```

[Senate Hearing 110-119]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 110-119

             IMPACTS OF THE CHINESE HARDWOOD PLYWOOD TRADE

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON PUBLIC LANDS AND FORESTS

                                 of the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   TO

RECEIVE TESTIMONY ON THE IMPACTS OF THE CHINESE HARDWOOD PLYWOOD TRADE 
     ON THE NATIONAL FOREST SYSTEM AND OTHER PUBLIC LANDS, AND THE 
                    COMMUNITIES THAT DEPEND ON THEM

                               __________

                       MEDFORD, OR, MAY 30, 2007

                       Printed for the use of the
               Committee on Energy and Natural Resources

                                  ------

                     U.S. GOVERNMENT PRINTING OFFICE

37-274 PDF                 WASHINGTON DC:  2007
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Washington, DC 20402-0001

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          RICHARD BURR, North Carolina
MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
KEN SALAZAR, Colorado                BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel
                                 ------                                

                Subcommittee on Public Lands and Forests

                      RON WYDEN, Oregon, Chairman

DANIEL K. AKAKA, Hawaii              RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            LARRY E. CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
MARIA CANTWELL, Washington           LISA MURKOWSKI, Alaska
KEN SALAZAR, Colorado                JIM DeMINT, South Carolina
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky

   Jeff Bingaman and Pete V. Domenici are Ex Officio Members of the 
                              Subcommittee

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Adams, Vera, Executive Director, Commercial Targeting and 
  Enforcement, Office of International Trade, Department of 
  Homeland Security, Customs and Border Protection...............    35
Chamberlain, Tom, President, Oregon AFL-CIO, Salem, OR...........    12
Daly, Edward J., Chief Operating Officer, Forest Stewardship 
  Council--US....................................................    16
Gonyea, Joseph J., III, Chief Operating Officer, Timber Products 
  Company, Springfield, OR.......................................     3
Guay, Phill, Vice-President of Corporate Strategy and Marketing, 
  Columbia Forest Products, Portland, OR.........................     8
Wineland, Tim, Senior Director, Office of China Affairs, Office 
  of the United States Trade Representative......................    38
Wyden, Hon. Ron, U.S. Senator From Oregon........................     1

                                APPENDIX

Additional material submitted for the record.....................    49

 
             IMPACTS OF THE CHINESE HARDWOOD PLYWOOD TRADE

                              ----------                              

                        WEDNESDAY, MAY 30, 2007

                               U.S. Senate,
          Subcommittee on Public Lands and Forests,
                 Committee on Energy and Natural Resources,
                                                       Medford, OR.
    The subcommittee met, pursuant to notice, at 12 p.m., in 
Medford City Council Chambers, Medford, Oregon, Hon. Ron Wyden 
presiding.

       OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR 
                          FROM OREGON

    Senator Wyden. The Subcommittee on Public Lands and Forests 
will come to order. Today we are going to consider the impacts 
of the Chinese hardwood plywood trade on the National Forest 
System and other public lands, and the communities that depend 
on them.
    As chairman of this subcommittee, it is especially 
important for me to hold this hearing in Oregon because it is 
an issue of particular importance to many of our communities 
here at home.
    Last fall, a group of Oregon hardwood plywood manufacturers 
asked to meet with me to discuss problems concerning hardwood 
plywood imports that they felt were threatening their 
businesses. Some of those folks are here today.
    The numbers struck me as shocking. Over the past few years, 
U.S. hardwood plywood sector has experienced a dramatic 
downturn. Since at least 2003, U.S. production shipment volume, 
production capacity, and market share have all declined. At the 
same time, the Chinese hardwood plywood sector has clearly been 
surging. In fact, from 2004 to 2006, Chinese hardwood plywood 
exports to our country increased from $463 million to $1.02 
billion.
    Even more troubling were allegations made by a number of 
people in the industry suggesting that this dramatic growth in 
the Chinese hardwood plywood export area was coming at the 
expense of our key industries and was based on a number of 
unfair and illegal practices, including illegal dumping, 
illegal subsidies, tariff misclassification, fraudulent 
stamping, and illegal logging.
    Here in Oregon, hardwood plywood employs about 2,000 
persons directly and many more indirectly. Those jobs are here 
in southern Oregon, Medford, and Grants Pass, and Klamath 
Falls, and Roseburg, Eugene, and across the southern part of 
our State. They are good paying family wage jobs. They are jobs 
I am not going to let go by the boards, and we are going to 
examine today what needs to be done to protect those good 
paying jobs that are the foundation of the well-being of Oregon 
families. These jobs are obviously jobs that Oregon wants to 
protect, and the kind of jobs that we need more of.
    The surge of low priced Chinese hardwood and plywood 
imports is a threat to long term health of the U.S. hardwood 
plywood industry. That, in turn, can have serious consequences 
for communities in southern Oregon and the families that rely 
on these good paying jobs.
    The Chinese hardwood plywood imports could also hurt 
Federal hardwood and softwood timber receipts. In manufacturing 
plywood, hardwoods are used for the face and the backs. 
Softwoods are used for the inner plies. The Chinese hardwood 
plywood imports can adversely affect both Federal hardwood and 
softwood timber receipts. Were the domestic hardwood plywood 
industry to continue to contract in response to the Chinese 
hardwood plywood surge, so would those receipts, and those 
receipts are of great importance to our State.
    The decline of the domestic hardwood plywood industry 
caused by the unfair and illegal Chinese hardwood plywood trade 
practice can also adversely impact Oregon and the Nation's 
salvage capacity, and this has great implications for forest 
health and for safety in our forest.
    So when the timber folks brought these serious hardwood 
plywood concerns to me, it was clear to me that something had 
to be done. Not tomorrow, not next week, but quickly. Since 
that time I have been working to investigate the troubling 
allegations and take steps to address them.
    As many of you know, I was the author of the original 
county payments legislation. That law brought to our State more 
than $1.5 billion and it has expired this year.
    For a number of years now, I have been working on a regular 
basis to get the law reauthorized because I realize how 
important these funds are to Oregon communities and in 
particular our rural sector. We were able to get a short-term 
extension, but it is absolutely key that Congress continue to 
work on this issue until there is a multi-year long-term county 
payments program.
    I am pleased to be able to report to folks here at home 
that your Congressman, Congressman Walden, has been very 
helpful to me in working for the multi-year reauthorization. In 
fact, he tried to offer the legislation that would have brought 
5 years of relief to southern Oregon, the measure that I was 
able to get 74 votes for in the Senate, Congressman Walden 
tried to offer it in the House of Representatives and was 
denied that opportunity.
    But in my view, county payments and Chinese hardwood 
plywood are interconnected--both involve the role and 
responsibility of the Federal Government to ensure that the 
timber dependent communities have the opportunity to thrive and 
to prosper in the years ahead.
    Today's hearing will give us an opportunity to get an 
update from folks affected by Chinese hardwood plywood imports, 
and to get a sense of the progress that is being made in 
investigating and addressing these unfair and illegal trade 
practices.
    We have a number of witnesses and folks from the public 
here. I also want to thank the Mayor and the Medford City 
Council for hosting us.
    So let us go to our first panel, Mr. Joe Gonyea, Chief 
Operating Officer at Timber Products in Springfield, Oregon; 
Phill Guay, Vice-President of Marketing and Strategic Planning 
for Columbia Forest Products in Portland; Tom Chamberlain, 
President of the Oregon AFL-CIO in Salem, Oregon; and Ned Daly, 
Vice President of Operations of the Forest Stewardship Council 
in Washington, DC.
    Gentleman, we welcome you. We thank you for coming and 
appreciate the chance to work with you. We will make your 
prepared remarks a part of our hearing record in their 
entirety. Why don't you just hold forth with your comments this 
afternoon.
    Mr. Gonyea, welcome.

 STATEMENT OF JOSEPH J. GONYEA, III, CHIEF OPERATING OFFICER, 
            TIMBER PRODUCTS COMPANY, SPRINGFIELD, OR

    Mr. Gonyea. Thank you, Senator. We appreciate you holding 
these hearings today.
    I am representing Timber Products Company in my capacity as 
Chief Operating Officer, which is owned by my family. I am the 
fourth generation of my family to work in the wood products 
industry. I am testifying to represent the views of our 
ownership, our management and 1,400 team members, some of whom 
are here today.
    We have nine manufacturing facilities located around the 
Nation, most of which are right here in Southern Oregon. We 
operate an International Division that imports wood products 
from around the globe, including China, to complement our 
domestic production. Imported products account for 
approximately 12 percent of our annual sales. We are proud 
owners and stewards of 118,000 acres of forestland that are 
third-party certified under the standards of the Sustainable 
Forestry Initiative. In Oregon alone we have 834 employees and 
an annual payroll of $38 million. Our largest product line, as 
you know, is hardwood plywood, which is used in the 
manufacturing of fine cabinets and furniture alike.
    Senator, I want to thank you. Thank you for your leadership 
in Congress and thank you for being our champion for free trade 
that is fair trade. I also want to thank you, your colleagues 
for their assistance in moving this investigation forward and 
their interest, Senator Baucus, Senator Bingaman, and Senator 
Gordon Smith.
    As you know, this is not a red or blue state issue. This is 
a red, white and blue issue for our industry and for our 
country. We hope your ongoing investigation will address these 
unfair trade practices and environmental discrepancies that 
give the Chinese hardwood plywood manufactures an advantage 
today.
    The domestic hardwood plywood industry, like others in 
North America wood products industry such as furniture, 
cabinets and flooring, is facing an onslaught of unfairly trade 
imports from China. The continued survival of our industry is 
at risk. It does not have to be so.
    As you know, our corporate headquarters are in Springfield. 
My family has lived in the Eugene/Springfield area for years. 
Our community is proudly known as Track Capital, USA. Hayward 
Field at the University of Oregon is the center of activity. A 
group of elite runners is now preparing for 2008 Olympics in 
Beijing. When they get to China, there is one thing they can be 
assured of--a level playing field. For all the competitors, the 
track surface will be the same, the weather will be the same, 
and given a fair set of rules for each sport, history has shown 
that hard-working American athletes can compete with the best 
of the best from around the world, including the Chinese.
    When it comes to hardwood plywood business and China, the 
playing field is far from fair. The field is, is far from level 
and the competition is far from fair. Official U.S. Government 
import statistics from the Commerce Department, as seen on the 
charts* behind us.
---------------------------------------------------------------------------
    * Charts have been retained in subcommittee files.
---------------------------------------------------------------------------
    Senator Wyden. I had a feeling those weren't protestors.
    [Laughter.]
    Mr. Gonyea. Thank goodness, not.
    These charts offer a glaring evidence of these inequities. 
Between 2002 and 2006, the dollar valve of U.S. imports of non-
tropical hardwood plywood from China rose by more than 1,000 
percent. That trend continues, as a value of such imports in 
the first quarter of 2007 was 35 percent higher than the first 
quarter of 2006. In 2002, China accounted for roughly 10 
percent of non-tropical hardwood plywood imports into the 
United States. In the first quarter of 2007, China accounted 
for a staggering 54 percent of all such imports into the United 
States.
    How has this happened? Let's look at the facts. The Chinese 
government provides direct subsidies to hardwood plywood 
manufacturers which export their products to the United States. 
We have learned that the Chinese hardwood plywood importers 
have been trying to avoid tariffs by misclassifying their 
hardwood plywood and we appreciate your work with Customs to 
look into this. We have also learned that the Chinese hardwood 
plywood is fraudulently labeled or stamped and we appreciate 
your investigation of this problem as well. At the end of the 
day, all these unfair practices lower the price of Chinese 
hardwood plywood, making it harder for companies like ours, 
Timber Products Company, to compete.
    Then there are the environmental issues. Independent 
studies state that some 30 to 50 percent of all the birch logs 
coming into China has either been stolen or are the result of 
illegal logging. Chinese manufacturers are not held to the 
environmental standards in their wood sourcing or in the 
manufacturing processes. Add up each of these factors, and it's 
no wonder the Chinese can sell products at below cost of a 
vertically integrated, highly efficient company like ours. 
These activities find the face of international trade rules--
rules that China agreed to accept and abide by when they joined 
the WTO. You have not heard us discuss today anything about 
currency valuations or labor conditions, but these, too, are 
factors.
    How does all of this impact the health and well-being of 
our local economy, Federal, State and BLM forests? As part of 
my testimony, I am providing you with data on the potential 
impacts of Chinese imports on public forestlands based solely 
on the impact to hardwood plywood manufacturers based in 
Oregon. As you know, 70 percent of all hardwood plywood 
manufactured in North America is headquartered right here in 
Oregon. These companies employ over 2,600 Oregonians and have 
six manufacturing facilities, which have the potential to 
produce and process 165 million feet of logs a year, a portion 
of which comes from Federal forests. Over the last 5 years, our 
company, Timber Products Company, has paid $6 million to 
purchase 38 million feet of standing timber from U.S. Forestry 
Region 5 and BLM from sales that required thinning and salvage 
logging. Additionally, during 2005 and 2006, Timber Products 
Michigan operations purchased 650,000 board feet of hardwood 
logs from USFS Region 9. All of this was done in compliance 
with the law of the land in the strictest of environmental 
standards.
    In this past year alone, two North American manufacturers 
of hardwood plywood closed, displacing 460 employees. If China 
is allowed to continue importing subsidized products made from 
illegally harvested logs, as they are today, it will 
undoubtedly lead to more mill closures in the United States, 
thereby making the job of thinning the forest health in 
National Forests even more difficult.
    What's at stake here is significant. On the line are 
literally thousands of American jobs, closed mills, a further 
decline of local economies, and the degradation of forest 
health on public and private forestlands. The impact of Chinese 
hardwood plywood imports has the potential to exacerbate the 
situation.
    I want to touch just a moment on what's happening on 
private forestlands in America. For four generations our family 
has owned and managed forestlands. I can assure you this 
forestry today is not my great-grandfather's forestry. Today we 
have laws which govern management of private forestlands. Hard 
science, technology, and good old fashioned experience have 
taught us a lot. Timber Products forestlands are certified 
under the Sustainable Forest Initiative Program. We manage 
every aspect of the ecosystem. American forestry should be the 
poster child for forest health and good practices. Instead, we 
allow countries like China unfettered access to America's wood 
products demand. By virtue of this, we condone their illegal 
and environmentally unsound practices while American managed 
public and private forestlands continue to be an underutilized 
asset.
    As you know, in 1994, President Clinton proposed the 
Northwest Forest Plan for U.S. Forest Service Regions 5 and 6 
and BLM lands to preserve and protect the Northern Spotted Owl. 
The plan was to reduce the annual harvest an estimated 75 
percent from 4.5 billion feet to 1.1 billion feet. Going on its 
14th year, however, the Northwest Forest Plan has not met its 
goal. The cumulative harvest has only produced a woeful 24 
percent of targeted harvest.
    Let's utilize our Federal forests as they were intended! 
When it comes to buying wood products, we must work together to 
educate the consumer to buy American to encourage those who 
supply their wood to purchase sustainable wood products, like 
we produce.
    In summary, Senator, I want to thank you for taking the 
time to come to Medford, to investigate this issue. We 
appreciate your leadership on this so important trade issue.
    In closing, my primary message is that free trade must be 
fair trade. As you watch the American Olympians compete in 
Beijing, remember, each athlete can be assured the rules of 
sport will be applied equally to all. The best athletes will 
win. We at Timber Products Company can compete on a global 
scale. Help us ensure it's a fair competition.
    [The prepared statement of Mr. Gonyea follows:]
 Prepared Statement of Joseph J. Gonyea, III, Chief Operating Officer, 
                        Timber Products Company
    Thank you for the opportunity to be a part of the field hearing in 
Medford, Oregon. I am the Chief Operating Officer/Partner of Timber 
Products Company, which is owned by my family. I am the fourth 
generation of my family to work in the wood products industry. I am 
testifying to represent the views of our ownership, our management and 
our one thousand four hundred team members. Timber Products Company is 
in the manufacturing, sales and marketing, transportation, and 
timberland management business. We have nine manufacturing facilities 
located around the nation, most of which are here in Southern Oregon. 
We operate an International Division that imports wood products from 
around the globe including South America, Africa, Russia, and, yes, 
China to complement our domestic production. Imported products from all 
of these countries account for approximately 12% of our annual sales. 
Further, it may be of interest and somewhat ironic to note that, in 
years past, we exported a greater percentage of our overall company 
sales to countries throughout Europe and the Far East than we now 
import. We are proud owners and stewards of 118,000 acres of 
forestlands that are third-party certified under the standards of the 
Sustainable Forestry Initiative. In Oregon alone we have 834 employees 
and an annual payroll of $38,000,000 (gross pay, not including 
benefits). Our largest product line is hardwood plywood, from which we 
produce panel products used in the manufacturing of fine cabinets, 
furniture, retail store fixtures, and decorative millwork products.
    I want to thank you for your leadership in Congress and for being 
our champion for free trade that is fair trade! Thank you for advancing 
this investigation. I would also like to thank Senator Max Baucus of 
Montana, Senator Jeff Bingaman of New Mexico and Oregon Senator Gordon 
Smith for their roles in bringing these important issues to light. This 
is not a red or blue state issue but a red, white, and blue issue for 
our industry and country. It is our time to act. We hope your ongoing 
investigation will address these unfair trade practices and 
environmental discrepancies that give the Chinese hardwood plywood 
manufacturers an advantage. The domestic hardwood plywood industry, 
like other North America wood products industries including furniture, 
cabinets, and flooring, is facing an onslaught of unfairly traded 
imports from China. The continued survival of our industry is at risk. 
It doesn't have to be so!
    Our corporate headquarters are in Springfield and our family has 
been long-time residents of the Eugene-Springfield area. As you may 
know, we are proudly known as the Track Capital, USA and my family has 
been track fans for generations. Hayward Field at the University of 
Oregon is the center of this activity. A group of elite runners is here 
to prepare for the 2008 Olympics in Beijing and some are part of the U 
of O Pac 10 Championship team. When they get to China, there is one 
thing they can be assured of--a level playing field. For all 
competitors, the track surface will be the same and the weather will be 
the same. Given a fair set of rules for each sport, history has shown 
that hard-working American athletes can compete with the best of the 
best from around the world, including the Chinese.
    When it comes to the hardwood plywood business and China, the 
playing field is far from level and the competition is far from fair. 
Official U.S. Government import statistics from the Commerce Department 
offer glaring evidence of these inequities. Between 2002 and 2006, the 
dollar value of U.S. imports of non-tropical hardwood plywood from 
China rose by more than one-thousand percent, an increase of more than 
ten-fold. And that trend continues, as the value of such imports in the 
first quarter of 2007 was 35 percent higher than the value of such 
imports during the first quarter of 2006. In 2002, China accounted for 
roughly 10 percent of all non-tropical hardwood plywood imports into 
the United States. In the first quarter of 2007, China accounted for 
roughly 54 percent of all such imports into the United States.\1\
---------------------------------------------------------------------------
    \1\ U.S. Census Bureau IM-145 (Document has been retained in 
subcommittee files).
---------------------------------------------------------------------------
    How did this happen? Once again, look at the available facts. The 
Chinese government provides direct subsidies to hardwood plywood 
manufacturers which export their products to the United States. Many of 
these products are sold at below our cost, despite the distance they 
must travel. We have learned that Chinese hardwood plywood importers 
have been trying to avoid tariffs by misclassifying their hardwood 
plywood and we appreciate your work with Customs to look into this. We 
have also learned that some Chinese hardwood plywood is fraudulently 
labeled or stamped and we appreciate your investigation of this problem 
as well. At the end of the day, all of these practices lower the price 
of Chinese hardwood plywood, making it harder for companies, like 
Timber Products Company, that play by the rules to compete.
