If we cannot define it as a subsidy, then I think we certainly have to revisit the law and see if there is something wrong in current provisions and the current definition, and that is the reason I have been joining in the efforts of Mr. Bonker and Mr. Weaver and Mr. Gibbons to try to resolve this question on some type of a fair basis.

With that, I will yield back my time.

Chairman GIBBONS. Mr. Pease?

Mr. PEASE. Thank you very much, Mr. Chairman.

I too would like to thank our panelists, and indicate my great pleasure and satisfaction that I do not have any lumber interests in my district. It is bad enough to have automobiles and steel and textile and apparel and all the rest without having lumber.

Chairman GIBBONS. You used to have ships.

Mr. PEASE. Yes, before they went down to Tampa, FL. [Laughter.] Chairman GIBBONS. They christened one the other day. It floated. Mr. PEASE. At any rate, I am particularly happy to have the distinguished chairman of the International Economic Policy and Trade Subcommittee of Foreign Affairs, and also my chairman of the House ex parte task force and all the rest.

Don, you really reassured me in your last page, where you say your legislation, H.R. 1648, is not a protectionist bill, and I was very much reassured by that. I thought when I saw the call for VRA's, and a 10-percent tariff increase it might be. [Laughter.]

But since you say it is not, I will take you at your word.

Let me ask you a question. Have the Canadians changed their stumpage practices in the last several years? In other words, have they increased or decreased? More particularly, have they decreased the stumpage price over the last several years, or is this a longstanding policy of theirs?

Mr. BONKER. There will be other witnesses, if they ever get an opportunity to come up here, who have more expertise, but the pricing system has not changed. But, of course, the stumpage price will change given the economic realities at the moment.

Indeed, I have, and I am going to submit for the record, and before I depart, Mr. Chairman, I would like to read one small excerpt from a document known as the "The Objective Assessment, BC Forest and Range Resource Analysis, and Five-Year Program for 1985 to 1990", in which it says that the Forest Service has a sliding scale formula which lowers the price during economic downturns. Then, of course, it increases the price accordingly when demand is up.

So they have that flexibility, and as a result, the stumpage price varies, given the market conditions. They vary in the United States, too, but it is based on competitive bidding, and not the Provincial's, the Forest Service's arbitrary judgment.

Mr. PEASE. I think we will want to look at that pattern. It certainly appears on the face of it that the Provinces are selling lumber is that what we call it?

Mr. BONKER. Stumpage, logs.

Mr. PEASE. Stumpage, logs, at a very low price compared with ours. If they have been doing that for 50 years, then it is not quite the same as if they were charging $100 10 years ago, and now are charging $5 or $10. That would clearly be a predatory subsidy on

the part of the Provinces. If the historic price has been the same over a long period of time, then apparently it would be factors like the strong dollar that would have made the difference, where it makes it a problem now, where it was not a problem some time ago.

Does anybody on the panel-we will have other witnesses, but does anybody on the panel have information on that?

Mr. WEAVER. Don, in the early 1960's, when our lumber timber was selling for $20 a thousand, and the Canadians for a couple of dollars, it was not that big a difference. But as our timber prices went up to $100, $200, $300, $400 a thousand, and the Canadians stayed at $2, $4, or $10, or maybe $20, the difference just grew tremendously between their stumpage prices and our prices.

At one of my hearings, John Stevens, the president of Roseberg Lumber Co, the largest independent lumber company in the United States, which is in my Congressional District, employing 5,000 people, testified that their cost to produce standard or better 2 by 4 random lengths is $242 a thousand. This was testimony he gave to my hearing. They were selling it at the dock in Long Beach, CA for $213 a thousand, at a loss. They are just trying to stay in business, and the Canadians were selling it for $205 on the dock.

The Canadian cost, he estimated, was $170 a thousand. His was $242. The Canadians were still selling at a profit. He was selling at a loss, so every time he reduced his price to remove that lumber on the dock at Long Beach to $205, they would go down to $200 or $195. They had all that give.

Now our lumber stumpage prices are still up to $160, and the discrepancy between that and $2 to $20 in the sixties is enormous, so their market share, as Don Bonker put it very well, has gone from about 10 percent to 15 to 20, to 25, now up in the thirties, because of this discrepancy.

