NOV 03 '89 17:15 STATE OF OREGON OFFICE OF THE GOVERNOR 344 P04 Testimony - Neil Goldschmidt, Governor, State of Oregon Why is it good public policy to restrict log exports from state and federal forest lands? We need the logs domestically. Today our timber supply crisis is worse than it was in the 1960s. All economic studies of timber supply in the Pacific Northwest agree that timber supply from all ownerships will decline in the next decade. Harvest from private lands will decline because the trees have already been cut and now new trees are growing. National forests and other federal timber lands are managed for multiple use. Draft plans for the National Forests would result in a 20 percent reduction in harvest if they are adopted. The reductions in harvest from federal forests is due to the demand for other resources from our public forests: wildemess, recreation, scenic vistas, fish. Continued log exports increase the pressure for additional harvests from federal forests, making it more difficult to meet the many demands on our national forests and public lands. This is another good reason to restrict log exports: to reduce the pressure to meet our domestic timber supply needs from federal forest lands needed for many different uses. The third reason is probably the most important. When we export public timber, we export jobs. The economic value to be gained from domestic processing is forever lost. Every year for the past four years over one billion board feet of unprocessed logs have been exported from Oregon. Taking 1987 data, 226 million board feet were sold from state lands and of that about 98 million board feet were exported. One million board feet of unprocessed logs will supply about 4.5 sawmill jobs. The logs exported from state-owned lands in Oregon alone in 1987 could have supplied between 400 and 500 jobs in Oregon mills. Each of these jobs would produce one to two more indirect and induced jobs through the multiplier effect. Log exports affect the price of timber available to domestic mills. When supply is short, prices increase anyway. When exporters enter the bidding for public timber, they can afford to pay a premium over domestic buyers due to international currency differences. When the dollar is low compared to the yen, exports increase. This upward pressure on timber prices increases the cost of production for domestic mills and undercuts their efforts to improve their International competitiveness. There is another sound business reason to restrict log exports from public lands. If local mills are forced to close due to short raw material supplies, there will be no one there to bid at all when the inevitable International monetary fluctuations occur. This is the essence of short-sightedness: rather than supporting a competitive local manufacturing environment, we allow domestic buyers to be driven out of business by high priced export bidding, the export market turns down, and there are no mills left here willing to buy. Or, equally as bad, the few exporters left only bid at the minimum. Our focus as a Nation ought to be using our public resources to assure healthy, competitive local mills in order to maximize long-term benefits. NOV 03 '89 17:15 STATE OF OREGON/OFFICE OF THE GOVERNOR 344 POS Testimony - Neil Goldschmidt, Governor, State of Oregon Page 4 One of the main objections to log export restrictions is that the government makes less money on timber sales if only domestic mills can buy. This is not the case on state forest lands, in our opinion. It is difficult to analyze the actual bid premium attributable to exports. The premium, if any, can only be determined if at least one exporter bids against a domestic processor on a sale. The large premiums only occur if two exporters bid against each other. Otherwise, the exporter simply bids the minimum necessary to beat the domestic buyer. One analysis we did on our Coos Bay District from 1982-1987 shows that an average exporter only bid $7.59 per thousand more above the appraised value than did domestic buyers. If you eliminate the cases where two exporters bid against each other, the average premium drops to $2.39 per thousand. In some cases, the "premium" was as little as $.50. Such small short term cash gains cannot begin to offset the lost revenues due to mill jobs. The other main objection to log export restrictions from public lands is that such restrictions violate our free trade principles. This argument ignors the very reason governments, state or federal, own forest lands. Public forests are owned by the federal govemment and the State of Oregon for many reasons. One reason has always been to supply timber for our wood products industry. For that reason, Congress has decided that timber from federal lands should be sold to domestic purchasers, not exported. This is not an international trade issue. It is simply a matter of deciding how public forest resources ought to be managed in the public interest. Neither bill before you today regulates what private companies do with the timber they grow, nor does it regulate the commercial activities of foreign companies. Rather, these bills establish a domestic preference in purchasing public resources. Public lands should contribute to addressing public needs. There is a real timber supply need in the Pacific Northwest now. Timber that is harvested from our federal and state lands can make an important contribution to meeting this need. Limiting exports is one positive way to do this while protecting other non-timber resources and saving American jobs. 3536N Senator SARBANES. Well, thank you very much, Governor Goldschmidt. Senator Gorton made the point that only 2 percent of timber harvested in Oregon is State-owned timber. Therefore he was suggesting that the dimensions of the problem in Oregon were very different than they are in the State of Washington. Do you have any observations on that comment? Governor GOLDSCHMIDT. Well, the major difference in the dimension is, apparently, the State of Washington continues to feel comfortable exporting its logs. And I think they can have that choice. We are about 5 percent, I think, of the harvest but it isn't quite accurate to say that it is of no consequence because it is almost all in two specific basins; that is, where it is located, it is in many respects the preeminent or dominant supplier of timber. Over 90 percent of the trees which go to a mill in our State today come from Federal land. If you back off that supply in the current cycle by about 20 percent of supply and then begin to look at these issues that Senator Packwood raised on substitution, begin to look at the unnecessary export of logs off of State land, which is inconsistent with current Federal policy, I think we can reduce the pressure to overcut and make sure the price of timber in the United States is reasonable for people to have housing. Our citizens can have jobs. And, frankly, I think we can do no damage to any foreign interests. So all we really ask is let us join in whatever policy you make. If the decision this Committee makes is to start exporting logs off of Federal land, we understand we will be sent with you. Senator SARBANES. What was the policy in the State of OregonI want to be clear on this-prior to