Subcommittee on Public Lands and Forests: Current Legislation (Medford, Oregon)...

The purpose of the hearing will be to receive testimony on the impacts of the Chinese hardwood plywood trade on the National Forest System and other public lands, and the communities that depend on them.

Witness Panel 1

Vera Adams

Executive Director

Commercial Targeting and Enforcement, Office of Trade, Us Customs and Border Protection

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Witness Panel 1

Vera Adams

Statement of Vera Adams

Executive Director, Commercial Targeting and Enforcement

Office of International Trade

Department of Homeland Security

U.S. Customs and Border Protection

Committee on Energy and Natural Resources,

Subcommittee on Public Lands and Forests

May 30, 2007

Good Afternoon Chairman Wyden, and members of the Committee, it is a privilege and an honor to appear before you today to discuss imported Chinese plywood. We appreciate the support that Congress provides to the Department of Homeland Security as U.S. Customs and Border Protection (CBP) performs its important security and trade enforcement mission while simultaneously facilitating the flow of legitimate trade and travel that is so important to our nation’s economy. As the guardian of our nation’s borders, CBP recognizes the importance of enforcing trade laws that help protect the forest product industry and the communities that depend on it.

I want to first express my gratitude to you and the committee and to the Hardwood Plywood & Veneer Association, the Hardwood Federation and other associations that have played a role in bringing to our attention certain enforcement concerns that pertain to the import of plywood into the United States. As the volume of trade increases, information from domestic associations plays an ever more important role in assisting CBP in identifying illicit activity.

Background

To ensure successful enforcement of our nation’s trade laws, CBP has developed ‘Priority Trade Issues’ or ‘PTI’s’ to help facilitate legitimate trade while protecting the American economy from unfair trade practices and illicit commercial enterprises. The PTI’s are specific commodities or other trade topics upon which CBP has decided to focus its resources. These PTI’s are: Antidumping and Countervailing Duty, Intellectual Property Rights, Textiles and Wearing Apparel, Revenue, Agriculture, and Penalties. The concerns that have been raised with respect to plywood importations into the United States, which are within the authority of CBP to address, cross over many of the PTI’s.

As you are aware, CBP has been examining certain issues related to plywood importations since you first brought this to our attention in November of 2006. As was stated in your letter to Commissioner Basham, it is alleged that the plywood is being misclassified as duty free under the tariff for birch-faced plywood instead of, for example, oak-faced plywood with an 8% duty rate.

CBP is quite familiar with the subject of tariff misclassification and we have initiated other enforcement actions with similar types of merchandise. For instance, in August of 2005, CBP worked with the Hardwood Federation to investigate misclassified imports of hardwood flooring from China, Brazil, and Canada. CBP conducted a national operation targeting all imports entering under specific tariff classifications from the three target countries and found widespread misclassification. As of today’s date, CBP has discovered more than 120 importers misclassifying the hardwood flooring, using a duty free or lower duty rate provision. Approximately $30 million in potential lost revenue has been identified.

Current Enforcement

Regarding plywood, in recent months, CBP has conducted several meetings with industry associations and representatives such as the Hardwood Plywood & Veneer Association, the Hardwood Federation, and the Industry Trade Advisory Committee on Forest Products (ITAC 7) to gather information to assist us in our enforcement actions. Based on the allegations raised in your letter to CBP and upon information provided by these industry representatives, CBP initiated a nationwide operation to verify the allegation of misclassification and misdescription. We learned from the hardwood flooring operation that misclassification and misdescription in this industry is rampant. We are able to use what we learned in hardwood flooring and apply it to our current operation.

A significant number of shipments have already been targeted for intensive examination. As part of the operation, sections of plywood are cut from the arriving shipments and sent to CBP’s Laboratory and Scientific Services (LSS) Division for analysis to determine whether the plywood face consists of ply birch or other species. Once the lab analysis is complete, our import specialists at ports of entry will determine the proper tariff classification and amount of duty owed. At this point in time our lab analyses are ongoing and the results of our enforcement actions are pending.

CBP recognizes that finding violations is only part of an enforcement picture. Follow up to ensure continued compliance is essential to any enforcement action and is standard practice. Through data and trend analysis, document reviews and examinations of merchandise, CBP continues to monitor hardwood flooring shipments and will monitor plywood imports after this current operation is complete.

Conclusion

Mr. Chairman and members of the committee, as CBP moves forward in addressing the subject of misclassified plywood imports, we look forward to working in partnership with the Congress and industry stakeholders to build on our accomplishments to date and focus on achieving the desired results. I thank you for this opportunity to testify.

I will be happy to answer any of your questions.
Tim Wineland

Senior Director

Office of China Affairs

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Witness Panel 2

Tom Chamberlain

President

AFL-CIO

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Witness Panel 2

Tom Chamberlain

TESTIMONY OF

TOM CHAMBERLAIN

PRESIDENT, OREGON AFL-CIO

Before the United States Senate Committee on Energy and Natural Resources

Subcommittee on Public Lands and Forests

Hearing on the Impact of Chinese Hardwood Plywood Trade on the National Forest System and Other Public Lands and the Communities that Depend on Them

May 30, 2007

Medford, Oregon

Mr. Chairman. Thank you for taking the lead on this very important issue to workers in Oregon and for giving me the opportunity to testify. My name is Tom Chamberlain and I have had the honor of serving as the President of the Oregon AFL-CIO since 2005. My organization represents more than 135,000 union members in Oregon, and our members support hundreds of thousands of spouses and children. There are approximately 20,000 union members, both in the AFL-CIO and in other unions, who work in the Oregon forest products industry. The value these 20,000 workers add to the economy is very important in three ways.

First, this industry has a high job multiplier. Depending on the economic analysis you read, it is somewhere between four and six. This means that for every one person employed by the forest products industry, there are somewhere between four and six other Americans employed in support industries – such as logging, transportation, utility and retail – who rely on this industry for their jobs.

Second, these are the good manufacturing jobs that we should be striving to keep in the United States – they are highly skilled manufacturing jobs that pay high hourly wages and often come with full benefits. They keep up the local tax base that maintains necessary services such as police, fire and education. They are not low paying, no benefit “McJobs.”

Finally, these Oregon workers and their families make up the backbone of many rural communities in our state and elsewhere in the United States. It is these well paying, highly skilled jobs that keep many of these communities financially afloat.

As you mentioned in your opening statement, more than 70 percent of the companies in the hardwood plywood industry are headquartered in this state. There is no doubt that the future of this industry is of significant importance to Oregon.

The timing of this hearing is very important, as it comes on the heels of last week’s Strategic Economic Dialogue talks in Washington. While issues such as China’s huge trade surplus with the United States, the Chinese government’s unwillingness to float its currency and the country’s seeming inability to protect American intellectual property have garnered much of the attention, the corrosive effects of practices of the Chinese forest products industry are only beginning to receive much public attention.

But this is quickly changing. Thanks to your efforts along with a few other Members of Congress, the reporting of a few news outlets and the attention of a handful of governmental and nongovernmental organizations, the country and the world are beginning to realize what the hardwood plywood industry and its workers have known for many years – the Chinese do not play by the rules and will do whatever is necessary to establish global dominance.

