[Senate Hearing 109-380]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-380
 
   ECONOMIC IMPACTS OF THE CANADIAN SOFTWOOD LUMBER DISPUTE ON U.S. 
                               INDUSTRIES

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

                                HEARING

                               before the

        SUBCOMMITTEE ON TRADE, TOURISM, AND ECONOMIC DEVELOPMENT

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 14, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMint, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director
                                 ------                                

        SUBCOMMITTEE ON TRADE, TOURISM, AND ECONOMIC DEVELOPMENT

                   GORDON H. SMITH, Oregon, Chairman
TED STEVENS, Alaska                  BYRON L. DORGAN, North Dakota, 
JOHN McCAIN, Arizona                     Ranking
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
JOHN ENSIGN, Nevada                  JOHN D. ROCKEFELLER IV, West 
GEORGE ALLEN, Virginia                   Virginia
JOHN E. SUNUNU, New Hampshire        JOHN F. KERRY, Massachusetts
JIM DeMint, South Carolina           MARIA CANTWELL, Washington
DAVID VITTER, Louisiana              FRANK R. LAUTENBERG, New Jersey
                                     BILL NELSON, Florida
                                     E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 14, 2006................................     1
Statement of Senator Burns.......................................    23
    Prepared statement...........................................    23
Statement of Senator Pryor.......................................    42
Statement of Senator Smith.......................................     1
Statement of Senator Snowe.......................................    22

                               Witnesses

Kluting, Bill, Legislative Representative, Western Council of 
  Industrial Workers.............................................    24
    Prepared statement...........................................    26
Lavin, Franklin L., Under Secretary, International Trade, 
  Department of Commerce; accompanied by James Spooner, Assistant 
  Secretary, Import Administration...............................     3
    Prepared statement...........................................     4
Rutenberg, Barry, Member, Board of Directors, National 
  Association of Home Builders; President, Rutenberg Homes.......    28
    Prepared statement...........................................    30
Schwab, Susan, Deputy United States Trade Representative; 
  accompanied by James Mendenhall, General Counsel...............     9
    Prepared statement...........................................    10
Swanson, Steve, President, The Swanson Group.....................    13
    Prepared statement...........................................    15

                                Appendix

American Consumers for Affordable Homes, prepared statement......    47
American Homeowners Grassroots Alliance (AHGA), prepared 
  statement......................................................    50
GENERATED TECHNOLOGIES (USA), LLC, prepared statement............    50
International Sleep Products Association, prepared statement.....    46
Knutson, Kent, Vice President, Government Relations, The Home 
  Depot, letter, dated, February 10, 2006 to Hon. Gordon H. Smith    49
Lanier, Robin, Executive Director, Consumers for World Trade, 
  letter, dated, February 10, 2006 to Hon. Gordon H. Smith.......    45
National Lumber and Building Material Dealers Association 
  (NLBMDA), prepared statement...................................    51
Retail Industry Leaders Association, prepared statement..........    48


   ECONOMIC IMPACTS OF THE CANADIAN SOFTWOOD LUMBER DISPUTE ON U.S. 
                               INDUSTRIES

                              ----------                              


                       TUESDAY, FEBRUARY 14, 2006

                               U.S. Senate,
      Subcommittee on Trade, Tourism, and Economic 
                                       Development,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:35 p.m. in 
room SD-562, Dirksen Senate Office Building, Hon. Gordon H. 
Smith, Chairman of the Subcommittee, presiding.

          OPENING STATEMENT OF HON. GORDON H. SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Ladies and gentlemen, we will call to order 
this hearing of the Senate Subcommittee on Trade, Tourism, and 
Economic Development.
    We welcome you all, and we're anxious that this hearing be 
productive, that while we explore these differences between the 
United States and our neighbor, Canada, we can better 
understand what is dividing us. And I think all of us hope for 
a new beginning with Canada. This is--however, is an issue that 
has bedeviled people on both sides of the border. And a desire 
to have greater understanding and perhaps open up opportunities 
for further dialogue is the motive behind this hearing.
    So, today's hearing is going to examine the economic 
impacts of the Canadian softwood lumber dispute on the 
competitiveness and the survival of the American forest-
products sector.
    I thank all of our witnesses for rearranging their 
schedules to appear before the Subcommittee. A special welcome 
to Oregonians Steve Swanson and Bill Kluting. You may be away 
from home on Valentine's Day, and that is not what we would 
have wished, but Washington, D.C., is a fitting place to 
celebrate the 147th anniversary of Oregon's entry into the 
United States. We almost were in Canada, but they worked that 
out; so, maybe we can work out lumber, too.
    My State of Oregon is home to some of the most productive 
timberland in the world. And timber continues to play an 
integral role in Oregon's economy. In the last 20 years, 
changes in Federal forest management have forced dramatic 
changes in Oregon and elsewhere. Hundreds of mills were closed, 
and more than 35,000 forest-products jobs were lost in the 
Pacific Northwest. But surviving mills invested in new 
technology, and they diversified their products, and they 
expanded their timber sources. Our lumber mills are now some of 
the most efficient in the world, yet they are still closing at 
an alarming rate. Seventy-nine mills have permanently closed in 
the U.S. since the year 2000 alone, more than twice as many as 
have in Canada.
    This phenomenon surprises me, given the fact that the 
United States has been experiencing an unprecedented housing 
boom. In fact, Department of Commerce statistics show that 
total U.S. housing construction in 2005 was at its second-
highest level ever. But Canadian lumber imports are also at an 
all-time high, topping 18 billion board feet, or one-third of 
the U.S. market.
    While I recognize the importance to consumers of an 
affordable supply of lumber, that privilege neither outweighs 
nor is incompatible with trade laws of this country. 
Ultimately, trade laws and trade agreements are to the 
advantage of American consumers, but free trade assumes fair 
competition. Neither appears to be fully intact in the North 
American lumber market.
    This debate has lasted more than 20 years, and we have two 
options before us. We can continue along a path of patchwork of 
tariffs and quotas, or we can seek to resolve the differences 
in our lumber systems. We can continue to act as two countries 
with two markets, or we can proceed as one continent with a 
shared market that abides by the same market rules.
    I realize that this dispute has strained relations with our 
neighbor to the north, and that is most unfortunate. I deeply 
value our relationship with Canada, which Churchill described 
once as the lynchpin of the English-speaking world. We share 
security and our democratic interests on this continent and 
throughout the world. Canada and the United States also have a 
very special economic relationship. Indeed, we essentially form 
one large common market.
    For my part, I want to extend to the new Canadian 
Government my sincere hope of a renewed North American 
relationship. The prompt resumption of negotiations with the 
United States on the softwood issue can, and should, be the 
inaugural act of that new relationship. The faster we can 
resolve our differences, the sooner companies on both sides of 
the border can reassert themselves in the world market. If 
litigation is pursued at the expense of mutual settlement, 
however, I fear both countries and both economies will suffer. 
Mills on both sides of the border will continue to close, and 
other nations beyond this continent will gladly fill in the 
gap.
    With respect to the U.S. Government, I want to point out 
that the Canadian lumber dispute is the largest trade case in 
our history. This Administration and this Senator are both 
strong proponents of free trade. However, my ability to 
continue supporting free-trade agreements rests upon confidence 
that U.S. industries are fully protected under U.S. trade law; 
by that, meaning that they and their competitors are playing by 
the same rules. I applaud our officials at Commerce and USTR 
for the time and the gray hairs they have invested in this 
case, and I very much look forward to their report.
    So, with that, we will go to our first panel, which 
consists of the Honorable Frank Lavin, the Under Secretary for 
International Trade, United States Department of Commerce. And 
he will be followed by the Honorable Susan Schwab, Deputy 
United States Trade Representative of the Office of the United 
States Trade Representative of Washington, D.C.
    So, Frank, I understand you're going to have some 
additional witnesses.

STATEMENT OF FRANKLIN L. LAVIN, UNDER SECRETARY, INTERNATIONAL 
                TRADE, DEPARTMENT OF COMMERCE; 
            ACCOMPANIED BY JAMES SPOONER, ASSISTANT 
                SECRETARY, IMPORT ADMINISTRATION

    Mr. Lavin. Thank you, Chairman Smith, for inviting me 
today. I very much appreciate your comments. With your 
permission, I would like to invite Assistant Secretary David 
Spooner to join me at the panel, because he has the technical 
background on some of these issues.
    Senator Smith. Without objection.
    Mr. Lavin. Thank you, sir. And I'm grateful for USTR's 
participation here today.
    We have a longer written statement for the record, but 
perhaps in the interest of time, I can just illustrate a few of 
the thoughts on how we're trying to approach this issue.
    Let me talk about some of our general principles, and how 
we're approaching them, and then also some of the elements that 
have been part of the historical discussion of negotiations in 
recent years. But as we approach this dispute, in my view, we 
need to keep in mind five general principles.
    First, as you said, Senator, Canada is a good friend and 
ally of the United States, our largest trading partner, and a 
partner in one of our oldest and most successful free-trade 
agreements. And the importance of this economic relationship is 
demonstrated by the fact that U.S. exports to Canada today 
equal U.S. exports to the entire world just 26 years ago, 1979.
    Softwood lumber accounts for some 2 percent of that total 
trade. On the one hand, we don't think that should define our 
entire relationship with Canada, but we do view it as an 
important issue that merits resolution and can be resolved with 
good-faith efforts. We look forward to working with the new 
Canadian Government to find a solution.
    My second point, is that we believe that the Canadian 
lumber industry is subsidized. Five times over the past 20 
years, the Commerce Department has formally examined this 
question; and, each time, we have found that the Canadian 
lumber industry is, in fact, subsidized. Even as recently as 
the campaign of several weeks ago, Canadian officials 
acknowledged their government support for their lumber 
industry.
    Third, these subsidies are not in anyone's interest. When 
governments start to interfere in market decisions, they can 
misallocate resources and limit opportunities for their 
citizens. So we don't perceive this issue as Washington versus 
Ottawa; the objective here is to help everybody move toward 
market economics.
    Fourth point: the International Trade Administration will 
continue to aggressively uphold the law and defend against 
unfair trade. We make no apologies for defending American 
workers and businesses against unfair trade practices, and we 
will continue to actively pursue those objectives.
    Fifth--and, again, I think this is very much consistent 
with your theme, Mr. Chairman--a negotiated solution is in the 
best interest of the companies and workers in both Canada and 
the United States. A successful outcome will involve some 
compromises on both sides, but the mutual benefits of such an 
agreement is far greater than the costs and risks of ongoing 
litigation.
    Let me, then, review some of the themes that came up in 
recent negotiations, and they might serve as guideposts to 
going forward. Again, I have five points.
    The first element in the past negotiations has been a 
border measure, which would be imposed on the Canadian side of 
the border to manage the impact of Canadian lumber imports 
until market forces play a greater role in setting Canadian 
stumpage prices.
    A second element was a prohibition against filing of more 
trade complaints during the life of the agreement.
    Third would be the disposition of the now more than $4 
billion in duty deposits.
    Fourth would be some kind of formula through which the 
individual provinces, or Canada as a whole, could export to the 
United States free of the border measure.
    And, finally, in our negotiations we've discussed free 
trade of all forest products between the United States and 
Canada.
    And all of these factors need to be considered against a 
changing U.S. industry, which is going through consolidation 
and competitive pressures, even as it remains among the most 
productive in the world.
    To sum up, the Administration is very much committed to 
bringing this dispute to a close. We pledge to work with our 
Canadian counterparts to find a solution that is fair to all 
parties and addresses the concerns of both producers and 
consumers. This is not the place to speculate on the specifics 
of such a solution, but these negotiations, we feel, should 
take place in the spirit of accommodation. And it's important 
to note that was the spirit through which we were able to 
resolve similarly vexing disputes regarding textiles from China 
and cement from Mexico.
    So, thank you, again, for giving me the opportunity to 
testify, and we appreciate the chance to work with you on this, 
and I welcome your questions.
    [The prepared statement of Mr. Lavin follows:]

Prepared Statement of Franklin L. Lavin, Under Secretary, International 
Trade, Department of Commerce; accompanied by James Spooner, Assistant 
                    Secretary, Import Administration

    Thank you Chairman Smith, Senator Dorgan, and Members of the 
Subcommittee for inviting me to discuss the Administration's efforts to 
negotiate a settlement to the long-standing trade dispute regarding 
softwood lumber from Canada. I appreciate your dedication to this 
issue, and I further appreciate your giving me the opportunity to 
discuss the Administration's efforts in this regard. With me today from 
the Department of Commerce is David Spooner, the Assistant Secretary 
for Import Administration. I am also honored to be here with Deputy 
USTR Sue Schwab and USTR General Counsel Jim Mendenhall, with whom we 
have worked very closely on the softwood lumber issue.

Where We Are Today
    Before I get into the specifics of the softwood lumber trade 
dispute with Canada, I would like to mention five general principles to 
keep in mind when considering this issue.
    First, Canada is a good friend and ally of the United States, and 
our largest trading partner. One of our oldest and most successful free 
trade agreements is with Canada. The importance of our economic 
relationship is demonstrated by the fact that U.S. exports to Canada 
today equal total U.S. exports to the entire world in 1979. Softwood 
lumber only accounts for some 2 percent of total trade. Thus, this 
particular dispute should not define our relationship with Canada. 
However, we view it as an important issue that merits resolution, and 
that can be resolved by good faith efforts. We look forward to working 
with the new Canadian government to find a solution.
    Second, we believe that the Canadian lumber industry is subsidized. 
Five times over the past 20 years, the Commerce Department has formally 
examined this question, and each time we found the Canadian lumber 
industry to be subsidized. Canadian officials acknowledge that support 
for their lumber industry took place even as recently as their campaign 
several weeks ago.
    Third, these subsidies are not in anyone's interest. When 
interfering in market decisions, governments misallocate their own 
money and limit opportunity for their citizens. Let's not perceive this 
issue as Washington versus Ottawa. The objective is to help everyone 
move toward market economics.
    Fourth, the International Trade Administration will continue to 
aggressively uphold the law and vigorously defend against unfair trade 
laws before every judicial forum. We make no apologies for defending 
American workers and businesses against unfair trade practices, and we 
will continue to actively pursue those objectives.
    Fifth, a negotiated solution is in the best interest of companies 
and workers in both Canada and the United States. A successful outcome 
will involve some compromises on both sides, but the mutual benefits of 
an agreement are far greater than the costs and risks of the ongoing 
litigation. We also believe that allowing workers and industry on each 
side of the border to compete in a fair environment will bring the most 
benefits to consumers. In addition, free trade in lumber products 
should include the ability to compete and trade in all forest products.

History of Softwood Lumber Dispute
    A brief history of the softwood lumber dispute is in order to give 
context to the complexity of this dispute and to review how we have 
attempted to resolve it in the past. I will first outline our past 
administrative proceedings regarding softwood lumber from Canada and 
their resulting bilateral agreements, and then summarize the current 
cases, the accompanying litigation, and our recent efforts to date to 
reach a negotiated solution.
    Commerce initiated the first softwood lumber countervailing duty 
(CVD) investigation in 1982 in response to a petition filed by the U.S. 
industry. However, the Department determined that the investigated 
programs bestowed de minimis subsidies and issued a negative 
determination finding no countervailable subsidies. This case is the 
only one in which no subsidies were found.
    Commerce initiated a second CVD investigation of softwood lumber 
from Canada in 1986, again in response to a petition from the domestic 
industry. Although Commerce issued an affirmative preliminary 
determination, that proceeding ultimately settled without the issuance 
of a final determination. In December 1986, the United States and the 
Government of Canada signed a Memorandum of Understanding (MOU), which 
required Canada to impose an export tax on softwood lumber exports to 
the United States. In October 1991, Canada terminated the MOU.
    Commerce self-initiated its third CVD investigation of softwood 
lumber products from Canada in 1991. The Department issued its 
affirmative final determination in 1992. Commerce's determination was 
ultimately rescinded in connection with litigation under NAFTA.
    In 1996, the United States and Canada signed the Softwood Lumber 
Agreement (SLA). Under the terms of the SLA, Canada agreed to limit 
exports of softwood lumber to the United States, and in return exports 
up to a certain level entered the United States tax-free for a five-
year period. Exports above this level were subject to an export tax. 
The SLA expired in April 2001.

Most Recent Cases
    The day after the expiration of the SLA, the U.S. industry filed 
its third petition alleging that Canada unfairly subsidizes softwood 
lumber. The U.S. industry additionally filed a petition alleging that 
Canadian producers were dumping softwood lumber into the U.S. market at 
less than fair market value. Commerce subsequently initiated its fourth 
CVD investigation and its first antidumping duty (AD) investigation in 
2001.
    In the CVD investigation, the Department found a subsidy rate of 
18.79 percent for Canadian softwood lumber. Canada challenged this 
result before panels constituted under both the NAFTA and the WTO. The 
United States was generally successful in defending its determination 
at the WTO. As a consequence of the NAFTA litigation, however, Commerce 
has issued five remand determinations. The subsidy rate has decreased 
with each remand, ultimately becoming de minimis in the last remand 
submitted on November 22, 2005.
    Although we did not agree with the Panel's rationale, consistent 
with our NAFTA obligations, we complied with the Panel's instructions. 
If the NAFTA Panel ultimately affirms Commerce's fifth remand 
determination, the United States will decide whether to request review 
by an Extraordinary Challenge Committee (ECC). No decisions have yet 
been made on whether to pursue review by an ECC, but all options will 
be considered.
    The softwood lumber AD investigation, which resulted in an order 
being issued in May 2002, has likewise been challenged in both the 
NAFTA and the WTO. The NAFTA Panel remanded the case a third time to 
Commerce in June 2005. The Panel found that Commerce was required by 
law not to use ``zeroing'' in the context of the comparison methodology 
used in that particular investigation. Last July, Commerce subsequently 
filed its remand with the Panel, revising its calculations in a manner 
consistent with the Panel's analysis. Commerce is currently awaiting 
the NAFTA Panel's decision on this latest remand determination.
    In the WTO dispute, the United States has been generally 
successful. However, the WTO Appellate Body determined that Commerce's 
``zeroing'' methodology, as applied in the investigation, was 
inconsistent with the United States' international obligations. 
Commerce accordingly modified its methodology. A new WTO compliance 
panel is now considering that determination, and we are awaiting the 
interim decision.

