South-Central Timber Development, Inc. v. Wunnicke

PETITIONER:South-Central Timber Development, Inc.
RESPONDENT:Wunnicke
LOCATION:The D&B Corporation

DOCKET NO.: 82-1608
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 467 US 82 (1984)
ARGUED: Feb 29, 1984
DECIDED: May 22, 1984

ADVOCATES:
Ms. Kathryn A. Oberly – on behalf of the united states as amicus curiae
Kathryn A. Obery – on behalf of the United States as amicus curiae
LeRoy Eugene DeVeaux – on behalf of Petitioner
Ronald W. Lorensen – on behalf of Respondents

Facts of the case

Question

Audio Transcription for Oral Argument – February 29, 1984 in South-Central Timber Development, Inc. v. Wunnicke

Warren E. Burger:

We will hear arguments next in South-Central Timber Development against LeResche.

Mr. DeVeaux, you may proceed whenever you’re ready.

LeRoy Eugene DeVeaux:

Mr. Chief Justice and may it please the Court:

The issues in this case are basic commerce clause issues: Can a state, in selling natural resources to private parties, insist that those resources be processed before the resources can be shipped in interstate or foreign commerce?

Can Congress’ consent to such a restraint be implied from a U.S. Forest Service policy governing federally owned natural resources?

The facts of this case are clear and they are not in dispute.

In 1980 the State of Alaska noticed, sent out prospectuses and sample contracts offering to sell 49 million board-feet of mixed spruce and hemlock in Icy Bay, Alaska.

A special condition to the contract in this case stated that before the logs out of this sale could be shipped in interstate or foreign commerce they must be primarily processed.

The State reason for primary processing is to encourage in-state construction of lumber mills and to support existing lumber mills within the state.

South-Central, a bidder and a potential bidder in this case, cuts, sells, and ships logs in interstate and foreign commerce, particularly, in fact virtually all of them, in foreign commerce to Japan, and that is noted even in the state’s brief at page 34.

At the time of this sale, South-Central did not at that time have a functioning mill within the State of Alaska.

The first question that probably should be addressed is whether Congress has consented to state activity which would otherwise be a violation of the commerce clause.

The district court, United States Court of Appeals for the Ninth Circuit, and the State of Alaska in this Court have all conceded that Congress has not expressly consented to the primary manufacturing or primary processing requirement at issue in this case.

Instead, the Ninth Circuit created a novel doctrine of implied consent, saying in effect that federal consent can be implied from Forest Service policies governing only national forests.

With all due respect to the Ninth Circuit Court of Appeals, that is simply wrong and this Court has never so held.

The Solicitor General’s office in this argument… in its argument will deal primarily with the consent question and with the foreign commerce question.

Under traditional commerce clause analysis, this case would be easily dealt with.

We have a case of requiring in-state processing or in-state manufacturing before an item of commerce can be shipped out of the state.

Traditionally this Court has held that those kinds of regulations, those kinds of requirements, are virtually per se unconstitutional and a violation of the commerce clause.

But the state raised an issue, and has continually raised that issue until this very time, that it fits within a narrow exception, a doctrine called the market participation exception to commerce clause scrutiny.

We must first look at what this case is not.

It is not a case of a state manufacturing a good.

It is not a state just concerned with interstate commerce, but predominantly foreign commerce.

It is not a simple refusal to deal or to choose who one is to deal with.

It is not a case where the state has taken any great risk, used its own industry or foresight, or expended any great labor or entered into a complex process.

It is not a case of police power for health, welfare, the safety of its citizens.

It is not a case of a traditional governmental function or state sovereignty.

It is not a case of cleaning up roads or building public projects.

And it’s not a case where the state created any market.

The State of Alaska is simply not a market participant in any normal or theoretical sense of the word.

LeRoy Eugene DeVeaux:

Alaska argues in its brief that it’s simply a seller of timber, and you can find that in their brief at page 28.

Sandra Day O’Connor:

Well, that’s true, isn’t it?

Doesn’t Alaska own the timber we’re talking about?

LeRoy Eugene DeVeaux:

Yes, it does.

What it’s saying in effect by saying that is that it’s a simple seller of timber when it requires someone to process it downstream.

If they were a simple seller of timber, Your Honor, would they forego over 90 percent of the value of that timber in cash for some political or social function for the state that no seller of timber in the private marketplace would do?

Sandra Day O’Connor:

How much more could Alaska get for its timber sales if it didn’t have the in-state processing requirement?

LeRoy Eugene DeVeaux:

In the state’s brief, in its appendix, pages… I believe it’s page A-8… when later looking to sell the same timber the state forester, the state expert in this area, states in numbered paragraph 3:

“Increased Revenue. “

“The revenue to the state by not requiring primary manufacture will be substantially increased from $216,000 to $2,440,000. “

And as that sale has been completed, the state made a woefully small estimate.

In fact, it increased more than twice the amount that they estimated.

So we’re talking about something in the neighborhood between $4 million and $6 million.

Sandra Day O’Connor:

Could Alaska sell its timber without the requirement and turn around and use the extra money to somehow subsidize in-state processing?

LeRoy Eugene DeVeaux:

I think they somehow could do that.

Sandra Day O’Connor:

Well then, why can’t they do it this way?

LeRoy Eugene DeVeaux:

Because to encourage in-state processing rather than discouraging business from exporting logs in the round are entirely different matters.

This state has always looked… this Court has always looked with great scrutiny and care where states have required some kind of activity to be taken within the state.

But there is nothing to be said that a state can’t encourage industrial development, and using money to encourage it is one thing.

Building a barrier at the border is another.

I think those are entirely different matters.

Did that answer your question, Your Honor?

Time will tell.

[Laughter]

LeRoy Eugene DeVeaux:

I’m sure that’s true.

I hope it answers your question, I should say.

They are not in any sense of the word what a normal market participant would do.