What makes Chinese actions even more worrisome is that they go to such great lengths to lure well paying, highly skilled manufacturing jobs that were formerly held by unionized workers in Oregon and other parts of the United States to China. What we are seeing is an industry that threatens to destroy large portions of the global ecosystem – be it in Asia, Africa or even South America – in order to keep its mills running at capacity with low cost, largely illegally logged supplies of fiber in the short run. In the long run, as biosystems are destroyed, everyone loses – even the Chinese.

Rather than recapping what the problems are, I would like to spend a few minutes of the Committee’s time talking about some of the consequences of this activity.

Illegal Subsidies – Several studies have documented that the Chinese government has subsidized its forest products industry to the tune of nearly two billion dollars over a five-year period. Chinese mills are quickly becoming some of the most modern and efficient in the world, while American workers are forced to compete in older mills since the industry can no longer fund necessary improvements to keep them competitive. It doesn’t take a MBA from Yale to understand the long term consequences.

Customs Issues – By mislabeling exports to avoid duties, the Chinese make it harder for U.S. firms to compete as this deception makes it easier for U.S. resellers to choose Chinese products based on their unfair price advantage. It is impossible to “Buy American” if you cannot find American made forest products in the stores.

Fraudulent stamping and illegal logging – In recent years, American companies and consumers have become increasingly aware of the importance of sustainably harvested wood products. However, as the Washington Post, Chicago Tribune and Popular Mechanics have reported, the Chinese forest products industry, having seen the negative effect over-harvesting domestically, has been importing illegally harvested logs from Indonesia, Burma, Russia and any number of other countries and accepting obviously false certification papers. These activities also undermine the certification systems that have been set up to protect global ecosystems. According to the OECD, illegal logging results in an annual loss to the global economy of $15 billion a year; the U.S. economy alone takes a $1 billion hit. Imagine what an additional billion dollars could for our industry or for rural school districts and counties in Oregon.

Lack of reciprocal market access – While it remains fashionable for proponents of so-called “free trade” to claim that labor is opposed to trade, that is, of course, false. Organized labor supports trade as long as it is fair and the country we are trading with gives us reciprocal market access. When we lose access to such a quickly growing market, we lose access to one of the ways to grow our industry outside of North America.

So what are the next steps?

We need to adopt the tactics of other groups that have begun to show some success in getting the Chinese government to act on issues such as Darfur. We need to shine a spotlight on Chinese practices and embarrass them into action. We need to garner support on all fronts from multiple allies. Here are some examples.

First, we need to put the U.S. government’s feet to the fire to pressure the Chinese forest products industry to reform its tactics. So far, we have seen some successes – the U.S. government last year filed an unfair subsidies case against the Chinese hardwood plywood industry at the World Trade Organization and earlier this year was finally willing to apply duties on Chinese coated paper imports due to subsidies they receive. But these should not be the last steps – they should be the first. We need to remind the Bush administration that trade laws are only good if they are enforced.

Moreover, steps that you and other Members of Congress have taken are just the first steps. Not only do we need to see the U.S. International Trade Commission complete its current investigation, but we need to see action from the Administration. Not only do we need more hearings on the Chinese forest products industry, but we also need Congress to revise the Lacey Act with the input of industry, labor and the environmental movement in order to help curb illegal logging.

Finally, we need to promote the fact that American wood products are harvested legally. This can happen in two ways. First, the wood products industry can promote their work so that Americans concerned about illegal logging know that the “Made in the USA” label means that the product was harvested legally. Second, Congress can encourage “Made in the USA” as a way to say that we do not condone illegal logging.

These are just the first steps. Much more needs to be done. The Oregon AFL-CIO looks forward to working with you in the future to find solutions to this problem.
Joseph Gonyea

COO

Timber Products Company

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Witness Panel 2

Joseph Gonyea

Dear Senator Wyden:

Thank you for the opportunity to be a part of the field hearing in Medford, Oregon. I am the Chief Operating Officer/Partner of Timber Products Company, which is owned by my family. I am the fourth generation of my family to work in the wood products industry. I am testifying to represent the views of our ownership, our management and our one thousand four hundred team members. Timber Products Company is in the manufacturing, sales and marketing, transportation, and timberland management business. We have nine manufacturing facilities located around the nation, most of which are here in Southern Oregon. We operate an International Division that imports wood products from around the globe including South America, Africa, Russia, and, yes, China to complement our domestic production. Imported products from all of these countries account for approximately 12% of our annual sales. Further, it may be of interest and somewhat ironic to note that, in years past, we exported a greater percentage of our overall company sales to countries throughout Europe and the Far East than we now import. We are proud owners and stewards of 118,000 acres of forestlands that are third-party certified under the standards of the Sustainable Forestry Initiative. In Oregon alone we have 834 employees and an annual payroll of $38,000,000 (gross pay, not including benefits). Our largest product line is hardwood plywood, from which we produce panel products used in the manufacturing of fine cabinets, furniture, retail store fixtures, and decorative millwork products.

I want to thank you for your leadership in Congress and for being our champion for free trade that is fair trade! Thank you for advancing this investigation. I would also like to thank Senator Max Baucus of Montana, Senator Jeff Bingaman of New Mexico and Oregon Senator Gordon Smith for their roles in bringing these important issues to light. This is not a red or blue state issue but a red, white, and blue issue for our industry and country. It is our time to act. We hope your ongoing investigation will address these unfair trade practices and environmental discrepancies that give the Chinese hardwood plywood manufacturers an advantage. The domestic hardwood plywood industry, like other North America wood products industries including furniture, cabinets, and flooring, is facing an onslaught of unfairly traded imports from China. The continued survival of our industry is at risk. It doesn’t have to be so!

Our corporate headquarters are in Springfield and our family has been long-time residents of the Eugene-Springfield area. As you may know, we are proudly known as the Track Capital, USA and my family has been track fans for generations. Hayward Field at the University of

Oregon is the center of this activity. A group of elite runners is here to prepare for the 2008 Olympics in Beijing and some are part of the U of O Pac 10 Championship team.   When they get to China, there is one thing they can be assured of – a level playing field. For all competitors, the track surface will be the same and the weather will be the same. Given a fair set of rules for each sport, history has shown that hard-working American athletes can compete with the best of the best from around the world, including the Chinese.

When it comes to the hardwood plywood business and China, the playing field is far from level and the competition is far from fair. Official U. S. Government import statistics from the Commerce Department offer glaring evidence of these inequities. Between 2002 and 2006, the dollar value of U. S. imports of non-tropical hardwood plywood from China rose by more than one-thousand percent, an increase of more than ten-fold. And that trend continues, as the value of such imports in the first quarter of 2007 was 35 percent higher than the value of such imports during the first quarter of 2006. In 2002, China accounted for roughly 10 percent of all non-tropical hardwood plywood imports into the United States. In the first quarter of 2007, China accounted for roughly 54 percent of all such imports into the United States. (1)

How did this happen? Once again, look at the available facts. The Chinese government provides direct subsidies to hardwood plywood manufacturers which export their products to the United States. Many of these products are sold at below our cost, despite the distance they must travel. We have learned that Chinese hardwood plywood importers have been trying to avoid tariffs by misclassifying their hardwood plywood and we appreciate your work with Customs to look into this. We have also learned that some Chinese hardwood plywood is fraudulently labeled or stamped and we appreciate your investigation of this problem as well. At the end of the day, all of these practices lower the price of Chinese hardwood plywood, making it harder for companies, like Timber Products Company, that play by the rules to compete.