Latest Negotiations
    The Coalition for Fair Lumber Imports Executive Committee, which 
represents more than 200 forest product companies throughout the United 
States, is the petitioner in the current AD and CVD investigations. 
Consumer trade groups such as the Alliance of American Consumers for 
Affordable Homes, the National Home Builders Association, and others 
oppose the orders. Recognizing the needs of both these groups is 
crucial as we continue to work toward an agreement that is beneficial 
for all parties, and addresses the concerns of both producers and 
consumers. However, this concern cannot detract from the need for a 
negotiated solution that effectively addresses the Canadian lumber 
industry's unfair subsidization.
    Since June 2002, Commerce and USTR have engaged in discussions with 
Canadian government officials and U.S. and Canadian industry 
representatives in an effort to identify a durable, long-term solution 
to the dispute. Both sides have made proposals for different types of 
interim agreements; however, further discussions will be necessary to 
reach an agreement. A major issue is the disposition of the more than 
$4 billion in deposits collected by the United States since 2002 and 
whether any portion of it would be returned to Canada.
    In mid- July 2005, U.S. and Canadian industry representatives and 
government officials met to discuss the possibility of reaching a 
negotiated settlement based on the imposition of an export tax by 
Canada. The United States, with U.S. industry support, suggested 
several new approaches. However, the Canadian government was unable to 
reciprocate at that time and has not done so at this point.
    While formal negotiations have been at a standstill since July 
2005, it is our hope that serious discussions will resume soon. In 
recent negotiations, several components of a possible agreement guided 
the discussions. The first was a border measure, imposed on the 
Canadian side of the border, to manage the impact of Canadian lumber 
imports until market forces play a greater role in setting Canadian 
stumpage prices. A second was a prohibition against the filing of more 
trade complaints during the life of the agreement. A third involved the 
disposition of the more than $4 billion in duty deposits currently 
being held by U.S. Customs and Border Protection. In addition, some 
formula would need to be developed through which individual provinces 
(or Canada as a whole) could export to the United States free of the 
border measure (for example if they went to truly market-based pricing 
of government timber). Finally, a possible aspect of an agreement would 
be to identify and eliminate other obstacles (besides subsidized timber 
and corresponding border measures) to free and open trade of all forest 
products between the United States and Canada.
    Our negotiations are complex because management of forestry 
resources in Canada falls under provincial jurisdiction. Thus, any 
agreement will need the consent of all relevant provinces. The Federal 
Government is constitutionally responsible for foreign policy 
(including international trade negotiations), which adds a complex 
intergovernmental component to resource-related negotiations.
    The softwood lumber negotiations must also take into consideration 
the environmental and economic political diversity among Canadian 
provinces and provincial forest products industries. Only six of 
Canada's 10 provincial forest management regimes (Ontario, Quebec, 
British Colombia, Alberta, Manitoba, and Saskatchewan) are currently at 
issue in the Softwood Lumber dispute, and many differences exist among 
them. Nonetheless, U.S. negotiators are limited in their ability to 
enter into international agreements with sub-national governments, thus 
eliminating the option of purely regional or province-specific 
solutions.

The Changing U.S. Industry
    In considering how to approach achieving a long-term durable 
solution, we need to take into account certain significant industry 
developments. Two of the most important developments are the recent 
changes in industry structure, and the transfer of forestland from 
forest products companies to Real Estate Investment Trusts (REITs).
    Our American lumber workers and industry are among the most 
competitive in the world. Like many other sectors of our economy, the 
industry has been going through consolidation since the early 1980s 
that have further increased its efficiency. Independent of the trade 
issue, we are likely to see additional consolidation and strong 
competitive pressures in this industry through the near term. 
Currently, the 10 largest companies account for nearly 40 percent of 
North American production. There have been two significant recent 
mergers. One involved Koch Industries purchasing Georgia-Pacific, a 
large U.S. producer. The other involved Canada's largest forest 
products company, Canfor, purchasing New South Company, a significant 
U.S. producer.
    Further, in fall 2005, International Paper (IP) announced that it 
was considering selling off a significant portion of its 6 million 
acres of forestland. IP is the second largest private landowner in the 
United States.
    The transfer of forestland to REITs has become increasingly common. 
From 1998 to 2004, about 25 million acres of timberlands changed hands, 
from forest products companies to other types of ownership. Roughly 
one-half of this land has gone to REITs or a similar entity called 
Timber Investment Management Organizations (TIMOs). John Hancock Timber 
Resources Group and Grantham Mayo are prime examples of major TIMOs--
i.e., investment firms, pension funds and insurance-based companies 
that are looking for long-term assets. Plum Creek, a major U.S. 
producer, member of the Coalition, and the largest private landowner in 
the United States is now a REIT.
    These developments will impact the U.S. approach to a long-term 
solution. Previously, forest product companies used logs from their own 
forestland. Now, these same producers are purchasing a larger portion 
of their log supply from the new forestland owners (i.e., REITS and 
TIMOS) changing the market dynamics around supply and demand of logs, 
and requiring us to explore new areas in our negotiations.

Next Steps
    The Administration remains committed to bringing this dispute to a 
close. We pledge to work with our Canadian counterparts to find a 
solution that is fair to all parties, and addresses the concerns of 
both producers and consumers. A deal can be reached. This is not the 
place for me to speculate on the specifics of such a negotiated 
solution, but I can say that these negotiations should take place with 
a spirit of accommodation, avoiding rhetoric and public posturing. 
Hopefully, now we have the opportunity to do so. It is important to 
note that it was in this spirit that we were able to resolve similarly 
vexing disputes regarding textiles from China and cement from Mexico.
    Thank you for giving me this opportunity to testify on this 
important topic. I appreciate your support for our efforts and welcome 
your questions.

    Senator Smith. Frank, it's fact that our Commerce 
Department has found a 19--or a subsidy valued at a 19 percent 
duty, and that that's been reflected in the duties we've had. 
Why haven't we been able to convince the NAFTA board of that 
fact?
    Mr. Lavin. You're correct, Mr. Chairman. We have some 
methodological differences. And we----
    Senator Smith. Is it just an accounting difference? Does it 
really net out, or is it truly a subsidy?
    Mr. Lavin. No, we believe it is a--it is really a subsidy, 
and we don't think that it's--I think it's through the process 
of accounting, but I wouldn't minimize the differences. We 
think that the NAFTA panel doesn't allow us to add up the 
profit margin, or counts the profit margin against a different 
base number than we do. We believe our methodology more 
accurately reflects market dynamics.
    Senator Smith. I understand that recently you lowered the--
our calculation from 19 to 9 percent. Why did--why was that 
done?
    Mr. Lavin. That is correct, Senator. Well, we have 
something like 300 annual reviews. And, in fact, it's highly 
unusual when the prices don't move around a bit. There are 
exchange-rate differences, there are differences in market 
conditions, and sometimes randomness plays a role. So, it is no 
surprise that there has been that kind of a shift. The only 
point I would offer, though, which some people have asked in 
regard to that question, is, please don't overdraw conclusions 
from that kind of a shift. It doesn't mean there's a trend, it 
doesn't mean the next iteration will be lower still. The 
numbers very well could go the other way.
    Senator Smith. I understand that in the very vigorous 
Canadian campaign for prime minister, that the new prime 
minister promised additional subsidies to Canadian mills that 
would be paid for by the return of the duties withheld by the 
United States. Is that correct?
    Mr. Lavin. Well, I know that this issue came up in the 
course of the campaign, Mr. Chairman, but I couldn't reference 
precisely what comments were made. I would simply take it in 
this spirit, that I think as we get into the talks with our 
colleagues, we need to do so on the basis of friendship and in 
a spirit of cooperation. Sometimes in the course of campaigns, 
rhetoric can become involved, and----
    Senator Smith. You mean that happens there, too?
    [Laughter.]
    Senator Smith. Well, but, I mean, do you--how would these--
an additional $4 billion be provided to Canadian mills in 
subsidies?
    Mr. Lavin. Well, in our view, the ultimate disposition of 
that $4 billion is part of an overall negotiated settlement. 
And, indeed, that could very well factor into direct support 
for the industry. And certainly there have been cases in the 
past in the United States where we have an issue involving a 
certain sector, and we'll allocate funds to help with 
adjustment or provide support for those sectors.
    So, I don't think it is, in principle, objectionable, but I 
think what we have to do is make sure that is part of a broad, 
comprehensive settlement.
    Senator Smith. But you would admit that if they add another 
3 billion on top of the subsidies you already calculate, that's 
not going in the right direction toward a settlement.
    Mr. Lavin. Absolutely correct.
    Senator Smith. And you're holding firm on that.
    Mr. Lavin. Absolutely, Senator.
    Senator Smith. Mr. Spooner, David, do you have any 
additions to Secretary Lavin's?
    Mr. Spooner. Thank you, Mr. Senator, but, frankly, I don't. 
I would just reiterate that we believe that the best outcome is 
a long-term, durable, negotiated solution.
    Senator Smith. Haven't there been a number in the past?
    Mr. Spooner. There have been, yes.
    Senator Smith. And they've expired? How many, exactly, have 
there been over the last 20 years of dispute over this issue?
    Mr. Spooner. Oh, I hope I'm correct, but I believe there 
have been two prior negotiations.
    Senator Smith. Two prior ones. And did they add stability 
to the market in ways that both sides benefited?
    Mr. Spooner. I probably don't have as many gray hairs as I 
should, but I believe so, yes. I should say, Mr. Senator, I 
appreciate this issue well. As you may know, I worked for 
Congressman Bob Smith of Eastern Oregon for several years, and 
it was an issue that was important to the office.
    Senator Smith. Well, thank you very much.
    Let me turn next to our--to the Honorable Susan Schwab, 
Deputy United States Trade Representative.
    Thank you, Susan, for being here.

     STATEMENT OF SUSAN SCHWAB, DEPUTY UNITED STATES TRADE 
   REPRESENTATIVE; ACCOMPANIED BY JAMES MENDENHALL, GENERAL 
                            COUNSEL

    Ms. Schwab. Thank you. With your permission, if I might 
invite the USTR general counsel, Jim Mendenhall, to join me.
    Senator Smith. Jim, come on up.
    Ms. Schwab. Jim is the veteran of a number of these 
negotiations, and I thought it would be very useful to have him 
with us today.
    Mr. Chairman, thank you very much for this opportunity to 
be here today to discuss the Canadian softwood lumber issue. As 
you know, this is an issue, a problem that has been with us for 
several decades, as you noted. And, before going into some of 
the details--and I note that Frank Lavin has included a fair 
amount in his testimony--I do think it's also worth stepping 
back and putting the dispute into context, in terms of our 
broader bilateral relationship with Canada.
    The United States and Canada today enjoy the largest 
bilateral trading relationship in the world. Canada is the 
largest export market that we have, and in 2005 U.S. exports to 
Canada totaled over $210 billion. Softwood lumber is a very 
significant part of the dialogue between the United States and 
Canada over trade issues; in fact, it comprises only 2 percent 
of our overall bilateral trade.
    As you are well aware, the United States and Canada have 
been involved in disputes over cross-border trade in softwood 
lumber for, as you noted, several decades. The current 
disagreement began when the 1996 Softwood Lumber Agreement 
expired in 2001. And after the United States industry filed 
antidumping countervailing duty petitions, and the ITC found 
that they were threatened with material injury by virtue of 
dumped and subsidized imports of softwood lumber from Canada, 
the Department of Commerce instituted antidumping and 
countervailing duty orders against those imports.
    Since then, we've had more than two dozen additional 
strands of litigation, two dozen cases filed by the Government 
of Canada and Canadian lumber producers through the North 
American Free Trade Agreement, through the World Trade 
Organization, and through the U.S. Court of International 
Trade. So, we have this very large volume of litigation, much 
of which is ongoing, none of which appears to be resolving the 
problem. And so, we have stressed to our Canadian counterparts 
that there is no reason to believe that litigation is a 
solution. A negotiated solution over the long haul is really 
the right approach.
    Now, I should make clear that, while we have reached out to 
the Canadian Government to seek to resolve--to settle these 
cases, we will continue to enforce our trade remedy laws 
rigorously to ensure that U.S. industry is able to compete 
fairly. And we will defend any U.S. agency determination if and 
when they are challenged. And that's true whether we're facing 
one piece of litigation or two dozen. And, in addition, the 
United States does take its international agreements very 
seriously and will continue to comply with NAFTA and WTO 
decisions.
    As I mentioned, our strong preference is for a negotiated 
solution. Frank Lavin articulated some of the elements of that, 
the three principal ones being market-oriented reforms in 
Canada affecting their Provincial forestry practices, interim 
border measures that Canada could impose to stabilize the 
market, pending completion of the reforms, and then the 
disposition of the more than $4 billion in cash deposits 
currently being held by the U.S. Customs and Border Protection.
    We have been close to reaching agreements from time to time 
over the last several years, but there has been no agreement 
yet reached. Again, we believe a negotiated solution is the 
best way to go.
    Ambassador Portman recently spoke with David Emerson, the 
new Trade Minister in Canada, letting him know that we are 
looking forward to working with the Government in Canada, and 
indicating our willingness to sit down at any point to continue 
such talks and enter into negotiations. We will continue to 
consult with the various elements of U.S. industry--producers 
and importers, alike, the stakeholders in this agreement--to 
try to bring some stability and, we hope, a negotiated 
agreement, at some point, that will be satisfactory to both 
U.S. interests and Canadian interests.
    I would appreciate it if I could submit the full statement 
for the record.
    Senator Smith. We'll include that.
    [The prepared statement of Ms. Schwab follows:]

    Prepared Statement of Susan Schwab, Deputy United States Trade 
    Representative; accompanied by James Mendenhall, General Counsel

    Thank you Mr. Chairman, Senator Dorgan, and Members of the 
Subcommittee for providing me the opportunity to discuss the Canadian 
softwood lumber issue. I appreciate your interest in this matter, as 
well as the strong leadership you and other Members of this 
Subcommittee have shown on this issue, and I welcome the opportunity to 
brief you today on the Administration's interest in negotiating a 
mutually agreed solution to this dispute. As you know, the softwood 
lumber issue has a long history, but before I delve into some of the 
details, I'd like to step back for a moment and put this dispute in the 
context of our broader bilateral trading relationship with Canada.
    Today, the United States and Canada enjoy the largest bilateral 
trading relationship in the world. Canada is the largest export market 
for U.S. goods. In 2005, U.S. goods exports to Canada were $211.4 
billion, while U.S. goods imports from Canada were $287.9 billion. 
Softwood lumber, while a major issue, comprises some 2 percent of our 
total bilateral trade with Canada.
    As you are well aware, the United States and Canada have been 
involved in the dispute over cross-border trade in softwood lumber for 
decades. The current disagreement began when the 1996 Softwood Lumber 
Agreement expired in 2001, and the U.S. industry subsequently filed 
antidumping and countervailing duty petitions. In 2002, the U.S. 
International Trade Commission found that the domestic industry was 
threatened with material injury by reason of dumped and subsidized 
imports of softwood lumber from Canada, and the U.S. Department of 
Commerce instituted antidumping and countervailing duty orders on 
imports of Canadian softwood lumber. Subsequently, the Government of 
Canada and Canadian lumber producers filed approximately two dozen 
cases challenging the orders in various fora, including under the North 
American Free Trade Agreement, at the World Trade Organization, and in 
the U.S. Court of International Trade.
    Despite this large volume of litigation, much of which is still 
ongoing, the current dispute continues into its sixth year. Throughout 
the dispute, we repeatedly have stressed to our Canadian counterparts 
that, given the long history of this disagreement, there is little 
reason to believe that the current round of cases will resolve the 
matter once and for all, regardless of how the process plays out. 
Without a negotiated solution, chances are high that the dispute will 
continue.
    In this regard, let me make clear longstanding U.S. policy 
regarding dispute settlement cases: the United States will continue to 
enforce our trade remedy laws vigorously to ensure that U.S. industry 
is able to compete fairly and will mount strong defenses of U.S. agency 
determinations if and when they are challenged. This is true whether we 
are facing one challenge or two dozen. Let me also make clear, however, 
that the United States takes its international agreement obligations 
seriously, and will continue to comply with the NAFTA and WTO.
    As previously mentioned, however, our strong preference is to get 
off the litigation track and reach a negotiated resolution. As you 
know, the two sides have been talking, off and on, since the current 
cycle of cases began in order to try to find such a resolution. 
Discussions have focused on three main areas: market-oriented reforms 
to Canadian provincial forestry practices, interim measures that Canada 
could impose to stabilize the market pending completion of reforms, and 
the disposition of the more than $4 billion in cash deposits currently 
being held by U.S. Customs and Border Protection. While we have been 
close to reaching an agreement on more than one occasion, as of yet no 
deal has been reached. Nevertheless, the Administration believes that 
reaching a negotiated solution to this dispute is possible, and indeed, 
the only way to a lasting solution that will create a stable, fair, and 
open lumber market in North America.
    Ambassador Portman already has spoken with David Emerson, Canada's 
new Trade Minister, informing him that we look forward to working with 
the new government in Canada, and indicating our willingness to sit 
down and begin discussions at any time. We believe that it will help 
the progress of such discussions if no new issues, such as the granting 
of additional subsidies, emerge. We pledge to continue to consult with 
the relevant stakeholders--producing and consuming industries alike--
throughout the process. The Administration remains committed to a 
negotiated solution that will end this dispute, and we look forward to 
working with our Canadian counterparts in order to do so.

    Senator Smith. Susan, how would you describe negotiations 
now? Are they on, off, close, far apart? I mean, is it--I know 
it's early in this new government, but is there--you're 
reaching out a hand--is there a hand back?
    Ms. Schwab. Mr. Chairman----
    Senator Smith. Or a backhand?
    [Laughter.]
    Ms. Schwab. Mr. Chairman, there are currently no 
negotiations going on. There have been talks on and off over 
the last several years. Sometime there were points where we 
thought we were closing in on an agreement, and we never did. 
So, at the present time, there are no negotiations. I think the 
current--the new Canadian Government is in the process of 
sorting itself out. And we hope they will reach back, at some 
point.
    Senator Smith. If negotiations remain off, have you ruled 
out any other tools that may be at your disposal, such as an 
investigation into Canada's log export ban or a changed-
circumstances review?
    Ms. Schwab. Mr. Chairman, rather than commenting on any 
specific plan of action or option, I think it's safe to say 
that, given the seriousness of this issue, and the complexity, 
we would not want to rule out any option.
    Senator Smith. And, Frank, have you ruled out 
extraordinary--an extraordinary challenge to the latest NAFTA 
panel decision on subsidy determinations?
    Mr. Lavin. No, sir, we have not ruled that out. We can't 
really respond until we get the remand back from the NAFTA 
panel, and then I think we have 30 days, plus some 
administrative time, to make a response. But our options are 
open.
    Senator Smith. Jim Mendenhall, did you have anything you 
wanted to add to----
    Mr. Mendenhall. I think the issues have been laid out very 
well by my three colleagues on the panel, so I have nothing 
more to add right now, thank you.
    Senator Smith. Well, thank you very much, our first panel. 
We appreciate, very much, your engagement in this issue.
    I would just say, as a observation, I can only imagine how 
hot an issue this is for Canadians. I simply say to them, my 
friends, my neighbors, you ought to see how hot it is in 
Oregon. This is--we're simply trying to work out an 
understanding of how we account for costs in ways that are fair 
to both sides. My mills can compete against other mills. They 
can't compete against the Canadian Government. It's just that 
simple. And it isn't right for either side of the border to 
simply surrender a major industry. And when you're from the 
Pacific Northwest, a major industry has been, is now, and will 
always be, necessarily, timber. And we may never get it exactly 
the same, but we've got to get closer than we are right now to 
having a sustainable relationship.
    We thank you for being here.
    Ms. Schwab. Thank you, Mr. Chairman.
    Mr. Lavin. Thank you, Senator.
    Senator Smith. We'll call forward, now, our second panel. 
Steve Swanson is the President of The Swanson Group, Inc., and 
Chairman of the Coalition for Fair Lumber Imports. And he is 
from Glendale, Oregon. Bill Kluting is the legislative 
representative of the Western Council of Industrial Workers, 
United Brotherhood of Carpenters, Portland, Oregon. And Barry 
Rutenberg, who is a member of the board of directors of the 
National Association of Homebuilders, and President of 
Rutenberg Homes, Gainesville, Florida.
    We're glad you're here, Mr. Rutenberg. We know that there 
is another side to this lumber issue, other than those who make 
their living from the woods; it's also builders like you who 
need those lumber products, and Americans who want affordable 
housing. So, thank you.
    Steve, why don't we start with you?

