals of the t h e s i s . In Section II a general geographic, c u l t u r a l , and socio-economic description of L a t i n America i s presented. Some confusion often surrounds the term L a t i n America, and i t i s d i f f i c u l t to say exactly what i s L a t i n America today, what i s i t s r e l a t i v e importance, and whether i t i s a suitable e n t i t y for economic a n a l y s i s . The basic information for the whole area i s summarized i n four subsections. Because of the relevance of a number of factors to Canadian trade increases with L a t i n America, Section III i s devoted to t h e i r a p p r a i s a l . These factors are grouped under 8 three headings; Canadian detachment from the Inter-American System? trade patterns followed by underdeveloped countries; and economic integration i n L a t i n America. Having analyzed a l l the conditions and factors relevant to the goals of the thesis, Section IV determines the t o t a l demand for forest products i n L a t i n America. Gross and net requirements are established i n r e l a t i o n to the forest r e -sources of the region, the present and projected i n d u s t r i a l capacity to work these resources, and the future consumption of wood and wood-based products. The balance of trade i s obtained mainly from the evaluation of the import and export capacities of the i n d i v i d u a l countries. Based on the fact that Chile i s , and w i l l be for a number of years, the only L a t i n American country i n a position to produce net exports of forest products, Section V reviews the p o t e n t i a l of t h i s country. Both the economic background and future production p o s s i b i l i t i e s are presented. From these, the prospects for the forest industries are obtained. Then, having established projections for domestic consumption, i t i s possible to estimate the exportable surplus which could be offered i n L a t i n America. 9 Section VI surveys the p o t e n t i a l for a more dynamic trade strategy i n L a t i n America. The recent trade patterns i n Canadian forest products exports are presented, and the p r i n c i p a l suppliers of these products to the region pointed out. The purpose of t h i s was to determine what countries were the p r i n c i p a l competitors of Canada i n the region which, added to the knowledge of the competitive character of the Canadian forest industry, permitted the author to evaluate the p o t e n t i a l for a sales expansion. F i n a l l y , i n Section VII conclusions are drawn and the most in t e r e s t i n g ideas summarized. 10 SECTION I I . PHYSICAL AND SOCIO-ECONOMIC CHARACTERISTICS OF  LATIN AMERICA La t i n America i s widely, though not universally, accepted to be everywhere i n the American Continent south of the United States. The term i s a general one applied to the twenty independent republics of the New World with a La t i n background. Half of these countries are on the mainland of South America. Increasingly, however, within the general expression "Latin America" are included the former colonies of the European States i n the hemisphere, that iss Jamaica, Trinidad, B r i t i s h Honduras, B r i t i s h , Dutch (Surinam) and French Guianas, the Lesser A n t i l l e s , and so on. Puerto Rico, a Spanish colony for four centuries but now a protectorate of the United States, may also be included under the term La t i n America. Since several of the Caribbean islands often referred to as the West Indies have recently become independent and are seeking admission to regional organizations, the problem of d e l i m i t a t i o n of the area i s becoming increasingly complex and can no longer be considered purely academic * 11 The term L a t i n America does not s a t i s f y everyone. Those who think i n terms of Iberian background prefer Ibero-America or Hispanic America. In r e f e r r i n g to some countries of high Indian population, such as Paraguay, B o l i v i a , Peru, Ecuador, the Central American States, and Mexico, foreigners often use the expression Indo-America. Just as some writers designate the United States as Anglo-America, others use the expressions Spanish America and Portuguese America to refer to t h i s region. Nevertheless, for the sake of convenience i n r e f e r r i n g to t h i s d i s t i n c t area of the world, the term La t i n America i s both accurate and simple. L a t i n America covers an area of 20,541,000 km2 (Cole, 1965), nearly a f i f t h of the land surface of the world. In 1961 i t had approximately 217,000,000 inhabitants, about 7% of the world t o t a l , but recently the population has been growing at a faster rate than i n any other region, and there-fore, the figures have increased considerably. Although large, and long from end to end, L a t i n America has cert a i n features that at least give to i t c u l t u r a l unity. Spanish or Portuguese (in Br a z i l ) i s the o f f i c i a l language of almost 95% of the people. In theory the Roman Catholic r e l i g i o n i s v i r t u a l l y universal? i n practice i t i s not adhered 12 to everywhere i n a pure form but at least quite frequently i s the only r e l i g i o n organized throughout the region. In r e a l i t y , apparent c u l t u r a l uniformity has been superimposed upon very d i f f e r e n t Indian and Negro t r a d i t i o n s , preserved p a r t i c u l a r l y i n r u r a l areas. When r e f e r r i n g to names and places, L a t i n Americans make a point i n that, l i k e the people of the United States, they are also American and that no patent i s held on that term. South Americans often re f e r to United States c i t i z e n s as North Americans, but t h i s i s sometimes resented by Canadians and by L a t i n Americans on the North American continent. United States c i t i z e n s are increasingly being referr e d to, e s p e c i a l l y by the Spanish Americans, as Estadounidenses ( l i t e r a l l y translated "United-statesers") . For the purpose of t h i s study unless otherwise stated, i t should be understood that L a t i n America consists of a l l the countries i n the Americas south of the border between the United States and Mexico. 13 2.1 Physical C h a r a c t e r i s t i c s 2-1.1 Georgraphy, Climate, and Vegetation L a t i n America extends from the Rio Grande, the Mexican border of the United States, down to Cape Horn, only 1100 km from Ant a r t i c a (Benham and Holley, 1964). Geographically, La t i n America i s an exceedingly diverse area. One-fourth i s mountainous, and an equal area i s covered by t r o p i c a l r a i n forests, another 10% i s desert or semi-arid. Less than 40% i s a t t r a c t i v e to human habitation (Schneider and Kingsbury, 1965) . In spite of the existence of four of the world's major r i v e r systems—the Amazon, La Plata, Orinoco, and Magdalena— the topography of most of South America i s generally a ba r r i e r to transportation and commerce within countries, as well as between neighboring states. The p o l i t i c a l borders among Lati n American countries generally correspond to topographical b a r r i e r s such as the Andes, and other mountain ranges. Only i n a few cases do national borders pass through heavily s e t t l e d or even s i g n i f i c a n t l y developed areas, a s i t u a t i o n which s t i l l induces among the Republics of the region an excessive Nation-alism and very frequently l i t t l e regard for neighbors' problems. With the implementation of new technology and the advance of 14 progress, better communication and transportation systems have been established, thus reversing t h i s trend and br i n g -ing the countries closer together. The LAFTA (Latin American Free Trade Association) treaty and the L a t i n American Common Market towards which most of the countries are eagerly working, proves t h i s point. The surface features and geologic structures that are c h a r a c t e r i s t i c of the Western United States proceed southward into L a t i n America as far as the Isthmus of Tehuantepec i n Mexico. The landforms, however, are interrupted just south of Mexico City, at about 20° north l a t i t u d e where a great chain of active volcanoes runs east and west from the P a c i f i c to the Gulf of Mexico. Southeast of the Isthmus of Tehuantepec there i s a zone of east-west geologic structures which goes from the countries of Central America under the Caribbean sea to Cuba, Jamaica, Hispaniola, Puerto Rico, and the V i r g i n Islands. From Nicaragua a number of curving volcanic axes extend southeastward to j o i n the South American Continent i n Panama. South America, with an area of approximately 17,540,000 2 km i s the fourth largest continent i n the world and almost twice the size of Europe. In northern and western South America for almost 6,500 km, from the shores of the Caribbean in Venezuela to the Southern extreme of Chile i n T i e r r a del Fuego, the Andes stand as a barr i e r and major c h a r a c t e r i s t i c of the region. Compared to the Rocky Mountains they are much narrower but also much higher. Many passes across them are above 3,000 meters, except along the Peruvian and Ecuadorian border and i n the south beyond la t i t u d e 40°. The highest peak i n the Western Hemisphere i s to be found i n the Andes, t h i s i s Mount Aconcagua (7,000m) and there are also many other peaks reaching heights of more than 6,000 m. In eastern South America, from Venezuela to Patagonia, there i s a h i l l y upland area composed of a mixture of rounded h i l l s surmounted here and there by plateaus developed on over-ly i n g sedimentary rocks. Standing above t h i s general upland of h i l l s and plateaus there exists a few massive mountain groups, similar to the Great Smokies i n Southeastern United States. The highest of these h i l l s , located just inland from Rio de Janeiro, i s under 3,500 m i n elevation. These h i l l s , plateaus, and low mountains cover a major portion of the area of B r a z i l . F i n a l l y , one finds i n South America the lowland plains which occupy a smaller proportion of the t o t a l area of the 16 continent than they do i n the case of North America. These plains are drained by three great r i v e r systems: the Orinoco, i n eastern Colombia and Venezuela; the Amazon and i t s t r i b u -t a r i e s ; and the Paraguay-Parana-Plata. The Orinoco P l a i n slopes gently from the base of the Andes to the r i v e r of the same name. This p l a i n i s inundated over vast areas i n the rainy season ( A p r i l to October), and i s dry and dusty during the dry season. The Amazon p l a i n i s peculiar i n that i t i s widest at the base of the Andes and narrows down to a mere ribbon of floodplain when reaching the A t l a n t i c Ocean. The gradient of the Amazon i s very lows at Manaus, B r a z i l miles from the sea, where the Rio Negro joins the Amazon, the main stream i s only about 100 feet above sea l e v e l . Ocean steamers can ascend the r i v e r to Iquitos, i n eastern Peru, Yet the main t r i b u -t a r i e s from the south are a l l interrupted by f a l l s and rapids as they descend from the B r a z i l i a n Plateau. The Amazon i s one of the greatest waterways of the world and can be a de-c i s i v e factor i n the development of Peru, Ecuador, Columbia, and B r a z i l . The p o s s i b i l i t i e s for transporting raw materials and manufactured goods at a. low cost are unlimited, and at present the development of the area has been only r e s t r i c t e d by the very low-density of population that e x i s t s . At a similar l e v e l of importance further south, the Paraguay-Parana-Plata water system drains the Chaco region of eastern B o l i v i a and Paraguay? an almost featureless p l a i n sloping from the Andes i t i s severely inundated during the rainy season. This vast l e v e l surface reaches the sea south east of Buenos Aires i n the Humid Temperate Pampa of Argentina, area which i s one of the most r i c h l y endowed a g r i c u l t u r a l regions i n the world. The importance of the Andes Chain as well as of the Amazon, Paraguay-Parana-Plata and Orinoco plains can be better distinguished i n Map 1. I f a p o l i t i c a l reference i s desired, Map 2 r e l a t e s the main systems to the countries of L a t i n America. Climate C l i m a t i c a l l y most of L a t i n America l i e s within the t r o p i c s . Uruguay i s the only country that i s wholly located within a temperate zone. Argentina, Chile, Mexico, and Paraguay, although they also extend into a temperate area, have considerable areas within t r o p i c a l and subtropical c l i -mates. An important factor a f f e c t i n g the climate i s the high a l t i t u d e of much of the area. Because of t h i s , r e l a t i v e l y few L a t i n Americans l i v e i n r e a l l y hot t r o p i c a l climates. In the Map 1 18 Reproduced from the 1967 Encyclopedia Americana by permission of the publishers, Grolier Incorporated. 19 Map 2 LATIN AMERICA TODAY /•Belize « » ,'™l*5."'ii««.'f''° as^ tSSrwffi ' A T I A N T / C O C E A N Guatcmalo PUERTO RICO San J u a n i ftGUADELOUPE (Fr.) •V MARTINIQUE (ff.) .CUPACAO Neth.) Reproduced from the 1967 Encyclopedia Americana by permission of the publishers, Grolier Incorporated. 20 highlands above 1,700 m, temperatures generally average below 18°C. Quito, the c a p i t a l of Ecuador situated almost on the equator but at an a l t i t u d e of over 3,000 m, i s un-comfortably cool and i t r e g i s t e r s an average temperature of 13°C during the warmest month of the year (Schneider and Kingsbury, 1965)„ The wide v a r i a t i o n of r a i n f a l l that e x i s t s i n Latin America, makes i t d i f f i c u l t to say how much water annually each part of the region gets. Nevertheless, for the purposes of the present study, Map 3 gives an o v e r a l l approximation of the s i t u a t i o n . Because of the v a r i a t i o n i n p r e c i p i t a t i o n within the same area due to changes i n seasons, two maps have been given, r e l a t i n g r a i n f a l l both to Summer and Winter. Vegetation The dry lands are covered only with scattered growth of low, drought-resistant plants, which form the climax vegetation i n parts of Mexico, Chile, and Argentina, along the north coast of Colombia and Venezuela and i n western Central America. Despite the low p r e c i p i t a t i o n i n these a r i d areas, which make them inhospitable for tree growth, recent studies suggest that a forest could be established where sea mists Map 3 Reproduced from the 1967 Encyclopedia Americana by permission of the publishers, Grolier Incorporated. 22 might provide the necessary water. The more in t e r e s t i n g area for these experiments can be found i n northern Chile where the well-known "Camanchaca" (thick fog which almost year-round covers the f o o t h i l l s of the Coast Range) has pro-vided water through condensation nets for a f f o r e s t a t i o n . After a couple of years, the trees themselves can capture t h e i r own water requirements. In the Humid Pampa of Argentina, large parts of southern B r a z i l , and much of Uruguay t a l l grasses cover the land. T r o p i c a l savannas, or grasslands, are also extensively developed i n much of Venezuela and southeastern Colombia (a c l a s s i c example being i n the Llanos, the vast grass plains north of the Orinoco River), as well as i n eastern B o l i v i a , i n Paraguay, and i n the i n t e r i o r of B r a z i l ( i n parts of the Mato Grosso) . Some of these grasslands may be natural phenomena; others are thought to have been induced by the a c t i v i t i e s of man within h i s t o r i c times, p r i n c i p a l l y by periodic burning of the exi s t i n g f o r e s t s . Therefore, i t i s not d i f f i c u l t to understand why i t i s widely thought by L a t i n American foresters that within these areas there l i e s , together with c a t t l e , a promising potential for t r o p i c a l f o r e s t r y . > Where r a i n f a l l i s heavy (70 to 100 inches) and well d i s t r i b u t e d throughout the year and the temperature i s always high (21° to 30° C ) , the t r o p i c a l r a i n forest, grows i d e a l l y . This vegetation complex, indicated i n Map 4, i s t y p i c a l of the Amazon Basin, of the Southern part of the Orinoco Basin, and of the extensive areas of the Parana Basin, as well as of the windward slopes of many low mountainous areas with s u f f i c i e n t p r e c i p i t a t i o n . A forest of mixed conifers and broadleaf species i s found i n southern B r a z i l , southern Chile, and i n the higher a l t i t u d e s of cer t a i n sectors of Central America and the West Indian i s l a n d s . 2.1.2 Position of L a t i n America Map 5 shows those parts of the world which are near-est to L a t i n America. As can be appreciated from t h i s map, Mexico, Central America, and the Caribbean Islands l i e close to the United States, while B r a z i l i s f a i r l y near to Western A f r i c a and Southwest Europe. I t i s noticeable also that most of L a t i n America i s separated by vast oceans from the r e s t of the world, a condition which has induced most of the countries to look towards the sea with great i n t e r e s t . The merchant f l e e t s of L a t i n America have h i s t o r i c a l l y been c a l l e d to play an important r o l e i n the development of the 24 Map 4 Reproduced from the 1967 Encyclopedia Americana by permission of the publishers, Grolier Incorporated. Map 5 THE HEMISPHERE OF LATIN AMERICA B Bogota BA Buenos Aires N o r ' t h l P o l t Source: Cole, 1965 2 6 region, and there i s much evidence that t h i s r o l e w i l l be increased i n the future. The remoteness of L a t i n America compared to other populated areas of the world has been a decisive factor a f f e c t i n g the lack of concern i t has often demonstrated t o -wards world a f f a i r s . This behaviour has changed r a d i c a l l y since the Cuban revolution and the communist takeover of that country, events which have suddenly drawn La t i n America into d i r e c t contact with other parts of the world (Cole, 1965) . From Map 5 i t can be also seen that no place i n L a t i n America i s less than 3,500 km from Europe, whereas more than h a l f of i t l i e s at less than t h i s distance from the United States. Canada's proximity to L a t i n America i s also of i n t e r e s t , and although t h i s factor has not influenced greatly i n the past i t s r e l a t i o n s with the region, i t should be kept i n mind as an advantage for future trade. The merg-ing trends which can be sensed at present i n most countries of L a t i n America w i l l surely have an important bearing upon the region's development. A Common Market of the size of L a t i n America, i s something neither Canada nor any other country of such proximity can afford to overlook. Mexico, 27 Central America and most of the West Indies are at least three times as far from Europe as from the United States or Canada. S t r a t e g i c a l l y and p o l i t i c a l l y , the U.S. has been much more concerned during the present century about the countries closest to i t i n L a t i n America, a c h a r a c t e r i s t i c which, ac-cording to Cole (1965), i s r e f l e c t e d p a r t i a l l y i n the amount of trade. Trade has been found to increase with proximity to the United States. In contrast, Cole (1965), also found that investment and aid from the U.S. to L a t i n America appear to be dis t r i b u t e d without being influenced by distance, varying only with l o c a l conditions, needs, and p r i o r i t i e s . 2 .2 C u l t u r a l C h a r a c t e r i s t i c s With the exception of the geographical features, no-thing distinguishes L a t i n America more from the res t of the world than i t s people? t h e i r diverse ethnic backgrounds and c h a r a c t e r i s t i c s o c i a l behaviour, form the essence of the image foreigners have of the region. Therefore, no important analysis of L a t i n America should be made without serious con-sideration of the character of i t s inhabitants. Overlooking t h i s factor can frequently lead to important misunderstandings i n a given problem, with the natural consequences of error being r e f l e c t e d i n trends and prospects made for the area. 2 3 2.2.1 Ea r l y Natives How early man entered the American Continent i s yet unknown, and though opinions d i f f e r widely, the most widely accepted view i s that the f i r s t humans came from East As i a some ten thousand years ago. The early American man was pre-dominantly a hunter and gatherer, whose techniques were rather of a modest range. The wheel was unknown to him and he used very few metal tools i n h i s work. With time these people changed, and more sophisticated cultures developed to the date when Christopher Columbus came to America. In what i s today L a t i n America there f l o u r i s h -ed the Mayas (Mexico and parts of Central America) developing complicated calendars and simple writing; farther south, i n the Andes of South America, the Incas formed an advanced c i v i l i z a t i o n with a remarkable architecture and sophisticated urban l i f e . With the coming of the European to America, the whole environment i n which these ancient cultures had developed began to change, and the same happened with the s o c i a l patterns and ethnology of the region. Today, c u l t u r a l t r a i t s of the Indians, European, and North American whites, A s i a t i c s , Negroes, and mixed peoples have been combined i n various proportions to give the in d i v i d u a l areas of La t i n America the v a r i e t i e s of culture which di s t i n g u i s h them from the res t of Western c i v i l i z a t i o n . 2.2.2 Racia l Composition Spanish America, of course, was colonized by Spain, and B r a z i l by Portugal, and apart from Negroes from A f r i c a few but Spaniards and Portuguese entered the colonies during the three centuries of c o l o n i a l r u l e (Benham and Holley, 1964) This h i s t o r i c a l domination i s today r e f l e c t e d i n the fact that Spanish i s the language of the region, except i n B r a z i l where i t i s Portuguese. During the hundred years before World War II over 12 m i l l i o n immigrants entered L a t i n America, though a few did not stay, the great majority settled down. Between six and seven m i l l i o n went to Argentina and most of the r e s t to southern B r a z i l . Over four m i l l i o n came from Spain, and two m i l l i o n from Portugal. About h a l f of the t o t a l , that i s , six m i l l i o n were composed by other Europeans including I t a l i a n s , Germans, French, B r i t i s h , Swiss, Yugoslavs, and a number of Asians from the Near Orient (Benham and Holley, 1965) . 30 The r a c i a l composition of L a t i n America i s at present extremely varied. This variety i s demonstrated by the follow-ing examples? Argentina, Chile, and Uruguay are predominantly white. Costa Rica, where most of the o r i g i n a l native popu-l a t i o n succumbed to the diseases of the Old World brqught by the conquerors, i s also predominantly white (Cole, 1965) .. H a i t i i s almost completely Negro, and both i n the Dominican Republic and i n Cuba there e x i s t s an important proportion of Negro blood as well as Indian and White. In other countries of South America such as B r a z i l , Panama, and Jamaica, there are a considerable number of Negroes and Mullatoes, the des-cendants of Negroes imported to work on the sugar plantations (Benham and Holley, 1965). In most countries there has been a great deal of i n t e r -breeding, e s p e c i a l l y between the white s e t t l e r s and the native Indians. The r e s u l t of t h i s combination i s the Mestizo, which i n turn has l a r g e l y combined again with the more recent European immigrants to the point where i t i s d i f f i c u l t today to say how much Indian blood they carry. An important factor i s that l i t t l e r a c i a l prejudice exists i n most of the region, and people of d i f f e r e n t races and mixed blood work together i n harmony. Occasionally one finds differences i n s o c i a l and economic behaviour between regions, which apparently have 31 no d i r e c t explanation. This can often be related to the exi s t i n g variations i n ethnology and s o c i a l background, variations which frequently are not noticeable to v i s i t o r s . 2 .3 Introduction to the Economy of L a t i n America L a t i n American economic i n s t i t u t i o n s bear the imprint of three centuries of c o l o n i a l status under the tutelage of Spain, Portugal or France. This can be e s p e c i a l l y i d e n t i f i e d i n such matters as the landholding system, surface and sub-s o i l property r i g h t s , crops, livestock, farm practices, f i s c a l p o l i c i e s , and the scale of s o c i a l values or occupational prestige. Although each country has i t s own separate and d i s t i n c t national c h a r a c t e r i s t i c s , taken together they have a common c o l o n i a l background, a common h i s t o r y of related movements for independance, a p a r a l l e l development of national i n s t i t u -tions and a similar h i s t o r y of republican forms of government (with a few instances of monarchical governments) . The people react frequently according to a similar pattern and despite some c u l t u r a l or s o c i a l differences they are united by a language with a common root, a common psychology and way of l i f e , a predominant common r e l i g i o n , a mutual respect for one another, an i n c l i n a t i o n to cooperate i n inte r n a t i o n a l a f f a i r s , '32 and a certa i n s o l i d a r i t y and uniformity i n foreign policy, induced at times by a common suspicion of the great neighbor to the north, the United States. 2.3.1 Roots of the Economy Potential gain of quick wealth from precious stones and metals was the i n i t i a l incentive for the conquerors who settled the land, but, shortly a f t e r , ships loaded with laborers and seeds from the Old World made possible intensive a g r i c u l t u r a l use of the newly discovered t e r r i t o r i e s . By the end of the c o l o n i a l period, a g r i c u l t u r a l exports from the area greatly exceeded any other type of production, with the exception of New Spain (today roughly represented by Mexico) which was heavily ex p l o i t i n g i t s gold deposits. The introduction of domesticated animals, which were p r a c t i c a l l y non-existent i n Latin America, did more to ensure the success of European settlement and further development of the region than any other f a c t o r . Cattle multiplied rap-i d l y , providing food, raw materials, and traction? horses gave the necessary superiority to the white men who were o r i g -i n a l l y outnumbered by the Indian t r i b e s at war . I t was the po l i c y of European c o l o n i a l powers and of Spain i n p a r t i c u l a r to discourage manufacturing i n the colonies of the New World. Therefore, manufactured commodit-ies made i n Spain, or elsewhere i n Europe, could be sent through S e v i l l e or Cadiz to be sold at very p r o f i t a b l e prices i n America. Competition from Asian manufactured goods such as s i l k was prevented and only one galleon a year was allowed between Manila i n the Philippines and Acapulco i n Mexico (Cole, 1965? Schneider, 1965). Although the c o l o n i a l system envisaged a monopoly of the c o l o n i a l markets by Spanish or Portuguese manufacturers, the distance from Europe and the cost of transport early gave r i s e to manufacturing industries i n what i s today Latin America. Thus we find that a r t i c l e s produced i n Mexico during the c o l o n i a l period included soap, leather and leather a r t i c l e s , cotton and woolen goods, wooden a r t i c l e s , and s i l v e r and gold ware. Tobacco and gunpowder manufacture were ro y a l monopolies, but sugar m i l l s were quickly established by the private sector. A similar thing happened with wine produc-t i o n i n Chile, Peru, and Mexico, despite recurring attempts made by the Iberian producers to discourage L a t i n American production. 34 Another feature of importance and which can s t i l l be traced to the present day was the tendency during the colon-i a l period to work an area i n t e n s i v e l y for a p a r t i c u l a r pro-duct and then abandon i t . This practice of s h i f t i n g a g r i -culture i s la r g e l y to be blamed for destruction of a great part of the forest resources. Quite frequently f i r e was the only practicable way of cleaning up the land, but unfortunate-l y once started they often devastated a much larger area than o r i g i n a l l y envisaged. Following t h i s destruction erosion would sometimes r u i n the s o i l permanently. Today, the de-structive e f f e c t s of t h i s s h i f t i n g agriculture can s t i l l be appreciated i n several places of Argentina, B r a z i l , Chile, and many other countries. During the period 1815 - 182 5 L a t i n America was com-p l e t e l y transformed p o l i t i c a l l y due to the drive for indepen-dence of most of the colonies. Compared to t h i s , economic changes were less dramatic and s o c i a l ones almost non-existent. After independence other European countries were able to trade d i r e c t l y with the new Republics, namely; B r i t a i n , France, Belgium, Germany, and It a l y , thus ending the monopoly held by Spain and Portugal. From then onwards the rapid improvements in communications and transportation, f a c i l i t a t e d the movement of more.bulky goods to the Old World (Cole, 1965) = During t h i s same period, i t became possible for non-Iberian immi-grants to s e t t l e i n L a t i n America. As time passed, most of the countries came to depend strongly on a small number of exports, often related to the a g r i c u l t u r a l and mining sectors. Before World War I, the manufacturing industry was s t i l l small i n scale and confined to a few areas, but the r e s t r i c t i o n s imposed by the war upon imports encouraged production. Since t h i s date industry has grown considerably, though the number of large and e f f i c i e n t plants i s s t i l l small. The mining industry i s an important exception i n t h i s respect, being today one of the more modern and well equipped i n the world. • •. In the early 1930s the v i t a l necessity for i n d u s t r i a l -i z a t i o n was recognized. Since then, production has increased considerably, thus permitting a substantial substitution of manufactured imports. 2.3.2 Factors of the Economy Among L a t i n American countries there are important common c h a r a c t e r i s t i c s , such as the predominance of raw materials and foodstuffs i n the export trade, the r e l a t i v e l y low l e v e l of per capita incomes and the derivative character of i n d u s t r i a l development. In most of the nations, the b u s i -ness i n s t i t u t i o n s and commercial law are based on Roman or c i v i l law. However, differences i n geography, natural r e -sources, r a c i a l composition, and s o c i a l development have created important divergences i n economic structures. These divergences have been accentuated by the recent developments of the present century. A high degree of economic s p e c i a l i z a t i o n has been c h a r a c t e r i s t i c throughout the region, but some of the economics have been highly diver-s i f i e d — a change that i s r e f l e c t e d not only i n the composition of exports and imports, but also i n the r a t i o of the value of exports to national income. In some countries such as Venezuela, Cuba, and the Central American Republics, the export c o e f f i c i e n t i s high, but i n Lat i n America as a whole i s very low. La t i n America i s sometimes referred to as a "new land," presumably because of the low average population density. However, the nations of t h i s region have a longer h i s t o r y of settlement and development than the United States. The A n t i l l e s and some of the Central American countries are much more densely populated than Europe. The explanation for the low density of South America i s to be found i n the large proportion of the t o t a l area that i s taken up by great mountain ranges, deserts, r a i n forests, and i n f e r t i l e p l a i n s . Calcu-lated on the basis of the number of persons per acre of arable land, the density i s f a i r l y high., The La t i n American coun-t r i e s are mature s o c i e t i e s , with s e t t l e d economic and s o c i a l patterns. Although frequently there are undeveloped resources i n lands, forests, minerals, and w a t e r f a l l s — t h e r e are also many exhausted mines and vast areas of deforested and eroded lands. Since 1946 approximately, L a t i n America has exhibited an extraordinary rate of economic growth compared with other regions of the world. Correct u t i l i z a t i o n of forests, f i s h -e r i e s , arable land and other renewable resources has increased considerably, reaching l e v e l s of output which have allowed for greater consumption i n these sectors. These gains on a per capita basis have been, unfortunately, o f f s e t by the rapid increase i n population, a key factor i n the economic problems of the region. 2.4 Economic C h a r a c t e r i s t i c s of L a t i n America In order to indicate the r e l a t i v e size of the L a t i n 3 8 America potential as a market, and i t s importance i n r e l a t i o n to other regions of the world, f i v e economic indicators have been chosen for analysis. These ares population growth, gross domestic product, national income, per capita income, and imports and exports of the region. The future size of the Latin American market w i l l de-pend la r g e l y on the way the f i r s t four indicators move, though population growth can be expected to modify trends indicated by Gross Domestic Product or National Income . Given a reasonable economic growth for Lat i n America and an increase of i t s population at similar rates to those already experienced, income d i s t r i b u t i o n i s l i a b l e to be a major factor i n f l u e n c -ing future o v e r a l l consumption. Therefore, much w i l l depend on the p o l i c i e s governments take i n r e l a t i o n to t h i s matter, and i n the end, on how much access individuals have to the t o t a l earnings of the region. 2.4.1 Population Growth According to the United Nations' estimates, the popu-l a t i o n of La t i n America w i l l have surpassed 270 m i l l i o n by 1970. That i s about 40 m i l l i o n more than that of the United States and Canada combined. 39 I f the current annual rate of growth of roughly 2.9% i s maintained during 1970-1980, the population of L a t i n America w i l l have increased at the end of t h i s period to about 365 m i l l i o n people. Compared with the 267 m i l l i o n the U.S. and Canada are expected to have i n 1980, L a t i n America w i l l have i n t h i s year almost 100 m i l l i o n more people, thus widening the difference i n population between the two areas. In Table 1 the annual rates of population growth for the area as a whole and for i n d i v i d u a l countries have been calculated and compared with those of Canada and the United States. These growth rates together with the r e l a t i v e d i s t r i -bution of population are presented i n Table 2 for comparison with the Unitad States and Canada i n the year 1980. The r e l a t i v e d i s t r i b u t i o n of population, shows that B r a z i l with 33.9% w i l l be by far the most populated country i n the region, followed by Mexico (19.8%), Colombia (7.6%), and Argentina (7.6%). High rates of population growth characterize the Central American countries. Costa Rica with a 4.2% rate, i s growing the fastest and i t i s followed by the Dominican Republic with 3.8%, E l Salvador 3.7% and Honduras 3.6%. With the exception of Cuba and H a i t i , none of the countries of Central America have growth rates smaller TABLE 1 LATIN AMERICA? TOTAL POPULATION (1950-1980) Country 'Total Population (Mid-year, i n thousands)  1950 I960 1965 1970* 1975* 1980* Argentina 17,070 20,569 22,352 24,050 25,796 27,580 B o l i v i a 3,012 3,453 3, 697 4, 658 5, 277 6,000 B r a z i l 51,944 69,730 81,301 93,752 107,863 123,566 Colombia 11,334 15,415 18,068 20,514 23,774 27,691 Chile 6,062 7, 589 8,584 9, 969 11,349 12,912 Ecuador 3,231 4,352 5,150 6,093 7,186 8,473 Paraguay 1, 397 1,751 2,030 2, 379 2,744 a) 3, 205 Peru 7,959 10,025 11,650 13,586 15,869 18,527 Uruguay 2,193 2, 536 2, 715 2, 886 3,064 3, 255 Venezuela 4,952 7,349 8,722 10,399 12,434 14,811 Costa Rica 801 1,171 1,433 1, 805 2, 206 2, 710 Cuba 5,516 6,826 7,631 8,341 9,183 10,075 Dominican Republic 2,129 3,.047 3, 624 4, 277 5,124 6,174 E l Salvador 1, 859 2,454 2,928 3,422 4,073 4, 882 Guatemala 2, 305 3, 810 4,438 5,275 6,130 7, 191 H a i t i 3,353 3,991 4, 396 5,255 6,001 6, 912 Honduras 1,445 1, 940 2, 284 2, 583 3,070 3, 662 Mexico 26,282 36,046 42,689 50,670 60,402 72,392 Nicaragua 1,052 1,411 1, 555 2,024 2, 376 2, 825 Panama 795 1,062 1,246 1,400 1, 646 1,940 Total 155,211 204,728 236,593 273,339 315,567 364.783 Sources United Nations, ECLA (1967). a) Projection at 2.90% growth rate, c) Projection at 3.55% growth rate. * Estimated by ECLA. b) Projection at 3.16% growth r a t e . 