    And then there are the environmental issues. Independent studies 
state that some 30-50% of the birch logs coming into China have either 
been stolen or are the result of illegal logging. Chinese manufacturers 
are not held to environmental standards in their wood sourcing or in 
the manufacturing process with use of resins and lack of controls on 
air and water emissions. Add up each of these factors and it is no 
wonder the Chinese can sell products at below the cost of a vertically-
integrated, highly efficient company like Timber Products Company. 
These activities fly in the face of international trade rules--rules 
that China agreed to accept and abide by when it joined the World Trade 
Organization. As a result, private hardwood plywood producers in this 
country are competing not only with Chinese companies but also with the 
Chinese government and its distortive economic policies. Furthermore, 
in our statement, you have not heard us discuss currency valuation or 
labor conditions, but these, too, are factors.
    How does this impact the health and well being of our local economy 
and federal, state, and BLM forests? As part of my written testimony, I 
am providing you with data on the potential impacts of Chinese imports 
on public forestlands based solely on the impact to hardwood plywood 
manufacturers based in Oregon. These companies employ over 2,600 
Oregonians. In addition to Timber Products Company's two mills, the 
other hardwood plywood manufacturers are: Columbia Forest Products, 
States Industries, Murphy Plywood, and Roseburg Forest Products. 70% of 
all hardwood plywood manufactured in North America is headquartered in 
Oregon with this group of companies. These six manufacturing facilities 
have the potential to process approximately 165,000 MBF of logs or on 
average 28,000 MBF +/- per mill, a portion of which comes from federal 
forests. Over the last five years, Timber Products Company has paid 
$6MM to purchase 38,000 MBF of standing timber from the U.S. Forest 
Service and BLM from sales that required thinning and salvage logging. 
Additionally, during 2005 and 2006, Timber Products Michigan operations 
purchased 650 MBF of hardwood logs from USFS Region Nine. All of this 
is done under strict U.S. environmental guidelines, both federal and 
state laws.
    In this past year alone, two North American manufacturers of 
hardwood plywood* closed, displacing 460 employees. If China is allowed 
to continue importing subsidized and illegally harvested logs as they 
are today, it will lead to more mill closures in the United States 
thereby making the job of thinning and forest health in National 
Forests even more difficult. An example of what can take place when we 
lose the balance of management of federal lands is USFS Region Three in 
Arizona and New Mexico. There, the U.S. Forest Service and 
environmental groups are finding it far more difficult to attract 
businesses needed to carry out important forest health projects back to 
the region, now that the infrastructure is gone. Obviously, this has 
had a large negative effect on the local rural communities which are 
surrounded by National Forests and BLM lands. We do not want to repeat 
the same mistakes in Oregon.
---------------------------------------------------------------------------
    * Longlac and GP Savannah.
---------------------------------------------------------------------------
    The decline of domestic hardwood plywood manufacturing could also 
lead to a further reduction of U.S. thinning and salvage capacity on 
government lands. The financial impact would be substantial, but even 
more serious would be impacts on forest health and public safety. 
What's at stake here is significant. On the line are literally 
thousands of American jobs, closed mills, a further decline of local 
economies, and the degradation of forest health on public and private 
forestlands. The impact of Chinese hardwood plywood imports has the 
potential to exacerbate this situation.
    I would like to touch on what is happening on private forestlands 
in America. For four generations, our family has owned and managed 
forestlands. I've been doing it for over twenty years. I can assure you 
this--forestry today is not my great-grandfather's forestry. Today we 
have laws which govern management of public and private forestlands. 
Hard science, technology, and good old experience have taught us a lot. 
At Timber Products Company we are active participants in the 
Sustainable Forestry Initiative program, or SFI. We manage every aspect 
of the eco system on our lands. We are not the only ones. Over 150 
million acres of forestland in America have been audited by independent 
third parties to meet the SFI standards. American forestry should be 
the poster child for forest health and good practices. Instead, we 
allow countries like China unfettered access to America's wood demand. 
By virtue of this, we condone their illegal and environmentally-unsound 
practices while American managed public and private forestlands 
continue to be an underutilized asset.
    As you know, Senator, in 1994, in an effort to preserve and protect 
the Northern Spotted Owl, President Clinton and his administration 
proposed the Northwest Forest Plan for U.S. Forest Service Regions 5 & 
6 and BLM lands which was to reduce the annual harvest an estimated 75% 
in this area from 4.5 billion board feet to 1.1 billion board feet. 
This figure is an achievable harvest. In its 14th year, however, the 
Northwest Forest Plan has not met its goal. The cumulative harvest has 
only produced 3.5 billion board feet versus a plan of 14.3 billion 
board feet--a woeful 24% of the targeted harvest.\2\
---------------------------------------------------------------------------
    \2\ AFRC, ``Actual Sawtimber Harvested From Sales Sold Under the 
Northwest Forest Plan'', 2006.
---------------------------------------------------------------------------
    Those who are concerned about the environment need to come to the 
table to help achieve the Northwest Forest Plan and produce a stable, 
reliable harvest from federal lands, and to stop the demand for 
imported wood products from countries that do not have good forest 
practices or environmental and product quality laws. Let's utilize the 
federal forests as they were intended. When it comes to buying wood 
products, let's work to educate the consumer to buy American and to 
encourage those who supply the wood to the consumer--the ``big box 
stores''--to purchase sustainable wood products as they have advocated 
doing, but have failed to do at times with their purchasing practices.
    In summary, I want to again thank you for your leadership on this 
trade issue which is so very important to my company and to our state. 
Thank you also to everyone on the panel. In closing, my primary message 
is that free trade must be fair trade. As you watch American Olympians 
compete in Beijing next year, remember each athlete can be assured the 
rules of the sport will be applied equally to all, and that the best 
athlete will win. We at Timber Products can compete on a global scale. 
Just help us ensure that it is fair competition!

    Senator Wyden. Thank you very much. We'll have some 
questions in a minute.
    Phill, Mr. Guay.

 STATEMENT OF PHILL GUAY, VICE PRESIDENT OF CORPORATE STRATEGY 
     AND MARKETING, COLUMBIA FOREST PRODUCTS, PORTLAND, OR

    Mr. Guay. First I'd like to thank Senator Wyden and his 
staff for the opportunity to be a part of this important 
hearing. The issues that we're discussing here today are truly 
crucial to the survival of our domestic industry.
    Columbia Forest Products is one of the largest 
manufacturers of hardwood products in North America. Our four 
divisions; hardwood plywood, hardwood veneer, hardwood 
flooring, and international division, amount to over $1 billion 
in sales annually. We have more than 3,300 employee-owners in 
the United States. We have 11 domestic hardwood plywood and 
veneer manufacturing facilities. We are also a major importer, 
using offshore resources to complement our domestic product 
line. We are North America's largest Russian Birch importer, 
and we contract-manufacture with suppliers in China, South 
America, and throughout the world. We are also the Nation's 
second largest hardwood flooring manufacturer, with five plants 
in North America.
    As a major manufacturer and importer, we recognize ours is 
a global industry. In fact, we have seized the opportunity to 
be global, both in sales and manufacturing. We have two 
flooring plants in Malaysia and sell plywood manufactured in 
China, not only here in the United States but in the European 
Union as well. We sell flooring here as well as the in the 
E.U., the Middle East, and Australia.
    As a global company, we see the need for balance across all 
global regions. Balance is essential for the industry and 
consumers everywhere. Just as important, perhaps more so, is 
the global enforcement of logging rules. Such a practice would 
have an unbelievable impact on the environment by containing 
illegal logging, promoting sustainable practices, and curbing 
related pollution. So what we seek is not an advantage for any 
region but fairness across all regions, across all business 
functions, in raw materials, tax incentives, labor, and 
numerous others. What we seek is fair trade, and we believe 
free trade is fair.
    Joe just got done spending some time talking about China, 
and I cannot emphasize enough that we agree with everything 
that Joe has said. Let me give you our perspective on China 
with a bit more emphasis on the global logging trends. Speaking 
from a Columbia perspective, green initiatives and 
sustainability are most important to us. For 10 years, Columbia 
Forest Products has maintained a Forest Stewardship Council 
chain of custody certification and was one of the first in our 
industry to do so with Certificate Number 65 out of 828 granted 
in the United States today.
    We recently introduced a revolutionary, urea formaldehyde-
free adhesive system we call PureBond, for the manufacture of 
hardwood plywood flooring. Recently the California Air 
Resources Board, or CARB, concluded that the United States is a 
toxic dumping ground for excess urea-formaldehyde products 
manufactured worldwide. CARB took bold steps to eliminate that 
practice by passing new regulations that are the most stringent 
in the world. Similarly, and just as importantly, we have an 
opportunity here to stop the United States from becoming the 
world's biggest consumer of illegal logging. In doing so, we 
can help the environment, our industries, domestic employment, 
and tax receipts simultaneously.
    Although there are several programs which certify that wood 
is being harvested sustainably, we use FSC. Joe recently 
mentioned SFI, which timber uses. Of the 84.3 million hectors 
of forest land that is certified worldwide by the Forest 
Stewardship Council, 49 percent is located in Europe, 31 
percent in North America, 3 percent in Africa, and 2 percent in 
Asia.
    Certification is a clear indication of sustainable forestry 
practices. Since it is nearly impossible to log illegally on 
certified land, you can see how easily it would be to log 
illegally in Asia and Africa where under 5 percent of their 
forest land is certified. While we believe certification and 
legally controlled logging are both good business and social 
practices, they are not free. North American industries' 
commitment to these sustainable practices is expensive but the 
right thing to do. However, it puts us at a significant cost, 
and at times availability, disadvantage to most other areas of 
the world.
    I'll give you some numbers to complement Joe's. Let's 
examine hardwood plywood first. When you look at the plywood 
imports in 2002, 2.2 million cubic meters of hardwood plywood 
was imported. In 2006 that number was 4.4 million cubic meters, 
or up 93 percent. At the same time, as you well know, domestic 
production actually declined. During that same period from 2002 
to 2006, China's share of imports increased from less than 10 
percent to 54 percent, as Joe has just mentioned. Imports from 
other countries actually declined over that period as China 
entirely dominated growth. That trend has continued unabated. 
Despite a significant slowdown in the domestic housing 
industry, 2007 has seen an increase over 2006 with regard to 
imports, almost all again from China. Imports are up 33 percent 
on a value basis and 6 percent on a volume basis, first quarter 
2007 over first quarter 2006. All of that, despite the housing 
slump, a slump that has caused domestic production to decline 
in that same period.
    Although I know this hearing is on hardwood plywood, I'd 
like to mention hardwood flooring. The same logging and 
business practices that hurt domestic hardwood plywood are 
present in flooring as well.
    Hardwood flooring imports have soared from 75 million cubic 
meters in 2001 to 325 million cubic meters in 2006. The 
domestic hardwood flooring industry is carrying the same unfair 
burden as plywood.
    How does this affect our economy as well as Federal, State, 
BLM, and private landowners? The data in our submission 
provides a snapshot. Our plant in Klamath Falls, Oregon, 1 of 
11, consumed 46 million board feet of timber in 2003; by 2006 
that declined 35 million board feet. Admittedly, much of that 
timber is from private sources, but that decline clearly 
indicates a loss of revenue to various government entities, and 
landowners, and most importantly to us, job cuts at our Klamath 
Falls plant.
    The story of log purchases and job loss at our Klamath 
Falls plant is no different from our other plants nationwide. 
Our two largest plants are on the east coast, they consume 
about 80 million board feet per year. Once again, that volume 
is falling dramatically.
    So what do we want? Free and fair trade. Thanks to the 
effort of you, Senator Wyden, and your staff, an ITC 332 
investigation is now underway for both hardwood plywood and 
hardwood flooring. That will address the unfair business 
practices negatively affecting our industry, tax receipts, and 
employment.
    Senator Wyden. Might get another initiative or two out of 
the Administration on the next panel.
    Mr. Guay. That's good. We're looking forward to that.
    Just as important, perhaps more so, is that we develop and 
enforce measures so that all wood products imported into the 
United States are legally logged and, ultimately, sustainable 
logged. It is the key, not just to a healthy environment, but 
to free and fair trade, tax receipts, and employment and truly 
the survival of our domestic industry.
    Global enforcement at the log level is the key to success. 
Clearly, most wood product manufacturing occurs in China, but 
most of the illegal logging undoubtedly occurs in Russia, 
elsewhere in Asia and Africa. While free and fair trade is 
essential, if logging practices are not controlled in the 
forest, we may improve our relationship between ourselves and 
China, but manufacturing will simply move somewhere else. 
Hence, neither our tax receipts, nor our industry, nor the 
environment will really be improved.
    So in summary, what we believe is that what is best for tax 
receipts is best for our industry. Free trade, fair trade, and 
legal logging everywhere.
    I'd like to thank you, your staff, for everything you're 
doing on behalf of our industry.
    [The prepared statement of Mr. Guay follows:]
Prepared Statement of Phill Guay, Vice President of Corporate Strategy 
                and Marketing, Columbia Forest Products
    My name is Phill Guay and I'm the Vice President of Corporate 
Strategy and Marketing at Columbia Forest Products. I would like to 
thank you for the opportunity to be a part of this important hearing, 
and in turn, thank everyone who made it possible.
    Columbia Forest Products is one of the largest manufacturers of 
hardwood products in North America. Our four divisions: hardwood 
plywood, hardwood veneer, hardwood flooring and international division 
amount to $1 billion in sales, and we have more than 3,300 employee-
owners. We are one of the largest Employee Stock Ownership Programs 
(ESOP) in the United States. We have 11 hardwood plywood and veneer 
manufacturing facilities and are the largest manufacturer in that 
industry. We are also a major importer, using offshore resources to 
complement our domestic product line. We are North America's largest 
Russian Birch importer, and we contract-manufacture with suppliers in 
China, South America and throughout the world. We are also the nation's 
second-largest hardwood flooring manufacturer, with five plants in 
North America.
    As a major manufacturer and importer we recognize ours is a global 
industry. In fact we have seized the opportunity to be global, both in 
sales and manufacturing. We have two flooring plants in Malaysia and 
sell plywood manufactured in China, not only in the United States but 
in the European Union also. We sell flooring here as well as the 
European Union, the Middle East and Australia.
    As a global company we see the need for balance across all global 
regions. Balance is essential for the industry and consumers 
everywhere. Just as important, perhaps more so, is the global 
enforcement of logging rules. Such a practice would have an 
unbelievable impact on the environment by containing illegal logging, 
promoting sustainable practices and curbing related pollution. So what 
we seek is not an advantage for any region but fairness across all 
regions, across all business functions, in raw materials, tax 
incentives, labor and numerous others. What we seek is fair trade, and 
we believe free trade is fair.
    Joe Gonyea has spent/will spend some time focusing on the issues in 
China. We agree with Joe. Let me give you our perspective not only on 
China but the overall global trends as well. Speaking from a Columbia 
perspective green initiatives and sustainability are most important to 
us. For 10 years, Columbia Forest Products has maintained a Forest 
Stewardship Council (FSC) chain of custody certification and was on of 
the first in our industry to do so with certificate number 65 out of 
828 granted to date in the United States.
    We recently introduced a revolutionary, urea formaldehyde-free 
adhesive system, PureBondTM, for the manufacture of hardwood 
plywood and flooring. Recently the California Air Resources Board 
(CARB) concluded that the United States is a toxic dumping ground for 
excess urea-formaldehyde products manufactured worldwide. CARB took 
bold steps to eliminate that practice by passing new regulations that 
are the most stringent in the world. Similarly we have an opportunity 
here to stop the United States from being the world's biggest consumer 
of illegal logging. In doing so we can help the environment, our 
industries, domestic employment and tax receipts simultaneously.
    Although there are several programs which certify that wood is 
being harvested sustainably, we use FSC; others use Sustainable 
Forestry Initiative (SFI) as well as additional programs available. Of 
the 84.3 million hectors of forest land certified world wide by the 
Forest Stewardship council 49.7% is located in Europe, 31.5% in North 
America, 3.0% in Africa and 2.0% in Asia.
    Certification is a clear indication of sustainable forestry 
practices. Since it is nearly impossible to log illegally on certified 
land, you can see how easily it would be to log illegally in Asia and 
Africa where under 5% of their forest land is certified by the Forest 
Stewardship Council. While we believe certification and legally 
controlled logging are both good business and social practices, they 
are not free. North American industries' commitment to these 
sustainable practices is expensive but the right thing to do. However, 
it puts us at a significant cost--and at times availability--
disadvantage to most other areas in the world.
    Let's examine hardwood plywood alone. When you look at plywood 
imports in 2002, 2.2 million cubic meters of hardwood plywood was 
imported. In 2006 that number was 4.4 million cubic meters, up 93%. At 
the same time, domestic production declined. During that same period 
from 2002 to 2006 China's share of imports increased from less than 10% 
to 50%. Imports from other countries actually declined over the period 
as China dominated growth. That trend has continued unabated. Despite a 
significant slowdown in the domestic housing industry (the primary 
consumer of hardwood plywood) generally every month, 2007 has seen an 
increase over 2006 with regard to imports. Imports are up 33% on a 
value basis and 6% on a volume basis first quarter 2007 over 2006 
despite the housing slump. Absolutely at this point we believe imports 
have done far more damage to our industry than the current housing 
slump. And many of those imports are subsidized by illegal logging as 
well as unfair trade practices.
    Although I know this is a hearing on hardwood plywood, I'd like to 
mention hardwood flooring as well. In part because some hardwood 
plywood is converted into hardwood flooring, and flooring is a much 
bigger industry. But also because the same logging and business 
practices that hurt domestic hardwood plywood manufacturing are present 
in flooring too.
    Hardwood flooring imports have soared from 75 million cubic meters 
in 2001 to 325 million cubic meters in 2006. The domestic hardwood 
flooring industry is carrying the same unfair burden.
    How does this affect our economy as well as federal, state, BLM and 
private land owners? The data in our submission provides a snapshot. 
Our plant in Klamath Falls, Oregon, one of 11, consumed about 46 
million board feet of timber in 2003; by 2006 that declined to 35 
million board feet. Admittedly, much of that timber is from private 
sources, but the decline clearly indicates a loss of revenue to the 
various government entities and land owners, as well as job cuts at our 
Klamath Falls plant. The Northwest Forest Plan for United States Forest 
Service Regions 5 and 6 and BLM lands are running at under 25% of the 
allowable harvest for many reasons. But had the allowable targets been 
achieved it would have had a significant positive affect on forest 
health, revenue as well as our global competitiveness.
    The story of log purchases and job loss at our Klamath Falls plant 
is no different at our other plants nationwide. Our two largest plants 
on the east coast consume about 80 million board feet per year. Once 
again that volume is falling and 98% of it comes from private land.
    So what do we want? Free and fair trade. Thanks to the effort of 
Senator Wyden and his staff, an ITC 332 investigation is now underway 
for both hardwood plywood and hardwood flooring industries. That will 
identify the unfair business practices negatively affecting our 
industry, tax receipts and employment.
    Just as important, perhaps more so, is that we develop and enforce 
measures so that all wood products imported into the United States are, 
first and foremost, legally logged and, ultimately, sustainably logged. 
It is the key, not just to a healthy environment, but to free and fair 
trade, healthy tax receipts, employment and the survival of our 
domestic industries.