    STATEMENT OF STEVE SWANSON, PRESIDENT, THE SWANSON GROUP

    Mr. Swanson. Mr. Chairman, I'd like to thank you for 
holding the hearing on the longstanding problem of subsidized 
and dumped Canadian softwood lumber imports.
    My name is Steve Swanson, and I am the President of The 
Swanson Group, a family owned lumber company employing over 
1,000 workers with our operations in Glendale, Roseburg, Glide, 
and Noti, Oregon.
    Mr. Chairman, you'll be hearing testimony today that seeks 
to obscure the problems brought on by subsidized Canadian 
lumber. The facts are simple. One, Canada provides billions of 
dollars in annual subsidies to its lumber industry. Two, the 
subsidies have had a devastating impact on thousands of U.S. 
workers and their communities, and is threatening millions of 
private timberland owners. Three, Canadian lumber subsidies and 
dumping practices must be subject to the U.S. trade laws until 
Canada reforms its timber market and engages in fair trade.
    I am testifying on behalf of the Coalition for Fair Lumber 
Imports, an alliance of U.S. sawmills supported by millions of 
private landowners and organized labor, in this effort to end 
the subsidies and dumping of Canadian lumber exports in the 
United States. Environmental organizations are, likewise, 
pressing for an end to the unfair Canadian practices.
    Mr. Chairman, every administration since the Reagan 
Administration has found that Canada subsidizes its softwood 
lumber production, and the subsidized imports injure, or 
threaten to injure, U.S. sawmills and millworkers. The current 
Bush Administration has also found that Canadian companies dump 
softwood lumber into the U.S. market. That is, the Canadian 
producers are selling into the U.S. market at unfairly low 
prices. The World Trade Organization has generally agreed with 
the United States in this dispute.
    Canadian interests, themselves, have acknowledged that 
their provincially managed system of subsidized timber is 
designed to maximize full employment in Canadian mills. In 
return for building sawmills and maintaining mill employment in 
Canada, the Canadian Provincial governments, which own 95 
percent of the timberland in Canada, provide Canadian lumber 
companies with a guaranteed supply of timber into the 
indefinite future.
    Crucially, Canadian lumber companies generally need not bid 
for timber as they would in a market. Rather, they pay set fees 
to the Provincial governments that represent a fraction of the 
value of the timber. The Canadian mills are thus assured of a 
steady supply of timber at below market prices. This system 
meets its goal of maximizing employment while exporting their 
unemployment to U.S. mills, particularly in weak economic 
periods.
    Senator Smith. Steve, could you give, briefly, what would 
be the comparison, in the stumpage, of a U.S. purchaser versus 
a Canadian?
    Mr. Swanson. In the U.S., a similar quality Douglas fir log 
is about $439 per thousand board feet. The same log in Canada 
is about $113 per thousand board feet.
    Senator Smith. That's what we're talking about, just so 
everybody understands. That's the difference.
    Mr. Swanson. It's a huge difference.
    It is hard to overstate the competitive benefit that 
Canadian lumber companies enjoy through artificially low timber 
pricing. My company is typical, in that the unharvested trees 
account for around 60 percent of lumber production costs. 
Recent studies, including one from Canada, have confirmed that 
the United States has the most efficient sawmills in North 
America, but we cannot, and should not, be expected to compete 
with companies that are getting up to a 75 percent discount on 
the single-largest cost component of producing lumber.
    Senator Smith. Is there any reason, Steve--I'm sorry to 
interrupt--is there any reason to believe that, as a percentage 
of total cost, that raw product cost is any different in Canada 
than the U.S.?
    Mr. Swanson. It's a much, much smaller part of total cost 
in Canada----
    Senator Smith. Obviously.
    Mr. Swanson.--than it is in the U.S.
    Senator Smith. Yes. But, I mean, otherwise, your numbers 
would be----
    Mr. Swanson. Our mills are very competitive. Our costs of 
production, as demonstrated by studies that have been produced 
in recent months, show that western Oregon, in particular, has 
some of the most efficient mills in the world.
    Senator Smith. So, my--the point I want--I'm trying to 
drive home is, it isn't a lack of technology of Oregon mills or 
Maine mills. You can compete, in terms of technological 
efficiency, with any Canadian mill?
    Mr. Swanson. Absolutely. Our mills are state-of-the-art. 
They have the same--in fact, in many cases, they have the exact 
same equipment that is in those mills in Canada.
    Senator Smith. And you're telling me, as a pea producer, if 
I could buy my peas at 75 percent less than I do now, I could 
probably make money.
    Mr. Swanson. You certainly could.
    Senator Smith. OK, thank you.
    Mr. Swanson. If 60 percent of my costs were reduced by 75 
percent, I could make a lot of money, as well.
    I'm a little off pace here, so I'll back up a minute.
    Timber values across Canada, on average, are 70 percent 
less than comparable values in the free-market economy that 
exists in the United States. As I said earlier, a given quality 
Douglas fir costs about $439 per thousand board feet in the 
United States and $113 immediately across the border in Canada. 
There's only one explanation: because Canadian Provincial 
governments are setting prices at an artificially low level to 
subsidize lumber production and employment.
    Subsidized and dumped lumber imports are devastating to 
U.S. mills and millworkers, particularly during periods of weak 
markets. Canadian market penetration increases when the market 
is weak, which, of course, is exactly what is intended. 
Canadian mills can simply maintain, or even increase, their 
exports to the United States to maintain high production and 
full employment, despite lower demand. During such downturns in 
the economy, U.S. mills suffer the consequences--mill 
curtailments and even shutdowns--of combined lower demand with 
increased subsidized imports from Canada. To put it bluntly, 
U.S. mills respond to lumber prices, Canadian mills do not, 
because they benefit from subsidies.
    It is a tragedy that this long, festering trade dispute has 
not been resolved. This issue would disappear the day that 
Canada made reasonable, transparent, and enforceable 
commitments to end their unfair trade practices and allow open 
and competitive markets for timber and logs. Canada simply 
refuses to do so, because it is addicted to subsidies and can't 
break the habit.
    Rather than confront the problem, Canada instead has chosen 
to abuse the NAFTA dispute settlement process by appealing all 
of our government's decisions to NAFTA panels. Because these 
panels have routinely exceeded their authority, disregarded 
U.S. legal requirements, and have directed U.S. agencies to 
make specific findings to insulate the Canadian unfair 
practices from the requirements of U.S. trade laws, that has 
forced us to bring our case that the NAFTA panel system is 
unconstitutional.
    Mr. Chairman, we believe that Chapter 19 denies U.S. 
citizens their constitutionally protected rights to fair and 
impartial judicial review of disputes involving them and their 
private property. NAFTA panelists, one-half of whom are foreign 
nationals, are interpreting and enforcing U.S. law. If the 
interpretation and enforcement of our trade laws can be 
outsourced to these unaccountable tribunals, similar systems 
can be created to apply to other statutory frameworks. In 
short, the NAFTA panel system is rife with conflicts, 
accountable to no one, and is repeatedly telling the United 
States, a sovereign nation, how to interpret its own laws.
    Mr. Chairman, the U.S. lumber industry continues to support 
resolving this dispute through negotiations. We are hopeful 
that a new government in Canada will provide an opportunity to 
negotiate a permanent solution to the problem. However, until 
Canada stops engaging in unfair trade practices, we will 
continue our fight to have the U.S. trade laws fully enforced 
against subsidized and dumped Canadian lumber imports that 
continue to threaten the livelihood of our workers and their 
communities.
    [The prepared statement of Mr. Swanson follows:]

   Prepared Statement of Steve Swanson, President, the Swanson Group

    Mr. Chairman and Members of the Committee, I would like to thank 
you for holding this hearing on the longstanding problem of subsidized 
and dumped Canadian softwood lumber imports. My name is Steve Swanson 
and I am the head of The Swanson Group, a family owned lumber company 
employing over 1,000 workers with operations in Glendale, Roseburg, 
Glide and Noti, Oregon.
    Mr. Chairman. you will be hearing testimony today that seeks to 
obscure the problems brought on by subsidized Canadian lumber. The 
facts are simple. (1) Canada provides billions of dollars in annual 
subsidies to its lumber industry; (2) the subsidies have had a 
devastating impact on thousands of U.S. workers and their communities, 
and is threatening millions of private timberland owners; (3) Canadian 
lumber subsidies and dumping practices must be subject to the U.S. 
trade laws until Canada reforms its timber market and engages in fair 
trade.
    I am testifying on behalf of the Coalition for Fair Lumber Imports, 
an alliance of U.S. sawmills supported by millions of private 
landowners and organized labor in its effort to end the subsidies and 
dumping of Canadian lumber exports to the United States. Environmental 
organizations are likewise pressing for an end to the unfair Canadian 
practices.
    Mr. Chairman, every Administration since the Reagan Administration 
has found that Canada subsidizes its softwood lumber production and 
that subsidized imports injure or threaten to injure U.S. sawmills and 
mill workers. The current Bush Administration has also found that 
Canadian companies ``dump'' softwood lumber into the U.S. market--that 
is, the Canadian producers are selling into the U.S. market at unfairly 
low prices. The World Trade Organization has generally agreed with the 
United States in this dispute.
    Canadian interests themselves have acknowledged that their 
provincially managed system of subsidizing timber is designed to 
maximize full employment in Canadian mills. In return for building 
sawmills and maintaining mill employment in Canada, the Canadian 
provincial governments, which own 95 percent of the timberland in 
Canada, provide Canadian lumber companies with a guaranteed supply of 
timber into the indefinite future. Crucially, Canadian lumber companies 
generally need not bid for the timber, as they would in a market. 
Rather, they pay set fees to the provincial governments that represent 
a fraction of the value of the timber. The Canadian mills are thus 
assured of a steady supply of timber at below-market prices. This 
system meets its goal of maximizing employment, while exporting 
unemployment to U.S. mills, particularly in weak economic periods.
    It is hard to overstate the competitive benefit that Canadian 
lumber companies enjoy through artificially low timber pricing. My 
company is typical in that the unharvested trees account for around 60 
percent of lumber production costs. Recent studies, including one from 
Canada, have confirmed that the United States has the most efficient 
sawmills in North America, but we cannot, and should not, be expected 
to compete with companies that are getting up to a 75 percent discount 
on the single largest cost component in producing lumber.
    Timber values across Canada on average are 70 percent less than the 
comparable values in the free market economy that exists in the United 
States. Why would a Douglas fir tree of a given quality cost U.S. $439 
per thousand board feet in the United States and U.S. $113 per thousand 
board feet immediately across the border in Canada? There is only one 
explanation--because the Canadian provincial government is setting 
prices at an artificially low level to subsidize lumber production and 
employment.
    Subsidized and dumped lumber imports are devastating to U.S. mills 
and mill workers, particularly during periods of weak markets. Canadian 
market penetration increases when the market is weak which, of course, 
is exactly what is intended. Canadian mills can simply maintain or even 
increase their exports to the United States to maintain high production 
and full employment despite lower demand. During downturns in the 
economy, U.S. mills suffer the consequences--mill curtailments and even 
shutdowns--of combined lower demand with increased subsidized imports 
from Canada. To put it bluntly, U.S. mills respond to changes in lumber 
prices: Canadian mills do not--because they benefit from subsidies.
    It is a tragedy that this long festering trade dispute has not been 
resolved. This issue would disappear the day that Canada made 
reasonable. transparent and enforceable commitments to end their unfair 
trade practices and allow open and competitive markets for timber and 
logs. Canada simply refuses to do so because it is addicted to 
subsidies and has been unable to break the habit.
    Rather than confront the problem, Canada instead has chosen to 
abuse the NAFTA dispute settlement process by appealing all of our 
government's decisions to NAFTA panels. But these panels have routinely 
exceeded their authority, disregarded U.S. legal requirements, and have 
directed U.S. agencies to make specific findings to insulate the 
Canadian unfair practices from the requirements of U.S. trade laws.
    That has forced us to bring our case that the NAFTA panel system is 
unconstitutional. Mr. Chairman, we believe that Chapter 19 denies U.S. 
citizens their constitutionally protected rights to fair and impartial 
judicial review of disputes involving them and their private property. 
NAFTA panelists, one half of whom are foreign nationals, are 
interpreting and enforcing U.S. law. If the interpretation and 
enforcement of our trade laws can be outsourced to these unaccountable 
tribunals, similar systems can be created to apply to other statutory 
frameworks. In short, the NAFTA panel system is rife with conflicts of 
interest, accountable to no one, and is repeatedly telling the United 
States, a sovereign nation, how to interpret its own laws.
    Mr. Chairman, the U.S. lumber industry continues to support 
resolving this dispute through negotiations. We are hopeful that the 
new government in Canada will provide an opportunity to negotiate a 
permanent solution to the problem.
    However, until Canada stops engaging in unfair trade practices, we 
will continue our fight to have the U.S. trade laws fully enforced 
against subsidized and dumped Canadian lumber imports that continue to 
threaten the livelihood of our workers and their communities. Thank you 
Mr. Chairman, I am happy to answer any questions you may have.



                               Exhibit E
NAFTA Chapter 19 Dispute System is Unconstitutional

    The binational panel review system established by Chapter 19 of the 
North American Free Trade Agreement (``NAFTA'') deprived the U.S. 
lumber industry of its right to a fair and impartial hearing in its 
trade dispute with Canada. The panel violated U.S. law (which it was 
required to follow) in a number of respects, including: (i) ignoring 
the mandatory ``substantial evidence'' standard of review, under which 
the agency's determinations must be upheld if there is substantial 
evidence in the record that supports the agency's conclusions, and (ii) 
preventing the U.S. International Trade Commission from re-opening the 
evidentiary record on remand, a decision firmly committed to the 
discretion of the agency under U.S. law. The NAFTA extraordinary 
challenge committee (``ECC'') that reviewed the panel's decision 
confirmed that the panel violated U.S. law in at least one respect but 
failed to correct the panel's errors. In addition, the panel included a 
panelist whom the U.S. Government asked be removed for an apparent 
conflict of interest, and who consistently and publicly demonstrated an 
apparent bias against the industry. The ECC likewise failed to correct 
this error.
Claims
    The NAFTA panel system on its face and as it has been applied in 
proceedings regarding unfair Canadian lumber imports violates the U.S. 
Constitution on several grounds. The claims set forth in the lumber 
industry's September 13 complaint submitted to the Court of Appeals for 
the D.C. Circuit are summarized below.

   Denial of judicial review. The system precludes judicial 
        review of decisions rendered by binational panels. The panels 
        adjudicate the propriety of agency determinations made by the 
        U.S. International Trade Commission and the U.S. Commerce 
        Department. The authority of these panels to conclusively 
        adjudicate U.S. law without review by U.S. courts violates 
        Article III of the Constitution.

   Due process requires that litigants receive a fair and 
        impartial hearing.

        -- Canadian binational panelists and ECC members are selected 
        by a party--the Canadian or U.S. Government--the interests of 
        which they are charged with adjudicating. Due process requires 
        that litigants have their claims decided by neutral 
        adjudicators.

        -- While binational panels are required to apply U.S. law to 
        the disputes they consider, the vague standard for 
        ``appellate'' review--to prevail, a decision must threaten the 
        integrity of the NAFTA system--results in admitted errors in 
        the application of U.S. law by panels going uncorrected. Not 
        one ECC has ever reversed a panel decision.

        -- There is not an adequate method by which to remove a biased 
        panelist. The United States asked for removal of a panelist for 
        an apparent conflict of interest. Canada refused to give its 
        consent, which is required by the system.

   Although acting as officers of the United States, serving in 
        a judicial or adjudicatory capacity, binational panelists and 
        ECC members have not been appointed by the President, confirmed 
        by the Senate or otherwise placed in office in conformity with 
        the Constitution's ``Appointments Clause.''

   The Constitution requires that the President administer the 
        laws enacted by the Congress. Panels are exercising executive 
        power in reviewing decisions made by the Commerce Department 
        and the International Trade Commission. To that extent, the 
        responsibility of the Executive Branch is being transferred to 
        binational panels in violation of Article I, Section 8 of the 
        Constitution.

   Under the Constitution, the Congress may not delegate 
        authority wholly outside of the government. By authorizing 
        panels to make determinations about countervailing duty and 
        anti-dumping decisions, the Congress has improperly delegated 
        application of U.S. law to private parties, some of whom are 
        agents of a foreign sovereign.

   The statutes implementing the binational panel review system 
        grant the President the power to ``accept, as a whole,'' the 
        decision of a binational panel or ECC in the event that the 
        implementation of the decisions made by these bodies is deemed 
        unconstitutional by a U.S. court. By attempting to vest in the 
        President the authority to override the findings of the 
        judicial branch by effectuating legal determinations otherwise 
        deemed unconstitutional, this provision circumvents both the 
        authority of the judiciary branch, in violation of separation 
        of power, and the law-making process mandated by Article I, 
        Section 7.

   The binational panel review system deprived the U.S. lumber 
        industry of its right to a fair and impartial hearing in its 
        trade dispute with Canada. The panel included a conflicted 
        panelist who consistently and publicly demonstrated bias toward 
        the Coalition, in contravention of the Coalition's due process 
        rights. Again, the ECC that reviewed the actions taken by the 
        panel failed to correct this error by upholding the panel's 
        decision despite the participation of a conflicted panelist.

    The U.S. courts should take immediate action to correct the defects 
in the panel system and assure that a fair result is achieved in the 
Canadian softwood lumber subsidy case and in all cases involving unfair 
trade practices involving imports from Canada and Mexico.