41 TABLE 2 LATIN AMERICAt TOTAL POPULATION AND GROWTH RATES AS COMPARED TO THE UNITED STATES AND CANADA IN 1980 Country Total Population Percentage Annual Rate i n thousands of Total of Growth Lat i n America 364,7 83 100.00 2 .9 Argentina 27,580 7 .56 1.3 B o l i v i a 6,000 1.54 2 .6 B r a z i l 123,566 33.87 2.8 Colombia 27,691 7 .59 3.1 Chile 12,912 3 .54 2 .6 Ecuador 8, 473 2 .32 3.3 Paraguay 3,205 0.88 3.2 Peru 18, 527 5.08 3.1 Uruguay 3,255 0.89 1.2 Venezuela 14,811 4.06 3.6 Costa Rica 2, 710 0.74 4.2 Cuba 10,075 2 .76 1.9 Dominican Republic 6, 174 1.69 3.8 E l Salvador 4, 882 1.34 3.7 Guatemala 7,191 1.97 3 .2 H a i t i 6,912 1.89 2 .9 Honduras 3, 662 1.00 3.6 Mexico 72,392 19.89 3.7 Nicaragua 2, 825 0.77 3.5 Panama 1,940 0.53 3.3 United States 242,311 1.7 Canada 25,110* 1.7 Sources United Nations, ECLA (1967); U. S. Department of Commerce (1967)? and I l l i n g , W. M. (1967). * Figure obtained considering medium f e r t i l i t y and medium immigration to Canada. 42 than 3%, and i f we compare them with the o v e r a l l average for L a t i n America, which i s 2.9%, i t follows that t h i s area i s growing much faster than any other i n the Americas. The United States and Canada with a 1.7% growth rate, as i n d i -cated by Table 2, f a l l far behind the average for L a t i n Amer i c a . Despite the high growth rates of Central America, South America w i l l be the area where the bulk of the popu-l a t i o n w i l l be located i n 1980. With 67% of the t o t a l pop-ula t i o n of L a t i n America, South America w i l l have more than 2/3 of the t o t a l . Ranking the countries by t h e i r population figures, seven countries of L a t i n America w i l l have 81.6% of the t o t a l population by 1980, these w i l l be i n order of p r i o r i t y s B r a z i l (33.9%), Mexico (19.8%), Colombia (7.6%), Argentina (7.6%), Peru (5.1%), Venezuela (4.1%), and Chile (3.5%). The market potential of a region with 364 m i l l i o n people l i v i n g i n growing economies should be weighed ac-cordingly, and although some countries of the world might have been able to ignore i t i n the past, the population explosion i n L a t i n America w i l l force the eyes of many to -wards i t . On the other hand, i t seems probable also that 43 as time goes on, Latin America w i l l become of growing world importance as a source of supply of cer t a i n a g r i c u l t u r a l products, o i l and minerals, and other exports, which together with an increasing market for imports and f i e l d of invest-ments, w i l l determine a greater expansion of the economies i n t h i s part of the world. Whether or not the expected rapid increase of popu-l a t i o n w i l l help to r a i s e standards of l i v i n g i s not so clear, the e f f e c t i s l i k e l y to vary from country to country. For countries which are considered to be overpopulated, poor, and short of usable land such as H a i t i and E l Salvador, the quick growth of population may prove a burden rather than an advantage. However, most of the countries of L a t i n America s t i l l have a considerable amount of land which could be brought under c u l t i v a t i o n , and on much of the land presently used y i e l d s can be greatly improved with modern techniques. I f land, the key factor i n L a t i n America's development, i s wisely worked the region w i l l be able to support a growing population with r i s i n g standards of l i v i n g which, together with an expansion of the manufacturing and other non-agricultural sectors, could well mean sustained economic growth. 44 Under such conditions, population growth might act as a stimulus to economic expansion, as i t has done i n the past i n Western Europe and North America. I t may lead to a continuous increase of demand, r a i s i n g the returns and lessening the r i s k s of investment, thus f a c i l i t a t i n g the opening of new land, creation of new industries and expansion of the exi s t i n g ones. Under massive education, the growth of population can increase the mobility of labour and im-prove resource a l l o c a t i o n , and f i n a l l y , economic take-off could well be the r e s u l t i n L a t i n America. 2=4.2 Gross Domestic Product Because of i t s regional c h a r a c t e r i s t i c , Gross Dom-e s t i c Product gives a better idea of the l e v e l of economic a c t i v i t y within L a t i n America than other indicators such as Gross National Product do. A l l the earnings obtained by a l l countries of L a t i n America are considered i n the Gross Domestic Product, including those earnings of foreign c a p i t a l or people within the region, while i n the Gross National Produce such values are omitted. Because of the considerable amount of foreign investments i n L a t i n America, t h i s i s an important point to consider i f a correct 45 evaluation of production i s to foe made„ In Table 3 estimates of Gross Domestic Product i n L a t i n America and other areas are shown. The t o t a l pro-duction of goods and services i n L a t i n America i n 1955 was U.S. $84,376 m i l l i o n . In 1966 t h i s figure grew U.S. $8 b i l l i o n putting the t o t a l up to U.S. $95,516 m i l l i o n . By analyzing the Index for 1956, i t i s possible to compare the economies within the region and with other countries of the world. The countries of L a t i n America d i s t r i b u t e t h e i r t o t a l production i n r e l a t i o n to t h e i r r e l a t i v e sizes both i n people and area. In t h i s way we f i n d that with the highest percentage of t o t a l Gross Domestic Product stand B r a z i l (24.6%), Mexico (2 3.1%), and Argentina (18.8%), followed by Venezuela (8.8%), Colombia (6.3%) and Chile (5.1%). These six countries alone produce 35.7% of the t o t a l earn-ings of Latin America, leaving the remaining 13.3% to be d i s t r i b u t e d among the other 14 States. As a whole, L a t i n America compares i n t o t a l earnings with France, Germany, the United Kingdom, and Japan which approximately produce between 35 and 100 b i l l i o n d o l l a r s each. Canada's output i s almost 50% that of L a t i n America, similar to that of I t a l y (58.4%), and India (43.9%). Other 46 TABLE 3 ESTIMATES OF GROSS DOMESTIC PRODUCT IN LATIN AMERICA AND OTHER AREAS 1953, 1955, 1966 Country Gross Domestic Product (millions of U.S.$) 1963 1965 1966 Index for 1965 Lat i n America = 100 Argentina 11,375 17,393 17,359 18.8 B o l i v i a 453 571 G16 0.7 B r a z i l 19,857 18, 535 22,720 24.6 Chile 2, 502 4, 229 4, 769 5.1 Colombia 5,053 5,681 5, 816 6.3 Costa Rica 472 533 576 0 .6 Cuba — __ — Dominican Republic 872 839 907 1.0 Ecuador 831 1,030 1,095 1.2 E l Salvador 526 729 779 0.8 Guatemala 1,134 1, 229 1, 301 1.4 H a i t i 331 337 356 0.4 Honduras 407 477 505 0.6 Mexico 14,928 18, 324 21,375 23 .1 Nicaragua 428 535 563 0.6 Panama 514 596 658 0.7 Paraguay 363 420 439 0.5 Peru 2, 539 2,952 2,997 3 .2 Uruguay 1,270 1, 519 1, 516 1.6 Venezuela 6, 067 7,903 8,158 8.8 La t i n America a) 70,022 84,376 92,516 100.0 Canada 35,797 42,242 46,694 50.5 United States 541,100 630,509 690,004 745.8 France 67,949 79,522 85,407 92 .3 Germany (West) 31,800 97,938 103,863 112 .3 Greece 4,054 5,089 5, 604 6.1 I t a l y 42,578 50,213 54,022 58.4 Portugal 2, 863 3,430 3, 727 4.0 Spain 14,667 19,958 22,778 24.6 Sweden 14,267 17,386 18,628 20.1 United Kingdom 74,866 85,966 89,992 97.3 India 39,207 47,097 40,589 43.9 Indonesia 8,420 10,063 10.9 Japan 50,539 78,657 90,822 98.2 Philippines 7,006 7,972 8,621 9.3 Ghana 1, 521 1,983 2, 298 2.5 Nigeria 3, 384 -- 4,495 4.9 Sudan 1, 200 1, 231 — Sources United Nations (1968 c) and (1969) . a) Excludes Cuba. — Figures not a v a i l a b l e . 47 countries of the world such as Spain, Sweden, and Indonesia have a Gross Domestic Product smaller than 2 5% of that of La t i n America. A remarkable figure i s that of the United States which, i n 1966 with 690,004 m i l l i o n d o l l a r s , produced almost 7.5 times more than L a t i n America. Despite comparing favourably i n t o t a l output with other major areas of the world, L a t i n America has to d i s -t r i b u t e i t s production among a greater number of people, thus reducing i n d i v i d u a l earnings accordingly. Therefore, though i n general terms the region has an important market potential, i n order to provide a more r e a l i s t i c picture, adjustments must be made because of population growth and unequal d i s t r i -bution of wealth. These factors tend to decrease the pur-chasing power of L a t i n America and l i m i t i t s prospects for imports. 2.4.3 National Income Theoretically, National Income cannot be considered a precise measure of what La t i n Americans produce, because i t does not consider i n d i r e c t taxes, adjustments i n valuations or allowances for c a p i t a l consumption. This can only be given i n true terms by Gross National Product (GNP)? nevertheless, 48 i t does give a f a i r idea of what La t i n Americans earn, or i n other words, how much i s th e i r approximate power of purchasing goods and services within t h e i r economies. Because of i t s more national c h a r a c t e r i s t i c and not simply geographical as Gross Domestic Product, National Income excludes a l l earnings of foreign c a p i t a l and labor i n Latin America. This conceptual difference can already be appreciated i n the 1965 Index given i n Table 4—Estimates of National Income i n Latin America and other Areas—where Mexico i s ahead of B r a z i l i n i t s share of the t o t a l income of the region, while the opposite was true for GDP. Also, while Argentina, Panama, Uruguay, and Venezuela increased t h e i r percentages, other countries such as B r a z i l , Chile, Dominican Republic, and Mexico decreased them. In 1965, L a t i n America had a t o t a l income of about 81 b i l l i o n d o l l a r s , which, compared with Canada's 3 6 b i l l i o n d o l l a r s , makes i t almost 2.3 times l a r g e r . Individually, I t a l y and India had h a l f of the t o t a l earnings of L a t i n America; Spain, and Sweden only about one-fourth. This r e -l a t i v e advantage held by L a t i n America i n t o t a l earnings, i s again greatly o f f s e t by the population among which i t has to be distributed,a c h a r a c t e r i s t i c which i s f i n a l l y r e f l e c t e d TABLE 4 ESTIMATES OF NATIONAL INCOME IN LATIN AMERICA AND OTHER AREAS 1963, 1965, 1966 Country National Income (millions of U.S. $) 1963 1965 1966 Index for 1966 L a t i n America=100 Argentina 10,509 16,093 15,996 19.9 B o l i v i a 423 533 578 0.7 B r a z i l 18, 535 17,140 20,969 21.7 Chile 2,161 3, 648 4,150 4.5 Colombia 4, 444 5,073 5,192 6.3 Costa Rica 437 491 524 0.6 Cuba 3,267 4,038 — 5.0 Dominican Republic 801 763 825 0.9 Ecuador 771 945 1,001 1.2 E l Salvador 587 683 730 0.8 Guatemala 1,067 1,153 1,211 1.4 H a i t i 309 353 344 0.4 Honduras 382 444 470 0.6 Mexico 13,904 17,568 19,696 21.7 Nicaragua 410 501 525 0.6 Panama 455 530 581 0.6 Paraguay 334 384 395 0.5 Peru 2, 315 2, 714 2,739 3.4 Uruguay 1, 212 1,493 1,446 1.8 Venezuela 4, 926 6,418 6, 638 7.9 La t i n America 67,249 80,973 — 100.0 Canada 30,317 35,759 39,691 44.2 United States 485,264 566,293 620,968 699.4 France 60,783 70,836 76,156 87.5 Germany (West) 72,260 85,903 90,610 106.1 Greece 3, 889 4, 874 5,349 6.0 I t a l y 38,658 45,576 49,066 56.3 Portugal 2, 690 3, 256 3,529 4.0 Spain 13,697 18, 617 21,185 23.0 Sweden 15,712 19,228 — 27.7 United Kingdom 69,689 79,835 83,064 98.6 India 35,832 44,234 38,163 54.6 Indonesia 8,164 — 9,770 — Japan 53,575 68,016 78,224 84.0 Philippines 6, 385 7,163 7,703 8.8 Ghana 1, 380 1,801 2,118 2.2 Nigeria 3,187 — 4,057 — Sudan 1,169 1,197 — 1.5 Sources United Nations (1968 c ) . — Figures not a v a i l a b l e . 50 i n the lower per capita incomes of the region. Often as i s demonstrated i n Section 2.4.4, La t i n America's absolute advantage i n income over important areas of the world i s l o s t i n terms of per capita income. In the case of India, L a t i n America has an advantage, however, both i n t o t a l income and per capita income. Because of t h e i r size, Mexico, B r a z i l , and Argentina generate together about 63% of the t o t a l income of Latin America. I n d i v i d u a l l y these countries can be compared i n t o t a l income with Spain and Sweden which, at roughly 19 b i l l i o n d o l l a r s , generate only between 1.5 and 2 b i l l i o n d o l l a r s more than the former. At a more reduced l e v e l , Venezuela (6.4 b i l l i o n d ollars) generates a similar income to that of the Philippines (7.1 b i l l i o n d o l l a r s ) , and Colombia (5.07 b i l l i o n dollars) only 0.2 b i l l i o n d o l l a r s more than Greece (4,87 b i l l i o n d o l l a r s ) . 2.4.4 Per Capita Income Total National Income i s d i s t r i b u t e d very unevenly i n L a t i n America, both by countries and within them, among d i f -ferent s o c i a l s t r a t a and among d i f f e r e n t geographic sectors 51 of the population. As shown i n Table 5, the average per capita income i n the region i n 1966 was 356 d o l l a r s , f l u c -tuating from a minimum of 77 d o l l a r s i n H a i t i to a maximum of 744 d o l l a r s i n Venezuela. Of the three countries with the highest National Income (Argentina, B r a z i l , and Mexico), only Argentina (705 dollars) and Mexico (446 dollars) have a per capita income higher than the average for L a t i n America. B r a z i l has only 252 d o l l a r s per head. Above the average for the region i n 1966, were only seven countries (Argentina, Chile, Cuba, Mexico, Panama, Uruguay, and Venezuela); i n Central America and the Caribbean, with the exception of Cuba and Panama, which have more than 356 d o l l a r s , and Costa Rica which almost equals the average with 355 d o l l a r s , most of the countries f a l l below t h i s value. L a t i n America has a per capita income about 8.8 times less than the United States, 5.5 times less than Canada, and about 4 times less than the one enjoyed by northern Europeans. Despite t h i s general s i t u a t i o n , i n d i v i d u a l countries of the region such as Argentina and Venezuela have a per capita income of more than 700 d o l l a r s which approximates the l e v e l of Japan of 791 d o l l a r s , and both Ch i l e with 473 d o l l a r s and 52 TABLE 5 ESTIMATES OF PER CAPITA INCOME IN LATIN AMERICA AND OTHER AREAS 1963, 1965, 1966 Country Per Capita Income (millions of U.S.$)  1963 1965 1966 Index for 1966 L a t i n America=100 Argentina 486 720 705 198.0 B o l i v i a 118 144 154 43.3 B r a z i l 243 212 252 70.8 Chile 263 425 473 132.9 Colombia 263 282 279 78.4 Costa Rica 325 343 353 99.2 Cuba 452 429 — 154.7 b) Dominican Republic 237 212 220 61.3 Ecuador 160 133 188 52.8 E l Salvador 216 233 240 67 .4 Guatemala 256 260 265 74.4 H a i t i 73 80 77 21.6 Honduras 179 194 199 55.9 Mexico 349 412 446 125.3 Nicaragua 266 303 305 85.7 Panama 390 425 452 127 .0 Paraguay 175 139 189 53.1 Peru 211 233 228 64.0 Uruguay 458 550 526 147.7 Venezuela 605 745 744 209.0 La t i n America 301 342 356 a) 100.0 Canada 1,602 1,824 1,980 556.2 United States 2, 562 2,910 3,153 885.7 France 1,270 1,448 1, 542 433.1 Germany (West) 1,254 1,455 1,518 426.4 Greece 458 570 621 174.4 I t a l y 763 884 944 265.2 Portugal 298 353 378 106.2 Spain 441 589 665 186.8 Sweden 2,006 2,486 — 726.9 b) United Kingdom 1,298 1,466 1,517 426.1 India 80 91 77 21.6 Indonesia 82 — 91 25.6 Japan 559 694 791 222.2 Philippines 211 221 230 64.6 Ghana 188 233 267 75.0 Nigeria 58 — 68 19.1 Sudan 91 88 — 25.7 b) Sources United Nations (1968 c ) . a) Does not include Cuba. b) Calculated for 1965. — Figures not a v a i l a b l e . 53 Mexico with 446 dollars have higher per capita incomes than Portugal which has 378 dollars. A significant feature in the Latin American econom-ies i s the uneven distribution of income. An important reason that might account for these variations i s the low productivity of agriculture, which invariably employs a larger share of total population than i t provides of gross national product. Therefore, predominantly agricultural areas usually have much lower per capita incomes than non-agricultural areas. Naturally, differences in population/resource bal-ance such as the one that exists between Uruguay and Haiti, and differences due to organizational a b i l i t y are also p r i -mary factors influencing the income level. In general, i t can be found that regions with a predominance of Europeans tend to be the most prosperous, but this can be related to their choice of the areas favoured with the best resources as well as to a greater abi l i t y , brought from more advanced regions, to organize an economy and introduce technology than non-European groups. 2.4.5 Imports and Exports The foreign trade of Latin America as a whole, has been, and s t i l l i s , largely characterized by the export of primary products to and the import of manufactured goods from North America and Western Europe (Cole, 1965). The economy and development of almost every country i n the region revolves around the export of one or a few limited items. According to Benham and Holley (1964), L a t i n America provided i n the late 1950's about 10% of the t o t a l exports of the free world, which related to the export c o e f f i c i e n t i t had at the time, t h i s i s of 16% (Imports/GNP) (Cole, 1965), make foreign trade of the greatest importance to t h i s part of the world. For a correct evaluation i t should be r e c a l l e d that i n that same period, Western Europe had an export c o e f f i c i e n t of 18.5%, the United States 4-5% and the Soviet Union a mere 2%. The si g n i f i c a n c e of trade i n L a t i n America has tended to de-c l i n e during the l a s t decade, for the value of trade has not r i s e n as fast as Gross National Product, or as fast as t o t a l world trade. This i n part i s a r e f l e c t i o n of increasing s e l f - s u f f i c i e n c y i n manufactured commodities. Despite progress made i n developing home production of manufactured goods and foodstuffs, most countries have not greatly lessened t h e i r dependence on the outside world. I n d u s t r i a l i z a t i o n makes necessary larger imports of c a p i t a l goods, raw materials, and fuels , while r i s i n g urban incomes increase the demand for imported consumer goods. Shortage 55 of foreign exchange, caused by f a i l u r e to expand the volume of exports has permanently been putting a check on imports, and i n a way forcing some economies to substitute products by l o c a l ones or occasionally reducing consumption„ In Table 6 i t i s shown that the actual amount of foreign trade c a r r i e d on by i n d i v i d u a l L a t i n American countries varies greatly* While Venezuela due to i t s o i l f i e l d s i s reaching the three b i l l i o n d o l l a r mark i n exports, B r a z i l i s roughly one b i l l i o n d o l l a r s behind, and with the exception of Mexico, Argentina, Chile, and Peru which are above or around one b i l l i o n d o l l a r s , a l l the other coun-t r i e s have exports lower than 0,25 b i l l i o n d o l l a r s . As a whole, La t i n America excluding Cuba with i t s 11.6 b i l l i o n d o l l a r s of exports i s comparable to Canada which exports 13.1 b i l l i o n d o l l a r s worth of goods annually. The United States exports approximately three times more than L a t i n America. The l e v e l of imports i s similar to that of exports, although some countries such as B r a z i l and Mexico appear to be importing i n 1968 much more than they export. This can be p a r t i a l l y explained by the flow of foreign c a p i t a l to these countries, together with p o l i c y changes i n t h e i r foreign exchange reserves. TABLE 6 LATIN AMERICA? INTERNATIONAL TRADE (1965-68) (millions of U.S. Dollars) * • ' ' Country Exports (fob) Imports (Cif)  1965 1966 1967 1968 1965 1966 1957 1968 La t i n America a) 10,380 11,040 11,030 11,560 8, 860 9, 740 10,290 11,100 Argentina 1,493 1,593 1,464 1,368 1,199 1,124 1,096 1,169 B o l i v i a 110 126 145 153 126 133 151 152 B r a z i l 1, 595 1,741 1,654 1,881 1,096 1,496 1,667 2,132 Chile 685 877 910 933 604 755 868 — Colombia 537 510 510 — 454 674 497 Costa Rica 112 136 144 172 178 178 191 214 Cuba 686 522 — — 865 b) 926 b) — — Dominican Republic 126 137 156 164 100 185 201 226 Ecuador 180 186 200 — 168 164 191 — E l Salvador 189 192 207 212 201 220 224 216 Guatemala 187 228 199 222 229 207 247 247 H a i t i 37 35 34 36 34 38 36 38 Honduras 127 143 156 186 122 149 164 186 Mexico 1,120 1,199 1,145 1,254 1,560 1,605 1,746 1,960 Nicaragua 144 138 146 157 160 182 202 ; 185 Panama 79 89 93 95 224 253 271 287 Paraguay 57 49 48 48 55 59 71 73 Peru 666 763 774 865 745 817 833 630 Uruguay 191 186 159 179 150 164 170 165 Venezuela 2, 744 2,713 2,886 — 1,454 1, 331 1,464 — Canada 8,494 9,988 11,027 13,134 8, 713 10,170 10,966 ,12,482 United States 27,530 30,430 31,622 34,660 23,186 27,745 28,745 35,546 Sources International Monetary Fund (1969). a) Excluding Cuba. b) Valued c i f . — Figures not ava i l a b l e . 57 Drastic changes i n prices of primary commodities, such as coffee, sugar, petroleum, copper, and other minerals are a constant worry for L a t i n American economies. Most of t h e i r exports are based on these types of goods, so naturally, any fluctuations i n t h e i r prices greatly a f f e c t the patterns of trade. Foreign trade i n t h i s part of the world i s also affected by the existence of t a r i f f s of varying severity protecting both L a t i n American countries themselves and partners with which L a t i n American countries trade. Cole (1965), mentioned that i t should not be overlooked that t a r i f f s on imports of foreign goods serve several purposes i n L a t i n America: to protect home industries from outside competition, to discourage the import of luxury items, and as an important source of revenue, p a r t i c u l a r l y since income tax and other forms of tax are generally i n e f f i c i e n t l y organized and contribute l i t t l e . The United States manipulates much of i t s trade with p r i -mary producing countries by allowing quotas on i t s imports from these. European t a r i f f s tend to be low on raw materials such as copper, cotton, and wool, but i n recent years Argentina and Uruguay have had d i f f i c u l t y i n s e l l i n g temperate food products to some countries e s p e c i a l l y i n the EEC. '' The same author f i n i s h e d by saying that there i s also growing concern among t r o p i c a l L a t i n American countries for the export of coffee, cacao, and other t r o p i c a l products to West Europe. Most of L a t i n America i s a long way from the major markets and exporting centres of the world (see Section 2.1 58 and Map 5). The axis of the region does not run from north to south but from north-west to south-east, so that most of South America (including, for example, Valparaiso, the chief port of Chile) l i e s further east than New York? and the great bulge of B r a z i l towards A f r i c a makes the chief ports of t h i s country and Argentina at least as distant from the United States as they are from Europe. Although a number of L a t i n American countries have expanded t h e i r merchant navies i n recent years (Benham and Holley, 1964), most of the exports and imports of the region are carried i n foreign ships and,therefore, transport and insurance payments are high (OAS, 1962). In 1956 the L a t i n American payments i n respect of maritime fr e i g h t and insurance amounted to over $800 m i l l i o n ( B r a z i l , $175 million? Argentina, $136 million? Venezuela, $140 million)(Benham and Holley, 1964). 59 SECTION III FACTORS AFFECTING THE EXPANSION OF CANADIAN  EXPORTS TO LATIN AMERICA Whenever a country desires to increase i t s trade with other nations, i t generally begins working through the channels which already exist. Many social, p o l i t i c a l , and economic institutions which are conducive to the ob-jective of expanding trade, are bound to be used, and new, more specialized institutions w i l l probably develop as a reaction to the needs of commerce. Canada has never taken any major interest in the affairs of Latin America or regarded this region as an important trade partner. Many reasons exist for this at-titude, but the current situation makes the improvement of trade relationships d i f f i c u l t . If p o l i t i c a l isolation were to end by Canada joining the Inter-American System, i t would undoubtedly prove beneficial for a trade expan-sion, and even though directly i t would not contribute much to the levels of commerce, the p o l i t i c a l junction could be the platform for the birth of more sophisticated and specialized business relationships. 60 Today, because of Canada's detachment from the Organization of American States (OAS), and generally from the economic affairs of Latin America, i t i s often unrewarding to take steps towards a greater economic re-lation with this part of the world. This happens p r i n c i -pally because of the lack of information Canadians have of the markets in Latin America, and of the uncertainty which therefore, involves potential transactions. Under these conditions, i t i s much easier for the exporting and import-ing industries to look to more familiar markets which be-side lowering the risk, provide a greater degree of informa-tion with respect to a l l kinds of commodities. Despite the existence of traditionally important Canadian-European trading patterns, the prospects of an even greater merging with the United States w i l l heavily influence the attitude of Canadians towards Latin America, i n the next decades this economic link w i l l force the affairs of the United States in Latin America to be the affairs of Canada. On the other hand, the growing populations and improved standards of livi n g in the region, are continually expanding the potential of the market, making i t in global terms as important as the Japanese, German, United Kingdom or Spanish markets (see Section 2.4). 61 Another important factor greatly affecting Canadian trade relationships with Latin America i s the trade patterns followed by the less-developed nations, namely the composition of trade and the reduced levels of imports forced by the shortage of foreign exchange. Substitution policies have also seriously restricted imports, although recently the improvements made in exports have brought about a partial reversal in this trend. Finally, the third point which i s mentioned in this section, calls for the relevance to Canadian exports of economic integration in Latin America. If, in the past, Canada dealt with individual countries, because of economic merging and trade agreements the emphasis in the future w i l l have to f a l l increasingly on a more generalized treat-ment. The market conditions such as t a r i f f s , quality re-quirements and other variables w i l l be far more homogeneous, and competition against regional output w i l l be much tougher due to the preferential treatment Latin American production w i l l enjoy. Only after regional production has been sold w i l l the excess demand be met by production from outside Latin America. 62 3 . 1 Canadian Detachment from the Inter-American System The question of Canada not participating in the Inter-American system i s one Which deserves serious consid-eration. Not because of the p o l i t i c a l isolation in which the country finds i t s e l f in respect to the other American nations, but rather because i t accentuates the lack of know-ledge Canadians have of Latin American institutions and of the social and economic behaviour which accompany them. The non-participation of Canada in American affairs outside i t s special relationships with the United States, can be viewed and appreciated in many ways, but because of their relevance to the present study only two deserve a special mention. These are p o l i t i c a l isolation and reduced commerce with Latin America. Despite the somewhat dis-couraging picture presented by the analysis of these two factors, a quick survey of the potential for future relations indicates that there i s plenty of room for improvement. In fact, i f a l l the h i s t o r i c a l and p o l i t i c a l influences could be removed and l e f t alone the basic economic concepts which regulate human behaviour, Canada could be found playing one of the more important roles in American a f f a i r s . This role has, unfortunately, been postponed principally because of 63 the country's p o l i t i c a l connections with Great Britain and the Commonwealth and links with other European nations. Today, these links give the impression of being sufficiently elastic to permit a greater involvement of Canada in the Americas. 3.1.1 P o l i t i c a l Isolation Canada was originally precluded from the Inter -American system, both by i t s position within the British Empire and by lack of interest in joining (Ball, 1944). Notwithstanding the fact that a boundary dispute between Venezuela and Great Britain once threatened to draw Canada into a war with the United States, the traditional Canadian attitude up to the early 1940's towards Latin America and Pan-Americanism was one of indifference (Humphrey, 1942). The reasons which are normally given for this be-haviour are diverse, and ranging from the state of internal affairs, to the influence of geographical and external p o l i t i c a l influences. In the f i r s t place, Canada was at the time tied to Great Britain not only spi r i t u a l l y but jurid i c a l l y , and as 64 Humphrey (1942) put i t , content to leave the r e s p o n s i b i l i t i e s for the pro-t e c t i o n of her foreign interests to the Mother Country i n whose judgement and p o l i c i e s she had an almost b l i n d confidence. " Domestic problems up to the beginning of World War I kept Canadians too busy at home, which meant very l i t t l e i n t e r e s t i n L a t i n America or anywhere e l s e . As a r e s u l t of the disappearance of the B r i t i s h Empire and creation of the B r i t i s h Commonwealth of Nations i n which Canada a c t i v e l y participated, the country took an increasing i n t e r e s t i n in t e r n a t i o n a l a f f a i r s , but these were s t i l l not great enough to encourage her to j o i n the Pan-American Union. Behind the scene, there were also important d i f f e r -ences i n the Canadian and L a t i n American ways of l i f e . Canadians and L a t i n Americans seemed to be d i f f e r e n t i n a l -most every possible way. The segregation of the Indian from Canadian l i f e was r a d i c a l l y opposed to the quick interbreed-ing which took place i n L a t i n America (see also Section 2.2), and to the indian motives which predominated i n several countries had to be added the L a t i n d i s l i k e for the Anglo-Saxon type of society. R e l i g i o n created another basis for detachment. While L a t i n America was almost exclu s i v e l y Roman Catholic, the majority of Canadians with the exception of some French-Canadians, professed other f a i t h s . In the p o l i t i c a l order, Canadians have always f e l t that they have had more i n common with the great European democracies than with L a t i n America where the differences between the Parliamentary and Republican System provided orators with a n e v e r - f a i l i n g emotional instrument which once again separated the two areas. Geographically, the f a c t that Canada was joined to South America by a continuous mass of land whereas she was divided from Europe by an expanse of water t r a d i t i o n a l l y proved to be more an obstruction to t r a v e l and transporta-t i o n than an a i d . Only with the b u i l d i n g of the Panama Canal did t h i s influence turn into a p o s i t i v e one. As was indicated i n Section 2.1.1, Lat i n America l i e s mainly be-tween the t r o p i c s of Cancer and Capricorn and though t h i s t r o p i c a l l o cation i s occasionally o f f s e t by a l t i t u d e , i t has important e f f e c t s upon the character of i t s economy. The Canadian environment i s r a d i c a l l y d i f f e r e n t , and the idea of the L a t i n American economy being complementary to the Canadian follows n a t u r a l l y . In fact, however, the t a r i f f preferences that Canada has t r a d i t i o n a l l y extended to the B r i t i s h colonies of the Caribbean have meant that her imports of t r o p i c a l produce have l a r g e l y come from t h i s area. After decades of domestic, p o l i t i c a l , and economic struggles between the independent States of the Americas, the f i r s t Inter-American Conference was held i n Washington in 1890. This was about six years before paramountcy i n the region passed d e f i n i t i v e l y from Great B r i t a i n to the United States. Since 1890, the Inter-American System has passed through three stages of development (Bailey, 1967). Between 1890 and 1945, the system was loose and r e l a t i v e l y informal, gaining effectiveness according to the United States' advances i n more s k i l l f u l diplomacy, and the e l i -mination of r i v a l r y among L a t i n American neighbors. Be-tween 1945 and 1954, the System formalized i t s e l f and e f f e c t -i v e l y maintained on several occasions the Pax Americana i n the Hemisphere (Smith, 1966). This was possible mainly because the United States, a power now unchallengeable and i n v i n c i b l e , was apparently heading the Organization and n a t u r a l l y backing up the p r i n c i p l e s for which i t stood. 67 The t h i r d stage from 1954 to the present has been dominated by the adjustment of the signing countries to the challenge of a new paramount force (Communism) working l a r g e l y by means of i n t e r n a l subversion within the Republics themselves. In the period 1890-1943, numerous conferences were c a l l e d and t r e a t i e s signed, many resolutions and declara-tions were passed by the Inter-American System dealing p r i n c i p a l l y with good o f f i c e s , mediation, investigation, c o n c i l i a t i o n , a r b i t r a t i o n , and j u d i c i a l settlement. Be-cause of t h i s procedure, every state i n the System was bound by at least one of these t r e a t i e s and a great percentage had r a t i f i e d several. In 1947, the Inter-American Conference for the main-tenance of Continental Peace and Security met i n Rio de Janeiro. At t h i s conference, the Inter-American treaty of Reciprocal Assistance was signed. Following t h i s reunion, the Ninth Inter-American Conference met i n Bogota the next year (1948), where the Inter-American System was f i n a l l y given a fundamental law with the signing of the Charter of the Organization of American States (OAS). The f i r s t Chapter of the Charter, e n t i t l e d 'Nature and Purposes,' described the organization as being 'within the United 68 Nations . . . a regional agency,' and referred to i t s 'regional obligations under the Charter of the United Nations.' Five e s s e n t i a l purposes were proclaimed% to strengthen the peace and security of the continent? to pre-vent possible causes of d i f f i c u l t i e s and to ensure the p a c i f i c settlement of disputes that may arise among member states i n the event of aggression? to seek the solution of p o l i t i c a l , j u r i d i c a l , and economic problems that may ar i s e among them? and to promote, by co-operative action, t h e i r economic, s o c i a l , and c u l t u r a l development (Smith, 1966). Although the idea of Canada eventually j o i n i n g the Inter-American System was accepted at a rather early date, the United States for a long time opposed i n v i t i n g her to do so because of her t i e s with Great B r i t a i n (Anglin, 1961). Between the two World Wars there was some L a t i n American support for Canadian membership, but the United States did not favour even a Mexican proposal that Canada should send an observer to the Seventh International Conference of American States (1933) . During the period of the Second World War and afterwards there was a growing sentiment i n favour of Canada's admission among members of the System. At the Ninth International Conference the name 'Organization of American States' was adopted s p e c i f i c a l l y to f a c i l i t a t e 69 Canada's subsequent membership, now desired by the United States. But, although Canada i s included i n the region covered by the Inter-American Treaty of Reciprocal A s s i s t -ance, she has not yet joined the OAS. The present state of inter-American re l a t i o n s h i p s (1965) i s not such as to indicate Canada's desire to become a member. By being out of the OAS, Canada i s then also out of the main stream of p o l i t i c a l cooperation with L a t i n America, together with the economic i s o l a t i o n that frequently comes with i t . The Charter of the OAS i s clear i n i t s statement of objectives that a main issue i s . . ."to promote, by co-operative action the economic, s o c i a l , and c u l t u r a l development". . „ between the member States. This fact, although i t does not r e s t r i c t Canadian-Latin American b u s i -ness a c t i v i t y completely, does exclude Canada from a val u -able source of information and co-operation, a source which undoubtedly provides to those countries which support i t , many favourable b e n e f i t s . According to how Canada views i t s possible member-ship i n the OAS, w i l l vary greatly both the qual i t y and quantity of i t s r e l a t i o n s with L a t i n America. The decision of becoming a member of the System could c e r t a i n l y influence economic co-operation with the member countries, including 70 trade. I f t h i s i s not the case, however, the normal channels of communication, diplomatic r e l a t i o n s (which today are i n healthy condition), together with specialized economic i n -s t i t u t i o n s and favourable demand on both areas could get the job done, i f not as e f f e c t i v e l y , at least with consider-able success for a l l p a r t i e s . 