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Senator SARBANES. Congressman Miller.

STATEMENT OF JOHN MILLER, MEMBER U.S. HOUSE OF REPRESENTATIVES, FROM THE STATE OF OREGON, FOURTH DISTRICT Representative MILLER. Senator, thank you for holding this hearing and inviting us all to testify. I'll submit some written testimony, but I want to be briefer in my oral remarks.

All of us from the Northwest are concerned that

Senator SARBANES. We're very pleased to have you all here, but I think that we should also make it clear that people were very anxious to testify. So it's not just in response to invitations that we have. [Laughter.]

Senator SARBANES [continuing]. that we have this very extended witness list today. [Laughter.]

Representative MILLER. That is very true, Senator. And I think that reflects the concern that all of us in the Northwest have over this issue, including my colleagues, Congressman DeFazio from Oregon and Congressman Unsoeld from my State of Washington.

We all have differing perspectives. When you look at legislation to allow States to ban the export of logs from State-owned lands, I think we have to recognize that no matter how we dress it up and explain it, it is allowing the States to set up their own trade policies.

My research indicates that not since 1789 has the United States government allowed states to ban the export or the import of any item. This would indeed be a first.

The union came together in part because the States wanted to see one national trade policy, and the articles of confederation had produced chaos in this area.

Now, the consequences of allowing states to set trade policies, even if it is on one item from state-owned lands, I think has to be looked at very carefully.

The first consequence, of course, comes into play when the U.S. Trade Representatives negotiated GATT and other international forums. Foreign governments are going to look at our representatives and say, well, you represent one policy with regards to timber or lumber but, obviously, you cannot speak for the whole United States. This state has another policy, that State has still a different policy.

The second consequence, of course, is what happens down the road because I think we in Congress know that what we grant to one State or group of states we cannot refuse to other states. And if we grant to certain states the right to have a ban on the export of timber from state-owned lands, I think it's fair to say that it's only a matter of time before other States come to us with requests to ban the export or import of other items

And this is something that we as the protectors and initiators of federal trade policy have to think about. We worekd so hard the last couple of years. I know you have, on the bills like the Omnibus Trade Bill, the United States-Canada Free Trade Agreement, to try to set up national trade policies.

Now, if you go ahead, of coure, and if we go ahead and allow states to ban the export, then you get to the question of how salutary an effect will it be?

The purpose of a ban is very clear. By banning exports from the market, you drive down the price. That's the purpose, to get the price low enough so that domestic mills will be able to buy the logs. And the reason for this is this will save jobs in some domestic mills There's no question about it. In our state, the estimates have been 1,500 jobs might be saved. Unfortunately, when you intervene to save jobs here, you lose jobs there. In this case, the estimates are that roughly 800 jobs would be lost in port-related activities that relate to exports.

And, in addition, in our state, a couple of thousand jobs may be lost in the school construction industry, because our School Construction Fund gets the revenue from the higher prices.

So, we help one group, but we hurt another group, which leads us I think as legislators to ask:

Isn't there a way to have a win/win solution? Isn't there a way to help everybody?

And I think there are some positive developments going on. Senator Gorton mentioned that our State Delegation, which Jolene Unsoeld and I are parts, have been working to try to develop a long-term process to try to come up with some constructive solutions.

In my State, the Washington State Legislature has a joint committee on timber issues that has been meeting. They recently in informal session have opted not to go down the ban log export approach, but instead to try to find positive, constructive solutions in the economic development tax incentive, job creation area.

And I think we want to see how those developments proceed. And then, in addition, there is a petition filed by the domestic mills with the Department of Commerce that asks for a ban-a federal bay-a federal policy-banning log exports. That petition will be ruled on in the next couple of months. And while a ban could be criticized in terms of who it helps or hurts, if the Commerce Department went that road, at least it would be one federal policy. So I think, at this point, it's premature for the Congress to go charging down the ban log export route when there are, hopefully, some other efforts underway that, in a constructive manner, without disrupting Federal trade policy and without pitting one group against another, may offer some results.

And I thank you, Senator, for allowing me to speak.

[The complete prepared statement of Representative Miller follows:]

STATEMENT OF CONGRESSMAN JOHN MILLER

BEFORE THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS SUBCOMMITTEE ON INTERNATIONAL FINANCE AND MONETARY POLICY NOVEMBER 8, 1989

THANK YOU FOR THE OPPORTUNITY TO TESTIFY TODAY AGAINST S.754 AND

S.755.