    Global enforcement at the log level is the key to success. Clearly, 
most wood product manufacturing occurs in China, but most of the 
illegal logging undoubtedly occurs in Russia and Africa. While free and 
fair trade is essential, if logging practices are not controlled in the 
forest, we may improve the relationship between ourselves and China, 
but manufacturing will simply move elsewhere. Hence, neither our tax 
receipts, nor our industry, nor the environment will really be 
improved.
    So, in summary, what is best for tax receipts is best for our 
industry, free trade, fair trade and legal logging everywhere.

    Senator Wyden. Thank you very much. Tom, welcome.
    Mr. Chamberlain.

STATEMENT OF TOM CHAMBERLAIN, PRESIDENT, OREGON AFL-CIO, SALEM, 
                               OR

    Mr. Chamberlain. Mr. Chair, I'd like to thank you for your 
leadership in addressing an issue that negatively impacts 
Oregon working families.
    For the record, my name is Tom Chamberlain. I'm the 
president of the Oregon AFL-CIO, and I have been such since 
2005.
    The AFL-CIO represents 135,000 union members, supporting 
tens of thousand spouses and children, giving them a middle 
class lifestyle, which is the core of America. There are 
approximately 20,000 union members in the wood forest products 
industry. The value of these 20,000 jobs impact our economy 
three ways.
    One, these are job creators. Depending on which economic 
setting you read, somewhere between four and six jobs are 
created for each manufacturing job in the woods product 
industry. So what we're talking about is 80 to 100,000 jobs in 
the Oregon economy, primarily in rural areas of the State where 
forest products is the backbone of their individual economies.
    Second, these are manufacturing jobs. As I said earlier, 
they are the backbone of the middle class. They provide family 
wage jobs, health care, retirement benefits, and more 
importantly, an opportunity to achieve the American dream, 
which is that each generation is better than the last. We're 
not doing very well right now. A recent story in the New York 
Times reported last week that the average 30 year old earns 12 
percent less than the parents, 12 percent less. This is a 
reversal of a 40-year trend which each generation has out-
earned the preceding generation. One of the causes noted was 
the loss of manufacturing jobs. We also have to maintain an 
increase, our local tax base, by maintaining these family wage 
job providing vital services like fire and education and 
police.
    Finally, the wood products industry is the key economic 
driver of rural Oregon, and keep many communities financially 
afloat.
    As stated earlier, 70 percent of all the companies in the 
hardwood industry, or hardwood plywood industry, are 
headquartered here in Oregon. The future of the hardwood 
plywood industry has a significant impact on Oregon's economy.
    The timing of this hearing is very important. Last week's 
Strategic Economic Dialogue talks in Washington, DC, addressed 
Chinese huge trade surpluses, unwillingness to float its 
currency, unwillingness or inability to protect America's 
intellectual property. These topics seem to be the primary 
focus of those discussions, but China's undermining of the 
forest products industry are just beginning to draw attention. 
That's why these hearings are so important.
    Thanks to your efforts and a few of your congressional 
colleagues and a few news outlets, government and non-
government organizations, its become very apparent that China 
are now, are not playing by the rules and will do whatever it 
takes to gain world domination, especially forest products 
industry. This, this strategy has been at play for years in 
Oregon, for years.
    It's worrisome the length China will go to lure away well 
paying, highly skilled, unionized manufacturing jobs from 
Oregon and other places in the United States to China. China's 
hardwood plywood industry threatens to destroy large portions 
of the global ecosystem in Asia, Africa, South America, in 
order to keep its mills running at full capacity. They are in 
search of low costs, illegally logged supplies of fiber. This 
is a short run, this is a short run strategy because in the 
long run, it's going to damage our bio-systems.
    Rather than focus on recapping problems, I'd like to talk 
about other activities that they are engaged in, and what the 
consequences of those activities are.
    Illegal subsidies: Several studies have been documented 
that China spends over $2 billion a year, excuse me, $2 billion 
in the last 5 years in subsidizing their wood products 
industry. With the subsidies, China has constructed state-of-
the-art mills while American workers are trying to compete in 
outdated mills that the industry can't update to maintain their 
competitiveness.
    Now I'm not an economics major. I was a firefighter for 27 
years, but even I can see where this is headed. We're not going 
to like it. We're not going to like the impacts it's going to 
have on the middle class and rural families in Oregon.
    China's practice of mislabeling exports to avoid duties is 
making it harder for American firms to compete. This practice 
makes it easier for U.S. resellers to choose Chinese products 
based on unfair advantage. It is impossible, impossible to buy 
American, if you can't find American made products in stores.
    Fraudulent stamping and illegal logging: You know, we 
believe in sustainable yields in our forests in Oregon, but not 
so in China. They have over-harvested their forest land and 
this was revealed in the Washington Post article, Chicago 
Tribune article and a Popular Mechanics article. Not only have 
they over-harvested, now they are purchasing illegal logs from 
Indonesia, Burma, Russia, or any other company that will sell 
to them and then falsifying their certification papers. This 
undermines the certification systems that are designed to 
protect our global ecosystems. According to the OECD illegal 
logging results, illegal logging results in an annual loss of 
global economy of $15 billion a year, $1 billion in the United 
States. Just think about what those dollars would bring to 
Oregon, to the rural communities in education and health care 
and so on. But we're losing those.
    The lack of access to markets. There's a misconception that 
organized labor is against trade agreements. We're not against 
trade agreements. What we are against are trade agreements that 
do not include international laboring organization standards or 
environmental standards, and don't allow for access to other 
markets. Without that access, we cannot grow middle class or 
maintain it.
    What can we do? Well, first, we have to put U.S. Government 
feet to the fire to pressure the Chinese forest products 
industry to reform its tactics. These strategies have had some 
success. Last year, U.S. Government filed an unfair subsidies 
case against the Chinese hardwood plywood industry at the World 
Trade Organization. Earlier this year, was, WTO finally was 
willing to fine duties on Chinese coated paper imports due to 
the subsidies. This action shouldn't be the last step. It 
should be the first step.
    The Bush administration seems to have forgotten that the 
trade laws are only as good as they are enforced. Mr. Chairman, 
the steps that you and other Members of Congress are just the 
first steps you must take to find the solution. The U.S. 
International Trade Commission needs to complete its current 
investigation. We need to see action from the Bush 
administration. We need more congressional hearings and focus 
on this issue. We need Congress to revise, revise the Lacey 
Act, and with the input of labor, industry and environmental to 
curb illegal logging in the world.
    Finally, we need to promote the fact that American wood 
products are legally harvested. This can be done in two ways. 
First, the wood product industry can promote their work so that 
Americans concerned about illegal logging know that made in the 
USA label means that products are harvested legally. Second, 
Congress can encourage made in the USA as a way to say that we 
do not condone illegal logging. These just are initial steps; 
much more is needed to be done. The Oregon AFL-CIO looks 
forward to working with you in the future to define solutions 
to these very pressing problems.
    [The prepared statement of Mr. Chamberlain follows:]
    Prepared Statement of Tom Chamberlain, President, Oregon AFL-CIO
    Mr. Chairman. Thank you for taking the lead on this very important 
issue to workers in Oregon and for giving me the opportunity to 
testify. My name is Tom Chamberlain and I have had the honor of serving 
as the President of the Oregon AFL-CIO since 2005. My organization 
represents more than 135,000 union members in Oregon, and our members 
support hundreds of thousands of spouses and children. There are 
approximately 20,000 union members, both in the AFL-CIO and in other 
unions, who work in the Oregon forest products industry. The value 
these 20,000 workers add to the economy is very important in three 
ways.
    First, this industry has a high job multiplier. Depending on the 
economic analysis you read, it is somewhere between four and six. This 
means that for every one person employed by the forest products 
industry, there are somewhere between four and six other Americans 
employed in support industries--such as logging, transportation, 
utility and retail--who rely on this industry for their jobs.
    Second, these are the good manufacturing jobs that we should be 
striving to keep in the United States--they are highly skilled 
manufacturing jobs that pay high hourly wages and often come with full 
benefits. They keep up the local tax base that maintains necessary 
services such as police, fire and education. They are not low paying, 
no benefit ``McJobs.''
    Finally, these Oregon workers and their families make up the 
backbone of many rural communities in our state and elsewhere in the 
United States. It is these well paying, highly skilled jobs that keep 
many of these communities financially afloat.
    As you mentioned in your opening statement, more than 70 percent of 
the companies in the hardwood plywood industry are headquartered in 
this state. There is no doubt that the future of this industry is of 
significant importance to Oregon.
    The timing of this hearing is very important, as it comes on the 
heels of last week's Strategic Economic Dialogue talks in Washington. 
While issues such as China's huge trade surplus with the United States, 
the Chinese government's unwillingness to float its currency and the 
country's seeming inability to protect American intellectual property 
have garnered much of the attention, the corrosive effects of practices 
of the Chinese forest products industry are only beginning to receive 
much public attention.
    But this is quickly changing. Thanks to your efforts along with a 
few other Members of Congress, the reporting of a few news outlets and 
the attention of a handful of governmental and nongovernmental 
organizations, the country and the world are beginning to realize what 
the hardwood plywood industry and its workers have known for many 
years--the Chinese do not play by the rules and will do whatever is 
necessary to establish global dominance.
    What makes Chinese actions even more worrisome is that they go to 
such great lengths to lure well paying, highly skilled manufacturing 
jobs that were formerly held by unionized workers in Oregon and other 
parts of the United States to China. What we are seeing is an industry 
that threatens to destroy large portions of the global ecosystem--be it 
in Asia, Africa or even South America--in order to keep its mills 
running at capacity with low cost, largely illegally logged supplies of 
fiber in the short run. In the long run, as biosystems are destroyed, 
everyone loses--even the Chinese.
    Rather than recapping what the problems are, I would like to spend 
a few minutes of the Committee's time talking about some of the 
consequences of this activity.
    Illegal subsidies.--Several studies have documented that the 
Chinese government has subsidized its forest products industry to the 
tune of nearly two billion dollars over a five-year period. Chinese 
mills are quickly becoming some of the most modern and efficient in the 
world, while American workers are forced to compete in older mills 
since the industry can no longer fund necessary improvements to keep 
them competitive. It doesn't take a MBA from Yale to understand the 
long term consequences.
    Customs issues.--By mislabeling exports to avoid duties, the 
Chinese make it harder for U.S. firms to compete as this deception 
makes it easier for U.S. resellers to choose Chinese products based on 
their unfair price advantage. It is impossible to ``Buy American'' if 
you cannot find American made forest products in the stores.
    Fraudulent stamping and illegal logging.--In recent years, American 
companies and consumers have become increasingly aware of the 
importance of sustainably harvested wood products. However, as the 
Washington Post, Chicago Tribune and Popular Mechanics have reported, 
the Chinese forest products industry, having seen the negative effect 
over-harvesting domestically, has been importing illegally harvested 
logs from Indonesia, Burma, Russia and any number of other countries 
and accepting obviously false certification papers. These activities 
also undermine the certification systems that have been set up to 
protect global ecosystems. According to the OECD, illegal logging 
results in an annual loss to the global economy of $15 billion a year; 
the U.S. economy alone takes a $1 billion hit. Imagine what an 
additional billion dollars could for our industry or for rural school 
districts and counties in Oregon.
    Lack of reciprocal market access.--While it remains fashionable for 
proponents of so-called ``free trade'' to claim that labor is opposed 
to trade, that is, of course, false. Organized labor supports trade as 
long as it is fair and the country we are trading with gives us 
reciprocal market access. When we lose access to such a quickly growing 
market, we lose access to one of the ways to grow our industry outside 
of North America.
    So what are the next steps? We need to adopt the tactics of other 
groups that have begun to show some success in getting the Chinese 
government to act on issues such as Darfur. We need to shine a 
spotlight on Chinese practices and embarrass them into action. We need 
to garner support on all fronts from multiple allies. Here are some 
examples.
    First, we need to put the U.S. government's feet to the fire to 
pressure the Chinese forest products industry to reform its tactics. So 
far, we have seen some successes--the U.S. government last year filed 
an unfair subsidies case against the Chinese hardwood plywood industry 
at the World Trade Organization and earlier this year was finally 
willing to apply duties on Chinese coated paper imports due to 
subsidies they receive. But these should not be the last steps--they 
should be the first. We need to remind the Bush administration that 
trade laws are only good if they are enforced.
    Moreover, steps that you and other Members of Congress have taken 
are just the first steps. Not only do we need to see the U.S. 
International Trade Commission complete its current investigation, but 
we need to see action from the Administration. Not only do we need more 
hearings on the Chinese forest products industry, but we also need 
Congress to revise the Lacey Act with the input of industry, labor and 
the environmental movement in order to help curb illegal logging.
    Finally, we need to promote the fact that American wood products 
are harvested legally. This can happen in two ways. First, the wood 
products industry can promote their work so that Americans concerned 
about illegal logging know that the ``Made in the USA'' label means 
that the product was harvested legally. Second, Congress can encourage 
``Made in the USA'' as a way to say that we do not condone illegal 
logging.
    These are just the first steps. Much more needs to be done. The 
Oregon AFL-CIO looks forward to working with you in the future to find 
solutions to this problem.

    Senator Wyden. Mr. Chamberlain, thanks very much. All three 
of you have been very helpful. We'll have some questions in a 
moment.
    Mr. Daly.

 STATEMENT OF EDWARD J. DALY, CHIEF OPERATING OFFICER, FOREST 
                    STEWARDSHIP COUNCIL--US

    Mr. Daly. Thank you, Senator Wyden. Thank you to the 
subcommittee for inviting me here today. I appreciate being on 
this esteemed panel.
    My name is Ned Daly. I'm Chief Operating Officer for the 
Forest Stewardship Council here in the United States.
    As a way of introduction, the Forest Stewardship Council is 
a tool that creates a marketplace for sustainable wood produced 
and wood and paper products. It rewards the best companies and 
cooperatives for the best practices. More importantly for this 
hearing, it is a way to measure the worst practices out of the 
marketplace.
    We are having an impact in China and across the globe with 
a very simple business motto. FSC is able to provide good 
producers and manufacturers, like the over 70 Oregon based FSC 
certified companies, a way to distinguish themselves in some 
environmentally and socially sustained operations in the global 
marketplace. FSC also allows consumers to identify sustainable 
wood products in the marketplace, and support companies with 
the best practices. It also allows environmentally social 
advocates to partner with sustainable companies and promote 
positive alternatives in the marketplace that support 
communities and the environment.
    FSC believes that working forests are an integral and 
necessary component to forest conservation. The business model 
has allowed us to help the global timber industry become an 
ally in conservation of forest worldwide.
    FSC standards have been applied to more than 225 million 
acres of actively managed forests in more than 70 countries, 
and it's growing steadily. These standards ensure the legal 
sustainable origin of FSC certified products.
    FSC chain-of-custody certification require from 
manufacturers and distributors track certified products through 
the chain and has certified over 5,600 manufacturers and 
distributors in 73 countries.
    Evidence of FSC success in our ability to impact markets in 
China are the numerous companies that have FSC procurement 
policies, including Home Depot, Lowe's, Crate and Barrel, Pier 
1, Williams-Sonoma, Pottery Barn, JP Morgan, Bank of America, 
PNC Bank, Random House, Scholastic Publishing, Ikea, Nike, 
Starbucks, Staples, Office Depot, Wal-Mart, Patagonia, and the 
U.S. Green Building Council.
    FSC has just started the process of establishing an office 
in China. The working group members represent a broad cross 
section of forest stakeholders, including the International 
Network for Bamboo and Rattan, WWF China, Beijing Forestry 
Society, IKEA and many others.
    The FSC working group will focus on the development of 
national standards for timber harvesting in China, but due to 
serious flooding in 1998, when over 2,500 people lost their 
lives, the Chinese government banned commercial logging in 17 
provinces. While the ban was intended to conserve landscapes, 
the most immediate impact has been the sharp increase of wood 
and pulp imported from Southeast Asia and Siberia.
    Timber imports into China has tripled in volume and doubled 
in value between 1997 and 2003. It is estimated that nearly 
half of all tropical timber trees harvested worldwide are 
consumed in the Chinese goods producing sector. The majority of 
imports come from Indonesia, Malaysia, and Russia. FSC partner, 
the Environmental Investigation Agency has shown illegally 
logged timber imports from Russia (50 percent of all export 
trade in the Russian Far East is considered illegal) as well as 
Burma, Cameroon, Gabon, Indonesia, Liberia, Papua New Guinea 
and Thailand. Thailand in turn imports illegal timber from 
neighboring Burma, Cambodia, and Laos for export to China.
    Some more important than developing standards for 
harvesting within China, is the application of FSC chain-of-
custody standards to provide oversight on every step in the 
commercial production of wood and paper products from the stump 
to the retailer.
    As in any country, there are a number of goods sustainable 
producers and manufacturers throughout China and many Chinese 
companies that have already achieved FSC certification. But 
issues such as corruption, lack of management plans, lack of 
safety measures for workers, the inability to document or trace 
products create a large gap between much of the Chinese 
industry today and where they would need to be to become FSC 
certified.
    Fortunately, FSC has quite a bit of experience working in 
sectors of the timber industry that face similar challenges, 
most notably the garden furniture industry in Viet Nam, the 
charcoal industry in South Africa, and the general wood 
products industry in central Africa and the Amazon Basin where 
Brazilian government estimates 25,000 people in the timber and 
cattle industry.
    We are already seeing how market managed for sustainable 
products in the U.S. and Europe is affecting the Chinese export 
market. FSC accredited auditors have issued five forest 
management certificates in over 200 chain-of-custody 
certificates in China. But the challenges of operating in China 
remain significant.
    China has a number of requirements that make it very 
difficult to establish FSC audits in an FSC general office in 
China, such as significant registered capital, over $3 million, 
at least 10 full-time employees, and the requirement for 
conformity to government regulations that have not yet been 
promulgated. It has been a very difficult process to establish 
an FSC office in China and perform audits in China, but there 
are signs that the government is willing to accommodate FSC in 
the country.
    The misappropriation of the FSC label is also an issue. We 
are all ready seeing misuse of labels by companies in China, 
including the use of the FSC logo by non-FSC certified 
companies on non-FSC certified hardwood plywood. FSC has 
addressed these issues. It has a very robust trademark 
infringement procedure. With the help of the over 5,000 
certified companies we are trying to protect their legitimate 
use of the label, we've done a good job to date, but the growth 
in China will definitely test our ability to protect the FSC 
trademark.
    Obviously the change will not happen overnight, but in 
tandem with our environmental partners such as WWF, 
Environmental Investigation Agency, FSC certified companies in 
support of governments in producing, manufacturing, and import 
countries, we can go a long way in the world, a long way in 
cleaning up international timber trade in China and around the 
world.
    In conclusion, I'd like to say that while there are a 
number of issues and problems that make the Chinese economy 
unique, in many ways China is nothing more than a fork in the 
mill. There are underlying problems with the global timber 
industry, illegal logging, ecologically destructive practices, 
violation of human rights that must be addressed alone with the 
global economy that seems blissfully ignorant to these terrible 
practices. I believe FSC is one tool that can help us address 
these issues in China and across the world.
    [The prepared statement of Mr. Daly follows:]
 Prepared Statement of Edward J. Daly, Chief Operating Officer, Forest 
                        Stewardship Council--US
    Thank you for the opportunity to testify before the subcommittee 
today.
    My testimony will cover how the Forest Stewardship Council supports 
and promotes companies with exemplary practices like the over 70 
Oregon-based companies certified by FSC, what FSC is doing in China to 
reduce the impact of illegal and unsustainable wood and paper products 
on the global marketplace, and the challenges we see moving forward in 
China. I will address these issues in general, but they all apply to 
the market for hardwood plywood in the U.S. and globally.
