Honorable Paul Sarbanes As emphasized in our written statement, the ILEAC is the first to admit that the federal forest lands in the eastern states constitute a relatively minor share of the overall hardwood timber supply. However, we feel strongly that timber grown within the eastern portions of the National Forest System should receive at least primary manufacturing in North America. Before concluding, let me emphasize one other point: the European Community and Japan provide an indirect subsidy to their domestic wood products manufacturers. They do so through the imposition of import fees on finished wood products. The six percent duty on veneer charged by the EC and the five percent duty charged by Japan permit European and Japanese log buyers to pay exactly that much more than American log purchasers. While these may not seem like large margins, they are precisely enough to keep as much as two-thirds of all U.S. hardwood logs flowing overseas. As witness after witness stated at the November 7 hearing, the choice now facing Congress is straight-forward: shall trees grown on lands owned by citizens of the United States be utilized to provide jobs for Americans, or will we continue to allow such valuable materials to be processed in other countries? We hope that you and your colleagues on the Banking Committee will extend the existing log export restrictions to include federal lands located east of the 100th meridian. Thank you for the opportunity to participate in your review of the log export situation. With best regards, Sincerely, Fred H. Hutchison Senator SARBANES. Well, if you would. I'm sure the Subcommittee would be able to find out for itself. I thought you might just have them in mind. We'll now turn to the two representatives from the State of Washington, Mr. McElroy, who is Deputy Supervisor of the Washington State Department of Natural Resources, as I understand it; and then Mr. Nafziger, who is Special Assistant for Timber Policy and Rural Development in the Office of the Governor. Mr. McElroy. STATEMENT OF JAMES P. MCELROY, DEPUTY SUPERVISOR, WASHINGTON STATE DEPARTMENT OF NATURAL RESOURCES, OLYMPIA, WA Mr. MCELROY. Well, thank you, Mr. Chairman. I am Pat McElroy, Deputy Supervisor of the Washington State Department of Natural Resources, speaking for Washington State's Elected Commissioner of Public Lands, Brian Boyle. Thank you for- Senator SARBANES. He is separately elected, I take it, in the State of Washington? Mr. MCELROY. Yes, he is. Senator SARBANES. So it's an office independent of the Governor. Is that correct? Mr. MCELROY. Correct. That is correct. I request permission to insert his full statement into the record. Senator SARBANES. His statement will be so included. Mr. MCELROY. I'll summarize the key points. Mr. Chairman, in my abbreviated remarks, I want to, first of all, tell you a bit about Washington State's Trust Lands, what they mean to the people of the State of Washington, and make a distinction between the States of Oregon and Washington. Second, I will then briefly outline the consequences of Congress setting into motion a process that could result in a ban on the export of logs from State trust lands, and finally give you Commissioner Boyle's view of what a successful solution would contain. Mr. Chairman, first, a few words about our trust lands and how we differ from Oregon. Trust Lands were granted to the States at Statehood for the purpose of providing financial support to public institutions; principally, the common schools, colleges and universities of the emerging States. These lands are to be managed in trust for the sole benefit of the trust beneficiaries. As I've indicated, that's principally the educational institutions. States must adhere strictly to fiduciary trust principles in the management of these properties. In Washington State, we manage 3 million acres of State-owned lands; approximately 2.1 million acres of these lands are timbered, or have forests on them. Income from these properties, principally from the sale of timber, amounted to nearly $200 million last year. Senator SARBANES. May I interrupt you for a second? What is the instrument that imposed the fiduciary responsibility upon the State and defined its terms? Mr. MCELROY. The enabling act of the State. Mr. MCELROY. The enabling act of the State. Senator SARBANES. Is that subject to change or alteration? Mr. MCELROY. Well, I presume so, although there's some question as to the nature of the compact between the Federal Government and the States at Statehood. Senator SARBANES. I see. All right. Thank you. Mr. MCELROY. Mr. Chairman, as you heard from Senator Gorton, the significance of these State-owned forest lands to the people in Oregon and Washington is quite different. In Washington, approximately 14 percent of the total timber harvest comes off of State