MR. CHAIRMAN, I COME HERE NOT TO PRAISE S. 754 AND S. 755, BUT TO CRITICIZE THEM. TAKEN AS A WHOLE, THESE BILLS ARE BAD NATURAL RESOURCES POLICY AND BAD TRADE POLICY.

LIKE MY COLLEAGUES, I AM EXTREMELY SYMPATHETIC TOWARD THE SMALL COMMUNITIES IN WASHINGTON AND OREGON. THESE COMMUNITIES DEPEND ON A STABLE SUPPLY OF TIMBER TO SURVIVE. BUT, MR. CHAIRMAN, I THINK AN EXAMINATION OF HISTORY AND INTERNATIONAL ECONOMICS TELLS US THAT SIMPLE SHORT-TERM SOLUTIONS THAT ADDRESS LONG-TERM PROBLEMS HELP NO ONE. IN FACT, THEY END UP COSTING THE PEOPLE WE ARE TRYING TO HELP-AND THE REST OF US-- A VERY HIGH PRICE.

THE CONSTITUTION WAS RATIFIED, IN PART, TO CREATE AN ECONOMIC UNION WHERE INDIVIDUAL STATES WOULD NOT HURT OTHER STATES BY TAKING SHORT TERM GAINS. TRADE AND COMMERCIAL POLICIES WERE GIVEN TO THE NATIONAL GOVERNMENT IN AN EFFORT TO HELP THE WHOLE NATION.

THEN,

THE TRADE BILL WE ALL WORKED ON LAST YEAR WAS DESIGNED TO EXPAND TRADE AND IMPROVE OPPORTUNITIES FOR U.S. EXPORTERS. SIMILARLY, WE SUPPORTED THE U.S.-CANADA FREE TRADE AGREEMENT. BOTH THESE INITIATIVES EMPHASIZED A COORDINATED NATIONAL TRADE POLICY. S. 755 ALL BUT GUTS THE NOTION THAT WE WILL HAVE ONE TRADE POLICY. INSTEAD WE WILL HAVE SEPARATE TRADE POLICIES FOR WESTERN STATES. WITHOUT MUCH IMAGINATION, MR. CHAIRMAN, OTHER SPECIAL INTERESTS WILL PROPOSE THEY TOO NEED PROTECTIONS ONLY UNDERSTOOD BY STATE GOVERNMENTS. IN THE END, WE MAY MAKE SOME SPECIAL INTERESTS HAPPY IN THE SHORT-TERM, BUT ALL OF US WILL LOSE IN THE LONG-TERM, AS OUR NATIONAL POLICY DISSOLVES INTO 50 SEPARATE TRADE POLICIES.

MR. CHAIRMAN, YOU MIGHT THINK THAT WASHINGTON STATE'S SHARE OF EXPORTED PROCESSED LUMBER IS DECLINING. THAT IS NOT THE CASE. ACCORDING TO THE WASHINGTON STATE DEPARTMENT OF NATURAL RESOURCES IN 1979, FOR EXAMPLE, JUST UNDER 43 PER CENT OF OUR FOREST PRODUCTS EXPORTS WERE FINISHED PRODUCT, WHILE JUST OVER 53% WERE RAW LOGS. IN 1987, JUST OVER 57% WAS FINISHED PRODUCT AND RAW LOGS AMOUNTED TO JUST UNDER 44 PERCENT.

MR. CHAIRMAN, WE ALL RECOGNIZE THAT THERE ARE RURAL COMMUNITIES IN WASHINGTON AND OREGON FACING MASSIVE PROBLEMS BROUGHT ON BY HIGH DEMAND AND HIGH PRICES FOR LOGS. THAT IS WHY I WORKED WITH MY

COLLEAGUES TO SUPPORT THE TIMBER SUPPLY COMPROMISE CONTAINED IN THIS
YEARS INTERIOR APPROPRIATIONS BILL. THAT IS WHY I AM STILL WORKING ON
A LONG TERM SOLUTION. WE ALSO RECOGNIZE MARKET BARRIERS. THE RECENT
SECTION 301 ACTION AGAINST JAPAN ILLUSTRATES SUCH A BARRIER. BUT,
THIS WAS A COORDINATED NATIONAL POLICY, NOT A SEPARATE STATE POLICY.