    FSC certification is a complicated system of standards, policies, 
principles, criteria and indicators necessary to implement and oversee 
a global standard for environmentally and socially responsible timber 
production. As a way of introduction, there is an easier way to think 
about FSC certification--Ebay for sustainable timber.
    There are companies like Collins Pine, Warm Springs Forest Products 
and Columbia Forest products who have quite literally some of the best 
forest management and manufacturing practices in the world and they 
would like to be able to articulate to consumers that commitment to 
sustainability.
    At the same time there are consumers, both institutional and 
individual who would like to buy products that are sustainably 
produced, or more importantly, not from illegal or destructive 
practices.
    There are also advocates for conservation, sustainable forest 
management and healthy rural communities that would like to have 
positive alternatives in the marketplace that they can direct consumers 
to.
    Like Ebay, through a set of policies that legitimize the 
transactions in that marketplace and the establishment of a network of 
buyers and sellers, FSC is able to provide good producers and 
manufacturers a way to distinguish themselves in the marketplace, 
allows consumers to identify sustainable wood products and allows 
advocates to partner with sustainable companies to promote wood and 
paper products that support communities and the environment.
    FSC believes that working forests are an integral and necessary 
component to forest conservation. With the growing impacts of 
conversion from sources like agricultural expansion and development, 
working forest a essential to provide value to standing forests and 
keep the forests standing.
                              what is fsc?
    Since its inception in 1993, the Forest Stewardship Council has 
emerged as a globally influential system for transforming forestry 
around the world by reaching areas where other conservation strategies 
or government policies have fallen short. The Forest Stewardship 
Council is an independent, nonprofit organization that promotes the 
responsible management of the world's working forests through the 
development of forest management standards, a voluntary certification 
system, and trademarks that provide recognition and value to products 
bearing the FSC label in the marketplace.
    FSC standards have been applied on more than 225 million acres of 
actively managed forests in more than 70 countries, and growing 
steadily. In 1994, FSC's members approved an international set of 
Principles and Criteria that define FSC's threshold for responsible 
forestry practices worldwide. These standards support biodiversity, 
reduce chemical use, protect streams and aquatic communities, conserve 
old growth, ensure protection of high conservation value forests, give 
stakeholders a voice, and ensure long-term timber supplies. Specific 
regional standards are developed in countries to interpret and 
operationalize the original Principles and Criteria in order to manage 
specific, local forest compositions. The regional standards were 
developed through a unique consensus process that allows for and 
actively seeks participation from all interested parties.
    Manufacturers and distributors of wood and paper products are 
required to have a ``chain-of-custody'' certification in order to label 
and sell FSC-certified products. Chain-of-custody certification is the 
process through which wood and fiber are tracked from their original 
point of harvest through the manufacturing process. FSC is a credible 
system because consumers can be confident that their purchase of wood 
or paper is truly linked directly back to the practice of certified 
forestry on the ground. FSC has 5,646 certified chain-of-custody 
companies in 73 countries.
    With 37 national offices and representation in every major forest 
producing country, FSC and its partners are creating a marketplace that 
demands well-managed forestry practices. Moreover, NGOs, businesses, 
government agencies, financial institutions, and landowners 
increasingly use FSC standards as an important land conservation tool, 
a vehicle to implement corporate social responsibility practices, and a 
strategy for product differentiation in the marketplace. Through use of 
the FSC certification system, institutions of all kinds can ensure 
their commitments to high standards of forest management.
    Demand for certified products is ``pulling'' acres into the FSC 
system. As certification gains recognition as the screen through which 
individual and commercial customers view their purchases, the most 
egregious forest practices are denied a place in the market. In short, 
the investment made to develop and apply FSC standards over the past 
decade is paying off in conservation benefits, such as protection of 
wildlife habitats, improved water quality, sustained availability of 
timber resources, and increased recognition that forestry can be 
practiced sustainably. With illegal logging still rampant in many parts 
of the world and wood and paper demands expected to grow over the next 
50 years, the need for FSC standards as a conservation tool is greater 
than ever before.
    Evidence of such demand pull are the numerous companies that have 
FSC procurement policies including Home Depot, Lowes, Crate and Barrel, 
Pier 1, Williams-Sonoma, Pottery Barn, JP Morgan, Bank of America, PNC 
Bank, Random House, Scholastic Publishing, Ikea, Nike, Starbucks 
(flooring), Staples, Office Depot, Wal-Mart, Patagonia, and the U.S. 
Green Building Council's LEED program.
                             certification
    FSC accredited, independent, ``third-party'' certification bodies 
or ``certifiers'' certify forests. They assess forest management using 
the FSC principles, criteria, and standards, each certifier uses their 
own evaluative process. This allows FSC to remain outside of the 
assessment process, and supports the integrity of the standard, and of 
the FSC system. Certifiers evaluate both forest management activities 
(forest certification) and tracking of forest products (chain-of-
custody certification).
    Forest landowners or managers can contact an accredited FSC 
certifier if they are interested in becoming certified. Certifiers 
engage in a contractual relationship with the landowner/manager to 
assess forest management against the FSC standard approved for the 
region where the forest is located. The general public is notified 
about certification assessments before they take place so that the 
certifiers, helping assure the integrity of the process, can hear a 
full range of voices. At the close, an assessment summary report is 
made public, while at the same time keeping the company's proprietary 
information confidential. If the forest management operations assessed 
quality for certification, the landowner can choose to sign a 
certification contract. This event results in their being ``certified'' 
and brings with it the landowner's commitment to continue to practice 
forestry in a certifiable fashion. This same process is applied in 
every country, including China, in which FSC operates.
    The contract's duration is five years, at which point a full 
assessment will be conducted again if the landowner wishes to continue 
being certified. These five-year audits are supplemented by annual 
audits to verify that the terms of the contract are being followed, and 
facilitate regular contact between the certificate holder and 
certifier.
    For those companies who manufacture or trade certified products, a 
different form of certification applies. Again, to assure the 
credibility of claims on products, it is important to track materials 
as they leave the forest and become products down stream. This ``chain 
of custody'' (COC) certification process is quite simple. Like any 
inventory control system, COC allows products to be segregated and 
identified as having come from a particular source--in this case, an 
FSC-certified forest.
    FSC's model of certification allows products that flow from 
certified forests to enter the marketplace with a credential that is 
unique. Any FSC labeled product can be traced back to a certified 
source. This aspect of the system is the basis for any credible 
certification system and is the link between consumer preference and 
responsible, on the ground forest management.
                              fsc in china
    FSC is in the process of establishing an office in China which is 
being led by the former director of accreditation for FSC 
International. A national working has been established to develop 
forest management standards for China. Since July 2005 the formative 
FSC working group in China has met seven times. Working group members 
represent a broad cross section of forest stakeholders including the 
International Network for Bamboo and Rattan (INBAR), WWF China, Beijing 
Forestry Society (BFS), IKEA and others. Because of China's importance 
and the difficulty of establishing an office there, the FSC 
International board will hold its next meeting in Beijing.
    The FSC working group will focus on the development of national 
standards for timber harvesting in China, but due to serious flooding 
in 1998, in which over 2,500 people lost their lives, the Chinese 
government banned commercial logging in 17 provinces. While the ban was 
intended to conserve landscapes, its most immediate impact has been the 
sharp increase of wood and pulp imported from Southeast Asia and 
Siberia.
    Timber product imports into China have tripled in volume and 
doubled in value 1997-2003 and it is estimated that nearly half of all 
tropical trees harvested worldwide are consumed in Chinese goods 
producing sector. The majority of imports come from Indonesia, 
Malaysia, and Russia. FSC partner, the Environmental Investigation 
Agency has shown illegally logged timber imports from Russia (50 per 
cent of all export trade in the Russian Far East is considered 
illegal), Burma, Cameroon, Gabon, Indonesia, Liberia, Papua New Guinea 
and Thailand (Thailand in turn imports illegal timber from neighbouring 
Burma, Cambodia and Laos for export to China.)
    So more important than developing standards for harvesting within 
China, is the application of FSC chain-of-custody standards to provide 
oversight on every step in the commercial production of wood and paper 
products from the stump to the retailer. The Chain of Custody standards 
that govern the processing of wood products--mills, secondary 
manufacturers, brokers and merchants--are internationally established 
and provide oversight for products made in China often from imported 
wood and exported globally.
    Since FSC sets a global standard for exemplary forestry, there are 
many operations across the globe that cannot meet the FSC standard. 
This presents a challenge: how do you create market incentives for 
operations that cannot meet the FSC standard, that encourage those 
operations to move in the right direction.
    As in any country there are a number of good sustainable producers 
and manufacturers throughout China and many Chinese companies have 
already achieved FSC certification. But issues such as corruption, lack 
of management plans, lack of safety measures for workers, and the 
inability to document or trace products create a large gap between 
where much of the Chinese industry is today and where they need to be 
to become FSC certified.
    Fortunately, FSC does have some experience working with sectors of 
the timber industry that have faced similar challenges, most notably 
the garden furniture industry in Viet Nam and the charcoal industry in 
South Africa. Through partner organizations such as the Tropical Forest 
Trust, producers can receive selective recognition in certain markets 
if the commit to incremental improvement over 5 years and agree to 
become FSC certified at the end of the 5 year period.
    Obviously change will not happen overnight, but in tandem with our 
environmental partners such as WWF, Environmental Investigation Agency, 
and others, FSC certified companies and the support of governments in 
producing, manufacturing and import countries we can go along way in 
cleaning up the international timber trade in China and around the 
world.
                establishing fsc certification in china
    It has been a very difficult to establish an FSC office in China 
and to perform audits in China, but there are signs that the government 
is willing to accommodate FSC certification in country.
    For an FSC accredited certifier to legally operate in China, it 
must adhere to the following regulations:

          Article 10 A certification body to be established shall meet 
        the following requirements:

                  (1) having fixed premises and necessary facilities;
                  (2) having management system that meets the 
                requirements for certification and accreditation;
                  (3) having a registered capital of not less than 
                3,000,000 yuan; and
                  (4) having not less than ten full-time certification 
                personnel in relevant fields.

          A certification body to engage in product certification 
        activities is additionally required to have technical 
        competence in testing or inspection commensurate with relevant 
        product certification activities.
          Article 15 Any certification personnel, when practicing 
        certification activities, shall practice in one certification 
        body only and shall not practice in two or more certification 
        bodies simultaneously.
          Article 76 Structural fee charts for certification and 
        accreditation shall be in conformity with the provisions of 
        relevant laws and administrative regulations of the State on 
        pricing.
          For social issues certification (e.g. SA 8000) the 
        Certification and Accreditation Administration of the People's 
        Republic of China is operating on a `case by case' basis both 
        the certification organization and the enterprise involved must 
        submit an application to CNCA in advance, explain the reasons 
        for certification, and cannot start the certification process 
        until approved.

    The requirements for a physical presence, staff and investment in 
China make it difficult for many certification bodies to operate there. 
The fact that the Chinese government has not established guidelines for 
accreditation and certification in the forestry sector makes it 
difficult for FSC accredited auditors to establish management systems 
for operating in China.
    But the government is moving forward on a number of initiatives 
that would help establish FSC certification in China. The State Forest 
Administration's (SFA) commissioned the Chinese Academy of Forestry 
(CAF) to develop a set of criteria and indicators suitable for national 
forest units. (The Chinese Academy of Forestry and the World Wide Fund 
for Nature (WWF) China were appointed for the task of establishing the 
FSC Working Group and develop a FSC National Standard in line with the 
regulations required by the FSC.)
    Since November 2003, all certification bodies issuing certificates 
in China need to be approved by the Certification and Accreditation 
Administration of the People's Republic of China (CNCA). CNCA does not 
seem to have a major problem with the concept of `International 
Accreditation' and certification bodies other than CNAB (CNAS) 
operating in China. Another positive sign is China is active in ENA-
FLEG (Forest Law Enforcement and Governance Europe/North Asia) and 
shown a commitment to oppose illegal logging and associated trade.
    Despite these difficulties, FSC has begun to make some inroads in 
China. FSC accredited auditors have issued five forest management 
certificates and over 200 chain of custody certificates in China.
                       looking toward the future
    There are rarely simple solutions to complex problems like those 
related to creating transparency and oversight for the international 
timber trade. In most cases it is a number of tools, such as 
legislation, diplomacy or market pressure that help resolve such 
issues. I believe FSC is a tool that can help remove the worst players 
from the international timber market and reward the sustainable 
producers in the marketplace. FSC also plays a very important role for 
wood and paper products more generally. As this industry and many other 
industries have seen before, a few bad actors can tarnish the whole 
industry's reputation. FSC establishes sustainably produced wood and 
paper products as the green, environmentally and socially beneficial 
products that they are. FSC can uniquely play that role because it is 
the only internationally recognized forest certification program that 
recognizes the importance of social issues--community involvement, 
indigenous and labor rights--in forest management.
    Still there is a very difficult road ahead. There is little 
question that China will be FSC's toughest challenge to date. Along 
with the challenges aforementioned, trying to regulate misappropriation 
of the FSC logo and certification is a huge challenge. We are already 
seeing the misuse of labels by companies in China (including the use of 
the FSC logo by a non-FSC certified company on non-FSC certified 
hardwood plywood). FSC has a very robust trademark infringement 
procedure and with the help of the over 5,000 certified companies who 
are trying to protect their legitimate use of the label, we have done a 
good job to date, but growth in China will definitely test our ability 
to protect the FSC trademark.
    I have included for the committee the FSC's Principles and Criteria 
which guide FSC certification and a list of the FSC certified companies 
in Oregon who use FSC as a way to highlight their sustainable practices 
and allows those companies to compete in the global marketplace based 
on good practices and good prices.
   introduction to fsc's principles & criteria for forest management 
                             certification
    It is widely accepted that forest resources and associated lands 
should be managed to meet the social, economic, ecological, cultural 
and spiritual needs of present and future generations. Furthermore, 
growing public awareness of forest destruction and degradation has led 
consumers to demand that their purchases of wood and other forest 
products will not contribute to this destruction but rather help to 
secure forest resources for the future. In response to these demands, 
certification and self-certification programs of wood products have 
proliferated in the marketplace.
    The Forest Stewardship Council (FSC) is an international body which 
accredits certification organizations in order to guarantee the 
authenticity of their claims. In all cases the process of certification 
will be initiated voluntarily by forest owners and managers who request 
the services of a certification organization. The goal of FSC is to 
promote environmentally responsible, socially beneficial and 
economically viable management of the world's forests, by establishing 
a worldwide standard of recognized and respected Principles of Forest 
Stewardship.
    The FSC's Principles and Criteria (P&C) apply to all tropical, 
temperate and boreal forests, as addressed in Principle #9 and the 
accompanying glossary. Many of these P&C apply also to plantations and 
partially replanted forests. More detailed standards for these and 
other vegetation types may be prepared at national and local levels. 
The P&C are to be incorporated into the evaluation systems and 
standards of all certification organizations seeking accreditation by 
FSC. While the P&C are mainly designed for forests managed for the 
production of wood products, they are also relevant, to varying 
degrees, to forests managed for non-timber products and other services. 
The P&C are a complete package to be considered as a whole, and their 
sequence does not represent an ordering of priority. This document 
shall be used in conjunction with the FSC's Statutes, Procedures for 
Accreditation and Guidelines for Certifiers.
    FSC and FSC-accredited certification organizations will not insist 
on perfection in satisfying the P&C. However, major failures in any 
individual Principles will normally disqualify a candidate from 
certification, or will lead to decertification. These decisions will be 
taken by individual certifiers, and guided by the extent to which each 
Criterion is satisfied, and by the importance and consequences of 
failures. Some flexibility will be allowed to cope with local 
circumstances.
    The scale and intensity of forest management operations, the 
uniqueness of the affected resources, and the relative ecological 
fragility of the forest will be considered in all certification 
assessments. Differences and difficulties of interpretation of the P&C 
will be addressed in national and local forest stewardship standards. 
These standards are to be developed in each country or region involved, 
and will be evaluated for purposes of certification, by certifiers and 
other involved and affected parties on a case by case basis. If 
necessary, FSC dispute resolution mechanisms may also be called upon 
during the course of assessment. More information and guidance about 
the certification and accreditation process is included in the FSC 
Statutes, Accreditation Procedures, and Guidelines for Certifiers.
    The FSC P&C should be used in conjunction with national and 
international laws and regulations. FSC intends to complement, not 
supplant, other initiatives that support responsible forest management 
worldwide.
    The FSC will conduct educational activities to increase public 
awareness of the importance of the following:

    --improving forest management;
    --incorporating the full costs of management and production into 
            the price of forest products;
    --promoting the highest and best use of forest resources;
    --reducing damage and waste; and
    --avoiding over-consumption and over-harvesting.

    FSC will also provide guidance to policy makers on these issues, 
including improving forest management legislation and policies.
Principle 1: Compliance with Laws and FSC Principles
    Forest management shall respect all applicable laws of the country 
in which they occur, and international treaties and agreements to which 
the country is a signatory, and comply with all FSC Principles and 
Criteria.
            Criteria
    1.1 Forest management shall respect all national and local laws and 
administrative requirements.
    1.2 All applicable and legally prescribed fees, royalties, taxes 
and other charges shall be paid.
    1.3 In signatory countries, the provisions of all binding 
international agreements such as CITES, ILO Conventions, ITTA, and 
Convention on Biological Diversity, shall be respected.
    1.4 Conflicts between laws, regulations and the FSC Principles and 
Criteria shall be evaluated for the purposes of certification, on a 
case by case basis, by the certifiers and the involved or affected 
parties.
    1.5 Forest management areas should be protected from illegal 
harvesting, settlement and other unauthorized activities.
    1.6 Forest managers shall demonstrate a long-term commitment to 
adhere to the FSC Principles and Criteria.

Principle 2: Tenure and Use Rights and Responsibilities
    Long-term tenure and use rights to the land and forest resources 
shall be clearly defined, documented and legally established.
            Criteria
    2.1 Clear evidence of long-term forest use rights to the land (e.g. 
land title, customary rights, or lease agreements) shall be 
demonstrated.
    2.2 Local communities with legal or customary tenure or use rights 
shall maintain control, to the extent necessary to protect their rights 
or resources, over forest operations unless they delegate control with 
free and informed consent to other agencies.
    2.3 Appropriate mechanisms shall be employed to resolve disputes 
over tenure claims and use rights. The circumstances and status of any 
outstanding disputes will be explicitly considered in the certification 
evaluation. Disputes of substantial magnitude involving a significant 
number of interests will normally disqualify an operation from being 
certified.

Principle 3: Indigenous People's Rights
    The legal and customary rights of indigenous peoples to own, use 
and manage their lands, territories, and resources shall be recognized 
and respected.
            Criteria
    3.1 Indigenous peoples shall control forest management on their 
lands and territories unless they delegate control with free and 
informed consent to other agencies.
    3.2 Forest management shall not threaten or diminish, either 
directly or indirectly, the resources or tenure rights of indigenous 
peoples.
    3.3 Sites of special cultural, ecological, economic or religious 
significance to indigenous peoples shall be clearly identified in 
cooperation with such peoples, and recognized and protected by forest 
managers.
    3.4 Indigenous peoples shall be compensated for the application of 
their traditional knowledge regarding the use of forest species or 
management systems in forest operations. This compensation shall be 
formally agreed upon with their free and informed consent before forest 
operations commence.

Principle 4: Community Relations and Workers' Rights
    Forest management operations shall maintain or enhance the long-
term social and economic well-being of forest workers and local 
communities.
            Criteria
    4.1 The communities within, or adjacent to, the forest management 
area should be given opportunities for employment, training, and other 
services.