    Senator Smith. Steve, you referenced that the way the NAFTA 
tribunal calculates a subsidy is different than the way that 
WTO has determined those subsidies.
    Mr. Swanson. That's correct. In almost all cases, the WTO 
has sided with the U.S. Government on the same issues.
    Senator Smith. Looking at the same facts.
    Mr. Swanson. That's correct.
    Senator Smith. If you'll let me break in one more time, 
Senator Snowe has a statement, and we'd be happy to let her go 
now.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Well, thank you. Sorry to interrupt the 
process. I just want to commend you, Mr. Chairman, for focusing 
attention on this critical issue, both to our respective states 
and to our country. This has been a longstanding dispute with 
the Canadians, as Mr. Swanson's already indicated, for the last 
20 years. I know I've been part of that effort, even during--
hate to admit it, in some ways--the Reagan Administration. It 
goes back that far. But that's how long this dispute has been 
underway without resolution. And I can only hope that there 
is--with a new government in Canada, and we renew our interest 
and reinvigorate our interest on the part of our government 
officials, from whom you've heard in the first panel--I'm sorry 
I wasn't here to get their testimony--but we clearly do have to 
reinvest and refocus our energy, our initiatives, and 
jumpstarting negotiations with Canada.
    Where we stand today is unacceptable. And it's undeniable 
the impact it's having on my industries in the State of Maine, 
certainly yours in Oregon, and other parts of the country. And 
we have to resolve the question, these disparities that are 
having a far-reaching impact on our jobs and the paper 
industry, as illustrated by the map that you have shown here 
today, which I think is illustrative of the disparities and the 
subsidizations that exist. We know that. I mean, they're 
artificially set and controlled, far different from the market 
here in the United States, where they go to competitive 
auction.
    So, we clearly have to resolve this question. And, frankly, 
I think that our persistence has been outmatched by the 
Canadians over the last 2 decades; hence, we continue to have 
this problem that's undermining our very vital industry. It's 
not fair.
    And I agree with you about the binational panel under 
NAFTA. That is unacceptable, in terms of overriding the 
judicial review of antidumping and countervailing duties and 
the whole procedure. There are our procedures. They are 
recognized under our law. And they're basically overriding and 
asserting their views in place of ours. And, even as you 
mentioned, Mr. Chairman, the WTO looked at these questions very 
differently.
    So, I think that also is an issue that we have to address 
when it comes to that process under NAFTA, because it's 
obviously circumventing the procedures that are very much a 
part of our trade laws, and very much part of our judicial 
review, and it should be here, and should remain here, and not 
be overridden by outside interests in unaccountable panels.
    So, I want to thank you, Mr. Chairman----
    Senator Smith. Thank you, Senator.
    Senator Snowe.--for your efforts and your support and your 
leadership.
    Thank you.
    Senator Smith. Thank you very much, Senator Snowe.
    And, Senator Burns, I don't know if you have a statement 
you want--we've had our first panel, and this is the second 
panel.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Mr. Chairman, thank you very much. I want to 
apologize for being late. I don't shift gears too fast. When 
you go from Medicare Part D to softwood lumber, and then you've 
got a softheaded Senator, that's not a--that's probably a 
lethal combination.
    I would just ask that my statement be put in the record, 
Mr. Chairman----
    Senator Smith. Without objection.
    Senator Burns.--and that we just go ahead and allow this 
panel to finish their testimony.
    Thank you.
    Senator Smith. Very good.
    [The prepared statement of Senator Burns follows:]

   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana

    I thank the Chairman of this Subcommittee and I thank our witnesses 
for being here today to address this very important issue. The lumber 
industry in Montana has faced a very serious and unfair trade dispute 
from our neighbors to the north for many years now. The result of 
Canadian subsidized lumber has crippled the lumber industry in Montana, 
and has led to dire consequences for many Montana workers. In the 
United States alone, 79 lumber mills in the United States have had to 
close their doors since the year 2000, resulting in the loss of 
thousands of jobs. At least 400 of those jobs have been in Montana. 
Now, Mr. Chairman, 400 jobs may not seem like a lot, but in Montana, 
400 jobs is a devastating loss to a small community because these 400 
jobs do not affect just the families of these workers. It begins a 
domino effect and once that domino effect is in motion, it is very hard 
to turn back. The loss of these jobs impacts local economies; laid-off 
families have less to spend on basic goods and services which forces 
local businesses to shut their doors and in turn, lay off workers, 
driving up the unemployment rate. This is an unacceptable result, Mr. 
Chairman. The men and women of Montana's lumber industry who abide by 
the rules and compete without the assistance of subsidies should not be 
subjected to competition in an unequal trading market.
    Mr. Chairman, I am deeply concerned and troubled by the continued 
subsidy of Canadian lumber that is in turn dumped on our markets. In 
October 2005, a World Trade Organization panel report concluded that 
``dumped and subsidized imports of softwood lumber from Canada 
threatened to materially injure the U.S. industry.'' Mr. Chairman, this 
is a correctable problem and it needs to be corrected now.
    Montana families and businesses cannot be expected to compete on a 
market that is subsidized so largely that it drives out legitimate 
competition. I look forward to hearing from our witnesses and 
discussing their ideas about how we can compel the Canadians to sell 
lumber on our market at the actual market value instead of a fraction 
of that price. I am confident that together, we can bring not only 
relief, but most importantly, we can bring fair and honest competition 
to the lumber industry not only in our Nation, but for the hard working 
folks of Montana's lumberyards and mills.
    I applaud those who have worked to find a solution to this 
troubling problem, and I would like to thank Undersecretary Lavin for 
his honest communication with me on this issue. In light of the pending 
constitutional challenge to NAFTA's dispute resolution process known as 
Chapter 19, this hearing is especially timely, and I look forward to 
hearing the testimony today.

    Senator Smith. We'll next turn to Bill Kluting, again, with 
the Western Council of Industrial Workers, Portland, Oregon.
    Thank you, Bill, for being here.

            STATEMENT OF BILL KLUTING, LEGISLATIVE 
     REPRESENTATIVE, WESTERN COUNCIL OF INDUSTRIAL WORKERS

    Mr. Kluting. Thank you. And good afternoon, Mr. Chairman 
and Committee.
    My name is Bill Kluting, and I live in Monmouth, Oregon. I 
am the legislative representative for the Western Council of 
Industrial Workers. It's affiliated with the United Brotherhood 
of Carpenters.
    Our council represents more than 10,000 workers in the 
lumber and wood-products industry in Oregon, Washington, 
Montana, Idaho, and Northern California.
    My mill closed in June of 2000, due, in large measure, to 
Canadian lumber imports. I had 39 years in this plant. After 
the closure, I was appointed the peer advisor for our displaced 
workers. And there were 190 people in our plant, at that time. 
And I continue doing that line of work, up to today.
    I know, firsthand, sir, the devastating impact of plant 
closures and worker dislocations that have--caused by 
subsidized Canadian lumber imports, even with the antidumping 
duties in place.
    I'd first like to talk to you about the magnitude of mill 
closure problems in the Northwest's sawmilling industry.
    Since the softwood lumber agreement expired, March 31, 
2001, there's been 52 softwood mill closures in Oregon, 
Washington, Montana, Northern California, and Idaho. These 
closures put almost 5,000 millworkers out of work. Now, this 
doesn't count the other 5,000 that were directly affected by 
these mills closing, so we're talking right at 10,000 workers 
from these mills.
    There's usually several factors that come into play when 
decisions are made to close a mill: log supply, not adapting to 
new technology, changing market demands, and, of course, the 
pressure of subsidized Canadian imports. We firmly believe the 
imports from Canada, which make up one-third of our total U.S. 
lumber market, was a significant contributor to all these 52 
shutdowns.
    All these mills asked for, and 90 percent received, NAFTA 
Trade Act benefits. They were certified. And one of the main 
concrete reasons why you have to be certified for Trade Act is 
the problems of import or export. And, again, 90 percent of 
these mills qualified for Trade Act benefits.
    There is a good reason for dislocated workers to apply for 
NAFTA Trade Act--adjustment, retraining assistance, 
unemployment benefits are extended 2 years to get through 
training.
    Since over 90 percent of these sawmill closures qualified 
for NAFTA--and, again, the concrete reason, the determining 
factor, was imports from Canada--in many rural Northwest towns, 
the mill was the only source of employment. We have a lot of 
small towns in Oregon. A laid-off millworker often has to start 
all over.
    The council's research indicates that the average laid-off 
millworker takes between 10 and 12 years to regain their prior 
rate of pay. Pension and healthcare benefits at the new job are 
usually nonexistent or simply inadequate.
    In 5 years, I have worked with over 2,000 displaced 
workers, and I can show you the heartaches and headaches of 
these people. For an example, in our plant we had--our 
electricians, of course, moved on. They weren't held up much. 
They lost their seniority. But the rest of the people were 
really hurt. When you spend 10, 20, 30, 40 years in a plant, 
and all of a sudden you're out the door, the hardest thing to 
do is to go into a classroom and learn a new trade.
    Another problem is, if the mill isn't closed at a certain 
time--a lot of your good courses, a lot of your retraining, 
starts in the fall term--if that's a course you want to take, 
and it's a month late, you have to sit out a whole cycle. Your 
unemployment starts the day that you're--you are certified as a 
Trade Act. So, you--you're losing your unemployment. On the 
other end, you have to finish your school, maybe 6 months of 
school, on your own, with no unemployment benefit.
    In Dallas, we had--our electricians moved on, five went to 
work in the State--guards, security system; ten went into the 
public bus transportation; we barely got to 30 people that 
automatically found work. We had a total of 60 people signed up 
for school. Ten of them dropped out in a matter of weeks. They 
just couldn't stand the stress of a classroom. Three of our 
members took computer, and they wound up with pretty decent 
jobs with the State of Oregon. Machine-shop welding courses 
worked out for a couple of people. And diesel mechanics worked 
out for a couple of people. Of this group of 190, only 32 found 
comparable wages right off the bat. Only 32.
    So, what happened to the remaining displaced workers? I 
know of 50 now that are working for less than $9 an hour. 
That's all they could find. And if you're over 55 years old, 
it's hard to find anything. We had some apply for--finally 
apply for disability Social Security, and they finally got it. 
Nine. We have--of course, more are on Social Security, but way 
before they wanted to apply. Way before.
    These are some of the heavy costs borne by victims. I could 
go on and on, but I'll skip along.
    Our union would recommend more integration between economic 
development departments and dislocated worker retraining 
programs. We have to figure out a better policy for our 
displaced workers. It is a good program; it just needs a little 
bit of fine-tuning.
    In closing, I would put forth a recommendation from our 
union that this recommendation could help save our remaining 
lumber mill jobs in our United States. We urge the Congress and 
the President to put their full weight behind an effort to 
negotiate a fair and lasting resolve to the U.S./Canadian 
softwood lumber wars. We would support a top-level envoy being 
appointed by President Bush and Prime Minister Harper to 
negotiate an enduring softwood lumber agreement. These envoys 
should be given the power to negotiate a binding agreement, and 
be given a date for completing such. We would like to see 
September 2006.
    These special envoys would have the power to place limits 
on Canadian imports, especially when demand, slash, prices in 
the U.S. are low. This is when we get hurt the worst. They 
should also be directed to phase in a market-based stumpage fee 
system in Canada to eliminate the Canadian subsidy, over time.
    And, importantly, these high-level envoys should be given 
wide discretion over the use and dispersal of the $5 billion 
collected by the U.S. Customs since 2002 for countervailing and 
antidumping duties imposed on Canada's lumber exporters.
    Again, thank you for this opportunity to testify on this 
issue that is so very important to our members and to our 
Northwest communities. And I will try to answer any questions.
    [The prepared statement of Mr. Kluting follows:]

Prepared Statement of Bill Kluting, Legislative Representative, Western 
                     Council of Industrial Workers

    My name is Bill Kluting and I live in Monmouth, OR. I am the 
Legislative Representative for the Western Council of Industrial 
Workers which is affiliated with the United Brotherhood of Carpenters. 
Our Council represents more than 10,000 workers in the lumber and wood 
products industry in Oregon, Washington, Montana, Idaho and Northern 
California.
    I am, in fact, an example of a forest products worker who lost his 
job when my mill closed in 2000 due, in large measure, to Canadian 
lumber imports. When the Dallas, OR mill closed I had thirty-nine years 
in the plant as an electrician. After the closure I was selected to 
serve as a peer counselor to work with state retraining agencies and 
educational institutions to help these 190 workers obtain retraining, 
unemployment benefits and assist them in job search activities. I have 
continued working in this capacity for other dislocated worker groups 
for the last five years.
    I know, first hand, the devastating impacts of plant closures and 
worker dislocations that have been caused by subsidized Canadian lumber 
imports--even with countervailing and anti-dumping duties put in place 
by the U.S. Commerce Department and International Trade Commission.
    I would first like to talk about the magnitude of the mill closure 
problem in the northwest sawmilling industry.
    We examined mill closures over the five-year period from 2001 
through 2005 because this period coincides with the time span that 
we've been without a bilateral trade agreement on softwood lumber. The 
Softwood Lumber Agreement expired March 31, 2001.
    During this five-year period there's been fifty-two softwood 
sawmill closures in Oregon, Washington, Montana, Northern California 
and Idaho. These closures put 4,723 workers out of work.

                                 A breakdown by state for this five-year period
----------------------------------------------------------------------------------------------------------------
                         State                                 Sawmill Closures            Workers Impacted
----------------------------------------------------------------------------------------------------------------
Oregon                                                                           13                          845
Washington                                                                       15                        1,203
Montana                                                                           4                          350
Northern California                                                              15                        1,775
Idaho                                                                            15                          550
----------------------------------------------------------------------------------------------------------------
Source: Mill Closure Data, Paul Ehinger & Associates, Consultants to the Forest Products Industry, Eugene, OR.

    The reasons behind sawmill closures are never simple and 
straightforward. There are usually several causative factors that come 
into play when decisions are made to close a mill. These include the 
availability of log supply, the mills efficiency (technology), changing 
market demands and, of course, the pressures of subsidized Canadian 
imports which depresses lumber prices. We firmly believe, however, that 
Canadian lumber imports, which makes up just over one-third of the 
total U.S. lumber market, was a significant contributor to all of these 
fifty-two shutdowns. However, in an effort to draw a closer cause and 
effect linkage between Canadian lumber imports and U.S. northwest 
sawmill closures, we surveyed data published by the Department of 
Labor, Employment & Training Administration, showing which mills 
qualified for NAFTA Trade Adjustment Act (TAA) training and job search 
assistance. This is a program set up exclusively for workers who are 
negatively impacted by trade policy's under NAFTA. In other words, it 
applies to trade situations involving Canada, Mexico and the U.S.
    When an application is submitted for TAA benefits the Labor 
Department conducts an investigation to determine whether imports (or 
exports) were a significant factor contributing to the closure. Under 
DOL criteria imports/exports do not have to be the sole factor causing 
the shutdown. Trade related issues must, however, be demonstrated in a 
concrete fashion and must represent a ``significant factor'' in the 
closure. The DOL process for ``certifying'' dislocated workers for TAA 
or NAFTA benefits is rigorous. Investigators interview actual customers 
of the subject plant to determine if customers have shifted purchases 
away from the plant under investigation and increased purchases of 
imported products. If this shift can be demonstrated the plant is 
certified as having been impacted by trade and, thus, eligible for TAA 
or NAFTA supplemental benefits.
    There is good reason for dislocated worker groups to apply for TAA/
NAFTA certification. Adjustment and retraining assistance is greatly 
enhanced with a trade impact certification. Unemployment benefits are 
extended for persons in training and the allowance for training goes 
from $5,000 per person to $12,000. For these reasons application for 
TAA/NAFTA certification is made for many plant closure situations, 
especially when they are represented by a union like ours.
    Our survey of certified TAA petitions issued from 2001 through 
2005, due to customers purchasing increased quantities of Canadian 
imported lumber, shows that forty-nine plants qualified for TAA 
benefits. This certainly demonstrates a strong cause and effect 
relationship between sawmill closures in the five northwest states and 
the import of subsidized Canadian lumber during the last five years.
    Over ninety percent of sawmill closures qualified for NAFTA Trade 
Adjustment Act assistance because Canadian lumber imports were 
determined to be a significant factor in the closure.
    And these figures actually understate the real impacts because TAA 
benefits only go to manufacturing plants. In the forest products 
industry loggers, truck drivers, maintenance workers, log scalers and 
others not considered ``manufacturing'' employees are not eligible for 
TAA. As a consequence, those workers wouldn't be counted in this 
estimate of workers impacted by Canadian lumber imports. We estimate, 
conservatively, that the real impact is at least two times the 4,723 
workers identified in the 52 plant closures.
    In many rural, northwest towns the mill is the only source of 
employment. A laid-off mill worker often has to start all over again. 
The Council's research indicates that for the average laid off mill 
worker, it will take between ten and twelve years to regain their prior 
rate of pay. Pension and health care benefits at the new job are 
usually non-existent or simply inadequate.
    To help illustrate the difficulties and the suffering that 
accompany these shutdowns I'll give you some statistics and experiences 
from my plant. These are typical and representative of what we see in 
every mill closure.
    As I said, there were 190 workers dislocated when the Dallas, OR 
plant closed. The crew qualified for the extended training and 
unemployment benefits under TAA because Canadian imports contributed 
significantly to the closure.
    As you would expect, the more skilled people in the maintenance 
department had little problem finding new jobs. All ten of our 
electricians, for example, found comparable work in their trade. They 
did not use any of the training/education benefits available under TAA.
    Five members landed jobs as guards at the nearby state penitentiary 
at comparable wages and benefits. They were fortunate in that the 
prison system was hiring at the time.
    Ten workers are now driving municipal buses in Salem, OR which is 
fourteen miles from their homes in Dallas. Here again, their wage and 
benefit package is comparable to what they were receiving at the mill 
before the shutdown.
    We worked very hard to enroll people in job training classes. TAA 
supports two years of training. It is extremely difficult to persuade 
former millworkers to take education classes because a large block of 
them lack the fundamental education background to do well in job 
training classes. A total of sixty took a variety of training and 
education courses. We actually consider this to be a high ratio of 
enrollment.
    Three members took a computer/data base recording course and then 
went to work for the state government in office jobs.
    Two took a machine shop/welding course and are currently employed 
in a local machine shop.
    Two of the five workers who completed a diesel mechanic's course 
found jobs with local trucking firms.
    Adding up these various success stories it turns out that thirty-
two workers found new jobs that paid something close to the $14.00 per 
hour average (higher for electricians) they were receiving when the 
mill closed. This represents just 17 percent of the total 190 workers 
who lost their jobs.
    So what happened to the remaining 158 workers? I know of 50 who are 
now working at jobs paying $9.00 per hour or less with no health care 
and no pension. They are doing jobs like custodial work, farm/nursery 
work and working in small grocery stores.
    Eight workers went on Social Security disability after looking for 
work for two years. These people were between the ages of 56 and 62 and 
their bodies showed the wear and tear that comes with many years in the 
wood products industry.
    These are very heavy costs borne by the real victims of mill 
closures--the workers and their families. Regretfully, the retraining 
assistance helps a few but it is not an adequate answer to unfair trade 
that causes such massive unemployment. There are inevitable gaps and 
flaws in the retraining programs that cause them to fail people in real 
need.
    I would like to tell you about Ken Smith. He was 52 when the mill 
closed. Ken did an assessment of job opportunities and learned that 
several cities/counties needed qualified fire code inspectors for new 
and existing buildings. Ken was one and a half years into the two-year 
training program for fire code inspectors when he hurt his back. After 
his back healed he had to wait several months before the portion of 
training he missed was being offered again. As a consequence, his 
unemployment benefits were exhausted. He struggled financially and went 
into debt to complete the course. Tragically, state and local revenues 
were plummeting when Ken finally completed the course and became 
certified and, as a consequence, they were laying off fire code 
inspectors not hiring new ones. Ken, fortunately, was hired as a bus 
driver in Salem.
    This helps to illustrate some of the severe problems inherent in 
retraining programs. The harsh reality is they don't help very many 
people.
    Our union would recommend more integration between economic 
development departments and dislocated worker retraining programs to 
insure that the skill training matches emerging jobs and skill needs. 
In addition, these TAA programs need to be expanded and allowed more 
flexibility to meet the practical needs of workers.
    In closing I would put forth a recommendation from our union.
    We urge the Congress and the President to put their full weight 
behind an effort to negotiate a fair and lasting resolve to the U.S.-
Canadian softwood lumber wars. We would support a top level envoy being 
appointed by President Bush and Prime Minister Harper to negotiate an 
enduring softwood lumber agreement. These envoys should be given the 
power to negotiate a binding agreement and be given a date certain for 
completing it, perhaps September 2006. These special envoys would have 
the power to place limits on Canadian imports, especially when demand/
prices in the U.S. are low. They should also be directed to phase in a 
market-based stumpage fee system in Canada so as to eliminate the 
Canadian subsidy over time. And, importantly, these high level envoys 
should be given wide discretion over the use and disbursal of the $5 
billion collected by U.S. Customs since 2002 for countervailing and 
anti-dumping duties imposed on Canadian lumber exporters.
    Thank you for this opportunity to testify on an issue that is so 
very important to our members and to our northwest communities.