3.1.2 Reduced Commerce with L a t i n America The p o l i t i c a l i s o l a t i o n i n which Canada finds i t s e l f with respect to Inter-American a f f a i r s can also be extended to the amount of trade which h i s t o r i c a l l y has been car r i e d on with the region. Seldom has Canada sold more than 3% of i t s t o t a l exports i n L a t i n America, and compared to i t s trade with the United States or Europe, the purchases i n L a t i n America are almost n e g l i g i b l e . Despite t h i s low p a r t i c i p a t i o n i n trade, L a t i n America s t i l l bought more than 372 m i l l i o n d o l l a r s (U.S.) worth of Canadian goods i n 1968 (see Table 7), an amount which i s of importance given the t o t a l l e v e l of Canadian production, and the fact that the country i s so heavily dependent on international trade. 71 TABLE 7 CANADAs EXPORTS TO THE UNITED STATES AND LATIN AMERICA IN 1968 Country Exports % of Total 1,000 of U.S. $ World 12,556,279 100.0 United States 8, 527,125 67.9 Argentina 44,920 0.4 B o l i v i a 3,313 -B r a z i l 46,144 0.4 Chile 19,386 0.2 Colombia 17,576 0.1 Costa Rica 2, 628 -Cuba 41,977 0.4 Dominican Republic 5, 314 -Ecuador 3,293 -E l Salvador 2, 957 -Guatemala 2, 342 -H a i t i 1,931 -Honduras 1,252 -Mexico 53,090 0.4 Nicaragua 2,064 -Panama 5,157 -Paraguay 680 -Peru 20,721 0.2 Uruguay 2,210 0.2 Venezuela 95, 280 0.8 La t i n America 372,245 3.0 Sources Organization for Economic Co-operation and Development (1968 b ) . - Less than 0.005%. 72 The advantages of increased Canadian trade with L a t i n America have been widely discussed (Allen, 1927? Humphrey, 1942; Cole, 1965; Urquidi, 1964), but though some e f f o r t s have been made to correct the si t u a t i o n , t h i s trade i s s t i l l r e l a t i v e l y unimportant. I t would be necessary to multiply the present figure many times before the area became a r e a l l y important factor i n Canada's export trade. Canadian natural trade lines, apart from her trade with the United States, are mainly longitudinal (Humphrey, 1942). L a t i n America, i t i s said, does not want, on the whole, the things Canada has to s e l l ; and Canadian manufacturers are at a disadvant-age i n the L a t i n American market because of economic i n t e -gration and protective t a r i f f s which are s w i f t l y being raised there. On the other hand, h i s t o r i c a l l y , Canada has not had much use for the surplus commodities that L a t i n America has had to export. But as Humphrey (1942) mentioned one thing i s certains any Canadian programme for commercial expansion i n L a t i n America should i n -clude joining the Pan American Union (today the OAS) which o f f e r s important f a c i l i t i e s for develop-ing trade between the member States. 3.1.3 Potential for Future Relationships The L a t i n American Republics have very good reasons 73 for d e s i r i n g the closest possible collaboration with Canada; for l i k e Canada they are seeking new markets for t h e i r pro-duction surpluses and exporting i n d u s t r i e s . The geographi-c a l proximity of Canada to L a t i n America i s an important incentive for increased trade (see Section 2.1.2) as i s the general economic environment i n which L a t i n America i s pre-sently growing (see Sections 2.3 and 2.4). Population growth i n L a t i n America cannot be e a s i l y forgotten; the 365 m i l l i o n people the region i s expected to have i n 1980, t o -gether with a r i s i n g per capita income, could lead to a f o r -midable market for a l l sorts of commodities, regional and imported. Canada should not neglect t h i s p o t e n t i a l . Room for imports expansion i n spe c i a l i z e d categories such as the semi-manufactured products of the forest; manufactured pro-ducts; heavy machinery; and foodstuffs e x i s t abundantly, with or without L a t i n American integration, simply because the region needs these goods as a basis on which to support i t s growing i n d u s t r i e s . The p a r t i c u l a r case of forest products w i l l be spec i -f i c a l l y analyzed further on; however, i t i s of int e r e s t here to mention the importance pulp and paper consumption i s bound to have i n the massive education programs which soon w i l l be implemented. Newsprint demand i s already increasing 74 far more than production within the area, and so i s the con-struction sector with the hundreds of thousands of dwellings being required annually. The r i s i n g standards of l i v i n g with t h e i r r e l a t e d consumption of pulp products w i l l prove to be another factor a f f e c t i n g the demand for forest products. Surely, Canada being a net exporter of wood and wood-based products to i t s neighbor the United States can be i n a com-p e t i t i v e p o s i t i o n to supply these products to L a t i n America, at l e a s t somewhat better than the Scandinavian countries which are presently doing so. Section 7.3.2 analyzes t h i s question which should be considered a key factor i f Canada desires to increase i t s forest products sales i n L a t i n America. An excess demand i n the region, though b a s i c a l l y necessary for trade does not mean much by i t s e l f i f others are i n a better p o s i t i o n to supply i t . Excess demand plus a competitive p o s i t i o n w i l l determine the r e a l p o t e n t i a l of the market. 3.2 Trade Patterns Followed by Less-Developed Countries Both quantity and qual i t y of trade are affected by programs of economic development. While d e f i c i t s i n the balance of payments force countries to r e s t r i c t imports, i n d u s t r i a l growth increases the necessity to buy a number 75 of c a p i t a l goods such as tools, machinery, and i n d u s t r i a l plants. Because limited progress can be made towards i n -creasing foreign exchange funds through exports, l e s s -developed nations often r e s t r i c t imports of consumer goods not v i t a l to the economy, thus creating a d i f f i c u l t s i t u a t i o n for those parties interested i n the markets under c o n t r o l . Section 3.2.1 presents the main factors a f f e c t i n g t h i s be-haviour, together with the most common solution which cur-r e n t l y minimizes most of th e i r negative influences on trade. B i l a t e r a l co-operation and assistance between develop-ed and less-developed nations has also a very important bearing on trade. This happens p r i n c i p a l l y because of the nature of the aid provided, which, when i t takes the form of loans, often forces the borrowing party to make i t e f f e c t i v e on the granting country. This creates an a r t i f i c i a l s i t u -ation through which trade i s considerably directed along i n f l e x i b l e and p r a c t i c a l l y non-competitive l i n e s . These factors and t h e i r relevance to the trade patterns of L a t i n America are reviewed i n Section 3.2.2. 3.2.1 Trends Imposed by Economic Growth A factor which should not be overlooked i n any 76 economic study of L a t i n America, i s the pressure for econom-i c growth i n the area. L a t i n America has to s t r i v e constant-l y to maintain and hopefully increase i t s capacity to import; but t h i s capacity i s highly sen s i t i v e to changes i n the reserves of foreign currency which t r a d i t i o n a l l y have been running at too low l e v e l s . Therefore, a chronic shortage of foreisp exchange continues to be a major factor l i m i t i n g economic develop-ment i n less-developed regions such as L a t i n America. I f the development plans now being made are to have much chance of success, i t i s evident that L a t i n America w i l l either have to reduce i t s import dependence greatly or i t w i l l have to increase i t s foreign exchange re c e i p t s sub-s t a n t i a l l y . Strenuous e f f o r t s have been made to reduce import dependence to the point where further reductions would s e r i -ously threaten to reduce the already low standards of l i v i n g , and undermine the development programs themselves. Thus, i t i s very doubtful i f any extra r e l i e f within t h i s idea, can or should be looked f o r . Nevertheless, considerable r e l i e f can be obtained through measures that stimulate trade amongst the L a t i n American countries at the expense 77 of trade between developed and less-developed countries. Past experience has indicated that i t i s d i f f i c u l t to increase foreign exchange receipts to L a t i n America through aid and investments. The reason for t h i s i s found mainly i n the uncertainty of c a p i t a l sources and i n the high number of p o l i t i c a l , s o c i a l , and administrative problems which they r a i s e . This i s not to say that L a t i n American countries w i l l not seek t h i s type of solution, because i t i s clear that every l i t t l e b i t of foreign exchange helps, but that a l t e r i n g other p o l i c i e s i n trade with developed countries would be much more rewarding. I f there i s to be much hope for the L a t i n American countries to increase t h e i r foreign exchange receipts by exporting to developed countries i t i s evident that, as a f i r s t step, developed countries must agree not to impose additional r e s t r i c t i o n s i n the face of r i s i n g imports from them. A second step, with far-reaching consequences, would be for the developed countries to remove or reduce the extensive quantitative r e s t r i c t i o n s that they already impose on imports from L a t i n America. S i g n i f i c a n t progress along these l i n e s would undoubtedly contribute much more to the export earning cap-a c i t y of L a t i n America than any other commercial p o l i c y measure that developed countries could adopt. 78 The a l l important point to be emphasized i s that no scheme to improve the export capacity of L a t i n America by improving t h e i r competitive price position i n the markets of developed countries can be very h e l p f u l so long as dev-eloped countries are unprepared to open up t h e i r markets by removing t h e i r quantitative r e s t r i c t i o n s . Any measure, such as p r e f e r e n t i a l t a r i f f reductions, devaluation and export subsidies, which do improve the competitive price p o s i t i o n of L a t i n America w i l l be e a s i l y frustrated i f developed countries maintain e x i s t i n g quantitative r e s t r i c -tions and r a i s e them i n the face of increased import com-p e t i t i o n from L a t i n American producers. In the l i g h t of t h i s s i t u a t i o n i t can, therefore, be concluded that i t w i l l be d i f f i c u l t to expect any increase i n imports i n L a t i n American countries through the normal demand supply mechanism. Countries interested i n s e l l i n g i n L a t i n America w i l l be asked to increase t h e i r purchases i n a nearly proportional way. I t then follows that, on the whole, there can be no s i g n i f i c a n t increase i n Canadian ex-ports to L a t i n America unless more i s bought i n the region. Such r e c i p r o c a l trade agreements would not only f a c i l i t a t e greatly export transaction, but would also be h e l p f u l to the development programs of the region. 79 3.2.2 Trends Imposed by B i l a t e r a l Cooperation Over the past twenty years the world has been divided i n terms of economics and trade, into two great sectors. On one side there are the so-called i n d u s t r i a l i z e d nations, such as the United States, Germany, the Soviet Union, etc., which have enjoyed unprecedented development? on the other side, 77 countries i n Asia, A f r i c a , and L a t i n America grouped under the name of under-developed nations which have found i t d i f f i c u l t to achieve a rate of growth s u f f i c i e n t to keep pace with t h e i r population explosion. A major reason for t h i s development gap i s the charact-e r i s t i c s of world trade, which r e a l l y amounts to the trade transactions and c a p i t a l movements between the development nations (Gustavo Romero-Kobeck i n Shapiro, 1968). The l e s s -developed countries are desperately attempting to f i n d the means by which they can acquire the c a p i t a l goods e s s e n t i a l for t h e i r development. Recently, the gap between the i n d u s t r i a l i z e d and l e s s -developed nations has grown wider because of current price trends. Goods which are being imported by the developing countries are costing more. At the same time, prices of commodities exported by them have i n general tended to decline. 80 This d e t e r i o r a t i o n i n the terms of trade has resulted i n a lower purchasing power for the countries i n the early stages of development. These factors e s t a b l i s h that somehow Latin America w i l l have to achieve i t s own development, since there i s nothing on the horizon which would indicate addition-a l assistance i n meeting t h i s goal from the i n d u s t r i a l i z e d nations of the world. Unfortunately, at present there r e a l l y does not e x i s t any such thing as meaningful i n t e r -national co-operation. In recent years the concept has become so e l a s t i c i n i t s application that i t covers such matters as technical assistance and manufacturing licenses to the developing nations, as well as int e r n a t i o n a l c r e d i t s and the flow of d i r e c t foreign investment. As a r e s u l t , there i s at present no r e a l d e f i n i t i o n of the term nor i s there a workable theory of i t . Such programs as d i r e c t foreign investment, foreign loans, technical assistance, and manufacturing licenses are r e a l l y nothing more than b i l a t e r a l business agreements be-tween a developed and a less-developed nation, and t h i s has nothing whatsoever to do with a true s p i r i t of in t e r n a t i o n a l economic co-operation. What may be passed o f f as co-opera-t i o n i s r e a l l y nothing more than in t e r n a t i o n a l paternalism which the i n d u s t r i a l i z e d nations apply toward underdeveloped countries. 81 Often, when a developed country o f f e r s c r e d i t to a developing one, the agreement loses i t s true character of aid because the borrowing nation i s asked to use the loan for buying commodities only within the granting country. In t h i s manner, trade i s suddenly boosted between the con-t r a c t i n g parties, and an a r t i f i c i a l non-competitive price l e v e l i s occasionally established. This s i t u a t i o n , a l -though common i n the trade of i n d u s t r i a l equipment, does not apply f u l l y to the consumer goods trade which depends more on the p r i n c i p l e of comparative advantages. This would apply to wood and wood-based products which are l a r g e l y traded on free competitive markets. Nevertheless, there have been situations where even trade of consumer goods has been affected by d i r e c t intervention of the economies through paternalism. More than once t h i s has been applied by p o l i -t i c a l pressure, economic dependency, and monopolistic characters i n the transport f a c i l i t i e s . The present state of a f f a i r s has permitted most of today's economic powers to get a foothold i n L a t i n America. Looking at i t from t h i s point of view, because of i t s de-tachment ( p o l i t i c a l and economic), Canada can be considered as being i n a p o s i t i o n of disadvantage towards trading with L a t i n America. I t cannot compete with absolute freedom with 82 other foreign nations, neither can i t p u l l the strings which could equalize the bargaining platform. Though i n i t i a l l y unfavourable for Canadian i n t e r e s t s i n L a t i n America, these factors do at least leave plenty of room for improved rel a t i o n s h i p s which, once established, should prove much more p r o f i t a b l e i n a l l ways than the present state of a f f a i r s . 3.3 Economic Integration i n L a t i n America The process of La t i n America's economic integration presents a number of problems to a l l countries interested i n trading with the region. The changes which normally r e s u l t from the formation of t h i s type of organization include modified t a r i f f s , quotas, and many new customs r e -gulations which are bound to influence trade considerably. Because of Canada's trade with Latin America, these factors w i l l not greatly a f f e c t t h i s country's i n t e r n a t i o n a l com-merce. Nevertheless, i f any expansion of sales i n the region i s to be expected, c a r e f u l consideration of i t s trade i n s t i t u t i o n s should be made. In order to have a clear understanding of the con-sequences of economic integration i n general, and of the 83 La t i n American Free Trade Association i n p a r t i c u l a r , the th e o r e t i c a l basis of these processes should be reviewed, i f not extensively, i n s u f f i c i e n t d e t a i l to provide a c r i t i c a l viewpoint of a l l influences on trade. 3.3.1 Economic Development and Comparative Advantage C l a s s i c a l economics has long cherished the doctrine of free trade. I t i s based on Ricardo's law of comparative advantage, the essence of which i s that nations w i l l maxi-mize t h e i r r e a l incomes by s p e c i a l i z i n g i n the production of those goods and services they can produce at lea s t cost, i n r e l a t i o n to the i r other production p o s s i b i l i t i e s , and for which there i s demand either at home or abroad (Powelson, 1964). The phrase " r e l a t i v e to th e i r other pro-duction p o s s i b i l i t i e s " i s important. For example, Paraguay's comparative advantage i n timber may not l i e so much i n her natural endowments as i n the s c a r c i t y of alte r n a t i v e occupations. When c l a s s i c a l economists f i r s t introduced t h e i r idea of comparative advantage they did i t primarily i n terms of natural endowments. Differences i n climate, resourse a v a i l -a b i l i t y , and geographic location, were the factors which determined what the countries were best f i t t e d to produce. 84 They did not deny, but neither did they stress, that the source of comparative advantage might also be i n technical competence, s k i l l s , and c a p i t a l accumulation. To them, England was a shipping nation because of i t s islan d p o s i -t i o n , France produced wines because i t had good s o i l s for growing grapes and Spain grew f r u i t s because the climate was propitious (Wionczek, 1966) . Today, because of technological changes, the r e l a t i v e r o l e of natural resources has declined, and man-made factors are increasingly recognized as comparative advan-tage determinants. In spite of knowing the better condi-t i o n of more c a p i t a l i z e d nations, L a t i n American countries have undertaken the task of making better use of t h e i r respective natural comparative advantages. According to the theory of economic integration, not only the market for output expands, but also the productivity l e v e l of the factors of production, thus with the same e f f o r t a greater benefit i s f i n a l l y obtained. F u l l use of the comparative advantages currently translates i t s e l f into s p e c i a l i z a t i o n , and t h i s i n turn, i n t o f u l l use of the economies of scale which lower unitary costs. In an environment of broad markets, these conditions by themselves have the e f f e c t of stimulating economic growth. 85 3.3.2 The Theory of Integration The integration doctrine elevates to the multina-t i o n a l plane the thesis that economic development i s impos-s i b l e without i n d u s t r i a l i z a t i o n . According to t h i s thesis, the sustained growth of an underdeveloped economy depends on the degree to which an active process of substitution of imports by domestic production can be promoted, so as to extend the country's capacity to import to cover the acqui-s i t i o n of an optimum volume of c a p i t a l goods and technology (Wionczek, 1966). At present, L a t i n American countries can be consider-ed committed to protection, i f not i n d i v i d u a l l y , on the whole from extra-regional nations. The very existence of two regional groupings—the L a t i n American Free Trade Area and the Central American Common Market—implies a d i f f e r -e n t i a t i o n between commercial p o l i c y within the respective areas and that to be accorded to outsiders. As Powelson (1964) mentioneds most L a t i n Americans r e l a t e t h e i r protectionism to economic growth. They are convinced that i t i s p o s s i -ble to develop, within t h e i r regions, comparative advantages i n long l i s t s of manufactured goods. To do so, i t i s necessary, at least i n i t i a l l y , to pro-t e c t the growing industries from outside competition of more developed nations. 86 This premise i s also, i n many ways, backed by the idea that L a t i n American countries are economically too small to provide the markets which the huge i n d u s t r i a l complexes of today need. Without f u l l use of the economies of scale l i t t l e can be done against competition from Europe or the United States. After a l l , the United States i s a common market of f i f t y states, and Europe has s w i f t l y been i n t e -grating i n t o a Common Market and a Free Trade Area. Whether integration w i l l reduce or r a i s e r e a l cost (thus r a i s i n g or reducing r e a l national income respectively) depends, according to economic theory, on whether i t i s trade-creating or trade-diverting. I f economic integration causes (say) Chileans to buy i n Argentina rather than i n Chile, there i s trade creation, and the cost to C h i l e i s reduced. I f , on the other hand, i t causes them to buy i n Argentina rather than i n the United States or Canada, there i s trade diversion, and the cost to Chile should be considered as increased. Both the L a t i n American Free Trade Area and the Central American Common Market contemplate, at least i n i t i a l l y , more trade diversion than trade crea-t i o n , simply because the former i s less p a i n f u l than the l a t t e r . The trends, however, are expected soon to reverse d r a s t i c a l l y . 87 During the f i r s t stage of i n d u s t r i a l development, r e s t r i c t i o n s i n the economy imposed by trade protection do not necessarily impede growth to a major extent. Most of the L a t i n American countries have been able to es t a b l i s h substantial consumer goods industries without looking for markets beyond t h e i r own f r o n t i e r s ; and i n many of these countries nearly a l l domestic requirements for manufactured consumer goods are now s a t i s f i e d from home production. Despite t h i s growth, these countries have now reached, or are c l o s e l y approaching, the l i m i t of import saving that i s possible i n the l i g h t i n d u s t r i e s . The rate of investment and the growth of income generated i n these industries should, therefore, begin to slow down, which has already happened i n some cases. New impetus to i n d u s t r i a l invest-ment and expansion, and new opportunities for closing the external gap by import saving w i l l have to come from the development of industries manufacturing intermediate pro-ducts such as st e e l and chemicals, as well as durable pro-duce and consumer goods. I t has been argued that the p o s s i b i l i t i e s for spec-i a l i z a t i o n i n an integrated area are indicated by the degree of economic intercourse among the prospective member coun-t r i e s . According to t h i s proposition, the higher the 88 proportion of trade conducted among the member countries p r i o r to the formation of the union, the greater w i l l be the expansion of intra-area trade and thus the increase i n welfare (Wionczek, 1966). This premise would indicate the d e s i r a b i l i t y of the European Common Market, where there existed a pre-union trade among the member countries of roughly 36%. I t would also show the prospects for i n t e -gration i n less-developed regions i n an unfavourable l i g h t , given that intra-area trade i n L a t i n America and A f r i c a does not reach 10% of t o t a l trade, and i n Asia i s less than 15%. In fact, i t has been argued that the small amount of intr a - r e g i o n a l trade i n L a t i n America provides evidence of inherent l i m i t a t i o n s of the r e a l l o c a t i o n of productive a c t i v i t y i n a L a t i n American union. Yet, according to Wionczek (1966), The low degree of economic intercourse i n l e s s -developed areas can hardly be used as an argument against t h e i r integration. Rather, the differences observed i n regard to intra-area trade i n Western Europe and i n underdeveloped regions r e f l e c t d i f -ferences i n the l e v e l of t h e i r economic develop-ment. While far-reaching s p e c i a l i z a t i o n has evolved among the hi g h l y i n d u s t r i a l i z e d economies of Western Europe, the scope of exchange i s limited i n low-income countries that s p e c i a l i z e i n primary commodities. These countries often produce and ex-port the same commodities and the bulk of t h e i r imports consists of manufactured goods purchased from i n d u s t r i a l economies. 89 The establishment of a more rational pattern of trade and production i s , therefore, the most important justification for regional economic integration. There seems to exist l i t t l e doubt that a pattern of production based on greater specialization within the region w i l l be more economical than one directed toward maximum self-sufficiency on the basis of narrow national markets. If such a pattern of production and investment maximizes the supply of capital goods without disrupting production for domestic demand, as i s the case with a typical underdeveloped country, i t is at the same time most condusive to economic growth from a dynamic point of view. From the standpoint of static theory, i t is true that regional economic integration w i l l not establish the all-around optimum relations between prices of domestic and internationally traded goods, but the situation can be legitimately called the second best solution insofar as the relative price and production patterns, even in a limited sphere, are shifted toward optimum conditions through intra-regional specialization. 3.3.3 The Latin American Free Trade Association The f i n a l act of the United Nations Conference on Trade and Development of 1964 established the importance of 90 inte r n a t i o n a l economic relations? Regional economic groupings, integration or other forms of economic co-operation should be promoted among developing countries as a means of expanding t h e i r i n t r a - r e g i o n a l and extra-regional trade, and encouraging th e i r economic growth and t h e i r indust-r i a l and a g r i c u l t u r a l d i v e r s i f i c a t i o n , with due r e -gard to the spe c i a l features of development of the various countries concerned as well as t h e i r economic and s o c i a l systems. In other words, as Wionczek (1966) put i t , world opinion f i n a l l y arrived at a consensus to the e f f e c t that economic integration programs, such as the L a t i n American Free Trade Association (LAFTA) and the Central American Common Market (CACOM), constitute an important instrument for economic development, provided they ensure an equitable d i s -t r i b u t i o n of the benefits of integration and do not e n t a i l elements of discrimination against other areas i n process of development. Because the general p r i n c i p l e recognized by the 120 countries that met i n Geneva t a c i t l y admits that these economic integration programs are e s s e n t i a l l y aimed at granting r e c i p r o c a l preferences not intended for extension to the already developed sector of the world economy, Canadian in t e r e s t i n L a t i n America cannot be expected to benefit d i r e c t l y , at least i n the short run by any t a r i f f or customs measure agreed upon. 91 The L a t i n American Free Trade Area i s a b r a i n c h i l d of the Economic Commission for L a t i n America. In 1948, an ECLA resolution referred to a "Latin American Customs Union," but nothing was r e a l l y produced u n t i l the formation of a Trade Committee i n 1956. The objective of the Committee was to study L a t i n American payments problems but somehow plans for a free trade area were promoted (Powelson, 1964). The proposals thus presented were shaped i n a series of meetings i n the l a t e f i f t i e s , culminating with the sign-ing of the Treaty of Montevideo i n 1960. In that year, the L a t i n American Free Trade Association (LAFTA) was born, (see Map 6), with Argentina, B r a z i l , Chile, Mexico, Uruguay, and Peru as members. Shortly a f t e r , Paraguay, B o l i v i a , Ecuador, Venezuela, and Colombia also joined, thus widening the area of free trade (Gustavo Romero-Kilbeck i n Shapiro, 1968) . Trade l i b e r a l i z a t i o n i s the basis of the Montevideo Treaty. The contracting parties have committed themselves to the elimination, within twelve years, of a l l duties on goods currently traded among them. Summarizing the three fundamental agreements of the Treaty. The f i r s t c a l l e d for an elimination, no l a t e r than 1973, of a l l t a r i f f s on 9 2 Map 6 Economic Integration in Latin America 93 regional products. The second dealt with the e s t a b l i s h -ment of i n d u s t r i a l complementation agreements for zonal i n d u s t r i e s . And the t h i r d c a l l e d for p r e f e r e n t i a l develop-ment and trade treatment for the less-developed nations of the region, which include Paraguay, B o l i v i a , and Ecuador. Up to 1967, two major problems have consistently slowed LAFTA's development. F i r s t of a l l , there has been l i t t l e progress i n the negotiations which would eliminate zonal import duties on select products which already are being produced i n one or more of the La t i n American nations. The basic reason for t h i s stagnation can be found i n the implications of economic integration, which suggest accelerated development i n the area involved with a logi^-c a l reduction i n zonal protectionism. Because i n d u s t r i a l development i n L a t i n America i s to date of a modest charact-er, wide-spread t a r i f f cuts are d i f f i c u l t to obtain i f they endanger the very l i f e of those industries already i n existence. The second problem i s re l a t e d to the differences i n the degree of development existent among L a t i n American countries. This makes complementation agreements very d i f f i c u l t , e s p e c i a l l y since there i s l i t t l e c a p i t a l available for the development of new industries on a more regional scale. 94 Despite these problems, i n 1967 the Lat i n American Presidents met with the President of the United States to t r y and reach agreement on the character and conditions of La t i n America's economic integration. This time the basis for integration was a La t i n American Common Market going far beyond LAFTA's proposal. The LAFTA idea of free zonal trade by 1973 has now become just one part of a larger process. At present, LAFTA c l e a r l y needs a good push to e s t -a b l i s h i t s e l f as the base for the forthcoming L a t i n American Common Market, a push which includes the creation of a common external t a r i f f program. Another important point, i s the integration of the Central American Common Market (CACOM), which i s already establishing i t s formula for a common outer t a r i f f . This formula, i f completely approved, would require the L a t i n American nations to freeze t h e i r t a r i f f b a r r i e r s at present l e v e l s as far as regional trade i s concerned. To complete the integration process on which i t has embarked, LAFTA must overcome enormous d i f f i c u l t i e s . One of these i s c l e a r l y the evident shortage of the technical and p r a c t i c a l t o o l s available to the La t i n American countries; 95 which, added to the existence of deep-rooted patterns of behaviour, make i t very hard to incorporate i n the industry the most recent s c i e n t i f i c developments. T r a d i t i o n a l l y , L a t i n America has depended on economic r e l a t i o n s with the r e s t of the world and has not found an e f f e c t i v e channel for strengthening i t s in t e r - r e g i o n a l l i n k s . Since the expansion of each i n d i v i d u a l economy has t r a d i t i o n a l l y depended on the development of the external sector, i n t e r e s t has gener-a l l y been centered on marketing basic products towards the world. Consequently, commercial and f i n a n c i a l networks, as well as marketing research studies, have mainly followed a pe r i p h e r i a l c i r c u i t . In the customs-tariff f i e l d of present LAFTA agree-ments, d i s p a r i t i e s between the duties charged by the countries that presently constitute the association are quite important, and extend to almost every aspect. In the f i r s t place, there are s t r u c t u r a l differences deriving from the fact that the respective t a r i f f s have no common background and conform to no precise pattern. According to Gustavo Magarinos (Wionczek, 1966), because of lacking systematic c l a s s i f i c a t i o n s dictated by an appropriate methodological approach, the t a r i f f s i n force are a source of confusion with regard to the nature of the merchandise, as well as to the t a r i f f schedule applicable i n each case . . . 96 3.3.4 The Central American Common Market The Central American economic integration program i s e s s e n t i a l l y an inte r n a t i o n a l cooperative e f f o r t aimed at surmounting the obstacles that stand i n the way of the rapid development of f i v e small countries whose growth i s largely dependent on the world market for a handful of commodities (coffee, bananas, cotton, e t c . ) . Unlike LAFTA, the countries composing the Central American Common Market (Guatemala, E l Salvador, Honduras, Nicaragua, and Costa Rica) (see Map 6), have committed themselves to complete free trade i n the area at a much faster r a t e . Free trade had to be accomplished within f i v e years of the r a t i f i c a t i o n of the agreement (1960). Beneath t h i s action, which appears on i t s surface more purposeful and p o s i t i v e than LAFTA, the same fears were voiced con-cerning equal development i n a l l countries, and a set of reservations (not f u l l y resolved) were presented concerning integrated i n d u s t r i e s . The Central American Common Market was not something that just evolved? on the contrary, i t was f i r s t proposed at the ECLA session of July, 1950, and was gradually molded i n a ten year period replete with studies, suggestions, and tentative agreements (Powelson, 1964). Powelson also mentioned 97 as important the abundant number of studies which preceded the creation of the Union, In fact, he wrote, In proportion to the size of the market, far greater amount of research and thinking has gone into the Central American Union than into LAFTA. Studies have covered such items as i n d u s t r i a l integration, t r a i n i n g i n public administration, research i n i n -d u s t r i a l technology, finance, and development banking, the integration of transportation and e l e c t r i c power, uniform t a r i f f s , and resources. In the agreement of 1960, the signing countries de-cided to eliminate immediately a l l t a r i f f s on goods o r i g -inating within the region except those appearing on a s p e c i f i c l i s t . But even those on the s p e c i a l l i s t were committed to an elimination of t a r i f f s within the i n i t i a l f i v e year period. Two important features of the Central American Com-mon Market deserve a special mention. These are, the stress put on integrated industries and the establishment of a Central American Bank for Economic Integration. Though provisions for integrated industries were substanti-a l l y cut down i n the f i n a l version from what had been e a r l i e r planned, nevertheless, the objective of the agree-ment i s to promote new enterprises that w i l l serve the region as a whole and not i n d i v i d u a l countries. 98 As regards the adoption of a common t a r i f f for ap-p l i c a t i o n to trade with t h i r d countries, the General Treaty served to accelerate the negotiations begun i n 1959 with the signing of the Agreement on the Equalization of Import Duties and Charges. By means of protocols to that agree-ment, during the three years immediately following, uniform duties were established on 1,213 t a r i f f items, or 95% of the t o t a l (Joseph Moscarella i n Wionczek, 1966). Starting from national t a r i f f s designed to serve mainly f i s c a l purposes, the member countries have managed to b u i l d a uniform Central American t a r i f f that f u l f i l l s the requirements of a sel e c t i v e p o l i c y aimed at stimulating the import-substitution process together with an expansion of foreign trade. Based on Joseph Moscarella's findings (Wiomczek, 1966), the average l e v e l of the new t a r i f f i s equivalent to 48%, or 6% higher than the average of the fi v e national t a r i f f s previously i n e f f e c t . On the other hand, the composition of the new t a r i f f incorporates import-ant changes by groups of products. In general, low duties have been fixed for c a p i t a l goods and raw materials not currently produced i n Central America, or not susceptible of production i n the short-run. Duties were set at r e l a t i v e -l y high rates on consumer goods, except for a few ess e n t i a l 99 items not produced in the region. This was largely done with the idea of increasing f i s c a l revenue and encouraging regional industry. 