    4.2 Forest management should meet or exceed all applicable laws 
and/or regulations covering health and safety of employees and their 
families.
    4.3 The rights of workers to organize and voluntarily negotiate 
with their employers shall be guaranteed as outlined in Conventions 87 
and 98 of the International Labour Organisation (ILO).
    4.4 Management planning and operations shall incorporate the 
results of evaluations of social impact. Consultations shall be 
maintained with people and groups (both men and women) directly 
affected by management operations.
    4.5 Appropriate mechanisms shall be employed for resolving 
grievances and for providing fair compensation in the case of loss or 
damage affecting the legal or customary rights, property, resources, or 
livelihoods of local peoples. Measures shall be taken to avoid such 
loss or damage.

Principle 5: Benefits from the Forest
    Forest management operations shall encourage the efficient use of 
the forest's multiple products and services to ensure economic 
viability and a wide range of environmental and social benefits.
            Criteria
    5.1 Forest management should strive toward economic viability, 
while taking into account the full environmental, social, and 
operational costs of production, and ensuring the investments necessary 
to maintain the ecological productivity of the forest.
    5.2 Forest management and marketing operations should encourage the 
optimal use and local processing of the forest's diversity of products.
    5.3 Forest management should minimize waste associated with 
harvesting and on-site processing operations and avoid damage to other 
forest resources.
    5.4 Forest management should strive to strengthen and diversify the 
local economy, avoiding dependence on a single forest product.
    5.5 Forest management operations shall recognize, maintain, and, 
where appropriate, enhance the value of forest services and resources 
such as watersheds and fisheries.
    5.6 The rate of harvest of forest products shall not exceed levels 
which can be permanently sustained.

Principle 6: Environmental Impact
    Forest management shall conserve biological diversity and its 
associated values, water resources, soils, and unique and fragile 
ecosystems and landscapes, and, by so doing, maintain the ecological 
functions and the integrity of the forest.
            Criteria
    6.1 Assessment of environmental impacts shall be completed--
appropriate to the scale, intensity of forest management and the 
uniqueness of the affected resources--and adequately integrated into 
management systems. Assessments shall include landscape level 
considerations as well as the impacts of on-site processing facilities. 
Environmental impacts shall be assessed prior to commencement of site-
disturbing operations.
    6.2 Safeguards shall exist which protect rare, threatened and 
endangered species and their habitats (e.g., nesting and feeding 
areas). Conservation zones and protection areas shall be established, 
appropriate to the scale and intensity of forest management and the 
uniqueness of the affected resources. Inappropriate hunting, fishing, 
trapping and collecting shall be controlled.
    6.3 Ecological functions and values shall be maintained intact, 
enhanced, or restored, including: a) Forest regeneration and 
succession. b) Genetic, species, and ecosystem diversity. c) Natural 
cycles that affect the productivity of the forest ecosystem.
    6.4 Representative samples of existing ecosystems within the 
landscape shall be protected in their natural state and recorded on 
maps, appropriate to the scale and intensity of operations and the 
uniqueness of the affected resources.
    6.5 Written guidelines shall be prepared and implemented to: 
control erosion; minimize forest damage during harvesting, road 
construction, and all other mechanical disturbances; and protect water 
resources.
    6.6 Management systems shall promote the development and adoption 
of environmentally friendly non-chemical methods of pest management and 
strive to avoid the use of chemical pesticides. World Health 
Organization Type 1A and 1B and chlorinated hydrocarbon pesticides; 
pesticides that are persistent, toxic or whose derivatives remain 
biologically active and accumulate in the food chain beyond their 
intended use; as well as any pesticides banned by international 
agreement, shall be prohibited. If chemicals are used, proper equipment 
and training shall be provided to minimize health and environmental 
risks.
    6.7 Chemicals, containers, liquid and solid non-organic wastes 
including fuel and oil shall be disposed of in an environmentally 
appropriate manner at off-site locations.
    6.8 Use of biological control agents shall be documented, 
minimized, monitored and strictly controlled in accordance with 
national laws and internationally accepted scientific protocols. Use of 
genetically modified organisms shall be prohibited.
    6.9 The use of exotic species shall be carefully controlled and 
actively monitored to avoid adverse ecological impacts.
    6.10 Forest conversion to plantations or non-forest land uses shall 
not occur, except in circumstances where conversion: a) entails a very 
limited portion of the forest management unit; and b) does not occur on 
high conservation value forest areas; and c) will enable clear, 
substantial, additional, secure, long term conservation benefits across 
the forest management unit.

Principle 7: Management Plan
    A management plan--appropriate to the scale and intensity of the 
operations--shall be written, implemented, and kept up to date. The 
long term objectives of management, and the means of achieving them, 
shall be clearly stated.
            Criteria
    7.1 The management plan and supporting documents shall provide: a) 
Management objectives. b) Description of the forest resources to be 
managed, environmental limitations, land use and ownership status, 
socio-economic conditions, and a profile of adjacent lands. c) 
Description of silvicultural and/or other management system, based on 
the ecology of the forest in question and information gathered through 
resource inventories. d) Rationale for rate of annual harvest and 
species selection. e) Provisions for monitoring of forest growth and 
dynamics. f) Environmental safeguards based on environmental 
assessments. g) Plans for the identification and protection of rare, 
threatened and endangered species. h) Maps describing the forest 
resource base including protected areas, planned management activities 
and land ownership. i) Description and justification of harvesting 
techniques and equipment to be used.
    7.2 The management plan shall be periodically revised to 
incorporate the results of monitoring or new scientific and technical 
information, as well as to respond to changing environmental, social 
and economic circumstances.
    7.3 Forest workers shall receive adequate training and supervision 
to ensure proper implementation of the management plan.
    7.4 While respecting the confidentiality of information, forest 
managers shall make publicly available a summary of the primary 
elements of the management plan, including those listed in Criterion 
7.1.

Principle 8: Monitoring and Assessment
    Monitoring shall be conducted--appropriate to the scale and 
intensity of forest management--to assess the condition of the forest, 
yields of forest products, chain of custody, management activities and 
their social and environmental impacts.
            Criteria
    8.1 The frequency and intensity of monitoring should be determined 
by the scale and intensity of forest management operations as well as 
the relative complexity and fragility of the affected environment. 
Monitoring procedures should be consistent and replicable over time to 
allow comparison of results and assessment of change.
    8.2 Forest management should include the research and data 
collection needed to monitor, at a minimum, the following indicators: 
a) Yield of all forest products harvested. b) Growth rates, 
regeneration and condition of the forest. c) Composition and observed 
changes in the flora and fauna. d) Environmental and social impacts of 
harvesting and other operations. e) Costs, productivity, and efficiency 
of forest management.
    8.3 Documentation shall be provided by the forest manager to enable 
monitoring and certifying organizations to trace each forest product 
from its origin, a process known as the ``chain of custody.''
    8.4 The results of monitoring shall be incorporated into the 
implementation and revision of the management plan.
    8.5 While respecting the confidentiality of information, forest 
managers shall make publicly available a summary of the results of 
monitoring indicators, including those listed in Criterion 8.2.

Principle 9: Maintenance of High Conservation Value Forests
    Management activities in high conservation value forests shall 
maintain or enhance the attributes which define such forests. Decisions 
regarding high conservation value forests shall always be considered in 
the context of a precautionary approach.
            Criteria
    9.1 Assessment to determine the presence of the attributes 
consistent with High Conservation Value Forests will be completed, 
appropriate to scale and intensity of forest management.
    9.2 The consultative portion of the certification process must 
place emphasis on the identified conservation attributes, and options 
for the maintenance thereof.
    9.3 The management plan shall include and implement specific 
measures that ensure the maintenance and/or enhancement of the 
applicable conservation attributes consistent with the precautionary 
approach. These measures shall be specifically included in the publicly 
available management plan summary.
    9.4 Annual monitoring shall be conducted to assess the 
effectiveness of the measures employed to maintain or enhance the 
applicable conservation attributes.

Principle 10: Plantations
    Plantations shall be planned and managed in accordance with 
Principles and Criteria 1--9, and Principle 10 and its Criteria. While 
plantations can provide an array of social and economic benefits, and 
can contribute to satisfying the world's needs for forest products, 
they should complement the management of, reduce pressures on, and 
promote the restoration and conservation of natural forests.
            Criteria
    10.1 The management objectives of the plantation, including natural 
forest conservation and restoration objectives, shall be explicitly 
stated in the management plan, and clearly demonstrated in the 
implementation of the plan.
    10.2 The design and layout of plantations should promote the 
protection, restoration and conservation of natural forests, and not 
increase pressures on natural forests. Wildlife corridors, streamside 
zones and a mosaic of stands of different ages and rotation periods, 
shall be used in the layout of the plantation, consistent with the 
scale of the operation. The scale and layout of plantation blocks shall 
be consistent with the patterns of forest stands found within the 
natural landscape.
    10.3 Diversity in the composition of plantations is preferred, so 
as to enhance economic, ecological and social stability. Such diversity 
may include the size and spatial distribution of management units 
within the landscape, number and genetic composition of species, age 
classes and structures.
    10.4 The selection of species for planting shall be based on their 
overall suitability for the site and their appropriateness to the 
management objectives. In order to enhance the conservation of 
biological diversity, native species are preferred over exotic species 
in the establishment of plantations and the restoration of degraded 
ecosystems. Exotic species, which shall be used only when their 
performance is greater than that of native species, shall be carefully 
monitored to detect unusual mortality, disease, or insect outbreaks and 
adverse ecological impacts.
    10.5 A proportion of the overall forest management area, 
appropriate to the scale of the plantation and to be determined in 
regional standards, shall be managed so as to restore the site to a 
natural forest cover.
    10.6 Measures shall be taken to maintain or improve soil structure, 
fertility, and biological activity. The techniques and rate of 
harvesting, road and trail construction and maintenance, and the choice 
of species shall not result in long term soil degradation or adverse 
impacts on water quality, quantity or substantial deviation from stream 
course drainage patterns.
    10.7 Measures shall be taken to prevent and minimize outbreaks of 
pests, diseases, fire and invasive plant introductions. Integrated pest 
management shall form an essential part of the management plan, with 
primary reliance on prevention and biological control methods rather 
than chemical pesticides and fertilizers. Plantation management should 
make every effort to move away from chemical pesticides and 
fertilizers, including their use in nurseries. The use of chemicals is 
also covered in Criteria 6.6 and 6.7.
    10.8 Appropriate to the scale and diversity of the operation, 
monitoring of plantations shall include regular assessment of potential 
on-site and off-site ecological and social impacts, (e.g. natural 
regeneration, effects on water resources and soil fertility, and 
impacts on local welfare and social well-being), in addition to those 
elements addressed in principles 8, 6 and 4. No species should be 
planted on a large scale until local trials and/or experience have 
shown that they are ecologically well-adapted to the site, are not 
invasive, and do not have significant negative ecological impacts on 
other ecosystems. Special attention will be paid to social issues of 
land acquisition for plantations, especially the protection of local 
rights of ownership, use or access.
    10.9 Plantations established in areas converted from natural 
forests after November 1994 normally shall not qualify for 
certification. Certification may be allowed in circumstances where 
sufficient evidence is submitted to the certification body that the 
manager/owner is not responsible directly or indirectly of such 
conversion.

    Senator Wyden. Very good. Thanks, thanks to all of you. 
This has been very helpful. Let's take a minute or two and talk 
about where forestry is going in the State of Oregon, and then 
how hardwood plywood fits into it.
    I spend a lot of time in Washington, DC, trying to point 
out to people in the U.S. Senate that the Federal Government 
owns most of our land. Essentially for 100 years now, we would 
get money for essential services through timber receipts. We 
have a cut, we get money for the receipts, we get those funds 
for schools and roads and we go about our business, that was 
how we paid for central services. It was different than the way 
it was done throughout the country.
    When environmental values changed, that money dried up. I 
was able to get a law passed in 2000 to essentially pick up the 
slack. Once again, we're in the same boat. It seems to me, 
Oregon is really at a crossroads.
    I'm going to push and push and push until we get another 
multi-year reauthorization to county payments for legislation. 
We would have gotten 81 percent, about $1.1 billion, had what I 
got passed through the Senate become law. So now when I go back 
next week, we're going to pick up that fight again and stay 
with it until we get it done.
    But it's very clear to me that we have to find other 
economic opportunities for resource dependent communities. Once 
I get the county payments legislation done, I'm going to go on 
to a thinning program, so we can get some of the dead material 
off the forest floor and get it to the mills. Bring together 
people like yourselves in industry and scientists and labor 
folks, environmentalists and do something that promotes the 
health of the forest. We're going to promote biomass programs 
because that's going to help clean energy, again, something 
that could put people to work.
    But it seems to me what you're giving us today is an 
opportunity for a third leg, and that is additional 
opportunities in manufacturing that are value added. In other 
words, they take the resource, you add value to it, and it's an 
opportunity for us to have markets here and around the world in 
hardwood plywood. My sense is that unless we get fair rules and 
fair treatment with respect to the Chinese, we'll lose the very 
kind of value added manufacturing industry that we need as we 
try to make this transition that the Federal Government is 
pushing us toward in this county payments debate.
    Do you all share that view? Why don't we just go right down 
the row, particularly for the--Mr. Daly, we'll spare you and 
just get the Oregonians into this debate.
    Mr. Gonyea, Mr. Guay, Mr. Chamberlain, isn't this exactly 
the kind of industry we ought to be promoting as the Federal 
Government says look, you're not going to get all the money 
that you originally had in the county payments?
    Mr. Gonyea. Absolutely, Senator. Many of those, that type 
jobs are represented here today. We'd be a sad community if we 
didn't offer employment and opportunity to make products like 
we do here in the Southern Rogue Valley.
    Senator, part of the solution has to be at the tenable 
Federal programs. It seems to me that at minimum level we 
should strive for and work together would be the Northwest 
Plan. We've talked about it for 14 years and we can't even get 
close. At 1.1 billion feet is not unattainable. It should be a 
fair minimum and environmentalists should be working with us to 
achieve that for forest health, for jobs in our community. It 
seems to me that needs to be part of the solution going 
forward.
    Mr. Guay. We would absolutely agree with Joe. If we could 
get back to the sustainable cut that was allowed, it would 
lower the cost of wood for us.
    Senator Wyden. We'll make the stool four legs.
    Mr. Gonyea. Exactly. But I would, actually, in terms of the 
value added jobs, I would take it a step further, because I 
think it's either a far more bigger issue than just hardwood 
plywood. Plywood is an intermediate product. It's made into 
something else. When you stop making plywood in North America, 
you stop making furniture in North America. When you stop 
making hardwood planks in North America, you stop making 
engineered flooring in North America.
    So, I just happened to be in Bend this past weekend and one 
of the articles in the Bend Bulletin, the local newspaper, was 
another small custom furniture manufacturer had closed that 
weekend. He hadn't--he wasn't small. He had 40 or 50 employees. 
His reason was he simply can't compete with offshore 
manufacturers. A big reason why he can't compete with those 
offshore manufacturers is because we cannot produce 
competitively priced panel 120 miles south of Klamath Falls to 
supply him. That is a lot about the illegal activities we've 
been talking about.
    So, I think when you look forward at Oregon or our entire 
country, the absence of a competitive intermedial product with 
panels has put furniture manufacturers and other sorts of wood 
panel users offshore, compounding the value added job situation 
from that.
    Senator Wyden. Important point. Mr. Chamberlain.
    Mr. Chamberlain. Senator Wyden, I couldn't agree with you 
more. You know, manufacturing jobs are so important to our 
community because they are an economic driver. When we lose a 
manufacturing job, it's like dropping a pebble into a brook or 
into a lake, rather. It has a ripple effect. It washes across 
the supplier, it washes across those folks employed by our 
school systems, public employees, folks in the building trades, 
everybody loses when we lose jobs like this.
    The other way I look at this is, our State can't be driven 
by high tech alone. High tech is pretty much in the Portland 
Metro area. We have to think of Oregon as Oregon, not Portland 
center. These are rural Oregon's economic drivers. They are so 
important to the State. To lose these type of manufacturing 
jobs, that provides opportunity to working families across the 
State, is absolutely going in the wrong direction.
    Senator Wyden. Of course, it's of benefit to the whole 
State. What happens in rural Oregon creates jobs from the 
forest all the way to the boardrooms in downtown Portland. 
There's no question that there's a rural/urban connection that 
eats up what you described.
    I'm going to get into some of the nuts and bolts issues of 
this question of how the Chinese engage in these practices, but 
I wanted to spend a minute on that first question because I 
think these debates always kind of strike people as ``well, why 
are we bringing that up right now?'' I want people to know that 
given the challenges we're going to have with county payments, 
and I'm going to get that law renewed, I'm going to get it 
renewed for a multi-year basis and multi-year program. The 
Congressmen from this area, on the other side of the aisle, has 
done a lot of good work in assisting me on this. But we're also 
going to have to find good paying additional industries in 
fields to strengthen the Oregon economy.
    Frankly, I'm going to use your testimony. If somebody is 
trying to ratchet down our county payments program, I'm going 
to say you'd better help us in terms of these other areas, the 
question of the Northwest Forest Plan, biomass programs, 
thinning programs, and yes, this question of fair treatment in 
the trade area with respect to China. So you have put it in the 
right kind of context. I'm going to get into this, some of the 
nuts and bolts question of how these unfair practices go 
forward.
    Tell me a little bit, for the record, what the HP-1 
standard is. Because I understand this is one of the areas in 
which the Chinese hardwood people have engaged in questionable 
activity. Can you all enlighten me on that? I understand that 
you have heard that Chinese hardwood plywood manufacturers 
improperly labeling their product, as meeting this ANSI HP-1 
standard. Is that right? I'm sorry, HPDA. I read an initial 
wrong. HPVA, yes.
    Mr. Guay. Definitely. We see that with plants that work 
over there, products are being labeled with HPVA grade levels 
that are not correct. It's a wide range.
    Senator Wyden. What does this mean for consumer?
    Mr. Guay. What it means to a consumer is they think, put 
most basically, they are buying a beautiful piece of plywood 
and they are not. They are buying a piece of plywood with 
certain structural characteristics, and they are not.
    Senator Wyden. Are there any dangers to people or----
    Mr. Guay. It isn't in that standard as probably the glues 
that are used. None of us import what we have to call dangerous 
formaldehyde levels in the United States, consciously. But 
China sends dangerous formaldehyde levels into the United 
States. We find that when the customer opens the container. 
That's quite dangerous.
    Senator Wyden. So China is sending products with dangerous 
formaldehydes in them? What's happening to those products now? 
They just go out across the land?
    Mr. Guay. You know, unless it's caught in Customs, which is 
a very low likelihood because of the volume versus the 
resources, it's in your kitchen cabinet.
    Senator Wyden. Mr. Gonyea, you've got something, a 
sustainable forest initiative certificate process, which 
strikes me as something where American industry is trying to go 
the extra mile to show that its products are of high quality. 
How does that work?
    Mr. Gonyea. Senator, whether SFI, which we chose to kind of 
follow in our company, or FSC, what we can say is we initiated 
a third party certification of our forest lands, and quite a 
process to go through and audit on a regular basis to make sure 
that we're complying with the standards as set forth, and 
either as a buyer, FSC, and ensure that we're practicing 
sustainable forestry, which we are proud to do today.
    Senator Wyden. But yet I gather some of the people we're 
dealing with around the world are not exactly tripping over 
themselves to meet the same standards?
    Mr. Gonyea. Besides SFI, obviously we comply to rigorous 
standards, both State and Federal, Senator. What we've done is 
take good forest practices here in this country. With foreign 
products, Chinese, we've exported demand to countries that have 
virtually no forest practices. I say let's bring back good 
forest practices and use our forest as intended.
