Mr. SMITH. On the lumber situation, Ambassador Brock met with Trade Minister Kelleher, here in Washington, I believe it was in late January. At that time, we, Ambassador Brock, said to Mr. Kelleher that this stumpage problem, and its size, the degree of Canadian lumber exports to the United States was becoming a very, very serious political matter with the Congress of the United States, to say nothing of an economic matter to the industry, and that we had to try to sit down and see if we could resolve this, and other questions involving the lumber trade, between the two countries. Mr. Kelleher agreed, and we worked with the National Forest Products Association, and other associations, in first setting_out what it is that we would talk about, and, secondly, how would we go about trying to resolve the problems. There were four items identified, as I recall, right from the start. One was tariffs. Another was standards. The third was the exchange rate, and fouth was the stumpage problem. Those are four issues which were identified to us in writing, by the NFPA. Mr. Kelleher and Mr. Brock agreed the exchange rate was, if you will, of those four, was something not easily handled in a trade context between, if you will, lumber or timber negotiators on the one side, and on the other. That is, it gets into another sphere, if you will. The three areas were, if you will, within the purview. Mr. Kelleher indicated that the stumpage problem was for them, on the other side of the coin, on the other side of the telescope, an equally sensitive political problem. So, therefore, it was agreed that initially we would start by looking at the tariff side, and the standard side. We did not say we would not look at stumpage. We said we would start by looking at tariffs and standards, because there are longstanding problems between the two countries on those issues. Mr. ANTHONY. Where do we stand today, on those two issues? Mr. SMITH. The second delegation met here, I think, in Washington, around the middle of April, April 24, something like that, and in the interim we have met with industry to put together proposals, or to look at possible things of how we could ease some of these problems, and interspersed in this, of course, was the Shamrock summit, between the President and Prime Minister Mulrooney. On the tariff side, we have asked the Canadians to give consideration to tariff reductions on certain of their products. They have asked us to give considerations on the other side, because we have a couple of tariffs which are higher than theirs, and the two sides have agreed to put this in what we call-we have a separate exercise going, what is a wish-give list, the two sides having problems on the overall bilateral trade thing, and we try to swap off certain things. In the standards we have to rely, obviously, on what is going on between the two industries. There have been-and the experts in the lumber field, and I do not pretend to be an expert, sir, in this, there have been standards discussions going on for years. There are some going on right now between industry experts, as well as government experts, at the technical level. For example, there is a standards problem, I believe, in that the Canadians do not allow the import of what we call class D, or type D plywood, and that is something that we have an advantage in, if you will. They only allow, I think, the import of A, B, and C, and not D. We are trying to work that out. They have raised that as a standards issue, and we are trying to work that out from the standards point. Those things have been identified to us-that sort of thing has been identified to us by the industry as problems that have to be resolved. Now, we have said that we cannot ignore this stumpage problem. I have personally talked to Minister Kelleher twice in the last month on this issue. I met with him for over an hour and a half in Toronto, about 3 weeks ago, 4 weeks ago. I am meeting with him this coming weekend, on this subject. Ambassador Brock, before he left office, called him and said we have got-how would you say-a railroad car coming down the railroad track which is out of control, and we have got to do something about this. We asked the Minister to reflect on this, how can we handle this problem, is there a way that we can resolve this, bearing in mind, in full honesty, that the Canadians, of course, think they were subjected to legal disciplines on this case, through the process that was decided upon in 1983, and I would not propose to speak for the Canadians, but I think it is a fair paraphrase of what they would say, I think, that we have been through this exercise. Mr. ANTHONY. Let us take that a step further, and I would just like to ask you-you have been having government-to-government consultations, as I recall. I wrote you a letter, and asked if I could sit in as an observer in Canada. You first wrote back and said I could, and then I got a telephone