-10

THE TREMENDOUS BUILDUP OF CANADIAN LUMBER IMPORTS HAS HAD TWO DISASTROUS EFFECTS UPON THE U.S. LUMBER INDUSTRY. THE VOLUME EFFECT DOMESTIC CAPACITY HAS BEEN PERMANENTLY CLOSED RESULTING IN LOST JOBS. THE PRICE EFFECT PRICES HAVE BEEN DEPRESSED LEADING TO HUGE INDUSTRY LOSSES AND REDUCED INVESTMENT IN EFFICIENCY IMPROVEMENT CAPITAL PROJECTS.

These two effects will be evaluated in detail on the following pages. As will be demonstrated, at least 27,000 direct jobs have been lost to Canadian imports.

The U.S. lumber industry, reeling under the strains of the imports, lost an estimated $300 million pre-tax in 1984 and took asset writedowns totalling over $600 million.

This kind of profit performance has lead and will continue to lead to reduced investment in capital facilities, including efficiency improvement projects which would, under normal circumstances, keep the domestic industry economically viable.

THE PRIMARY EFFECTS OF THE FLOOD OF CANADIAN LUMBER IMPORTS

Estimated pre-tax loss of $300 million in 1984.

Asset write-downs of $607 million in 1984.

Reduced investment in efficiency improvement capital projects.

-12

WHILE U.S. DEMAND WAS ESSENTIALLY THE SAME IN THE YEARS 1978 AND 1984 AT ABOUT 42 BILLION BOARD FEET, 2.4 BBF OF WESTERN AND INLAND PRODUCTION HAD TO BE SHUT DOWN DUE PRIMARILY TO EXPANDED CANADIAN IMPORTS.

U.S. lumber demand in 1984, a record year, amounted to 42.4 BBF, slightly higher (.3 BBF) than in 1978. In spite of favorable demand, 2.2 BBF of Western production was driven out between 1978 and 1984 as production dropped to 13.6 BBF from 15.8. An additional .2 BBF was driven out in the Inland States.

The predominant cause of the Western and Inland states production drop can be ascribed directly to the expanded Canadian imports, which grew by 1.7 BBF from 11.8 to 13.5 during the period. This growth derives from the artificially low stumpage prices charged in Canada, which more than offset the logistics cost disadvantages.

-14

CALIFORNIA, OREGON, WASHINGTON AND IDAHO WERE THE WESTERN AND INLAND STATES
MOST SEVERELY IMPACTED BY THE FLOOD OF CANADIAN IMPORTS. 2.4 BBF OF
PRODUCTION WAS SHUT DOWN

California, from a production standpoint, took the steepest decline as production fell by 1.1 BBF from 4.8 billion in 1978 to 3.7 billion in 1984. .7 BBF of production was driven out in Oregon and .4 billion in Washington during the same period.