    Senator Smith. Thank you very much, Bill.
    And, Barry Rutenberg, we want our family-wage mill jobs and 
a fair marketplace for them, and we want affordable housing. 
Can you thread that needle?

        STATEMENT OF BARRY RUTENBERG, MEMBER, BOARD OF 
 DIRECTORS, NATIONAL ASSOCIATION OF HOME BUILDERS; PRESIDENT, 
                        RUTENBERG HOMES

    Mr. Rutenberg. Mr. Chairman, that's a--the question of the 
day, isn't it?
    [Laughter.]
    Mr. Rutenberg. And what I'd like to do first is to read the 
prepared statement.
    Senator Smith. Sure.
    Mr. Rutenberg. Then perhaps we could go to that.
    Chairman Smith, Senator Snowe, Senator Burns, I'm pleased 
to share with you today the views of the 225,000 members of 
NAHB, the National Association of Home Builders, on the 
Canadian softwood lumber trade dispute and its economic 
impacts. I thank you for the opportunity to appear before this 
Subcommittee today.
    My name is Barry Rutenberg. I'm President of Barry 
Rutenberg Homes, a homebuilding business in Gainesville, 
Florida. In 2000, I served as a President of Florida Home 
Builders Association, and currently sit on the executive 
committee and the board of directors for NAHB.
    Mr. Chairman, as you know, countervailing and antidumping 
duties on Canadian softwood lumber imported into the U.S. are 
currently being collected at a rate of approximately 10 
percent, down from 27 percent. This duty acts as a tax on 
American homebuyers and homeowners seeking to make improvements 
to their homes, hurts housing affordability, and prevents 
hundreds of thousands of families from qualifying for a home 
mortgage. Consequently, NAHB vigorously opposes lumber quotas, 
export taxes, and tariffs.
    The homebuilding and remodeling industries account for over 
two-thirds of all lumber consumption in the U.S. Canada is a 
source of more than a third of the lumber used in U.S. 
homebuilding, and lumber counts for a larger share of the cost 
of a home than any other material. Lumber price increases, 
accordingly, have a direct effect on the cost of housing.
    The current duties that are fully reflected in the price of 
lumber would raise a cost of a home by approximately $1,000. I 
think it's a higher number. But, according to the Census 
Bureau, if there is a $1,000 increase, then it will price 
approximately 300,000 families out of mortgage eligibility.
    The simple and critical fact is that the homebuilders can 
not meet the need for new homes and improvements to existing 
homes without lumber imports from Canada. Due to the current 
limits on the supply of U.S. timber, which you're more than 
familiar with--timber which is similar to the Canadian spruce 
pine fir, SPF--and the unsuitability of some of the timber 
available in the rest of the U.S. for wall framing, border 
restrictions on Canadian softwood lumber only serve to raise 
the cost of a home for U.S. consumers.
    Importantly, lumber trade restraints do little or nothing 
to increase the use of domestically produced lumber in home 
construction. Builders use different types of lumber for 
different purposes within the same home, and the type of lumber 
used for framing walls is in short supply in the U.S., due to 
logging and other restrictions. We must import this type of 
lumber from Canada. Therefore, lumber trade restraints serve to 
tax American consumers, because the very product subject to the 
duties must be imported in sufficient quantities, since 
suitable substitutes do not exist domestically.
    I would not use American southern yellow pine, the most 
common available domestic lumber species, for framing walls in 
the homes I build unless there was a very significant discount 
relative to the SPF. A builder's preference for a spruce pine 
fir in framing is based on the better performance you will get. 
It produces walls that will remain straight. Southern yellow 
pine, on the other hand, will warp and twist. Builders do use 
southern yellow pine in applications that call for treated 
lumber, including outdoor applications, including the plates 
that contact the concrete foundations of homes, and headers 
that are not engineered wood products. The trusses that I use 
are also almost 100 percent southern yellow pine, because it 
satisfies the requirements for truss engineering.
    The principal competitive threat to the use of southern 
yellow pine lumber comes not from imports, but from engineered 
wood products, such as wood I-joists and composite materials, 
which offer improved performance, easier installation, and 
reduced reliance upon old growth.
    Mr. Chairman, since the imposition of duties following the 
expiration of the Softwood Lumber Agreement in 2001, there has 
been an ongoing attempt to find a negotiated agreement to the 
end of the current dispute that would inevitably result in 
quotas or an export tax. Congress should insist that the 
interests of all U.S. stakeholders, not just the U.S./Canadian 
lumber producers, are included in lumber policy discussions, 
especially considering that American workers in lumber-
dependent jobs outnumber workers in lumber-producing industries 
by more than 25 to one.
    Instead of negotiating additional and further trade 
restraints, NAHB urges the U.S. Administration to adhere to its 
international obligations under NAFTA, and implement those 
decisions which have invalidated the lumber duties. The U.S. 
has committed itself to binding dispute settlement procedures 
and agreed to refund illegally collected border taxes under 
NAFTA. If we, in the U.S., expect our trading partners to abide 
by their international obligations, we should expect nothing 
less from ourselves.
    NAFTA panels have repeatedly ruled that the U.S. lumber 
producers are not threatened with injury by Canadian lumber 
imports. Importantly, these decisions have been unanimous, and 
a five-member NAFTA panel included three Americans named to the 
panel by the United States Trade Representative. In the most 
recent unanimous ruling, the U.S. lost its appeal of the case 
before a NAFTA Extraordinary Challenge Committee in August of 
2005. This should have resulted in a revocation of the duties 
and a return of the approximately $5 billion that has been 
collected to date. Despite this, the duties continue to be 
collected, and American consumers,--the consumers continue to 
pay the price.
    In conclusion, Mr. Chairman, Members of the Committee, 
lumber trade restraints act as a hidden tax on American 
consumers, hurt affordable housing, and prevent hundreds of 
thousands from qualifying for a home mortgage. These duties do 
little or nothing to increase the use of U.S.-produced lumber 
in home construction, since different types of lumber are used 
for different purposes in the same house.
    NAHB thanks you for your attention to this important 
matter, and I'd be happy to take any of the questions you might 
have.
    [The prepared statement of Mr. Rutenberg follows:]

  Prepared Statement of Barry Rutenberg, Member, Board of Directors, 
   National Association of Home Builders; President, Rutenberg Homes

    Good afternoon Mr. Chairman and Members of the Subcommittee. My 
name is Barry Rutenberg. I am President of Barry Rutenberg Homes, a 
home building business in Gainesville, Florida. In 2000, I served as 
the President of the Florida Home Builders Association and currently 
sit on the Executive Committee and Board of Directors for the National 
Association of Home Builders (NAHB). I appreciate the opportunity to 
appear today on behalf of the 225,000 member firms of NAHB and their 
more than 8 million employees in all fifty states.
    Mr. Chairman, NAHB represents firms involved in home building, 
remodeling, multifamily construction, property management, housing 
finance, building product manufacturing and other aspects of 
residential and light commercial construction. NAHB's members are 
citizens of the communities in which they build. They seek to support 
the economy while providing shelter and jobs; partner to preserve 
important historical, cultural and natural resources; and protect the 
environment, all while creating and developing our Nation's 
communities.
    Housing continues to be one of the leading sectors in our Nation's 
economy, with home sales and housing production providing strong direct 
support to both the Gross Domestic Product (GDP) and the job market. 
Integral to the construction of affordable homes is the industry's need 
for access to a stable and reliable supply of softwood lumber to meet 
our Nation's growing housing needs.
    Mr. Chairman, the Subcommittee's attention to the issue of Canadian 
softwood lumber trade is crucial at this time. As you know, 
countervailing and anti-dumping duties on Canadian softwood lumber 
imported into the U.S. are currently being collected at a rate of 
approximately 10 percent, down from a recent high of 27 percent. This 
duty acts as a tax on American home buyers and home owners seeking to 
make improvements to their homes, hurts housing affordability, and 
prevents many families from qualifying for a mortgage.
    The simple and critical fact is that the U.S. home building 
industry can not meet the need for new homes and improvements to 
existing homes without lumber imports from Canada. Due to current 
limits on the supply of U.S. timber similar to Canadian Spruce Pine Fir 
(SPF), and the unsuitability for wall framing of much of the timber 
available in the rest of the U.S., border restrictions on Canadian 
lumber only serve to act as a hidden tax on American consumers.
    Lumber trade barriers increase costs, increase inflation, place 
U.S. manufacturers of value-added wood products at a competitive 
disadvantage, and have a negative effect on productivity. NAHB believes 
that barriers to lumber imports impose an unreasonable burden on U.S. 
home buyers, and on the industries that depend on adequate, affordable 
supplies of lumber to provide the housing, home improvements, and other 
vital goods and services that the Nation needs. U.S. Government policy 
with regard to this issue should reflect the interests of consumers and 
the overall economy, not just U.S. timber owners and lumber producers.
    Let me be clear: NAHB vigorously opposes barriers to free trade in 
lumber. We do however support free trade policies that fully reflect 
the interests of consumers and downstream industries.
Lumber in Housing
    The importance of a sufficient and stable supply of softwood lumber 
for the home building industry can not be overstated. The home building 
and remodeling industries account for over two-thirds of all of the 
lumber consumption in the U.S. Canada is the source of more than a 
third of the lumber used in U.S. home building. And, lumber accounts 
for a larger share of the cost of a home than any of the other 
materials used by home builders. Additionally, lumber's share of a new 
home's cost is generally greater for lower cost homes designed for home 
buyers with low or moderate income than for high end luxury homes, 
meaning that lumber price increases fall disproportionately on less 
affluent families.
    While this issue is of the utmost importance to home buyers, home 
builders and subcontractors, there are also many other U.S. businesses 
that use softwood lumber, such as manufacturers of trusses, cabinets, 
pallets, box springs, and furniture, as well as lumber wholesalers and 
retailers. Together with home builders these heavily lumber-dependent 
industries employ more than 5 million American workers. Roughly another 
one million more workers are self-employed as independent contractors 
and business proprietors in the home building industry. Millions more 
are employed in housing-related businesses such as real estate and 
mortgage finance. By contrast, the number of logging and sawmill jobs 
is less than 200,000. Overall, American workers in lumber-dependent 
jobs outnumber workers in lumber-producing industries by more than 25 
to 1.
    Additionally, the economic impact of home building extends itself 
deep into the economy of the U.S. Building a new home requires workers, 
skilled and semi-skilled. New homes require building materials, some 
produced locally and some produced at regional or national factories. 
New homes need appliances and carpets and cabinets and windows and 
literally thousands of large and small products that must be produced 
in order to complete the home. Homes are painted and landscaped and 
furnished and windows are covered. Building and selling a home requires 
professional services, such as surveyors, architects, attorneys, real 
estate brokers, bankers and insurance companies. All of this economic 
activity spreads itself across the local economy, the national economy 
and into a myriad of different industries.
    It is little surprise then that home building has led the national 
economic recovery over the past five years and helped reverse 
employment declines. However, the record levels of construction have 
contributed to large increases in the cost of building materials. 
During the past two years while the producer price index for all goods 
increased by 4 percent, the price of materials used in home building 
increased by 14 percent. Along with higher land costs and other 
factors, this has pushed up the price of new homes.
    Many aspiring home buyers, especially those with lower incomes or 
first time home buyers are just on the edge of being able to qualify 
for a mortgage and make the required payments. Even a small change in 
house prices or interest rates can determine whether they can buy a 
home. This is one critical area where softwood lumber duties and trade 
restraints have had a direct impact on the ability of Americans to 
achieve the dream of home ownership. Additionally, the recent 
hurricanes that ravaged the southeast have resulted in the destruction 
or significant degradation of literally hundreds of thousands of homes. 
The current duties--or the potential for future trade restraints 
through a negotiated agreement with Canada--serve to act as a tax on 
many first time home buyers or the thousands of families in the 
southeast who will be rebuilding their lives and homes.

Effects of Lumber Price Increases
    Lumber price increases have a direct effect on the cost of housing. 
The current duties, if fully reflected in the price of lumber, would 
raise the cost of a home by approximately $1,000. An increase of that 
amount is estimated to eliminate around 300,000 people from mortgage 
eligibility in this country according to the census bureau.
    NAHB and its builder members across the country are working with 
Congress, the Department of Housing and Urban Development (HUD), and 
other state and local agencies to break down the barriers to home 
ownership. These current duties, and past managed trade agreements like 
the 1996-2001 Canada/U.S. Softwood Lumber Agreement (SLA), only work to 
frustrate and undermine the efforts of our industry and others who are 
working to improve housing affordability across the country.
    Lumber price increases also have an effect on the men and women who 
make their livelihood building the American dream. Home builders are 
generally entrepreneurial small business people. Eighty-seven percent 
of home builders build fewer than 25 homes a year and 72 percent build 
fewer than ten homes a year. Smaller builders have less of a capacity 
to absorb unanticipated changes in costs, such as those brought about 
by lumber price increases and volatility.

Different Species, Different Uses
    The current lumber duties and any potential negotiated settlement 
that would result in quotas or an export tax; do little or nothing to 
increase the use of U.S. lumber in home construction. Builders use 
different types of lumber for different purposes in the same home, and 
the type of lumber used for framing a house is in short supply in the 
U.S. due to logging and other restrictions. As a result, the home 
building industry must import a third of the lumber it uses. 
Ultimately, lumber trade restraints only serve to penalize and tax 
American consumers since the very product subject to the restraints 
must be imported since sufficient quantities of suitable substitutes do 
not exist domestically.
    I can tell you first-hand that the types of lumber imported from 
Canada are significantly different from much of the lumber produced in 
the U.S. Builders use different lumber species for different structural 
uses in home construction. Home builders select different types of 
lumber for use in the same house based on different performance 
features. Builders know what will work best in each application 
involved in building a home.
    Builders require lumber that is dimensionally stable and easy to 
nail, such as spruce, for studs, top plate, and subfascia work in 
framing the structure of the home. The origin of the lumber is not as 
much a concern as whether the product has the design values we need and 
meets our quality standards. However, Canadian Spruce Pine Fir (SPF) 
satisfies that requirement, both in terms of design value and quality.
    I could not use American southern yellow pine (SYP) for framing 
walls in the homes I build, even if it cost half as much as SPF. A 
builder's preference for SPF in framing is based on the better 
performance you will get from SPF: it produces walls that will remain 
straight. SYP, on the other hand, will warp and twist. If Canadian SPF 
were not available for use in wall framing, many builders would 
consider using steel in its place in framing applications. I know my 
customers--and home buyers generally--would not be satisfied with the 
result if I were to use SYP for many framing applications.
    Builders do use SYP in applications that call for treated lumber, 
including outdoor applications, plates that contact the concrete 
foundation of the homes, and headers that are not engineered wood 
products. The trusses that I use are also made of almost 100 percent 
SYP because SYP satisfies the requirements for truss engineering.
    The principal competitive threat to the use of southern yellow pine 
lumber, the most common domestic lumber species, comes not from imports 
but from engineered wood products such as wood I-joists and composite 
materials, which offer improved performance, easier installation, and 
reduced reliance on old-growth timber.

Negotiations
    Since the imposition of duties following the expiration of the SLA 
in 2001, there have been a number of attempts to find a negotiated 
agreement to end the current dispute. These negotiations have been 
viewed as an alternative to the ongoing litigation at the World Trade 
Organization (WTO) and North American Free Trade Agreement (NAFTA) 
panels. Proposed settlements have also provided for the money collected 
from the duties to be distributed in one manner or another and the 
duties themselves replaced with either a quota or an export tax. NAHB 
continues to oppose the imposition of a new quota or an export tax, and 
remains very concerned and frustrated that these negotiations have not 
included the interests of home builders or any other U.S. lumber 
consumers.
    Congress should insist that the interests of all U.S. 
stakeholders--not just U.S. and Canadian lumber producers--are included 
in lumber policy discussions. Specifically, the interests of 
homebuyers, home builders, and other U.S. consumers and downstream 
industries should be recognized and represented in negotiations, 
litigation, and policy formulation regarding Canadian lumber just as 
much as the interests of U.S. and Canadian lumber mills are. Sadly, 
this has not been the case.
    NAHB has been opposed to the idea of a negotiated settlement that 
involves quotas or export taxes for a number of reasons. Lumber 
agreements like the SLA allow lumber producers in the two countries to 
restrict supply and raise prices. In addition to raising prices, supply 
constraints contribute to volatility in lumber prices, which also hurts 
housing affordability. Ironically, the SLA ultimately imposed little or 
no penalty on Canadian lumber producers, but very large penalties on 
U.S. consumers, and in fact transferred billions of dollars from U.S. 
homebuyers to U.S. and Canadian lumber mills, and even to Canadian 
provincial governments.
    As well as raising prices, the SLA and other quantitative 
restrictions make the price of lumber more volatile. Price volatility 
represents substantial risk for home builders, lumber dealers, and 
other businesses that produce or use lumber. New homes are typically 
sold for fixed prices before construction begins, and before materials 
are purchased. Swings in lumber prices can wipe out any expected profit 
from the sale of a home.
    In addition to the possibility that negotiations could result in 
the imposition of a new quota, export taxes have also been discussed as 
a way of replacing the duties under a negotiated agreement. NAHB also 
opposes the institution of such a tax on American consumers. NAHB 
cannot support a tax that would be levied on U.S. consumers, collected 
at the border, and given over to Canadian provinces.
    Instead of negotiating additional and further trade restraints, 
NAHB urges the U.S. Administration to adhere to its international 
obligations under NAFTA and implement those decisions which have 
invalidated the lumber duties. The U.S. signed NAFTA because of the 
benefit this agreement provides to consumers and producers alike. The 
U.S. has committed itself to binding dispute settlement procedures, and 
agreed to refund illegally collected border taxes under NAFTA. And in 
cases to date--except for this current lumber dispute--the U.S. has 
done just that. If we in the U.S. expect our trading partners to abide 
by their international obligations, we should expect nothing less from 
ourselves.
    NAFTA panels have repeatedly ruled that U.S. lumber producers are 
not threatened with injury by Canadian lumber imports, reversing the 
U.S. International Trade Commission (ITC) decision that paved the way 
for the current duties to be instituted in 2001. Importantly, these 
decisions have been unanimous--and the five-member NAFTA panel included 
three Americans named to the panel by the United States Trade 
Representative (USTR). In another unanimous ruling, the U.S. lost its 
appeal of this case before a three judge NAFTA Extraordinary Challenge 
Committee in August of 2005 that included an American judge. This 
should have resulted in a revocation of the duties and a return of the 
approximately $5 billion that has been collected to date. Despite this, 
the duties continue to be collected, and American consumers are paying 
the price.
    NAHB calls on Congress to urge the Bush Administration to adhere to 
its international agreements under NAFTA and implement decisions that 
have invalidated these onerous lumber duties.