100 SECTION IV DEMAND FOR FOREST PRODUCTS IN LATIN AMERICA The demand for wood products in Latin America, as in any other region of the world, depends largely on a few major factors? namely, availability of productive forests, capacity to develop a sound industry based on these forests and perhaps, most important of a l l , the tastes, standards of living and willingness of the consumers to use wood products in their daily l i f e . In Latin America, the s i t u -ation i s somewhat depressing, because, although the area encloses about 25% of the forested area of the world, forest products consumption has traditionally been low (FAO, 1968). This situation occurs principally because a large proportion of the forests consist of tropical hardwoods or softwoods for which no commercial use has been clearly established. The cost of operations i s increased by climatic and topographical conditions, which, added to capital and technological deficiencies, make i t d i f f i c u l t to operate e f f i c i e n t l y . Latin America's reserves of long fiber softwoods are quite limited. In fact, they are limited to some areas in southern Brazil (Parana pine), southern Chile (Radiata 101 pine)> Mexico (Sp), and Central America (Sp). Because raw material i s limited, the pulp and paper industry has had great d i f f i c u l t y in developing, being today the sector which contributes more than any other to the overall imports of forest products to the region. The rising standard of living Latin America i s experiencing, together with i t s population explosion, w i l l help increase demand in the future. Though the bulk of this demand i s expected to be met mainly from within the region, considerable amounts w i l l have to be imported from other areas of the world. This section i s dedicated to the analysis of these problems and other related questions. Because of insuf-ficient information, individual analyses by countries were not made, except in a few specific cases. Instead, pro-duction, consumption, and demand are presented considering Latin America as a whole. 4.1 Forest Resources of Latin America Despite the fact that more than half of Latin America i s classed as forest land, forestry has not progressed as expected. Many countries, in fact, are actually importing a considerable proportion of their requirements in wood 102 products. This state of affairs can be explained to some extent, by three facts. Most of the forests are at present inaccessible; they consist overwhelmingly of tropical hard-woods? and these hardwood forests usually contain only scattered trees of economic species, hemmed in by others of no commercial value. Broadly speaking, the forests of Latin America may be divided i n i t i a l l y into a large area of tropical forest, mainly lowland but reaching to about 2,000 m in places, and a smaller area of temperate forest, found both outside the tropics and at high altitudes within the tropics. Much of the land classed as forest i s in areas such as northeast Brazil, where conditions are too dry for the growth of commercially useful stands. In addition, the tropical rain forest i s characterized by the occurence of a very large number of species in any given small area, with useful species scattered among more useless ones and, therefore, costly to exploit. Many useful species do in fact occur in areas such as the Amazon, but the limited quantity that can be assembled in any one place and the cost of moving products to markets have so far limited exploi-tation of timber there. 103 The Caribbean coastlands of Central America have been more exploited. Most of the timber produced commercial-l y , rather than for l o c a l consumption, comes from the co n i -fer forests of the South B r a z i l i a n uplands, from southern Chile and from the high ranges of Mexico. The high Andes from Colombia to northern Argentina do not have a continu-ous forest cover and the region was notoriously d e f i c i e n t of forests u n t i l planting of Eucalyptus species began at the end of the nineteenth century (Cole, 1975). Many other parts of L a t i n America, e s p e c i a l l y southern B r a z i l , Uruguay, and parts of Argentina and Chi l e have also greatly benefited from the introduction of these remarkable Australian trees. Chile has managed to b u i l d with these species, together with Radiata pine, a reserve of more than 300,000 hectares of plantations. These man-made forests represent today the most valuable portion of the country's wood resources. The area under forest bears l i t t l e r e l a t i o n s h i p to the actual state of the industry i n La t i n America, but c l e a r -l y the potential i s great since, of the larger countries, only Mexico and Chile are less or equal to one-third covered with forests, while B r a z i l and Colombia are nearly two-thirds covered. 104 Statistics on forest areas, total and in use are given in Table 8. The growing stock of these forests separated into hardwood and coniferous volumes can be found in Table 9. By looking at Map 4, which shows the distribution of the main forest types in Latin America, i t can be readily seen that about half of the total forest resource of the region l i e s in the large area of tropical hardwood forest in the Amazon basin. These forests, however, have hardly been exploited and the majority of the forests now in use are to be found in the more developed and populated areas, such as Central America and Eastern and Central South America. 4.1.1 Economic Characteristics, Geographic Distribution, and  Accessibility of the Native Forests Latin America contains today forests in excess of 1,000 million hectares in area, almost one-quarter of the world's forested land (United Nations and FAO, 1963). South America which has more than 54% of the forests of Latin America represents the highest proportion of forest to total land area in the world and with i t s 950 million hectares of TABLE 8 LATIN AMERICAs FOREST LAND AND USEABLE FORESTS Forest Land Forest i n Use Sub-regions Total Forests, Accessible Conifers Hardwood Forests i n (thousands per cent as per cent (thousands and mixed use as per of ha.) of t o t a l of t o t a l of ha.) woods cent of land area f o r e s t area (thousands t o t a l f o r -of ha.) est area Mexico 38,840 20 100 10,000 13,300 60 Central Americas 29,640 2,495 5,800 B r i t i s h Honduras(Belize) 1,810 80 76 180 1,020 74 Costa Rica 3,620 72 47 1, 500 41 E l Salvador 280 14 100 25 240 100 Guatemala 5,350 51 83 840 1,810 50 Honduras 6,860 54 23 700 300 16 Nicaragua 6,450 47 23 750 750 23 Panama 5,270 71 22 1,180 22 Caribbean islandss 5,000 480 1,630 Cuba 1,300 11 100 110 980 84 Dominican Republic 2,230 47 40 125 75 9 H a i t i 200 7 86 75 125 86 Other Islands 1,270 28 58 170 450 49 Northern South Americas 166,100 7,620 B r i t i s h Guiana 18,130 84 20 260 1-4 French Guiana 7,000 80 21 50 0.7 Colombia 69,400 64 30 5,900 10 Ecuador 14,850 33 30 300 2 Surinam 11,720 84 8 10 Venezuela 45,000 49 17 1,100 2.4 B r a z i l 561,660 66 25 6,000 34,000 7.1 M en Continued TABLE 8 (Continued) Forest land Forest in Use Sub-regions Total Forests, Accessible Conifers Hardwood Forests in (thousands per cent as per cent (thousands and mixed use as per of ha.) of total of total of ha.) woods cent of land area forest area (thousands total for-of ha.) est area South-west South America 137,400 540 21,120 Bolivia 47,000 43 13 6,000 13 Chile 20,440 28 48 490 4,120 23 Peru 70,000 56 21 50 11,000 16 South-east South America 91,460 260 12,550 Argentina 70,000 25 85 250 7,000 15 Uruguay 550 3 100 10 530 97 Paraguay 20,910 51 30 5,020 24 TOTAL 1,030,140 19,775 97,020 Source. United Nations and FA0 (1963 a). o 107 TABLE 9 LATIN AMERICA: GROWING STOCK OF FORESTS. TOTAL VOLUME OF ALL FOREST AREAS (Including Non-Commercial Species) (Million m^  without bark) Sub-regions Total Conifers Hardwoods Mexico 4,900 500.0 4,400 Central Americas British Honduras (Belize) 205 5.0 200 Costa Rica 600 660 E l Salvador 36 1.5 35 Guatemala 820 40.0 780 Honduras 1,035 35.0 1,000 Nicaragua 1,020 20.0 1,000 Panama 1,000 1,000 Sub-total 4,776 101.5 4,675 Caribbean islands: Cuba 243 3.3 240 Dominican Republic 289 3.8 285 Haiti 118 3.0 115 Other islands 190 5.0 185 Sub-total 840 15.1 825 Northern South Americas British Guiana 3, 620 3, 620 French Guiana 1,130 1,130 Colombia 11,800 11,800 Ecuador 2,460 2,460 Surinam 2,210 2,210 Venezuela 5,630 5,630 Sub-total 26, 850 26,850 Brazil 79,150 150.0 79,000 South-west South Americas Bolivia 6,960 6,960 Chile 3, 820 100.0 3, 720 Peru 11,100 0.2 11,100 Sub-total 21,880 100.0 21,780 South-east South Americas Argentina 3,195 15.0 3,180 Uruguay 98 2.7 95 Paraguay 1,940 1.940 Sub-total 5,233 17.7 5,215 Total 143,629 884 142,745 Sources United Nations and FAO (1963 a). 108 forest i t has the largest timber reserve i n the Western Hemisphere. In Central America the proportion of land area under forests f a l l s to 24%, but these are more accessible than i n South America because of a smoother topography and higher density of population (United Nations and FAO, 1963). Of a l l the forests of L a t i n America, le s s than one-t h i r d are considered to be accessible (300 m i l l i o n hectares), of which, i n turn, another t h i r d (110 m i l l i o n hectares), i s presently being u t i l i z e d (FAO, 1967 a ) . The t r o p i c a l r a i n type forest predominates i n the areas classed as inaccessible. Because of the lower proportion of the forests used, there are large areas of accessible but not exploited woods? these w i l l eventually be put to use as other reserves around the world become exhausted. According to the j o i n t publication of the United Nations and FAO, "Latin America Timber Trends and Prospects" (1963), the forests of the region vary considerably i n t h e i r l o c a t i o n with respect to population. The forests i n Chile, for example, are located reason-ably close to the population centres and the forest industries are we11-developed. By contrast i n the Amazon basin the population i s t h i n l y spread and the forests are not subject to the same uses as i n other parts of L a t i n America. 109 Many of the factors which i n t e r f e r e with forestry e x p l o i t a t i o n are common throughout the region and have been c l a s s i f i e d i n decreasing order of importance as follows: a low concentration of presently commercially valuable tree species (often only 5% of the t o t a l volume i n hardwood types)? poor communications? d i f f i c u l t terrain? and poor seasonal weather conditions (United Nations and FAO, 1963 a). The f i r s t obstacle i s presently being taken care of, but progress i s rather slow because of d i f f i c u l t i e s i n obtaining new commercial outlets for the secondary species. Communications are being improved i n most of the countries i n the region and t h i s has brought into production an i n -creasing number of forests which used to be considered of no commercial value. With the introduction of better and cheaper extraction equipment t h i s trend i s expected to p e r s i s t thus considerably increasing the i n d u s t r i a l use of the t o t a l forest i n the region; and as part of t h i s develop-ment, great hopes have been put into the use of more sophi-st i c a t e d logging equipment such as wide-track c a t e r p i l l a r s and low pressure four wheel drive t r a c t o r s i n swampy places. Because of the c a p i t a l costs r e l a t e d to highly mech-anized a c t i v i t i e s , i t i s expected that primitive human and 110 animal labour w i l l s t i l l play an important r o l e i n timber harvesting and, therefore, output w i l l be somewhat limited both i n quantity and i n q u a l i t y . This problem, added to the existence of seasonal working can mean a serious draw-back on future production i n L a t i n America, mainly because timber extraction w i l l have to be concentrated i n the d r i e r months and the wood-processing plants be forced to stockpile timber for the rainy season. 4.1.2 Man-made Forests Plantations of forest trees i n L a t i n America are to be found mainly i n South America. These now cover more than one and a h a l f m i l l i o n hectares, and are being added to at a rate of over 150 thousand hectares a year (United Nations and FAO, 1963 b ) . According to the figures given i n Table 10, a r t i f i -c i a l forests are most extensive i n B r a z i l (700 thousand hectares, created p r i n c i p a l l y out of Eucalyptus species). In second place i s Chile which accounts for h a l f of B r a z i l ' s figure (350 thousand hectares, mainly of Radiata p i n e ) . C h i l e i s currently planting i n excess of 35,000 hectares annually, with a possible 50,000 hectares by 1970, Argentina I l l TABLE 10 iATIN AMERICA? FOREST PLANTING BY COUNTRY (thousand of hectares) Region Area Planted Planting Plans P r i n c i p a l to 1963 1963 to 1967 Species Planted L a t i n America 1,650 592 Eucalyptus spp Pinus spp. B r a z i l 700 o o Populus spp. Chile 350 100 S a l i x spp. Argentina 260 50 Araucaria a n g u s t i f o l i a Uruguay 140 20 Cuba 106 182 Mexico 50 Guatemala 22 94 Other countries 22 146 Sources FAO, (1967 d ) . has plantations mainly of Poplars and Willows, and i n 1963 had almost 260,000 hectares of these species„ Uruguay has planted p r i n c i p a l l y Eucalyptus and Pines, managing to b u i l d a reserve of 100,000 hectares. While Cuba, Chile, and Guatemala have the greatest planting rates of L a t i n America, 182,100, and 94 thousand hectares respectively for the period 1963-1967, B r a z i l and Mexico have p r a c t i c a l l y stopped planting and, therefore, t h e i r forest plantations have recently remained rather s t a t i c and perhaps even decreased i n area due to harvesting. Planting plans to 1967 for other American countries include 112 B r i t i s h Honduras 4,000 hectares, Honduras 10,000 hectares, Ecuador 32,000 hectares, Surinam 5,000 hectares, B o l i v i a 70,000 hectares, and Peru 25,000 hectares (FAO, 1967). During the l a s t few years, planting rates have i n -creased considerably and emphasis has been placed on plant-ing conifers rather than hardwoods. This r e f l e c t s the region's d e f i c i t of long f i b r e raw materials. Most of the plantations i n L a t i n America are managed on short rotations (10 to 25 years). They carry a growing 4 stock of 200-300 m3 per hectare and more, and usually grow at a rate of 10-15 m3 per hectare annually. Rates as high as 30 m3 and over are not uncommon, e s p e c i a l l y with Radiata Pine i n Southern Chile, where averages of 25 m3 per hectare are normal (United Nations and FAO, 1963; and casasempere, 1967) . The most important reason for the widespread crea-t i o n of plantations i n L a t i n America i s r e l a t e d to wood needs which the l o c a l indigenous forests cannot f u l l y meet, such as railway sleepers, posts, poles, mine timbers, wood packaging, and pulp and paper (Casasempere, 1970) . Based on FAO's findings (1963), production from plantations i n the region i s estimated at 12 to 15 m i l l i o n m3 per year, an 113 amount which represents about 6% of the total regional re-movals of roundwood. Nevertheless, in terms of plantation area this figure represents only a fraction of one percent of the total area, thus giving a good idea of how important this type of forestry has become in Latin America during the last few decades. 4.2 Forestry Trends in Latin America In the early 1960's, Latin America was the richest region of the world in terms of forest area per capita (5.3 hectares against 1.1 hectares in the rest of the world), and at present i t s t i l l i s . For many years this apparent wealth was known to most Latin Americans, nevertheless, l i t t l e has been done to exploit i t . This state of affairs could have continued for many more years had not certain facts struck heavily on the local economies. In the f i r s t place, the region was found to be ex-porting annually only 50 million dollars (U.S.) worth of wood and wood-based products while importing 300 million dollars. In the second place, i t had become clear that economic development and ri s i n g standards of l i v i n g brought considerably increased needs for wood, a commodity essential for housing, railways, mines, and factories, books, newspapers, 114 commerce and marketing. The countries of the region then r e a l i z e d that unless more forest products were made within the area, imports would increase disproportionately or, al t e r n a t i v e l y , there would be a shortage of items v i t a l for material and c u l t u r a l progress (United Nations and FAO, 1963). In t h i s way, under pressure for development, fore s t r y projects were given p r i o r i t y a l l over L a t i n America. Response i n production came to a greater or lesser degree, depending on each i n d i v i d u a l country and on i t s needs to substitute imports. The problems of the agriculture sector also have had an important bearing on fo r e s t r y development. Governments have often permitted increasing a l i e n a t i o n of areas pre-sently forested to agriculture thus considerably depleting the forests of the region. Not only has physical timber output been affected but many other values of the forest resource have suffered. The consequences of uncontrolled a l i e n a t i o n can be presently viewed i n many ways. Rivers i n Southern Chile, navigable to ocean-going boats only a few decades ago are now s i l t e d up. S h i f t i n g agriculture has r a d i c a l l y transformed the landscape, and vast green areas have given way to desert mainly through devastating erosion and changes i n the microclimate. In parts of B r a z i l 115 deforestation of the uplands has meant that a number of rivers on which towns depended for hydroelectricity have dried up. As mentioned in a United Nations and FAO report (1963 a) It i s these, and the countless similar facts that could be recited i f space allowed, that provide a warning for those who would seek solace in the crude stati s t i c s which depict the region as singu-l a r l y rich in forest. The abundance of forest and forest land in Latin America can, therefore, only be regarded as wealth within import-ant limits and their usefulness i s restricted. Unless adequate safeguards are provided, no real progress in out-put can be attained without liberating catastrophic con-sequences in other sectors of the economy or endangering the potential for future generations. 4.2.1 An Expanding Role for Forestry Great efforts to industrialize Latin America have recently been made and everything indicates this process w i l l continue to grow. The forest industries have been receiving careful attention and have grown particularly fast in certain areas. It has lately been recognized that social betterment cannot be promoted without vastly i n -creased quantities of processed wood. 116 According to United Nations and FAO (1963 b), L a t i n America's need for i n d u s t r i a l wood around 1985, i s expected to be nearly three times greater than i t was i n the early 1960's. Taking the forecast one step forward, t h i s same study foresees that by 1985 the region w i l l require two-and-a-half times as much sawnwood, eight times the volume of wood-based sheet materials, and s i x times as much pulp and paper as i t consumed i n 1963. Another factor which j u s t i f i e s the present attention which the forest industries are given i s t h e i r r o l e i n check-ing the d r i f t of r u r a l population to the b i g towns and urban areas. To many i t i s clear that, because the wood-based industries require to be located close to the source of raw material, they are generally b u i l t away from urban centres. These industries do not normally gravitate to the b i g c i t i e s as others do i n search of external economies, and, therefore, producing congestion, over-crowding and overtaxed u t i l i t i e s . Furthermore, t h e i r development often can be re l a t e d to colon-i z a t i o n and settlement schemes where t h e i r a c t i v i t y provides for new employment opportunities and r a i s e s the incomes of the community. A l l these implications are now widely understood i n 117 L a t i n America, r e s u l t i n g i n a substantial growth of a l l f o r e s t r y a c t i v i t y . In many countries ample encouragement has been given to new forest industries l a r g e l y for the reasons just mentioned, but also because of their e f f e c t -ive import-saving capacity. The growth of the forest industries, however, though s a t i s f a c t o r y i n many ways has not been good enough as to prevent the adverse trade balance on the wood products account. In 1962 i t was estimated that for pulp products alone, extra needs by 1975, i f met completely through imports, would add around one b i l l i o n d o l l a r s to the import b i l l of La t i n America, i f the extra demand was to be met f u l l y from within the region, average yearly investments of up to 190 m i l l i o n d o l l a r s would be required for the period 1963-1975, i n order to create the necessary f a c i l i t i e s (United Nations and FAO, 1963). A negative influence i n the past has been the lim i t e d s i z e of the domestic markets for fore s t r y related commodit-ies . This condition has been acute for those products which depend heavily upon economies of scale for lower costs. For-tunately, the regional markets are now expanding and a high income e l a s t i c i t y of demand has been noticed for most of the wood and wood-based products. 118 L a t i n America has always been praised for i t s abundant forest resources. Today i t i s known that not a l l of them are of value, and that of those that are, many l i e where they cannot be economically reached. others, due to t h e i r heter-ogenity pose serious exploration problems. However, the region also has many areas which, owing to t h e i r p a r t i c u l a r s o i l s and climate, are i d e a l for the creation of new f o r e s t s . In these places where trees grow i n c r e d i b l y fa s t and pressure for land i s almost non-existent, forest production can be increased at comparatively low cost and with l i t t l e r i s k . These pronounced natural advantages point to a p o t e n t i a l r o l e for L a t i n America as a supplier of c e r t a i n forest products to other regions of the world. Plantation forestry has l a r g e l y made a notable contribution towards s a t i s f y i n g forest products demand i n several L a t i n American countries, and some export oriented industries have already been developed (United Nations and FAO, 1963b). For almost 300 years, L a t i n America has been c a l l e d "the region with a future." However, t h i s p o t e n t i a l has yet to be f u l l y r e a l i z e d . Today, everything indicates that L a t i n America i s not w i l l i n g to wait for that future. From a l l around the region come demands for more and improved edu-cation, better housing f a c i l i t i e s and higher n u t r i t i o n a l 119 levels. In order to meet these greater demands, Latin America w i l l have to find newer and superior ways of com-bining i t s human, cultural, and natural resources, ways which w i l l f i n a l l y promote sustained economic development. The region has had d i f f i c u l t i e s in meeting a l l forest products demands from within. Traditionally imports have been required to meet these deficits and always a much greater proportion of pulp and paper has been required than any other wood products. There are indications that Latin America has succeeded in developing comparative ad-vantages in sawnwood while f a i l i n g to do so in the wood-fiber related products. A quick review of the data av a i l -able shows that this trend w i l l continue in the years to come, and while Latin America i s expected to have a more fav orable balanced trade by 1975 in such, products as sawnwood, plywood, veneer, fibreboard, and particle board, pulp and paper imports w i l l continue at a high level, especially in the area of high grade pulps and newsprint (FAO, 1967 d). Because of this, major efforts are currently being made to increase output in pulp and paper, but also outputs are being increased of those products with comparative ad-vantage . It i s realized that increased output of these other products w i l l enable the region to carry on profitable 120 international trade thus generating enough foreign exchange to import other wood products. Intensive management and e x p l o i t a t i o n of a number of valuable hardwood species, for lumber, veneer, and plywood i s being promoted as they are current l y very well accepted i n North American, European, and Asian markets. Despite the fact that by 1975 L a t i n America w i l l s t i l l require to import about 1.24 m i l l i o n tons of paper and paper board, and 192 thousand tons of pulp, the development of newer exports i n a number of other items i s expected to help mitigate s u b s t a n t i a l l y the trade d e f i c i t i n these products. (FAO, 1967 a ) . 4.2.2 The Forest Industry About the forest industry i n L a t i n America i t needs to be said that i t covers a wide range i n sizes, quality, e f f i c i e n c y and type of product. Sawmilling Industry There are about 15-20,000 sawmills i n the region, t h e i r exact number i s yet unknown. In the same year, Sweden produced a s l i g h t l y smaller amount, but with 4,000 m i l l s , which gives a good idea of the small average size of the region's sawmills (FAO, 1967c) . 121 The industry i s generally underpowered, poorly equipped and managed, and seldom works to capacity. I f i t s f a u l t s were corrected, i t would produce better q u a l i t y sawnwood and probably i n enough quantity to meet the i n t e r -nal demand over the next 10 years (FAO, 1967c) . Most sawmills have c i r c u l a r saws which are comparatively easy to use and cheaper than other types of saws. The fact that these saws cause wastage and a rather low quality product, has i n no way r e s t r i c t e d t h e i r widespread use. (FAO, 1968) An important reason for t h i s happening i s the abundance of low value logs and the existence of an un-demanding market which i s more interested i n price than i n q u a l i t y . There can be found some well-equipped and w e l l -organized sawmills, with modern machinery, power plants, mechanical handling and highly sophisticated technology. Regretably, these are few i n number. Several factors are responsible for poor standards of most m i l l s , but the one which has the greatest bearing probably i s the lack of c a p i t a l . Wood-based Panel Industry There are about 300 to 400 plywood and veneer m i l l s i n L a t i n America which produce approximately 480,000 m3. An important feature of the industry i s that about 50% of 122 a l l the m i l l s are located i n one c o u n t r y — B r a z i l . The average m i l l size, as i n sawmilling, i s generally small and most of the plants are equipped with very old machin-ery. The finished product i s i n most cases of a low qu a l i t y and ungraded. Only a few m i l l s are able to produce a product with the necessary c h a r a c t e r i s t i c s to be accept-able i n the export market. The condition of the panel board industry d i f f e r s r a d i c a l l y from that of plywood and veneer, as i t s produc-t i o n standards are more accordance with those e x i s t i n g i n other countries. There are t h i r t y board plants i n L a t i n America with a production reaching 130,000 m3 i n 1968. Most of these m i l l s started by using sawmill and/or plywood m i l l residues for raw material, but today they have sh i f t e d towards d i r e c t use of roundwood. The fi n i s h e d product i s of a superior quality, though somewhat expensive because of the high cost of glues which are normally imported. The twelve e x i s t i n g fibreboard plants, concentrated i n only eight countries, produced 2 50,000 m3 i n 1965. A few of these m i l l s manufacture ins u l a t i n g and hard boards as well as the so-called "formica"(Plastic covered) type. Most of the industry i s dependent upon wood for raw material 123 although a few plants operate on sugar cane bagasse, mainly i n Cuba and Venezuela. Pulp and Paper Industry In the ninth FAO regional conference for L a t i n America held i n December 1966 i n Punta del Este, Uruguay, the pulp and paper industry of the region was outlined by the conference s e c r e t a r i a t (FAO) as follows; The pulp industry (1965) had a capacity of some two m i l l i o n tons a year—550,000 tons of mechanical pulp from 165 plants, and 1,400,000 tons of semi-chemical and chemi-c a l pulp from 70 plants. Five large chemical-pulp plants accounted for 30% of a l l pulp produced. The paper and paperboard industry had a capacity of 3,120,000 tons per annum—there were 13 newsprint plants with a capacity of 380,000 tons per annum and 282 paper and cardboard plants with a capacity of 2,750,000 tons per annum. These pulp and paper plants are often below the minimum economic size and the conditions under which they operate do not permit them to supply the market with good products at competitive p r i c e s . Although conditions are improving and there i s a d e f i n i t e trend towards meeting 124 requirements from national production, there are obstacles to an expansion of the industry. These ares the limited s i z e of many national markets? the d i f f i c u l t i e s of small or old low-quality plants i n financing t h e i r own expansion and improvement? the high cost of obtaining pulp of national o r i g i n and the s c a r c i t y of long-fibre raw materials for pulp production? and, f i n a l l y , the lack of economic i n f r a -structure . The growing demand w i l l probably favour the establishment of large units for the production of common types of pulp and paper which u n t i l recently were imported. Prospects for 1975 are that with the exception of ce r t a i n types of pulp and paper such as newsprint, for which long-f i b r e woods are required^the expansion of the industry w i l l make i t possible to meet some 80% of the t o t a l demand. 4.3 Consumption of Wood and Wood-based Products i n  La t i n America 4.3.1 Sawnwood As has already been mentioned i n the introduction to Section IV, La t i n America has about 25% of the world's f o r e s t s . Despite t h i s wealth and extraordinary number of sawmills (see Section 4.2.2), sawnwood consumption has 125 developed quite slowly, i n fact the region only consumes 3 at present 13 m i l l i o n m , which represents just 4% of the world's sawnwood consumption. Most of the sawnwood consumed i n L a t i n America i s produced within the region. Only Peru and a few Caribbean nations s t i l l import wood from countries outside L a t i n America. Apparent consumption varies very much among countries. B r a z i l , the main producer and consumer, accounts for about 44% of t o t a l consumption, while Argentina, Mexico, Colombia, and Ch i l e together consume only 35%. Of a l l sawnwood consumed i n the region, 60% goes to the construc-t i o n industries and, therefore, small changes i n b u i l d i n g projects greatly influence the o v e r a l l l e v e l of demand ^ (FAO, 1968g) . In Table 11 i s shown the s i t u a t i o n i n 1956-59, and 1965, as well as estimates of the s i t u a t i o n i n 1975 and 1985, regarding consumption of sawnwood. By looking at Table 11 i t can be deduced that during the 1965-1975 period consumption of sawnwood i s expected to grow at an average rate of 12.2%, while during 1975-1985 i t i s estimated to grow at a somewhat slower rate of 10.6%. Nevertheless, i t i s estimated that by 1985 126 TABLE 11 LATIN AMERICA; APPARENT CONSUMPTION OP SAWNWOOD AND DEMAND FORECASTS (THOUSANDS OF m3 (s)) Year Coniferous Broadleaved Total % Of % of total total 1956/59 5,200 43 6, 900 57 12,100 1965 6,300 48 6,700 52 13,000 1975 9,400 45 11,500 55 20,900 1985 14,400 45 17,600 55 32,000 Source; FAO* 1968 g. consumption w i l l be 32 million m3, 2.46 times greater than in 1965. Also, requirements are expected to remain more or less constant as regards the species u t i l i z e d . Coniferous wood consumption w i l l remain at about 45%, while broadleaved w i l l be at 55%. Total demand especially that of broadleaved species i s expected to be met mainly from within the region. As for coniferous species, however, regional production might be much lower than consumption. This i s largely due to the fact that 97% of a l l Latin American forests are made up of broadleaved species and only 3% of coniferous species. (FAO, 1968g). 127 4.3.2 Wood-based Panel Products Consumption of panel products has been growing con-stantly during the l a s t decade. From 1956/59 to 1965 i t rose about 40%, mainly because of the growth experienced i n p a r t i c l e and f i b r e board consumption of 600% and 270% res p e c t i v e l y . The figures shown i n Table 12 indicate that a rapid growth i n consumption of panel products i s to be expected r i g h t through to 1985. An exception w i l l be the case of plywood 1/ where the growth rate i s expected to decline over the 10 years following 1975. TABLE 12 LATIN AMERICAs APPARENT CONSUMPTION OF WOOD-BASED PANEL PRODUCTS AND DEMAND FORECASTS. (THOUSAND OF m3) Year Plywood and P a r t i c l e - F i b r e - Total Veneer Board Board 1956/59 540 20 SO 640 1965 550 123 215 888 1975 950 650 850 2,450 1985 1,400 1,700 1,900 5,000 Sources FAO, 1968 g. 1/For the purpose of t h i s section of the study, "plywood" includes veneer. 128 By 1985 t o t a l consumption of panel products w i l l r i s e to 5 m i l l i o n m3, more than double the expected demand i n 1975. This w i l l l a r g e l y be due to the greater a c c e p t a b i l i t y p a r t i c l e boards and fibreboards are expected to acquire. The pattern of consumption w i l l , therefore, change greatly and dominancy w i l l move from the plywood and veneer group to the fibre-board group. At present B r a z i l absorbs s l i g h t l y more than h a l f of the regional demand for panel products. Argentina, despite the fact of being the largest panel producing country i n L a t i n America, has a t o t a l consumption lower than B r a z i l . 4.3.3 Pulp and Paper P r a c t i c a l l y a l l wood pulp i n L a t i n America i s employ-ed to make paper and paperboard, only a very small quantity i s employed for making d i s s o l v i n g pulp (FAO, 1968). Of a l l the pulp and paper plants i n the region, only one i s designed to produce d i s s o l v i n g pulp from wood, therefore, past con-sumption and future demands w i l l be analyzed from the point of view of the end products. In Table 13 i s shown the development i n the apparent consumption of paper and paperboard and demand forecasts. 129 TABLE 13 LATIN AMERICAs APPARENT CONSUMPTION OF PAPER AND PAPERBOARD, AND FUTURE PROSPECTS (THOUSANDS OF METRIC TONS) Year Newsprint Other Printing and Other Papers Total Writing Papers and Boards % 1955 483 27 373 21 912 52 1,768 1965 767 22 576 17 2,071 61 3,415 1975 1,514 22 1,125 16 4,490 62 6,929 1985 2,944 21 2,055 15 8,876 64 13,875 Sources FAO, 1968g. In 1935, Latin America consumed only 625,000 tons of paper and paperboard. Its per capita consumption in that same year was 5.5 Kg. Thirty years later, in 1965, apparent con-sumption had risen to 3,400 million tons. Despite popula-tion growth, per capita consumption had also grown rapidly, rising more than 2h times and reaching a new level of 14.3 Kg (FAO, 1968d). Latin America, however, i s s t i l l far behind the con-sumption levels of more industrialized nations. Demand should, therefore, be expected to increase as economic develop-ment and new income levels are attained in the region. 130 According to Table 13; apparent consumption of pulp products w i l l be about 7 million tons in 1975, a figure which i s estimated to double by 1985 to slightly less than 14 million tons. Although demand for a l l three groups i s forecast to increase, newsprint and other printing papers w i l l become relatively less important. These trends are probably a reflection of the greater need that w i l l exist for industrial papers compared to that of cultural papers. Consumption of paper and paperboard in Latin Ameriea has traditionally been concentrated in three countries. These are Argentina, Brazil, and Mexico which in 1965 ac-counted for 65% of total consumption. Based on the pro-jections by countries for 1975 and 1985 shown in Table 14, this pattern of consumption should be expected to suffer very l i t t l e change in the future. Consumption of paper and paperboards w i l l , therefore, continue to be concen-trated in a few countries and Brazil, Mexico, and Argentina w i l l continue to absorb 65% of total consumption, while another 30% w i l l be concentrated in Venezuela, Colombia, Cuba, Peru, Chile, and Ecuador. TABLE 14 LATIN AMERICA, DEMAND PROJECTIONS FOR PAPER AND PAPERBOARD BY COUNTRIES, 1975 and 1985 1 9 7 5 (thousand of metric tons) 1 9 8 5 Newsprint Printing Other paper Total Newsprint P r i n t i n g Other paper Tot< & Writing and paper- & Writing and paper-Paper board Paper board Argentina 290 160 480 930 440 260 750 1,450 B o l i v i a 5 4 6 15 9 8 15 32 B r a z i l 359 293 1,246 1,898 800 400 2,800 4,000 Colombia 104 47 275 426 206 100 551 857 Costa Rica 10 3 29 42 18 6 54 78 Cuba a/ 98 61 293 452 169 111 536 816 Chile 81 68 117 266 145 122 225 492 Ecuador 23 7 110 140 47 17 155 219 B I Salvador 16 4 23 43 29 7 42 78 Guatemala 9 3 14 26 17 5 25 47 H a i t i a/ 1 1 3 5 3 3 18 24 Honduras 3 2 13 18 5 3 24 32 The Guianas a/ 4 1 9 14 10 3 19 32 Mexico b/ 308 347 1,007 1, 662 678 781 2,326 3,785 Nicaragua 6 4 25 35 12 8 49 69 Panama a/ 6 4 30 40 11 8 70 89 Paraguay 2 1 4 7 4 1 7 12 Peru 71 42 151 264 139 83 306 528 Dominical Republic a/ 6 4 30 40 12 9 69 90 Uruguay 37 14 25 76 50 20 35 105 Venezuela 75 55 400 530 140 100 800 1,040 Other Caribbean Islands T O T A L 1,514 1,125 4,290 6,929 2,944 2,055 8,876 13,875 Sources Indicative World Plan. a/ L a t i n American Timber Trends and Prospects. b/ E l Papel y l a Celulosa en America Latinas Situaci6n Actual y Tendencias Futuras de su _o Demanda, Produccion e Intercambio; E/CN.12/570/Rev3? for 1975, and estimation of Pulp M and Paper Advisory Group for 1985. 