And then there are the environmental issues. Independent studies state that some 30 – 50% of the birch logs coming into China have either been stolen or are the result of illegal logging. Chinese manufacturers are not held to environmental standards in their wood sourcing or in the manufacturing process with use of resins and lack of controls on air and water emissions. Add up each of these factors and it is no wonder the Chinese can sell products at below the cost of a vertically-integrated, highly efficient company like Timber Products Company. These activities fly in the face of international trade rules – rules that China agreed to accept and abide by when it joined the World Trade Organization. As a result, private hardwood plywood producers in this country are competing not only with Chinese companies but also with the Chinese government

and its distortive economic policies. Furthermore, in our statement, you have not heard us discuss currency valuation or labor conditions, but these, too, are factors.

How does this impact the health and well being of our local economy and federal, state, and BLM forests? As part of my written testimony, I am providing you with data on the potential impacts of Chinese imports on public forestlands based solely on the impact to hardwood plywood manufacturers based in Oregon. These companies employ over 2,600 Oregonians. In addition to Timber Products Company’s two mills, the other hardwood plywood manufacturers are: Columbia Forest Products, States Industries, Murphy Plywood, and Roseburg Forest Products. 70% of all hardwood plywood manufactured in North America is headquartered in Oregon with this group of companies. These six manufacturing facilities have the potential to process approximately 165,000 MBF of logs or on average 28,000 MBF +/- per mill, a portion of which comes from federal forests. Over the last five years, Timber Products Company has paid

___________

            (1) U.S. Census Bureau IM-145 (Document attached)

$6MM to purchase 38,000 MBF of standing timber from the U.S. Forest Service and BLM from sales that required thinning and salvage logging. Additionally, during 2005 and 2006, Timber Products Michigan operations purchased 650 MBF of hardwood logs from USFS Region Nine. All of this is done under strict U.S. environmental guidelines, both federal and state laws.

In this past year alone, two North American manufacturers of hardwood plywood (*) closed, displacing 460 employees. If China is allowed to continue importing subsidized and illegally harvested logs as they are today, it will lead to more mill closures in the United States thereby making the job of thinning and forest health in National Forests even more difficult. An example of what can take place when we lose the balance of management of federal lands is USFS Region Three in Arizona and New Mexico. There, the US Forest Service and environmental groups are finding it far more difficult to attract businesses needed to carry out important forest health projects back to the region, now that the infrastructure is gone. Obviously, this has had a large negative effect on the local rural communities which are surrounded by National Forests and BLM lands. We do not want to repeat the same mistakes in Oregon.

The decline of domestic hardwood plywood manufacturing could also lead to a further reduction of US thinning and salvage capacity on government lands. The financial impact would be substantial, but even more serious would be impacts on forest health and public safety. What’s at stake here is significant. On the line are literally thousands of American jobs, closed mills, a further decline of local economies, and the degradation of forest health on public and private forestlands. The impact of Chinese hardwood plywood imports has the potential to exacerbate this situation.

I would like to touch on what is happening on private forestlands in America. For four generations, our family has owned and managed forestlands. I’ve been doing it for over twenty years. I can assure you this – forestry today is not my great-grandfather’s forestry. Today we have laws which govern management of public and private forestlands. Hard science, technology, and good old experience have taught us a lot. At Timber Products Company we are active participants in the Sustainable Forestry Initiative program, or SFI. We manage every aspect of the eco system on our lands. We are not the only ones. Over 150 million acres of forestland in America have been audited by independent third parties to meet the SFI standards. American forestry should be the poster child for forest health and good practices. Instead, we allow countries like China unfettered access to America’s wood demand. By virtue of this, we condone their illegal and environmentally-unsound practices while American managed public and private forestlands continue to be an underutilized asset.

As you know, Senator, in 1994, in an effort to preserve and protect the Northern Spotted Owl, President Clinton and his administration proposed the Northwest Forest Plan for US Forest Service Regions 5 & 6 and BLM lands which was to reduce the annual harvest an estimated 75% in this area from 4.5 billion board feet to 1.1 billion board feet. This figure is an achievable harvest. In its 14th year, however, the Northwest Forest Plan has not met its goal. The cumulative harvest has only produced 3.5 billion board feet versus a plan of 14.3 billion board feet - a woeful 24% of the targeted harvest. (2)

Those who are concerned about the environment need to come to the table to help achieve the Northwest Forest Plan and produce a stable, reliable harvest from federal lands, and to stop the ____________

            * Longlac and GP Savannah

            (2) AFRC, “Actual Sawtimber Harvested From Sales Sold Under the Northwest Forest                            Plan”, 2006

demand for imported wood products from countries that do not have good forest practices or environmental and product quality laws. Let’s utilize the federal forests as they were intended.

When it comes to buying wood products, let’s work to educate the consumer to buy American and to encourage those who supply the wood to the consumer – the “big box stores” – to purchase sustainable wood products as they have advocated doing, but have failed to do at times with their purchasing practices.

In summary, I want to again thank you for your leadership on this trade issue which is so very important to my company and to our state. Thank you also to everyone on the panel. In closing, my primary message is that free trade must be fair trade. As you watch American Olympians compete in Beijing next year, remember each athlete can be assured the rules of the sport will be applied equally to all, and that the best athlete will win. We at Timber Products can compete on a global scale. Just help us ensure that it is fair competition!

Very truly yours,

Joseph J. Gonyea, III

Chief Operating Officer
Ned Daly

Vice President of Operations

US Forest Stewardship Council

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Witness Panel 2

Ned Daly

Testimony of:

Edward J. Daly

Chief Operating Officer

Forest Stewardship Council – US

Before the:

Subcommittee on Public Lands and Forests

Committee on Energy and Natural Resources

United States Senate

Senator Wyden and Subcommittee Members,

Thank you for the opportunity to testify before the subcommittee today.

My testimony will cover how the Forest Stewardship Council supports and promotes companies with exemplary practices like the over 70 Oregon-based companies certified by FSC, what FSC is doing in China to reduce the impact of illegal and unsustainable wood and paper products on the global marketplace, and the challenges we see moving forward in China. I will address these issues in general, but they all apply to the market for hardwood plywood in the U.S. and globally.

FSC certification is a complicated system of standards, policies, principles, criteria and indicators necessary to implement and oversee a global standard for environmentally and socially responsible timber production. As a way of introduction, there is an easier way to think about FSC certification—Ebay for sustainable timber.