Conclusion
    While housing continues to be one of the leading sectors in our 
economy, providing strong direct support to both GDP and the job 
market, the home building industry is also about providing American 
families with the dream of home ownership, and the safety, 
satisfaction, and economic security that provides. NAHB and our housing 
industry allies continue to work with HUD, Congress and others to make 
this dream as affordable and accessible as possible.
    Lumber trade restraints, whether in the form of duties, quotas, or 
export taxes, only serve to undermine the gains made in housing 
affordability in this country, especially for those with lower incomes 
who are affected disproportionately by increases in lumber costs, and 
those rebuilding after last year's natural disasters.
    The current lumber duties and any potential negotiated settlement 
that would result in quotas or an export tax; do little or nothing to 
increase the use of U.S. lumber in home construction. Builders use 
different types of lumber for different purposes in the same home, and 
the type of lumber used for framing a house is in short supply in the 
U.S. due to logging and other restrictions. As a result, the home 
building industry must import a third of the lumber it uses. 
Ultimately, lumber trade restraints only serve to penalize and tax 
American consumers since the very product subject to the restraints 
must be imported since sufficient quantities of suitable substitutes do 
not exist domestically.
    Mr. Chairman, I thank you for holding this hearing to focus the 
attention of Congress on the impact that these duties, and lumber trade 
restraints generally, have on housing affordability, and the various 
lumber consuming industries in the U.S. NAHB will continue to urge the 
Bush Administration and Congress to adopt and follow free trade 
policies, and to fully consider the impacts and effects of lumber trade 
restraints on American consumers.
    I thank you again, and would be happy to answer any question you 
might have.

    Senator Smith. Barry, thank you very much for your 
testimony. Clearly, the perspective of the homebuilders is one 
that all three of us value. They're our friends, too.
    I guess the point I want to make with a hypothetical is so 
you'll understand why we also have to fight for timber workers 
and our mills. Let's say, in Gainesville, Florida--I assume you 
build a lot of houses.
    Mr. Rutenberg. And we have timber production facilities.
    Senator Smith. And let's assume that one of your 
competitors is a Canadian who has come down here and started a 
homebuilding business, which I assume they're entitled to do. 
Let's assume further that all of the timber they use in their 
houses, the Canadian Government rebates to them all the cost of 
that. Would you want us to be concerned about that?
    Mr. Rutenberg. I think that, given the scenario that you 
painted, the normal person would be concerned. But I'm not sure 
I agree with your scenario. And I might----
    Senator Smith. It may not be perfect, but I'm just simply 
trying to make the point that I'm a pea processor. If I got my 
peas for free, boy, I'd make money. But if my competitor gets 
them for free, I'm out of business.
    Mr. Rutenberg. The American homebuilding industry is a very 
fragmented industry. Currently, about 72 percent of our members 
build ten homes or less; 87 percent of the builders in this 
country build 25 homes or less. I fall into that category. 
You're seeing tremendous consolidation going on at this time. I 
mean, we're seeing nationals become much more aggressive. D.R. 
Horton now is up to 50,000 homes a year, trying for 100,000 by 
2010. That's, like, more than 10 percent of the total national 
market. We're seeing major changes in our industry. And we're 
seeing major changes in industries across this country. It's--
--
    Senator Smith. I guess my--and I appreciate that. Nothing 
keeps you up at night quite like vigorous competition. But if 
there were an element of unfairness in the marketplace you 
described for homebuilders, I assume you would be very alarmed 
by that.
    Mr. Rutenberg. We are. And I've been involved in this for--
not as long as you have, but I've been involved in this issue 
since 1994. And I understand that the first tariff was imposed 
by the First Continental Congress. It was a 5 percent tariff on 
the import of Canadian lumber. I mean, we've been at this for 
some period of time.
    We read about--I read about--reports from the American 
Government saying that we have subsidies of our own. I've 
seen--I have American homebuilders--I have one from Vermont, 
who's a friend of mine, who says they export logs to a Canadian 
mill, then it comes in with a tariff on it. We see some of the 
Provinces that are purely on market-driven basis in the 
Maritimes, where they're still subject to the quotas. This has 
become a complicated issue. It needs serious study.
    But we still come back to the points of--let me pose a 
different question to you, if I might--is, we have seen, in the 
last several years, the import of European lumber, go from 
seven-tenths of a percent to 5.7 percent in, like, the last 5 
years or so. How are the Europeans bringing in structural 
lumber to the U.S.? I mean, it has to be more expensive to put 
it on a boat, take it across the ocean, then put it onto a 
train and take it to a lumberyard that it is----
    Senator Smith. Maybe they're subsidizing.
    Mr. Rutenberg.--to bring it in. And, as far as--I have not 
heard that allegation yet.
    Senator Smith. I don't know whether that's true. I just--
but I know their labor costs are higher than ours.
    Mr. Rutenberg. I think what I'm trying to do is to say two 
separate things. What I am really, really pleased with is that 
we're having a chance to say something on behalf of consumers. 
I want to compliment you for letting us do this.
    Senator Smith. Sure.
    Mr. Rutenberg. It's huge, and it's big, and we've been 
trying for years. I was invited to the White House Conference 
in 1995 when the SLA was negotiated, flew in from the West 
Coast and was told, with my invitation in hand, that I was no 
longer welcome. So, being welcome to speak here is just great.
    Senator Smith. You are welcome. And I don't mean to be 
argumentative. But I--and I think there's--there is some good 
news in all of this. Notwithstanding these duties, we're in a 
housing boom. And I guess my experience in a free market is, 
when you have an expanding market, the demand's greater than 
the supply, that any cost of those duties wouldn't necessarily 
be passed on to the consumer when it comes time to sell the 
house. Isn't that a fair----
    Mr. Rutenberg. The duties are passed on, in one form or the 
other, over time. I mean, in a short term, that may not be 
true, because when I contract for a house--if you bought a 
house from me, if I was that lucky, then, a year from now, I 
would deliver it, but the price would be your--if, in month 
three, I got a different tariff, then I would have to eat that.
    Senator Smith. Yes.
    Mr. Rutenberg. May I eat--may I read one or two lines 
from----
    Senator Smith. Sure.
    Mr. Rutenberg.--The Wall Street Journal this morning?
    Senator Smith. Of course.
    Mr. Rutenberg. There's an article on page A2, in the third 
paragraph, on ``KB Home Orders Decline as Housing Could Be 
Cooling.'' ``` There are signs that consumer demand in the U.S. 
residential housing at current prices is softening,' Los 
Angeles-based KB Homes said in its annual report filed with the 
Securities and Exchange Commission.''
    This is something--your point is well made about how the 
boom of the housing industry--and even in this year, where 
there's a forecast of a decline, it's only still forecast to be 
the second or third best year in history. But we are still 
seeing edges of it. I lost a major house 2 months ago, or 3 
months ago, that was ready to go in the ground, and it didn't 
appraise out in the price, because the materials were higher. 
And it--and I'm not picking on lumber. It was, like, cement and 
other things, as well. And we are starting to see resistance. 
And that customer canceled the contract. And we're starting to 
see this, where we hadn't seen it before, the dynamics in the 
market. Certainly this is not crying poor, because we're in a 
great housing market----
    Senator Smith. Yes.
    Mr. Rutenberg.--but we are seeing the dynamics on the edges 
changing.
    Senator Smith. Well, I think, to your point, I mean, this 
is a good time for homebuilders, it's a good time for mills in 
America, but you're--I hope everybody remembers, the factors 
we're talking about here will really start to hurt in--to 
consumers and also to millworkers, when this market heads 
south. And I've never seen a market go north that doesn't 
eventually come south.
    Mr. Rutenberg. One of the things that was--that would be 
true. And one of the things that I saw that was really 
interesting, especially during the SLA, where--and now, when we 
have the antidumping--the antidumping provisions of the current 
agreement motivate a Canadian firm to increase their production 
so they can go at--as high a level as they can, because if they 
do more, then their cost is coming down. Therefore, they are 
less likely to have an antidumping penalty on them. We have an 
agreement in place that encourages the Canadian companies to 
produce at higher levels. And there are some things that are 
very unnatural about having quotas and export taxes and stuff, 
and we get unintended consequences in the market.
    I look forward to the solution that you asked for and 
suggested, where we can take care of the workers in the 
Northwest and other parts of the millworkers, that we can take 
care of the American consumers, and we can have something that 
is perceived as being fair.
    Senator Smith. Well, thank you. You've helped measurably in 
this hearing.
    Senator Snowe?
    Senator Snowe. Thank you, Mr. Chairman.
    Just to follow up. But you don't deny that the Canadian 
Government is subsidizing their softwood lumber.
    Mr. Rutenberg. I'm neither denying it or alleging it. I 
think that my basic point in being here would be two things. 
One would be to point out that the consumers are paying, and 
that we're concerned with affordability, and that we need 
different species. My first love would be to have more domestic 
wood from Oregon and Maine coming to my jobsites in Florida. 
That would be just terrific if we could arrange it, and I would 
look forward to working with you on trying to do that. I'd 
rather see the jobs here. I'd rather see it coming from our 
country. And I'd--and you have the kind of materials that we 
need.
    Senator Smith. There's a guy next to you that can help you 
with that order.
    Mr. Rutenberg. Perfect.
    [Laughter.]
    Senator Snowe. And we'll find--fix you up with Maine, too.
    Let me--well, first--second, on the question of what 
contributes to rising home prices, how much do you factor in 
for the lumber prices as a percentage of overall cost in new 
homes? I mean, how much does that factor in? You say it's an 
array of items, obviously, that can contribute to the rising 
cost of homes.
    Mr. Rutenberg. In my typical home, I'm spending--and I'm 
doing concrete slabs on grade, so I don't have a wood floor 
structure, and I'm building single stories--I'm spending 
$30,000, at a minimum, for my framing component. I then have 
cabinets, and I have interior trim, so my wood component in a 
house is probably about $45,000. And that's on a house that 
might be 450. So, it's 10 percent, on my personal home. I do 
not know the national numbers.
    Senator Snowe. I think--to Mr. Swanson, would you care to 
address that, as well? I know you've mentioned it in your 
testimony.
    Mr. Swanson. I would like to address that. The facts are, 
lumber is not causing housing-cost increase. Lumber accounts 
for a very small portion of the cost of a home, 2.1 percent, on 
the average home. And that's falling. It's been as high as 4.5 
percent in the last decade. It's just not a problem.
    Lumber prices are not unusually high. In nominal terms, 
about the same level as when I started in the business in 1977. 
And they were actually lower in 2005 than in 6 of the prior 12 
years. It's just not a fact that lumber is part of the problem.
    In fact, if you'll look at the net income of the top ten 
homebuilders in the U.S. in 2004, their profits were $6 
billion. And that's an increase, on average, of 43 percent over 
2003. So, it's not the high price of lumber that is causing the 
high price of a home.
    And that--and may I also address the issue of species? 
Every specie of lumber that is produced in Canada is also 
produced in the U.S. Over 50 percent of lumber produced in the 
U.S. is exactly the same specie as in Canada. Southern yellow 
pine is used in framing. It certainly sells. It's a price 
issue. But it is used.
    And as to other competitive and alternative products, more 
than 90 percent of all the walls in the U.S. are wood.
    Senator Snowe. Thank you. And I appreciate that. And, also, 
with respect to the border mills that you were referring to 
about your friend in Vermont, that's one of the areas that we 
are going to be addressing in that question, because--clearly 
unfair that--live in the borders, send their materials, and 
have to come back.
    Mr. Rutenberg. Would you care for any kind of response, or 
would you like me to be quiet?
    [Laughter.]
    Senator Snowe. Well, I'd like to move on to a response to--
aren't those facts?
    Mr. Rutenberg. Just two points. I could do it in about 10 
seconds.
    Senator Snowe. OK.
    Mr. Rutenberg. OK?
    Senator Snowe. We're ready.
    Mr. Rutenberg. One is, I very much respect the coalition 
and independent producers, but I would be glad to give you a 
contract anytime for 2.1 percent, if you could do my framing 
lumber for that. And the national builders, I think you'll find 
that a lot of their profits right now are being generated by 
land development and land sales, because we've gotten a lot of 
restrictions on where you can build and develop, and they've 
been able to ride that crest, and they're--if you look at the 
numbers, the builders with land are making a lot more money 
than the builders without land.
    Senator Snowe. Well, I guess the bottom line is here, 
though, we're dealing with a very serious problem that has 
persisted over the last 2 decades. There is----
    Mr. Rutenberg. Absolutely.
    Senator Snowe.--there is a wrong that needs to be righted, 
in the final analysis. And the question is how best we can 
accomplish that and looking for new avenues in negotiating a 
permanent settlement. To me, I just don't understand why the 
Canadians would consent to ultimately negotiating this and--so 
they would have a permanent resolution to this question, rather 
than having an intractable problem that's persisted over the 
last 2 decades. And, as I said, I was part of that during the 
Reagan Administration. I've been here since that time. And we 
have reached no resolution on the question. I mean, it's ebbed 
and flowed, and we're at a point now where we really have--
hopefully, have another opportunity of some kind to work this 
out with the new government, but it clearly does require some 
persistence on the part of our Government.
    Mr. Swanson, what do you think's the best approach for our 
officials, our Government officials, from the USTR and from the 
Commerce Department? What do you think should be done? Should 
there be an envoy, as been recommended, for example, to 
negotiate a permanent settlement, if that's possible and 
mutually agreeable?
    Mr. Swanson. Well, first and foremost, these agencies need 
to assess a duty that fully offsets the Canadian subsidies.
    Senator Snowe. Go back up to the 18 or 19 percent, or 
whatever.
    Mr. Swanson. There is plenty of evidence to suggest that it 
should be even higher than that. That would be first and 
foremost. A negotiated solution is the right answer, and we 
stand ready to continue re-engaging negotiations. We just need 
to have a level playing field.
    All we're asking for is to let the markets decide where the 
lumber should be produced, not the governments.
    Senator Snowe. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Smith. Senator Burns?
    Senator Burns. Thank you very much.
    Is there a--countercyclical duty in effect now? Have we 
ever used it in softwood lumber?
    Mr. Swanson. I'm not----
    Senator Burns.--with Canada?
    Mr. Swanson. I'm not aware of what a countercyclical duty--
--
    Senator Burns. Well----
    Mr. Swanson.--is, sir.
    Senator Burns. I'll tell you what, we had an agreement with 
Australia one time in the beef business--OK?--that whenever 
beef prices were good here, we could allow more of their 
imports to come in, which sort of had a leveling effect. And 
then--but if we had an oversupply, why, then that--we'd--they 
would cut back. That seemed to work out, and that--and we 
worked that out among--in the beef industry among--and in 
private parties. That was not worked out as far as the 
government was concerned. The government had a hand in it, but 
it was more of an agreement between producers. And has that 
ever been--has that ever been tried with--and would it work in 
the softwood lumber business, between here and Canada?
    Mr. Swanson. Yes, I believe it would, in the context of 
what you're discussing there. What the industry needs is 
protection on the bottom end of the market, as lumber prices 
drop and housing--as housing demand drops, because their cost 
structure is so much lower due to the subsidized effect, they 
continue to operate at the expense of U.S. mills. And we shut 
down.
    What we're asking for is for a system in place where 
Canadian lumber companies react to the market the same way that 
U.S. companies do. In fact, the framework that you have alluded 
to has been discussed before, in terms of something that might 
work on the low end of the market.
    Senator Burns. Mr. Rutenberg, is that--does that make sense 
to you?
    Mr. Rutenberg. There was a--what you would call 
countercyclical----
    Senator Burns. Uh-huh.
    Mr. Rutenberg.--component to the softwood lumber agreement.
    Senator Burns. Yes.
    Mr. Rutenberg. It was not statistically significant, and it 
didn't do very well, but there was one in there, if you wanted 
to go back and look at it, its performance. I think that--and I 
do not mean to sound like a broken record, but NAHB is really 
just trying to get back to the market. I think that one of my 
personal regrets is I've not had a chance to talk to Mr. 
Swanson outside of being at the table here. And this is not the 
most conducive to good chats. And we do--I respect what you 
know. I have some disagreements with your numbers. And I'm not 
going to try and hash them out here, because it would be 
nonproductive. And so, I think that our first choice would be 
not to have that. And I think that, from a personal viewpoint, 
I've always wondered of how do you get from a kind of 
negotiated settlement to a nonnegotiated market and--without 
having further objections thrown up? I mean, how does that exit 
ramp really work? And I've never seen it work. And I've never 
seen a good blueprint for it that couldn't be--we've gotten 
really good at coming up with new ideas of why we have 
problems. And so, it would have to be really wrapped tight. And 
that's why I'm still for just free market.
    Senator Burns. Well, I--it seemed to work at the time, and 
then they stepped in, and they ceased to do that.
    Mr. Rutenberg. But----
    Senator Burns. Some people claim that duties are 
responsible for increased lumber and house prices. We've heard 
it here today. But prices for structural wood panels, oriented 
strandboard, and plywood have increased more than lumber, even 
though they are not subject to duties. Do you have any idea how 
we can reconcile the sharp increases for these Canadian forest 
products with the fact that there are no duties on them?
    Mr. Rutenberg. The oriented strandboards has gone through 
quite a bit of volatility. And we have seen as much as a 50 
percent drop in oriented strandboard in a 2-week time period, 
going down. I think one of the things that is true is that you 
have a lot of consolidation now in that industry. Louisiana 
Pacific, an American company, has at least 25 percent of that 
market. You're seeing consolidation where American companies 
have Canadian mills, and Canadian companies have American 
mills. It's more consolidated right now than the dimensional 
lumber, and it needs a different kind of analysis. It's 
difficult to extrapolate from one product to the other.
    Senator Burns. Well, I'm just wondering, because I'm in the 
same boat that a lot of us are in the Northwest and on the 
border. And we know, right now, where the subsidy comes in for 
Canada, because Canada, on public lands, doesn't charge 
stumpage. They just assign you, you go out there, and--now, 
you've got to build the roads, and there's some expense, as far 
as the logging is concerned, but no--but there is nothing--
there is no charge for the stumpage. Where mills here--and 
``gypos'' and companies, alike--pay for stumpage. And so, we 
know where the--we know where the problem is. It's how do we--
how do we deal with that?
    All of us like competition and market forces. And I being 
one of those. But whenever--we've got to--all got to be working 
out of the same rule book. That's the problem we run into.
    Mr. Rutenberg. And, if I might, NAHB would love to see 
your--see what's--love to see the cost of the stumpage on our 
side lowered. You know, we have policy to try and work on the 
roadless problem in the national forests to try and increase 
the availability of lumber and to lower the cost of the private 
lands that already have it.
    Senator Burns. You're preaching to the--you're preaching to 
the choir now. I know what all those problems are. Every one of 
them.
    Mr. Rutenberg. And so, I was going to ask--answer the 
Chairman's question--perhaps--that we'd love to work with 
whomever is appropriate, and work with a coalition on trying to 
lower the cost on our side. And that would--that, to me, would 
be the win-win-win, if we could do that. And to whatever--we 
have standing policy on it, and I can pull out the policy book, 
and I can read it, but I don't want to take up too much of the 
Committee's time.
    Mr. Swanson. Well, unfortunately, I don't believe the over 
10 million timberland owners in the country are looking to see 
their prices lowered.
    Senator Smith. I think it's important to point out the----
    Senator Burns. That's all I have, Mr. Chairman. And thanks 
for having this hearing today, because it's an issue. Every 
time we go into timber country, this is----
    Senator Smith. Issue number one.
    Senator Burns.--this is the number one issue.
    Senator Smith. Maybe the way to get the homebuilders and 
the timber guys together is to acknowledge that the Canadian 
Government does not believe they are providing a subsidy. I 
think we should say that on the record. That is their position, 
that I've been told by their representatives, that there is no 
subsidy. But perhaps you ought to be, under NAFTA, able to buy 
Canadian lumber at that stumpage rate. Would that solve 
everything, Steve?
    Mr. Swanson. A free and open market in logs would solve the 
problem.
    Senator Smith. So, I mean, if it's 65 percent reduced, 
you'd buy it up there, wouldn't you?
    Mr. Swanson. Absolutely.
    Senator Smith. Would--will they allow you to buy it at that 
rate?
    Mr. Swanson. They will not. You cannot bid on Provincial 
timber. And, in fact, there are severe restrictions on the 
export of private timber from Canada. It's ironic that----
    Senator Smith. It's fair to say that they would allow you 
to, if there were no subsidy.
    Mr. Swanson. Yes, you're probably right.
    Senator Smith. OK.
    Mr. Swanson. It's ironic that Barry talks about the Maine 
mills and the fact that they're buying--that the border mills 
in Canada are buying logs from the U.S., taking them to Canada, 
processing them, sending them back. We can't do that. We have 
mills on the Montana border that can't go into Canada and buy 
logs and bring them back.
    Senator Burns. That's right.
    Mr. Swanson. Yet the same mills in Canada come across and 
buy those same logs from the U.S.
    Senator Smith. We're joined by Senator Pryor, of Arkansas.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. Again, thank you 
for this hearing.
    I have a question, generally, for the panel. I'd love for 
you to keep your answers just to about a minute, because we 
only have a short time here. But--I may go ahead and start with 
you, and just work down--but what would you like to see in any 
final negotiated agreement between the U.S. and Canada? I would 
imagine there's a few things that you'd really like to see 
there. What would those be?
    Mr. Rutenberg. Probably what NAHB would like to see would 
be not to have quotas or export taxes or artificial 
constraints. And if we could get free access--what Mr. Swanson 
was talking about--I mean, when we believe in free trade, we 
believe in free trade. That isn't like free trade to help us or 
our consumers; it's free trade. And that's a principle that we 
have endorsed. And I have limits of what I can say up here 
without doing some consulting. It's like I'm one of 225,000 
members, and I'm on the executive board, but I'm not 
disillusioned with my authority. And I think I can say that 
today, and then come back later.
    Senator Pryor. OK, great.
    Mr. Swanson?
    Mr. Swanson. A negotiated settlement needs to have 
components that will level the playing field, that will create 
a situation where market forces are in effect on both sides of 
the border, so that when markets decline and demand declines, 
the Canadian companies shut down at the same rate that U.S. 
companies shut down at.
    Senator Pryor. OK.
    Mr. Swanson. There are many ways to make that happen.
    Senator Pryor. Right.
    Mr. Kluting?
    Mr. Kluting. Senator Pryor, I'd like to see our American 
woodsworker, sawmill-worker given the same benefit that the 
worker in Canada gets, a fair chance at a fair job.
    Senator Pryor. OK. That's fair enough. Let me--those are 
good answers. Thank you for that.
    Let me make this observation. Canada has just had an 
election, and they've changed government recently. Do you 
think, right now, there's a real chance of the two sides to 
resume meaningful negotiations, or are we beyond that point?
    Mr. Swanson, I'll just pick on you, on that one.
    Mr. Swanson. Well, we are always ready and willing to enter 
into substantive discussions.
    Senator Pryor. Do you think there's a real chance of that 
happening with the change on government there, or----
    Mr. Swanson. I think that changing the government should be 
helpful, and that we are ready to negotiate.
    Senator Pryor. Yes. Do either of you other two have a 
thought on that, changing the government in Canada? Anybody?
    Mr. Rutenberg. You have the gentleman who's going to be 
international trade minister, who is international trade 
minister, was a liberal before he crossed the conservative 
policy. And he was the previous CEO of Canfor, which is a major 
Canadian firm. It gives you some interesting perspective. You 
have some opportunities anytime you have a fresh table, and I 
would hope that perhaps our government would allow the 
consumers to participate in it if there were negotiations so 
that we could be a--we could be heard, as well, at the 
negotiating table.
    Senator Pryor. OK. Mr. Kluting--and, by the way, is it 
Kluting? Am I pronouncing----
    Mr. Kluting. Yes, that's fine, sir.
    Senator Pryor. Mr. Kluting, a moment ago you mentioned the 
American worker. And I really appreciate your doing that. I 
want to ask you about trade-adjustment assistance. What do you 
think Congress should do to fix any problems that you see with 
trade-adjustment assistance and make it a better program for 
displaced workers? What can we do to fix it?
    Mr. Kluting. Well, one good example I'll give you, it 
happened to one of my members there in Dallas. He was halfway 
through his retraining to be a fire-code inspector for city, 
county, state, whatever. And he hurt his back. He couldn't 
attend school. His unemployment stopped the minute he couldn't 
attend school. Now, he's lived through that part. He got 
through that part. He got well enough to back to school, but he 
had to wait a little bit for his--for the part of the class 
that he missed to open back up. I worked and worked with these 
schools, seeing if they could juggle stuff, but--anyway, he did 
get back into his class. His unemployment, the time period of 
24 months had run out, so he received no checks again. 
Financially, he was bankrupt. He was broke. He barely lived 
through that.
    Our economy in Oregon was so bad that when he did finally 
get certified, the cities and counties were laying off fire-
code inspectors. He wound up driving a bus in Salem. It's 
just--if there were some little things that we could change 
with NAFTA--if we--the Trade Act--if we could sit down with 
these people and go over some of these things, it would really 
help.
    Senator Pryor. OK. Well, that's helpful, and we'll stay in 
touch.
    I have one last question, Mr. Chairman. I know I'm almost 
out of time here. This is for Mr. Swanson. And I overheard your 
answer--I believe it was to Senator Snowe, a few moments ago, 
about--basically, as I understand what you're saying--not to 
mischaracterize what you said or to put words in your mouth, 
but, as I understood it, you said that, basically, lumber costs 
are not driving up building costs. Is that fair?
    Mr. Swanson. That's correct.
    Senator Pryor. And I guess what I don't--I don't know if I 
agree with you on that, just simply because I would think if 
you go back 5 years and look at what lumber cost is in--say, 
for example, a house, the same house now, 5 years later, I 
would think that lumber costs would be more. I don't know 
exactly what percentage more. And I think the builder would 
pass that cost on to the buyer. Is that not right?
    Mr. Swanson. That is incorrect. If you go back 5 years and 
looked at lumber prices, you'd find them to be at or near the 
same levels they are today.
    Senator Pryor. OK.
    Mr. Swanson. In fact, lumber prices today, in nominal 
terms, are very near where they were in 1977, when I first 
started in the business. Two-by-four standard and better was 
trading at just at $300 in 1977. Since I've been here for a 
week, I don't have the latest figures, but it's trading at 
about 325. And that's in----
    Senator Pryor. OK.
    Mr. Swanson.--that's in nominal terms, not even adjusted 
for inflation. So, lumber, as a percentage of the cost of a 
home, is falling, not rising.
    Senator Pryor. Mr. Rutenberg, do you agree with that?
    Mr. Rutenberg. The pricing has a lot of volatility over the 
last 10-20 years, and I think it depends where you picked your 
points. I think, in general, we--in my company--and I'm in 
Florida, so it's a little worse, because we have a lot of 
hurricane damage around, and you know--that's familiar, close 
enough to your area. We see--we're getting a inflation push 
from various building materials. And----
    Senator Pryor. Right. You have----
    Mr. Rutenberg.--framing is one of them.
    Senator Pryor.--you have a supply and demand problem down 
there, right?
    Mr. Rutenberg. Yes.
    Senator Pryor. You have a ton of demand, right?
    Mr. Rutenberg. We--well, not as much as New Orleans and 
Mississippi, but----
    Senator Pryor. Right. But you've been through that same 
thing----
    Mr. Rutenberg. We've been through that, with the 
hurricanes. And, relatively, the markets have calmed down much 
better than--Andrew was terrible with that one. And, 
unfortunately, we have gotten much better at hurricane 
recovery, and the markets have calmed down after those.
    Senator Pryor. OK.
    Thank you, Mr. Chairman, that's all I have.
    Senator Smith. Thanks, Senator Pryor.
    And, gentlemen, thank you for helping us today to 
illuminate this issue. You've added measurably to our 
understanding and to the Senate record, and we thank you for 
traveling this long way to be with us.
    And, with that, we're adjourned.
    [Whereupon, at 3:55 p.m., the hearing was adjourned.]


