Calculating The Cost of the new CITES regulations

[Rabs]

http://www.mia.org.uk/2017/07/calculating-the-cost-of-the-new-cites-regulations/

 

Our good friend Brian Majeski of the Music Trades magazine has kindly let us share this article he has just published relating to the commercial impact of the CITES regulations on Rosewood. We are trying to track any evidence you may have of UK equivalent statistics, so please contact alice@mia.org.uk if you can share?

 

You can’t speak out while remaining anonymous. You can’t take a lot of risks and simultaneously enjoy a sense of safety. You can’t assume a leadership position while striving to be free of responsibility. Most would dismiss these observations as statements of the obvious. However, they could be a revelation to some prominent rule makers who seem blithely unaware that life involves a series of tradeoffs. Specifically, we’re referring to the authors of the tough new Convention on International Trade in Endangered Species (CITES) regulations for rosewood that were rushed into place January 1 after just 90 days of deliberation. Prompted by the surging Chinese demand for rosewood furniture, the new rules are intended to put a brake on indiscriminate logging, which appears to be threatening the health of the world’s rosewood forests. Yet based on the breakneck pace of implementation, it would appear that the authors made little effort to weigh the benefits of conservation against the costs the new rules would impose.

 

To recap, all species of Dalbergia, a wood that has long been a staple raw material for the production of guitars, violins, pianos, and even drums, now fall under “Appendix II” of the CITES treaty. The more stringent rating requires that manufacturers must document the chain of custody of all rosewood logs, from the stump to the loading dock, to ensure wood was cut in compliance with all local laws. Furthermore, export licenses are now required for each individual instrument containing rosewood.

 

As manufacturers and retailers have indicated in our columns, the new paperwork requirements are time consuming, burdensome, and sufficiently ambiguous to inject uncertainty into what used to be straightforward cross-border transactions. There have been numerous anecdotes about production slowdowns caused by difficulty in obtaining rosewood, extra costs associated with securing licenses, and instrument-filled containers languishing on docks awaiting proper paperwork. Anecdotes, plural, are not the same as data, so we decided to try and quantify the impact of the new rules with a bit more precision.

 

Based on World Trade Organization data, the trajectory of U.S. guitar imports from the time the new rules were implemented on January 1 of this year shows a precipitous decline. Unit imports plunged 19.5% in the first quarter to 426,329 units versus 529,750 units for the same period a year ago. Instruments more likely to include rosewood experienced an even steeper decline. Acoustic guitars with a value of over $299 dropped 25.4% to 60,722 units versus 81,401 last year, and electric guitars were off by 24.6% to 205,922 units compared with 273,007 units last year. Entry-level acoustics declined a comparatively modest 8.9% to 159,685 units, most likely because many of them are rosewood-free.

 

Given that industry sales have been trending up modestly over the past few quarters, and that suppliers are good at managing their inventories, it’s safe to pin nearly all the blame for this decline on the new rosewood rules. Production has slowed as manufacturers attempt to develop rosewood substitutes, shipments are being delayed due to difficulties in securing the proper documentation, and the expanded task of compliance is diverting attention away from the basic tasks of building and selling.

 

Applying an average retail margin to the landed value of the 103,421 fewer guitars imported in this year’s first quarter indicates that the new rules will cost U.S. retailers about $60 million in lost sales for the quarter. U.S. guitar makers, who rely heavily on export sales, also felt the sting of the new rules. For the first quarter of 2017, U.S. acoustic guitar exports dropped 27.6% to $24.1 million versus $33.3 million for the same period a year ago. Electric guitar exports fell 23% to $39.6 million versus $51.5 million last year.

 

$60 million in reduced retail sales and a $21.1 million cut in U.S. guitar exports in a single quarter represent only a part of the difficulties rosewood regs have imposed. Piano manufacturers are facing similar problems, given that small amounts of rosewood are used in action assemblies. The same goes for the drum makers that offer bubinga (a variety of rosewood) shells, and the makers of grenadilla-bodied clarinets (another rosewood species). In addition, many smaller U.S. instrument makers have abandoned the export market entirely, lacking the administrative staff necessary to navigate the license process. Vintage and used instrument dealers have been similarly crimped. As one put it, “getting an export license for every shipment and making sure the recipient has an import license is just too much.” Compounding matters, these revenue declines are accompanied by increased compliance costs.

 

Tabulating the costs associated with restricting the trade in rosewood is not to dismiss the goal of encouraging sustainable forestry. And perhaps extracting tens of millions from a tiny industry is the justifiable cost of ensuring the long-term health of rosewood forests. But given that India, to cite just one nation, strongly dissents from the new CITES rules, arguing that their rosewood forests are well managed and provide productive employment to thousands, we suspect that questions of efficacy and cost didn’t factor into the rule making process. If they had, the resulting rules, whatever the specifics, would probably have enjoyed stronger support.

[Twang Gang]

Seems that the cause of the alarm was the demand for Rosewood furniture in China. Might have made more sense to put restriction on importing the wood there and leave the rest of us alone. But I know little of these global issues

 

I did see another article by a new guy at Taylor Guitars and he says the problem lies with the "annotation" of CITES, the instructions that dictate how it will be implemented. Both Mahogany and Rosewood are in Appendix II of CITES, but the regs are different. For Mahogany you need paperwork to import logs, sawn wood, veneer sheets and plywood. But a finished guitar (w/mahogany) needs no paperwork.

 

Rosewood however needs paperwork for the life of the instrument if sold across borders. So in 200 years if one of our great-grandchildren sells a guitar to someone in Canada they would need to prove if it was pre-Convention or post-Convention and have the paperwork. As he says "I don't see how this protects forests".

[badbluesplayer]

That article is just somebody complaining about regulations. The cost analysis is completely bogus. They should complain to the scofflaws in the guitar business who thought they could get away with breaking the law and ended up making all this trouble for themselves and the other musical instrument manufacturers.

[badbluesplayer]

Lemme tell ya.

[merciful-evans]

It looks like a minefield.

 

Its our fault. All us players create demand. Personally I think e-guitars should have moved on from wood construction 30 years ago.

[Pinch]

I'll reserve judgement until the grenadillo board on my V has lived through winter at least once, but I like it so far.

 

It's a rosewood variant though, so I'm sure it'll be included eventually...

 

I think you can deduce what I think of the whole thing...

[Tman]

Just got a hummingbird 12 string from England that required CITES stuff. It ended up costing me no money, just 3 and a half weeks of time. Plus I saved a grand because the pound sterling is at a favorable exchange rate for us Yanks. There is one personal story.

[Pinch]

Nice!

 

The whole rosewood CITES thing is in its infancy. Maybe customs will become more lenient? I heard Fender has reneged on their no more rw thingy.