132 4.4 Prospects f o x Increasing Production and Meeting  Demand in Latin America Having established the future expected levels of consumption for wood and wood-based products in Latin America, the possibility of meeting demand from within the region needs to be analyzed. If production grows as fast as consumption i s expected to develop, imports w i l l con-tinue to be made so long as any Latin American country decides to s e l l overseas instead of regionally. If this happens, Latin America as a whole w i l l only be exporting through a given port what i t eventually w i l l have to import through another. If production does not keep pace with consumption, increased imports w i l l be required. This being the case, net deficits w i l l force consumers to look for supplies outside Latin America, i f domestic consumption i s not to be restricted and economic growth retarded. 4.4.1 Raw Material Requirements Production forecasts have been made for Latin America but the development of the forest industry is anything but clear, especially in regard to investments and inovation 133 of the newer plants. Very important shortcomings presently exist in the industry. Their solution does not depend on solving a few direct problems but i s linked to more basic economic, social, and p o l i t i c a l deficiencies of the region. It i s , therefore, d i f f i c u l t to say how much and where output w i l l increase. Rising demand i s an incentive but, t r a d i -tionally, the forest industry has encountered tremendous d i f f i c u l t i e s in keeping pace with i t , and more than often i t has fallen far behind as in the case of the pulp and paper sector. There are, however, good reasons to believe that certain sectors such as sawnwood and wood panel products w i l l enjoy more rapid development. Latin America has a l -ready developed some comparative advantages in these pro-ducts and their growth i s somewhat assured by the existence of abundant raw material. This last factor i s one of the main shortcomings of the pulp and paper industry where the shortage of long fibre sources has more than once r e s t r i c t -ed i t s development (see Sections 4.1 and 4.2.2). To be in a position to supply i t s rising demand for long fibred wood, Latin America w i l l have to increase i t s rate of afforestation with coniferous species. The suc-cess of past experiences has clearly indicated the potential of developing such a resource. While i n the short-run most of the pulp and paper produced w i l l be intended for regional consumption, wide spread plantations could i n the long-run transform s e l f s u f f i c i e n c y into a valuable export business. Considerable growth i n fore s t r y i s currently being promoted, i f not to f u l l y meet demand i n a l l sectors, at least i n enough quantity to assure minimum consumption. The governments, and also the people, of L a t i n America now understand the consequences of a poor forestry develop-ment to the i r economies. I f regional production i s unable to keep pace with demand, the region w i l l be forced to s a t i s f y demand by means of imports, thus aggravating i t s present d e f i c i t of 200 m i l l i o n d o l l a r s per annum i n forest products (not including manufacturers)(FAO, 1963a, 1967b, and 1968g). Given the present problems i n the balance of payments additional imports are un l i k e l y to be raised e a s i l y . But i f t h i s i s not done and production i s not increased, L a t i n America w i l l be unable to implement f u l l y i t s s o c i a l and economic programs, e s p e c i a l l y as regards education and housing development. 135 Roundwood Despite the predictable increase i n the u t i l i z a t i o n of wood residues and other sources of f i b r e such as sugar cane bagasse? future demand w i l l make i t necessary to have larger amounts of disposable wood to supply the industry^ $A0 (1968), estimated that by 1935 L a t i n America w i l l have to produce 54 m i l l i o n m^  of coniferous wood and 58 m i l l i o n m3 of broadleaved wood ( a l l roundwood), i f i t i s to supply i t s own demand for i n d u s t r i a l f orest products. Generally speaking because of the poor present conditions of the i n -dustry t h i s objective w i l l be d i f f i c u l t to f u l f i l , especi-a l l y when r e f e r r i n g to the pulp and paper sector. In r e -l a t i o n to sawnwood and wood panel products the present p o s i -t i v e balance of trade should be expected to continue and La t i n America should not encounter much trouble i n keeping pace with demand. I t i s believed that no large invest-ments would be required i n order to increase production simply by 50%, simply by taking production up to capacity, This could be done by improving the management and u t i l i -zation of ex i s t i n g plants and equipment (FAO, 1963a, 1968g) (also see Section 4.2.2). The t o t a l amount of roundwood required by L a t i n America i n 1985 w i l l be of the order of 112 m i l l i o n m3. 136 Of t h i s amount, 58% w i l l be used by the sawmilling industry, t h i s i s 64„8 m i l l i o n m3; the pulp and paper sector i s to use 34% (38.5 m i l l i o n m3)? and only about 8% s h a l l be r e -quired by the wood panels sector (9 m i l l i o n m ). Plantations Reforestation now covers about 1.5 m i l l i o n hectares i n L a t i n America, including one m i l l i o n hectares of broad-leaved species and one-half m i l l i o n hectares of conifers (see Section 4.1.2). Given the underdeveloped condition of the region, these plantations constitute a very s i g n i f i c a n t achievement, but they by no means have exhausted the enormous p o s s i b i l i t i e s offered by extensive areas a l l over Central and South America. On the other hand i t has also been recognized that the present r e f o r e s t a t i o n programs are not r e l a t e d to consumption trends i n the region. Therefore, there e x i s t s an urgent need for an updating of the plantation rates so as to avoid, wherever possible, future d e f i c i t s i n regional wood production. At the Tenth Session of the L a t i n American Forestry Commission of the FAO (1967), i t was estimated that to reach the already mentioned production targets for 1985, an 137 annual plantation program of 300,000 hectares had to be implemented. This annual rate was then considered the minimum advisable figure, given the r i s i n g pressure of demand for wood products. The Commission noted the d i f f i c u l t i e s involved i n obtaining the funds required for a program of t h i s magni-tude (U.S. $58-60 m i l l i o n per year) on favourable terms, but i t also emphasized the importance to L a t i n America of supplying i t s own needs for raw material. S a t i s f a c t i o n was expressed regarding the existence of c e r t a i n favour-able prospects for i n t e r n a t i o n a l finance i n s t i t u t i o n s to supply c r e d i t , not only for the establishment of forest plantations, but also for t h e i r subsequent u t i l i z a t i o n . These prospects, however, were not unlimited and, there-fore, quantitative evaluations of the production and i n -d i r e c t benefits of the r e f o r e s t a t i o n programs had to be made. This was necessary i n order to assess the r e s u l t s which could be expected from the investments and to decide p r i o r i t i e s between d i f f e r e n t p rojects. 4.4.2 Requirements and Potential Development of the Forest Industries to 1975. In 1966, the Regional O f f i c e for L a t i n America of 138 the FAO evaluated the forest industries of the region and t h e i r development. At the Ninth FAO Regional Conference for L a t i n America held i n Punta del Este, Uruguay i n December 1966 the following evaluation was presented. In the opinion of the Conference Secretariat, the capacity of the forest industries was i n s u f f i c i e n t to meet demand and the region as a whole was a net importer of wood products. Provided that the current trend i n regional production continued, i t was believed that by 1975 a sub-s t a n t i a l proportion of the demand for these products could be met from within the area i t s e l f . Table 15 shows an estimate of the expected s i t u a t i o n i n 1975 regarding sawnwood, plywood, and veneer, p a r t i c l e board, and f i b r e board. TABLE 15 REGIONAL PRODUCTION OF SAWNWOOD, PLYWOOD AND VENEER, PARTICLE BOARD, AND FIBRE BOARD IN 1975 Product Possible Production thousands of m3  Sawnwood 2 5,000 Plywood and Veneer 900 P a r t i c l e board 500 Fibre board 450 Sources FAO, 1967 a. 139 For pulp, paper, and paperboard, considerable growth was also expected, however, not as much as i n the sawnwood and wood panel sectors. Provided that an extra-ordinary e f f o r t was made, L a t i n America, i t was believed, could develop i t s pulp and paper industry by 1975, to the point where most of the demand for pr i n t i n g papers and pulp could be met. Nevertheless, there would s t i l l be a short-age i n the newsprint sector as well as i n t o t a l pulp pro-duction. Table 16 shows the expected s i t u a t i o n of the pulp and paper industry i n 1975. TABLE 16 REGIONAL PRODUCTION OF PULP, PAPER, AND PAPER-BOARD IN 1975 Product Possible Production thousands of tons Pulp 4,230 Paper and Paperboard 5,650 Sources FAO, 1967 a. To be able to reach the l e v e l of production shown i n Tables 15 and 16, L a t i n America must follow a minimum de-velopment plan which would stimulate output. This plan, among other things, includes the need to incorporate forestry 140 i n regional economic projects and to esta b l i s h more dynamic forest p o l i c i e s . FAO's (1967a) recommendations for the proposed program may be summarized as follows; Forestry a) Carry out pre-investment studies on 50 m i l l i o n hectares of unworked forest over the next 10 years. b) Bring 20 m i l l i o n hectares of accessible unworked forest into well-managed production. c) Increase a f f o r e s t a t i o n to 300,000 hectares per annum, p a r t i c u l a r l y with quick-growing, long-fibred species, as r a p i d l y as possibl e . d) Protect 20 m i l l i o n hectares of accessible forest areas threatened with destruction, over the next 10 years. e) Introduce proper management over the next 10 years to 50 m i l l i o n hectares of the forest now being u t i l i z e d , ex-tending t h i s to cover a l l u t i l i z e d forests by 1985. f) Extend watershed management, protective a f f o r e s t a -t i o n and torrent control over 5,000,000 hectares during the next 10 years. 141 Forest Industry a) Sawmilling: increase annual production by 12 3 million m of sawnwood by 1975. b) Panel industrys increase veneer and plywood 3 production by 450,000 m by 1975. c) Pulp and paper industrys increase annual pro-duction by 1,720,000 tons p.a. and paper and cardboard production in 2,120,000 tons p.a. by 1975. Forest Services a) Strengthen the forest services to enable them to implement more dynamic forest policies. Institutions a) The educational and training effort needed over the next 10 years should be gauged from additional manpower requirements of approximately 2,500-3,000 forest engineers, 5,000-6,000 technicians, 20,000-30,000 forest rangers, 1,000-1,500 forest industry specialists, 1,000-3,000 forest industry technicials, and 6,000-7,000 forest industry foremen. Investments a) A l l these actions and goals to accelerate for-estry development involve, at the regional level, a minimum 142 investment during the next 10 years of not less than U.S. $1,500 m i l l i o n , bringing t o t a l investment requirements i n the forest industries sector to some U.S. $2,000 m i l l i o n . Implementing such a complex and ambitious program i s anything but simple. At the time t h i s program was elaborated i t was commonly believed that an extraordinary e f f o r t had to be made both by the private industry and govern-ment i f anything was to be achieved. Success depended upon intimately r e l a t i n g work among a l l interested i n s t i t u t i o n s and on serious commitments to important long-range projects. An evaluation made by FAO of the state of forestry at the end of 1967, indicated that though several of the basic objectives had p o s s i b i l i t i e s of being reached by 1975, a few would tend to f a l l f ar behind what was o r i g i n a l l y i n -tended. Among the l a t t e r were the development of the forest services, and the number of pre-investment and i n d u s t r i a l f e a s i b i l i t y studies. Given t h i s somewhat unstable and i r -regular development of forestry, serious doubts have now r i s e n as to whether the region w i l l be able to reach i t s proposed production targets by 1975. 143 4.4.3. Requirements for a Continued Development of the Forest  Industries to 1985. In Section 4.4.2 the intended development of the f o r -est industries to 1975 was analyzed. To be able to prolong these growth trends to 1985, L a t i n America would be required to implement a much larger program. Based on the extent of the forest resources of L a t i n America the region ought to be s e l f s u f f i c i e n t i n wood pro-ducts and i n the very long-run even a net exporter. Un-fortunately, as i t has been indicated i n previous sections, the condition of the forest industries i s not good. Whenever large scale expansion has been intended serious trouble has arisen, and because of t h i s , the movement towards o v e r a l l s e l f s u f f i c i e n c y has been retarded. One of the impediments to a better u t i l i z a t i o n of resources i s unquestionably the lack of suitable i n f r a -structure and sources of c a p i t a l . An important example of t h i s shown by FAO (1968g), i s the delay i n u t i l i z i n g c e r t a i n coniferous stands i n spite of the shortage of t h i s type of wood i n the region? s p e c i f i c a l l y , the forests i n Durango and Chihuahua d i s t r i c t s i n Mexico and i n Olancho i n Honduras, as well as the plantations of Radiata pine i n the Constitucion area i n C h i l e . 144 I t i s very d i f f i c u l t to base the entire burden of i n f r a s t r u c t -u r a l works (roads, ports, power, etc.) upon an i n d i v i d u a l p r o j e c t . Not even i n the case of large pulp and paper plants can t h i s be done without a considerable r i s e i n costs. As has often been pointed out, governments should help solve these problems. Because the solution could e a s i l y be found by b u i l d i n g large v e r t i c a l l y , as well as h o r i z o n t a l l y , i n -tegrated i n d u s t r i a l complexes where the heavy expenses of i n f r a s t r u c t u r a l work could be d i s t r i b u t e d among a l l projects (United Nations and FAO, 1963). To s a t i s f y the a d d i t i o n a l demand for i n d u s t r i a l wood and wood-based products from regional production, U.S.$4,390 m i l l i o n would be required by 1985 (FAO, 1968). This amount covers only the need for i n s t a l l a t i o n investments and does not include i n f r a s t r u c t u r e . Subdividing the t o t a l figure i n t o d i f f e r e n t sectors FAO (1968c) presented the following d i s t r ibution j Sawmilling Approximately 400 m i l l i o n d o l l a r s . The amount includes a small investment of about 20 m i l l i o n d o l l a r s to increase the present production by 6 m i l l i o n m3 within the e x i s t i n g enter-prise s and 380 m i l l i o n d o l l a r s for the construction of new sawmills. 145 Wood-based panels About 390 million dollars may be required, of which 45 million would go to the plywood and veneer industry ( i t is estimated that production could be raised to 200,000 m3 without making any new investments), 170 million to the fibre-board industry and 175 million to the particle board industry. Pulp and paper Assuming that in the future the existing capacity i s f u l l y used, and without taking into account the replacement of a large amount of equipment which w i l l undoubtedly be obsolete by 1985, i t is estimated that approximately 3,6000 million dollars w i l l be required for the establishment of new plants. The investment of 4.39 b i l l i o n dollars in the forest industries of Latin America i s a very d i f f i c u l t thing to achieve, even for the region as a whole. This is especially true when other economic ac t i v i t i e s are in need of an equal or greater amount of money. Under conditions of high capital costs, entrepreneurs w i l l be forced to examine carefully every investment po s s i b i l i t y . If high operating costs persist in the wood products industry there i s a strong possibility that forestry might well be l e f t outside the flow of capital. 146 Failure to invest according to the requirements indicated above does not only mean that the present d e f i c i t in pro-duction w i l l persist, but that once again imports might have to be raised. 4.5 Balance of Trade 4.5.1 Exports and Imports of Industrial Forest Products Up to the beginning of the 1960's, international trade was a minor factor in the timber economy of Latin America. In 1958, the region exported less than 2% of the volume removed from i t s forests and imported only about 3% of the volume i t consumed (United Nations and FAO, 1963). This picture has improved somewhat during the last decade and forest products trade has risen considerably. However, because of the expansion in trade experienced by other industries, wood and wood-based products have not improved their relative position a great deal in total Latin American trade. Traditionally, there has existed l i t t l e trade in fuel-wood despite the fact that i t makes up for a large proportion of total wood consumption. But there has been, and s t i l l i s , 147 a large amount of trade i n products such as sawnwood and pulp and paper products. Some countries are p r a c t i c a l l y s e l f -s u f f i c i e n t i n wood products, but others l i k e Argentina, Cuba, and other Caribbean Islands depend heavily on imports. An anomalous s i t u a t i o n arises i n L a t i n America i n that t h i s region which i s so wealthy i n forest resources, i s a net importer of forest products. While a p o s i t i v e trade balance e x i s t s i n sawnwood and wood-based panel products, a negative balance occurs i n pulp and paper products. Sawnwood In Table 17 the export and import s i t u a t i o n for sawn-wood i n 1965 i s shown. During t h i s year, L a t i n American countries exported 1,869 m i l l i o n m3 of sawnwood while they imported 1,518 m i l l i o n m3, a p o s i t i v e balance of 351,000 m3. B r a z i l dominates the trade i n sawnwood, exporting 69% of the t o t a l volume of L a t i n America. Other important exporters are Honduras and C h i l e which export 13% and 5% of the t o t a l volume r e s p e c t i v e l y . In the import area, Argentina accounts for the bulk of the purchases with 53% of a l l regional imports. Cuba follows i n order of importance by importing 14% and then come E l Salvador, Peru, and Uruguay with 5% each. Coniferous TABLE 17 LATIN AMERICAs EXPORTS AND IMPORTS OF SAWNWOOD BY MAJOR COUNTRIES IN 1965 S A W N W O O D (1,000 m3) Country E X P O R T S I M P O R T S Balance Conifers Broad- Sub % Conifers Broad- Sub % leaved Total leaved Total Argentina 1 1 725 74 799 53 - 798 Bolivia Brazil 1,225 65 1,290 69 +1,290 Chile 78 24 102 5 + 102 Colombia 44 44 2 + 44 Cuba 218 218 14 - 218 Ecuador 13 13 1 + 13 E l Salvador 78 78 5 - 78 Honduras 241 4 245 13 + 245 Mexico 15 4 19 1 11 11 1 + 8 Nicaragua 21 18 39 2 + 39 Paraguay 45 45 2 + 45 Peru 7 7 81 81 5 - 74 Uruguay 76 5 81 5 - 81 Others 14 50 64 5 195 55 250 17 — 186 Latin America 1, 594 275 1,869 100 1,384 134 1,518 100 + 351 Sources FAO (1968 a) 149 savmwood contributes heavily i n L a t i n America's commerce. During 1965 t h i s type of wood accounted for 88% of a l l ex-ports and imports. The major producing countries i n order of importance are, B r a z i l , Honduras, Chile, Nicaragua, and Mexico. Wood-based Panel Products In 1965, L a t i n America's exports of Plywood and Veneer, P a r t i c l e board and Fibre board amounted to 94 thousand mJ while imports were only 59.7 thousand m3. The surplus i n trade for the region was, therefore, of the order of 34.3 3 thousand m . B r a z i l appears again as the largest exporter of wood-based panel products. I t exports 41% of a l l the volume, followed by Surinam which s e l l s 34% and Costa Rica 11%. Imports are made p r i n c i p a l l y by Cuba (26%), Peru (10%), and E l Salvador (6%). More than 60% of a l l trade i n wood-based panel products i n L a t i n America consists of plywood and veneer. Fibre board accounts for 23% and p a r t i c l e board for only 16%. According to the figures shown i n Table 18, though Cuba i s the major importer of panel products, i t does not import p a r t i c l e or f i b r e boards. E l Salvador, another important buyer of panels, presents a similar pattern, and Peru,while TABLE 18 LATIN AMERICA; EXPORTS AND IMPORTS OF WOOD-BASED PANEL PRODUCTS BY MAJOR COUNTRIES IN 1965 W O O D - B A S E D P A N E L P R O D U C T S (1000 m3) Country E X P o R T S I M P O R T S R a 1 ^ T Plywood Particle Fibre Sub % Plywood Particle Fibre Sub % & Veneer Board Board Total & Veneer Board Board Total Brazil 16.6 0.1 22.0 38.7 41 + 38.7 Chile 0.4 1.5 1.1 3.0 3 0.4 0.4 1 + 2.6 Colombia 0.3 0.3 + 0.3 Costa Rica 10.4 10.4 11 0.4 0.1 0.5 1 + 9.9 Cuba 15.6 15.6 26 - 15.6 Ecuador 1.9 1.9 2 0.3 0.3 1 + 1.6 E l Salvador 0.7 3.8 3.8 6 - 3.8 Guatemala 0.7 1 0.6 0.6 1 + 0.1 Honduras 0.4 0.1 0.5 1 0.7 0.3 1.0 2 - 0.5 Mexico 3.4 1.6 5.0 5 0.7 0.5 1,3 2.5 4 + 2.5 Nicaragua 1.4 1.4 1 0.2 0.1 0.3 1 + 1.1 Peru 3.4 2.8 6.2 10 - 6.2 Panama 1.4 1.4 2 - 1.4 Surniam 13.3 18.3 31.6 34 0.3 0.3 1 + 31.3 Uruguay 2.6 2 .6 4 - 2.6 Venezuela 0.7 0.7 1 - 0.7 Others 0.5 0.5 1 16.2 3.7 3.6 23.5 39 - 23.0 Latin America 49.3 19.9 24.8 94.0 100 44.9 4.5 10.3 59.7 100 + 34.3 Sources FAO (1968a) UI o 151 while importing plywood, veneer and f i b r e board, does not im-port any p a r t i c l e board. Pulp and Paper Products Despite the enormous e f f o r t s to increase pulp and paper production, L a t i n America has not been able to de-crease i t s net imports of these products. However, recent years have witnessed considerable progress i n the export f i e l d . In Table 19 i s shown the trade s i t u a t i o n as regards pulp and paper products i n 1965. In t h i s year 130,600 tons of pulp, paper and paper board were exported by L a t i n American countries while imports amounted to 1,568,700 tons. The net d e f i c i t i n the region was i n consequence 1,438,100 tons. The main exporter of pulp and paper products i n L a t i n America i s C h i l e which s e l l s about 61% of the t o t a l . Exports from B r a z i l are also quite important, amounting to 35% of a l l regional exports. Apart from these two countries, only Colombia and Mexico contribute s i g n i f i c a n t l y to the exports of the region. Imports, although concentrated i n Argentina (27%), Mexico (13%) and Venezuela (12%) show a much more even TABLE 19 LATIN AMERICAs EXPORTS AND IMPORTS OF PULP, PAPER AND PAPER-BOARDS IN 1965 Country P U L P , P A P E R A N D P A P E (1,000 m.t.)  R - B O A R D S E X P O R T S I M P O R T S Pulp Paper & Sub % Pulp Paper & Sub Balance Paper Bds. Total Paper Bds. Total Argentina 0.2 0.2 184.0 236.4 420.4 27 - 420.2 B r a z i l 46.0 0.2 46.2 35 17.7 59.7 77.4 5 - 31.2 Chil e 18.2 61.0 79.2 61 5.2 9.5 14.7 1 + 64.5 Colombia 3.1 3.1 2 49.6 53.7 103.3 6 - 100.2 Costa Rica 0.1 0.1 48.2 48.2 3 - 48.1 Cuba 63.9 45.3 109.1 7 - 109.2 Ecuador 32.3 32 .3 2 - 32.3 E l Salvador 0.1 0.1 0.1 25.0 25.1 2 - 25.0 Honduras 40.7 40.7 2 - 40.7 Jamaica 29.3 29.3 2 - 29.3 Mexico 1,1 1.1 1 71.1 129.0 200.1 13 - 199.0 Panama 0.1 0.1 0.6 61.8 62 .4 4 - 62.3 Peru 18.4 41.3 59.7 4 - 59.7 Uruguay 18.5 26.1 44.6 3 - 44.6 Venezuela 104.8 91.0 195.8 12 - 195.8 Others 0.5 0.5 6.2 99.3 105.5 7 - 105.0 La t i n America 64.2 66.4 130.6 100 540.1 L028.6 1, 568.7 100 -L438.1 Sources FAO (1968a). 153 d i s t r i b u t i o n than exports. A l l countries of L a t i n America do import varying quantities of pulp and/or paper products. Chi l e the only net exporter sold i n the region a net pro-duction of 64,500 tons i n 1965. B r a z i l , though i t exports 46,200 tons, i s presently a net importer of pulp and paper. 4.5.2. Value and Dir e c t i o n of Trade i n I n d u s t r i a l Forest  Products The value of L a t i n America's trade i n forest products i s very small compared with the region's t o t a l trade. In 1965, exports 1/ of a l l forest products amounted to 130 m i l l i o n d o l l a r s , and imports to 342 m i l l i o n d o l l a r s , i . e . 1.2% and 3.5%, respectively, of t o t a l trade (FAO, 1968). Sawnwood Table 20 indicates that the t o t a l value of L a t i n American exports of sawnwood i s 82.9 m i l l i o n d o l l a r s i f we include i n t h i s figure the value of intraregional trade. The t o t a l imports of sawnwood reach 74.3 m i l l i o n d o l l a r s . Of t h i s amount 20.1 m i l l i o n d o l l a r s worth of sawnwood are imported from outside the regions 60% comes from North 1/ In t h i s section, exports are given i n f.o.b. values and imports i n c . i . f . values, unless otherwise stated. TABLE 20 LATIN AMERICA? TOTAL TRADE IN SAWNWOOD (MILLIONS OF DOLLARS) 1965 E X P O R T S I M P O R T S BALANCE Conifers Broad- Total Conifers Broad Total leaved leaved Intraregional 37.8 6.6 44.4 47.4 6.8 54.2 - 9.8 North America 1.6 7.2 8.8 11.3 0.8 12 .1 - 3.3 Rest of the World 25.5 4.2 29.7 7.8 0.2 8.0 + 21.7 Total 64.9 18.0 82.9 66.5 7.8 74.3 + 8.6 Sources FAO (1968) TABLE 21 LATIN AMERICAs TOTAL GRADE \ IN WOOD--BASED PANEL PRODUCTS (MILLIONS OF DOLLARS) 1965 E X P O R T S I M P 0 R T S BALANCE Plywood P a r t i c l e Fibre Total Plywood P a r t i c l e Fibre Total Board Board Board Board Intraregional 3 .1 0.4 0.3 3.8 3 .2 0.4 0.3 3.9 - 0 .1 North America 3 .0 1.2 4.2 1 .0 0.1 0.6 1.7 + 2 .5 Rest of the World 2 .1 0.8 0.6 3.5 3 .4 0.4 0.4 4.2 - 0 .7 Total 8 .2 1.2 2.1 11.5 7 .6 0.9 1.3 9.8 + 1 .7 Sources FAO (1968g) 155 America and 40% from the r e s t of the world but mainly from Europe. These imports are made p r i n c i p a l l y by Peru, Mexico, Cuba, and other Caribbean Islands. Of the 74.3 m i l l i o n d o l l a r s of extraregional imports, 66.5 m i l l i o n d o l l a r s (90%) correspond to coniferous sawnwood. This type of wood i s imported, despite the fact the region exports 27.1 m i l l i o n d o l l a r s worth of the same. Wood-based Panel Products In Table 21 i s shown the value of t o t a l exports of panel products made by L a t i n American countries. This value reached to 11.5 m i l l i o n d o l l a r s 2/ i n 1965 and compares favourable with the 9.8 m i l l i o n d o l l a r s imported during the same year (the figure includes in t r a r e g i o n a l trade) . Of a l l panel exports, roughly 33% are i n intra r e g i o n a l trade, 36% goes to North America and 30% to the r e s t of the world. Plywood 3/ sales reaching over 70% of a l l panel pro-ducts dominate the market? f i b r e board sales come second and p a r t i c l e board t h i r d . A similar trend occurs i n panel imports where plywood purchases are the most common. Panel products, as opposed to sawnwood, are not primarily imported 2/ Dollars should be understood as being U.S. currency, unless otherwise stated. 3/ In t h i s section unless otherwise stated plywood i s to be understood as being plywood and veneer. 156 from North America but from Europe and other countries of the world. Of a l l extraregional imports, only 29% come from the United States and Canada. Extraregionally, the major trade flows are established by Brazil's sales of plywood and fibre board to the United States and Europe (4 million dollars) and Surinam's consign-ments of particle board to Europe (1.4 million dollars). A l l other exports are almost a l l made up of plywood sold by Costa Rica, Peru, and Mexico to the United States. Principal imports of panel products come from Europe and consist largely of plywood for the Caribbean countries and Peru. Mexico imports these same products from i t s neigh-bor, the United States (FAO, 1968). Intraregional trade in plywood, mainly consists of consignments from Surinam to the islands of the Caribbean and Central American countries. Pulp and Paper In 1965, pulp imports amounted to 65.4 million dol-l a r s . Scandinavia i s s t i l l the region's main supplier, a l -though i t has lost a certain amount of ground to North America and to increased intrexegional exports from Chile and B r a z i l . Imports are mainly of long-fibre chemical pulp 157 and principal importers in order of importance ares Argentina, Venezuela, Cuba, Mexico, and Colombia (FAO, 1968). Imports of paper and paperboard rose to 191 million dollars in 1965. North America continues to be the region's main supplier, and i s closely followed by Scandinavia. During the recent years, imports from the latter have de-clined partly due to increased intraregional trade and partly to the type of paper the region i s importing. Most paper imports in Latin America are of newsprint and of kraft liner and corrugated board used to make banana boxes. Main importers ares Argentina, Mexico, Venezuela, Ecuador and Br a z i l . Of the 256.5 million dollars worth of pulp and paper products Latin American countries imported in 1965 (see Table 22), only 8% (21.3 million dollars) was provided by regional producers. North America provided 52% (133.8 million dollars), and Scandinavia 40% (101.4 million dollars) * Exports of paper and paperboard are made up almost entirely of newsprint exported from Chile to the rest of the Latin American countries. 4.5.3 Summary of Net Imports and Future Prospects In 1965, with a consumption level of 13 million m3 of TABLE 22 LATIN AMERICA* TOTAL TRADE IN PULP AND PAPER (MILLIONS OF DOLLARS) 1965 E X P O R T S I M P O R T S BALANCE Pulp Paper Total Pulp Paper Total Intraregional 8.9 9.8 18.7 10.5 10.8 21.3 2 .6 North America - 0.2 0.2 25.3 108.5 133.8 - 133 .6 Rest of the World 0.1 — 0.1 29.6 71.8 101.4 - 101 .3 Total 9.0 10.0 19.0 65.4 191.1 256.5 - 237 .5 Sources FAO (1968g) 159 sawnwood, Latin America was able to export only 351,000 m3 net. This happened largely because considerable imports 3 were made during the same year (1.5 million m ). TABLE 23 LATIN AMERICA s SUMMARY OF SAWNWOOD IMPORTS (thousands of mJ) Year Production Consumption, Net Imports 1965 13,351 13,000 351 1975 25,000 20,900 - 5,000 1985 32,000 Sources Tables 11, 15, and 17. In 1975, provided the development program mentioned in Section 4.4.2 i s carried out, the region w i l l be able to produce 25 million m3 of sawnwood. Comparing this output to the expected level of consumption for the same year, gives a possible net export for Latin America of 5 million m of sawnwood. In 1985, consumption i s expected to rise to 32 million m3, this means an approximate growth of 53% from the level i t had in 1975. Production figures are not available for 1985, however, the countries of Latin America are currently trying to implement programs which w i l l at least permit them 160 to expand at a similar rate of growth. Net imports for 1985 will, therefore, vary according to how effective these pro-grams are (see Section 4.4.3) . TABLE 24 LATIN AMERICA. SUMMARY OF WOOD-BASED PANEL PRODUCTS IMPORTS. (THOUSANDS OF m3) Year Production Consumption Net Imports Plywood and Veneer 1965 1975 1985 554 550 900 950 1,400 - 4 50 Particle Board 1965 1975 1985 138 123 500 650 1,700 - 15 150 Fibre Board 1965 1975 1985 230 215 450 850 1,900 - 15 400 Sources Tables 12, 15, and 18. Up to 1965, the three types of panel products had a positive balance of trade in Latin America. In 1975, 161 this positive balance could turn into a negative one i f pro-duction i s not able to keep pace with rising demand. The accuracy of this forecast for 1975 w i l l depend solely on how expansion in the industry i s carried on. A similar situation should be expected to occur with production in 1985 (for more information on production prospects see Sections 4.4.2 and 4.4.3). Between 1975 and 1985, consumption i s expected to rise extremely fast in particle board and fibre board, 161% and 123% respectively. In plywood and veneer, growth w i l l only be about 47%. In 1975 plywood and veneer w i l l s t i l l remain as the leading panel products, but in 1985, fibre board w i l l be the product most in demand. In Table 25 i s shown the situation in 1965 together with estimates to 1975 and 1985 as regards production, con-sumption and net imports of pulp and paper in Latin America. Consumption of pulp in 1965 reached to 1,718 thousand tons, while paper and paperboards was 3,415 thousand tons. In 1965 imports of the order of 28% were required for both pulp and paper products. In 1975, although demand i s expected to rise to 4,422 thousand tons in pulp and to 6,929 thousand tons in paper and paperboards, external dependence 162 TABLE 25 LATIN AMERICAS SUMMARY OF PULP AND PAPER IMPORTS (THOUSANDS OF TONS) Year Production Consumption Net Imports Pulp 1965 1,242 1,718 476 1975 4,230 4,422 192 1985 Paper and Paperboard 1965 2,453 3,415 962 1975 5,650 6,929 1,279 1985 13,875 Sources Tables 13, 16, and 19. In 1965 imports of the order of 28% were required for both pulp and paper products. In 1975, although demand i s expected to rise to 4,422 thousand tons in pulp and to 6,929 thousand tons in paper and paperboards, external dependence w i l l diminish in both products to 4% and 18% respectively. By 1985, demand in Latin America has been put at almost 13.9 million tons. Whether the region w i l l continue to depend heavily on imports i s s t i l l uncertain. In order to be sel f -sufficient Latin America would not only require a boost in production but i t would also need to increase by a similar 1 6 3 order of magnitude i t s sources of long-fibre raw material. For Latin America this can only mean increased coniferous afforestation. Given the present d i f f i c u l t i e s for implementing such a program (outlined in Sections 4.4 . 2 and 4.4 . 3 ) many consider self-sufficiency as improbable , at least in the short run. It should be noted, however, that in spite of the probability that the region could produce at the level of i t s requirements, because of potential overseas exports principally from Chile and Brazil, other Latin American nations could in turn be forced to continue and even raise their purchases outside the region. Among a l l these trends and p o s s i b i l i t i e s , regional economic integration adds one more variable to the uncertainty surrounding future imports. 164 SECTION V CHILE - A COMPETITOR FOR CANADIAN FOREST PRODUCTS  IN LATIN AMERICA Chile should be considered as a sizeable competitor to any country interested in selling forest products in Latin America. During the last decade this nation, although not one of the biggest in South America, has swiftly been increas-ing i t s output of these products, and exports to neighboring countries have, therefore, grown accordingly. In 1960, exports of sawnwood reached 13.5 million board feet. Five years later, in 1965, this had risen by 220% to 43.2 million board feet (102 thousand m3) and by 1970 i s expected to reach 50 million board feet (118 thousand m J). Pulp and paper exports have also grown at a fast rate. From 42.6 thousand tons in 1960 they rose to 79.6 thousand tons in 1965, an increase of more than 86%. By 1970 growth trends indicate that pulp and paper exports w i l l reach 562 thousand tons. These figures are even more meaningful i f i t i s taken into account that in 1959, the country was s t i l l a net importer of these products with total purchases in the order of 37 thousand tons. The principal characteristic which makes Chilean exports so important in Latin America's trade i s their relevance to 165 t o t a l regional deficits„ Most L a t i n American countries do carry out a c e r t a i n amount of trade i n forest products but only C h i l e has a favourable balance of trade with respect to these products. Moreover, i t i s also the sole country which i s a net exporter of pulp and paper, commodities which at present are i n great demand and contribute most to the pro-blems of L a t i n America's balance of payments. Pulp and paper imports yearly absorb a major portion of L a t i n America's foreign exchange. In value they repre-sent the largest purchases of forest products imported from within and outside the area. The only L a t i n American nation i n a p o s i t i o n to a l t e r these imports s i g n i f i c a n t l y i s Chile, i t s softwood plantations produce a f i r s t - c l a s s pulping f i b r e i n quantities large enough to provide for the raw materials of an expanding industry. The recent upward trend i n Chilean r e f o r e s t a t i o n plus the determination of i t s people to execute long term i n d u s t r i a l development i n forestry, indicate that t h i s nation w i l l play an expanding r o l e i n L a t i n America's trade of wood-based products. What Chi l e does or does not s e l l i n the region w i l l s e r i o u s l y a l t e r the t o t a l net d e f i c i t of these products. For example, the net 192 thousand tons of pulp and 1,279 thousand tons of paper per annum that L a t i n America w i l l demand i n 1975 have n a t u r a l l y been calculated 166 assuming that every producing country in the region exports i t s surplus to other Latin American countries. Therefore, i f in practice some of this volume is sold instead in other regions of the world, like Europe and/or Asia, i t should be added to the net deficits of Latin America. However, regional economic integration, mainly through LAFTA 1/ and CACOMA 2/ should counteract this last possibility as i t w i l l f a c i l i t a t e trade within the area by giving prefer-ential t a r i f f treatment to associated countries. Because of the reasons explained above, i t was decided that i t would be most important to study the Chilean poten-t i a l for producing. Canada's trade po s s i b i l i t i e s , and for practical purposes that of any major country interested in exporting wood-based products to Latin America, are heavily dependent on what this southern republic does. In order to determine as precisely as possible Chile's future exports of forest products, the socio-economic condi-tions of the country were analyzed. Special reference was made to i t s forest resources and current programs of 1/ Latin American Free Trade Association. 