No business would give away 90 percent of its value in its natural resource that it was selling for some social end.

In fact, Justice Powell noted in his dissent in Reeves that states are oftimes and will often look to different ends than a normal market participant would look at or a private enterprise.

Let me make the point more precisely, maybe.

LeRoy Eugene DeVeaux:

In a free market environment with this particular resource, logs, timber, if you will, logs are hauled from where they are cut down to a mill site, and they are put in at one end of the mill and they come out the other end of the mill as finished lumber.

All the lumber that can be made out of that log that the market needs at that time based on that particular piece of wood will be made.

Not so with what the state has done here.

They’ve created an artificial second milling.

In other words, instead of having a one-step process we have now a two-step process.

The logs now come into mill and are cut up into chunks of wood 8-3/4 inches thick, and then have to be shipped to another mill where the finished products are made.

I cannot see under those kinds of facts how the state can say they are simple market participants, particularly when you take and do this two-step tier that does not exist in the normal marketplace, that the value of the log is less when it comes out of the first tier than it was when it went in, and that I refer the Court to the Kenai Lumber briefs in the lower court which in fact say that is true, and they are an Intervenor on the side of the state.

That is why the price differential is so great.

The logs are worth so much less and so much more difficult to market after they have had this primary manufacturing.

All this is clear from a memorandum attached to the state’s brief.

Again referring to the state’s addendum or appendix to their brief, page 5, we’re discussing primary manufacture:

“Primary manufacturing policy limits the options of the logging industry in marketing their products on the world market. “

Further, on page 8 of that same gentleman’s memorandum to the state he says:

“Since the sale is appraised to be competitive, anyone in the private sector can bid on it. “

“This gives a much larger segment of the forest products industry an opportunity to bid on that sale. “

And then it follows in the very next paragraph, again refers to the rate differential in plus.

Sandra Day O’Connor:

Mr. DeVeaux, what percentage of the timber lands in Alaska are state-owned as opposed to federal or privately owned?

LeRoy Eugene DeVeaux:

The federal Government owns the majority, and I believe 20 percent is owned by the state, and some of those are in the interior, which at some time in the future… those are primarily white spruce forests… will be of great value.

75 percent I believe is owned by the Federal Government and then a very small percentage is in private hands, principally the natives and some small holdings.

How can the state, when its own forester, their own expert, puts forth such evidence, state that this is a market participant, that they are merely a seller of timber?

What this case really is is a case of downstream economic control of a milling business.

Byron R. White:

The state could mill it itself, couldn’t it?

LeRoy Eugene DeVeaux:

Yes, it could, Your Honor.

In fact–

Byron R. White:

If it had–

LeRoy Eugene DeVeaux:

–If it had a functioning mill.

Byron R. White:

–Yes, a functioning mill.

And you say that it would have to operate it itself; it couldn’t lease it out?

LeRoy Eugene DeVeaux:

Yes, that’s… I don’t know that it couldn’t lease it out.

Byron R. White:

Well, it could lease it out.

Byron R. White:

But then could it require that all the logs be run through that mill before they enter interstate commerce?

LeRoy Eugene DeVeaux:

No, Your Honor, I don’t think they could.

What they could do is make an incentive so that someone in the private sector would find it both efficient and expedient or economically feasible to do it.

Byron R. White:

Well, their rental, their lease, their rental under the lease, let’s assume, was a percentage rental of everything that was sold, and then it says everything, all the logs, are going to have to go through that mill.

You still say that would be downstream control?

LeRoy Eugene DeVeaux:

It’s not our case, but in attempting to answer the Justice’s question–

Byron R. White:

And that’s frequently the case in these questions.

[Laughter]

LeRoy Eugene DeVeaux:

–Yes, Your Honor.

I suppose that is a much closer question than the one we have.

I don’t believe this is at all a close question.

This is more, the case we have is more akin to what happened in Foster-Fountain Packing Company, where the state of Louisiana–

Byron R. White:

I suppose your fundamental argument is that this kind of an arrangement that you actually have in this case just insulates the local processor from any kind of competition anywhere else?

LeRoy Eugene DeVeaux:

–Yes, it does, and it forces the timber company who purchases those logs to deal with a competitor, if you will, and to ship those logs to a competitor if he buys them, or not to buy at all, or to expend great funds to build a mill within the state when it could be more efficiently done wherever the logs are going, the lumber is going to be used for its ultimate purpose.

And I think that’s the basic problem with this case, is that it forces something to be done that could be more efficiently done somewhere else.

Byron R. White:

Well, do you suppose the state could say, none of the logs that we own and sell to anybody will ever be used outside the state of Alaska?

LeRoy Eugene DeVeaux:

I think that’s very similar to the cases involving natural gas, which are very early cases in this century, principally the Kansas Natural Gas case and also the case of Pennsylvania versus West Virginia.

Byron R. White:

We’re talking about state-owned logs.

LeRoy Eugene DeVeaux:

Yes, but this Court has always said something’s different about natural resources, and there’s been a continual comment that something is different–

Byron R. White:

Well, what about natural resources?

What about the cement case, the South Dakota?

LeRoy Eugene DeVeaux:

–The Reeves case poses a question on that, but even in the Reeves case both the majority and the minority agreed about one thing: that somehow natural resources were different and they had to be treated different, because they go to the very basis for the commerce clause itself.

Byron R. White:

Well, there the state made the cement, though, didn’t it?

LeRoy Eugene DeVeaux:

Yes, it did.

If the state made the lumber here I think they could sell it to whomever they wish.

Sandra Day O’Connor:

Well, the timber is a renewable resource and I would hope Alaska’s in the business of replanting and growing its timber.

LeRoy Eugene DeVeaux:

Well, I hope so.

Sandra Day O’Connor:

I don’t see that that’s like natural gas, which you can’t reproduce.

LeRoy Eugene DeVeaux:

But still, natural resources are by happenstance within the state.

