Mr. VOLKMER. Thank you.

The gentleman from Washington.

Mr. MORRISON. Thank you, Mr. Chairman.

Mr. Leonard, as we look at indirect substitution, could one opine that the larger a firm is that buys a Forest Service sale that they probably would have within their own organization greater flexibility on what they did with those logs and that indirect substitution, as we propose in this legislation, might actually provide greater relief to smaller operators that would have less flexibility, and therefore wouldn't need the third party substitution potential? Is that accurate?

Mr. LEONARD. I think that that's generally true. The large firms tend to have several mills, large log mills, small log mills, plywood mills, or at least veneer mills, so that they can generally handle a greater variety of logs than the smaller purchaser.

Mr. MORRISON. So when you refer to the term market efficiencies in your testimony, that might well help those smaller communitybased mills actually bid more so that they could get a Forest Service sale?

Mr. LEONARD. That's what I'm referring to, right.

Mr. MORRISON. So indirectly the substitution provision that you support and that we have included potentially has greater income back to the Federal Government?

Mr. LEONARD. We believe so.

Mr. MORRISON. Thank you.

No other questions, Mr. Chairman. Thank you.

Mr. VOLKMER. The gentleman from Oregon.

Mr. SMITH. Thank you, Mr. Chairman.

Mr. Leonard, you mentioned that there had been an upper limit on the grandfather substitution of some 500 million board feet. To your knowledge, has that limit ever been reached?

Mr. LEONARD. At least not in the last 10 or 15 years.

Mr. SMITH. Right. The substitution numbers that I'm looking at are much, much less than that, recognizing that they're not perfectly identifiable, but I have numbers, for instance, for the State of Washington on the indirect substitution question of some 50 million board feet and indirect substitution in Oregon of some 10 million board feet. Is that in the realm of your numbers?

Mr. LEONARD. Well, the indirect▬▬

Mr. SMITH. I'm talking about indirect.

Mr. LEONARD. We believe the indirect substitution in total, and I don't have a breakdown between the States, the indirect substitution is running right around 100 million board feet. Our records show 127 million board feet in 1988 and 107 million board feet in 1989.

Mr. SMITH. I'm talking about the Forest Service only, now, not BLM.

Mr. LEONARD. Yes, just the Forest Service only.

Mr. SMITH. So you're at about 100 million board feet, you estimate, between the two States.

Mr. LEONARD. Yes.

Mr. SMITH. And I would assume Washington would be much heavier.

Mr. LEONARD. Generally, I think that's true, yes.

Mr. SMITH. All right. Is the administration concerned at all about the possible question of the GATT negotiations and that this permanent ban would take away the inflexibility of down the road opportunities to negotiate with foreign countries under the GATT negotiations, which are currently under scrutiny?

Mr. LEONARD. Over the years, the administration has opposed any permanent restriction on log exports. In fact, if you recall, in the last couple of budgets that were submitted the administration actually proposed eliminating the temporary rider on exports. The position has changed, and they now do not object to making the existing rider permanent legislation or eliminating the historical direct substitution quotas.

Mr. SMITH. Therefore, in the pure world, if there were some agreement down the line with the trading nations in the free world that indeed the export of raw logs was a discrimination question, there would have to be a repealer, I assume.

Mr. LEONARD. I would note that in the amendment to the Export Administration Act that was added last week, there is a provision in there for the President to make a finding that the provisions are contrary to a treaty, and he could waive those restrictions under that circumstance.

Mr. SMITH. I see. You think that Presidential waiver would apply as well to this legislation?

Mr. LEONARD. Well, it's incorporated in Mr. Miller's amendment. Mr. SMITH. All right. What's the administration's position on the regulation of exports of raw logs from private lands?

Mr. LEONARD. That issue is currently before the administration under a short-supply petition, again, under the Department of Commerce, and no decision has been made on that petition at this time.

Mr. SMITH. Historically, hasn't the administration opposed such restrictions?

Mr. LEONARD. That's right, and that was not an issue, of course, in these bills that are pending before the Congress, and so they have not taken a specific position. I would anticipate that the administration would be opposed to legislation restricting the export of private timber.

Nevertheless, there is a law on the books which provides the Secretary of Commerce that authority, and he is currently considering such a petition.