There are companies like Collins Pine, Warm Springs Forest Products and Columbia Forest products who have quite literally some of the best forest management and manufacturing practices in the world and they would like to be able to articulate to consumers that commitment to sustainability.

At the same time there are consumers, both institutional and individual who would like to buy products that are sustainably produced, or more importantly, not from illegal or destructive practices.

There are also advocates for conservation, sustainable forest management and healthy rural communities that would like to have positive alternatives in the marketplace that they can direct consumers to.

Like Ebay, through a set of policies that legitimize the transactions in that marketplace and the establishment of a network of buyers and sellers, FSC is able to provide good producers and manufacturers a way to distinguish themselves in the marketplace, allows consumers to identify sustainable wood products and allows advocates to partner with sustainable companies to promote wood and paper products that support communities and the environment.

FSC believes that working forests are an integral and necessary component to forest conservation. With the growing impacts of conversion from sources like agricultural expansion and development, working forest a essential to provide value to standing forests and keep the forests standing.

What is FSC?

Since its inception in 1993, the Forest Stewardship Council has emerged as a globally influential system for transforming forestry around the world by reaching areas where other conservation strategies or government policies have fallen short. The Forest Stewardship Council is an independent, nonprofit organization that promotes the responsible management of the world’s working forests through the development of forest management standards, a voluntary certification system, and trademarks that provide recognition and value to products bearing the FSC label in the marketplace.

FSC standards have been applied on more than 225 million acres of actively managed forests in more than 70 countries, and growing steadily. In 1994, FSC’s members approved an international set of Principles and Criteria that define FSC’s threshold for responsible forestry practices worldwide. These standards support biodiversity, reduce chemical use, protect streams and aquatic communities, conserve old growth, ensure protection of high conservation value forests, give stakeholders a voice, and ensure long-term timber supplies. Specific regional standards are developed in countries to interpret and operationalize the original Principles and Criteria in order to manage specific, local forest compositions. The regional standards were developed through a unique consensus process that allows for and actively seeks participation from all interested parties.

Manufacturers and distributors of wood and paper products are required to have a “chain-of-custody” certification in order to label and sell FSC-certified products. Chain-of-custody certification is the process through which wood and fiber are tracked from their original point of harvest through the manufacturing process. FSC is a credible system because consumers can be confident that their purchase of wood or paper is truly linked directly back to the practice of certified forestry on the ground. FSC has 5,646 certified chain-of-custody companies in 73 countries.

With 37 national offices and representation in every major forest producing country, FSC and its partners are creating a marketplace that demands well-managed forestry practices. Moreover, NGOs, businesses, government agencies, financial institutions, and landowners increasingly use FSC standards as an important land conservation tool, a vehicle to implement corporate social responsibility practices, and a strategy for product differentiation in the marketplace. Through use of the FSC certification system, institutions of all kinds can ensure their commitments to high standards of forest management.

Demand for certified products is “pulling” acres into the FSC system. As certification gains recognition as the screen through which individual and commercial customers view their purchases, the most egregious forest practices are denied a place in the market. In short, the investment made to develop and apply FSC standards over the past decade is paying off in conservation benefits, such as protection of wildlife habitats, improved water quality, sustained availability of timber resources, and increased recognition that forestry can be practiced sustainably. With illegal logging still rampant in many parts of the world and wood and paper demands expected to grow over the next 50 years, the need for FSC standards as a conservation tool is greater than ever before.

Evidence of such demand pull are the numerous companies that have FSC procurement policies including Home Depot, Lowes, Crate and Barrel, Pier 1, Williams-Sonoma, Pottery Barn, JP Morgan, Bank of America, PNC Bank, Random House, Scholastic Publishing, Ikea, Nike, Starbucks (flooring), Staples, Office Depot, Wal-Mart, Patagonia, and the U.S. Green Building Council’s LEED program.

Certification

FSC accredited, independent, “third-party” certification bodies or “certifiers” certify forests. They assess forest management using the FSC principles, criteria, and standards, each certifier uses their own evaluative process. This allows FSC to remain outside of the assessment process, and supports the integrity of the standard, and of the FSC system. Certifiers evaluate both forest management activities (forest certification) and tracking of forest products (chain-of-custody certification).

Forest landowners or managers can contact an accredited FSC certifier if they are interested in becoming certified. Certifiers engage in a contractual relationship with the landowner/manager to assess forest management against the FSC standard approved for the region where the forest is located. The general public is notified about certification assessments before they take place so that the certifiers, helping assure the integrity of the process, can hear a full range of voices. At the close, an assessment summary report is made public, while at the same time keeping the company’s proprietary information confidential. If the forest management operations assessed quality for certification, the landowner can choose to sign a certification contract. This event results in their being “certified” and brings with it the landowner’s commitment to continue to practice forestry in a certifiable fashion. This same process is applied in every country, including China, in which FSC operates.

The contract’s duration is five years, at which point a full assessment will be conducted again if the landowner wishes to continue being certified. These five-year audits are supplemented by annual audits to verify that the terms of the contract are being followed, and facilitate regular contact between the certificate holder and certifier.

For those companies who manufacture or trade certified products, a different form of certification applies. Again, to assure the credibility of claims on products, it is important to track materials as they leave the forest and become products down stream. This “chain of custody”(COC) certification process is quite simple. Like any inventory control system, COC allows products to be segregated and identified as having come from a particular source—in this case, an FSC-certified forest.

FSC’s model of certification allows products that flow from certified forests to enter the marketplace with a credential that is unique. Any FSC labeled product can be traced back to a certified source. This aspect of the system is the basis for any credible certification system and is the link between consumer preference and responsible, on the ground forest management.

FSC in China

FSC is in the process of establishing an office in China which is being led by the former director of accreditation for FSC International. A national working has been established to develop forest management standards for China. Since July 2005 the formative FSC working group in China has met seven times. Working group members represent a broad cross section of forest stakeholders including the International Network for Bamboo and Rattan (INBAR), WWF China, Beijing Forestry Society (BFS), IKEA and others. Because of China’s importance and the difficulty of establishing an office there, the FSC International board will hold its next meeting in Bejing.

The FSC working group will focus on the development of national standards for timber harvesting in China, but due to serious flooding in 1998, in which over 2,500 people lost their lives, the Chinese government banned commercial logging in 17 provinces. While the ban was intended to conserve landscapes, its most immediate impact has been the sharp increase of wood and pulp imported from Southeast Asia and Siberia.

Timber product imports into China have tripled in volume and doubled in value 1997-2003 and it is estimated that nearly half of all tropical trees harvested worldwide are consumed in Chinese goods producing sector. The majority of imports come from Indonesia, Malaysia, and Russia. FSC partner, the Environmental Investigation Agency has shown illegally logged timber imports from Russia (50 per cent of all export trade in the Russian Far East is considered illegal), Burma, Cameroon, Gabon, Indonesia, Liberia, Papua New Guinea and Thailand (Thailand in turn imports illegal timber from neighbouring Burma, Cambodia and Laos for export to China.)