the Supreme Court decision? Governor GOLDSCHMIDT. We had a State Constitutional provision different slightly from the one we have now, which had been interpreted to prohibit exports from certain state lands. We also had a state statute prohibiting log exports. And were enforcing it, until we were advised by the Attorney General that he was-back in the days when Senator Hatfield was, in fact, I think a Governor, that early-that it might be illegal. The subsequent case of course has turned out to say, in fact, that we had no power to have such a statute without Federal permission. And our Constitutional provision that has now been passed is explicit in saying that it depends on such Federal agreement. Senator SARBANES. Well, thank you very much. Governor GOLDSCHMIDT. Thank you, Mr. Chairman. Senator SARBANES. We very much appreciate your testimony. We'll now hear from a panel of our colleagues from the House of Representatives. And if they would all come forward and take seats at the table-Congressman DeFazio, Congressman Miller, Congresswoman Unsoeld, and is Congressman Williams here with us? [No response.] us. Senator SARBANES. Well, we'll proceed. He may be able to join Peter, why don't we start with you? We'll move right across the panel if you wish. STATEMENT OF PETER A. DeFAZIO, MEMBER, U.S. HOUSE OF REPRESENTATIVES, FROM THE STATE OF OREGON, FOURTH DISTRICT Representative DEFAZIO. Thank you, Mr. Chairman. I'd ask unanimous consent that my full remarks be entered into the record. Senator SARBANES. They will be so included. Representative DEFAZIO. Thank you, sir. Mr. Chairman, I'd like to thank you for holding this hearing today and giving us an opportunity to testify on the need for Federal legislation in the area of the export of unprocessed wood products logs on the Western United States. I believe action is warranted in two areas. That would be, first, to make permanent the ban on the export of Federal logs and plug the loopholes in that law that have been identified in the GAO report which will be entered as testimony later this morning. I also feel that we should extend authority to the States and allow them to restrict the export of logs off State land consistentonly consistent-with Federal restrictions. First, on the State authority, the Governor has already waxed eloquent about the Tillamook Forest. In my District, the Elliot State Forest. Down on the southern coast is a premier supplier of public timber in the area. They virtually, 100 percent of the logs harvested off the Elliot State Forest are going overseas. And as of last year, the Port of Coos Bay exported 325 million board feet of logs, and all the mills were closed. There were mills in the area that would have expanded production and/or added shifts had they been able to successfully acquire any of those State logs. We allow private persons-I, myself, own some timber in eastern Oregon. I can choose whether or not to sell that timber into export. That's my right as a landowner. The Federal Government has wisely chosen to restrict the export of logs west of the 100th Meridian. Yet, the States have no option. They are the second class citizen in this case. They do not have the right to private landowners. They don't have the right to Federal landowners. We're being told: You are the only ones who must sell your logs into export. You have no choice. The deficiencies in the Federal law are very, very well-outlined in the GAO report and I'll only go over them briefly. As they point out, the law is self-reporting and it is only enforced by informant actions. That is, it's self-reporting. It's not audited. And only in the case of an informant coming forward and contradicting information submitted by a log exporter will the Forest Service take action. And, generally, those actions follow three to five years the illegal activities that took place. And the enforcement actions have been very de minimis because of the confusion in the Federal regulations; even when they catch someone red-handed, they virtually take no action against that log exporter. Tributary areas as defined-or not really defined, I should say. One exporter in my District chose the Interstate Highway as the tributary area. And he said that any logs harvested on one side of the highway were not tributary to his mill so, therefore, he could export; and the other side was tributary. He was the one person found in violation of the law and later lost one contract. That was his total penalty. Tributary areas need to be better defined, I think defined through a public process. Third party substitution. The GAO points out that they don't know how many logs are being substituted third party. And they point to the need for restrictions in that area. Finally, the existing law is year to year. That is, it doesn't allow for long-range planning, long-range investment in the industry, because we don't know whether or not those restrictions might go away on Federal logs. And there have been administration proposals under the Reagan administration to lift those restrictions. You directed a question to an earlier witness regarding the Japanese barriers. I would say the Japanese barriers are substantial. And it would be logical for us to restrict the export of the raw material in an area where they have been so well-documented as discriminating against and restricting the importation of finished material. Bohemia Mill, for instance, Bohemia Corporation in my District, is the world's foremost producer of glue-laminated beams. Yet, the Japanese have chosen to classify those beams as plywood. They know it's not plywood. They know it's not a translation problem. They know there shouldn't be a 15 percent tariff on those beams, but they are in the beginnings of a glue-laminated beam industry in Japan. And as they have done so many times in the past, they are protecting an infant industry against foreign competition. There was a Commerce Department report which was requested by Senator Packwood last year, which for hundreds of pages documents everything from financing of the final product home down to the distribution system that, they discriminate against foreign-finished products or semi-finished products. The other nations in the Pacific Rim have chosen to restrict the export of logs to Japan and, subsequently, their exports of finished products, or at least lumber products have increased dramatically. Indonesia is an excellent example. Ten years ago, they exported 1 percent or provided 1 percent of the plywood in Japan. They prohibited the export of raw logs. They now produce 18 percent of the plywood used in Japan; whereas during the same time period, the United States has moved from a fraction of 1 percent to a slightly. larger fraction of 1 percent, and we're being told by Weyerhaeuser and others to be patient. Well, at that rate, you know, our forests will be gone before we make any in-roads into the finished market in Japan. So, Mr. Chairman, I would say that it would be consistent to allow the States to have laws that were consistent with Federal law. It would be logical. It would not be so-called balkanization of trade policy; it would be extending States the rights that all other categories of land-holders have. And the Federal law itself, as loop |