Even if they’re timber, they’re only there because that was the luck of the draw.

Warren E. Burger:

What about fish?

LeRoy Eugene DeVeaux:

Sometimes those can be non-renewable if you overfish them.

Put they again are the same thing, and this Court has said in Hughes versus Oklahoma that that’s hanging on an awful slender reed when we say that the fish are owned.

They’re owned by who catches them, and I think the Court is correct.

And I would like to reserve whatever little time I have left for rebuttal.

Thank you, if there are no further questions.

Warren E. Burger:

Ms. Oberly.

Ms. Kathryn A. Oberly:

Mr. Chief Justice and may it please the Court:

The primary federal interest in this case is in the implicit approval theory that the Court of Appeals invented out of whole cloth as far as we’re concerned to validate Alaska’s otherwise clearly impermissible burden on interstate and foreign commerce–

Sandra Day O’Connor:

If the Court were to resolve this case on the market participation theory, then the Federal Government takes no position on that?

Ms. Kathryn A. Oberly:

–No, that’s not correct, Your Honor.

We briefed all of the issues in this case, including the market participant doctrine, and support South-Central’s position on that issue.

But since the Court of Appeals did not decide that issue, our primary interest is in the validity of the implicit approval doctrine.

But we are in agreement with South-Central on this case not falling within the market participant doctrine.

On the implicit approval theory, we think that the reasons for requiring a rule of express Congressional consent are fairly obvious and they’re well demonstrated by this case.

Without such a rule, the courts are left to guess from a welter of federal enactments what Congress had in mind on a subject that it hasn’t spoken about.

Here the Court of Appeals looked to federal policy relating to federal timber on national forest lands, recognizing, as the state itself recognizes, that there is no Congressional policy for state timber on state-owned lands.

The Court of Appeals looked at the federal policy for federal logs and concluded it was sufficiently similar to the state policy that that was implicitly a validation of the state policies.

But what the Court of Appeals didn’t do and what its implicit approval theory would necessarily require is that a court comb through the entire U.S. Code and probably all U.S. treaties as well to find out whether there are other federal policies that are or are not consistent with the state policy that a state is attempting to uphold in the absence of express Congressional consent.

John Paul Stevens:

Ms. Oberly, why can’t we rely on counsel to do that combing for us?

I assume they’ll find it.

Ms. Kathryn A. Oberly:

No one found it in this case, Your Honor, for one thing.

And more importantly, I don’t think that it’s the Court’s role, when it’s Congress’ job to speak to national commerce.

I mean, there’s basically nothing more important on Congress’ agenda.

John Paul Stevens:

No, but conceptually is there anything different about an implicit approval theory and an implied cause of action theory?

It’s the same sort of analysis, isn’t it?

Sometimes Congress isn’t as articulate as we wish they would be, but if we thought they really intended to approve this sort of thing we still shouldn’t agree with them?

Ms. Kathryn A. Oberly:

There are many cases where the Court has to figure out what Congress had in mind when it hasn’t spoken as clearly as it might have.

But in the area of sanctioning what would otherwise be clear burdens on interstate commerce, this Court has consistently required Congress to speak clearly and to speak expressly, and it’s done so for a number of reasons.

Byron R. White:

Clearly and expressly don’t really mean the same thing, do they?

Ms. Kathryn A. Oberly:

I meant them to mean the same thing, Your Honor.

It’s required express language from Congress twice–

Byron R. White:

Well, if it’s implicit enough or clear enough you call it express.

Ms. Kathryn A. Oberly:

–Twice last term, Your Honor, the Court actually required express Congressional consent.

That was not the first time.

This doctrine goes back at least as far as this Court’s decision in H.P. Hood & Sons versus DuMond, in which the same… similar implicit approval theory was advanced and the Court rejected it, saying the fact that the state policy may be harmonious with federal policy is not sufficient.

If Congress wants to authorize a state burden on commerce, it has the power to do so by passing legislation, and that’s the way it has to act.

Byron R. White:

Would you say it’s express if Congress said that a requirement that logs owned by a state be processed before they’re shipped out of the state shall not be considered to be a burden on commerce?

Ms. Kathryn A. Oberly:

That would clearly be express.

Byron R. White:

Well, that’s not an approval of a burden.

Ms. Kathryn A. Oberly:

It’s express sanction for the state to do–

Byron R. White:

No, it’s not.

It’s not an express approval of a burden.

It just says it isn’t a burden.

Ms. Kathryn A. Oberly:

–That’s correct.

But without that Congressional enactment–

Byron R. White:

Well, what if the Court says it’s a burden?

Ms. Kathryn A. Oberly:

–When Congress has spoken, it’s Congress’ judgment as to whether it wishes to permit that burden under the commerce clause.

Here the problem is that Congress has not spoken about Alaska’s policy.

It’s only spoken about federal policy, and we’re left to infer from what, what would Congress think about this state policy.

The principal problem that we have with the Court of Appeals’ decision is that it’s ignored significant other federal policies that Congress has passed and talked about in statutes, particularly the export control laws.

It’s quite clear that Alaska’s primary manufacture requirement is a violation of Congress’ express statutory policy against imposing export restraints on U.S. products.

Sandra Day O’Connor:

Why does the Federal Government impose the restraint, the very restraint you’re talking about, on timber exported from Alaska?

Ms. Kathryn A. Oberly:

The federal policy began in 1928, when the United States ran Alaska as a territory, and essentially its origins are for the same reasons that Alaska now wants to have the same requirement.

Sandra Day O’Connor:

Well, was it to encourage the local industry or to see to it that the Federal Government had local processing for its own needs?

What was it?

Ms. Kathryn A. Oberly:

In 1928 it was both, because in our capacity… in the United States’ capacity as running Alaska as a territory, it had a legitimate concern in encouraging local employment, as well as providing sufficient timber processing capacity for federal timber.