So more important than developing standards for harvesting within China, is the application of FSC chain-of-custody standards to provide oversight on every step in the commercial production of wood and paper products from the stump to the retailer. The Chain of Custody standards that govern the processing of wood products—mills, secondary manufacturers, brokers and merchants--are internationally established and provide oversight for products made in China often from imported wood and exported globally.

Since FSC sets a global standard for exemplary forestry, there are many operations across the globe that cannot meet the FSC standard. This presents a challenge: how do you create market incentives for operations that cannot meet the FSC standard, that encourage those operations to move in the right direction.

As in any country there are a number of good sustainable producers and manufacturers throughout China and many Chinese companies have already achieved FSC certification. But issues such as corruption, lack of management plans, lack of safety measures for workers, and the inability to document or trace products create a large gap between where much of the Chinese industry is today and where they need to be to become FSC certified.

Fortunately, FSC does have some experience working with sectors of the timber industry that have faced similar challenges, most notably the garden furniture industry in Viet Nam and the charcoal industry in South Africa. Through partner organizations such as the Tropical Forest Trust, producers can receive selective recognition in certain markets if the commit to incremental improvement over 5 years and agree to become FSC certified at the end of the 5 year period.

Obviously change will not happen overnight, but in tandem with our environmental partners such as WWF, Environmental Investigation Agency, and others, FSC certified companies and the support of governments in producing, manufacturing and import countries we can go along way in cleaning up the international timber trade in China and around the world.

Establishing FSC certification in China

It has been a very difficult to establish an FSC office in China and to perform audits in China, but there are signs that the government is willing to accommodate FSC certification in country.

For an FSC accredited certifier to legally operate in China, it must adhere to the following regulations:

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

(1) having fixed premises and necessary facilities;

(2) having management system that meets the requirements for certification and accreditation;

(3) having a registered capital of not less than 3,000,000 yuan; and

(4) having not less than ten full-time certification personnel in relevant fields.

A certification body to engage in product certification activities is additionally required to have technical competence in testing or inspection commensurate with relevant product certification activities.

Article 15 Any certification personnel, when practicing certification activities, shall practice in one certification body only and shall not practice in two or more certification bodies simultaneously.

Article 76 Structural fee charts for certification and accreditation shall be in conformity with the provisions of relevant laws and administrative regulations of the State on pricing

For social issues certification (e.g. SA 8000) the Certification and Accreditation Administration of the People’s Republic of China is operating on a ‘case by case’ basis both the certification organization and the enterprise involved must submit an application to CNCA in advance, explain the reasons for certification, and cannot start the certification process until approved.

The requirements for a physical presence, staff and investment in China make it difficult for many certification bodies to operate there. The fact that the Chinese government has not established guidelines for accreditation and certification in the forestry sector makes it difficult for FSC accredited auditors to establish management systems for operating in China.

But the government is moving forward on a number of initiatives that would help establish FSC certification in China. The State Forest Administration’s (SFA) commissioned the Chinese Academy of Forestry (CAF) to develop a set of criteria and indicators suitable for national forest units. (The Chinese Academy of Forestry and the World Wide Fund for Nature (WWF) China were appointed for the task of establishing the FSC Working Group and develop a FSC National Standard in line with the regulations required by the FSC.)

Since November 2003, all certification bodies issuing certificates in China need to be approved by the Certification and Accreditation Administration of the People’s Republic of China (CNCA). CNCA does not seem to have a major problem with the concept of ‘International Accreditation’ and certification bodies other than CNAB (CNAS) operating in China. Another positive sign is China is active in ENA-FLEG (Forest Law Enforcement and Governance Europe/North Asia) and shown a commitment to oppose illegal logging and associated trade.

Despite these difficulties, FSC has begun to make some inroads in China. FSC accredited auditors have issued five forest management certificates and over 200 chain of custody certificates in China.

Looking Toward the Future

There are rarely simple solutions to complex problems like those related to creating transparency and oversight for the international timber trade. In most cases it is a number of tools, such as legislation, diplomacy or market pressure that help resolve such issues. I believe FSC is a tool that can help remove the worst players from the international timber market and reward the sustainable producers in the marketplace. FSC also plays a very important role for wood and paper products more generally. As this industry and many other industries have seen before, a few bad actors can tarnish the whole industry’s reputation. FSC establishes sustainably produced wood and paper products as the green, environmentally and socially beneficial products that they are. FSC can uniquely play that role because it is the only internationally recognized forest certification program that recognizes the importance of social issues—community involvement, indigenous and labor rights—in forest management.

Still there is a very difficult road ahead. There is little question that China will be FSC’s toughest challenge to date. Along with the challenges aforementioned, trying to regulate misappropriation of the FSC logo and certification is a huge challenge. We are already seeing the misuse of labels by companies in China (including the use of the FSC logo by a non-FSC certified company on non-FSC certified hardwood plywood). FSC has a very robust trademark infringement procedure and with the help of the over 5,000 certified companies who are trying to protect their legitimate use of the label, we have done a good job to date, but growth in China will definitely test our ability to protect the FSC trademark.

I have included for the committee the FSC’s Principles and Criteria which guide FSC certification and a list of the FSC certified companies in Oregon who use FSC as a way to highlight their sustainable practices and allows those companies to compete in the global marketplace based on good practices and good prices.

FSC’s Principles & Criteria for Forest Management Certification

Introduction to FSC's Principles & Criteria

It is widely accepted that forest resources and associated lands should be managed to meet the social, economic, ecological, cultural and spiritual needs of present and future generations. Furthermore, growing public awareness of forest destruction and degradation has led consumers to demand that their purchases of wood and other forest products will not contribute to this destruction but rather help to secure forest resources for the future. In response to these demands, certification and self-certification programs of wood products have proliferated in the marketplace.

The Forest Stewardship Council (FSC) is an international body which accredits certification organizations in order to guarantee the authenticity of their claims. In all cases the process of certification will be initiated voluntarily by forest owners and managers who request the services of a certification organization. The goal of FSC is to promote environmentally responsible, socially beneficial and economically viable management of the world's forests, by establishing a worldwide standard of recognized and respected Principles of Forest Stewardship.

The FSC's Principles and Criteria (P&C) apply to all tropical, temperate and boreal forests, as addressed in Principle #9 and the accompanying glossary. Many of these P&C apply also to plantations and partially replanted forests. More detailed standards for these and other vegetation types may be prepared at national and local levels. The P&C are to be incorporated into the evaluation systems and standards of all certification organizations seeking accreditation by FSC. While the P&C are mainly designed for forests managed for the production of wood products, they are also relevant, to varying degrees, to forests managed for non-timber products and other services. The P&C are a complete package to be considered as a whole, and their sequence does not represent an ordering of priority. This document shall be used in conjunction with the FSC's Statutes, Procedures for Accreditation and Guidelines for Certifiers.

FSC and FSC-accredited certification organizations will not insist on perfection in satisfying the P&C. However, major failures in any individual Principles will normally disqualify a candidate from certification, or will lead to decertification. These decisions will be taken by individual certifiers, and guided by the extent to which each Criterion is satisfied, and by the importance and consequences of failures. Some flexibility will be allowed to cope with local circumstances.