Mr. PEASE. The discrepancy, I gather, has occurred not because Canadian prices have gone down, but because United States prices have gone up a lot for stumpage, which leads me to the next question.

Is there an international standard, an international price, or cost for stumpage?

Mr. FRENZEL. Not until we pass this bill.

Chairman GIBBONS. Wait a minute. That is not

Mr. PEASE. The thing that bothers me about all this is that we are making the definition of an unsubsidized stumpage, whatever it costs in the United States——

Chairman GIBBONS. No.

Mr. PEASE. We are, too.

Chairman GIBBONS. First of all, it must be a Government controlled project or action. The price must be less than the fair market value of that product. It must not be freely available to a U.S. producer, and it must be a significant part of the total manufactured cost of the product we are doing it to.

We are not setting any prices. We are trying to establish that we should follow a market-oriented system that measures things at a price for which a willing seller and a willing buyer would buy and sell a product. It cannot be a sweetheart deal, a closed deal, or a

highway robbery deal. It has got to be what a willing buyer would

pay.

We are not setting prices here, and I say that mainly because I know my friend, Mr. Frenzel, can get out one liners easier than I can. And he got out a one liner already, and I am trying to rebut him on your time.

Mr. PEASE. Thank you, Mr. Chairman, for that clarification.

But I am really sympathetic to the industry. Do not think that I am not. I was on that trip out to the Northwest last year also, and I certainly have had a lot of experience in my own district with unemployed people, and no matter what industry they are unemployed from, they all have the same problems.

I guess what concerns me a little bit, and makes me want to look into this, is that if we are talking about subsidies of natural gas or oil there is a pretty clearly defined international price. And if the Mexicans are selling their oil to their fertilizer producers for a fourth of the international price, then it is clearly a subsidy.

But I gather that there is no such price on stumpage internationally, but there must be some in the countries that have stumpage; Germany, Australia-

Mr. WEAVER. Don, there are very few exporters of lumber in this world. Sweden exports to the European market, but a pittance, compared to our market and the Canadians. Russia does have some softwood, I am talking about softwoods, now, but they are not really big exporters. They have not opened the Siberian fields.

Really, we are looking at the United States and Canada as the only countries-we export an enormous amount of logs, you must understand, which I think is a crime and scandal in this country, but we do. But we export not so much lumber. So Canada and the United States is where it is at.

Now, the Philippines and Indonesia, and some other areas export a lot of hardwoods, mahogany, teak, and others, and their forests are going to go in just a few years. They are just about wiped out, and they will be gone.

So you do not have very many exporters, besides the United States, Sweden, Canada. We export to Australia, to Italy, to England, all over the world.

Mr. FRENZEL. Don would you yield?

Mr. PEASE. Surely.

Mr. FRENZEL. If you look at the language on page 4, lines 12 through 21, you will see what we have done really is established the American selling price as the standard of fair market value, and that is a questionable thing, but I think it answers your question as to which way the bill goes in deciding what the world market price is.

Mr. BONKER. I think it ought to be noted that Canada and the United States, being the two primary producers, are very comparable in almost all of the economic equation, in terms of the wage base and the transportation costs, and the modernization that the industry is in, and so forth. It is fairly comparable.

You are not comparing the United States as some ASEAN country, or South American country, but the people in the industry know what is happening, and we know that there are some industries in my District that are not competitive.

Don, they just certainly are not. Their wage base is too high. Their harvesting techniques are too costly, and so forth.

But aside from that, people realize Canada is getting this competitive edge because of a government established pricing policy that favors their industry.

Now, what can we do about it? Do we say that we are not going to deal with subsidies, or shall we rely on our existing laws, which we have already seen have not favorably ruled in the industry's favor?

But Dick Schulze would like to see Congress be more explicit, take more direct action, reclaim some of out Constitutional authority, and maybe we would want to support the Weaver approach which would do that.

Our approach is to give more statutory direction to our existing trade agencies to deal with these problems. Otherwise I fear that that trade deficit is going to get so enormous, and the pressure so considerable upon this body that we are going to have to bypass this more extended process, and deal more directly, and in a protectionist way with these problems.