Sandra Day O’Connor:

And what is it now?

Ms. Kathryn A. Oberly:

Today the policy applies to all of the states west of the hundredth meridian, including Alaska, although in Alaska it’s by regulation and in the other lower 48 states it’s by statute.

And today the policy is basically to ensure jobs for Americans, but it’s on a national collective basis that Congress has made that decision, rather than on a single state protectionist basis.

Ms. Kathryn A. Oberly:

And this Court has repeatedly invalidated single state protectionist legislation when a state has attempted to do it.

There’s no reason to assume that Congress would approve of the same thing, the same action by a state.

When Congress makes that judgment, it’s taking the entire national welfare into account, as is properly its function under the commerce clause.

When a state makes that judgment, it’s only considering its own parochial interests, and Congress may or may not find those compatible with the national welfare.

That’s why we think it is quite important that there be express Congressional sanction for something that would otherwise clearly be a burden.

There may be some inconsistency here, in that the Federal Government is doing something that on its face appears harmonious with what Alaska’s doing.

But at least it’s a decision at the federal level by the representatives of the entire nation that that’s the policy they want.

In Alaska’s case of Alaska’s regulation, it’s a decision by one state to oust from competition residents or corporations attempting to compete within Alaska who are not represented in Alaska, and it has its principal effect here, which makes it even more serious in our view, on foreign commerce since 90 percent of Alaska’s timber is exported to Japan.

The subject of log export restraints is a constant subject of negotiation between the United States and Japan, between the U.S. Trade Representative and Japan, and something those two countries discuss on a government to government level.

It’s not something that the United States Trade Representative’s negotiations are helped by having states add.

Even if their voices are harmonious, they’re still a second voice rather than the Federal Government speaking with one voice, as this Court has clearly said must be the case in matters affecting foreign affairs.

So that if Congress chooses, knowing all the things it’s weighing in the balance, to have both a policy of in-state processing for federal timber and to be against export restraints, it does so with full awareness of the needs of the entire country.

When Alaska makes that decision, it’s just simply not the part of our federal union that the Constitution has entrusted that decisionmaking process to.

I might also add that two important points in our view are that, in response to the district court decision in this very case, Congress has been asked by the western states to pass legislation that would specifically authorize exactly what Alaska now does.

It has not passed that legislation.

To take from… this is not simply a case of Congressional silence.

It’s a case where Congress is fully aware of the issue and yet it hasn’t acted.

William H. Rehnquist:

And still remains silent.

Ms. Kathryn A. Oberly:

And still remains silent.

Under those circumstances, it we think exceeds the judicial function for the courts–

Knowingly silent.

Ms. Kathryn A. Oberly:

–It’s knowingly silent, that’s correct.

–for the courts to assume that even though Congress knows about the issue but hasn’t spoken, Congress would be pleased or at least not dissatisfied with what Alaska has decided to do.

My time has expired.

Thank you.

Warren E. Burger:

Mr. Lorensen.

Ronald W. Lorensen:

Thank you, Mr. Chief Justice, and may it please the Court:

I want to stress a few facts for the Court and then outline briefly the three legal points which I will be urging upon the Court today.

The requirement of primary manufacture on public lands in Alaska has been in existence for over 50 years.

It was adopted at a time when the State of Alaska was not a state; it was a federal territory.

Ronald W. Lorensen:

But the purpose at that time was to encourage the development of a timber processing industry in the remote coastal regions of Alaska.

That policy for primary manufacture in the national forests in Alaska continues today under regulations of the Forest Service which have the explicit purpose of keeping and assuring that there is a continued existence of a forest processing industry in Alaska.

The effect of the federal policy has been at least twofold.

First of all, it has provided an economic basis for the development of communities in rural southeast Alaska; and secondly, coupled with the primary manufacture requirement imposed on other federal timber exports in the Pacific Northwest, it has had the effect of creating a market for processed timber with a number of Pacific Rim nations for both pulp and for cants.

Since statehood, Alaska has itself enunciated a primary manufacture requirement for sales from state land.

The purpose of the state requirement is identical to that of the federal requirement.

It is to keep the timber industry in the remote areas of coastal Alaska in operation and to keep the communities which depend on them both socially and economically in existence.

The three points which I will cover today are: First of all, that we do believe the Ninth Circuit was correct when it found… impliedly found Congressional consent to the state’s primary manufacture requirement.

Secondly–

Byron R. White:

Do you think that kind of… that consent which you say Congress gave would cover an Alaska statute that related not only to state-owned timber, but to privately owned timber?

Ronald W. Lorensen:

–No, Your Honor, I certainly would not take that position.

It simply applies to public timber in this case, state as well as federal timber.

Byron R. White:

You think that’s the limit of the consent?

Ronald W. Lorensen:

I think so, yes.

Byron R. White:

And that if Alaska attempted to require that privately owned timber be processed before it was exported, you think that would be a burden on commerce that would be illegal?

Ronald W. Lorensen:

There would certainly be an argument that there is a burden.

Whether it would be illegal or not, obviously we would argue in a different case.

I think under the various natural gas cases that have been decided that, unless Alaska could show some independent policy power or safety justification for the requirement, that it probably would not be.

Even if there has not been Congressional consent to the state’s requirement here, we believe that the state is in fact a market participant and is therefore not subject to the commerce clause.

And thirdly, even if ultimately it is determined that the state is not a market participant, but is subject to the commerce clause, we believe that the primary manufacture requirement imposed by the State of Alaska satisfies traditional commerce clause analysis.

Byron R. White:

When does… how does Alaska sell its timber, do you know?

Ronald W. Lorensen:

At a request for bids.

Byron R. White:

And they take the highest bidder, and when does title pass, or when is the sale complete, do you know?

Ronald W. Lorensen:

Well, the sale and title are two different… the sale is complete at the time the contract is signed.

Byron R. White:

Well, I’ll take the answer to both of them.