                            A P P E N D I X

                                  Consumers for World Trade
                                                  February 10, 2006
Hon. Gordon H. Smith
Chairman,
Senate Subcommittee on Trade, Tourism, and Economic Development,
Commerce, Science, and Transportation Committee,
Washington, DC.
   Re: Economic Impact on Trade Dispute Concerning Certain 
                               Softwood Lumber from Canada.

    Dear Chairman Smith:

    I am writing on behalf of Consumers for World Trade (CWT), to 
express our views on the issue of the economic impact of the current 
dispute between the United States and Canada over softwood lumber. By 
way of background, CWT is a national, non-profit, non-partisan 
organization, established in 1978 to promote the consumer interest in 
international trade and to enhance the public's awareness of the 
benefits of an open, multilateral trading system. CWT is the only 
consumer group in America whose sole mission is to educate, advocate 
and mobilize consumers to support trade opening legislation.
    American consumers have absorbed almost $5 billion in antidumping 
and countervailing duties since the United States imposed these border 
taxes on Canadian softwood lumber imports back in 2001. While it is 
technically true that border taxes such as these are paid by importers, 
the sad fact of the matter is that these taxes are passed along to end-
user consumers, as well as housing contractors and builders. The bottom 
line is that the dumping duties of 9.67 percent and countervailing 
duties of 19.2 percent imposed on Canadian softwood lumber products 
have increased new home prices by roughly $1,000.
    While $1,000 may not seem much in relation to today's high home 
prices, this extra cost adversely impacts America's lowest income 
households--those struggling to qualify for a mortgage and make a down-
payment on a new home. More to the point, an extra $1,000 in 
construction supplies seriously impacts those Americans hard-pressed to 
rebuild their homes in the aftermath of last summer's disastrous 
hurricanes. Homeowners looking to rebuild along the Gulf Coast already 
complain of both the high price of construction materials and a chronic 
scarcity of materials. Antidumping and countervailing duties on 
Canadian softwood lumber have certainly contributed to this situation.
    CWT urges the Committee to recommend the repeal of Canadian 
softwood lumber antidumping and countervailing duties to help lower 
income Americans qualify for a mortgage and speed the recovery effort 
along the Gulf Coast. By repealing these duties, the U.S. will also 
honor its international obligation to one of its most important trading 
partners. A recent North American Free Trade panel ruled against the 
United State's continued antidumping and countervailing duty imposts on 
Canadian lumber citing inadequate evidence of threat of injury to the 
U.S. lumber industry. Despite this ruling, our government has insisted 
on levying these duties against Canadian lumber imports that punishes 
would-be home buyers and hurricane victims.
    If you have any questions about CWT or its views on this issue, 
please feel free to contact me at (202) 293-2944 ext. 201. Thank you 
for this opportunity to submit written comments.
        Sincerely,
                                              Robin Lanier,
                                                Executive Director.
                                 ______
                                 
   Prepared Statement of the International Sleep Products Association

    The U.S. mattress industry appreciates the opportunity to provide 
the following testimony to the Subcommittee regarding the impact of the 
U.S.-Canada softwood lumber dispute on U.S. mattress producers.
    Established in 1915, the International Sleep Products Association 
is the trade association for mattress manufacturers and their component 
suppliers. Our members produce mattresses and mattress components in 
hundreds of manufacturing facilities located in nearly every state in 
the Union. According to the most recent statistics available from the 
U.S. Census Bureau, American mattress producers employ nearly 22,000 
workers in making a safe product that consumers will find comfortable 
and affordable. In 2004, U.S. mattress producers shipped over 22 
million mattresses and nearly 19 million box-springs, worth a combined 
$5.6 billion at wholesale.
    The U.S. mattress industry uses wood components from Canada to make 
the internal frame for box-springs. Some of these components--which are 
known in the industry as ``bed-frame components''--are subject to the 
antidumping and countervailing duties being collected on imports of 
softwood lumber from Canada. ISPA has been an active participant in the 
U.S.-Canada lumber dispute for many years, seeking to exempt these 
products from the lumber duties. ISPA is also a member of the ad hoc 
alliance of industries known as the American Consumers for Affordable 
Homes, a l7-member national organization that represents at least 95 
percent of the domestic consumption of lumber in the United States.
    Experience has shown that only certain types of wood from Canada 
have the qualities that mattress producers need to make box-springs. We 
require durable, narrow and thin components that can be easily stapled 
without splintering. The components we require must not warp, break, or 
squeak over the 10-20+ year useful life of our mattresses. We also need 
components that are safe for our workers to handle and staple.
    We have found that only Canadian softwood species have the small 
knots, fine grain structure and light weight that satisfy these 
requirements. U.S. softwood species--with their coarser grain and 
larger knots--tend to splinter much more often during assembly and will 
warp or break more easily once the assembled box-spring is sold to 
consumers. The knots also can pose a safety hazard when workers 
accidentally hit them with a nail or staple gun when assembling the 
components into box-spring frames. In addition, U.S.-sourced softwood 
tends to be relatively heavier than Canadian softwood, making it more 
difficult to handle, thereby increasing the risk of back and other 
workplace injuries.
    The wooden components we use are fully sawn, cut to length, dried 
and finished in Canada. They have a nominal thickness of 1 inch and 
range in length from 24 to 83 inches. By comparison, a 24 stud 
is usually 8 feet (96 inches) or more in length. As such, bed-frame 
components are entirely too thin, too narrow and too short to be used 
as substitutes for construction lumber.
    When this case first began over four years ago, the mattress 
industry fought hard to exempt wooden bed-frame components from the 
softwood lumber dispute. In doing so, we emphasized the obvious 
dimensional differences between bed-frame components and building 
lumber, and the fact that U.S. wood is not a viable substitute for 
Canadian wood, the two products are not interchangeable and the 
products are sold through different channels of trade. We also offered 
to mark the products and accompanying invoices to reflect the fact that 
our products could be used only to make box-springs.
    In response, the Commerce Department exempted from the duties those 
wooden bed-frame components that have radius-cut corners, which are 
used for the perimeter of the box-spring structure. Components with 
radius-cut corners account for approximately 40 percent of the wooden 
parts that mattress producers need to make a box-spring.
    The Department also waived the lumber duties on the other bed-frame 
components if all of the components required to make a single box-
spring were packaged and imported together as component ``kit.'' But 
this waiver has proven to be commercially impractical. The cost of 
packing and shipping the wooden components required for individual box-
springs outweighs the duties that could be saved under the kits 
exemption. Since U.S. softwood lumber cannot be used by the mattress 
industry, U.S. mattress producers have no alternative but to increase 
their costs by paying the tariff. This is a wasteful practice that 
hinders mattress producers' global competitiveness, while providing 
absolutely no benefit to U.S. lumber mills.
    The mattress trade has recently endured a number of significant 
price increases as a result of strong global demand for steel and 
disruptions to the polyurethane foam market caused by the Gulf 
hurricanes this past year. We are fighting hard to remain competitive, 
but the tariffs we pay on our imports of wooden bed-frame components 
hurt. Our foreign competitors are not subject to these lumber duties. 
As a consequence, the duties threaten our existence and have the effect 
of exporting our business and jobs overseas.
    The mattress industry urges the Bush Administration to abide by the 
rulings of various NAFTA bodies that have invalidated the lumber 
duties. We ask that the Commerce Department immediately cease 
collection of these duties on future entries of softwood lumber from 
Canada and that all duties posted to date be refunded.
    At a minimum, we also request that all bed-frame components be 
exempted from the current duties, regardless of whether they are 
imported in the form of individually packaged kits or in bulk.
                                 ______
                                 
     Prepared Statement of American Consumers for Affordable Homes
Participants of American Consumers for Affordable Homes
    American Homeowners Grassroots Alliance
    C.J. Hodder Lumber Company
    Catamount Pellet Fuel Corporation
    CHEP
    Consumers for World Trade
    Free Trade Lumber Council
    Furniture Retailers of America
    Home Depot
    International Sleep Products Association
    Manufactured Housing Association for Regulatory Reform
    Manufactured Housing Institute
    National Association of Home Builders
    National Black Chamber of Commerce
    National Lumber and Building Material Dealers Association
    National Retail Federation
    Retail Industry Leaders Association
    United States Hispanic Contractors Association

    On behalf of the American Consumers for Affordable Homes, we are 
pleased to submit the following statement for the hearing record. The 
American Consumers for Affordable Homes (ACAH) is an ad hoc group of 17 
national organizations, that represents U.S. consumers in every 
congressional district and state throughout the country. A roster of 
organizations may be found on the cover of our statement. The mission 
of ACAH is to support trade policies that enhance affordable housing.
    ACAH believes that there should be free trade in Softwood Lumber 
between the U.S. and Canada. We have learned that any level of trade 
restraint on lumber harms U.S. consumers and the national economy.
    We applaud the Administration for attempting to reach a long-term 
durable solution for lumber trade between the U.S. and Canada and are 
pleased that the Countervailing Duty and Subsidy Offset Act (``Byrd 
Amendment'') is being terminated. We are concerned, however, that 
duties continue to be collected (and paid by U.S. lumber consumers) in 
spite of recent binding decisions by the North American Free Trade 
Agreement Extraordinary Challenge Committee (NAFTA, ECC), which ruled 
unanimously that U.S. imposed duties are illegal and that duty deposits 
should be returned. The ECC decision is the last option under the NAFTA 
dispute settlement agreement and comes after repeated losses by the 
U.S. Commerce Department and the International Trade Commission in 
NAFTA panels.
    U.S. consumers and lumber-dependent industries have continued to 
experience the harmful effect of these trade restrictions since 2001, 
and under the prior lumber duties involving quota and restraints of 
nearly two decades. The decisions on lumber tariffs have resulted in 
increased price volatility in the market and add more than $1,000 to 
the price of a new home. Based on U.S. Census data, this amount 
excludes as many as 300,000 U.S. households from mortgage eligibility.
    ACAH opposes implementing tariffs and other potentially restrictive 
border measures such as quotas or taxes because they cause artificial 
price increases and volatile swings in the lumber market, which hurts 
housing affordability and U.S. purchasers of lumber. These types of 
actions are simply a Federally imposed tax on consumers and housing. 
This is particularly acute in light of the need to rebuild in the Gulf 
region of the country as a result of Hurricanes Katrina and Rita.
    We urge you and your colleagues on the Senate Commerce Committee to 
protect the interests of U.S. consumers and lumber-dependent industries 
that employ approximately 8 million workers by requesting that the 
Administration comply with NAFTA rulings now, and that the 
Administration find a long-term solution that does not harm U.S. lumber 
consumers and affordable housing. Moreover, it is imperative that the 
Administration exclude any provision that would impose a tax, quota, or 
other government-mandated cost increase on U.S. consumers in any future 
negotiations with Canada. The Committee should make clear to the 
Administration that U.S. consumers must not be treated worse than 
Canadian or U.S. lumber corporate interests in any negotiations.
    Mr. Chairman, we thank you for this opportunity to submit a 
statement for your hearing record.
                                 ______
                                 