    Senator Wyden. Now, both of you also, as I understood it, 
given the crunch you're in, have to import some Chinese 
hardwood plywood as well. So, you have to bring some in. But 
you're also trying to make sure that the public is aware that 
there needs to be better protection in this area. Tell me a 
little bit about how you deal with the kind of meshing of these 
two concerns, Mr. Gonyea and Mr. Guay.
    Mr. Gonyea. Senator, as I referenced in, yes, we do import 
products, about 12 percent of our total annual sales are 
imported products from around the globe. Yes, a small portion 
of that would be from China. It may be ironic to note that in 
not many years past, we exported products around the globe at a 
greater percentage of our overall sales.
    Today, we import products because, not because we choose to 
do so, it's because our customers, the consumers have dictated 
their desires for price point advantageous products from around 
the globe. We would like to change those habits. We would like 
the consumers in our country to buy American made products that 
are sustainably produced and that we can ensure that they are 
sustainably produced because we comply with SFI or FSC.
    Senator Wyden. Mr. Guay.
    Mr. Guay. I think my answer is very similar to Joe's. We 
got into the import business by following our customers there, 
not by leading our customers to China. A big part of our 
customer base is very large original equipment manufacturers, 
OEM, furniture manufacturers, cabinet manufacturers that have 
moved their factories to China. They became used to sourcing 
from there and ultimately decided to use Chinese products here 
in the United States, the one that's left open. So they were 
going to import with or without us.
    Our thought was by being the importer, we could make a 
profit for our shareholders, but perhaps more importantly, stay 
in contact with those customers because they were going to 
import, with or without us. If we didn't stay in contact with 
them, when initiatives like this took place, we would have no 
entree to say here's what's happening and here's what can be 
done better.
    Senator Wyden. I would gather that if you didn't have even 
a small amount of imports, folks in Oregon might not even have 
all the jobs they've got; is that right?
    Mr. Gonyea. We think that imports do complement our product 
line and we hope to sell more domestic produced products with a 
smaller percentage. So, in that regard, I think that would be 
correct, Senator.
    Senator Wyden. You both, all three of you from Oregon, are 
in favor of new rules regulating the import of timber that 
occur illegally?
    Mr. Gonyea. Absolutely.
    Mr. Guay. Absolutely.
    Mr. Chamberlain. Yes.
    Senator Wyden. Tell me about the situation with Russia. 
Now, our understanding is a lot of the illegal timber coming 
into China, the manufacturer hardwood plywood comes in from 
Russia. You indicated that you were doing business in Russia. 
What has that experience been like and what is the connection, 
for the record, between China and Russia?
    Mr. Guay. When I say we import, the largest importer of 
Russian birch, the Russian birch we're bringing in is coming 
from the western side of Russia where we know it is legally 
logged. When you are talking about the logs going into China, 
they are coming, as Ned said, from Siberia and eastern Russia 
where, you know, frankly, I don't know that there is legal 
logging up there. It's so rampant and uncontrolled.
    Relationship is really pretty simple. As Ned mentioned, in 
2000 China began limiting their own timber harvest. During that 
same cycle, the numbers that Joe and I talked about saw an 
astronomical increase in consumption of wood in China for re-
export to the United States. A vast majority of that is Russian 
birch. It's the cheapest wood in the world and it's adjacent to 
the plywood manufacturing centers of China. So it became the 
obvious source of wood, but it is an utterly uncontrolled 
environment.
    Senator Wyden. You describe the United States as being a 
dumping ground, Mr. Guay, that's pretty strong language. 
Somebody calls our country a dumping ground for unsafe wood, 
what do you mean by that?
    Mr. Guay. We are the world's largest, second largest 
consumer of wood. Almost all of that wood comes from sources 
offshore. Most of that is southeast Asia, Russia, and Africa. 
The logic there is simply those three parts of our globe have 
no control over logging. We are the second largest consumer of 
that wood on the planet. The E.U. being one of the other 
largest consumer, actually has regulations. There are entire 
species that are harvested in Russia, or excuse me, in Africa, 
that you cannot import to Europe, period. You can import it 
here. We lack control as a country.
    Senator Wyden. Mr. Chamberlain, a question for you, with 
respect to the value-added issue. I think one of the biggest 
challenges for our congressional delegation is a sensible trade 
policy. Mr. Gonyea often talked about free and fair trade. I 
often describe it as a need for smart trade, where you protect 
your interests, you have the freest possible market, but you're 
also a smart trading partner in the world.
    One of the areas that I think there's the biggest consensus 
on, as it relates to the foundation of a new trade policy, is 
that we do everything we can to get a level playing field for 
value-added products, and the kind of products that we're 
talking about here today. Do you think that's the beginning of 
a new consensus between labor and business on this trade issue?
    Mr. Chamberlain. I hope so. I hope so. The AFL-CIO National 
when I was in contact with them yesterday, prior to this 
meeting about trade, is they feel that they have made some 
progress on trade agreements with the International Laboring 
Organization Standards being adopted in two trade agreements. 
But there has to be a consensus on maintaining, maintaining 
manufacturing jobs in this country and creating a level playing 
field for workers and business if it weren't in these trade 
agreements. I think it's essential.
    Senator Wyden. Mr. Daly, a couple questions for you. What 
does it mean when you say that the Chinese are misappropriating 
our logos? In other words, Mr. Gonyea, Mr. Guay are talking 
about this certification process, I guess the technical name 
for it is the FSC certification. So, we've got, our companies 
go through all this trouble to get everything certified and 
adhere to high standards. Then you say that the Chinese are 
misappropriating our logos. What does that mean? What are the 
real world implications of that?
    Mr. Daly. It's very similar to what Joe and Phill said 
about the HPVA standard, or very similar to what you see with 
the Underwriters Laboratory standard on our electronic 
products. It is just used by a number of companies 
inappropriately without authorization to try to access these 
growing markets in the United States and Europe.
    Clearly, we're having an impact. People feel like they have 
got to take these initiatives in order to access those markets. 
But it's, it's creating a lot of problems in terms of the 
legitimacy of the label.
    So to date we haven't had any major problems. We've been 
able to address all the issues. We found the chain-of- custody 
seems to work very well. But our assumption is that this will 
be continuing to be a problem and something that we have to 
monitor.
    We appreciate the work of the organization, a company like 
Columbia Forest Products, who probably, like a few other 
companies, spend a lot of time in China, make sure that what 
they are buying is legal and from sustainable sources. With 
partners like that, I think we can address this issue.
    Senator Wyden. How is Chinese law enforcement been in this 
issue? Are they being helpful?
    Mr. Daly. Well, to date they have not had a very big 
impact. I think that----
    Senator Wyden. Is it because they are not trying or----
    Mr. Daly. Not clear, but there's not been a lot of effort. 
The problem seems to be overwhelming in a lot of ways. And the 
imports from the far east of Russia, there is no oversight, no 
control whatsoever. Nothing at the border, no documentation. 
Clearly they could step up efforts.
    Senator Wyden. When you say the problem is overwhelming to 
Chinese law enforcement, that can't make people in Oregon, the 
people here feel particularly good. In other words, it suggests 
to me that there's a problem now and it's going to get bigger, 
unless we take steps to turn it around; is that right?
    Mr. Daly. Definitely. Certainly in the Russian far east, 
and the illegal, like in southeast Asia, more often you're 
seeing mislabeled and misrepresented species, poor work, just 
logs coming in through ships in fairly remote ports where 
there's just either not a lot of oversight, where all the 
oversight is corrupt.
    Senator Wyden. I think that ought to be a wake-up call for 
everybody in the U.S. Congress and a good one to put this panel 
on.
    We always like to give our witnesses the last word. Anybody 
on the panel want to add anything, or we'll excuse you at this 
time?
    Mr. Gonyea. Senator, I just add thank you. I thank you for 
being an advocate for free, fair and hopefully smart trade. 
Let's keep moving forward.
    Senator Wyden. We are on it.
    Mr. Guay. I add one comment. I think, Senator, that you're 
absolutely right. We are at a cusp of change in our industry 
right now. First quarter of this year saw 6 percent increase in 
volume at 33 percent increase in value. Chinese are now 
bringing in a high valued, especially designed products that 
are now what remains of our bread and butter in this industry. 
If we lose those specialty products, we're going to lose this 
industry, period.
    I thank you for the opportunity to be here, and most 
especially for you and your staff the efforts that you're doing 
here through 332, I think will have an enormous impact.
    Senator Wyden. Thank you all. Mr. Chamberlain, do you want 
to add anything?
    Mr. Chamberlain. Yes, I do.
    Senator Wyden. Good.
    Mr. Chamberlain. I really want to thank you for chairing. 
Oftentimes I have to fight to be on a panel. It's rare that I'm 
asked to join a panel. It's commendable if you want a working 
family's perspective into this problem because it is a working 
family problem. Thank you.
    Senator Wyden. You and working families are what it's all 
about. I particularly appreciate the fact that there's an 
effort, a labor business effort to reach out in this State. Mr. 
Daly, you'll always be welcome here in the Pacific Northwest. 
Thank you for coming.
    Mr. Daly. Thank you very much.
    Senator Wyden. All right. You're excused.
    Our next panel can come forward. Ms. Vera Adams, Executive 
Director of Trade and Enforcement Facilitation, United States 
Department of Homeland Security, Customs Bureau, and Mr. Tim 
Wineland, Senior Director of China Affairs, Office of China 
Affairs, U.S. Trade Representative.
    Let us begin with you, Ms. Adams, Mr. Wineland, both of 
you, we thank you very much for coming. I also want to begin 
this panel, express my appreciation to the Trade 
Representatives Office. I have been meeting with the Trade 
Representative, Ambassador Schwab. At our first meeting I urged 
the ambassador to send a letter to the Chinese raising these 
hardwood plywood issues to determine whether the subsidies 
could be pursued in a World Trade Organization case.
    After that meeting, U.S. Trade Representatives did file 
with the World Trade Organization subsidy cases, specifically 
targeted subsidy benefiting the Chinese hardwood plywood 
industry. We've had a number of follow-up meetings. Ambassador 
Schwab has been meeting with a number of our Senate Finance 
Committee on which I serve. So please express my appreciation 
to the Ambassador. It's an instance where you all really 
followed up and we appreciate and we welcome both of you.
    Ms. Adams, we're glad that you all are involved in this as 
well, and pleased to make a part of the hearing record, your 
full remarks. If you can summarize your major concerns, that 
would be good.

    STATEMENT OF VERA ADAMS, EXECUTIVE DIRECTOR, COMMERCIAL 
   TARGETING AND ENFORCEMENT, OFFICE OF INTERNATIONAL TRADE, 
 DEPARTMENT OF HOMELAND SECURITY, CUSTOMS AND BORDER PROTECTION

    Ms. Adams. Thank you. Good afternoon, Chairman Wyden. It's 
a privilege and an honor to appear before you today to discuss 
importing Chinese plywood. We appreciate the support that 
Congress provides to the Department of Homeland Security as 
U.S. Customs and Border Protection performs its important 
security and trade enforcement mission, while simultaneously 
facilitating the flow of legitimate trade and travel that is so 
important to our nation's economy. As the guardian of our 
Nation's border, CBP recognizes the importance of enforcing 
trade laws that help protect the forest product industry and 
the communities that depend on it.
    I want to first express my gratitude to you and the 
committee and to the Hardwood Plywood Veneer Association, the 
Hardwood Federation and other associations that have played a 
role in bringing to our attention certain enforcement concerns 
that pertain to import of plywood into the United States.
    As the volume of trade increases, information from domestic 
associations place an ever more important role in assisting CBP 
in identifying illicit activity to ensure successful 
enforcement of our Nation's trade laws, CBP has developed 
`Priority Trade Issues' or `PTI's' to help facilitate 
legitimate trade while protecting the American economy from 
unfair trade practices and illicit commercial enterprises. The 
PTI's are specific commodities or other trade topics upon which 
CBP has decided to focus its resources. These PTI's are: 
Antidumping and Countervailing Duty, Intellectual Property 
Rights, Textiles and Wearing Apparel, Revenue, Agriculture, and 
Penalties. The concerns that have been raised with respect to 
plywood importations into the United States, cross over many of 
these PTI's.
    As you are aware, CBP has been examining certain issues 
related to plywood importations since you first brought this to 
our attention in November 2006. As was stated in your letter to 
Commissioner Basham, it is alleged that the plywood is being 
misclassified as duty free under the tariff for birch-faced 
plywood instead of, for example, oak-faced plywood with an 8 
percent duty rate.
    CBP is quite familiar with the subject of tariff 
misclassification and we have initiated other enforcement 
actions with similar types of merchandise. For instance, in 
August 2005, CBP worked with the Hardwood Federation to 
investigate misclassified imports of hardwood flooring from 
China, Brazil, and Canada. CBP conducted a national operation 
targeting all imports entering under specific tariff 
classifications from the three target countries and found 
widespread misclassification. As of today's date, CBP has 
discovered more than 120 importers misclassifying the hardwood 
flooring, using a duty free or lower duty rate provision than 
is appropriate. Approximately $30 million in potential lost 
revenue has been identified so far. We are entering the penalty 
phase for those violations.
    Regarding plywood, in recent months, CBP has conducted 
several meetings with industry associations and representatives 
from the Hardwood Plywood & Veneer Association, the Hardwood 
Federation, and the Industry Trade Advisory Committee on Forest 
Products to gather information to assist us in our enforcement 
actions. Based on the allegations raised in your letter to CBP 
and upon information provided by these industry 
representatives, CBP initiated a nationwide operation to verify 
the allegation of misclassification and misdescription. We 
learned from the hardwood flooring operation that 
misclassification and misdescription in this industry is 
rampant.
    Senator Wyden. I want to make sure I'm on that. So, you all 
have begun the process. You've already made some official 
assessments of it. You would say misclassification and the 
concerns that the industry, those practices are rampant, is 
that how you characterize it?
    Ms. Adams. According to many of our domestic industry 
partners, yeah, they believe and we believe that in the end, 
the outcome will be determined there is also rampant 
misclassification coming in.
    Senator Wyden. That's, that's your assessment, that's the 
government's assessment, your Agency's assessment today?
    Ms. Adams. We believe that there is going to be significant 
amount of misclassification. We have to wait for the end 
results, power enforcement operation in our laboratory to----
    Senator Wyden. It's just I was interested and I've been 
less clear about where we were with Customs. I wanted to get a 
sense on the record of what you all have done and picked up at 
this point, and that's very helpful.
    Ms. Adams. OK. Shall I?
    Senator Wyden. Yes, please.
    Ms. Adams. A significant number of shipments have already 
been targeted for intensive examination. As part of the 
operation, sections of plywood are cut from the arriving 
shipments and sent to our Laboratory and Scientific Services 
Division for analysis to determine whether the plywood face 
consists of ply birch or is composed of some other species, 
which would cause it to be in a different classification. Once 
the lab analysis is complete, our import specialists at ports 
of entry will determine the proper tariff classification and 
the amount of duty owed. At this point in time, our lab 
analyses are ongoing and the results of our enforcement actions 
are pending.
    CBP recognizes that finding violations is only part of an 
enforcement picture. Follow-up to ensure continued compliance 
is essential to any enforcement action and is standard 
practice. Through data and trend analysis, document reviews, 
and examinations of merchandise, CBP continues to monitor 
hardwood flooring shipments and will monitor plywood imports 
after this current operation is complete and the results are 
in.
    Mr. Chairman and members present, as CBP moves forward in 
addressing the subject of misclassified plywood imports, we 
look forward to working in partnership with Congress and 
industry stakeholders to build on our accomplishments to date 
and focus on achieving the desired results. I thank you for 
this opportunity to testify.
    [The prepared statement of Ms. Adams follows:]
   Prepared Statement of Vera Adams, Executive Director, Commercial 
Targeting and Enforcement, Office of International Trade, Department of 
            Homeland Security, Customs and Border Protection
    Good Afternoon Chairman Wyden, and members of the committee, it is 
a privilege and an honor to appear before you today to discuss imported 
Chinese plywood. We appreciate the support that Congress provides to 
the Department of Homeland Security as U.S. Customs and Border 
Protection (CBP) performs its important security and trade enforcement 
mission while simultaneously facilitating the flow of legitimate trade 
and travel that is so important to our nation's economy. As the 
guardian of our nation's borders, CBP recognizes the importance of 
enforcing trade laws that help protect the forest product industry and 
the communities that depend on it.
    I want to first express my gratitude to you and the committee and 
to the Hardwood Plywood & Veneer Association, the Hardwood Federation 
and other associations that have played a role in bringing to our 
attention certain enforcement concerns that pertain to the import of 
plywood into the United States. As the volume of trade increases, 
information from domestic associations plays an ever more important 
role in assisting CBP in identifying illicit activity.
                               background
    To ensure successful enforcement of our nation's trade laws, CBP 
has developed `Priority Trade Issues' or `PTI's' to help facilitate 
legitimate trade while protecting the American economy from unfair 
trade practices and illicit commercial enterprises. The PTI's are 
specific commodities or other trade topics upon which CBP has decided 
to focus its resources. These PTI's are: Antidumping and Countervailing 
Duty, Intellectual Property Rights, Textiles and Wearing Apparel, 
Revenue, Agriculture, and Penalties. The concerns that have been raised 
with respect to plywood importations into the United States, which are 
within the authority of CBP to address, cross over many of the PTI's.
    As you are aware, CBP has been examining certain issues related to 
plywood importations since you first brought this to our attention in 
November of 2006. As was stated in your letter to Commissioner Basham, 
it is alleged that the plywood is being misclassified as duty free 
under the tariff for birch-faced plywood instead of, for example, oak-
faced plywood with an 8% duty rate.
    CBP is quite familiar with the subject of tariff misclassification 
and we have initiated other enforcement actions with similar types of 
merchandise. For instance, in August of 2005, CBP worked with the 
Hardwood Federation to investigate misclassified imports of hardwood 
flooring from China, Brazil, and Canada. CBP conducted a national 
operation targeting all imports entering under specific tariff 
classifications from the three target countries and found widespread 
misclassification. As of today's date, CBP has discovered more than 120 
importers misclassifying the hardwood flooring, using a duty free or 
lower duty rate provision. Approximately $30 million in potential lost 
revenue has been identified.
                          current enforcement
    Regarding plywood, in recent months, CBP has conducted several 
meetings with industry associations and representatives such as the 
Hardwood Plywood & Veneer Association, the Hardwood Federation, and the 
Industry Trade Advisory Committee on Forest Products (ITAC 7) to gather 
information to assist us in our enforcement actions. Based on the 
allegations raised in your letter to CBP and upon information provided 
by these industry representatives, CBP initiated a nationwide operation 
to verify the allegation of misclassification and misdescription. We 
learned from the hardwood flooring operation that misclassification and 
misdescription in this industry is rampant. We are able to use what we 
learned in hardwood flooring and apply it to our current operation.
    A significant number of shipments have already been targeted for 
intensive examination. As part of the operation, sections of plywood 
are cut from the arriving shipments and sent to CBP's Laboratory and 
Scientific Services (LSS) Division for analysis to determine whether 
the plywood face consists of ply birch or other species. Once the lab 
analysis is complete, our import specialists at ports of entry will 
determine the proper tariff classification and amount of duty owed. At 
this point in time our lab analyses are ongoing and the results of our 
enforcement actions are pending.
    CBP recognizes that finding violations is only part of an 
enforcement picture. Follow up to ensure continued compliance is 
essential to any enforcement action and is standard practice. Through 
data and trend analysis, document reviews and examinations of 
merchandise, CBP continues to monitor hardwood flooring shipments and 
will monitor plywood imports after this current operation is complete.