Ronald W. Lorensen:

The sale is complete at the time the contract is signed.

Title is passed at the time that the logs are cut and–

Byron R. White:

When is payment made?

Ronald W. Lorensen:

–Payment is made after they are cut and cleaned and I believe removed.

Byron R. White:

But the buyer, then, who then has the timber, who’s cut the timber and owns the timber, then can’t do anything with them unless he processes them first?

Byron R. White:

Well, if he wants to ship them out of the state he has to have them processed first.

Ronald W. Lorensen:

That’s correct, Your Honor.

That is a term of the contract.

The Petitioners and both the Solicitor General have argued with respect to this question of implied consent that this Court has required in a number of cases that this consent must be express and clear, and they have cited cases for that proposition.

But the real inquiry that this Court has applied in the past, and we believe is the inquiry which should continue to be applied, is whether or not… well, the question is really what did Congress have in mind, what was its intent in a particular area.

And we think that, therefore, the issue is not whether Congress properly expressed its intent, but really the underlying question is in fact what its intent was.

For instance, I can give the Court a couple of examples where Congress has not itself spoken clearly, but yet where this Court has approved what would otherwise be considered a burden on interstate commerce.

Last year in this Court’s decision in the White case, the Court approved the City of Boston’s requirement for local employment when it was challenged with respect to the use of federal funds on the grounds that there was a federal regulation adopted by a federal agency which required that preference.

There was no express Congressional requirement or permission for the preference.

Similarly, in the case of Marion versus Hicarilla Apache Tribe, this Court found consent as the result of a scheme of federal checkpoints established by federal officials, and again not something that was established expressly by Congress.

The Ninth Circuit examined the record and the legislation and the legislative history and determined, upon taking them as a whole, that Congress was aware of the requirement of primary manufacture for public timber, that it had determined that such a policy was in the national interest, and that it intended that the State of Alaska as well as the Federal Government be able to impose primary manufacture in selling its timber.

Now, despite assertions by both the Petitioners and the Solicitor General to the contrary, there can be no doubt that Congress does and has expressly and clearly indicated its view that a primary manufacture requirement for national forest timber in Alaska is in both the nation’s and Alaska’s interests.

Although we have not referred to it as clearly as we might have in our brief, the clearest and most recent expression of Congressional concern regarding the local interests at stake in Alaska and the health of the timber industry is the Alaska National Interest Lands Conservation Act of 1980.

That can be found as Public Law 96-481, and we would refer the Court in particular to Sections 705 and 706.

Those sections call upon the United States Forest Service to monitor and report to Congress on an annual basis on the timber supply and demand that is available in southeast Alaska for the purpose of ensuring that there is an approximately 450 million board foot availability of public timber, national timber, which is available to dependent industry… and “dependent industry” is the language of the statute… in that area.

Funds are provided by Congress in Section 705 for that express purpose.

A further record of Congress’ concern and its purpose in adopting these provisions in the Alaska National Interest Lands Conservation Act can be found in House Report 96-97, Part 1 at page 504, and Senate Report 96-413 at page 399.

There both the House and Senate Committees respectively describe that maintaining the timber industry employment in southeast Alaska was

“an overriding consideration of both committees. “

Other specific references to the need for primary manufacture in southeast Alaska to provide jobs in the local Alaska economies can be found at pages 398 and 401 of the Senate report.

Byron R. White:

Mr. Attorney General, do you think that a lot of this timber that is sold by the state from its own forests would be exported without processing except for this law?

Ronald W. Lorensen:

I’m quite sure that would be the case, Your Honor, yes.

Byron R. White:

What kind of processing are you talking about?

Ronald W. Lorensen:

The processing… in most cases, we’re talking about either reducing the logs to pulp for processing as pulp or we are talking about reducing it into large slabs of wood, usually four-sided, which are referred to as cants and are usually somewhere in the area of 10 to 15 feet long.

Byron R. White:

And are those in turn used for pulp, making pump?

Ronald W. Lorensen:

No.

Those are then used in turn to process into smaller pieces of finished grade material.

Byron R. White:

And how… if timber would be exported without processing except for this law, how would it be exported?

Is it on ships?

Ronald W. Lorensen:

It would be exported on ships and most of it would likely go to Japan, that’s correct.

Byron R. White:

And even if it had been made into pulp?

Ronald W. Lorensen:

If it had been made into pulp… there are two pulp plants in southeast Alaska.

One is owned by the Japanese and most of that pulp goes to Japan.

The other is owned by an American company and most of that is distributed, both in the international and the national market.

Byron R. White:

So that to the extent that it’s made into pulp it would probably be processed in Alaska anyway.

Ronald W. Lorensen:

That’s correct.

Byron R. White:

Just because of the economics.

Ronald W. Lorensen:

That’s correct.

Your Honor, what’s really at issue here is the cant market, not the pulp market.

Byron R. White:

Right, right, right.

And that… you just don’t save that much money on freight or anything else by… on the difference between logs and cants?

I mean, there’s no economic incentive necessarily to process the logs into cants in Alaska.

Ronald W. Lorensen:

Your Honor, I don’t actually know what the facts are.

It’s been represented to me that it is more economical to ship cants than it is to ship round logs.

Byron R. White:

Well then, why would anybody ever want to ship logs?

It’s for packing purposes, isn’t it?

They can get more in a given space.

Ronald W. Lorensen:

Well, it’s the efficiency of the processing process itself, not the transportation.

Byron R. White:

Well, I know, but all you’re telling me is that even without this law it would be more efficient to process the logs into cants in Alaska than to ship logs.

Ronald W. Lorensen:

Well, to process them into cants, yes.

I had to take… you’re asking me to take the position of South-Central in terms of the–

Byron R. White:

No, no, I’m not.

I’m just wondering how much difference this law makes at all.

And I’m wondering why South-Western is so upset by it if it’s more efficient to make the logs into cants right there in Alaska.

