Testimony of R. Dennis Hayward Page 8 LOG EXPORTS The concern over log exports has not gone unnoticed as the timber supply crisis has grown. Over the last quarter century northwest log exports have grown ten fold, from 311 million board feet and 2.3 percent of the harvest in 1962, to 3.68 billion and a record 24.5 percent of the harvest in 1988 (See Figure I). One out of every four trees harvested is now being exported. This is enough volume to support 75 medium sized mills, provide over 30,000 jobs, and produce enough wood to build over 330,000 new homes each year. To the public, which does not recognize the difference between public and private rights, the preservationists point to the record log exports and ask why must we continue to harvest public lands to save jobs? Testimony of R. Dennis Hayward To mills shut off from purchasing public timber by the preservationist law suits and facing closure of their facilities, the inability to outbid the exporters for state timber is frustrating beyond reason. It is even more frustrating in Oregon where the owners of the timber, the people of the state, have stated loudly that they do not want the timber exported, yet the federal government allows exporting to continue. Existing law prohibits export, but the requirement has been found unconstitutional. Typical of the situation was the auction of three timber sales (Haight Creek, Brush Creek and Mount Hogan) by the State of Oregon in Lane County on October 22, 1987. The sales contained 6.7 million board feet with an advertised value of $773,000 or $116.18 per thousand board feet. A number of local firms seeking wood for their mills aggressively bid each sale to nearly $200 per MBF, the break-even point on the domestic market, after which the exporters continued to bid. When the dust cleared, the sales had been bid to an average of $292.76 per MBF, some 2.5 times the advertized value. The bid forms on these sales contained the following statement: "Sale contains Board of Forestry timber which may not be exported..." Despite this clause there is no doubt that this wood went directly to the ports and was exported in raw log form. Incidentally, all three sales were purchased by a large private land owning company, which also exported its own timber, while operating a major sawmill complex utilizing government timber through third party substitution and timber purchased from the Bureau of Land Management due to a loophole in its export regulations. THE LEGISLATION I would now like to turn your attention to some of the specific reasons why this committee should, in our view, support log export legislation. STATE LOG EXPORTS Let me begin with the simpler of the two bill concepts - giving the states the right to control the export of its own natural resource, timber. We in the west are a rather basic type of people. We don't profess to understand what goes on "inside the beltway" but we do understand a matter of right and wrong when we see it. Private land owners can refuse to sell their timber to exporters if they so choose. The federal government has chosen to prohibit the export of its timber. A perfectly legal thing to do. What then is "right" about the Congress telling the people of a state, the people who own the timber, that they cannot require their timber to be processed at home, in their own mills, by their own workers, for the maximum benefit of their own people. Let the people decide it's kind of like a democracy. The people of Idaho, California, and Oregon, either Testimony of R. Dennis Hayward Page 10 through direct vote or through their legislature, have said they don't want their timber exported. As I indicated earlier, public sentiment in Washington is moving toward support of domestic processing and the banning of public timber log export. Weyerhaeuser, leader of the powerful pro export lobby, owns something like three million acres of the most productive forest land in the northwest. It seems like they ought to be able to show a good return on that asset without having to be involved in the export of state-owned old growth timber. BAN ON FEDERAL LOG EXPORTS The concept that the best use of federal timber is domestic use has a long history in Congress. As a rider to the 1897 Appropriations Bill, the 1897 Organic Administration Act provided authority to the Secretary of Interior to sell timber from the public lands provided that such timber was ... to be used in the State or Territory in which such timber reservation may be situated, respectively, but not for export therefrom." (emphasis added) Beginning in 1974, and each year since, Congress has dealt with log exports from federal lands with language in the annual Interior appropriations bill. This language forbids the Secretaries of Interior and Agriculture from selling any "unprocessed timber from federal lands west of the 100th meridian in the contiguous 48 states, or which shall be used as a substitute for timber from private lands which is exported by the purchaser. (emphasis added) My organization has been a strong supporter of this annual language in general, but has objected to the loopholes that exist in the substitution provisions. With the timber supply crisis in the northwest, we believe it is time to make the law permanent and to eliminate the inequitable loopholes. We believe it should be the policy of the United states to require the domestic processing of all federal timber in the lower 48 states and west of the 100th meridian unless declared surplus to domestic needs, and to forbid substitution practices which encourage or allow the export of other timber. Making the ban on the export of federal timber permanent is good for our country. A developing country in need of quick cash, and