                               conclusion
    Mr. Chairman and members of the committee, as CBP moves forward in 
addressing the subject of misclassified plywood imports, we look 
forward to working in partnership with the Congress and industry 
stakeholders to build on our accomplishments to date and focus on 
achieving the desired results. I thank you for this opportunity to 
testify.
    I will be happy to answer any of your questions.

    Senator Wyden. Very good.
    Mr. Wineland.

  STATEMENT OF TIM WINELAND, SENIOR DIRECTOR, OFFICE OF CHINA 
   AFFAIRS, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

    Mr. Wineland. Thank you, Chairman Wyden. I am pleased to 
participate in today's hearing. The office of U.S. Trade 
Representative is responsible for the developing and 
coordinating U.S. international trade policy and working to 
secure a level playing field for American workers, farmers, and 
businesses in overseas markets, as well as in the U.S. market. 
USTR oversees negotiations with other countries on 
international trade matters. We seek to resolve trade problems 
with other countries, plus giving a brief overview of USTR's 
engagement with China, touching on some of the tools that we 
use to address key trade concerns, including hardwood plywood 
sector.
    Since joining the WTO 5 years ago, China has taken 
significant steps to bring its trading system into basic WTO 
compliance. These steps have helped to deepen and strengthen 
economic reforms that China had begun more than two decades 
ago. U.S. businesses, workers, farmers, service, providers and 
consumers have all benefited significantly from these steps.
    Last year, U.S. goods exports to China climbed from 32 
percent, while China's exports to the United States increased 
by 18 percent. Today, China is our fourth largest export 
market.
    China's record in implementing its WTO obligations is 
decidedly mixed. While China has implemented many of its 
obligations, but there are a number of areas where it has a 
great deal of work to do.
    In our engagement with China, we pursue trade problems 
through a dual-track approach--bilateral dialog where possible 
to try to achieve practical solutions to trade issues, together 
with a full willingness to use WTO dispute settlement process 
when necessary.
    We are committed to seeking some cooperative resolutions 
through bilateral dialog with China and we've achieved some 
important successes that I have outlined in my written 
testimony. Many of those successes were derived through the 
Annual U.S.--China Joint Commission on Commerce and Trade or 
``JCCT''. The meeting is held annually to resolve a number of 
important trade issues in the JCCT.
    However, in other areas, we've been unable to resolve 
important issues through bilateral dialog. In those cases, we 
have turned to formal WTO dispute settlements in five 
instances, including cases on China's value-added tax policies, 
its policies on imported auto parts, its illegal regime for 
protecting intellectual properties, certain barriers to market 
access for U.S. copyright-intensive industries. I do mention 
several of China's subsidies programs, which do have an impact 
on hardwood plywood sector.
    I'd like to spend a little more time talking about that, 
the issue of subsidies. It is an area of priority concern for 
USTR, the Chinese Government's role in directing the Chinese 
economy through subsidy and other measures. We are confronting 
this serious challenge using both enforcement levers as well as 
dialog.
    As you mentioned, in February 2007, we initiated WTO 
consultations with China over what we contend is China's 
persistent use of prohibited subsidies. Basically we believe 
that China uses its tax laws and other tools to encourage 
exports and to discriminate against imports on a variety of 
manufactured goods. The subsidies at issue in this case are 
offered across a broad spectrum of industry sectors, including 
wood products, steel, information technology, and others.
    It's an important case, important because it challenges 
policies that are tilting the playing field against our workers 
and companies, but most important because it will help impel 
China to maintain a process of economic reform and to redirect 
its economy toward a model of consumption rather than export 
growth.
    Victory for the United States in this WTO dispute should 
have a positive impact on the hardwood plywood sector. The case 
targets a number of very harmful subsidies, including export-
related tax breaks offered to foreign-invested firms in China's 
plywood sector and other industry sectors.
    While we have filed this WTO case, we continue to engage in 
dialog on China on their use of subsidies more broadly.
    The hardwood plywood industry and other industries have 
expressed to us concerns about the problems that many other 
Chinese Government incentives create for them. Supporting 
industry's efforts to obtain more information about the various 
types of financial support that China provides to its domestic 
industries and taking effective action on that information is a 
priority for USTR.
    Finally, although it does not fall within USTR's purview, I 
should note that the Department of Commerce continues to apply 
U.S. trade remedy laws to ensure unfair trade practices do not 
distort the playing field against U.S. companies.
    Turning to other hardwood plywood issues, the 
administration has aggressively worked to ensure a level 
playing field for U.S. hardwood plywood manufacturers, as well 
as the entire forest and paper industry sector. China's 
hardwood plywood industry has emerged as a chief competitor to 
our industry.
    In the forest product sector, the growth in China's wood 
processing industry and strong Chinese demand for imported wood 
have provided opportunities for U.S. exporters. Our exports of 
hardwood lumber have shown strong growth in recent years, 
meeting some of China's demand for forest products and raw 
materials. At the same time, in some sectors of our forest 
industry, like wood panel products and hardwood plywood, we are 
aware that Chinese exports of these products to the United 
States are climbing.
    In late January, as you mentioned after meeting with you, 
Ambassador Schwab wrote to Chinese Congressman, Minister Bo 
Xilai, specifically on the issue of hardwood plywood. She asked 
if we can begin talks to address this issue at a higher level. 
A first meeting on the issue of hardwood plywood was held in 
February in Beijing. We anticipate continuing a dialog on that 
issue.
    We have been pressing China to help work with us to stem 
the problem of illegal logging timber that may be a source of 
raw material for Chinese producers. Specifically, this spring 
we asked China to agree to engage in a dialog on illegal 
logging effort after hearing about the concerns of industry and 
you to explore ways to cooperate through a bilateral agreement. 
We are pleased that as of last week's Strategic Economic dialog 
held in Washington, DC, Chinese Vice Premier Wu Yi agreed to 
our request to establish a cooperative dialog on the issue of 
illegal logging with the potential for a bilateral agreement at 
some point in the future. In coming weeks and months, we will 
open this dialog.
    This effort builds on other initiatives we are taking on 
illegal logging, including a MOU with Indonesia on illegal 
logging and other regional efforts to accommodate Singapore and 
Malaysia.
    We're also working to address other issues related to 
hardwood plywood. For example, we have raised with China the 
issue of their border trade policies, where wood and other 
products imported from Russia may be coming in without paying 
value-added taxes, disadvantaging our hardwood plywood 
industry.
    Additionally, we continue to press China on the issue of 
``reference pricing,'' where Customs authorities in China, in 
some cases inappropriately use ``reference pricing'' and not 
the actual price of imports when calculating product valuation 
at the border, a practice that can in some cases lead to a 
higher Chinese tariff than appropriate. We have indicated to 
the U.S. hardwood plywood industry, our desire to work together 
on this and have sought specific examples, including specific 
shipments where reference pricing is being used by Chinese 
Customs.
    In summary, USTR is committed to ensuring that we are using 
the most effective tools at our disposal to pursue an open and 
fair trade relationship with China.
    Thanks for the opportunity to testify. I'll be happy to 
answer questions.
    [The prepared statement of Mr. Wineland follows:]
 Prepared Statement of Tim Wineland, Senior Director, Office of China 
       Affairs, Office of the United States Trade Representative
                              introduction
    Chairman Wyden and distinguished members of the Energy and Natural 
Resources Subcommittee on Public Lands and Forests, I am pleased to 
participate in today's hearing.
    I understand that today's hearing is focused principally on issues 
related to the impact of Chinese hardwood plywood trade on the National 
Forest System and other public lands, and our communities that depend 
on them. The Office of the U.S. Trade Representative (USTR) is 
responsible for developing and coordinating U.S. international trade 
policy. The work of USTR aims at increasing exports by developing and 
coordinating U.S. international trade, commodity, and direct investment 
policy, and overseeing negotiations with other countries . In working 
with other U.S. Government agencies we hope to expand market access for 
American goods and services abroad and secure a level playing field for 
American workers, farmers and businesses in markets around the world, 
including the U.S. market. USTR accordingly oversees negotiations with 
other countries on a wide range of international trade matters. In 
addition, we seek to resolve trade problems using a wide variety of 
tools, including bilateral discussions, negotiations, and formal 
dispute settlement proceedings.
    To provide more concrete perspective on our work, I will give you a 
brief overview of USTR's recent engagement with China, touching on the 
mechanisms USTR uses to address key trade concerns including concerns 
in the hardwood plywood sector.
                        key china trade efforts
    China's accession to the WTO marked a critical step forward toward 
China's integration into the international rules based system. Since 
acceding to the WTO five years ago, China has taken significant steps 
in an effort to bring its trading system into basic compliance with WTO 
rules. These steps have helped to deepen and strengthen economic 
reforms that China had begun more than two decades ago. U.S. 
businesses, workers, farmers, service providers and consumers have 
benefited significantly from these steps and continue to do so as U.S.-
China trade grows. Indeed, last year, U.S. goods exports to China 
climbed by 32 percent (while China's exports to the United States 
increased by 18 percent). These data suggest that the Chinese market is 
becoming more accessible for American companies, and that Chinese 
consumers are developing an appetite for America's highly competitive 
goods and services. China today has become our fourth largest export 
market, and the fastest growing major export market for the United 
States in the world. It is helping to support thousands of American 
jobs today and will support even more in the future.
    Despite this progress, China's record in implementing its WTO 
obligations is mixed. While China has fully implemented many of its WTO 
obligations, there are a number of areas where it still has work to do, 
as it continues to transition from a centrally planned economy toward a 
free-market economy governed by rule of law.
    In our engagement with China, the United States follows a dual-
track approach to resolving its WTO concerns--bilateral dialogue to try 
to achieve practical solutions where possible, together with a full 
willingness to use WTO dispute settlement where appropriate to resolve 
problems that have evaded resolution through dialogue.
    The United States remains committed to seeking cooperative and 
pragmatic resolutions through bilateral dialogue with China, and the 
United States has achieved some important successes. For example, 
through our bilateral dialogues in the past year, primarily conducted 
through the U.S.--China Joint Commission on Commerce and Trade or 
``JCCT'', China made several commitments related to IPR protection and 
enforcement. It also committed to eliminate duplicative testing and 
certification requirements applicable to imported medical devices, to 
make adjustments to its registered capital requirements for 
telecommunications service providers, and to finalize a protocol 
allowing the resumption of trade in U.S. beef and beef products. China 
also reaffirmed past commitments to technology neutrality for 3G 
telecommunications standards and to ensuring that new rules in the 
postal area would not negatively affect foreign express couriers. In 
addition, China committed to commence, by no later than December 31, 
2007, formal negotiations to join the WTO's Government Procurement 
Agreement. The United States has been working with China to make sure 
that it implements all of these commitments.
    However, we have been unable to resolve other important issues 
through bilateral discussions, despite extensive effort, and we have 
turned to formal WTO dispute settlement in five instances:

    --In March 2004, we commenced a WTO dispute against China's 
            discriminatory value-added tax on integrated circuits. We 
            were able to work successfully with China to resolve this 
            issue during the consultation phase, and China repealed the 
            discriminatory treatment.
    --In March 2006, the United States, acting in coordination with the 
            European Communities and Canada, commenced a WTO dispute 
            settlement case challenging Chinese discriminatory charges 
            on imported auto parts. We are now pursuing this case in 
            front of a WTO arbitral panel.
    --In February 2007, the United States, later joined by Mexico, 
            filed a WTO consultation request in a case challenging 
            several subsidy programs that appear to be prohibited under 
            WTO rules, either because they are contingent upon 
            exportation or contingent upon the use of domestic over 
            imported goods. The parties held a first round of 
            consultations in March 2006.
    --In April 2007, the United States requested WTO consultations 
            regarding certain deficiencies in China's legal regime for 
            protecting and enforcing intellectual property rights 
            related to copyrights and trademarks that affect a wide 
            range of products. The problems identified include high 
            thresholds for criminal prosecution that create a 
            substantial ``safe harbor'' for wholesalers and retailers 
            who distribute or sell pirated and counterfeit products in 
            China. Under WTO rules, formal consultations will take 
            place in this case before mid-June.
    --In April 2007, on the same day as the filing of the IPR case, the 
            United States requested WTO consultations regarding certain 
            barriers to market access for U.S. copyright-intensive 
            industries, including books, music, home videos and movies. 
            Consultations in this case also are due before mid-June.

    USTR provides a detailed discussion of the efforts the United 
States has made to address these and other areas of concern, using 
bilateral dialogue and WTO dispute settlement, in the ``2006 USTR 
Report to Congress on China's WTO Compliance,'' issued on December 11, 
2006. The report is available on the USTR website (www.ustr.gov).
                               subsidies
    An area of priority concern for USTR is the Chinese Government's 
role in directing the Chinese economy, including through the use of 
subsidies. We are confronting this serious challenge using both 
enforcement levers as well as dialogue.
    As you know, and as I described earlier in my testimony, in 
February 2007 we announced that the United States has requested 
consultations at the WTO over what we contend is China's persistent use 
of prohibited subsidies. Basically, the United States believes that 
China uses its tax laws and other tools to encourage exports and to 
discriminate against imports of a variety of manufactured goods. The 
subsidies at issue in this case are offered across a broad array of 
industry sectors in China--including wood products, steel, information 
technology, and others.
    It is an important case--important because it challenges policies 
that are tilting the playing field against our workers and companies, 
important because it makes clear that we will use WTO dispute 
settlement procedures to hold China to its commitments where dialogue 
does not resolve our concerns, and--perhaps most of all--important 
because it will help impel China to maintain a process of reform and to 
redirect its economy towards a model of consumption-led, rather than 
export-led, growth. A victory for the United States in this WTO dispute 
should have a positive impact on the hardwood plywood sector. The case 
targets a number of very harmful subsidies, including export-related 
tax breaks offered to foreign-invested firms in China's plywood sector 
and other industry sectors.
    While we have filed this WTO case, we continue to engage in 
dialogue with the Chinese on their use of subsidies. These discussions 
are happening both at the sector-specific level--for example, our 
recently created ``Steel Dialogue'' under the JCCT is enabling a 
conversation among governments and industries of both sides--as well as 
in connection with our broader economic dialogues, including the 
Strategic Economic Dialogue. Industrial policies that limit market 
access for non-Chinese origin goods and that provide substantial 
government resources to support Chinese industries also remain a 
concern.
    The hardwood plywood industry and other industries have expressed 
concerns to us about the problems that many Chinese government 
incentives create for them. Supporting industry's efforts to obtain 
comprehensive information about the various types of financial support 
that China provides to its domestic industries and taking effective 
action on that information is a priority for USTR.
    Finally, although it does not fall within USTR's statutory purview, 
I should note that the Department of Commerce continues to apply U.S. 
trade remedy laws to ensure that unfair trade practices, whether 
undertaken by the Chinese or others, do not distort the playing field 
against U.S. companies.
                     china hardwood plywood issues
    The Administration has aggressively worked to ensure a level 
playing field for U.S. hardwood plywood manufacturers as well as the 
entire forest and paper industry sector. China's hardwood plywood 
industry has emerged as a chief competitor to our industry.
    In the forest products sector, the growth in China's wood 
processing industries and strong Chinese demand for imported wood have 
provided opportunities for U.S. exporters. Our exports of hardwood 
lumber have shown strong growth in recent years, meeting some of 
China's demand for forest products and raw material. At the same time, 
in some sectors of our forest industry, like wood panel products and 
hardwood plywood, we are aware that Chinese exports of these products 
to the United States are climbing.
    In late January, Ambassador Susan Schwab wrote the Commerce 
Minister of China specifically on the issue of hardwood plywood, asking 
Minister Bo Xilai to begin talks to address this at a high-level. In 
response, Minister Bo agreed to our request, and a first meeting on the 
issue of hardwood plywood was held in February in Beijing between the 
Assistant US Trade Representative for China Affairs and Commerce 
Ministry officials.
    Additionally, in the past few months we have been pressing China to 
help work with us to stem the problem of illegal logging of timber that 
may be a source of raw material for Chinese producers. In the context 
of both the President's Initiative to Address Illegal Logging and the 
Strategic Economic Dialogue (SED), we asked China to agree to engage in 
dialogue and consultation on illegal logging in order to increase 
mutual understanding and communication, and explore ways of 
cooperation, including through a bilateral agreement.. We are pleased 
that at last week's SED, Chinese Vice Premier Wu Yi agreed to our 
request. In coming weeks and months, we will open this dialogue with 
China.
    This effort builds on other initiatives we are taking. The United 
States recently concluded a first-of-its-kind Memorandum of 
Understanding with Indonesia on combating illegal logging. We are also 
working to address the problem regionally, for example by getting 
Singapore and Malaysia more involved in efforts to stem illegal logging 
and associated trade.
    We are also working to address other issues related to hardwood 
plywood. For example, we have raised with China the issue of their 
border trade policies, where wood and other products imported from 
Russia may be coming in without paying value-added taxes, 
disadvantaging our hardwood plywood industry. We remain committed to 
working with our industry to address these problems.
    Additionally, we continue to press the Chinese government on the 
issue of ``reference pricing,'' where Chinese Customs authorities in 
some cases inappropriately use ``reference pricing,'' and not the 
actual price of imports, when calculating product valuation for the 
purpose of imposing Customs duties--a practice that can in some cases 
can lead to a higher tariff than appropriate. We have indicated to the 
U.S. hardwood plywood industry our desire to work together on this 
issue, and have sought specific examples, including specific ports, and 
specific shipments where reference pricing is being used by Chinese 
Customs.
    In summary, USTR is committed to ensuring that we are using the 
most effective tools at our disposal to pursue an open and fair trade 
relationship with China. This effort ties into broader Administration 
engagement on international economic issues, including work by Treasury 
and Commerce, and work with Members of Congress to achieve our common 
goals: a level playing field for American businesses, workers, and 
farmers.
    Thank you for the opportunity to testify. I will be happy to take 
your questions.

    Senator Wyden. Thank you both and thank you for making the 
trek to the most wonderful part of the United States for this 
hearing.
    Let me begin with you, Mr. Wineland. I'm sure people would 
be interested in knowing what it means to initiate a World 
Trade Organization case. I mean this had to be something of a 
wake-up call for the Chinese because there they are, and I was 
not happy with my initial kind of conversation with them and 
others. I kind of got the sense that they didn't think that the 
American Government was going to take this very seriously, and 
some guy from a place that they hadn't ever heard of called 
Oregon. All of a sudden there was going to be a case filed 
against them in terms of, in terms of these subsidies.
    What was, what was the reaction after that case was filed, 
and particularly how has that affected the discussions that 
you've begun more recently? Have you found they are taking it 
more seriously now?
    Mr. Wineland. Well, legally we filed the WTF settlement 
case in February. Shortly thereafter, in March we targeted in 
that case nine specific subsidies that we could identify. 
Certainly the U.S. Government and industry believe that there 
are many more subsidies out there that we need to address. But 
these are the nine that we could identify on short order, and 
pursue it as potential trade violations.
    Shortly after we filed that targeted case, looking at nine 
Chinese subsidy practices, the Chinese, in fact, revoked one of 
the nine. So, we are hopeful that that suggests a recognition 
on China's part this is an important issue. That they have WTO 
obligation.
    The filing with the WTO case essentially means that we have 
identified areas where China has promised to live by WTO rules. 
Filing WTO cases says that we have identified some problem 
areas, where China does not appear to be living by WTO rules. 
We have tried to resolve the issues of bilateral dialog and 
failed. So we have chosen the route of the WTO case where an 
independent panel of the WTO will rule on the case, make a 
decision and require China to change its policies.
