My name is Paul Webster, President of Webster Industries located in Wayzata, Minnesota. I am submitting this testimony on behalf of Webster Industries, as well as the American Forest & Paper Association, of which my company is an active member.

The American Forest & Paper Association is the national trade association of the forest, pulp, paper, paperboard and wood products industry. This vital national industry accounts for 7% of total U.S. manufacturing output. It employs approximately 1.7 million people, with an annual estimated payroll of $51 billion, and sales in excess of $250 billion.

I am pleased to have this opportunity to submit this testimony on the benefits of trade to the agricultural sector, and in particular, to the US forest products industry. For the U.S. forest products industry, the answer is simple. Exports mean jobs – and jobs that exist often in small or rural communities across the country. In Minnesota alone, the forest products industry employs over 266,000 people with an annual payroll that exceeds $8.4 billion.

For my company and others in the U.S. forest products industry, the premise that the U.S. has fallen behind in gaining market access for its manufacturers—and that U.S. exporters and their workers are facing discriminatory customs tariffs as a result—is, unfortunately, a painful fact of everyday life.

Our sector is being battered by cheap imports while at the same time the products where we have a comparative advantage--value-added wood products--are shut out of some key markets due to tariff and non-tariff barriers.

As U.S. export markets for most solid wood products have declined over the past several years, wood imports into the U.S. have surged, increasing the negative balance of trade in solid wood products to $10 billion in 1999. Between 1990 and the year 2000, the U.S. moved from being the world's largest solid wood exporter to the world's largest importer. Given the trillion-dollar U.S. housing market, the strong U.S. dollar, and the lack of barriers to import into the United States, the U.S. market has become the target of choice for overseas wood suppliers.

At the same time, we face substantial trade barriers in the export of higher value wood products produced in the U.S. These barriers are even more significant when coupled with the expansion of plantations and mill capacity in Europe, South America and Oceania. As a direct result, the U.S. share among major wood exporters has fallen from 18 percent in 1997 to 16 percent in 1999 and employment associated with the production of lumber and wood products fell from 831,000 in December 1999 to 788,000 in March 2001, a decline of 5.2%.

For the U.S. forest products industry, it is easy to see how we got here. Going into the Uruguay Round of trade negotiations, our industry was the first to propose a zero for zero tariff concept because we recognized three things about the future direction of our industry:

• Although we were then one of America’s most globally competitive industries, exports would be an increasingly important component of our business.
• Although developed country producers and markets still dominated, the real growth—in terms of demand and capacity expansion--would be shifting to developing countries.
• As our industry globalized, surviving companies would be those capable of serving global markets with minimized transactions costs.

With virtually all U.S. tariffs on wood and paper products already reduced to zero, this meant that the future competitiveness of the U.S.-based forest products industry depended on the elimination of all overseas tariff barriers on our products.

Regrettably, the U.S. was not able to fully achieve this objective in the Uruguay Round. The Japanese refused to eliminate wood tariffs, so other participants in the Uruguay Round would not go beyond a one-third formula cut, and most developing countries made no tariff cutting commitments of any kind.

The result in terms of the competitive landscape for our industry has been that the tariff inequity we attempted to eliminate in the Uruguay Round has only gotten worse over time:

Let me offer my own experience of what this means to Webster Industries. Our company has watched a steady decline in our export hardwood business in the Japanese market over the past 4 years, because of three specific things that we have no control over as an U.S. exporter:

1. Strong dollar – weak yen

2. Substantial tariffs on our hardwood exports to Japan

3. Strong hardwood shipments from the former eastern block countries to Japan that don’t encounter the high trade barriers and tariffs that U.S. hardwood manufacturers do

To take another example: In 1997, when Canada concluded its Free Trade Agreement with Chile, virtually all Canadian wood and paper products received duty free treatment immediately on implementation. The effect on U.S. wood and paper sales was immediate and devastating.

What needs to be done?

First, we urge the Administration to move rapidly to conclude the FTA agreement with Chile and in particular, to ensure that all tariffs on U.S. wood and paper products will be reduced to zero immediately on implementation. The mandate for U.S. negotiators must make it clear that the priority objective must be to achieve immediate parity with our Canadian competitors. The U.S. cannot accept an agreement that prolongs the period during which our country’s forest products are treated less favorably than those of our Canadian competitors.

