Market Scene : Japan’s Leg Up in the Log Business : * A peculiar import policy keeps the nation’s mills humming--often at the cost of U.S. jobs.

In the rolling green hills south of Olympia, Wash., the forests echo with the sound of chain saws. One after another, the trees are toppled, dragged by cables to the roadside and trucked to the nearby port. The logs are headed for Japan, where buyers in recent months have been willing to pay more for raw logs than they would for lumber cut to their specifications.

Curious? Hardly. It is the old law of supply and demand twisted through the strange byways of Japan’s distribution system.

In wood products, as in so many other areas, Japan has developed an import system that, whether consciously or not, acts to preserve Japanese jobs, often at the expense of jobs in the United States. When it comes to wood, Japan has created in America a colony of sorts, a supplier of raw material for its booming domestic economy.

The log and lumber trade also illustrates the unbalanced relationship that exists between Japan, a country that strictly guards the long-term health of its industry, and the United States, where quick profits are often regarded as the most important factor in doing business.

Take a closer look at the log business. On the American side, trade is open and free and everyone gets into the act. Simpson Timber Co., one of Washington state’s largest private landowners, for example, auctioned off the right to cut down a large chunk of its forests this spring. The winner was Citifor, a Chinese-owned trading company. The company hired a local logging company to fell the trees. The wood is sorted, with lower-quality logs going to local mills or to China. The better-quality logs are sold to a broker who finds a Japanese buyer and arranges for them to be shipped to Japan on the freighter Glory Express, which has a crew from Myanmar.

Jim Manke of Manke Lumber, who runs a mill in Washington state, would love to have cut those logs into lumber for the Japanese. In 1979, he invested $8 million to build a mill that could cut wood to demanding Japanese specifications. There was a sense of excitement then, a feeling that by understanding the Japanese market, a new vista in business would open up for mills.

From February through most of the spring, however, Manke’s export mill was cutting low-margin cedar fencing, and he wasn’t sure he could keep his 85 employees on the payroll. He couldn’t afford to pay the premiums Japanese buyers were offering for the raw logs.

The reason for the high premium on raw logs becomes clear when you look at the way Japan imports its wood products.

The Citrus Island, a freighter bringing logs in from the Seattle area, anchors in Shimizu, a picturesque harbor south of Tokyo. Cranes with large robotic claws grab a dozen logs out of the ship’s hold like so many chopsticks and drop them over the side into the water.

Small boats with saw-toothed hulls and rotary engines that enable them to turn on a dime act as bumper cars, herding the logs into neat rows where they are tied into rafts and then pulled by tugboats into a large storage area in the harbor.

From there the logs are measured, fumigated and stripped of their bark.

The entire operation is handled by the Shimizu Port Lumber Industry Cooperative Assn., which bought the American logs from Nichimen, a major Japanese trading company.

The cooperative, established in 1952 when Japan was still recovering from World War II and had an insatiable appetite for logs, is made up of local sawmills and log wholesalers and has exclusive rights to use Shimizu to import American logs and store them in the harbor. A separate association handles logs from Malaysia’s rain forests.

Working as a group to handle imports from different countries makes a lot of sense. The Shimizu association has close ties to the port officials and can quickly handle customs paperwork and required agricultural inspection.

“The cooperative is able to avoid confusion by deciding in what order the ships should come in,” says Nobuo Saito, managing director of the Shimizu association. His assistant points out that as a large buyer, the association can purchase logs at a better price than if sawmills were forced to negotiate individually or go through a wholesaler.

While the cooperative helps to minimize the cost of importing logs, it works against the import of finished lumber, which hurts the American job picture. That is because importing logs has priority in the port’s policy and most of the storage space there is set aside for logs.

“If there was open space to import other products, we could do it, but there is really no space,” says Masayuki Ozawa, a cooperative official. “The area has been set aside for logs and can’t be used for lumber.”

Raw log imports have priority, he says, because they contribute to the welfare of Shimizu’s many mills. Although there is some warehouse space for lumber, it must be used by association members.