    Senator Wyden. Now you also said that last week the Chinese 
agreed to work on illegal logging issues with the United 
States. What does that mean and specifically how are you going 
to hold their feet to the fire?
    Mr. Wineland. Well, that, that commitment came in context 
of the strategic economic dialog, which was established by 
Treasury Secretary Paulson last fall.
    In the December 1 meeting of the SED, we agreed to talk 
about four main work streams, including economic and trade 
issues, as well as environmental trade issues. In the context 
of our work in the SED on environmental trade issues, through 
the spring, based partly in the concerns that we'd heard from 
you and from industry about illegal logging, we sought from 
China an agreement to work together on illegal logging, 
recognizing that in some, unlike say a country like Indonesia, 
the problems on the demand side by Chinese processing industry.
    So, we, in the course of negotiating the strategic economic 
dialog outcomes, which came last week, we asked the Chinese to 
cooperate on this issue for the sake of the environment as well 
as the sake of a level playing field. China agreed to that.
    To answer your question about holding their feet to the 
fire, I think the SED, the continuing meetings, it's twice a 
year exercise, the continuing meetings of the SED will build in 
some accountability on China's part to move toward a dialog on 
this issue, as well as concrete steps.
    Senator Wyden. Can we count on you all to stay and raise 
it, all of these strategic economic dialog programs until we 
get this resolved? I hate to use the initial SED kind of lingo 
for what these processes are described in Washington, DC, but 
to me here at home, what it means is every time we sit down for 
the big time talks with China, we're going to have these 
practices brought up and you'll have a chance to push the 
Chinese to change. Can you all keep bringing them up and make 
that commitment today until we get this resolved?
    Mr. Wineland. You absolutely can from the USTR. The State 
Department has joined the responsibility of the illegal logging 
issue. We certainly will. It's part of the administration 
broader efforts to come back and to do the logging in the 
region.
    Senator Wyden. I appreciate that. Tell the Ambassador that 
we appreciate her office as well. She's got a lot on her plate 
right now. It's important that this be there as well. We 
appreciate the response.
    Let me ask you, if I might, for our Customs. Is there a 
hardwood enforcement action underway now, Ms. Adams? I know you 
can't get into the case, and I appreciate that, in our 
discussions, but I think it is possible to just in a yes or no 
way to state so we have it for the record, whether or not 
there's a hardwood plywood enforcement action underway from 
your department?
    Ms. Adams. Yes, I can confirm that yes, we have an 
enforcement action underway to address the issue. I can tell 
you that we have sampled shipments that comprise approximately 
120 different employers. Those samples are pending lab analysis 
to determine whether the classification issue, which is an 
issue of whether it's birch or hardwood, is bonafide. Those lab 
analysis are pending. So we don't have the results yet but yes, 
we do have an action on those.
    Senator Wyden. Without compromising your case, and you can 
see how I'm sort of trying to kind of skirt around this, you 
all were successful in a wood flooring enforcement action. Is 
that from a comparative standpoint of some value in terms of 
looking at what our folks are dealing with here in the 
Northwest?
    Ms. Adams. Yes. For two main reasons, and this is what I 
was somewhat alluding to in my opening statement. When it comes 
to classification of some of these hardwood products, there's 
three basic issues involving the classification to make sure 
you get to the correct one. No. 1: ``What is the material made 
of?''; No. 2: ``How is it constructed?''; and No. 3: ``Is there 
any further processing done before it arrives at our shore?''. 
Those same classification criteria apply in hardwood flooring, 
and to some extent, in the plywood situation.
    So, you know, all of the expertise and knowledge of how 
they, the violators are misclassifying the hardwood puts us on 
the alert in terms of what kind of issues to look for in the 
plywood.
    Sometimes when you have an industry group of importations 
that are commercially related, when you find violators in one 
segment, often the same importers are importing the same thing 
in other segments that you're now looking at. So, one of the 
things that we are in the process of doing is doing a crosswalk 
between the violators we've discovered in the hardwood flooring 
issue and see if those same importers are importing the 
plywood. By doing that crosswalk, we can vary, you know, more 
readily probably focus where the risk is going to be.
    So that's where the benefit of the hardwood flooring 
operation comes into being, both from a technical issue, as 
well as from it tells us the violators are in one issue, and if 
they are also the importers of the plywood, which sometimes 
they are, we can more narrowly focus and start to know where 
the risk is likely to be.
    Senator Wyden. Heaven help us if one branch of government 
talks to another. I think you've laid out a good case for how 
to take this up. I appreciate that approach.
    Tell me, if you would, about this matter of unsafe 
formaldehyde and content. Without going through all of the kind 
of technical issues, I think that our folks, our plywood people 
believe that with their sealing to bind the plys that contain 
formaldehyde, they have got actual alternatives they are using, 
soybased alternatives, and we obviously are concerned about the 
safety issues that we heard about earlier. Have your lawyers 
concluded that you don't have the authority to enforce a 
formaldehyde standard?
    Ms. Adams. The preliminary analysis is, you know, CBP or 
Custom's can enforce many regulations for many different 
agencies. The difficulty with the HUD regulation on 
formaldehyde is that it's specifically geared toward what the 
end use of that product is. Meaning, if the wood product is 
used in the construction of a home, then it has to meet the 
certain HUD standards.
    Unfortunately, at the time that the product crosses the 
border, we don't know what the end use of that wood product is 
going to be, which makes it very difficult for us to enforce a 
regulation like that or that type of requirement. We call those 
end use provisions. In fact, even as difficult as it is for us 
to know the end use, a lot of times the importer does not know 
the end use because they may be a distributor reselling 
downstream to further, you know, to construction companies or 
other things and they may not know exactly what the end use of 
that product is going to be. That's where the challenge of 
enforcing that type of regulation at the border comes in to 
play. Sorry, I'm very dry.
    Senator Wyden. No. I, I had gotten the sense from our 
discussions, there was some questions about your authority to 
enforce formaldehyde standards, some questions about your 
authority to enforce these labeling standards, you know, where 
our people are trying to do the certification, FSC kinds of 
issues. If you want to add anything to it--you've been very 
forthcoming today--if you want to add anything now or you can 
send it into the record. The reason I'm asking is we're going 
to get into the trade debate on the Finance Committee later 
this year. If you all were to tell us that you didn't have the 
authority to enforce formaldehyde standards and meet 
certification standards, then I'm interested in working with 
the Administration on a bipartisan basis to get that done.
    Ms. Adams. We, we have the preliminary announcement from 
Counsel, but they had asked some additional followup questions 
on this end use situation. So, I prefer to submit something for 
the record when we get their final opinions back to us.
    Senator Wyden. Good. Let's leave it in the context that if 
it comes back that your lawyers do not feel they have the 
authority to enforce--formaldehyde is a safety issue. There are 
labeling kinds of questions that go to whether or not we have 
fair treatment for our plywood folks, I'm interested in 
following up with you all and the Administration.
    Ms. Adams. The trademarks issue is a little bit of a 
different situation.
    Senator Wyden. Right, I understand.
    Ms. Adams. If you'd like to me to address that.
    Senator Wyden. Fine. I understand that. I just want it, I 
just want it understood that because you all are initiating 
proceedings already, we welcome that. I wanted to get some 
information as to whether you have adequate authority in those 
kinds of areas and please offer anything else you'd like to 
now.
    Ms. Adams. The issue of, if the--in your letter you had 
brought up the issue of the fraudulent stamping.
    Senator Wyden. Right.
    Ms. Adams. For voluntary standards, we cannot enforce the 
standard per se, unless it is backed by some kind of a Federal 
regulation or standard. But what we can do similar to the UL 
logo, the UL market, we're all used to seeing on our electronic 
appliances, if there is some kind of trademark, registered 
patent trademark, I believe the gentleman that was sitting here 
had mentioned such a situation, I'd like to followup on a 
dialog with him about that, his comments. If that trademark is 
also registered with CBC, we can enforce those types of 
trademarks, just like we do for Underwriters Laboratory.
    What we are enforcing is the mark itself, not the standard 
behind the mark. The way it works with UL is we have access to 
their data base. We can see all of their registration numbers 
and the products related to those numbers. When something comes 
into the country and we verify with UL's data base whether that 
product is allowed to have that mark on it, and if not it's an 
IPR, it's product violation and we can easily seize that for 
that mark. So to the extent that the forest product industry 
can pursue that line, that we can easily work on that type of 
enforcement with them.
    Senator Wyden. I thank you, thank you both. I've got my 
constituents in the audience I see making paper fans trying to 
cool themselves off. So, I should probably wrap this up 
shortly, but we thank you very much for your responsiveness on 
these, these issues. It wasn't very many months ago when I 
raised this after folks in the hardwood plywood industry in our 
State brought it to me. You all both swung into action. We 
appreciate it. It's a long way to go.
    But as you probably have picked up, in fact you can tell 
anybody else in the Administration, how strongly people in 
Oregon feel about the county payments legislation when you go 
back to Washington, DC, I suspect they already know, but you 
can tell them that nine or ten more times when you get back.
    Tell them to make sure that we look at the kinds of 
industries that we are focused on today because we want to work 
with the Administration first to secure this multi-year county 
payment agreement. We very, very much need those dollars for 
libraries and police and schools and essential services, but we 
need them also to provide a transition into other areas. That's 
why it's so important that these kind of value-added industries 
like hardwood plywood get fair treatment because they are 
exactly the kind of industries that are going to pick up some 
of the slack as we deal with this transition on the county 
payment issue.
    So you all have been very responsive. We'd like to give our 
witnesses, particularly the ones that come from Washington, DC, 
the last words for today's program.
    Mr. Wineland, Ms. Adams, anything else you want to add.
    Mr. Wineland. No thank you. We look forward to continuing 
to work with you on these issues.
    Ms. Adams. Likewise as well.
    Senator Wyden. With that, the subcommittee is adjourned.
    [Whereupon, at 1:50 p.m., the hearing was adjourned.]
                                APPENDIX

              Additional Material Submitted for the Record

                              ----------                              

       Statement of the Forest Service, Department of Agriculture
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to submit written testimony to you today on the impacts of 
the Chinese hardwood plywood trade on National Forest System lands. The 
Chinese hardwood plywood trade has a negligible effect on National 
Forest System lands in Oregon. However, there have been changes to the 
forest products industry in the U.S. and in Oregon, which we will 
describe below.
              a rapidly changing forest products industry
    The U.S. has been the world's largest market for wood and wood 
products, fueled by its demand for wood-frame housing.\1\ However, 
forest product markets are changing, both in terms of where the 
products originate (domestically or abroad) and what products are being 
produced and consumed.
---------------------------------------------------------------------------
    \1\ From Challenge and Response--Strategies for Survival in a 
Rapidly Changing Forest Products Industry, by Al Schuler, USDA research 
economist; Craig Adair, market research director for the Engineered 
Wood Association; and Paul Winistorfer, professor, Virginia Tech, 
Engineered Wood Journal, Fall 2005.
---------------------------------------------------------------------------
    Source changes for forest products are being driven by 
globalization trends, technology advancements, and labor costs and 
supply, which are causing builders to change not only the way they 
build houses but also their choice of building materials.
    Most imported structural lumber and panels in the U.S. continue to 
come from Canada. However, there are increasing softwood plywood 
imports from South America, and softwood lumber from both South America 
and Europe. Total North American structural panel imports are 
approximately two billion square feet (\3/8\" thickness) and that 
figure is expected to continue rising as more foreign mills obtain 
certification for our markets.
    In another trend, more housing components are being manufactured in 
the factory (e.g., trusses, wall panels, and engineered floor systems), 
and shipped to the job site for final assembly. Conventional wood 
products, mostly solid sawn dimension lumber, are being replaced by 
engineered wood products that offer improved performance durability and 
efficiencies in site construction.
    Non-wood products such as steel and concrete continue to make 
inroads into traditional wood markets, particularly in the South. The 
South accounted for 50 percent of housing starts in 2006, but termite 
problems have favored an increase in non-wood building materials.
    Additionally, technological improvements in communication, 
computing, and distribution are driving changes in the supply chain. 
The number of parties participating in the supply chain is shrinking as 
more products go directly from the mill to the consumer with an ever-
smaller market share moving through traditional distributors.
    More recently, consolidation in the residential construction 
industry has resulted in fewer builders producing a larger share of 
houses. The top 10 builders now produce more than 20 percent of the 
single-family homes in the U.S., up from 10 percent a decade ago. The 
larger builders are leading the transition toward more factory 
manufactured components and are demanding more services from their 
suppliers, such as installed windows, doors, and wall panels; and 
complete framing packages cut to specification.
    Builders want to simplify the construction process by accelerating 
accurate assembly of components on the job site, devoting more of their 
time to locating and developing land, providing financing to potential 
buyers, and reducing litigation risks.
    All of these trends indicate that the North American wood products 
industry will face challenges ahead.
                  plywood production trends in oregon
    A large percentage of the United States forest products are 
consumed in one market--residential construction. About three quarters 
of structural wood panels and softwood lumber, and nearly 90 percent of 
the engineered wood products (e.g., I-joists and LVL) are consumed in 
residential construction including new construction and remodeling). 
Oregon is the largest hardwood plywood producing state in the United 
States and this plywood is used in manufacturing cabinets. However, the 
National Forests in Oregon are not a source of hardwood for these 
manufacturers as there is little high quality hardwood on National 
Forest lands. Most plywood manufacturers import their veneer from 
eastern Canada, the eastern U.S. including eastern national forests, 
and from overseas.
    There have been several significant events that have greatly 
affected softwood plywood production in Oregon over the past two 
decades:

    --Plywood production has fallen steadily in Oregon since 1987 as 
            the production of other structural panels, particularly 
            oriented strand board (OSB), has increased both in Oregon 
            and elsewhere in North America. Currently OSB accounts for 
            about 60 percent of the structural panel consumption in the 
            United States.
    --During the early 1990's, timber harvest in Oregon fell by nearly 
            50 percent as a result of the implementation of the 
            Northwest Forest Plan. This caused an increase in prices 
            for softwood products due to a reduced supply.
    --In the mid to late-1990's, exports from the region fell because 
            of these increased prices and the 1997 collapse of the 
            Japanese real estate markets.
    --Lastly, the recent downturn in U.S. housing markets has depressed 
            lumber and panel prices leading to production curtailments 
            among producers during 2006--2007.

    In light of these trends and changes in the North American forest 
products industry, it is important that a strong industry is available 
to utilize wood from the national forests. To manage for healthy, 
sustainable forests, the national forests, as well as small non-
industrial private landowners, need markets for a variety of timber 
products, including lumber, plywood, OSB, furniture, and flooring.
                               conclusion
    This concludes the Forest Service statement. Please submit any 
questions you may have to the Chief of the Forest Service.
                                 ______
                                 
                  Statement of the Hardwood Federation
    Mr. Chairman and members of the Subcommittee, thank you very much 
for holding this hearing. The Hardwood Federation (HF) was formed in 
April 2004 to represent the interests of the hardwood industry in 
Congress and with the Administration. The HF was designed as an 
umbrella group of associations and serves to coordinate and align all 
key issues for the industry so that we speak with one voice on broad 
policy issues.
    The HF is the largest forest products industry association in the 
United States representing over 14,000 businesses, 30 trade 
associations and over one million hardwood families. The Federation 
represents the majority of organizations engaged in the manufacturing, 
wholesaling, or distribution of North American hardwood lumber, veneer, 
plywood, flooring, pallets, kitchen cabinets and related products. The 
vision of the HF is to have a healthy hardwood community and the HF's 
mission is to:

    --Promote and represent the common business interests of and 
            improve business conditions among members of the hardwood 
            industry.
    --Maintain a healthy business environment for family businesses and 
            small companies in the hardwood community.
    --Maintain commercial access to federal and private hardwood 
            timberlands.
    --Maintain and improve the health of public and private hardwood 
            forests through effective legislation.

    The HF and its members believe it is critical to keep American 
companies operating and our citizens employed given the impressive 
record of hardwood forest stewardship and the growing consumer demand 
for hardwood products.
    We are pleased that two of our leading member companies, Columbia 
Forest Products and Timber Products Company are appearing before you 
today to present a first-hand view of the impact of illegal logging, 
and Chinese imports on their Oregon businesses and federal timber 
resources. These companies have taken a lead in our efforts to address 
the inequities and unfairness currently being experienced in our 
worldwide trade, particularly with our trading partners in Southeast 
Asia and China. These companies also have experienced first hand the 
impacts on their neighboring federal forests and our industry echoes 
the concerns they are outlining in this important hearing. We would 
note that while most hardwood resources supplying our mills come from 
private landowners, the lines between public and private lands are 
immaterial when judging the impact of unfair trade policies; all stand 
to lose, and most critically, the health of this valuable U.S. 
resource.
    Companies in the hardwood industry are predominantly small, family-
owned businesses, dependent upon a sustainable supply of healthy timber 
resources. Many are operated by third, fourth or even fifth generation 
family owners. With facilities and employees in all 50 states, we have 
a wide U.S. presence.
    U.S. hardwood plywood producers are facing unprecedented and 
rapidly growing competition in the U.S. market from imported products 
coming from China and Southeast Asia. In addition, competition from 
international producers is affecting the U.S. industry's ability to 
compete in export markets. If allowed to continue unchecked, this 
rapidly growing competition with an uneven playing field will result in 
the displacement of a significant portion of U.S.-based hardwood 
plywood industries.
    Thanks to the efforts of Chairmen Wyden and Baucus, the 
International Trade Commission (ITC) has been asked to conduct a 
``Section 332'' study to investigate unfair trade practices of imported 
Chinese hardwood plywood and wood flooring. Among other concerns the 
study will look at the misclassified Chinese hardwood plywood imports 
and illegal logging in Asia which we believe have put the U.S. plywood 
and flooring industries at a competitive disadvantage. The Hardwood 
Federation is working closely with our U.S. government trade analysts 
to provide a complete picture of current market practices and impacts. 
We are assured that the continued interest and support from our elected 
officials, particularly Chairman Wyden will help result in a complete 
and comprehensive study.
    Hardwood plywood import tariffs vary depending on the species of 
hardwood on the face and back of the plywood: oak-faced plywood has an 
eight percent tariff, birch-faced plywood has no tariff. Chinese 
hardwood plywood is most likely being improperly characterized (e.g., 
identifying the back as the front) to avoid applicable tariffs. As a 
result, Chinese hardwood plywood enters the U.S. market duty-free, 
giving it an unfair competitive advantage over legally identified 
imported hardwood plywood and U.S. produced hardwood plywood.
    In addition to tariff misclassification, illegal logging has hurt 
the competitiveness of the U.S. wood products industry. According to an 
American Forest and Paper Association (AF&PA) study, illegal logging 
robs U.S. companies of $460 million a year in lost sales. A great deal 
of illegally harvested wood is shipped to manufacturing hubs in China 
before it is sent to the U.S. It is difficult for domestic hardwood 
industries to compete with foreign industries not adhering to timber 
harvesting laws.
    Earlier this year, the Hardwood Federation issued the first public 
statement of support for efforts to end illegal logging, including the 
possibility of amending the Lacey Act. We are currently reviewing 
legislative proposals to determine implications for domestic hardwood 
producers and are optimistic that some agreement can be reached among 
various stakeholders to join together in supporting legislative action. 
Curbing illegal wood imports will help protect U.S. industries and 
employees.
    Again, Mr. Chairman, thank you for calling this important hearing, 
and for your leadership in addressing the issues facing the hardwood 
industry in the State of Oregon and throughout the U.S.

                                    

      
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