Ronald W. Lorensen:

–Well, South-Central is upset because they don’t have a processing facility in the state and therefore would not have been able to bid on this contract.

Sandra Day O’Connor:

Alaska could get a lot more money, though, if it sold them without that requirement.

Ronald W. Lorensen:

On a purely financial return that is correct, yes.

Warren E. Burger:

Are any of them floated down on the inland waterway to Canadian destinations?

Ronald W. Lorensen:

I don’t believe any go to Canada, but I have–

Warren E. Burger:

You could float them down to Canada, couldn’t they, with tugs?

Ronald W. Lorensen:

–I understand that some are barged every now and then to the northwestern Washington area, but not to Canada.

I’m not sure that Canada would accept the import.

Lewis F. Powell, Jr.:

General, may I ask this question: What market is Alaska participating in?

Ronald W. Lorensen:

Well–

Lewis F. Powell, Jr.:

You say Alaska is a market participant.

What is it marketing?

Ronald W. Lorensen:

–There are various ways to describe the market.

Our position is that we are participating in the processed timber market.

Lewis F. Powell, Jr.:

Does Alaska process timber?

Do you have any pulp plants?

Ronald W. Lorensen:

Alaska does not own any manufacturing facilities, no, Your Honor.

Lewis F. Powell, Jr.:

Does it process the logs after they’re cut?

Ronald W. Lorensen:

No.

We own the good which is then processed.

We own and sell the good which is processed.

Lewis F. Powell, Jr.:

But you have no participation in the processing?

Ronald W. Lorensen:

At this time we do not.

Lewis F. Powell, Jr.:

You don’t have an interest in the logs when they’re processed.

Ronald W. Lorensen:

Under the terms of the contract as presently written, that’s correct.

We could always amend the contract or rewrite our contract to provide for title passing after the processing, I suspect.

Lewis F. Powell, Jr.:

How far down the line would the processing go?

Suppose the statute were enlarged to embrace the processing into furniture?

Would that be equally valid in your opinion?

Ronald W. Lorensen:

To the extent that we could enforce that requirement as a result of privity, I believe yes, it would be valid.

To the extent that that requirement could not be enforced within the terms of a contract… I think the real answer as a practical answer is that no one would bid on timber if they had to turn it into furniture in Alaska.

Lewis F. Powell, Jr.:

But in terms of theory, there’s no limit to your argument with respect to market participant, is there?

In other words, a statute would be valid if it said no timber product, in whatever form, could ever be exported; it would have to be manufactured into its final form within the state?

Ronald W. Lorensen:

Your Honor, I’m sure there would be some limit.

How far that limit goes beyond market contract privity, I’m not sure.

I think it would depend to a large extent on just how the transaction, the sale transaction, was constructed.

Ronald W. Lorensen:

I think there becomes a practical problem, which is it becomes impossible to construct a–

Warren E. Burger:

What if the limit was just debarking under water pressure?

Would that be a sufficient processing, do you think?

Ronald W. Lorensen:

–Not under the state’s processing requirements, Your Honor, no, it would not be.

Warren E. Burger:

No.

We’re talking about other than local requirements.

Suppose the state permitted them to be moved just with debarking.

Would that be all right?

Ronald W. Lorensen:

We certainly would take that position.

Yes, I believe it would be.

Warren E. Burger:

Well then, how far down to what Justice Powell was addressing, to the making of chairs and tables?

Ronald W. Lorensen:

Well, I think again the limit becomes one of how the transaction was structured.

If we had a transaction which was structured as a result of imposing direct contractual obligations on the purchaser which that purchaser himself had to aside by, I think that’s how far we could structure it.

If we create a situation where the purchaser ultimately becomes responsible for the conduct of others, I think that’s when we as a market participant lose, or begin to lose certainly, the basis for the argument that we are just another trader.

Byron R. White:

Do you think your argument is any different than an argument… maybe you’re making this argument… the state could just refuse to sell any logs except to Alaska processors?

Ronald W. Lorensen:

Certainly, Your Honor, we could refuse to sell logs at all, and I think we could certainly refuse to sell–

Byron R. White:

They just pick and choose their customers.

They don’t have any contract that says they have to be processed, but they just go out and sell their logs to Alaska processors.

Ronald W. Lorensen:

–I think we could do that as long as they’re our logs.

Again, as a practical matter we’d never sell any logs.

Byron R. White:

You just take bids from people who are Alaska processors.

Ronald W. Lorensen:

That’s correct.

Byron R. White:

And you don’t have any contract at all that requires it to be done, but you just sell to Alaska processors, that’s all.

Is that any… you certainly would say they could do that?

Ronald W. Lorensen:

I certainly would, depending on your definition of Alaska processor.

We’ve got a different problem, I think, if we’re talking about a resident Alaska processor as opposed to a company which is present in the state.

Byron R. White:

Well, I’m talking about somebody who has a processing establishment in the state.

Ronald W. Lorensen:

Yes, I think in that case we could do it.

Byron R. White:

Whether he’s an Alaska corporation or not.

Ronald W. Lorensen:

I think in that case we could do it.

Ronald W. Lorensen:

Alaska’s primary manufacture requirement parallels that of the Federal Government, both in its purpose and in its effect, and given the 50-year history of the federal requirement for primary manufacture in Alaska, that in 1980 Congress clearly intended and expected that primary manufacture on Forest Service land in Alaska promote local economic activity, coupled with the existence of Alaska’s own longstanding primary manufacture requirement, we believe that the Ninth Circuit fairly and properly inferred that Congress also intended, and perhaps Congress may also have expected, that the State of Alaska would be able to impose the same kind of primary manufacturing requirement.

The position of both the Petitioners and the Solicitor General with regard to explicit consent causes us to be a little bit concerned in that it creates what we think is a troubling asymmetry with traditional preemption analysis.