call back, and you said that it was only going to be government-to-government. I went home that night, shaking my head, wondering where in the hell I fit in as a Member of Congress. I found out that it was not part of the Government when it came to negotiations with Canada. Certainly I would ask you to revise that definition of government-to-government talks, because we may want to sit in on some of those discussions as an observer. I am not trying to replace, or supplant you, but just to listen and hear what is going on. Let us go back to what Mr. Frenzel said a while ago, and you agreed. Let us assume that this piece of legislation is passed, and it goes directly to the stumpage, something that you acknowledge, but you put over here [indicating]. Well, what if we take these three, and put them over here, and we take the stumpage, and put it on the table, and we pass this law. What is the most likely repurcussion they would take? I am talking about Canada now. What laws are they going to pass to punish us? What products are they going to keep out of Canada, that we are sending in there now? Are they going to stop our pork producers from voluntarily restricting pork production in the United States, so that they can flood the market? Are they going to say, hey, we are not worried about the fact that we have got a $21 billion trade surplus with the United States, larger than Japan, when you look on it as a percent of gross national product? Where are they going to punish us? Mr. SMITH. Sir, I would not try to answer for the Canadian Government, for where they would Mr. ANTHONY. You have got to answer, because you said you are opposed to the legislation, because of the fear of what would happen. You have got to know what the reprisal is going to be. What are you afraid of? The fear of the unknown? Mr. SMITH. No, sir. My view is that the Canadian Government would feel compelled, if the legislation had the effect of, how shall I say, inhibiting what they feel is a legitimate export to the United States, they would feel politically compelled to retaliate. Mr. ANTHONY. Where would they retaliate? Mr. SMITH. On anything we export. We would not know. They do not have to tell us until they announce their list. Mr. ANTHONY. I would submit that if they have got a $21 billion trade surplus with the United States, we have got a pretty good wish list, too. Mr. SMITH. Really retaliate- Mr. ANTHONY. If we retaliated to the point where we got down to an even balance, we would be $21 billion better off in our trade bal ance. Mr. SMITH. No, sir. Mr. ANTHONY. I do not like a trade war, but I am just saying how are we going to get hurt in the final analysis if we have a trade war, and it gets down to zero. It looks to me like we gained $21 billion. Obviously I am not going to resolve that with you, but let us do the same thing with the Saudis. What if we say to the Saudies there is a two-tier pricing system, and they have started to market a value added product and that is gasoline exports to the United States. What if we do pass this piece of legislation and they take the viewpoint that that is targeted right at them, and they want to retaliate? They have got a huge trade surplus with us also. I just do not see the fear-- Mr. FRENZEL. Would the gentleman yield? Mr. ANTHONY. I would be happy to yield. Mr. FRENZEL. I believe Canada is the largest single customer of the United States with regard to machinery and manufactures, and I believe that the Saudis are a fairly large purchaser of the same kind of products, plus of U.S. construction services. I submit that the fact that we reduce our trade deficit with the Saudis, or the Canadians, or anybody, if the total volume of trade declines, and our exports, as well as our imports decline, that we have not gained a darn thing. Mr. ANTHONY. When you look at the total picture, you can see some pluses and some minuses. The last thing that I want is to get into a trade war. But barring that, the next last thing I want to do is to not resolve the issue. And so far we do not seem to be moving forward on resolving the issue. And I accept the gentleman's point. We have got to look at it very carefully. Let us take a look at the gasoline market, and I want to ask your opinion about something. If gasoline was coming into the United States in 1958 under a tariff schedule that called for 5.12 cents per gallon, based on the wholesale price at that time, and then in the intervening time, to 1985 the wholesale gasoline price had increased eightfold, yet the tariff had remained the same, would you say that our trading partners, on a percentage basis, were getting a pretty good deal, and that the tariff schedule had outdated itself, and it should be revised? Mr. SMITH. You say it is a specific tariff, 5 cents a gallon? Mr. ANTHONY. Yes. If the tariff schedule had not been readjusted since 1958, and if it was based on what the wholesale price of gasoline was