The scale and intensity of forest management operations, the uniqueness of the affected resources, and the relative ecological fragility of the forest will be considered in all certification assessments. Differences and difficulties of interpretation of the P&C will be addressed in national and local forest stewardship standards. These standards are to be developed in each country or region involved, and will be evaluated for purposes of certification, by certifiers and other involved and affected parties on a case by case basis. If necessary, FSC dispute resolution mechanisms may also be called upon during the course of assessment. More information and guidance about the certification and accreditation process is included in the FSC Statutes, Accreditation Procedures, and Guidelines for Certifiers.

The FSC P&C should be used in conjunction with national and international laws and regulations. FSC intends to complement, not supplant, other initiatives that support responsible forest management worldwide.

The FSC will conduct educational activities to increase public awareness of the importance of the following:

*improving forest management;

* incorporating the full costs of management and production into the price of forest products;

* promoting the highest and best use of forest resources;

* reducing damage and waste; and

* avoiding over-consumption and over-harvesting.

FSC will also provide guidance to policy makers on these issues, including improving forest management legislation and policies.

Principle 1: Compliance with Laws and FSC Principles

Forest management shall respect all applicable laws of the country in which they occur, and international treaties and agreements to which the country is a signatory, and comply with all FSC Principles and Criteria.

Criteria:

1.1 Forest management shall respect all national and local laws and administrative requirements.

1.2 All applicable and legally prescribed fees, royalties, taxes and other charges shall be paid.

1.3 In signatory countries, the provisions of all binding international agreements such as CITES, ILO Conventions, ITTA, and Convention on Biological Diversity, shall be respected.

1.4 Conflicts between laws, regulations and the FSC Principles and Criteria shall be evaluated for the purposes of certification, on a case by case basis, by the certifiers and the involved or affected parties.

1.5 Forest management areas should be protected from illegal harvesting, settlement and other unauthorized activities.

1.6 Forest managers shall demonstrate a long-term commitment to adhere to the FSC Principles and Criteria.

Principle 2: Tenure and Use Rights and Responsibilities

Long-term tenure and use rights to the land and forest resources shall be clearly defined, documented and legally established.

Criteria:

2.1 Clear evidence of long-term forest use rights to the land (e.g. land title, customary rights, or lease agreements) shall be demonstrated.

2.2 Local communities with legal or customary tenure or use rights shall maintain control, to the extent necessary to protect their rights or resources, over forest operations unless they delegate control with free and informed consent to other agencies.

2.3 Appropriate mechanisms shall be employed to resolve disputes over tenure claims and use rights. The circumstances and status of any outstanding disputes will be explicitly considered in the certification evaluation. Disputes of substantial magnitude involving a significant number of interests will normally disqualify an operation from being certified.

Principle 3: Indigenous People's Rights

The legal and customary rights of indigenous peoples to own, use and manage their lands, territories, and resources shall be recognized and respected.

Criteria:

3.1 Indigenous peoples shall control forest management on their lands and territories unless they delegate control with free and informed consent to other agencies.

3.2 Forest management shall not threaten or diminish, either directly or indirectly, the resources or tenure rights of indigenous peoples.

3.3 Sites of special cultural, ecological, economic or religious significance to indigenous peoples shall be clearly identified in cooperation with such peoples, and recognized and protected by forest managers.

3.4 Indigenous peoples shall be compensated for the application of their traditional knowledge regarding the use of forest species or management systems in forest operations. This compensation shall be formally agreed upon with their free and informed consent before forest operations commence.

Principle 4: Community Relations and Workers' Rights

Forest management operations shall maintain or enhance the long-term social and economic well-being of forest workers and local communities.

Criteria:

4.1 The communities within, or adjacent to, the forest management area should be given opportunities for employment, training, and other services.

4.2 Forest management should meet or exceed all applicable laws and/or regulations covering health and safety of employees and their families.

4.3 The rights of workers to organize and voluntarily negotiate with their employers shall be guaranteed as outlined in Conventions 87 and 98 of the International Labour Organisation (ILO).

4.4 Management planning and operations shall incorporate the results of evaluations of social impact. Consultations shall be maintained with people and groups (both men and women) directly affected by management operations.

4.5 Appropriate mechanisms shall be employed for resolving grievances and for providing fair compensation in the case of loss or damage affecting the legal or customary rights, property, resources, or livelihoods of local peoples. Measures shall be taken to avoid such loss or damage.

Principle 5: Benefits from the Forest

Forest management operations shall encourage the efficient use of the forest's multiple products and services to ensure economic viability and a wide range of environmental and social benefits.

Criteria:

5.1 Forest management should strive toward economic viability, while taking into account the full environmental, social, and operational costs of production, and ensuring the investments necessary to maintain the ecological productivity of the forest.

5.2 Forest management and marketing operations should encourage the optimal use and local processing of the forest's diversity of products.

5.3 Forest management should minimize waste associated with harvesting and on-site processing operations and avoid damage to other forest resources.

5.4 Forest management should strive to strengthen and diversify the local economy, avoiding dependence on a single forest product.

5.5 Forest management operations shall recognize, maintain, and, where appropriate, enhance the value of forest services and resources such as watersheds and fisheries.

5.6 The rate of harvest of forest products shall not exceed levels which can be permanently sustained.

Principle 6: Environmental Impact

Forest management shall conserve biological diversity and its associated values, water resources, soils, and unique and fragile ecosystems and landscapes, and, by so doing, maintain the ecological functions and the integrity of the forest.

Criteria:

6.1 Assessment of environmental impacts shall be completed -- appropriate to the scale, intensity of forest management and the uniqueness of the affected resources -- and adequately integrated into management systems. Assessments shall include landscape level considerations as well as the impacts of on-site processing facilities. Environmental impacts shall be assessed prior to commencement of site-disturbing operations.

6.2 Safeguards shall exist which protect rare, threatened and endangered species and their habitats (e.g., nesting and feeding areas). Conservation zones and protection areas shall be established, appropriate to the scale and intensity of forest management and the uniqueness of the affected resources. Inappropriate hunting, fishing, trapping and collecting shall be controlled.

6.3 Ecological functions and values shall be maintained intact, enhanced, or restored, including: a) Forest regeneration and succession. b) Genetic, species, and ecosystem diversity. c) Natural cycles that affect the productivity of the forest ecosystem.

6.4 Representative samples of existing ecosystems within the landscape shall be protected in their natural state and recorded on maps, appropriate to the scale and intensity of operations and the uniqueness of the affected resources.

6.5 Written guidelines shall be prepared and implemented to: control erosion; minimize forest damage during harvesting, road construction, and all other mechanical disturbances; and protect water resources.

6.6 Management systems shall promote the development and adoption of environmentally friendly non-chemical methods of pest management and strive to avoid the use of chemical pesticides. World Health Organization Type 1A and 1B and chlorinated hydrocarbon pesticides; pesticides that are persistent, toxic or whose derivatives remain biologically active and accumulate in the food chain beyond their intended use; as well as any pesticides banned by international agreement, shall be prohibited. If chemicals are used, proper equipment and training shall be provided to minimize health and environmental risks.