Second, the Administration must work with Hemisphere trading partners to accelerate the timetable for conclusion of a Free Trade Area of the Americas (FTAA), and to advance the date when concrete results can be realized. The U.S. catch-up strategy for market access must include the concept of early deliverables in selected sectors —including forest products.

Third, the Administration must revitalize the trade liberalization dimension in our relationship with the countries of the Asia Pacific region, and especially the initiative to achieve zero tariffs in selected sectors known as Early Voluntary Sectoral Liberalization (EVSL), or Accelerated Tariff Liberalization (ATL). The U.S. must not allow Japanese obstructionism to block regional trade liberalization. We must make it clear that we will proceed with partners willing to work with us—including New Zealand, Australia, China and Singapore.

Fourth, the U.S. should look opportunistically at the FTA’s concluded by our major competitors. We must identify those markets where there is a substantial competitive challenge to the U.S. and move quickly to restore the balance of competitive opportunity. The recent announcement of a possible FTA with Korea is strongly supported by our industry as value-added product exports are currently blocked by high tariffs.

Fifth, we agree that the WTO and multilateral negotiations offer the best, most direct route to achieving barrier-free market access on a global scale. So the U.S. must continue to press for the launch of industrial tariff negotiations, including early sectoral tariff liberalization, without defining a specific relationship to a possible New Round. In doing so, however, we must learn from the experience of the past four years and not allow the advent of a possible Round to exercise a chilling effect on negotiations in other fora.

Sixth, we strongly support new fast track negotiating authority for the President and urge Congress to enact Trade Promotion Authority (TPA) legislation at the earliest possible time. Without strong and flexible negotiating authority, U.S. negotiators do not have all the tools – or Congressional imperative – needed to address our industry’s tariff disparity problems. The Administration must have the authority to conclude a range of trade negotiations (multilateral, regional and bilateral) in a way that is credible to trading partners.

Finally, Congress needs to ensure the future support for U.S. agricultural exports. The U.S. forest products industry has relied on its partnership with the U.S. Department of Agriculture’s Market Access Program (MAP) and Foreign Market Development Cooperator program (FMD) to aggressively market U.S. wood products overseas for over a decade. The industry has united behind a global strategy to level the playing field for U.S. wood products internationally through a combined effort to eliminate market access barriers and promote the benefits of U.S. wood. We are not alone in this effort – many agriculture-based groups use these programs to develop new markets and to maintain and expand existing markets.

The generic, promotion-based activities associated with these programs are, and will continue to be, essential for the U.S. forest products industry to improve its market share overseas, and thus it is essential that Congress adequately authorize funding for these programs. This is particularly important as our major competitor in agricultural exports, the European Union, is outspending the US by a ratio of at least 10:1 in export promotion programs. These programs can continue to help counteract market access problems and grow markets for the future. For example, U.S. hardwood product exports have grown from less than $500 million in 1987 to over $2 billion in 2000. This export performance is important to the industry since while exports account for roughly 7%-8% of US hardwood production by volume, that figure is closer to 13% by value. The MAP and FMD programs have been instrumental in bringing many small mills, such as my own, to the export market and have grown the pie for the industry as a whole.

Looking toward the 2002 Farm Bill, our industry is supportive of seeing both the MAP and FMD programs re-authorized, at least at current levels – MAP -- $90 million/year; FMD – at least $35 million/year. There have also been a number of discussions about increasing the budgets for these programs from the levels at which they are currently authorized, accounting for inflation and increased costs of conducting programs overseas. We support this increase.

Over the decade of the nineties, companies like Webster Industries and others in the U.S. forest products sector have made the difficult decisions necessary to ensure we can compete in the global marketplace. However, unless the U.S. can move quickly to allow us the same unfettered access to export markets that our competitors enjoy here, we as a nation will squander our remarkable competitive advantage and jeopardize our economic prosperity. We owe it to our workers and to our communities to make sure that does not happen.