     Prepared Statement of the Retail Industry Leaders Association

    The Retail Industry Leaders Association (RILA) welcomes the 
opportunity to submit written comments for the record on the economic 
impacts of the Canadian softwood lumber dispute on U.S. industries. 
RILA strongly believes that there should be an end to the current 
antidumping and counterveiling duty cases against imports of Canadian 
softwood lumber to make policy consistent with decisions at both the 
World Trade Organization and the North American Free Trade Agreement 
dispute panel.
    The Retail Industry Leaders Association (RILA) is a trade 
association of the largest and fastest growing companies in the retail 
industry. Its member companies include over 400 retailers, product 
manufacturers, and service suppliers, which together account for over 
$1.4 trillion in annual sales. RILA members operate over 100,000 
stores, manufacturing facilities and distribution centers, have 
facilities in all 50 states, and provide millions of jobs domestically 
and worldwide.
    RILA is also a member of the Alliance of American Consumers for 
Affordable Homes (ACAH). ACAH is an ad-hoc alliance of 17 national 
organizations that represent more than 95 percent of U.S. domestic 
lumber consumption.
    RILA's membership includes some of the country's largest home 
centers and lumber dealers. These companies purchase lumber from both 
imported and domestic suppliers, and is purchased based on a number of 
factors including price and consumer preference. Canadian softwood 
lumber, specifically Spruce Pine Fur, is significantly different in 
many respects from the southern yellow pine produced in the United 
States. Southern yellow pine warps and is not considered acceptable as 
a material for house framing. Canadian softwood lumber is far more 
preferable for home framing, while southern yellow pine is preferred 
for other uses in the same new houses including decks. Due to domestic 
timber harvesting restrictions, Spruce Pine Fur cannot be sourced in 
the United States to meet the demand of U.S. consumers.
    The current antidumping and counterveiling duty cases have created 
marketplace volatility for the Canadian product resulting in an average 
increase of $1,000 in costs for every new home. The Census Bureau 
estimates that an increase in construction costs of this magnitude 
denies home ownership to as many as 300,000 low- and moderate-income 
American families.
    As mentioned earlier, the North American Free Trade Agreement 
Extraordinary Challenge Committee (ECC) ruled unanimously on August 10, 
2005, that the antidumping and counterveiling duty orders are illegal, 
should never have been imposed and that the duty deposits should be 
returned. The ECC decision is the last option under the NAFTA dispute 
settlement agreement and comes after repeated losses by the U.S. 
Commerce Department and the International Trade Commission in NAFTA 
panels. RILA urges the Administration to comply with these rulings and 
to end the current duties.
    In addition to the ongoing cases, the United States continues to 
attempt to negotiate another ``solution'' to the alleged problem. If 
the United States and Canada want to have discussions over Canadian 
lumber policy, we have no objections. But, when every suggested 
``solution'' includes a quota or an export tax on softwood lumber RILA 
has very strong objections. Any further discussion of lumber trade must 
include lumber consuming industries. While the legal proceedings do not 
give U.S. lumber consumers the same standing as domestic producers, the 
private conversations and consultations between governments must 
include the critical part of the industry, the lumber importers and 
consumers.
    RILA urges the U.S. government to find a long-term solution to the 
lumber dispute that does not force U.S.-based lumber consumers to bear 
the cost of protectionism. If RILA can be of any assistance in ensuring 
a decisive vote against this damaging resolution, please contact 
Jonathan Gold, Vice President, Global Supply Chain Policy.
                                 ______
                                 
                                             The Home Depot
                                          February 10, 2006
Hon. Gordon H. Smith
Chairman,
Senate Subcommittee on Trade, Tourism, and Economic Development,
Commerce, Science, and Transportation Committee,
Washington, DC.

    Dear Chairman Smith:

    Let me begin by commending you, Mr. Chairman, for holding this 
hearing on the very important issue of determining the economic impacts 
of the Canadian softwood lumber dispute on U.S. industries.
    The dream of home ownership is alive and well in our Nation today. 
Over 340,000 Home Depot associates work hard everyday to ensure 
homeowners and future homeowners are provided the most innovative goods 
and best services available at reasonable prices so they can achieve 
that dream.
    Higher costs have an impact. Any efforts to increase costs, 
specifically lumber costs, price many Americans out of the housing 
market. On the other hand, removing the tariffs on imported Canadian 
lumber would have a very positive impact on the housing market.
    Home Depot selects the species of lumber that it carries in 
accordance with our customers' preferences and the requirements of the 
local building codes where our stores are located. For example, there 
is a strong preference for square edge spruce throughout most of the 
country. Southern yellow pine (SYP) is preferred for some applications, 
such as strength and support purposes--joists and trusses--and 
applications requiring treated lumber--such as posts, decking, railing, 
fencing and pickets. For those applications, customers buy almost 
exclusively SYP, with virtually no competition from Canadian species.
    Spruce, pine and fir grown in the northern United States and Canada 
is used in completely different applications than domestic SYP. For 
interior and exterior framing applications, consumers prefer Spruce 
products. Spruce is the preferred species for framing because it is 
less susceptible to warping and twisting than SYP. It's also lighter 
and easier to work with and takes a nail better while still possessing 
the appropriate structural framing values. Spruce is also simply more 
attractive in appearance--a very important consideration for do-it-
yourselfers.
    As you can see, sales of Canadian lumber are not displacing sales 
of domestic lumber because the two types of lumber meet different 
needs. There is plenty of wood in the open market today. However, there 
is not plenty of our wood--the quality and species we need on a 
consistent basis. We require a steady stream of Canadian wood to 
provide that quality and consistent supply. When purchasing lumber we 
enter into long-term contacts and vendor managed inventory programs 
with leading suppliers to help protect endangered forests and to ensure 
that there will be timber for future generations.
    The Home Depot first issued its Wood Purchasing Policy in 1999. At 
that time, the company pledged to give preference to wood that comes 
from forests managed in a responsible way and to eliminate wood 
purchases from endangered regions of the world.
    Today, we sell less than 1 percent of all the wood cut worldwide 
with 94 percent of our wood products that we purchase being harvested 
from North American forests. The United States alone has gained 10 
million acres of forest land since 1990. Also, less than 0.15 percent 
of our total wood comes from areas around the Brazilian Amazon Basin. 
In regions like these, we have partnered with environmental groups, 
governments and industry to educate and motivate the local communities 
to promote sustainable timber harvest.
    Mr. Chairman, thank you for taking into account our view on this 
critically important issue.
        Sincerely,
                                              Kent Knutson,
                              Vice President, Government Relations.
                                 ______
                                 
        Prepared Statement of GENERATED TECHNOLOGIES (USA), LLC

    On behalf of GENERATED TECHNOLOGIES (USA), LLC, (GENTEK), we are 
pleased to submit the following statement for the hearing record. The 
GENTEK group of four companies represents over 50 people who are 
engaged in the Canadian lumber trade and distribution in the U.S. The 
direction and primary mission of GENTEK is to support trade policies 
that enhance affordable housing.
    GENTEK believes that there should be free trade in Softwood Lumber 
between the U.S. and Canada. We have learned that any level of trade 
restraint on lumber harms this company, U.S. consumers and the national 
economy.
    We applaud the Administration for attempting to reach a long-term 
durable solution for lumber trade between the U.S. and Canada and are 
pleased that the Countervailing Duty and Subsidy Offset Act (Byrd 
Amendment) is being terminated. We are concerned, however, that tariffs 
continue to be collected (and paid by U.S. lumber consumers) in spite 
of recent binding decisions by the North American Free Trade Agreement 
Extraordinary Challenge Committee (NAFTA, ECC), which ruled unanimously 
that U.S. imposed duties are illegal and that duty deposits should be 
returned. The ECC decision is the last option under the NAFTA dispute 
settlement agreement and comes after repeated losses by the U.S. 
Commerce Department and the International Trade Commission in NAFTA 
panels.
    U.S. consumers and lumber-dependent industries have continued to 
experience the harmful effect of these trade restrictions since 2001, 
and under the prior lumber duties, quota and restraints of nearly two 
decades. The decisions on lumber tariffs have resulted in increased 
price volatility in the market and add more than $1,000 to the price of 
a new home. Based on U.S. Census data, this amount excludes as many as 
300,000 U.S. households from mortgage eligibility.
    GENTEK opposes implementing tariffs and other potentially 
restrictive border measures such as quotas or taxes because they cause 
artificial price increases and volatile swings in the lumber market, 
which hurts housing affordability and U.S. purchasers of lumber. These 
types of actions are simply a Federally imposed tax on consumers and 
housing. This is particularly acute in light of the need to rebuild in 
the Gulf region of the country as a result of Hurricanes Katrina and 
Rita.
    We urge you and your colleagues on the Senate Commerce Committee to 
protect the interests of U.S. consumers and lumber-dependent industries 
that employ approximately 5 million workers by requesting that the 
Administration comply with NAFTA rulings now, and that the 
Administration find a long-term solution that does not harm U.S. lumber 
consumers and affordable housing. Moreover, it is imperative that the 
Administration exclude any provision that would impose a tax, quota, or 
other government--mandated cost increase on U.S. consumers in any 
future negotiations with Canada. The Committee should make clear to the 
Administration that U.S. consumers must not be treated worse than 
Canadian or U.S. lumber corporate interests in any negotiations.
    Our group of companies has already experienced business and job 
losses in Southern California and the closing of an Ocean Terminal that 
handled Canadian Lumber for the U.S. market for over 47 years.
    Mr. Chairman, we thank you for this opportunity to submit a 
statement for your hearing record.
                                 ______
                                 
   Prepared Statement of the American Homeowners Grassroots Alliance 
                                 (AHGA)

    The American Homeowners Grassroots Alliance (AHGA), which serves 
the Nation's 75 million homeowners, applauds the Senate Commerce 
Committee for holding this hearing on softwood lumber trade with 
Canada. AHGA supports free trade and opposes tariffs and other 
restrictions that raise the price of homes and products used by 
homeowners and other consumers. A free trade policy is in the best 
long-term interest of the U.S. and other countries, and results in the 
greatest benefit to homeowners and other consumers in all countries. 
The fast changing world economy and expanding trade between nations 
will continue to shift competitive advantages from industry sectors in 
one country to those in another. The appropriate solution to the 
inevitable challenges of worker displacement and corporate 
profitability challenges that result is the extension of unemployment 
benefits and an expansion of trade adjustment assistance. AHGA supports 
strengthening trade adjustment assistance programs; in particular by 
expanding funding for worker retraining so displaced workers can 
qualify for employment in growing industries.
    AHGA is disappointed by the support of the U.S. Commerce Department 
for tariffs on softwood lumber from Canada that would impose an 
indirect tax averaging $1,000 on many new homes built in the U.S. and 
would substantially increase the cost of home additions and other 
remodeling projects. A current tax of approximately 10 percent is 
imposed on Canadian softwood lumber, a primary building component of 
new homes. These tariffs make homes less unaffordable, especially to 
the most vulnerable first time buyers who account for a substantial 
portion of the Nation's annual 1.6 million new home sales. The tax 
would price almost 300,000 families out of the market and would make 
home additions and other remodeling projects unaffordable for many more 
homeowners. It will add substantially to taxpayer contributions to the 
cost of rebuilding homes destroyed by Hurricane Katrina.
    AHGA strongly opposes the tariffs. Those most affected will be 
first time new home homebuyers and those who would otherwise barely 
qualify for home ownership. Their purchases will be delayed until their 
earnings increase. In the meantime they will lose the opportunity to 
build equity in a home they could have owned. A recent trend toward 
increases in mortgage interest rates will also keep home ownership out 
of reach for many of them. While others will still be able to buy a 
home, many of them will be paying interest for 30 years on the $1,000 
home price increase resulting from the tariff. The increase in cost for 
lumber in home additions and other remodeling projects would also 
increase substantially, and many of the Nation's 75 million homeowners 
would pay the price.
    AHGA is opposed to the implementation of tariffs and other 
restrictive border measures because they deny the dream of home 
ownership to millions of Americans and because they will prolong the 
current recession. From an employment standpoint the tariffs could also 
contribute to layoffs in the construction industry and its suppliers. 
We urge Members of the Committee to ask the Administration to protect 
U.S. consumers and ask Ambassador Portman not to include, in any 
agreements with Canada, any provision that would impose a lumber-
related tax, quota, or other government-mandated cost increase on U.S. 
consumers.
    We urge Members of the Committee to resist pressure from large U.S. 
timber companies that support the lumber tariffs. Those companies 
currently receive large subsidies from the U.S. Government. While AHGA 
is sympathetic to potential job losses in that sector, the tariffs 
would only shift job losses to the home building and supply sector. 
They would also deny home ownership to many more Americans, raise 
ownership costs to many others, and undermine principals of free trade 
that benefit homeowners and other consumers.
    The American Homeowners Grassroots Alliance (AHGA) is a national 
bipartisan advocacy organization representing the Nation's 75 million 
homeowners. AHGA believes that policies that encourage and protect home 
ownership are in our national best interest. Those policies encourage 
and sustain the maintenance of a strong and broad middle class, build a 
sense of community and responsibility, and facilitate investment in 
homes, which are the largest, most universal savings/equity-building 
vehicle for most Americans. AHGA's positions and more information about 
the organization are available at AmericanHomeowners.org. The American 
Homeowners Foundation's section of the website also contains free 
educational materials to help homeowners and future homeowners buy, 
sell, remodel, and finance their homes.
                                 ______
                                 
Prepared Statement of the National Lumber and Building Material Dealers 
                          Association (NLBMDA)

    The National Lumber and Building Material Dealers Association 
(NLBMDA), voice of America's building suppliers, is pleased to provide 
the following comments to the Subcommittee regarding the harmful impact 
of the current trade restrictions on Canadian softwood lumber to 
America's building supply industry.
    NLBMDA represents 8,000 retail building material suppliers from 
every state in the U.S., who collectively employ over 500,000 workers. 
Our members supply nearly all the materials used in home construction 
and remodeling and primarily serve professional contractors. In 2004, 
retail building material suppliers combined for $300.5 billion in 
sales, representing steady growth since 2001. NLBMDA's membership 
collectively is the largest seller of both Canadian SPF and domestic 
SYP lumber in the U.S. As suppliers of the home building industry, our 
members have helped drive the industry sector that led our Nation's 
economic recovery. From 2001 through 2004, the home building sector was 
responsible for two of every five new jobs created. Only the oil 
industry has created more profit growth than the home building sector 
in the past 5 years. With interest rates now rising and economists 
predicting a slowdown in home building activity, NLBMDA has renewed 
strong concerns about government intervention in the softwood lumber 
market.
    For over two decades, building material suppliers have dealt with 
restrictions or import tariffs on softwood lumber from Canada. Due to 
limited access to domestic forests, the U.S. is unable to produce 
sufficient lumber domestically to meet the demands of our building 
industry. Over the past several years, we have had to import as much as 
34 percent of the lumber needed for home building from Canada. The 
species of lumber imported from Canada, Spruce-Pine-Fir (SPF) differs 
substantially from the predominant domestic species, southern yellow 
pine (SYP), and the two are used for different applications in home 
building. SPF lumber is typically preferred for framing, while SYP is 
more often treated and used for decking, for example. Our members must 
have access to the quantities of both species of lumber demanded by 
their customers. If Canadian lumber continues to be artificially higher 
priced, or new trade restraints should further restrict the 
availability of SPF lumber, our members will have no choice but to look 
to other countries to meet the gap between domestic supply and demand.
    Government intervention into the softwood lumber market has created 
tremendous volatility that threatens the ability of building material 
suppliers to compete and survive in today's market. The typical 
building supplier is a small, family-owned business with 40 employees 
and a profit margin of approximately three percent. Lumber represents 
roughly 45 percent of sales. Our members' customers need and demand 
pricing predictability in order to sell houses profitably, as the 
framing lumber package is the single biggest expense, after land, in 
building a house. Often, building material suppliers must extend price 
protection three to six months or longer in order to retain their 
customers. Trade restraints, whether by quotas or import taxes, create 
volatility that is impossible to predict and plan for. Building 
suppliers are accustomed to purchasing inventory according to seasonal 
market conditions or even anticipated shortages, such as those typical 
in hurricane season. Volatility introduced by government interventions, 
on the other hand, is impossible to predict with any degree of 
certainty. We have seen, in the past four years during which tariffs 
have been as high as 27 percent on Canadian softwood lumber, price 
fluctuations of 10 to 15 percent or more within a single week. Often 
these spikes followed rumors of a negotiated settlement, or another 
NAFTA or WTO ruling in the myriad of litigation filed in this dispute.
    A small business with a modest profit margin is not able to absorb 
these dramatic price fluctuations, and our members are often forced to 
pass on at least a portion of the tariff to their customers, which are 
ultimately passed on to American consumers. The resulting increase in 
the price of a new home also has the disturbing result of pricing 
hundreds of thousands of would-be first-time homebuyers out of mortgage 
eligibility. In effect, the current softwood lumber tariffs are 
ultimately nothing more than a tax on American home ownership.
    The issue is even more troubling in light of the massive rebuilding 
effort underway in the Gulf Coast. A steady supply of lumber will be 
required to rebuild the estimated 275,000 homes destroyed by last 
fall's devastating hurricanes. The U.S. recently negotiated an end to 
tariffs on Mexican cement to address this rebuilding need; we firmly 
believe that removing tariffs on Canadian softwood lumber should be the 
next step.
    NLBMDA is highly concerned that duties continue to be collected 
despite a binding decision last August by the Extraordinary Challenge 
Committee (ECC) under the North American Free Trade Agreement (NAFTA) 
that found unanimously that the U.S. duties on Canadian softwood lumber 
are illegal. It is our understanding that NAFTA requires improperly 
collected duties to be returned following such a ruling, and we are 
troubled that American consumers continue to pay despite this decision. 
The U.S. has lost numerous others appeals before NAFTA panels in this 
case and yet to date has failed to implement the rulings and rescind 
the tariffs.
    NLBMDA is a founding member of the American Consumers for 
Affordable Homes (ACAH), a 17-member coalition that represents 
approximately 95 percent of domestic lumber consumption. We have worked 
with over 100 members of Congress, from both sides of the aisle, to 
highlight the negative impact of this dispute on American consumers and 
urge the Administration to take into account the impact of trade 
restraints on lumber consuming industries, who collectively employ more 
than five million American workers.
    NLBMDA respectfully calls on the Subcommittee to emphasize to the 
Department of Commerce and the Administration that American users of 
softwood lumber should not continue to bear the high costs of this 
trade dispute.
    We thank Chairman Smith and the Subcommittee for the opportunity to 
submit these comments for the hearing record, and are available to 
answer any questions as needed.

                                  
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