then, and the wholesale price of gasoline has increased eightfold. Mr. SMITH. Sure, they would be getting a good deal, but we would be getting a good deal out of that, because a lot of other people have the same sort of tariffs. Mr. ANTHONY. If that were a circumstance, you would be willing to take a hard look at it, to maybe try to raise it back to the 1958 levels? Mr. SMITH. I did not say that. Presumably the tariff has not been raised for good reasons. Mr. ANTHONY. To put it back to a comparative basis with 1958? Mr. SMITH. Sir, I do not know the rationale as to why the gasoline carried a specific duty of 5 cents per gallon in 1958, how that was determined. I was not even out of college, sir, at that time. But presumably the tariff schedule which is determined by the Congress of the United States, those levies, or those duties, are set there for good reasons. If the duty has not been raised, there must be a good reason for that, sir. Mr. ANTHONY. It could be just inattention. Mr. SMITH. Well, I would not want to say one way or the other, but Mr. ANTHONY. Let us say if it was brought to your attention Mr. SMITH. I would have to say, anything which raises duties is inherently something that we are not in favor of. There are reasons why duties have to be raised, and they are done from time to time, but the overriding goal of successive administrations, both Democrat and Republican, since the Second World War, has been to reduce duties, not to raise them. Mr. ANTHONY. Well, Mr. Chairman, I just would like to close out my line of questioning by asking if you could be more specific in a response to my question. I would like to have it in writing, as to what your objectives are on stumpage. Mr. SMITH. All right, sir. We will provide that. Mr. ANTHONY. I would like to know what it is in your bargaining negotiations that you are trying to achieve. I want to know what your goal is, what you are trying to get to. Mr. SMITH. We will provide that, sir. Chairman GIBBONS. Thank you very much, gentlemen, we appreciate your testimony, and look forward to working with you. Mr. SMITH. Thank you very much. Chairman GIBBONS. Next we have a panel of forest product associations, and lumber manufacturers. David Stahl, Mr. Morgan, Mr. Evered, Mr. Thomas, and Mr. Robinson. All right, gentlemen. Mr. Stahl, we will hear from you first. STATEMENT OF DAVID E. STAHL, PRESIDENT, NATIONAL FOREST PRODUCTS ASSOCIATION, ACCOMPANIED BY BILL LANGE Mr. STAHL. Thank you, Mr. Chairman. I am David Stahl, president of the National Forest Products Association. We represent over 2,000 companies involved in the manufacture and marketing of lumber and wood products throughout the United States and Canada, and 34 related trade associations. I will try to quickly summarize my testimony and ask that the entire statement be included in the record. I want to thank the chairman for the opportunity to testify on H.R. 2451 and the other bills which address the serious inbalance in wood products trade between the United States and Canada. The National Forest Products Association has historically supported free trade and believes that balanced trade across national borders is in the long-term interest of both the consumers and producers of North America. U.S. forest products producers historically have been able to compete successfully in world markets in most product lines. In the last few years, however, the industry has lost market share overseas and is losing large percentages of its domestic markets. The most serious example of this situation for the forest products industry is the increasing penetration of the U.S. market by Canadian softwood lumber. As your distinguished panel of Congressmen pointed out, over the last decade, the Canadian share of the U.S. softwood lumber market has steadily increased from 18 percent in 1975 to a high of 31 percent in 1984. Another serious example of the problem is the wood shake and shingle market. At this time I ask for a statement by the Northwest Independent Forest Manufacturers be included in the hearing record. U.S. production in this segment of the wood products industry has, according to this organization, declined by 65 percent between 1975 and 1984, while imports of that product from Canada have been increased by 125 percent over the same period. Canada in 1984 held 68 percent of the United States market for shakes and shingles, up from 37 percent in 1975. Several factors have contributed to the difficult position faced by U.S. wood products producers and manufacturers. One relates to the policies of the U.S. Government. As long as the value of the dollar remains close to historically high levels, U.S. wood producers can continue to expect a loss of market share. Another factor relates to the ownership of the raw material supply in both countries. In Canada, where the provincial governments own 90 percent of the timberland, the Government administered appraisal price is |