6.7 Chemicals, containers, liquid and solid non-organic wastes including fuel and oil shall be disposed of in an environmentally appropriate manner at off-site locations.

6.8 Use of biological control agents shall be documented, minimized, monitored and strictly controlled in accordance with national laws and internationally accepted scientific protocols. Use of genetically modified organisms shall be prohibited.

6.9 The use of exotic species shall be carefully controlled and actively monitored to avoid adverse ecological impacts.

6.10 Forest conversion to plantations or non-forest land uses shall not occur, except in circumstances where conversion: a) entails a very limited portion of the forest management unit; and b) does not occur on high conservation value forest areas; and c) will enable clear, substantial, additional, secure, long term conservation benefits across the forest management unit.

Principle 7: Management Plan

A management plan -- appropriate to the scale and intensity of the operations -- shall be written, implemented, and kept up to date. The long term objectives of management, and the means of achieving them, shall be clearly stated.

Criteria:

7.1 The management plan and supporting documents shall provide: a) Management objectives. b) Description of the forest resources to be managed, environmental limitations, land use and ownership status, socio-economic conditions, and a profile of adjacent lands. c) Description of silvicultural and/or other management system, based on the ecology of the forest in question and information gathered through resource inventories. d) Rationale for rate of annual harvest and species selection. e) Provisions for monitoring of forest growth and dynamics. f) Environmental safeguards based on environmental assessments. g) Plans for the identification and protection of rare, threatened and endangered species. h) Maps describing the forest resource base including protected areas, planned management activities and land ownership. i) Description and justification of harvesting techniques and equipment to be used.

7.2 The management plan shall be periodically revised to incorporate the results of monitoring or new scientific and technical information, as well as to respond to changing environmental, social and economic circumstances.

7.3 Forest workers shall receive adequate training and supervision to ensure proper implementation of the management plan.

7.4 While respecting the confidentiality of information, forest managers shall make publicly available a summary of the primary elements of the management plan, including those listed in Criterion 7.1.

Principle 8: Monitoring and Assessment

Monitoring shall be conducted -- appropriate to the scale and intensity of forest management -- to assess the condition of the forest, yields of forest products, chain of custody, management activities and their social and environmental impacts.

Criteria:

8.1 The frequency and intensity of monitoring should be determined by the scale and intensity of forest management operations as well as the relative complexity and fragility of the affected environment. Monitoring procedures should be consistent and replicable over time to allow comparison of results and assessment of change.

8.2 Forest management should include the research and data collection needed to monitor, at a minimum, the following indicators: a) Yield of all forest products harvested. b) Growth rates, regeneration and condition of the forest. c) Composition and observed changes in the flora and fauna. d) Environmental and social impacts of harvesting and other operations. e) Costs, productivity, and efficiency of forest management.

8.3 Documentation shall be provided by the forest manager to enable monitoring and certifying organizations to trace each forest product from its origin, a process known as the "chain of custody."

8.4 The results of monitoring shall be incorporated into the implementation and revision of the management plan.

8.5 While respecting the confidentiality of information, forest managers shall make publicly available a summary of the results of monitoring indicators, including those listed in Criterion 8.2.

Principle 9: Maintenence of High Conservation Value Forests

Management activities in high conservation value forests shall maintain or enhance the attributes which define such forests. Decisions regarding high conservation value forests shall always be considered in the context of a precautionary approach.

Criteria:

9.1 Assessment to determine the presence of the attributes consistent with High Conservation Value Forests will be completed, appropriate to scale and intensity of forest management.

9.2 The consultative portion of the certification process must place emphasis on the identified conservation attributes, and options for the maintenance thereof.

9.3 The management plan shall include and implement specific measures that ensure the maintenance and/or enhancement of the applicable conservation attributes consistent with the precautionary approach. These measures shall be specifically included in the publicly available management plan summary.

9.4 Annual monitoring shall be conducted to assess the effectiveness of the measures employed to maintain or enhance the applicable conservation attributes.

Principle 10: Plantations

Plantations shall be planned and managed in accordance with Principles and Criteria 1 - 9, and Principle 10 and its Criteria. While plantations can provide an array of social and economic benefits, and can contribute to satisfying the world's needs for forest products, they should complement the management of, reduce pressures on, and promote the restoration and conservation of natural forests.

Criteria:

10.1 The management objectives of the plantation, including natural forest conservation and restoration objectives, shall be explicitly stated in the management plan, and clearly demonstrated in the implementation of the plan.

10.2 The design and layout of plantations should promote the protection, restoration and conservation of natural forests, and not increase pressures on natural forests. Wildlife corridors, streamside zones and a mosaic of stands of different ages and rotation periods, shall be used in the layout of the plantation, consistent with the scale of the operation. The scale and layout of plantation blocks shall be consistent with the patterns of forest stands found within the natural landscape.

10.3 Diversity in the composition of plantations is preferred, so as to enhance economic, ecological and social stability. Such diversity may include the size and spatial distribution of management units within the landscape, number and genetic composition of species, age classes and structures.

10.4 The selection of species for planting shall be based on their overall suitability for the site and their appropriateness to the management objectives. In order to enhance the conservation of biological diversity, native species are preferred over exotic species in the establishment of plantations and the restoration of degraded ecosystems. Exotic species, which shall be used only when their performance is greater than that of native species, shall be carefully monitored to detect unusual mortality, disease, or insect outbreaks and adverse ecological impacts.

10.5 A proportion of the overall forest management area, appropriate to the scale of the plantation and to be determined in regional standards, shall be managed so as to restore the site to a natural forest cover. 10.6 Measures shall be taken to maintain or improve soil structure, fertility, and biological activity. The techniques and rate of harvesting, road and trail construction and maintenance, and the choice of species shall not result in long term soil degradation or adverse impacts on water quality, quantity or substantial deviation from stream course drainage patterns.

10.7 Measures shall be taken to prevent and minimize outbreaks of pests, diseases, fire and invasive plant introductions. Integrated pest management shall form an essential part of the management plan, with primary reliance on prevention and biological control methods rather than chemical pesticides and fertilizers. Plantation management should make every effort to move away from chemical pesticides and fertilizers, including their use in nurseries. The use of chemicals is also covered in Criteria 6.6 and 6.7.

10.8 Appropriate to the scale and diversity of the operation, monitoring of plantations shall include regular assessment of potential on-site and off-site ecological and social impacts, (e.g. natural regeneration, effects on water resources and soil fertility, and impacts on local welfare and social well-being), in addition to those elements addressed in principles 8, 6 and 4. No species should be planted on a large scale until local trials and/or experience have shown that they are ecologically well-adapted to the site, are not invasive, and do not have significant negative ecological impacts on other ecosystems. Special attention will be paid to social issues of land acquisition for plantations, especially the protection of local rights of ownership, use or access.

10.9 Plantations established in areas converted from natural forests after November 1994 normally shall not qualify for certification. Certification may be allowed in circumstances where sufficient evidence is submitted to the certification body that the manager/owner is not responsible directly or indirectly of such conversion.