lands. In Oregon, the figure is only 2 percent. Washington citizens received nearly $200 million from this timber last year, while Oregon received only $42 million, approximately as much. The $200 million represents approximately 2 of the money the State has available to fund school construction. To put the State of Washington in perspective on a national basis, according to figures from the National Association of State Foresters, approximately 2 of all the timber harvested from State lands in the United States comes off of State of Washington lands. And that's why this is such a critical issue to us. Mr. Chairman, a ban on the export of logs from Washington State lands would, first of all, not prevent a single old growth tree from being logged off of State lands, while very likely increasing logging activity on private lands. Our lands are managed on sustained yield basis. We'll harvest just as much timber, we simply would get paid less money for it. Second, it will reduce the income for school construction in Washington State by $100 million every year. Third, it will reduce our ability to pay for the increased cost of implementing the new forest management techniques in an attempt to replicate old growth forest characteristics in a managed forest, as has been recommended by our Old Growth Commission. And, last, probably not result in any significant increase in Japanese purchases of lumber or other finished forest products as they have other markets from which to obtain those. Commissioner Boyle believes a successful solution to the problems facing the Northwest Forest Products Industry must contain the following three elements: No. 1, to reach a long-term solution to the Federal timber supply issue; No. 2, to lower the trade barriers, particularly in Japan; And, No. 3, more aggressive marketing of forest products. Furthermore, the Commissioner believes, like Representative Miller stated, the ongoing trade negotiations and administrative studies should be allowed to conclude unimpeded. Thank you, Mr. Chairman, for the opportunity to present Commissioner Boyle's views. [The complete prepared statement of James P. McElroy follows:] Testimony for the Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on International Finance and Monetary Policy, concerning S.755, Introduced by Mr. Packwood, to authorize the States to prohibit or restrict the export of unprocessed logs harvested from lands owned or administered by States. By Brian J. Boyle, Washington State Commissioner of Public Lands November 7, 1989 Chairman Sarbanes and members of the Committee, I am Washington State Commissioner of Public Lands Brian Boyle, the statewide elected official responsible to the citizens of Washington State for administration of 2.1 million acres of state-owned forest lands, managed under federal and state law as a legal trust for the financial benefit of state institutions, primarily schools. This testimony will address only S.755, dealing with log export restrictions from state-owned lands. It will not address S.754. I am pleased to have the opportunity to present a Washington State view on the log export issue. Timber supply and timber trade policies are very much on the minds of citizens in Washington State. You might be interested to note the fundamental differences, though, between the dynamics of the issue in Washington versus Oregon. 1 Department of Natural Resources Olympia. Washington 98504 206 753-5317 Oregon, much more than Washington, is dependent on federal lands for timber supply and forest products' employment. Our most recent figures, for 1988, show that 58 percent of Oregon's total harvest was from federal land, compared to only 24 percent in Washington State. Meanwhile, 14 percent of Washington's harvest is from state-owned land, while only 2 percent of Oregon's harvest is from state-owned land. Not surprisingly, state timber revenue from state-owned lands is much more significant in Washington, where these lands eamed $193 million in fiscal 1989, compared to only $42 million in Oregon. Washington State's economy is also much more tied to international trade, with one in five jobs linked to international trade. So you see, while timber sale cut backs from federal lands have had a greater potential for job impacts in Oregon, proposals to erect barriers to international trade in state-owned timber have a much more dramatic adverse effect in Washington State. Not surprisingly, then, Governor Gardner and I have a very different perspective on log exports than that of Oregon State officials. A state log export ban would on balance be economically harmful to Washington State. We estimate a ban would cause future revenue losses to schools and other public institutions in our state of about $100 million each year. In forecasting these losses, we assume foreign log importers will not |