short on technology, exports its raw materials. We are neither, I hope. The timber in the northwest is of the highest quality in the world. The products that come from our fine grained old growth cannot be replaced from other sources. We have the technology to maximize the recovery of a variety of products from to provide maximum economic and social benefit to our communities - and to add significant value in converting the raw log into a variety of products for national and world markets. our resource Testimony of R. Dennis Hayward To those who object to such a ban on the basis of a "free trade" philosophy, I would direct their attention to the excellent report by the U.S. Department of Commerce, "The Japanese Solid Wood Products Market Profile And Outlook" prepared at the request of Senator Packwood. This report concluded that the American forest products industry is by far the most efficient in the world, and that the inability of the industry to increase imports of finished woods products to Japan (and logically to compete for logs with Japan) is the result of an extensive and complex set of "impeding factors" including: tariff escalation on finished products; wood use restrictions; subsidies to private Japanese forestry; government subsidies designed to keep marginal, uncompetitive firms in business; separate grading in Japan; unfair competitive advantage granted to other suppliers; and tolerance of cartels designed to limit competition, protect Japanese industry, and collude to limit import prices. On our side of the ocean the debate and challenges of timber policies has lead the government to artificially constrain timber supply in a time of high demand, contrary to the concepts of "free trade." Despite such limits on "free trade," finished products exports from the northwest are increasing, although they remain at only about half the level of log exports. Many of my members specialize in cutting products for the Pacific Rim, Australian, and European markets. An effective and permanent ban on log exports would help fulfill the federal government's obligations to the timber communities of the west. Hundreds of communities in the west are dependent upon public timber. The mills and communities were founded and grew based on the promise of a sustained and stable supply of timber from federal forest lands. Through the years land base withdrawal for other purposes has reduced this supply, a trend which continues and may accelerate. By banning log exports and eliminating substitution, the federal government can contribute to the solution of this catastrophic problem. The people of the western timber communities are conservationists in the traditional sense. They support the wise and careful use of the resource and a balance between timber and environmental values. Banning exports and encouraging maximum primary and secondary manufacturing of the limited resource promotes conservation. The special values of the old growth forest, which represents the bulk of the public timber supply for Testimony of R. Dennis Hayward And Banning the next half century, should be maximized. Most of my members are dependent upon old growth, and specialize in recovering a wide variety and value of products from each and every log. they do so more efficiently than any foreign competitor. both direct and indirect substitution will also encourage conservation. Because of the exorbitant profits available from export logs in the short term, substitution provisions encourage firms to export their own timber and to operate their mills on public timber. Eliminate this opportunity, and such mills will have to decide whether to protect their investments by utilizing their timber domestically, or to shut those facilities down and only sell timber, domestic or export. Considering the increased demand for finished products, many mills would survive and logs exports would decrease. DIRECT SUBSTITUTION This logically leads me to the discussion of what we view as the most serious element of the federal log export issue substitution. Following the intent of the Congress, Forest Service regulations allow firms which historically exported some private timber and replaced it with public timber, to continue that practice within the historical base established in 1971-1973. This is direct substitution. The allowable direct substitution allocations in the current annual legislation were originally provided to assure the continued existence of some specific plants. In recent years, it has become clear that the Forest Service and BLM are not able to monitor or enforce the regulations, that the two agencies have interpretations of Congressional intent that are 180 degrees apart, that mills have been bought and sold with export quotas included, and the original specific protection intended by the provision has long ago disappeared from the real world. Instead, it has become a provision used by private land owners to export their own timber, while using the windfall profits to subsidize purchases of public timber to operate their mills. The premium value on log exports, above a domestic value, is usually in the range of $100 per thousand board feet. If a firm is able to export, say 10 million board feet, the export windfall amounts to $1,000,000 - money that can be used to subsidize their bids on public timber against the non exporters. Permitted direct substitution quotas are about 500 million board feet on the west coast, but less than one quarter of that amount has been reported as being used in recent years. I have members who have established quotas but have no desire or intent of utilizing them. The objective of permitted direct substitution has outlived its intent and should be eliminated. |