The cooperative has a two-month supply of logs in the harbor that are sold to local mills according to their needs. Shunsuke Muramatsu, vice president of Muramatsu Sawmill & Co., has just spent several million dollars modernizing and automating his mill, located in the middle of town, so he can produce more lumber in the small amount of expensive land he has available.

How is it possible for him to compete when he is paying so much for logs? He doesn’t. “We are all losing money,” Muramatsu says. “Raw log prices are high, and finished lumber prices are low.” So why stay open? “Our employment system is different. We have to keep the factories running,” he says, stressing the importance of maintaining milling capabilities for the long term.

Muramatsu’s woes are made worse by the thousands of inefficient, family-run mills that continue to operate with the aid of billions of dollars in Japanese government subsidies.

Forestry officials in Japan have long argued that it is an environmental issue: If the sawmills go bankrupt, the officials have said, the forests would be “ravaged.”

Without a healthy sawmill sector, says Muramatsu, the landowners would not be able to sell their trees and would stop trimming and caring for their forests. Over time, the forests would return to their natural state with a variety of tree species rather than the neat rows of telephone-pole-straight cedars now produced.

“You can’t leave it to nature. The kind of trees that grow wouldn’t be the kind you can use for housing,” Muramatsu says. If that were to happen, he says, Japan would become even more dependent on foreign timber.

The match between the Pacific Northwest and Japan is perfect, he says, because the Pacific Northwest does not have a big enough domestic market for its raw logs while Japan needs the logs for its sawmills to process for domestic housing.

Muramatsu says longtime customers continue to buy his lumber rather than import cheaper, American-cut lumber because he says his is fresher and easier to work with and less likely to warp and split.

The United States is now restricting exports of raw logs from federal and state lands, but exports of logs from private lands continue. And producers of finished products are making little progress selling in the Japanese market.

“They have a government that promotes business, we have one that kills business,” says Manke, the lumber company owner in Washington.

Many economists still insist that free-market principles work best in the log trade as they do elsewhere. Bruce Lippke, director of the Center for International Trade and Forest Promotion at the University of Washington, notes that as soon as Washington temporarily banned the export of logs from state lands, the price the state was getting for its raw logs plunged.

The law, he says, subsidized American mills at the cost of American landowners. He estimates the extra money earned from exporting the logs generates more jobs than would be produced if the logs were locally milled.

Whatever the truth, the net result is that Japanese mills continue to invest in sophisticated new sawmills to keep the important portion of wood processing at home, while American mills are closing.

Says Manke, “It doesn’t make sense.”

Billion-Dollar Log Trade

Japan is by far the biggest importer of U.S. forest products, buying $2.82 billion worth every year. These charts show the U.S. lumber industry’s top customers and what types of wood products they buy. The figures are from 1990 in U.S. dollars

Total exports: $6.51 billion Logs--$2.39 billion--37% Lumber--$2.78 billion--43%* Wood chips--$412 million--6% Misc.--$926.3 million--14%** To Japan: $2.82 billion Logs--$1.62 billion--57% Lumber--$671.4 million--24% Wood chips--$375.7 million--13% Misc.--$157.6 million--6% To Britain: $244.4 million Logs--$3.1 million--1% Lumber--$191.2 million--78% Wood chips--$104,000--Less than 1% Misc.--$50 million--21% To France: $48.1 million Logs--$7.2 million--15% Lumber--$34.5 million--72% Wood chips--$9,000--Less than 1% Misc.--$6.4 million--13% To West Germany:*** $230.8 million Logs--$45.9 million--19% Lumber--$164.3 million--71% Wood chips--$5,000--Less than 1% Misc.--$23.6 million--10% To South Korea: total--$368.8 million Logs--$285 million--77% Lumber--$31.2 million--8% Wood chips--$6.4 million--2% Misc.--$46.1 million--13% * Lumber includes--lumber, flooring, siding, molding, veneer, plywood. ** Misc. includes--poles, piles and posts, railroad ties, particleboard, fiberboard and other products. ***Pre-unification SOURCE: U.S. Department of Agriculture