On the one hand it is argued with respect to commerce clause that in order for a power to be granted to a state it must be expressly stated.

On the other hand, when the question is whether or not a power is being withdrawn from a state, the traditional analysis which this Congress has applied is: first, is there express preemption; but secondly, can the Court reasonably imply preemption in a particular situation.

I’m not sure at all why the rule should be any different with respect to inference as to the particular action or intent of Congress when we are talking about granting a power as opposed to taking one away.

What is the danger of inquiring into Congressional intent in commerce clause cases?

We submit that there is none.

Unlike a number of other areas of constitutional jurisprudence, the Court’s put… the Court’s decision on the question of Congressional consent is not final.

If Congress disagrees with the Court’s decision and believes that the Court has misinterpreted its intent, Congress obviously can take steps to rectify the misinterpretation.

Even if the Court concludes that Congress has not consented to Alaska’s primary manufacture requirement, we believe that Alaska is a market participant and therefore exempt from commerce clause scrutiny.

We are as much traders in timbers as South Dakota was in cement in Reeves, as Maryland was in hulk cars in Alexandria Scrap, or as the City of Boston or the City of Camden are in public construction in either White or Camden.

The applicable inquiry as to whether or not the state is a market participant was stated by the Court last year in White, and that is whether or not Alaska’s primary manufacturing requirement covers a discrete, identifiable class of economic activity in which Alaska is a major participant.

Alaska satisfies that test.

As the owner of the timber which is sold subject to the primary manufacture requirement, Alaska is clearly a major participant in the transaction.

Additionally, the primary manufacture requirement is imposed, as I indicated earlier, by the terms of the contract on the sale itself, so that there is in fact in this relationship, with respect to this requirement, formal privity of contract.

As has already been brought out, because the state imposes this primary manufacture requirement the state does receive a lower price for its timber than it would receive if it permitted timber to be exported in the round.

The difference between those prices operates in effect as a subsidy by the state or a subsidy by the Federal Government, because the Federal Government takes the same reduced price for its timber as a result of its requirement, as a subsidy by the state in support of the continued existence of an Alaska timber processing industry and the communities which depend on it both economically and socially.

I think in an abstract sense we might characterize this subsidy as an alternate and presumably far better and more desirable form of federal and state welfare.

The Petitioner claims that we are not a market participant because we provide this subsidy, and therefore we cannot be treated as a private trader.

But the Petitioner we believe is misconstruing the thrust of the market participant inquiry.

The correct inquiry is whether we are acting like any private trader similarly situated could act, not whether we act with the same profit motives that the private trader does.

The Petitioner has made reference to findings of the state forester, but I would like to make clear the state forester does not have the job or the responsibility of making social policy in Alaska.

That the rule suggested by Petitioner is incorrect can be quickly seen by considering the activity of the involved governments in the other market participant cases which this Court has addressed.

In Alexandria Scrap, what private trader would pay more for a wreck than it’s worth?

In the Reeves case, what private trader would allocate scarce cement on any basis other than price?

And in the White case, what private trader would make a decision as to whom to hire on a construction project other than who was the most qualified for the job?

Both the Petitioner and the Solicitor General have suggested that there is something constitutionally significant about state-owned natural resources which requires denying a state market participant status when it is disposing of those resources.

John Paul Stevens:

General Lorensen, may I just ask this question on your market participant theory.

Is it not true that in each of those cases the purchaser, after he acquired whatever he was getting from the state as market participant, was free to do with the product whatever he wanted to?

Ronald W. Lorensen:

As a result of the nature of the transaction, I think that is correct, Your Honor, yes.

John Paul Stevens:

Are there any cases… are there any other market participant cases in which the purchaser is not free, having bought it from the state, to do anything he wants?

In other words, isn’t there a distinction between this case and a case in which you just decided to sell to people who had lumber mills or whatever you call the facilities in Alaska?

Ronald W. Lorensen:

There may be a distinction, but I don’t think it’s important.

I don’t think it rises to legal levels.

Certainly, if you look at the White case, the requirement there was imposed on the building contractor, but the requirement was that he agree to hire certain people.

Here what we are doing is imposing a requirement on a timber cutter that he agree to cut the logs in the state.

In other words, we are imposing, just as in White, we are imposing this.

You might refer to it as a second tier requirement, but it is still within the privity of the contract itself.

It is a contractual term required.

John Paul Stevens:

White, the city is the purchaser.

Here the sovereign is the seller.

Ronald W. Lorensen:

That’s correct, but I’m not sure–

John Paul Stevens:

And after the city acquires the building or whatever’s being built, that’s the end of the transaction.

Ronald W. Lorensen:

–That’s certainly correct.

Byron R. White:

Nobody can comply with your requirement who doesn’t have a processing plant there, can he?

Ronald W. Lorensen:

That’s not correct, Your Honor, because that function could certainly be subcontracted out to an existing processor.

Byron R. White:

So you really are doing more than just refusing to sell to anybody except with a processing plant.

You are saying, even if we sell to somebody without a processing plant, he has to get it processed in Alaska.

Ronald W. Lorensen:

We put potential purchasers on notice at the time of the sale–

Byron R. White:

So you are doing more than just choosing people.

You’re choosing… you’re doing more than just choosing customers who have processing plants.

Ronald W. Lorensen:

–We don’t choose the customer at all.

We indicate the terms upon which we are willing to sell our timber.

Byron R. White:

So you are doing much more.

Ronald W. Lorensen:

The distinction which has been proposed between manufactured goods and natural resources is illogical, we believe, and analytically unsound.

No matter what the nature of the good, they are still state-owned items.

The logical end, as some of the questioning has indicated, of proposing that the market participant doctrine only be applied to states who are involved in manufacturing goods is to require the State of Alaska to develop its own business bureaucracy as a government agency to cut the trees and then process them before it is willing to sell them.