EVENTS HAVE COME TO A HEAD THIS YEAR BECAUSE TIMBER IS ALWAYS A CYCLICAL BUSINESS, AND THE CYCLE HAS HIT ITS NEAR PEAK. PRICES AND DEMAND ARE BOTH HIGH. BUT WHEN THE CYCLE ENTERS ITS DOWNWARD SLIDE, EXPORTS REPRESENT AN IMPORTANT SOURCE OF INCOME FOR THESE SAME COMMUNITIES. THE INTERNATIONAL MARKET DOES NOT ALLOW US SIMPLY TO SELL LUMBER OR LOGS JUST TO MEET THE DOMESTIC MARKET. IN SEVERAL AGRICULTURAL COMMODITIES, ATTEMPTS TO AFFECT THE BUYING POLICIES OF IMPORTING NATIONS THROUGH EXPORT BANS HAVE NOT BEEN SUCCESSFUL. TOO HARD TO BUILD BUSINESS RELATIONS AND TOO EASY FOR FOREIGN SUPPLIERS TO FIND SUBSTITUTE PRODUCTS.

IT'S

MR. CHAIRMAN, THE ISSUE FOR WASHINGTON STATE IS NOT AS SIMPLE AS SOME WANT YOU TO BELIEVE. AT THE PEAK OF THE DEMAND CYCLE, ACCORDING TO U.S. FOREST SERVICE DATA, A LOG BAN WOULD SAVE 1,580 DOMESTIC MILL JOBS. BUT, MR. CHAIRMAN, IT WOULD COST 880 JOBS IN THE EXPORT TRADES. MOREOVER, MR. CHAIRMAN, THIS NUMBER DOES NOT INCLUDE THE ESTIMATED 3,000 CONSTRUCTION JOBS-- BUILDING NEW CLASSROOMS AND UPGRADING SCHOOLS-- WHICH WOULD BE LOST BECAUSE A BAN ON EXPORTS WOULD SIGNIFICANTLY DEPRESS THE PRICE OF LOGS SOLD FROM STATE LANDS. THESE NUMBERS DO NOT INCLUDE JOB LOSSES IN OTHER INDUSTRIES INDIRECTLY LINKED TO FOREST PRODUCES. EACH RETAINED JOB WOULD COST THE WASHINGTON STATE SCHOOL CONSTRUCTION FUND APPROXIMATELY $100,000 PER YEAR.

FINALLY, MR. CHAIRMAN, A SHORT SUPPLY PETITION WAS RECENTLY FILED WITH THE DEPARTMENT OF COMMERCE BY A COALITION OF SMALL MILL OPERATORS. THESE SMALL MILLS ARE SEEKING A FIVE YEAR BAN ON LOG EXPORTS FROM PUBLIC LANDS. IF THE DEPARTMENT OF COMMERCE RULES IN THEIR FAVOR, S. 755 WILL NOT BE NECESSARY. SUCH AN ACTION WOULD BE PART OF OUR NATIONAL TRADE POLICY, NOT THE ACTION OF ONE STATE.

S. 755, IN SUMMARY, IS A FEEL GOOD SOLUTION, WHICH WORKS AGAINST OUR NATIONAL TRADE POLICY AND FAILS TO REALISTICALLY CONSIDER THE FORCES AT WORK IN THE INTERNATIONAL MARKET.

S. 754, HOWEVER, DOES HAVE SOME MODEST MERIT. IT DOES MAKE PERMANENT THE BAN ON EXPORTED LOGS FROM FEDERAL LANDS WEST OF THE 100TH MERIDIAN. THE DISTINCTION BETWEEN A FEDERAL BAN AND A STATE BAN OUR TRADE POLICY MUST HAVE ONE VOICE, THE FEDERAL IF CONGRESS AND THE PRESIDENT CONCUR, WE HAVE A FEDERAL THIS IS A FAR CRY FROM INDIVIDUAL STATES MAKING SEPARATE AND COMPETING POLICIES.

IS IMPORTANT.

GOVERNMENT.

LAW.