2/ Central American Common Market. 167 re f o r e s t a t i o n , as most of the development of the industry i s to be based on the long f i b r e obtained from these plantations. Estimates of future production were then obtained and after adjusting for i n t e r n a l demand the exportable surplus was de-termined. Within the period 1985-1989, C h i l e should be export-ing about 836 thousand tons of chemical pulp, 280 thousand tons of newsprint, and 130 m i l l i o n board feet (307 thousand m3) of sawnwood, a l l t h i s r a d i a t a pine. Because of a number of uncertainties and d e f i c i e n c i e s i n the information, the export-able surplus for native r e l a t e d species was not established. 5.1 Physical and Socio-Economic C h a r a c t e r i s t i c s of C h i l e 5.1.1 Geography and Climate Located on the extreme southwest side of South America, C h i l e stretches some 2,680 miles (4.288 Km) along the P a c i f i c coast, with the towering Andes providing the country's eastern f r o n t i e r . The t o t a l area of the country i s 786,396 sq. mi. (2.04 m i l l i o n Km2), of which 286,396 sq. mi. (0.73 m i l l i o n Km2) are situated i n continental South America and 500,000 sq. mi. (1.28 m i l l i o n Km2) i n the Chilean A n t a r t i c . At no point wider than 250 miles (400 Km) and with an average width of barely more than 100 miles, the area of Chile 168 s t i l l exceeds that of Texas. There i s a tremendous range of geography and climate i n t h i s long s t r i p of land. Some of the world's highest mountain peaks and greatest ocean depths l i e near Chile's borders, which i l l u s t r a t e s the great geo-l o g i c i n s t a b i l i t y of t h i s area, proved by a h i s t o r i c a l sequ-ence of severe and t r a g i c earthquakes. Twenty-seven per cent of continental Chile (81,327 sq. mi.) i s said to be forest land, because of i t s e x i s t i n g forests or because i t has forest p o t e n t i a l due to s o i l , topo-graphic or cl i m a t i c conditions (Haig, 1946). Some of the islands i n the P a c i f i c also belong to Chiles the Juan Fernandez Islands, scene of the shipwreck of Alexander Selkirk, the model for Defoe's Robinson Crusoe? and Easter Island, the s i t e of a mysterious ancient Polynesian c u l t u r e . From a geographic and economic point of view Ch i l e may be divided i n t o three main zones,—these are the northern, middle, and southern zones. The point of t r a n s i t i o n between northern and middle Chi l e i s usually set at 30° S. (La Serena), but some geographers move t h i s boundary to the Copiapo River. The 400 mile (640 Km) stretch which l i e s between the Copiapo River and Loa River embraces the great Atacama Desert, one of the d r i e s t regions on the globe. Although cloud banks 169 MAP 7 SOUTH AMERICA (CHILE ) SOUTH AMERICA AftCHIPIEUGO DE COLON JU _ :ui«ris«i If, 170 form almost every day along the coast, and there are occasion-a l summer showers i n the Andes Mountains, r a i n i s v i r t u a l l y unknown i n the pampa, where the c o e f f i c i e n t of evaporation i s by far greater than i n the Sahara desert. This i s the region of the n i t r a t e f i e l d s and copper mines. In the ex-treme north and from Copiapo south there are several oasis and r i v e r v a l l e y s which sustain some t r o p i c a l a g r i c u l t u r e . Middle C h i l e extends about 900 miles (1.440 Km), from la t i t u d e s 30° to 40° S., including the great i s l a n d of Chiloe i n the South. This i s the area where most of the pop-ul a t i o n i s concentrated (85% of the t o t a l inhabitants). About two-thirds of t h i s region has a Mediterranean climate, with mild wet winters and long dry summers. This i s the zone where most of the exotic forest plantations have been developed. R a i n f a l l , which i s less than 10 inches (254m.m.)annually at La Serena, gradually increases toward the south. I t i s 13.8 inches (350 m.m.) at Santiago and varies between 23.6 inches and 31.5 inches (600 m.m.-800 m.m.) from the Basin of Rancagua to the Maule River, south of the C i t y of Concepcion r a i n f a l l ranges between 50 and 80 inches (1,270-2,032 m.m.) . From the Maule River down to the Bio-Bio there e x i s t s a t r a n s i t i o n a l zone i n which the longitudinal 20 z < UJ u o C J L l (J < CL 25' M A P 8 C H I L E 'Ar ica BOLIVIA Antofagasta Uj o — ' o u D •G6piapq A R G E N T I N E >La Serer ARGENT iN; Monti • 173 valley has the semiarid characteristics of the central valley, but the western flanks of the Coastal Mountains and the Andes receive substantial r a i n f a l l . South middle Chile, from Bio-Bio to Puerto Montt, has a short but well-marked dry season favourable to wheat, potatoes, oats, frui t s , and pastures. Forests originally covered this region and s t i l l occupy close to half of the area. The stormy winters and cool summers resemble the Pacific Northwest of the United States. South of the Tolten River are a number of lakes dominated by snow-capped volcanoes and the scenic beauty of this region has always attracted many tourists. The Southern zone of the country i s a territory of mountains, fiords, high winds, and heavy snow and rain. Along the coast there are hundreds of islands and waterways. On the Atlantic side, near the eastern end of the Strait of Magellan, there i s a distinct climatic zone which i s com-paratively more cold, dry, and windy. This region i s notable for i t s sheep farming. Petroleum has been discovered in this area, principally on the island of Tierra del Fuego where at present there i s production of crude o i l . In physiography and climate, Chile resembles the west 174 coast of North America from Alaska r i g h t down to Southern C a l i f o r n i a . 5.1.2 Population Ch i l e was f i r s t s e t t l e d by Spaniards and most of i t s people are of Spanish descent. Few, i f any, South American countries have a more homogeneous population, perhaps due to the geographical and c u l t u r a l i s o l a t i o n which Chile enjoyed i n i t s early h i s t o r y . However, a small but i n f l u e n -t i a l number of I r i s h and English immigrants came to Chi l e i n c o l o n i a l times and played important r o l e s i n Chilean h i s t o r y . An important stream of German immigration started about 1850, and for 90 years these people came to C h i l e . Today there i s a s u r p r i s i n g l y strong German influence i n the Valdivia-Llanquihue-Chiloe area i n the south. Other s i g n i -f i c a n t immigrant groups are the French, I t a l i a n , Swiss, Yugoslav, and Arab. There are probably fewer than 130,000 pure blooded Indians, mostly the legendarily f i e r c e Araucanians now l i v i n g q u i e t l y around the Temuco area i n the south. The nation ranks sixth among L a t i n American countries i n population and f i f t h among the South American countries. The population was estimated at 9,318,000 i n mid-1967 and i t s 175 average annual rate of growth of 2.4% approximates that of L a t i n America as a whole, which, at 2.9%, i s one of the highest i n the world. A s u r p r i s i n g l y high degree of urbanization (about two-thirds) e x i s t s i n the country, and more than one-third of t h i s urban population i s concentrated i n a single province which includes the c a p i t a l . Greater Santiago, with a population estimated almost at 3,000,000, accounts for a disproportion-at e l y large share of the nation's t o t a l purchasing power. TABLE 26 CHILE; POPULATION ESTIMATES FOR THE PERIOD 1952-70 Year Estimated Figures i n Thousands (mid-year estimations) 1952 6,295 1953 6,437 1954 6, 597 1955 6,761 1956 6,944 1957 7,121 1958 7,298 1959 7,465 1960 7,689 1961 7,827 1962 8,001 1963 8,217 1964 8,391 1965 8,584 1966 8, 780 1967 8,935 1968 1969 1970 10,260* * Corporacibn de Fomento de l a Producci6n, 1965. Source: United Nations, 1963 and 1968. Demographic Yearbooks for the years 1962 and 1967. 176 As i n most La t i n American countries Chile has a young population? more than two-thirds of the Chileans are under 40 and one-half under 21. Despite i t s recent rate of growth the population i s considered one of the most educated i n L a t i n America, with 80% of those above 14 years old being l i t e r a t e . Population project ons point to a population of 10,260,000 by 1970 of which 3,891,000 are expected to be l i v i n g i n the Province of Santiago. 5.1.3 P r i n c i p a l Features of the Economy H i s t o r i c a l l y , Chile's i n t e r n a l as well as external economy has been heavily dependent on minerals (nitrates and copper). Since the late 1930's, Chile has made attempts to d i v e r s i f y i t s economy and expand i t s inf r a s t r u c t u r e , but i t continues to be faced with two basic and recurring pro-blems—the stagnation of agriculture and a h i s t o r y of i n -f l a t i o n spanning almost 100 years. Despite domestic economic development, the nation s t i l l i s h eavily dependent on the mining sector for the bulk of i t s foreign exchange? with minerals and mineral products accounting for about 90% of foreign exchange receipts from exports. With copper being the p r i n c i p a l export the balance 177 of payments i s highly sensitive to changes in i t s price. After many years of trade deficits extremely favourable prices in 1965-66 areated a considerable surplus in the balance of payments. Today, the mining sector 1s share of GNP has fortun-ately declined to a figure between 4 and 7%. Considering that in the 1930's the participation of this same sector was 25% i t can be said that industrial diversification has been achieved with reasonable success. In 1964 the Government began to put into effect a wide-ranging program of social and economic reform, aimed at promoting rapid economic growth with income redistribu-tion. Some of the objectives of the last administration have been: a) the reduction and halting of inflation; b) agrarian reform; c) greater participation by the Government in the copper mining industry through joint ventures with U.S. copper companies; d) the redistribution of income along more equitable lines; e) f i s c a l reform; 178 f) substantial improvements i n the balance of payments? g) expansion of r e f o r e s t a t i o n and of the forest industry ? h) accelerated economic integration with other member countries of the L a t i n American Free Trade Assoc i -ation—LAFTA? 1 i) the organization of r u r a l workers i n a g r i c u l t u r a l unions and cooperatives? j) expanded c r e d i t to the small farmers as well as loans and financing of low-cost housing. An important objective of the development program has been the expansion and "Chileanization" of c e r t a i n c r i t i c a l sectors of the economy such as petroleum, power, communications and e s p e c i a l l y copper. In 1967 the government entered into a j o i n t venture agreement with the three U.S. owned companies which account for the bulk of Chile's copper production. Be-sides increasing Chilean p a r t i c i p a t i o n i n t h i s production, the agreements provide for increased investment leading to a doubling of output by the early 1970's and for a stable tax and exchange rate regime. ^Argentina, B o l i v i a , B r a z i l , Colombia, Chile, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela. 179 Another important goal has..been comprehensive agri-cultural reform including land redistribution, restructur-ing of prices for agricultural products to encourage produ-ction, and modernization of techniques. Although parts of this progranv have run into d i f f i c u l t i e s , agrarian reform and farm unionization laws were passed in 1967 and have been responsible for significant improvements in the liv i n g stan-dards of rural people. The most d i f f i c u l t problem which Chile continues to face, however, i s inflation, which averaged 40% per annum in the early 1960's. The last administration established price and exchange rate stabilization as the foundation of i t s economic policies and although inflation was significantly reduced to about 15% in 1965 and 1966, there has been a partial reversal of this trend in 1957 and early 1968. The root cause for inflation can be found in an excess of demand by consumers, investors, and the public sector over the productive capacity of the country. This demand has been fueled by frequent large expansions of the money supply and i t i s known today that the only way of stopping this i n -flationary spiral is by calling for greater wage restraints while attempting to generate greater savings for developing projects which w i l l increase output. 180 I n f l a t i o n has also been an important factor i n caus-ing balance of payment d e f i c i t s which have i n turn resulted i n periodic currency devaluations. Table 27 shows the periodic devaluation the Escudo (E—) has suffered i n r e l a -t i o n to the U.S. d o l l a r (U.S.$) since 1961. TABLE 27 CHILEs EXCHANGE RATES FOR THE PERIOD 1961-68. (ESCUDOS PER U.S. DOLLAR) 1961 1962 1963 1964 1965 1966 1967 1968 I II III IV a) 1.053 1 - 6 4 2 .15 2.70 3.47 4.37 5.79 6.37 6.81 7.25 b) 2.42 3.04 3.26 4.22 5.00 6.71 7.41 7.86 8.29 a) Trade. b) Non trade. Sources International Monetary Fund, 1968. 5.1.4 Forestry and Economic Development There i s no development plan for the country as a whole at present, although many i f not a l l of the economic sectors do have s p e c i f i c and d e f i n i t e development goals. The more important sectors are perhaps agricul t u r e and forestry, i n d u s t r i a l manufacturing, power, transportation and communi-cations, and ports. 181 Since World War II, new industries have been e s t -ablished i n many f i e l d s such as iron and s t e e l , automotive, petroleum, petrochemicals, f i s h e r i e s , and recently pulp and paper and a va r i e t y of consumer goods. The bulk of t h i s e f f o r t has been c a r r i e d by the government which established i t s r o l e p r i n c i p a l l y through loans, investments, and techni-c a l assistance. In addition great s t r i d e s have been made l a t e l y to produce a well developed economic infrastructure mainly with the assistance of loans from international f i n a n c i a l agencies. Foreign c a p i t a l also, p r i n c i p a l l y of private and public U.S. o r i g i n has been flowing i n t o the country i n the past decades. The manufacturing sector has undergone steady d i v e r s i -f i c a t i o n and expansion i n recent years with the assistance of government protection against competing imports. Manu-facturing output grew by 7.5% i n the period 1960-64, and by 6.5% i n the period 1964-66, well exceeding o v e r a l l economic growth. In 1963 manufacturing industries (excluding a r t i s a n a c t i v i t i e s ) produced goods worth $1.1 b i l l i o n , of which $500 m i l l i o n represented value added. The most important indust-r i e s include iron and s t e e l , automotive vehicle assembly, paper and wood pulp, rubber, petroleum products, and the t r a d i t i o n a l and long established t e x t i l e , food-beverage, 182 tobacco, and leather goods industries (U.S. Department of Commerce, 1968) . One of the p r i n c i p a l c h a r a c t e r i s t i c s of the manu-factu r i n g industries i n Chile i s t h e i r concentration into r e l a t i v e l y large firms, which account for the bulk of output and employment. Thus, only 12 firms having 25% of the c a p i t a l accounted for 20% of the t o t a l production i n 1963. Further s t i l l , only 3% of a l l manufacturing firms employed i n that same year 44% of the t o t a l labor force i n t h i s sector. On the other hand, small industry accounted for 67% of a l l manufacturing units but employed only 16% of a l l w orkers i n manufacturing (Corporacion de Fomento de l a Produccion, 1965). The country's industries are also concentrated geographically (at l e a s t the ones belonging to the manufact-uring type). The provinces of Valparaiso, Santiago, and Concepcion account for 69.7% of a l l manufacturing enter-prises and employ 81% of a l l workers i n t h i s sector (Cor-poracion de Fomento de l a Produccion, 1965). Indices of manufacturing production, by commodity groups , for 1964-66 are shown i n Table 28. 183 TABLE 28 CHILE: INDICES OF MANUFACTURING PRODUCTION BY COMMODITY GROUPS, 1964-66. (1963 = 100) 1964 1965 1966 Food 132 135 150 Beverages 145 181 201 Tobacco 128 138 160 T e x t i l e s 132 137 140 Clothing and foot wear 155 166 172 Furniture 109 119 132 Paper and paper products 236 261 232 P r i n t i n g and publishing 115 128 130 Leather and leather products 099 108 111 Rubber products 203 210 233 Chemical products 134 132 128 Petroleum and coal products 223 221 268 Non-metallic mineral products 147 147 155 Basic metals 216 219 231 Metal products, except machinery and transport equipment 290 307 327 E l e c t r i c a l machinery, apparatus and a r t i c l e s 175 189 249 Miscellaneous 202 260 232 General index 156 164 175 Source: U. S. Department of Commerce, 1968 The paper and wood pulp industries have developed very r a p i d l y i n recent years. During the 1957-64 period the annual average growth rate i n output was 10.4% and everything indicates that t h i s growth i s continuing at an increasing r a t e . j The woodpulp industry i s almost e n t i r e l y based on Chil e * s exotic plantations of ra d i a t a pine and, although a 184 considerable output has been obtained, the potential of this resource has been hardly touched. Production of pulp in 1965 was estimated at 200,000 metric tons, and paper and paper board at 171,000 metric tons (Chile, Instituto Forestal, 1966a). The five modern pulp and paper mills had an estimated capacity of 400,000 metric tons in the year 1966 and ex-pansion plans are underway to increase production to about 570,000 metric tons of pulp alone by 1970. At present, the government i s also constructing two new pulp and paper mills at Arauco and Constitucion which when completed w i l l increase production to about 720,000 metric tons of pulp in 1975 (Corporacion Chilena de l a Madera, 1966) . Two major pulp and paper companies account for almost a l l the output. These are Cia. Manufacturera de Papeles y Cartones S.A. and Industrias Forestales ,S .A. The former produces approximately 80% of the total, while the latter produces newsprint exclusively for export. Apart from the plants owned by these two companies there are other small plants producing wrapping paper with a combined estimated production of 2,000 metric tons, and 8 factories producing cardboard and boxes (U.S. Department of Commerce, 1968). 185 Chile has been particularly successful in exporting woodpulp to LAFTA* countries, exports increased from 23,928 metric tons in 1962 to 59,411 metric tons in 1966 (Chile, Instituto Forestal, 1966). In general, Chile's economic development has received considerable foreign economic assistance in recent years, especially from the U.S. Government. During the f i s c a l period 1961-66, the U.S. extended loans and grants to Chile amounting to $805 million, making Chile the largest per capita recipient of U.S. assistance in Latin America. Only U.S. assistance to Brazil in the region exceeds that for Chile in absolute terms. U.S. AID Program loans which are tied to the purchase of imports and services from the U.S. amounted to 35, 55, 80, and 80 million dollars in the years 1963-66 respectively (U.S. Department of Commerce, 1968). In December 1966, the Chilean government announced i t would forego program loans in 1967 in view of i t s streng-thened balance of payments and budget positions. However, substantial loans were received for specific projects from the Export-Import Bank and other international lending *LAFTA = Latin America Free Trade Association. 186 agencies. Examples of s i g n i f i c a n t loans extended to Chile i n 1967 which at the same time give an i n d i c a t i o n of how the country i s developing ares from the World Bank, $60 m i l l i o n for e l e c t r i c i t y power expansion; from the Inter-American Development Bank, $6 m i l l i o n for low cost housing? $7.52 m i l l i o n for telecommunications, $20 m i l l i o n for i n -d u s t r i a l development, $6.5 m i l l i o n for an ethylene plant? from the Eximbank $204 m i l l i o n for copper production ex-pansion, $17,4454 m i l l i o n for j e t a i r c r a f t ? $5,3625 m i l l i o n for construction of an earth s a t e l l i t e station? $12 m i l l i o n for modernization and expansion of copper processing f a c i -l i t i e s ? $2.5 m i l l i o n for the manufacture of pressure pipe and $25 m i l l i o n for expansion of s t e e l making f a c i l i t i e s . In addition, a $10 m i l l i o n loan was extended by AID to improve educational f a c i l i t i e s i n the country. 5.1.5 Outlook for the Economy In the next few years, the outlook for the Chilean economy i s for o v e r a l l moderate growth. However, an im-portant and decisive factor i n t h i s growth w i l l be the i n -ternational price and demand for the country's main export, copper. Also the magnitude of economic growth w i l l depend on the success or f a i l u r e of current e f f o r t s to stimulate 187 the agricultural sector to increase output. In addition to expanding output of food products, a strong agricultural sector would permit the country to decrease i t s food imports thus liberating foreign exchange for industrial development. A recovery in agriculture would, in turn, also help to bring inflation under control by stimulating savings and investments necessary to build the productive f a c i l i t i e s and push forward social develop-ment . The expansion of output presently underway in copper, iron, and steel, pulp and paper, and petrochemicals should contribute importantly to expanding economic growth. The future expansion of these industries w i l l not depend only on the growth of internal markets but also on the development of foreign ones. Recent trends in Latin America indicate that there is a gradually accelerating movement towards economic i n -tegration implying a reduction in trade and t a r i f f barriers among the countries of this region, and the formation of a Common Market. Chile's industries should be in a good position to take advantage of the opportunities offered by this trade organization and benefit from economics of scale not pre-viously available due to the limitations of the national markets. 188 5.2 Forestry i n Chile 5.2.1 Forest Resources and Forest Land Chile owes the e s s e n t i a l c h a r a c t e r i s t i c s of i t s f l o r a to the long period of complete i s o l a t i o n before the Argen-t i n e "pampas" (prairies) were l i f t e d from the waters that covered them. Even now, the country i s shut i n by the Andes on the eastern side, and to the north i t i s cut o f f from the r e s t of the continent by deserts. Formerly Chile's i s o l a t i o n was l i k e that of a P a c i f i c i s l a n d and, naturally, i t i s distinguished b o t a n i c a l l y by a large number of unique indigenous species. There are sev-e r a l species of cactus and the hard "espino," a species of acacia from which excellent charcoal i s made, i s found throughout the Central V a l l e y . An int e r e s t i n g tree species i s the Chilean pine (Araucaria Araucana (Molina) Vc. Koch), the nuts of which as well as the wood are highly valued. South of the Bio-Bio River, where the true forests begin, are found the native commercial woods, such as la u r e l s , magnolias, various species of conifers and, most important, a v a r i e t y of beeches (Nothofagus) producing a high q u a l i t y lumber. 189 Since 1930, a r t i f i c i a l forests of radiata pine, poplars and e-i-alypts have become very s i g n i f i c a n t from a s o i l conservation point of view, and as a source of i n -d u s t r i a l raw material. The bulk of these plantations i s found i n the Central-South portion of Chile as indicated i n Map 9 . This region i s p r i n c i p a l l y characterized by a long v a l l e y which runs north and south flanked on one side by the Andes with a maximum average height of some 15,000 feet and on the other side by the old worn-down h i l l s of the Coastal Range, which only i n a few places r i s e above 3,000 fe e t . I t i s on the l a t t e r which used to be covered by native forests that r e f o r e s t a t i o n has mainly progressed. Other important plantations are also found i n some a l l u -v i a l terraces of the Central V a l l e y extending i n some cases to the f i r s t f o o t h i l l s of the Andes (United Nations Technical Assistance Administration, Economic Commission for L a t i n America, and PAO, 1957) . The t o t a l area of Chile, excluding the A n t a r t i c portion, i s about 74 m i l l i o n hectares, of which 28.8% i s classed as "forest lands" ( i . e . woods, open woods, scrubby growths, and lands without vegetation but which have r e -fo r e s t a t i o n p o t e n t i a l ) . However, of the 21.4 m i l l i o n hectares of forest land, less than h a l f consist of m i l l a b l e 190 stands, most of which are found between 46° and 37° south. Only about 16 m i l l i o n hectares (76.6%) bear forest cover, the r e s t i s clear of vegetation or occupied by grass f i e l d s or bush of l i t t l e value (Corporacion de Fomento de l a Produccion, 1962). Given the present economic development of the coun-t r y and market for forest products, only 4.64 m i l l i o n hectares are considered merchantable and capable of being logged, of these, 4.27 m i l l i o n hectares correspond to native species n a t u r a l l y grown and 0.38 m i l l i o n hectares to exotic plantations, mainly composed of radi a t a pine (0.3 m i l l i o n hectares), eucalypts and poplars (80,000 hectares) (Chile, M i n i s t e r i o de Agricultura, 1967) . The native forests of C h i l e consist of about 60 d i f f e r e n t species of which only 15 or 20 are considered lumber producers (Corporacion de Fomento de l a Produccion, 1965). I t i s currently estimated that 55% of a l l forest lands belong to private owners, these being the most valuable areas l e f t . The State owns 45%, consisting p r i n c i p a l l y of land considered inaccessible or of d i f f i c u l t access which i s maintained i n National parks and Forest Reserves. In the area dedicated to plantations the r e l a t i v e 191 importance of State ownership decreases even more as 84% of the area planted i s privately owned, 15% belongs to social security institutions and only 1% belongs to the State (Corporacion de Fomento de l a Produccion, 1965). A rough indication of the distribution of Chile's indigenous forests and principal areas of plantations can be found in Map 9. It can be readily appreciated that most of the man-made forests are located in the Central-South region of the country, plus a small area in the North. The potential here for increasing the area under fast growing plantations i t i s currently estimated to be more than 2.5 million hectares, whether radiata pine or other exotic species are used. The total area, however, with good potential for reforestation in Chile easily exceeds 10 million hectares. This area includes soils which have suffered moderate to intensive erosion and land with a semi-arid climate but s t i l l with excellent po s s i b i l i t i e s for tree growth (Chile, Instituto Forestal, 1966 b). 5.2.2 The Forest Industries 5.2.2.1 General It has already been mentioned in preceding chapters i 192 6V a> o o \ I r c •ri •P c MAP. 9 o •ri « M •H O cu c a> o o •H U AO MAINLY PLANTATIONS OF RADIATA PINE NATIVE SOFTWOODS AND HARDWOODS 193 that Chile i s a country which has a definite forest potential. The geographic, topographic, and climatic conditions found in i t s territory form an excellent envir-onment for tree growth. Approximately one-third of i t s area i s composed of soils adequate only for a forest use. To this i t should be added, that several millions of hectares in the Central South region are presently cap-able of producing forests of a high productivity at a low cost, on rotations which axe considered among the shortest in the world. In the year 1965, the forest inventory indicated that Chile's plantations were composed of 278,000 hectares of radiata pine and more than 30,000 hectares of other species, principally eucalyptus and poplars, today the total area planted i s well over 400,000 hectares. During the last ten years, plantation t r i a l s with other exotic species have proved highly successful thus widening the number of potential species for plantation development. The most interesting results have been ob-tained with Douglas f i r , Scotch pine, Larix spp., and Caaegieaeia piae. The actual value of Chile's economic forests has been estimated at 3,582 million dollars, of 194 which 152 million dollars correspond to plantations and 3,430 million dollars to the native forests (Chile, Ministerio de Agricultura, 1967). Considering the figures given for 1965, that i s of approximately 300,000 hectares of plantations, i t was possible to know that these forests were generating each year 4 million cubic meters of wood. This amount suggests that the opportunity cost of the forest land not used i s far greater than originally thought, making reforestation not only economically feasible but also mandatory. (CORMA, 1966). 5.2.2.2 Complimentary Investments needed for a Better  Use of the Forest Areas Great deficiencies exist today in the Chilean road system. There are too few roads and often those existing are of a low quality. Road building has been carried out with the purpose of transporting only current production, and no provision has been made for future volumes. This has l e f t Chile with very l i t t l e margin for expansion in transportation. The private sector has most of the time constructed and maintained th« forest roads. Because this sector lacks 195 the necessary capital for such work, forest roads seldom serve properly the purpose for which they were created. Integrated planning has not been applied to them and during winter large sectors cannot be used due to muddy conditions. This situation, undoubtedly puts serious limitations on future expansion in forestry (CORMA, 1966) and not only discourages investments in afforestation, but also creates relatively high operating costs in the existing industries. Complimentary investments in roads are, therefore, unavoid-able and should be considered as part of any development project which i s undertaken in the future. 5.2.2.3 Land Ownership and Competitive Forestry Activity A number of other d i f f i c u l t i e s also appear to be restricting forest production in Chile. Among the most im-portant are the problems of excessive land subdivision on marginal soils and improper use of the land. Many people own too small properties. Use of this land for agricultural purposes leads to increased erosion and units are too small for the establishment of economical forest plantations. Fortunately, a recent Land Reform program presently being applied by the government i s tackling this problem in sev-eral ways. In order to promote the establishment of forest 196 plantations on these lands some form of co-operative associ-ations of land owners should be considered. 5.2.2.4 Productive Capacity of the Industry In Table 29 can be found a summary of some forest industry stat i s t i c s for the year 1964. Naturally, important changes have taken place since that year, and several ex-pansion programs especially of the pulp and paper sector have been developed, but as a way of giving a broad idea the figures presented can be useful. The production figures for lumber, show as i t s most distinct characteristic the overwhelming importance of radiata pine. The decreasing importance of the native broadleaf forests in lumber production, has been marked in the last few years and i t i s considered that in a short period, radiata pine lumber w i l l represent more than 80 per cent of the total annual production of sawnwood. It i s also important to mention that since 1964 eleven mechanized sawmills of a high efficiency have been bu i l t in the plantations region. These sawmills due to their modern design and high productivity, are able to pro-duce lumber of good quality, thus making i t possible for Chile to compete favourably in international markets. 197 TABLE 29 ESTIMATED DEMAND FOR RAW MATERIAL, PRODUCTION CAPACITY AND ANNUAL PRODUCTION OF THE CHILEAN FOREST INDUSTRIES FOR THE YEAR 1964 Type of Industry Wood Demand in round wood m3 (s) Production Cap-acity expressed in m3 (s) Annual Pro-duction ex-pressed in m3 (s) Lumber Radiata Pine 990,000 1,480,000 680,000 800,000 500,000 744,000 Total 2,470,000 1,480,000 1,244,000 metric tons metric tons Particle Board 9,000 13,100 4,500 Fiber Board 43,200 metric tons 12,000 metric tons 12,000 Plywood 24,000 m3 13,000 3 mJ 8,000 Pulp and Paper metric tons metric tons Mechanical Pulp Chemical Pulp (Paper) 420,000 530,000 140,000 100,000 220,000 140,000 100,000 220,000 Sources CORMA, 1966. 198 In relation to the particle board industry i t i s interesting to note that there are only three plants. The oldest uses as raw material timber coming from the native forest. The other two, of more recent creation, use radiata pine. In 1964 there was only one fibre board plant located in the plantation region and that uses radiata pine as raw raw material. This industry has lately expanded production to about 22,000 metric tons per annum. The plywood industry i s presently composed of two plants and their output i s considerably lower than their maximum capacity. Although at present this industry i s based on native timbers alone, i t i s expected to be expanded in the future and w i l l use radiata pine. Pulp and paper production has changed considerably since 1964. In that year a new pulp m i l l was established and in the last three years this m i l l , as well as the others, have been expanded bringing production to a total of 450,000 metric tons per annum. In the year 1965 the total value of forest produc-tion was 14.4 million dollars and in 1966, 41,569 new 199 hectares were reforested with fa s t growing species. In t h i s year also, the country's forest resources supplied the basic materials for 300 lumber m i l l s ; 60 plants manufactur-ing doors and windows; 200 furniture manufacturing plants; 80 plants manufacturing various wood products; 10 plants producing p a r t i c l e board, veneers, plywood and other pro-cessed woods; 5 pulp and paper m i l l s ; and 25 i n d u s t r i a l plants for prefabricated houses. 5.3. Forestry Development 5.3.1 P o s s i b i l i t i e s for Increasing Forest Production 5.3.1.1 Ecologic Conditions Although the intensive cutting of indigenous forests has given way to a highly destructive process of erosion, the ecologic conditions i n much of Chile s t i l l favour forest cover. Recent studies have concluded that i n the Central South and Southern regions of Chile, where the climate i s most favourable for intensive s i l v i c u l t u r e , there are 20,000,000 hectares which have no a l t e r n a t i v e use. To r e -f o r e s t t h i s land i n a way which w i l l o f f e r protection to the s o i l , improve forest production and improve the human 200 environment i s a task which i s not only important from the point of view of economic development but has important wider implications for the total welfare of the nation. 