Along with FSC partners in Oregon like Ecotrust, Sustainable Northwest, and Metafore, the following companies hold FSC certificates.
Phill Guay

Vice President of Marketing and Strategic Planning

Columbia Forest Products

Read statement

Witness Panel 2

Phill Guay

Oral Testimony – Phill Guay, Columbia Forest Products

Senate Hearing – Timber Industry Competitiveness

May 30, 2007

My name is Phill Guay and I’m the Vice President of Corporate Strategy and Marketing at Columbia Forest Products. I would like to thank you for the opportunity to be a part of this important hearing, and in turn, thank everyone who made it possible.

Columbia Forest Products is one of the largest manufacturers of hardwood products in North America. Our four divisions: hardwood plywood, hardwood veneer, hardwood flooring and international division amount to $1 billion in sales, and we have more than 3,300 employee-owners. We are one of the largest Employee Stock Ownership Programs (ESOP) in the United States. We have 11 hardwood plywood and veneer manufacturing facilities and are the largest manufacturer in that industry. We are also a major importer, using offshore resources to complement our domestic product line. We are North America’s largest Russian Birch importer, and we contract-manufacture with suppliers in China, South America and throughout the world. We are also the nation’s second-largest hardwood flooring manufacturer, with five plants in North America.

As a major manufacturer and importer we recognize ours is a global industry. In fact we have seized the opportunity to be global, both in sales and manufacturing. We have two flooring plants in Malaysia and sell plywood manufactured in China, not only in the United States but in the European Union also. We sell flooring here as well as the European Union, the Middle East and Australia.

As a global company we see the need for balance across all global regions. Balance is essential for the industry and consumers everywhere. Just as important, perhaps more so, is the global enforcement of logging rules. Such a practice would have an unbelievable impact on the environment by containing illegal logging, promoting sustainable practices and curbing related pollution. So what we seek is not an advantage for any region but fairness across all regions, across all business functions, in raw materials, tax incentives, labor and numerous others. What we seek is fair trade, and we believe free trade is fair.

Joe Gonyea has spent/will spend some time focusing on the issues in China. We agree with Joe. Let me give you our perspective not only on China but the overall global trends as well. Speaking from a Columbia perspective green initiatives and sustainability are most important to us. For 10 years, Columbia Forest Products has maintained a Forest Stewardship Council (FSC) chain of custody certification and was on of the first in our industry to do so with certificate number 65 out of 828 granted to date in the United States.

We recently introduced a revolutionary, urea formaldehyde-free adhesive system, PureBond™, for the manufacture of hardwood plywood and flooring. Recently the California Air Resources Board (CARB) concluded that the United States is a toxic dumping ground for excess urea-formaldehyde products manufactured worldwide. CARB took bold steps to eliminate that practice by passing new regulations that are the most stringent in the world. Similarly we have an opportunity here to stop the United States from being the world’s biggest consumer of illegal logging. In doing so we can help the environment, our industries, domestic employment and tax receipts simultaneously.

Although there are several programs which certify that wood is being harvested sustainably, we use FSC; others use Sustainable Forestry Initiative (SFI) as well as additional programs available. Of the 84.3 million hectors of forest land certified world wide by the Forest Stewardship council 49.7% is located in Europe, 31.5% in North America, 3.0% in Africa and 2.0% in Asia.

Certification is a clear indication of sustainable forestry practices. Since it is nearly impossible to log illegally on certified land, you can see how easily it would be to log illegally in Asia and Africa where under 5% of their forest land is certified by the Forest Stewardship Council. While we believe certification and legally controlled logging are both good business and social practices, they are not free. North American industries’ commitment to these sustainable practices is expensive but the right thing to do. However, it puts us at a significant cost—and at times availability—disadvantage to most other areas in the world.

Let’s examine hardwood plywood alone. When you look at plywood imports in 2002, 2.2 million cubic meters of hardwood plywood was imported. In 2006 that number was 4.4 million cubic meters, up 93%. At the same time, domestic production declined. During that same period from 2002 to 2006 China’s share of imports increased from less than 10% to 50%. Imports from other countries actually declined over the period as China dominated growth. That trend has continued unabated. Despite a significant slowdown in the domestic housing industry (the primary consumer of hardwood plywood) generally every month, 2007 has seen an increase over 2006 with regard to imports. Imports are up 33% on a value basis and 6% on a volume basis first quarter 2007 over 2006 despite the housing slump. Absolutely at this point we believe imports have done far more damage to our industry than the current housing slump. And many of those imports are subsidized by illegal logging as well as unfair trade practices.

Although I know this is a hearing on hardwood plywood, I’d like to mention hardwood flooring as well. In part because some hardwood plywood is converted into hardwood flooring, and flooring is a much bigger industry. But also because the same logging and business practices that hurt domestic hardwood plywood manufacturing are present in flooring too.

Hardwood flooring imports have soared from 75 million cubic meters in 2001 to 325 million cubic meters in 2006. The domestic hardwood flooring industry is carrying the same unfair burden.

How does this affect our economy as well as federal, state, BLM and private land owners? The data in our submission provides a snapshot. Our plant in Klamath Falls, Oregon, one of 11, consumed about 46 million board feet of timber in 2003; by 2006 that declined to 35 million board feet. Admittedly, much of that timber is from private sources, but the decline clearly indicates a loss of revenue to the various government entities and land owners, as well as job cuts at our Klamath Falls plant. The Northwest Forest Plan for United States Forest Service Regions 5 and 6 and BLM lands are running at under 25% of the allowable harvest for many reasons. But had the allowable targets been achieved it would have had a significant positive affect on forest health, revenue as well as our global competitiveness.

The story of log purchases and job loss at our Klamath Falls plant is no different at our other plants nationwide. Our two largest plants on the east coast consume about 80 million board feet per year. Once again that volume is falling and 98% of it comes from private land.

So what do we want? Free and fair trade. Thanks to the effort of Senator Wyden and his staff, an ITC 332 investigation is now underway for both hardwood plywood and hardwood flooring industries. That will identify the unfair business practices negatively affecting our industry, tax receipts and employment.

Just as important, perhaps more so, is that we develop and enforce measures so that all wood products imported into the United States are, first and foremost, legally logged and, ultimately, sustainably logged. It is the key, not just to a healthy environment, but to free and fair trade, healthy tax receipts, employment and the survival of our domestic industries.

Global enforcement at the log level is the key to success. Clearly, most wood product manufacturing occurs in China, but most of the illegal logging undoubtedly occurs in Russia and Africa. While free and fair trade is essential, if logging practices are not controlled in the forest, we may improve the relationship between ourselves and China, but manufacturing will simply move elsewhere. Hence, neither our tax receipts, nor our industry, nor the environment will really be improved.

So, in summary, what is best for tax receipts is best for our industry, free trade, fair trade and legal logging everywhere.

Hearings and Business Meetings

Witness Panel 1

Vera Adams

Tim Wineland

Witness Panel 2

Tom Chamberlain

Joseph Gonyea

Ned Daly

Phill Guay