Mr. SMITH. Thank you.

Mr. VOLKMER. The gentleman from Virginia.

Mr. OLIN. Thank you, Mr. Chairman.

George, I'd like to be sure I understand the subject of the partially cut timber that are exempted. Any round log uncut from the national forest is prohibited from export. Is that correct?

Mr. LEONARD. That's correct.

Mr. OLIN. If a log is cut, as you say, on one to four sides, do you mean that the maximum dimension on any of those sides must be less than 8 inches? Is that what you're saying?

Mr. LEONARD. On one side must be.

Mr. OLIN. On one side.

Mr. LEONARD. Right. In other words, the width can be greater than 84, but the maximum thickness must be 84 or less.

37-594 0 - 91 - 2

Mr. OLIN. If you had a piece 3 foot wide but 83⁄4 thick——
Mr. LEONARD. That could go into export.

Mr. OLIN. That could go to export. I see.

Mr. LEONARD. Historically, at the time this passed, that was a major forum. Currently, more and more of the volume that goes into export is sawed on four sides.

Mr. OLIN. So these logs in that category are partially processed but probably not totally processed?

Mr. LEONARD. We in effect say that it's either unprocessed or processed. If it's thicker than 84, it's unprocessed, even though it may be sawed on four sides.

Mr. OLIN. I think that's clear enough. I think your testimony has been helpful and I think very clear. Thank you.

Mr. VOLKMER. The gentleman from Indiana.

Mr. JONTZ. I don't have any questions this morning, Mr. Chair

man.

Mr. VOLKMER. George, I have one more question, getting back to the debarment and maybe how severe that is. On the other hand, criminal prosecution doesn't work, either, does it?

Mr. LEONARD. Well, up until the present time, it has not been against the law. It has not been a criminal act to export Federal timber. Under the export rider, we were prohibited from spending any money to sell timber which would go into export. In order to implement that direction and ensure that we weren't spending money, we incorporated the contract provision which said that it can't go into export. So in effect the penalty was it was violation of the contract provisions-

Mr. VOLKMER. That's the whole thing.

Mr. LEONARD. That was the whole thing, and we had authority for violation of contract provisions to cancel that contract or to debar, and under the current debarment regulations we could debar for a period of up to 3 years.

Mr. VOLKMER. OK.

Any further questions?

The gentleman from Oregon.

Mr. SMITH. Thank you, Mr. Chairman.

I failed to ask Ms. Lamson about substitution on BLM lands. I assume it's been small, but I didn't hear your testimony. What numbers do you have as far as substitution and indirect substitution on BLM lands for export?

Ms. LAMSON. I'd like to give you that answer now, but I don't have it. I'd have to provide it to your office. It's not significant, we are not a big player, but still in all I will get that information.

Mr. SMITH. All right. I hope you would give me those numbers. Thank you.

Mr. VOLKMER. I want to thank this panel for their testimony. As announced before, even though it's 15 minutes before noon, and I'm sure we wouldn't be able to finish the next panel, we're going to recess at this time. We'll reconvene at 1:30 p.m.

[Whereupon, at 11:45 a.m., the subcommittee recessed, to reconvene at 1:30 p.m., the same day.]

AFTERNOON SESSION

Mr. VOLKMER. The subcommittee will resume the hearing. Our last panel is Mr. Gus Kuehne, president, Northwest Independent Forest Manufacturers, Tacoma, Washington; Mr. Jim Blomquist, Washington director of the Public Lands Program, Sierra Club, Washington, DC; Mr. Nicholas J. Kirkmire, executive director, Washington Citizens for World Trade, from Olympia, Washington, also testifying on behalf of Pacific Rim Trade Association of Portland, Oregon; Mr. Dennis Hayward, executive vice president, Northwest Timber Association from Eugene, Oregon; and Mr. Fred H. Hutchison, president, F.H. Hutchison & Company, Alexandria, Virginia, testifying on behalf of the Inter-Industry Log Export Action Committee, Indianapolis, Indiana.

Gentleman, those of you that have written statements-Mr. Kuehne, I understand you do not have a written statement? Mr. KUEHNE. No, I don't.