5.3.1.2 Costs Several countries of the world, and, undoubtedly, almost a l l of the Latin American ones, find themselves in a similar situation regarding forestry expansion. In fact, many have already begun forestry programs that w i l l enable them to increase output not only to meet domestic demands but also to supply international markets. The important thing which puts Chile ahead in this competitive situation i s the fact that a substantial reforestation program already exists and that there i s considerable expertise in this area. The silviculture of species such as eucalyptus, poplars, acacias, Douglas f i r , and radiata pine i s widely known. Their yields are higher than in many other parts of the world with very low costs of planting and managing. The industrial processing of their wood i s also well established and expanding at a fast rate. To compensate for the higher costs of transportation to foreign markets, the greater cost of industrial machinery that must be imported, and the higher price of energy, the 201 country can put forward i t s comparatively lower costs of standing timber. 5.3.1.3 Demand for Industrial Forest Products In Chile, high future demands are anticipated for lumber and pulp and paper products. The national market for sawnwood w i l l be influenced by the housing construction programs of the near future. For the quinquennium 1980-1984 these programs alone w i l l be consuming 1,285 thousand board feet per year, increasing to 1,635 thousand board feet for the period 1985-1989 (see Table 30) . In relation to the export situation, the country i s already selling pulp and newsprint to Latin American countries and lumber to Europe. It i s currently thought that i f the conditions of low cost for wood production are maintained and the cost of manufacturing the raw materials i s kept between reasonable limits by increasing product-i v i t y , the country should have no problem in selling i t s forestry output. 5.3.2. Possible Forestry Production and Exports It i s possible to deduce from the information already given that a limit in the expansion of forestry output in 202 TABLE 30 PROJECTION OF THE DEMAND FOR SAWNWOOD IN CHILE TO 1989 P e r i o d Radiata Pine Total millions of board feet per year 1965 - 1969 290 620 1970 - 1974 480 790 1975 - 1979 730 1,015 1980 - 1984 1,050 1,285 1985 - 1989 1,415 1,635 Sources CORMA, 1966 TABLE 31 CHILEs DEMAND AND SUPPLY OF RADIATA PINE PRODUCTS FOR THE PERIOD 1965 - 1969. Type of Industry Production Wood Demand (round wood) m3 (s) Chemical pulp 310,000 tons/year 1,640,000 Mechanical pulp * 15,000 tons/year 45,000 Newsprint 160,000 tons/year 480,000 Sawnwood 290,000,000 board feet 1,380,000 Plywood 50,000 Particle Board 30,000 Fibre board 50,000 3,675,000 Total Amount Available 4,400,000 m3 (s) Source: CORMA, 1966. * It does not include the wood used for newsprint. 203 Chile i s the ava i l a b i l i t y of raw materials for such a pro-gram. Table 32 dhows the considerable impact n annual reforestation programme of 50,000 hectares of fast growing species would have on the avai l a b i l i t y of roundwood for industrial purposes. The amount of 50,000 hectares a year of new plan-tations i s considered both by the government and private sector, as the minimum possible to be made in order to have the required economic impact. A projection of these minimum f igures indicate that for the year 1985 such a program would be providing annually more than 13 million cubic meters (solid), a quantity which i s extremely significant at the national l e v e l . Apart from the 50,000 hectares, mainly of radiata pine, an additional 20,000 hectares of plantations of slower growing species are also being considered. These species would provide for the better quality wood, not possible to produce with fast growing stands. During the next two decades, therefore, the country should be planting, annually, a minimum of 70,000 hectares. Government and private owners have already begun to move according to these objectives and encouraging progress has TABLE 32 CHILEs ESTIMATES OF TOTAL VOLUMES AND USABLE VOLUMES FOR THE PERIOD 1965-1985, BASED ON A REFORESTATION PROGRAM OF 50,000 HECTARES A YEAR. Total Exist- Total Exist- Annual Vol- Annual Vol Annual Total Annual Vol-ing Area ing Volume ume available ume a v a i l - Volume ava i l - ume a v a i l -P e r i o d for Pulp wood able for able able for Sawnwood Sawnwood hot. m^  m3 m^  m^  board f t . Total 1965-69 364,000 68,081,000 1,965,000 3,842,000 5,807,000 784,995,000 Total available 75% 51,061,000 1,474,000 2,881,000 4,354,000 561,746,000 Total 1970-74 564,000 83,964,000 2,287,000 5,123,000 7,410,000 998,985,000 Total usable 80% 67,091,000 1, 830,000 4,098,000 5,928,000 799,188,000 Total 1975-79 749,000 113,539,000 4,013,000 5,976,000 9,989,000 1,165,320,000 Total usable 89% 90,831,000 3,210,000 4,781,000 7,991,000 932,256,000 Total 1980-84 918,000 154,792,000 5,562,000 8,111,000 13,673,000 1,581,645,000 Total usable 80% 123,834,000 4,450,000 6,489,000 10,938,000 1,265,316,000 Total 1985 181,037,000 6,501,000 10,145,000 16,746,000 1,997,775,000 Total usable 80% 144,830,000 5,201,000 8,196,000 13,397,000 1,598,.220,000 Source: CORMA, 1966. O 205 been made. In 1965, 18,000 hectares were planted, a vast improvement over the 4,392 hectares which were planted in 1964. And in 1966 the area of newly created stands went up to 41,000 hectares (Chile, Ministerio de Agricultura, 1967). On several occasions i t has been indicated that 70,000 hec-tares i s too modest an objective and that the area reforested should be at least 80,000 hectares by 1970, increasing to 100,000 hectares before 1985. These figures undoubtedly i n -crease the challenge to the country, but hopefully they w i l l eventually be met. Tables 33 and 34 show the potential production and exportation of forest products provided by a reforestation program of 50,000 hectares a year. To this production should be added the volume coming from the native forests and from the additional 20,000 hectares of slower growing species. This output, although comparatively smaller in quantity, w i l l s t i l l be sufficiently important as to i n -crease the total value of forestry production by at least 30%. In Table 35 can be found the potential value of the exportable surplus for the period 1965-1989 i f a rate of 50,000 hectares a year i s maintained throughout these years. 206 TABLE 33 CHILE; POTENTIAL RADIATA PINE PRODUCTION POR THE PERIOD 1964-1989 (BASED ON A REFORESTATION PROGRAM OF 50,000 HA/YEAR). Type of 1964 1965 1970 1975 1980 1985 Industry 1969 1974 1979 1984 (thousands of tons/year) Cellulose 95 310 520 730 920 1,100 Newsprint 110 160 220 260 380 410 Fiber board 12 13 18 23 29 33 Particle board 5 16 26 29 36 42 (millions of board feet/year) Sawnwood 210 290 480 730 1,050 1,280 (thousands of m3/ year) Plywood 13 20 30 38 49 56 Source: CORMA (1966) TABLE 34 CHILE: EXPORTABLE SURPLUS FOR THE PERIOD 1965-1989 (1) (RADIATA PINE PRODUCTION) UNITS 1965 1970 1975 1980 1985 1969 1974 1979 1984 1989 (thousands of units/year) Cellulose ton. 316 402 572 708 836 Newsprint ton. 154 160 183 280 280 Sawnwood board feet 30,000 50,000 70,000 100,000 130,000 Source: CORMA (1966) (1) Net mean quantities for each period: In the case of Cel-lulose the amount needed for newsprint production has been substracted. For the period 1965-1974 i t has been estimated a possible exportation of forest products other than Radiata Pine, of 40,000,000 board feet per year. This value i s not included in the Table. 207 TABLE 35 CHILE; VALUE OF THE EXPORTABLE SURPLUS FOR THE PERIOD 1965-1989 (2) (RADIATA PINE PRODUCTION) 1965 1970 1975 1980 1985 UNITS 1969 1974 1979 1984 1989 (millions of US$/year) i Cellulose 40 52 73 92 109 Newsprint 20 21 24 36 36 Sawnwood 2 3 4 6 8 TOTAL 62 76 101 134 153 Source: CORMA (1966) (2) F.O.B. value: Cellulose Newsprint Sawnwood 130 U.S. $/ton 130 U.S. $/ton 60 U.S. $/l,000 board feet. 5.3.3 Implications for Canadian Imports, in Latin America In the foreseeable future, the Chilean forest industries w i l l considerably increase production. Large surpluses w i l l exist in two major groups of wood products, these are sawnwood and pulp and paper. Despite the expansion of the plants pro-ducing particle board, fibre board and plywood, production w i l l be absorbed primarily by domestic consumption, and l i t t l e w i l l be l e f t for exportation. Based principally on i t s softwood plantations the country w i l l increase sawnwood production to 480 million board 208 feet per annum (1,133 thousand m3) by 1970-74 and to slightly over one b i l l i o n board feet (2,360 thousand m3) by 1980-84. Due to internal demand, exports in these two periods w i l l be limited to only 50 million board feet (118 thousand m3) and 100 million board feet (236 thousand m ) per year respectively. Traditionally, Chilean sawnwood has found the best markets in Argentina and Peru, though large quantities have also been ex-ported to Uruguay and other Latin American countries. In recent years exports have been increased to Europe and the Near-East, with the United Kingdom, Belgium, Prance, Germany, and Israel as the larger buyers. In the next decade these trends in lumber exports are expected to continue, though much w i l l depend on how domestic demand grows. During the period 1970-74, Chile is expected to produce on the average 740 thousand tons of cellulose and newsprint per annum. Exports w i l l be approximately 562 thousand tons per annum. In 1980-84 industrial expansion w i l l permit an i n -crease in exports to 988 thousand tons per annum, making the country one of the leading suppliers of these products to Latin America. There i s , however, some indication that i f Chile manages to lower unitary costs by a better u t i l i z a t i o n of economies of 209 scale, i t might begin to s e l l i t s surplus overseas, possibly in the Asia-Pacific or European markets. If this i s the case, the total deficits for Latin America w i l l increase ac-cordingly thus raising the po s s i b i l i t i e s for Canadian imports in the region. If Chile continues to s e l l most of i t s pro-ducts in Latin America as i t does today, because of prefer-e n t i a l treatment granted by LAFTA (Latin American Free Trade Association) to i t s trade partners, Chilean pulp and paper should, at least in the LAFTA area, provide strong competi-tion for Canadian imports. Under this assumption, the most probable size of the market available to Canada w i l l be the net imports required by Latin American countries (see Section 4.5.3) which by 1975 w i l l total 1,471 thousand tons of news-print and cellulose, 50 thousand m3 of plywood and veneer, 150 thousand m3 of particle board, and 400 thousand m3 of fibre board. Depending on how much the leading Latin American producers s e l l extra-regionally these figures w i l l rise and consequently increase the size of the market. In sawnwood, the region w i l l export, nevertheless, there w i l l exist a limited market for overseas imports in countries such as Argentina, Uruguay, Mexico, and Peru. This w i l l happen be-cause a number of regional producers are planning on selling to the U.S. and Europe instead of selling to Latin America. 210 Because of their proximity to Eastern Canadian ports and relatively longer distances to the South Pacific coast of Latin America (geographic location of Chile) countries such as Brazil, Venezuela, the Central American ones, the Caribbean, and Mexico could perhaps develop into better trading prospects for Canada than other nations in the region. In those products of fine quality such as special printing papers and dissolv-ing pulp with a high content of alfa cellulose not produced by Chile or Brazil, production from Canada should be able to compete favourably against other major producers of the world. 211 SECTION VI PROSPECTS FOR A MORE DYNAMIC MARKETING POLICY IN  LATIN AMERICA 6.1 Significance of the Latin American Market to Canada Canada, at present, has great need for newer markets in which to s e l l i t s ri s i n g forestry production. It i s well known, that the Canadian industry i s largely dependent on export markets and, therefore, i t s control over prices and other market variables i s somewhat limited. Under these conditions, any policy that can provide an extra measure of security in trade should be eagerly persued, and one of them certainly i s trade diversification, both in product sold and number of purchasers. It i s , however, currently thought that in deciding where to make capital investments, the Canadian forest i n -dustry tends to favour projects designed to improve the a v a i l -a b i l i t y of raw material. This does not mean that a l l market-ing promotion i s ignored, but that assurance of raw material for increased production has p r i o r i t y . This would seem, perhaps, out of place given the vast forest resources of Canada. Nevertheless, i t should be borne in mind that not a l l of these forests are economically exploit-212 able. The necessary infrastructure such as roads, power, railways, etc., for competitive costs has not yet been developed in many areas, and the ri s i n g need of recreation and other non-timber using a c t i v i t i e s i s placing increasing demands on forest lands. There i s a body of opinion that believes that the traditional export markets for Canadian wood-based products, specifically the United States, the United Kingdom, and Japan show very good prospects for great-er sales. It is known that these countries are continually increasing consumption of forest products and that domestic supplies are limited. Why then spend time and money pro-moting new markets? A good deal of uncertainty, however, surrounds many of the existing markets for Canadian forest products. Japan w i l l , no doubt, continue to increase imports of forest products, but there i s a question of whether or not the Soviet Union w i l l expand into this market. Proximity to Japan should help Russian shipments at least from a freight standpoint. In Britain's case the prospects of i t entering the European Economic Community and, therefore, of a newer t a r i f f regime which w i l l not favour Canadian imports i s a real p o s s i b i l i t y . It i s time then that a l l these factors were given some thought i f the forest industry in Canada i s not to be caught by surprise 213 by a drastic change in world trade patterns. Because of a l l these uncertainties, the possibility of carrying on a larger amount of trade with other major areas of the world should not be overlooked by Canadian producers. Despite i t s numerous imperfections and d i f f i -culties as a market, Latin America has quite a potential for Canada. Though the long run prospects for the region indicate i t should develop into a net exporter of forest products, tremendous problems in industrial development and of adequate raw material supply have so far prevented such a development, and w i l l probably continue to do so in the next decades. This i s specially true in the pulp and paper sector where the limited amount of long fiber a v a i l -able w i l l r e s t r i c t production for many years to come. Softwood plantations can help solve these d i f f i c u l t i e s but they s t i l l have to be established and that takes time. In the meantime, while Latin America i s s t i l l a net importer of wood-based products, someone w i l l have to supply i t s d e f i c i t s . Canada could well be this supplier. The productive characteristics of the country? i t s advanced technology? the fact of i t being the larger producer of newsprint in the world, a commodity of which Latin America is in great need? and i t s geographic location, should work 214 to i t s advantage. Intraregionally', with the exception of Chile's, and perhaps to a cert a i n extent B r a z i l ' s , produc-t i o n which are protected by LAFTA t a r i f f agreements, the general s i t u a t i o n should also be favourable to Canada. However, i n order to v e r i f y t h i s supposition the competitive character of the Canadian forest industries must be reviewed with respect to other major producing regions of the world. This i s quite important because the United States and Scandin avian countries are hardly expected to give away whatever share of the L a t i n American market they already have. 6.2 Canada's Share of the L a t i n American Market for Forest  Products 6.2.1 Canadian Exports of I n d u s t r i a l Forest Products to  L a t i n America Sawnwood In 1960 Canada exported 2.6 m i l l i o n m3 of sawnwood of which 1.7%, that i s 44.6 thousand m , were sold to L a t i n American countries. Though by 1967 t o t a l exports to t h i s part of the world increased to 186 thousand m3, the r e l a t i v e proportion of sales decreased compared to exports to other major areas (see Table 36). 215 TABLE 36 • CANADA: EXPORTS OF SAWNWOOD TO LATIN AMERICA AND TO THE REST OF THE WORLD. 1960-1967 SAWNWOOD (1,000 m3) YEAR L a t i n America % Rest of the World TOTAL 1960 44.6 1.7 2,620.4 2.665 1961 42.4 1.5 2,783.6 2,826 1962 189.3 1.4 13,215.7 13,405 1963 199.1 1.3 15,100.9 15,300 1964 200.7 1.3 15,666.3 15,867 1965 186.9 1.2 15,717.1 15,904 1966 229.9 1.5 14,786.1 15,016 1967 185.9 1.2 15,658.1 15,844 Sources FAO, 1962, 1964a, 1966a, 1968a. In 1960, the percentage of sales to L a t i n America was 1.7, i n 1967 i t decreased to 1.2%. Despite these figures, consumption of Canadian sawnwood i n L a t i n America more than quadrupled i n the period 1960-67. Wood-based Panel Products Canadian exports of plywood to the world t o t a l l e d 114 3 thousand m i n 1960. Seven years l a t e r these exports have increased four-fold, now t o t a l l i n g 401 thousand m3 (see Table 37). In 1960, exports to L a t i n America were 1.1 thousand m (1.0% of the t o t a l ) , but by 1967 they had increased to 4.3 216 TABLE 37 CANADA? EXPORTS OF WOOD-BASED PANEL PRODUCTS TO LATIN AMERICA AND TO THE REST OF THE WORLD. 1960-1967. PLYWOOD (1,000 m3) YEAR TOTAL Latin America Rest of the World % 1960 1.1 1.0 112.9 114 1961 1.0 0.8 121.0 122 1962 1.5 0.8 180.5 182 . 1963 1.5 0.8 192.5 194 1964 2.6 0.9 294.4 297 1965 3.6 1.2 288.4 292 1966 3.2 1.0 326.8 330 1967 4.3 1.1 396.7 401 FIBRE BOARD (1,000 m.t.) 1960 0.7 0.3 22 .0 22 .7 1961 0.8 0.4 20.9 21.7 1962 1.5 0.7 19.9 21.4 1963 1.7 0.6 28.4 30.1 1964 2 .4 0.6 35.8 38.2 1965 2.3 0.4 50.3 52.6 1966 2.4 0.7 32.6 35.0 1967 1.6 0.4 34.4 36.0 Sources FAO, 1962, 1964a, 1966a, 1968a. thousand m3 (1.1% of the total) . In this way, Latin America *s share of Canadian plywood exports has remained relatively constant, a characteristic which. with the exception of news-print, i s common to a l l other industrial forest products. 217 Fibre board exports to L a t i n America were 0.7 thousand metric tons i n 1960 (0.3% of a l l exports), but i n 1967 they rose to 1.5 thousand metric tons (0.4% of the t o t a l ) . Fibre board exports have experienced similar trends to those of plywood. Though they have r i s e n by more than 2.3 times i n the seven year period, exports to L a t i n America have merely increased t h e i r r e l a t i v e share by 0.1%. Pulp and Paper During 1960-1968, exports of pulp to L a t i n America rose from 76 thousand tons to 101 thousand tons. However, because of the rapid expansion i n sales to other regions, L a t i n America's share of Canadian pulp decreased during the same period. In 1960 t o t a l exports were 2,601 thousand tons, of which 2.9% were sold to L a t i n America. In 1968, t o t a l exports grew to almost 5 thousand tons, but only 2% was sold to L a t i n America. As indicated i n Table 38, newsprint sales to L a t i n America show the most encouraging picture of a l l forest pro-ducts. From a 3.7% r e l a t i v e figure i n 1960, they grew to 5.3% by 1968, and are expected to reach 7.2% i n 1970. During t h i s decade, consumption of Canadian newsprint i n L a t i n America w i l l have grown more than 2.5 times while demand 213 TABLE 38 CANADA; EXPORTS OF PULP AND PAPER TO LATIN AMERICA AND TO THE REST OF THE WORLD. 1960-1970 PULP (1,000 of nut.) YEAR La t i n America % Rest of the World TOTAL 1960 76 2 .9 2,525 2,601 1961 152 5.3 2,717 2,869 1962 91 3.0 2,953 3,044 1963 81 2.4 3,258 3,339 1964 82 2 .3 3,554 3, 636 1965 85 2.2 3,768 3,853 1966 81 2 .0 4,015 4,096 1967 91 2.1 4,178 4,269 1968 101 2.0 4,870 4,971 NEWSPRINT (1,000 O f m.t.) 1960 235 3.7 6,030 6,265 1961 272 4.4 5,944 6,216 1962 233 3.8 5,936 6,169 1963 245 4.0 5,855 6,100 1964 261 3.9 6,498 6,759 1965 324 4.5 6, 833 7,157 1966 389 5.0 7,375 7,764 1967 348 4.7 6,982 7,330 1968 394 5.3 7,028 7,422 1969 540p 6.8 7,360 7,900 1970 590p 7.2 7,585 8,175 Source? Canadian Pulp and Paper Association (1969b), Newsprint Association of Canada (1969). p Figures are preliminary estimates. 219 from other sources w i l l have increased by only 1.3 times. In 1970, t o t a l exports to the world are expected to be 8.2 m i l l i o n tons, L a t i n America w i l l roughly import 600 thousand tons of these exports. 6.2.2 Sources of Supply of I n d u s t r i a l Forest Products to  L a t i n America As shown i n Table 39, during 1967 the major suppliers of sawnwood to L a t i n America provided the region with more than 1.72 m i l l i o n m . Of t h i s figure, 1.7 m i l l i o n mJ corres-pond to coniferous species and only 21 thousand mJ to broad-leaved species. This i s a r e f l e c t i o n of the region's less abundant reserves of softwood. Twelve countries appeared l i s t e d under FAO s t a t i s t i c s as exporting sawnwood to L a t i n America, of these f i v e only account for almost 98% of the t o t a l volume. During 1967, B r a z i l sold 36%, the U.S.S.R. 18%, the United States 17%, Honduras 16%, and Canada 11%. The p a r t i c i p a t i o n of the Soviet Union i n these imports would not be so important i f i t were not for the considerable 220 TABLE 39 MAJOR SUPPLIERS OP SAWNWOOD TO LATIN AMERICA 1967 SAWNWOOD (1,000 m-5) COUNTRY Coniferous Broadleaved Total % of Total Canada 185.5 0.4 185.9 11 Brazil 607.2 7.8 615.0 36 Chile 28.0 28.0 2 Colombia 0.7 0.7 -France 0.4 0.1 1/ 0.5 -Germany (Fed.Rep.) 0.2 0.2 -Honduras 281.0 1/ 281.0 16 Philippines 0.1 0.1 -Romania 0.5 0.5 -United States 287.0 11.5 298.5 17 U.S.S.R. 310.1 1/ 310.0 18 Yugoslavia 0.4 0.4 -Total 1,699.6 21.2 1,720.8 100 Sources FAO, 1968a. 1/ Figure for 1966. - Less than 0.5%. amounts of sawnwood periodically required by Cuba. The link between the governments of these two countries provides the principal reason for the carrying on of this trade. However, this should not be overlooked or be considered as an isolated case in Latin America. At present, several countries are a l -ready increasing their economic and cultural ties with the U.S.S.R. and this in time could mean a substantial rise in trade at a l l levels. Industrial commodities, heavy machinery, and equipment have up to now been the products sold to Latin 221 America, this could be easily extended to sawnwood and other wood-based products. Because of economic integration in Latin America, Brazil, Chile, and Honduras should be expected to continue to s e l l their products within the region. Nevertheless, there s t i l l exists 35% of the market in the hands of the United States, and the Soviet Union. Some of this 35% could be won by Canadian producers by means of a more aggressive marketing strategy. The Latin American market for imported sawnwood should be expected to decrease over the long run as the region increases i t s domestic production. Therefore, wood-based panel products, and pulp and paper should be considered as well as sawnwood in any new marketing strategy. These later products which have a much greater potential in Latin America would help to diversify the line of products and in this way lessen the burden of decreasing prospects for sawnwood. The supply of plywood and fibreboard to Latin America i s somewhat less concentrated in the hands of a few producers than that of sawnwood. Table 40 shows the major exporters of wood-based panel products to Latin America. In 1967, out of a total of 61.6 thousand m , of plywood and fibreboard sold to Latin America, 25% was provided by 222 TABLE 40 MAJOR SUPPLIERS OF WOOD-BASED PANEL PRODUCTS TO LATIN AMERICA 1967 WOOD-BASED PANEL PRODUCTS (1,000 m3) COUNTRY ~t  Plywood Particle Fibre Total 3/ %-of Board 2/ Board Major Total Countries Canada 4.3 1.7 6.0 10 Australia 2.3 2.3 4 Brazil 2.3 2.3 4 Finland 0.6 3.6 4.2 7 France 3.8 0.7 4.5 7 Gabon 1.9 1.9 3 Germany (Fed.Rep.) 0.2 0.1 0.3 -Israel 1.9 1.9 3 Italy 0.2 0.2 -Japan 1.2 1.2 2 Norway 1.0 1.0 2 Poland 0.5 0.5 1 Sweden 8.7 8.7 14 United States 13.0 2.5 15.6 25 U.S.S.R. 11.0 1/ 11.0 18 Total 38.1 23.5 61.6 100 Sources FAO, 1968 1/ Figure for 1966. 2/ Final Figures were not available. 3/ Does not include Particle Board. Less than 0.5%. the United States (15.6 thousand m ). This country, p r i n c i -pally because of i t s exports of plywood, i s the greatest source of panel products for the region. It is followed in order of importance by the U.S.S.R. which holds 18% of the 223 3 market (11.0 thousand m of plywood, and then by Sweden 14%, which sells only fibreboard (8.7 thousand m 3). Canada holds fourth place with 10% of the market (4.3 thousand m3 of ply-wood and 1.7 thousand m3 of fibreboard), which i s a modest share given the considerable installed capacity of i t s wood-based panel industry. The rest of the Latin American market for plywood and fibreboard i s held by a number of other countries each s e l -ling between 2% and 7% of the total exports to the region. These countries are in order of importances Findland, France, Brazil, Australia, Gabon, Israel, Japan, and Norway. Poland also sells to Latin America but barely reached to 1%. In this sector of the industry, Canada could also ex-pand i t s sales to Latin America. Here, though an effort should be made to win sales from the United States, the U.S.S.R. and Sweden, work should be concentrated in obtaining a greater share of the market from the other competitors. Because of their smaller size their hold of the market i s less secure than the major exporters, and also their geographic location should work to their disadvantage compared to Canada. This i s specially true in the case of Australia and Japan whose products must travel far greater distances than 224 those of Canada to reach any major point in Latin America. The pulp and paper sector i s where the greatest pot-ential for increased sales to Latin America exists. Canada already holds more than one-third of the market for wood pulp and newsprint. In 1967 out of a total of almost 1.2 million tons of these products bought by Latin America, Canada supplied 413 thousand tons, an amount well ahead of i t s nearest competitor, the United States, which supplied 225 thousand tons (19%). other important suppliers of pulp and paper products to the region ares Finland (17%), Chile (11%), and Sweden (11%). Table 41 gives the absolute and relative figures for pulp and paper sales to Latin America in 1967. Canada's importance in the Latin American market for wood pulp products i s even greater in the newsprint sector, here i t accounts for 46% of the imports. This figure re-flects the fact that Canada is the largest producer of news-print in the world with total shipments well over 7.4 million tons per annum. Of a l l the forest products Canada could export to Latin America this i s definitely the best suited. Theoretically, and in practice, Canada i s at the top of the l i s t of the producing countries of the world. Economies of 225 TABLE 41 MAJOR SUPPLIERS OF PULP AND PAPER PRODUCTS TO LATIN AMERICA 1967 PRINCIPAL PULP AND PAPER PRODUCTS (l,000m.t) COUNTRY ~ Woodpulp Newsprint Total Major % of Countries Total Canada 93.0 32.0 413.0 35 .Austria 0.2 0.2 — Brazil 11.0 11.0 1 Chile 65.0 63.0 128.0 11 Czechoslovakia 0.4 0.6 1.0 -Finland 63.0 143.0 206.0 17 France 4.1 4.1 -Italy 9.9 9.9 1 Netherlands 0.1 0.1 -Norway 0.9 27.3 28.2 2 Poland 1.0 1.0 -Portugal 2.9 2.9 -Sweden 74.0 50.7 124.7 11 United States 172.0 53.0 225.0 19 U.S.S.R. 13.0 1/ 24.0 1/ 37.0 1/ 3 Total 499.3 692.8 1,192.1 100 Sources FAO, 1968a. 1/ Figure for 1966. Less than 0.5%. scale are presentsthroughout the industry and a competitive character of production has already been established. By 1975, Latin America w i l l require to import more than 1.2 million tons of newsprint a year, this i s assuming a l l pro-jects presently planned are carried out and completed on time. 226 Canada should take advantage of t h i s opportunity and c o n s o l i -date i t s p o s i t i o n as one of the main suppliers of newsprint to the region. 6.3 Competitive Character of the Canadian Forest Industry Among the numerous factors which determine the com-p e t i t i v e character of production, raw material supply i s pro-bably one of the more important ones. The quantity and type of timber a given area or country has i s very often the prime determinant of cost and, through t h i s , of i t s competitive p o s i t i o n as a supplier of wood-based products. Because of the favourable location of Scandinavia, the Soviet Union, and Canada within the Northern Coniferous b e l t of forest, i t i s not surprising to f i n d them dominating the softwood markets of the world. Goods, therefore, move fl u e n t l y from Canada to the United States and from Sweden, Finland, Norway, and the Soviet Union to Europe (Kingston, 1965) . When speaking of a v a i l a b i l i t y of raw material, mere physical abundance i s not an adequate c r i t e r i o n of compet-itiveness (Shand, 1967). In order to be meaningful, the forest resources must meet some economic standards. Based on 227 this idea, Shand (1967) clearly summarized the concept when he stated that? The raw material issue for the future of the forest industries i s not the total cellulose inventory, wherever located, but the economic supply of wood of desired physical qualities available in forms adapted to highly mechanized low cost harvesting, and located so as to minimize transportation costs to the m i l l . It i s , therefore, economic accessibility rather than physical accessibility of raw material that i s the real criterion in assessing competitive advantage. A few years ago, Scandinavia began to experience the truth of this statement. In 1963, exports of softwood lumber from Sweden and Finland seemed to be partially stagnated due to raw material shortage, higher stumpage, and increased dom-estic demand (FAO, 1963b). Canada, in a way, could be said i s experiencing similar problems because of the country's sustained yield policy which limits the amount of usable raw material. This i s especially true in the case of Br i t i s h Columbia where the ultra-conservative calculation of allowable cuts has been one of the main reasons for a slower growth i n output. Shand, (1965)? Reed, (1965) , supported this same idea by claiming that without increases in the annual allowable cut of sawtimber, there would be no substantial increase in British Columbia's lumber production. 228 Gedney (1963), has established that among the factors influencing forest development two weigh more than the rest. These factors are the distribution of industrial components and the state of development of the forest industries. If the supply of timber i s not as readily available as i t should be, development could be accompanied by increasing raw mat-e r i a l costs (Shand, 1967) . Compared with the United States, the forest industry in Canada i s not as highly developed relative to raw material supply, so competition for timber has not been as high as in the United States. As an example of this, stumpage in British Columbia i s generally lower than in the Pacific North-west of the United States. (Judge, (1965) Edgett (1963) claimed that differential in lumber prices favoured Canada over the U.S. by as much as $10 per thousand board feet. Another part of the problem related to competitive-ness in production, relates to the number and type of i n -dustrial components bidding for raw material, often, the forest industries are classified as highly competitive by con-sidering only the high degree of competition prevailing at the output level while neglecting an entirely different situation at the input level (Shand, 1967 and Mead, 1964). High degrees of concentration of ownership of timber resources 229 at the input level tend to increase prices of raw material. In this regard, though s t i l l having lower prices for stump-age than the Scandinavian countries, Canada compares un-favourably with them. In Sweden, for instance, of the pro-ductive forest land, 76% of the area i s in private owner-ship while the State forests amount to 19%, and acclesiasti-cal and other public forests to 5% (The Swedish Forestry Association, 1966). Canadian woodlands are largely owned by the governments. About 80% of those classified as pro-ductive are owned, and administered by the provincial governments. The remaining 20% included farm woodlots, forest land owned by companies and individuals, and areas for which the federal government is responsible (Canadian Pulp and Paper Association, 1968). Such a concentration of tenure in the hands of the State, eliminates a l l possibil-i t y of a competitive supply of timber to the industry, and despite the fact that some government ownership would be advisable in order to regulate the use of the forests, there i s probably l i t t l e to be said in the defence of an 80% figure. Adequate legislation, though not directly inter-fering with stumpage, can regulate the use of forest land with an equal or higher degree of efficiency. Under an i n -crease in supply of raw material, stumpage rates in Canada 230 would no doubt decrease considerably. At present timber prices do s t i l l compare favourably with those existing in the U.S., Scandinavia, and Finland, and they w i l l probably continue to do so in the near future. However, a heavier participation of the Soviet Union in world production could change the existing status quo to the point where cheaper raw material will, have to be made available to the Canadian industry. Advanced technology in m i l l production and lower logging costs can help maintain lower prices, but the key to competitiveness i s to be found f i r s t in the costs of raw material and then in the way these raw materials are used. Raw material cost i s then a decisive characteristic which can encourage or decrease production of industrial forest products. In this regard, i t has been ri g h t f u l l y mentioned that a much greater effort should be made by North American foresters on the rationalization of their methods in serving world wood needs (Smith, 1967). Mere physical av a i l a b i l i t y of wood volumes, though desirable to the forest industry, i s not enough to assure i t s future output. Nowadays, economic factors related to growth, log-ging, and transportation are increasingly exercising an equal or greater degree of importance in total production costs. 