I think that is what is at stake, and I do not know about the chairman, but I take pride in my free trade image these days, and I have backed this legislation with a clear conscience.

The Weaver approach is far more tempting, because it is immediate, and has a degree of certainty, and it would be effective, and as a result it is very tempting.

But if our approach is followed, it could well be that the next time around the ruling is the same way, it would be de minimis, and then I think at that point we would have to say to ourselves that we are no longer competitive, and we are going to have to diversify our industrial base.

Mr. McKERNAN. If I can add one final point, I think what many of us have a concern about is not that we need the kind of protectionism that we traditionally talk about, but rather to say if there is something about a particular country that allows them to produce a product cheaper than we in this country can do it, fine, we will compete on that.

If it is the exchange rate, which is causing the problem, we will compete on that. But we cannot compete on lower costs, exchange rate and government subsidies, and if there is some way we can decide what those government subsidies are, and get those out of the equation, then I think that we have struck a balance.

I think that is what this tries to do, and that is why I support it, at least, because I do not think we want to try to go too far down the road to offsetting natural advantages that countries have, but rather to address those government advantages that are policy decisions made by that country.

Mr. FRENZEL. Would you yield?

Which one of the bills are you supporting?

Mr. McKERNAN. I am here supporting Mr. Gibbons' bill. I would also support Mr. Bonker's bill, as another way to try to use a carrot and a stick with Canada, as well as the bill which I have introduced, which applauds the President on his March summit with Prime Minister Mulrooney. This is really the way we ought to be going. We should be sitting down and saying we want free trade,

we have a new government in Canada, and Canada has got to just come closer to letting the market forces dictate our relationship. Mr. FRENZEL. That is sort of the Bonker approach.

Mr. McKERNAN. Right, but his has a stick at the end.

Mr. BONKER. A softwood stick.

Mr. PEASE. I have the time, and I want to yield it back so I can leave for an appointment, if someone else wants to get some time and carry on the discussion, but I would like to say finally, on my own time, that it seems to me that the part about these proposals that seems most attractive and most defensible to me is the requirement that if there is going to subsidized stumpage, that it be available to anybody. And it seems to me that if the Canadians want to deplete their resources by giving it away, as long as they will give it away to United States producers as well, that certainly would not take care of the people who cut the trees, but it would take care of the people who saw the stumpage into lumber.

Mr. WEAVER. Don, you have gone to the heart of the point there. Canada prohibits the export of logs. Our log prices are bid up by the Japanese, by the Chinese and our producers in this Nation have to compete with them to buy the logs to stay in the business, while the Canadians do not have to.

So, that is the reason for your disparity in stumpage prices between the Canadians and the United States producers. Not just us bidding against ourselves. It is the Japanese. We ship 3 billion board feet of logs to Japan and China alone every year.

Mr. GUARINI. Mr. Chairman, I see when we are having these bilateral talks about free trade agreements that we have with Canada and the United States, this is going to be a very sticky point.

Chairman GIBBONS. It was. We had that a couple of weeks ago. The Canadians, I must say on their behalf, treated me very fairly, and I have a great deal of respect for them. They are a very fine people, and I would like to point out that we have extended to them every opportunity that they would like to avail themselves to come to these hearings, and to discuss this matter with us, as Canadians, as inhabitants of the North American Continent, here together.

Mr. THOMAS. Can I make one further comment?

There was a comment that was discouraging on my part, and I find it coming back from my parochial interest, being from a State where the timber industry is run from the private sector, and not from government resources, that it is just very difficult for me to go back and tell my producers, and my landowners in our area, where they see timber products coming in, where the Canadian Government owns 95 percent of the land, and say to them that you are getting a fair shake at the marketplace.

This is as much a direct subsidy from the Canadian Government, as it is in other countries where the land is government owned, and where the agricultural products produced on them are produced by farmers who pay no taxes on the land, and who are given all sorts of breaks by those governments, and I today asked Chairman Bonker here about this.

How do our tax provisions compare? And I am glad that Congressman Jenkins brought that up, because just in the past 2 or 3