stricted from purchasing Federal timber to buy Federal timber from other companies, referred to as third parties, to replace timber from private lands that is exported.

This bill requires the Secretary of Agriculture and the Secretary of the Interior to develop coordinated and consistent regulations to phase out both direct and indirect substitution. It is time to close this loophole in the current log export law. Currently, the Forest Service and the Bureau of Land Management have their own regulatory systems that are complex and conflicting. The GAO statement submitted for this hearing reinforces the need to develop coordinated regulations on log exports. They also recognize that enforcement of the current regulations is almost impossible to administer and susceptible to abuse.

During the preparation of new regulations, technical issues such as the value of tributary areas, the geographical areas from which logs flow to mills, should be analyzed to determine if a tributary area program is workable. The intent of my legislation is not to prohibit the use of public timber in all cases by a company that exports private timber. Rather, reasonable tributary boundaries could be established in limited cases with public participation where a log flow between different timbershed areas is not economical or logical.

The Forest Service estimates that over 200 million board feet of logs are being replaced by substitution (both direct and third party). This is enough logs to keep four medium-sized mills operating in my State of Oregon. In an era of short timber supply for Northwest mills, it is not sound policy for us to be shipping those unprocessed logs overseas. I do not believe it is sound resource policy nor does it make economic sense to be exporting a commodity in increasing short supply.

INTERNATIONAL RESTRICTIONS ON LOG EXPORTS

Other timber producing countries have strict regulations on the export of logs. For example, the Province of British Columbia requires logs to be processed before they leave British Columbia. In fact, British Columbia taxes at a rate of 100 percent the difference between the value of domestic logs and that of exported logs. For example, if the price of logs used domestically is $300 dollars per thousand board feet and the price of logs bought for export is $400 dollars per thouand board feet, you would pay a 100 percent tax on the $100 differential. That is a major disincentive to export logs instead of finished lumber. Other provinces in Canada have also set limits on log exports. Indonesia, which used to be the largest exporter of logs to Japan, has imposed very strict regulations and is now one of the largest exporters of plywood to Japan. Furthermore, countries that restrict exports of logs do not eliminate job opportunities. Rather, they create jobs for value-added wood products. Other countries having log export restrictions are Malaysia, the Philippines, Papua New Guinea, Thailand and Brazil.

TRADE POLICY ON LOG EXPORTS

Mr. Chairman, you may be wondering why the free-trader Bob Packwood is advocating restrictions on the export of logs. The

answer simply is that I do not believe it is sound public policy to be exporting critical natural resources in short supply. The old growth forests of the Pacific Northwest are in increasing short supply and the situation is only getting worse.

Moreover, I don't believe the log export bills run counter to my free trade principles because the bills are consistent with the General Agreement on Tariffs and Trade [GATT]-an international body designed to liberalize trade. While it is true that the GATT generally prohibits export restrictions, there are several exceptions to this rule. Specifically, Article XI (2) and Article XX (j) provide exceptions for products in short supply, and Article XX (g) allows restrictions on exports to conserve exhaustible natural resources if such measures are made in conjunction with restrictions on domestic production and consumption. And that is exactly what is happening. Based on draft forest plans called for by the National Forest Management Act of 1976, the Forest Service predicts there will be a 20 percent reduction in the timber sales program of Oregon and Washington. These plans removing land available for timber harvest will only exacerbate the shortage of timber. Other land classifications which have removed forest lands from the timber base include wilderness designation, wild and scenic rivers designation, and protection for the northern spotted owl.

STATE LOG EXPORT BILL

My second bill, S. 755, similar to a House bill introduced by my friend Congressman Peter DeFazio, would provide the congressional authority needed for Oregon and all states to prohibit or restrict the export of logs from State-owned lands. This legislation is necessary because of a 1984 Supreme Court decision, South Central Timber Development v. Wunnicke. At issue was an Alaska state law requiring state logs to be processed in the State of Alaska prior to being exported. The Alaska law was challenged as an infringement on Federal authority to regulate international trade under the Commerce Clause. The Supreme Court stated "congressional intent must be unmistakably clear" with respect to state delegation under the Commerce Clause. Mr. Chairman, this bill would provide that unmistakably clear congressional intent by explicitly granting States the authority to regulate log exports from State-owned lands. We are not requiring states to restrict log exports but simply giving them the option to do so if they so wish. Earlier this year the people of Oregon overwhelmingly approved a ballot measure supporting a ban on the exporting of logs from state lands. Idaho has also passed legislation restricting the export of logs from Stateowned lands.

CONCLUDING REMARKS

Mr. Chairman, I believe these two log export bills will enable both the states and Federal government to develop cohesive and constistent policies governing the export of logs from Federal and State lands. A shortage of timber in the Pacific Northwest is a reality and I believe it will be further aggravated in the years to come. Restricting log exports is an important step necessary to address Oregon's timber supply problems.

Mr. Chairman, I look forward to working with the Senate Banking Committee on these two bills.

Senator SARBANES. Thank you. I just have one or two questions. First of all, do you know if the countries to whom we are exporting unprocessed timber maintain restrictions or limitations on the export from the United States of finished wood products?