Mr. VOLKMER. The rest of you that do have a written statement, your written statement will be made a part of the record. You may either summarize that statement or review it in full, however you so desire.

Mr. Kuehne, we'll begin with you, and you may proceed.

STATEMENT OF GUS KUEHNE, PRESIDENT, NORTHWEST
INDEPENDENT FOREST MANUFACTURERS

Mr. KUEHNE. Thank you, Mr. Chairman.

I'm Gus Kuehne, president of Northwest Independent Forest Manufacturers. I appreciate the opportunity to testify at this hearing. I have been back here for the last several weeks without a secretary, and I didn't have an opportunity to prepare a written statement. I appreciate your taking my oral remarks.

The United States is the world's largest exporter of softwood logs, 80 percent of that coming from the States of Oregon and Washington, and the United States is also the world's largest importer of softwood lumber, most of that coming from Canada, or nearly all of it.

We are in effect an undeveloped country by the classic definition, an exporter of raw materials and the importer of finished products as far as softwood logs and lumber is concerned. Yet, we have the most modern and efficient mills found in comparison with the country we import lumber from, Canada. A couple of years ago, the U.S. International Trade Commission found mills in the United States to be more modern and efficient than those in Canada, where we imported lumber from, and we have more efficient and modern in mills than Japan, as found by the Department of Commerce in a study of Japanese tariff barriers just 1 year ago.

So while we aren't processing a high percentage of the logs that are being harvested, particularly in the Northwest, some 25 percent in the Northwest in total is being exported as raw logs, we are modern and efficient mills. The reasons we are not is because of trade barriers to our products shipped overseas.

Recently, there was a Super 301 brought against Japan. Many of the trade barriers that were alleged, the majority of them dealing with getting our finished products into Japan rather than more

wood into Japan, were not negotiated successfully in that 301 against Japan. I regret to report that, but that's the case, and those trade barrier restrictions are likely to remain through the next century.

There is an acute shortage of logs in the States of Oregon and Washington. We have less volume of Federal and State timber under contract than in any period in our history, at least since the Second World War. We have had stumpage prices, the prices of which standing timber sells for from public lands, go at double the price level of just 1 year ago, while the finished product prices have remained virtually unchanged from 1 year ago, all descriptions of the acute shortage of supply.

Log exports has been a part of that; it isn't all of that, but it's a part of it. That, along with declining timber supplies in the national forest lands and BLM lands, is the reason for the acute shortage, but I would remind the committee that 1988 and 1989 were the highest level of log export's history from the Pacific Northwest and that, if, in fact, all State timber and Federal timber were restricted from log exports and substitution rules were strictly enforced, still there would be a level of exports of about the average of the past couple of decades allowed, it coming from private land.

So what we're not talking about cutting off all log exports, but bringing it back, in essence, to an average level of what's been occurring over the last several decades. The Federal supply situation is most acute in the area where the people I represent, some 60 mills in western Washington, have traditionally bought their timber supply.

The Mt. Baker-Snoqualmie and Olympia Forests will sell at somewhere like one-third of the volume that they sold in the mid1980's, and that is assuming that the forest plans are allowed to occur and the Thomas Report is not, in fact, adopted. If the reductions that were shown in the Thomas Report occur, it will be less than 25 percent of the normal volume of harvest in the mid-1980's. No area of the country has experienced that kind of reductions in Federal timber harvests, from my knowledge, in such a short period of time.

There are a couple of changes I would like to suggest to the committee over what the Foreign Affairs Committee did. They are technical by nature. I'd be happy to provide a short explanation of those changes to the committee and staff, within the next 24 hours. One is removal of the word "planned" from the level of harvest described for domestic processing of State timber. It should be 75 percent of the timber that's "sold" and not what is "planned" to be sold. Another is to get the State to actually publish rules and regulations regarding substitution rather than simply authorize them to. The third is to direct the State to cooperate with the Federal Government in enforcement.

We have experience with that in red cedar. Currently, red cedar is restricted from export from State lands and is ignored by the State in any cooperation to try to keep State red cedar from being exported as raw logs, and they definitely need to cooperate to improve enforcement efforts. Thank you.

Mr. VOLKMER. Mr. Blomquist.