23.1 Because of t h i s , Smith (1967) concluded that Investments i n plantation forestry i n a l l the fa s t growing regions of the world should be considered very c a r e f u l l y before large sums are spent on r e -forestation i n the poorer growing regions of North America. This statement should be kept i n mind when thinking of the p o s s i b i l i t i e s offered by L a t i n America, i n general, and Chile, i n p a r t i c u l a r , for plantation and forest industry investments. S t r e y f f e r t (1968) reported the costs of manu-facturing sulphate pulp i n the developing countries (Chile and East Africa) on the basis of plantations of quick-growing conifers with the corresponding costs i n Canada ( B r i t i s h Columbia) and Northern Europe (Finland). Data i n Table 42 suggest that Smith's conclusions deserve further study. There are d e f i n i t e cost advantages i n developing man-made forests i n a number of fas t growing regions such as the Central-South area of Chile where Radiata pine y i e l d s 3 on the average 24 m per hectare per year. The most remarkable difference i n costs between Chile and B r i t i s h Columbia l i e s i n the cost of wood per ton of un-bleached sulphate pulp. While i n C h i l e i t i s necessary to spend $24.5 for every ton of pulp produced, i n B r i t i s h Columbia the cost i s $36.8 (38% h i g h e r ) . Due to the high cost TABLE 42 COST OF PULPWOOD AT MILL AND MANUFACTURING COSTS OF SULPHATE PULP IN DIFFERENT FOREST REGIONS OF THE WORLD IN 1966 Location Capacity Cost of Wood per Cost of Wood per ton Unbleached Pulp Cost of of M i l l Wood per ton of of Sulphate Pulp _ Wood as % m 3(solid) unbleach- Unbleached Bleached Conver- Total of Total ed pulp sion Costs Cost of Cost a/ b/ Unbleached tons/day $ m3 S $ $/ton $/ton Pulp % Finland 300 12 .00 4.7 56 .4 62 .5 16.8 73, .2 77 Canada c/ 300 7.50 4.9 36 .8 41 .3 33.6 70, .4 52 500 7.50 4.9 36 .8 41 .3 28.6 65, .4 56 East Africa 300 5.00 4.9 24 .5 27 .5 21.4 45.9 53 Chile 300 5.00 4.9 24 .5 27 .5 28.4 52.9 46 Sources Streyffert, 1968 a/ Excluding Cost of Wood and Capital Costs. b/ Excluding Capital Costs. c/ British Columbia u> to 233 in Chile of capital, energy, and technical s k i l l s , the Briti s h Columbia disadvantage i s reduced to about 6% i f the cost of wood as percentage of total cost of unbleached pulp is considered. The place of pulpwood in the total cost of wood pulp and the ensuing impact of the cost of pulpwood on the com-petitive position of wood pulp in different forest regions should then be considered a matter of prime importance both to the industry and to the forest owners (Streyffert, 1968). In order to determine a more rational approach to the future supply of forest products to the world there should be an increasing number of studies which analyze this problem. Only by comparative analysis can the forest manager fi n a l l y decide which alternative provides the best results. Other costs which severely influence competitiveness of production are those related to the logging operation and transportation of volumes to the processing plants. Logging costs are dependent on many factors. Shand (1967) mentioned as the more important those of average size of trees, volume of timber cut per unit of area, total volume to be removed and the degree of mechanization. These factors vary markedly within and between regions and, therefore, i t is 234 rather d i f f i c u l t to assess them c o r r e c t l y . However, Rankin (1963) claimed that the p r o f i t a b i l i t y of logging was deter-mined more by the mix of species i n the stand, the location and t e r r a i n of the stand, and by the prices paid for stump-age, than by the c o n t r o l l a b l e cost elements of logging. Mechanization of logging and transportation systems are as advanced i n Canada as i n any other major forest country of the world. The sizes of the trees harvested are, generally speaking,as b i g as those of the P a c i f i c North-west of the United States and i n the case of B r i t i s h Columbia, bigger than those of Sweden, Norway or Finland. In r e l a t i o n to t e r r a i n factors, the eastern forests of Canada enjoy a p o s i t i o n of advantage as compared to those i n the West coast of the U.S. In t h i s regard, however, Western Canada cannot be said to be much bett e r - o f f , as one of the most d i f f i c u l t t e r r a i n i n the world i s to be found i n t h i s area. The h o r i z o n t a l integration of the forest industries has made the species mix less important than i n the past. Today integrated firms practice more complete u t i l i z a t i o n of the raw material and thus are able to obtain lower costs 235 of harvesting per unit of volume. According to Ramaer (1964), integrated u t i l i z a t i o n can be considered one of the major factors which put Canada, and especially British Columbia, in a competitive position on the world market. In Europe, costs have been rising comparatively because loggers have been forced to harvest smaller sized wood (Kingston, 1965) . In 1967, Shand introduced the idea of "State of the Industry Models," as a c r i t e r i a for evaluating competitive-ness. He based his discussion on a model Rankin analyzed for British Columbia in 1963. This model showed the inter-relationships between market-price, processing costs, and log costs in wood products industries by indicating how they influence the rate of return. Rankin's model indicated that the cost-price structure for B.C. was sound and that i t was in a better position to withstand shocks than other producing areas in the United States and Canada. Even Scandinavian producers were found to be in d i f f i c u l t i e s be-fore recent changes in the European price structure. Finally, one other major item of cost has to be analyzed in order to evaluate correctly the competitive chara-cter of the wood products industry. This i s the cost of 235 d i s t r i b u t i n g f i n i s h e d products to various market centers. The estimates of cost of putting goods i n overseas markets should include not only transportation but also every other cost which i s att r i b u t a b l e to competition i n these markets. P r e f e r e n t i a l t a r i f f treatment to other producers should be considered as one of the more important costs i n f i n a l l y marketing the products. In r e l a t i o n to the transportation factor, Shand (1967) established that while assessing the comparative advantage of one region over another, the phenomenon of f l u c t u a t i n g f r e i g h t rates i s not important since the r e l a t i v e competitive positions remain on the average, unchanged. However, seasonal changes do occasional-l y take place, and one route i n p a r t i c u l a r can f i n d i t s e l f charging higher f r e i g h t r a t e s . In North America t h i s hap-pens almost every winter when heavy grain d e l i v e r i e s to Asia produce an accumulation of ships i n that area of the world. Based on the law of supply and demand, shippers i n Canada are then able to negotiate very favourable f r e i g h t r a t e s . For the United States, nevertheless, t h i s i s not the case because of the existence of very unfavourable l e g -i s l a t i o n for national charterers. While Canadian wood-based products can be shipped on cheap f o r e i g n - f l a g boats to the A t l a n t i c Coast of the United States, the U.S. Jones Act of 1920 binds American shippers to use U.S. registered boats for inter-coastal freight (Davies, 1964). This factor could explain, to a great extent, the reason for the large amount of forest products yearly exported to Latin America. One would imagine that a net importer of wood-based prod-ucts such as the U.S. would keep most of i t s production for domestic consumption, but really this i s not what in practice happens. The U.S. exports to Latin America are getting a better price for i t s produce than at home; at the same time the country imports from Canada so as to meet i t s deficits, including those created by i t s exports. Latin America i s a region composed of more than two dozen countries, therefore, aggregate demand is made up of a number of small purchases. In this type of market, those vessels which can handle various types of commodities at the same time, offer lower transportation rates than larger specialized boats. The foreign flag boats used by Canada are often designed specifically for handling lumber and pulp products in large volumes. Compared to American shippers which are restricted to conventional vessels which require longer periods of loading time (Crowther, 1964), Canadians enjoy a position of advantage when selling to the U.S. This i s emphasized by the fact that most purchases made by U.S. 238 consumers consist of large loads which naturally require specialized treatment. Because of the reasons explained above, this relative advantage tends to disappear in the trade with Latin America. Likewise, the Baltic countries are found to have a comparative advantage over Canada be-cause Baltic products are moved in smaller ships which are easily unloaded at numerous small docks around Latin America. Proximity to Latin America, however, could com-pensate Canada in this regard, as the Scandinavian count-ries have to pay a greater mileage per ton to reach this part of the world. The best evaluation possible of transportation costs i s to be found in the freight rates themselves, as a geo-graphical comparison of these rates would f i n a l l y indicate what location permits a cheaper freight to the market. Un-fortunately, despite the fact that such data exist in the internal accounting records of forest products shippers, i t i s not readily available because these records are usual-ly too closely guarded. Considering the factors which have been analyzed in this section, i t can be concluded that on the whole the Canadian forest industries are well prepared to compete 239 e f f e c t i v e l y i n L a t i n America. The advantages for marketing Canadian forest products i n t h i s part of the world are, however, limited i n many senses. P o l i t i c a l and economic i s o l a t i o n from the area (see Section 3.1) work against the establishment of trade. Despite t h i s , the ultimate balance should s t i l l be considered a po s i t i v e one. The p o s s i b i l i t y of marketing, at the minimum, one-and-a-half m i l l i o n tons per annum of pulp and paper alone, not to mention other wood products, ought to provide the industry with s u f f i -c ient incentive to implement a more dynamic sales p o l i c y towards L a t i n America. 6.4 Influence of LAFTA and CACOMA T a r i f f Agreements on  Canadian Exports to L a t i n America The Central American Common Market (CACOMA) and the La t i n American Free Trade Association (LAFTA) provide through p r e f e r e n t i a l t a r i f f systems considerable protection for t h e i r forest i n d u s t r i e s . The Central American countries having formed a Common Market, are one step ahead of LAFTA countries i n the creation of a uniform t a r i f f . LAFTA countries have at present only agreed on a number of duties applicable to various l i s t s of products. I t i s t h i s chara-c t e r i s t i c of LAFTA which adds considerably to the complexities 240 of the system, making i t quite often extremely d i f f i c u l t to differentiate between countries, products and t a r i f f s ap-plied to them. Nevertheless, in the next two pages an attempt to simplify this situation has been made and summary tables of the existing t a r i f f s for forest products have been presented. It must be mentioned that these tables, though showing the general t a r i f f conditions of CACOMA and LAFTA, do not indicate completely a l l the differences that in practice apply for individual products. These differences are oc-casionally much wider and important than those shown in the tables. For information purposes and general acquaintance with these duties, Tables 43,44,45, 46, 47, and 48 should provide the reader with sufficient information. If, however, a much greater degree of precision i s required, i t i s ad-visable to look directly into the sources of information. For CACOMA i t i s "Organization for Economic Co-operation and Development (1968b)," and for LAFTA i t i s "Asociacion Latinoamericana De Libre Comercio (1968)." (For extra general information on Economic Integration in Latin America see Section 3.3). 241 6.4.1 Central American Common Market T a r i f f Agreements Tables 43, 44, and 45 show the external t a r i f f s for forest products of CACOMA grouped into three categories, sawnwood, wood-based panel products, and pulp and paper products. The rates of duty i n the CACOMA t a r i f f apply to a l l imports from countries outside the Central American Common Market. The s p e c i f i c duties are expressed i n the Central American peso which i s equivalent to the United States d o l l a r . TABLE 43 CENTRAL AMERICAN COMMON MARKET EXTERNAL TARIFF FOR SAWNWOOD Sawnwood Uniform Duty Common Market Country S p e c i f i c Ad-valorem i n CA $ % CIF A l l 3.0 /m3 20 Sources Organization for Economic Co-operation and Develop-ment, 1968 b. CA $ Central American Peso = U.S. $ In addition to duties, imports are subject to a sur-charge of 30% of the customs duties and, therefore, t o t a l t a r i f f s on overseas imports are greater than those shown by 242 TABLE 44 CENTRAL AMERICAN COMMON MARKET EXTERNAL TARIFF FOR WOOD-BASED PANEL PRODUCTS Wood-Based Panel Products Uniform Duty Common Market Country Specific Ad-valorem ' in CA $ % GIF A l l - Veneer sheets 0.40 /Kg 10 - Plywood 0.15 /Kg 20 - Particle board 0.35 /Kg 15 - Fibreboard 0.15 /Kg 20 Sources Organization for Economic Co-operation and Development, 1968 b. CA $ Central American Peso = U.S.$ the tables. The natural and manufactured products of the Central American countries are exempt from import and export duties, including consular fees, and a l l other taxes and charges levied on imports. In terms of consumer prices, imports of Canadian forest products are in a disadvantage before domestic production, varying from 7% to 25% depending on the product. Sawnwood, plywood, and particle board production within the common market are favoured by a 20% Ad-valorem duty plus variable specific duties. Wood pulp presents the lowest ad-valorem duty (7% in Guatemala and E l Salvador, and 10% in Honduras, 243 TABLE 45 CENTRAL AMERICAN COMMON MARKET EXTERNAL TARIFF FOR PULP, PAPER, AND PAPER BOARD Common Market Country Pulp, Paper, and Paper Board Uniform Duty S p e c i f i c i n CA $ Ad-valorem % CIF Guatemala, E l Salvador - Wood pulp Free Honduras, Nicaragua, Costa Rica - Wood pulp Free 10 A l l - Newsprint 1/ a) Competing against domestic production b) Not competing against domestic production Free Free 10 Free A l l - Other P r i n t i n g , Writing, Wrapping papers and Paper boards 0.06-0.15 10-25 Sources organization for Economic Co-operation and Development, 1968 b. CA $ Central American Peso - U.S.$ 1/ Newsprint imported i n r e e l s by newspaper establishments s h a l l be exempt from the payment of duty for such period as the Central American industry i s unable to supply that product. The administrative authority s h a l l ascertain that the imports above r e f e r r e d to are intended exclusive-l y for the issue of newspapers and, should not be the case, s h a l l cause the sanctions provided for by l e g i s l a -t i o n to be applied. "Second San Salvador Protocol." 244 Nicaragua and Costa Rica), and newsprint imports are free from customs and similar duties as long as they do not compete against regional production. This being the case they w i l l be charged a 10% ad-valorem duty and no s p e c i f i c duty. 6.4.2 L a t i n American Free Trade Association T a r i f f  Agreements The countries which belong to the L a t i n American Free Trade Association have agreed upon t a r i f f s for some of the i n d u s t r i a l forest products traded i n the area. Unfor-tunately no single uniform t a r i f f for every type of product e x i s t s , but a number of d i f f e r e n t t a r i f f s which vary from country to country. Also, the agreements on duties quite often only cover those products which have been produced from species that can be found i n L a t i n America alone, or, i f they can be obtained elsewhere, they are not produced i n Canada. This i s why, most of the time, t a r i f f conces-sions which cover Canadian imports as well as those coming from other L a t i n American countries are almost non-existent. This i s p a r t i c u l a r l y true i n the case of sawnwood and wood-based panels. In sawnwood only B r a z i l has t a r i f f s which apply to conifers and both to i n t r a and extra-regional 245 production. The rest of the countries only state their positions as regards t a r i f f s which apply to species found in Latin America. In Tables 46, 47, and 48 a summary of LAFTA's t a r i f f agreements i s presented. These tables were obtained from "Lista Consolidada De Concesiones" published by the Latin American Free Trade Association in 1968, reference which should be consulted i f more accurate information i s required. In order to produce the tables, a l l t a r i f f s were arithmetically added, whether they were customs duties as such, or other duties or taxes of equivalent effect. Two groups were f i n a l l y obtained, one corresponding to the specific duties and the other to the Ad-valorem duties. In the reference cited above the ad-valorem duties are present-ed in three groups, each rating a percentage over the value of the merchandise. These rates are apparently charged on different values, one on the CIF figure, another over an appraised value, and another over an unknown figure. This third rate was called additional. In the absence of further information which could have indicated something d i f -ferent, the author decided to add a l l three rates, and thus were obtained the ad-valorem columns of Tables 46, 47, and 48. A similar procedure was followed in the case of the specific t a r i f f s . 246 TABLE 46 LATIN AMERICAN FREE TRADE ASSOCIATION TARIFF AGREEMENTS ON SAWNWOOD Sawnwood Import Tariffs 1/ LAFTA Country Coniferous Broadleaved Specific US $ Ad-Valorem Specific Ad-Valorem % US $ % Argentina A 10-81.5 31. 5 2/ B 2.3/m2 0- 6.5 2.3/m2 2/ 0.2-19.5 2/ Brazil A - 2/ 56 2/ - 2/ 56 2/ B - 2/ 6 2/ - 2/ 6 2/ Bolivia A * * * * B * * * * Chile A * * 0$ 260/m3 100 B * * — Colombia A * * * B * * * * Ecuador A * * * B * * * * Mexico A - 8 * * B - - * * Paraguay A * * # * B * * * Peru A 0.007/KG 52.5 0.007-0.009 52. 5 /KG B - -Uruguay A - 99.8 - 7622/-239.8 B - 8.3 - 2/ 8.3 -76.22/ Venezuela A * * * B * * * * Sources Asociacion Latinoamericana de Libre Comercio, 1968. A. Duty Rates to non-LAFTA countries. B. Duty Rates to LAFTA countries. 1/ Tariffs valid only for sawnwood produced out of regional species, except for those cases specially indicated. Canada does not produce, therefore, does not export any of these species. (Continued) 247 Table 46 continued 2/ Tariffs valid for coniferous or broadleaved species other than those produced within Latin America. Rates appli-cable to Canada. Where there i s one figure, the Ad-valorem tax i s valid for regional as well as overseas species. Where there are two, the one marked i s valid for overseas species and the other one for regional species. * No special t a r i f f concessions have been granted to either LAFTA members or non-members. Imports of these products from LAFTA countries are subject to the same rates of duty applicable to imports from other sources. Free. m2 Square meter. m3 Cubic meter. KG Kilograms Gross. 0$ Pesos Oro (Golden Coins). K Kilograms Net Looking at the import t a r i f f s for sawnwood in Table 46, i t i s possible to see that in most of the countries of the Association there i s no special treatment for imports coming from outside the free trade area. With the exception of Brazil in coniferous and broadleaved sawnwood, a l l other countries present the same t a r i f f s to both regional and extra-regional imports. This i s a reflection of the abundant production of domestic sawnwood which i s known to be able to compete favourably against overseas imports. In Table 47 i s shown quite a similar picture in the wood-based panel products sector. Most of the countries do TABLE 47 LATIN AMERICAN FREE TRADE ASSOCIATION TARIFF AGREEMENTS ON WOOD-BASED PANEL PRODUCTS Wood-Based Panel Products Import Tariffs LAFTA Country Plywood and Veneer Particle board Fibre board Specific Ad-valorem Specific Ad-valorem Specific Ad-valorem U.S.? % U.S.$ % U.S.$ % Argentina A * * * ft _ 111.5 2/ B * * * * - 0.3 2/-21.5 2/ Brazil A - 61 2/ - 56 2/-61 2/ - 56 2/ B - 30 2/-50 2/ - 46 2/-50 2/ 6 2/-46 2/ Bolivia A * * * * * * B * * * * ft Chile A * * * ft ft ft B * * * ft * ft Colombia A * ft * * ft * B * * ft ft ft * Ecuador A * * * * 0.19/K 2/ 50 2/ B * ft * 0.12/K 2/ 50 2/ Mexico A ft * * 0.05/KG 21 B * * * * - -Paraguay A * * * ft ft ft B * * * * * * Peru A * * * ft * * B * * * * ft ft Uruguay A * ft * ft * * B * * ft * * Venezuela A * * * * * * B * * * ft * ft Sources Asociacion Latinoamericana de Libre Comercio, 1968. Meaning of Symbols the same as for Table 45. co 249 TABLE 48 LATIN AMERICAN FREE TRADE ASSOCIATION TARIFF AGREEMENTS ON PULP AND PAPER Pulp and Paper Import Tariffs LAFTA Country Pulp Newsprint Specific Ad-valorem Specific Ad-valorem U.S. $ % U.S. $ % Argentina A - 25-25.5 - 0.3 B - 0.3 3/ - 0.3 Brazil A - 21 - 1 B - 1 - 1 Bolivia A * * * * B * * * Chile A 0$ 6/GMQ 35 7/ * * B - 2.6 7/ * ft Colombia A - 23 - 3 B - 4 4/ - -Ecuador A 0.01/K 40 0.003/K 30 B - 20 - 14 Mexico A 0.06/KG 6/ 23 6/ 0.002/KF 33 B - - - 11 Paraguay A * - 16 B * * - 10.5 Peru A o 0.002-0.004/KG 31.5 - 20 Uruguay O A — 37.3 — — B - " 5/ - -Venezuela A 0.009/KG - 8/ . 0.06-0.09/KG -B - - 8/ - -Sources Asociacion Latinoamericana de Libre Comercio (1968). Meaning of symbols the same as for Tables 46 and 47. 3/ Except for short fiber mechanical and chemical pulp where the rate i s 7.5%. 4/ Except for coniferous sulfate bleached pulp where the rate i s 0%. 5/ Except for coniferous mechanical pulp where the rate i s 6%. 6/ Except for Alfa Cellulose where the rate i s 8% and the specific duty only U.S.$ 0.001. 7/ Valid only for chemical pulp. No t a r i f f differentiation exists for other types of pulp. 8/ Valid only for coniferous chemical pulp. GMQ Gross Metric Quintals. KF Kilograms Free. 250 not treat imports of wood panel products differently whether they come from outside Latin America or are produced within the region. Canad, however, is clearly in a position of disadvantage in the markets of Argentina, Brazil, and Ecuador.. In Argentina, Canadian imports of fibre board are at a disadvantage before regional production which fluctuates between 90% and 111%. For plywood, veneer, and particle board there are no discriminating t a r i f f s . In Brazil, Canadian fibre board and particle board face a t a r i f f d i f -ferential of 10% to 50% and 11% to 15%, respectively. For plywood and veneer the disadvantage would be somewhat greater, fluctuating between 11% and 31% according to the type of product. Tariff agreements on pulp and paper products are the most numerous of a l l forest products duties. With the ex-ception of Bolivia, which lacks a pulp and paper industry almost completely, every other LAFTA country has agreen upon granting special treatment to regional production in at least one type of pulp or paper. As a general rule, because of the differences on t a r i f f s applied to regional and non-regional pulp, the best markets for Canadian pulp would be those of 251 Venezuela and Bolivia. In these countries either there are no t a r i f f s which burden imports or a l l purchases are treated equally regardless of origin. Protection in the rest of the countries fluctuates between 20% in Ecuador and Brazil, to 37% in Uruguay. These rates would demand a Canadian price of 20% to 37% lower than that of regional exporters such as Chile and Brazil in order to compete, Because of the negative balance between production and consumption of newsprint in Latin America, newsprint t a r i f f s appear as the most favourable for extra-regional imports„ Because of the rate differential on t a r i f f s , Mexico, Ecuador and Peru are the most d i f f i c u l t markets to compete in against regional production from Chile. Chilean newsprint i s protected in these three countries by a 22%, 20%, and 16% differential t a r i f f respectively. In Paraguay the t a r i f f advantage i s considerably smaller, 5.5%. Colombia too has a very small differential t a r i f f on newsprint, 3%, and in Argentina, Brazil, Bolivia, Chile, and Uruguay i t i s reduced to zero. With the exception of Chile, where a considerable surplus of newsprint exists, i t i s in these countries where the best po s s i b i l i t i e s for marketing Canadian newsprint 252 exist. A l l are large importers of the product and unable to increase production because of a shortage of raw material or lack of infrastructure and capital to create new product-ive f a c i l i t i e s . 253 SECTION VII CONCLUSIONS Latin America i s a developing region where a l l economic activity i s rapidly expanding. The rate at which economic growth w i l l take place in the next few decades i s yet unknown, mainly because of the uncertainties imposed by a number of constraints on growth, such ass population, p o l i t i c a l i n -stability, and sources of capital for investments. By 1980, Latin America's population i s expected to increase to 365 million people, this i s almost 100 million more than the United States and Canada together, where the combined population w i l l reach only to 276 million. The f u l l effect on the economy of this tremendous expansion of the number of Inhabitants i s s t i l l subject to debate but i f government in s t a b i l i t y i s checked and adequate sources of capital are found, there i s very l i t t l e doubt that i t w i l l be highly conducive to an atmosphere of development and economic wealth. From a gross domestic product standpoint, economic activity in Latin America w i l l be concentrated in three countries. In order of importance these are Brazil, Mexico, and Argentina, Except for a few small Caribbean nations and Bolivia, Ecuador and Paraguay, the rest of the Latin American 254 countries are also expected to develop their economies consistently. International trade in Latin America has developed rather slowly. The amount of trade carried on by a l l countries amounted in 1968 to only 11,560 U.S. million dollars in exports and to 11,100 U.S. million dollars in imports. Reasons for this are to be found in the d i f f i c u l t i e s the region has encountered in increasing i t s exports, in the shortage of foreign exchange, in the geographical isolation of most of the area with respect to world markets, in the drastic changes in price of primary commodities basic to the exports of the region, and in the slow development of domestic merchant navies capable of moving the products to overseas markets. Canada i s a country with an economy heavily dependent on international trade and with exports in 1968 well above the U.S. 12 b i l l i o n dollar mark. Despite this impressive figure, only 3% of this trade, U.S. 372 million dollars, i s carried on with Latin America. The major trade partner of Canada i s the United States which absorbs almost 68% of a l l Canadian exports. In industrial forest products trends f o l -low quite a similar pattern to those of total trade. Exports 255 to L a t i n America, as compared to t o t a l exports, fluctuate from a minimum 0.4% i n f i b r e board to a maximum of 7.2% i n newspr int„ Several factors were found to be r e s t r i c t i n g the ex-pansion of Canadian exports to L a t i n America. Apart from those already mentioned i n general terms above, Canada i s affected p a r t i c u l a r l y bys detachment from the i n t e r -American System and consequent p o l i t i c a l isolation? the trade patterns followed by L a t i n American countries c h a r a c t e r i s t i c of the underdeveloped world, exports of raw materials and p r i -mary-commodities, and imports of c a p i t a l goods and highly elaborated machinery and equipment? and, f i n a l l y , by economic integration i n L a t i n America, mainly through the creation of the Central American Common Market (CACOMA) and the L a t i n American Free Trade Association (LAFTA). These i n s t i t u t i o n s by developing a p r e f e r e n t i a l t a r i f f system have considerably encouraged int r a - r e g i o n a l trade and consequently diminished extra-regional trade. This has greatly affected forest products imports, which today are f i r s t purchased from countries within L a t i n America and only then from overseas countries such as Canada. Chile, the only net exporter of i n d u s t r i a l f orest 2 5 6 products to the region and with the poten t i a l to increase production over the next few decades, i s found to be benefiting considerably from LAFTA agreements. Chilean pulp and paper, though presently produced at higher costs than Canadian because of LAFTA 1s t a r i f f concessions, finds no great d i f f i c u l t y i n being marketed within the free trade area. This i s why i t must necessarily be concluded that Canada's p o t e n t i a l exports to L a t i n America, and also those of any other country interested i n s e l l i n g i n the area, w i l l depend heavily on the future output of the Chilean f o r e s t industries and f i n a l l y on how much i t exports to i t s neighbors. Centering the L a t i n American hemisphere on Quito (Ecuador), every major Canadian port i s found to be closer to L a t i n America than those of Europe. This i s e s p e c i a l l y true i f we consider the pos i t i o n of the B a l t i c countries and the Soviet Union, large suppliers of forest products to the region. Every Swedish, Finnish, Norwegian, and Russian port l i e s further away from L a t i n America than any of the A t l a n t i c or P a c i f i c shipping centers of Canada. This transportation advantage enjoyed by Canada should be c a r e f u l l y considered and given the degree of importance i t deserves. Freight costs do not influence price as heavily 2 5 7 as other costs do? nevertheless, the high degree of compet-i t i o n e x i s t i n g i n the market for forest products, e s p e c i a l -l y for pulp and newsprint, forces suppliers into a position where every cent counts. Shipping costs i n t h i s case can e a s i l y make the difference between reaching or not a market competitively. L a t i n America has a wealth of f o r e s t . Within i t s boundaries l i e almost 25% of the forests of the world. Despite the abundance of timber, forest products consumption has t r a d i t i o n a l l y been low. This occurs p r i n c i p a l l y be-cause a large proportion of the forests consist of hardwood or t r o p i c a l softwoods for which no commercial use has been c l e a r l y established. The costs of operations i s increased by climate and topography, which, added to c a p i t a l and technological d e f i c i e n c i e s , make i t d i f f i c u l t to produce at competitive p r i c e s . Plantations of exotic softwood and broadleaved species, however, have presented L a t i n America with an extremely favourable opportunity to increase forest production. Today, man-made forests cover more than one and a h a l f m i l l i o n hectares, and are being established at a rate of over 150 thousand hectares a year. Because of the shortage of long fibred wood and c a p i t a l , 258 the wood pulp and paper industry has been unable to expand to meet demand. Softwood plantations present a solution to t h i s problem. Given the p o t e n t i a l area to be forested with fast growing conifers, L a t i n America could e a s i l y transform i t s e l f into an exporter of pulp products. Nevertheless, i f t h i s i s to happen, i t i s s t i l l far i n the future. Plan-tations require the immobilization for long periods of large quantities of c a p i t a l . This c a p i t a l w i l l be d i f f i c u l t to fi n d , and i t s opportunity cost i n the region i s high. The type of trees most widely used i n plantations ares eucalyptus spp., pinus spp., populus spp., s a l i x spp., and Araucaria A u g u s t i f o l i a . Great e f f o r t s to i n d u s t r i a l i z e L a t i n America have recently been made. Trends indicate t h i s process w i l l con-tinue to grow. In these e f f o r t s the forest industries have been receiving c a r e f u l attention and are expected to grow p a r t i c u l a r l y f a s t i n c e r t a i n areas, namely southern Chile, southern B r a z i l , parts of Colombia, and i n a few Central American countries. The reason for t h i s growth i s to be found i n the idea that s o c i a l betterment cannot be promoted without v a s t l y increased quantities of processed wood. 259 Latin America's need for industrial wood in 1985 w i l l be nearly three times greater than in the early 1960's. It i s also forecast that by 1985 the region w i l l require two and a half times as much sawnwood, eight times the volume of wood-based sheet materials, and six times as much pulp and paper as i t consumed in 1963. The growth of the forest industries, though expected to be satisfactory in many ways, w i l l not be good enough to prevent adverse trade balances on the wood products account. Pulp and paper imports in general, and newsprint in particular, w i l l have the greatest influence on this unfavourable balance. In 1962 i t was estimated that in pulp products alone, extra needs by 1975, i f met completely through imports, would add around U.S. one b i l l i o n dollars to the import b i l l of Latin America. If the extra demand was to be met f u l l y from within, average early investments of up to U.S. 190 million dollars would be required during the period 1963-1975 to create the necessary f a c i l i t i e s . The present levels of import indicate clearly that this ob-jective has not been met. Latin America, at least in general terms, has succeed-ed in developing comparative advantages in sawnwood but failed to do so in the wood-fibre related products. The 260 review of the available data showed that this trend w i l l continue in the forseeable future. By 1975, the region w i l l be exporting about 5 million m3 net of sawnwood but most probably w i l l have to import 50 thousand m3 net of plywood and veneer, 150 thousand m3 of particle board, 400 thousand m3 of fibre board, 192 thousand tons of pulp and 1,279 million tons of newsprint. These figures have been obtained under the assumption that a l l producing countries in Latin America w i l l s e l l totally within the area. If any nation deviates from this line by deciding to s e l l outside the region, net imports should be expected to rise accordingly. Of a l l Latin American countries only Chile, being a net exporter of forest products, imposes a serious threat to Canadian imports. Naturally, every country by system-at i c a l l y increasing i t s own production, even i f a l l i s consumed domestically, can influence overall imports to Latin America. However, because of the considerable ex-pansion in production forecasts for Chile, this country is the only one that can have a sizeable impact on overseas imports. The success of the Chilean forest industries i s mainly 261 related to the extensive creation of softwood plantations. The situation can be compared in many ways to that of New Zealand where Radiata pine (pinus radiata D.don) i s today the basis for the majority of the wood using industries. In the same way, this tree, originally brought from C a l i -fornia, has become the largest supplier of raw material to the Chilean pulp and paper and sawnwood industries. Total plantations in Chile now cover more than 380 thousand hectares. By 1980 radiata pine forests alone are expected to increase to 918 thousand hectares. This area w i l l permit a considerable expansion of the wood-based i n -dustries and annual production i s expected to reach, by 1980, 920 thousand tons of cellulose, 380 thousand tons of newsprint, 29 thousand tons of fibre board, 36 thousand tons of particle board, 1.05 b i l l i o n board feet of sawnwood, 3 and 56 thousand m of plywood. The exportable surplus in the same year, most of which i s expected to be shipped to other Latin American countries, w i l l reach 708 thousand tons of cellulose, 280 thousand tons of newsprint, and 100 million board feet of sawnwood. Wood-based panel production i s expected to be almost entirely consumed domestically. Evaluating the po s s i b i l i t i e s for Canada to expand 262 exports to L a t i n America, the most encouraging products to work on are pulp and paper, with a s p e c i a l emphasis on newsprint. More than 1.5 m i l l i o n tons of these products w i l l have to be imported from outside the region by 1975. Depending on how well the L a t i n American industry grows, wood-based panel products might also provide an area into which Canada could expand, e s p e c i a l l y i n the case of f i b r e board. The greatest competition with Canada's i n t e r e s t i n L a t i n America, apart from that presented by Chile, i s ex-pected to come from the United States, Sweden, Finland, Norway, and the U.S.S.R. Nevertheless, the Canadian forest industry has been found to be producing at competitive prices compared to these countries and i t should thus f i n d no great d i f f i c u l t i e s i n increasing sales i n L a t i n America provided an adequate marketing e f f o r t i s made. However, considerable doubt e x i s t s as to whether Canada w i l l be able to maintain t h i s comparative advantage i n the long run. A basic prerequisite for t h i s to happen would be to assure a continuous supply of raw material at competitive prices to the wood processing industries of the country. F i n a l l y , though reluctance to increase the marketing 263 effort in Latin America could exist for the reason that in other parts of the world the same amount of effort could yield a larger profit and for a longer period of time, i t should not be forgotten hat this might not be the case in years to come. A drastic increase on the Soviet Union's forest production could well induce such a change both in Europe and in the Asia Pacific region. In the meantime, somebody w i l l have to supply Latin America's net d e f i c i t s . Canada i s probably the country best suited for this job. There are many advantages in paying greater attention to Latin America, none of which w i l l ever go against the i n -terests of Canada in the United States, Japan or the United Kingdom. On the contrary, they w i l l probably complement them. 264'. BIBLIOGRAPHY Adams, R. D.? El-osta, M.L.; and Wellwood, R. W. 1968. 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La t i n American Common Markets where do they stand? In Ceres/FAO Review. Vol.1, no. 6 p. 32-37. Nov-Dec. Wish, J . R. 1975. Economic Development i n L a t i n America, an Annotated Bibliography. Frederick A. Praeger, Publishers. New York. 144 pp. Zivnuska, J . A. 1966. The Integration of Forest Development Plans and National Development Plans, how to make the Forestry Case at the National Level. In English, French, and Spanish. Paper presented at Sixth World Forestry Congress, Madrid. 15 pp. June o Zivnuska, J . A. 1968. The Role of North American Forestry Resources i n World Forestry Development. Jour. Forestry 66(2)s100-105. February. APPENDIX I Conversion Factors 288 SYMBOLS m m2 _3 m Km Km2 m„m. metre f t . square metre b.f. cubic metre m.t. Kilometre ha square Kilometre U.S.$ milimetre C.$ feet board feet metric ton hectare United States dollar Canadian dollar GENERAL MEASURES LENGTH 1 metre = 3.281 f t . 1 Kilometre = 0.621 miles AREA 1 m2 = 10.76 sq. f t . 1 Km2 = 0.3861 sq. miles 1 ha = 2.471 acres 1 Km2 = 100 hectares VOLUME MASS 1 m3 = 35.31 cu. f t . 1 Kilogramme = 2.205 pounds 1 l i t r e = 0.2642 gal. (U.S.)l m. ton = 10 quintales 1 l i t r e = 0.2200 gal. (Imp.) 289 Appendix I Continued PROCESSED WOOD Product Unit Solid Volume Cubic Cubic 1,000 bd. metres feet feet Sawnwoods Coniferous Broadleaved Plywood per 1mm thickness per 1/8 i n . thickn. Veneer sheets per 1mm thickness per 1/10 i n . thickn. Particle boards Cubic metre 1 Cubic feet 0.02832 1,000 bd. f t . 2.36 1 metric ton 1.82 1 metric ton 1.43 1 metric ton 1.54 1,000 m2 1 1,000 sq.ft. 0.295 1 metric ton 1.33 1,000 m2 1 1,000 sq.ft. 0.236 1 m3 0.650 35.31 0.424 1 0.012 83.33 1 64.3 0.771 50.5 0.606 54.3 35.31 10.42 47 35.31 8.33 1 35.31 Fibre boards compressed non-compressed 1 m3 1 m3 0.950 0.250 1 35.31 1 1,000 

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