Senator PACKWOOD. Most of the China and Japan are the principal countries, not Seoul, but principal countries to which we export. They are both, by and large, short of wood. So that we have been having some success in getting additional lumber into Japan. They still buy many more logs than we do. They have a very small, inefficient sawmill industry and they use the logs to mill them there.

But they do not ban the import of lumber from the United States.

Senator SARBANES. By "lumber," you mean finished wood products?

Senator PACKWOOD. Finished products, that's correct. Senator SARBANES. And they don't restrict it or limit it? Senator PACKWOOD. It is the usual question when you're dealing with Japan, if you were to look in their laws and you say is there a restriction on the import of lumber, you would not find it in their laws. We have some difficulty with the distribution system.

But, by and large, American lumber producers have been having increased success in getting into the Japanese market and the Chinese market.

Senator SARBANES. Well, thank you very much. We appreciate your full testimony and we are pleased to have been able to hold this hearing. I know you've requested it now for some time.

Senator PACKWOOD. Thank you.

Senator SARBANES. Senator Gorton.

STATEMENT OF SLADE GORTON, MEMBER, U.S. SENATE, FROM THE STATE OF WASHINGTON

Senator GORTON. Mr. Chairman, in your opening remarks, you referred to the bill passed by the new Congress of the United States as a rider on the Interior Appropriations Act, dealing with short-term log supply in the Pacific Northwest off Federal lands.

That was unanimously supported by the Delegations of Washington and Oregon in both Houses. And during the course of the time during which it was being developed, we had all agreed simply to lay aside the divisive and controversial issue of a ban on log exports.

On the morning on which the Interior appropriations bill was passed, I spoke on the floor of the Senate in favor of it and stated that a long-term solution to log supply for which we are looking would require us to look at every aspect of the supply question, including that of log exports.

Now, I regarded the willingness of Senator Packwood and of others who feel as they do to set that issue aside during the course of the development of that position, to be most statesman-like.

And the only appropriate response is that their position be considered at this time.

As a consequence, I believe that it is appropriate to discuss all aspects of this question now, but I think it vitally important to point out to this Committee that it is only one aspect and probably not the most important aspect with respect to the future of the forest products industry in the Northwest.

I don't believe that either of these bills should be considered alone or in isolation. I believe that both of them, and the ideas expressed in both of them, should be considered as a part of the package to solve the challenges which are facing the Pacific Northwest in the long term.

Given that overall position, I agree with Senator Packwood that a permanent ban on the export of logs from U.S. Forest Service land or from Federal lands may now be appropriate.

That won't be a change in policy. We've done that on an annual basis as a rider to the Appropriations Act for a number of years. I don't believe that a ban on all substitution is going to be appropriate even now. I think regulations dealing with substitution should not only be tighter, but they should be parallel with respect to the Forest Service and the Bureau of Land Management.

But, some third-party substitution is an essential market function that we should continue to permit subject to very tight regulation.

With respect to S. 755, the proposal to allow States to ban the export of logs from State lands, I continue to believe that an abdication of Federal trade policy and a devolution of that policy to individual States is not the answer.

Foreign trade is quintessentially a Federal constitutional issue, and foreign trade policy should be decided here by the Congress and by the Administration and not by individual States.

I should also like to point out, Mr. Chairman, that in this connection, in the Pacific Northwest, this is primarily a Washington problem and not an Oregon problem. Only about 2 percent of the total timber harvest in Oregon is from State lands; roughly 12 percent of the timber harvest in Washington is.

It is a much more important issue in my State than it is in that of Senator Packwood.

But, following on my view that the log export issue should now be reviewed, Congressman Swift from the State of Washington and I have been working together for several weeks to see whether or not there isn't a reasonable middle ground, under which these issues are decided here at the Federal level and not necessarily on an all or nothing basis. We note that for two or three decades, there have only been two positions on log exports-polar extremes. We are working on ideas. I must tell you, Mr. Chairman, that we are far from having perfected them. Basically, our objectives are these: first keep the Federal government in charge of this policy; second, ensure that the free trade of private timber remains unaffected; third, permit temporary and, as appropriate, partial restraints on the exports of unprocessed State timber at times in which such restraints are appropriate and are necessary for the economic viability of the small mills which have no timber base themselves. And, finally, at the same time provide incentives for those small mills to improve their competitiveness.

The initial portions of these ideas we have shared with our Governor, Booth Gardner, who has encouraged us to go forward with them.

So, from my perspective, Mr. Chairman, the appropriate action here is to postpone action on these bills pending the outcome of long-term timber supply negotiations involving all of the members of Congress, in both Houses and in both parties, in the Pacific Northwest.

I'm quite certain that when those negotiations are complete, restrictions with respect to the export of State logs will be a part of them.

In a sense, we could use the metaphor that you all are asked to be doctors here, to prescribe medicine for a patient whom you have not seen and who clearly has major ills other than those which are covered by this proposed prescription.

And with that, Mr. Chairman, I thank you for your indulgence and your kindness in dealing with the problem which is so vitally important to us, but only of indirect importance in your own State. [The complete prepared statement of Senator Gorton follows:]