BUT, S. 754, ALSO ADDRESSES THIRD PARTY SUBSTITUTION. AS A PRACTICAL MATTER, THE TOTAL AMOUNT OF FEDERAL TIMBER INVOLVED IN THIRD PARTY SUBSTITUTION IS NOT PRECISELY KNOWN. IN 1987 AND 1988, THE GENERAL ACCOUNTING OFFICE REPORTED, THE FOREST SERVICE ESTIMATED "107 MILLION BOARD FEET AND 114 MILLION BOARD FEET RESPECTIVELY." THE BUREAU OF LAND MANAGEMENT OFFICIALS IN OREGON HAD NO STATISTICS ON SUCH SUBSTITUTION, BUT BELIEVED IT WAS LIMITED. IN 1985, THE GENERAL ACCOUNTING OFFICE ESTIMATED THAT THIRD PARTY SUBSTITUTION AMOUNTED TO ONLY ABOUT 100 MILLION BOARD FEET OF TIMBER.

MR. CHAIRMAN, THE DRAFT RECOMMENDATIONS I REVIEWED FROM THE GENERAL ACCOUNTING OFFICE STUDY SUGGEST THAT WE NEED TO TAKE A LOOK AT LEGISLATIVELY DEFINING THE HISTORIC CUT LEVELS, THE PENALTIES FOR VIOLATING SUBSTITUTION RULES AND THE MONITORING OF DATA PROVIDED TO THE FOREST SERVICE AND THE BUREAU OF LAND MANAGEMENT. I SUGGEST THAT THIS INVESTIGATION, ALONG WITH THE G.A.0.'S 1985 STUDY, LEAD ME TO CONCLUDE THAT THE SCOPE OF THE PROBLEM IS OVER EMPHASIZED. LET'S FIX THESE PROBLEMS, LET'S NOT CANCEL A PROGRAM WHICH DOES NOT APPEAR TO BE A PROBLEM.

THE FACT IS, MR. CHAIRMAN, S.754 WOULD, I BELIEVE, HAVE SEVERAL ADVERSE LONG TERM IMPACTS ON EFFORTS TO ADDRESS THE TIMBER SUPPLY SITUATION AND WILL NOT EFFICIENTLY USE OUR TIMBER RESOURCES. UNDER S. 754, COMPANIES THAT HARVEST BOTH FEDERAL AND PRIVATE TIMBER WOULD HAVE TO CHOOSE BETWEEN FULL PARTICIPATION IN THE DOMESTIC MARKET OR CONTINUING TO PARTICIPATE IN THE EXPORT TRADE. A COMPANY WHICH DECIDES TO PARTICIPATE IN THE DOMESTIC TRADE MAY NOT BE ABLE TO USE ALL ITS LOGS DOMESTICALLY AND WOULD HAVE TO LET THEM GO TO WASTE BECAUSE AN EXPORT USE WOULD NO LONGER BE AVAILABLE.

SECOND, MR. CHAIRMAN, IF A COMPANY DECIDED THAT SHORT TERM PARTICIPATION IN THE EXPORT MARKET WAS MORE PROFITABLE, IT MAY BE FORCE A COMPANY TO CLOSE A MILL. WHILE THAT DECISION MAY MAKE ADDITIONAL FEDERAL TIMBER AVAILABLE TO ANOTHER MILL, IT WILL DO LITTLE FOR THE WORKERS AND FAMILIES OF THE MILL WHICH IS CLOSED.

MR. CHAIRMAN, ENDING SUBSTITUTION AND FORCING A COMPANY TO PARTICIPATE ONLY IN THE DOMESTIC MARKET SOUNDS GOOD, BUT WE ARE MAKING AN ASSUMPTION THAT THE SHORT TERM GAINS WILL NOT RESULT IN HIGHER HUMAN COSTS. I PERSONALLY DO NOT WANT TO MAKE SUCH A BET WITH THE LIVES OF PEOPLE.

SUBSTITUTION DOES PROVIDE A COMPANY WITH THE ABILITY TO EFFICIENTLY PROCESS DIFFERENT TYPES OF LOGS AVAILABLE. IT ALLOWS A COMPANY, AND HENCE, THE UNITED STATES, TO MOST EFFECTIVELY USE ITS FOREST RESOURCES TO PARTICIPATE IN THE INTERNATIONAL MARKET FOR WOOD AND WOOD PRODUCTS.

MR. CHAIRMAN, THE FOREST PRODUCTS INDUSTRY IS DYNAMIC AND

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