If the state can accomplish that result indirectly, why should the state not be able… if the state can accomplish that result by doing it directly and getting itself in the business of cutting timber, why can the state not accomplish the same result indirectly?

By insisting that the state become a processor, a government-owned processor, in effect we will end up competing with the private sector and potentially putting some of those processors out of business, and the only true result we’ve obtained is to enlarge the size of government.

The proposed distinction between manufactured goods and natural resources for commerce clause market participant analysis is deeply flawed and we urge the Court not to adopt it.

Ronald W. Lorensen:

What about the foreign commerce issue that has been raised?

First of all, I would like to make clear that the assertions of the Petitioner and the Solicitor General that our primary manufacturing requirement is an export ban simply misconstrues the facts.

If we actually banned the export of timber from the State of Alaska, we would not be able to sell it.

There simply is an inadequate market for the timber within the state.

All interested parties understand when a sale is proposed that Alaska’s timber will be exported from the state when it is sold.

We only require that before it is exported it receive primary processing within the state.

This is no more a ban on the export of timber than were the price control programs for raisins, milk, or natural gas a ban on the export of those items on sellers who might have been willing to sell them at a lower price and export them from their states in the cases of Parker versus Brown, Milk Control Board versus Eisenberg at 306 U.S., and Cities Services Gas versus Peerless at 340 U.S.–

On the foreign commerce question itself, our position is that as a market participant the state’s actions are not subject to the commerce clause, whether that commerce is foreign or interstate.

The state’s status in foreign commerce is like that of any other private trader, and therefore it is subject to the same restrictions that are imposed by the Federal Government upon any other private trader who embarks on foreign commerce.

If, nonetheless, the Court feels that the state must comply with the one-voice doctrine under the finding affairs powers of Congress, we believe that the record is more than adequate to demonstrate that we are speaking with one voice with the Federal Government.

Container Corp. makes that clear, Container Corp. which this Court decided last term, makes it clear that the inquiry with respect to one voice is whether or not the challenged action has merely a foreign resonance or does it have foreign policy implications.

Neither the Petitioner nor the Solicitor General have addressed the Container Corp. standard.

We think it is clear from the record that at most what Alaska does in requiring primary manufacture before export is to create some foreign resonance, a resonance, by the way, which is totally in harmony with the same resonance which is created as a result of the federal primary manufacture requirement on timberlands would could very well be directly adjacent to state lands.

Given that situation that the Federal Government has in effect created the processed timber market, that the Federal Government supplies timber in cant form in the foreign commerce market every day, we find it incredulous to believe that the Solicitor General would suggest that the State of Alaska is not speaking with the same voice that the Federal Government is speaking in this regard.

Finally, Your Honor, we wish to offer that if the Court determines that we are not a market participant, that Congress has not consented to our primary manufacture requirement, that nonetheless under the facts here the state’s primary manufacture requirement satisfies traditional commerce clause analysis under the Pike versus Bruce Church case.

The requirement applies evenhandedly, it applies to all purchasers regardless of their origin, be they Californian or Alaskan, be they Korean or Japanese, and it applies to interstate as well as foreign commerce.

But more importantly, it effectuates an important local interest, that is of sustaining the existence of a local timber industry and sustaining the underlying economic base and social base which depends so heavily upon that timber industry in rural Alaska.

This is not economic protectionism, as it is so pejoratively referred to by both the Solicitor General and the Petitioner.

Thank you.

Warren E. Burger:

Do you have anything further?

You have three minutes remaining here.

LeRoy Eugene DeVeaux:

I hope not to even use them, Your Honor.

Byron R. White:

What about the legality of Alaska just choosing to sell its timber only to processing plants that are located in Alaska?

LeRoy Eugene DeVeaux:

Well, Your Honor, I think that we come back to the same thing.

That’s in fact what they’re doing.

Either you sell it to someone who is required to use an in-state processing plant or–

Byron R. White:

Well, that’s something more.

If they just sold to… if they just absolutely refuse to sell any timber except to a processing plant customer, couldn’t the state do that?

LeRoy Eugene DeVeaux:

–You’re saying a simple refusal to deal kind of situation?

Byron R. White:

Yes, yes.

LeRoy Eugene DeVeaux:

The Court has–

Byron R. White:

That isn’t what they’re doing.

They’re doing more than that.

LeRoy Eugene DeVeaux:

–That’s right.

Byron R. White:

They’re saying, even if we accept a bid… whoever we accept a bid from, we require them to get the processing done in Alaska.

LeRoy Eugene DeVeaux:

Right.

I think in that case the Court would have to look behind at their motives, and I think we’re dealing with a natural resources, and that would be the same if… in fact, I believe that footnote 31 of our reply brief addresses that kind of question from a different point of view.

What if it was something other than timber?

The state has every intention, it would seem from the regulations, to require this over other natural resources.

In fact, in royalty oil and gas or gas liquids, we have the same requirement.

They’ve just changed the name from timber to oil and gas.

Now, that would be the same kind of thing to require to sell those natural resources only to an in-state processor.

And the question I have there is something from Reeves, is that when a person buys it could he then not process it at his processing plant, his timber facility if he had it, and ship it away?

Byron R. White:

Well, if the state took that risk, but nevertheless just chose to sell to people who have processing plants in Alaska, you wouldn’t find much of a problem with that, would you?

LeRoy Eugene DeVeaux:

No, I think that’s a very much closer question and certainly would be more difficult to deal with.

You would have to look behind that.

John Paul Stevens:

That’s the same distinction we make in the vertical price-fixing cases under the antitrust laws, the Colgate case on the one hand and Dr. Miles on the other, isn’t it?

One time you tie them up contractually to resell at a fixed price, another one you just say I won’t sell to you next time.

LeRoy Eugene DeVeaux:

Yes, that is like the–

John Paul Stevens:

That’s certainly a distinction that’s–

LeRoy Eugene DeVeaux:

–The place for commerce and the antitrust laws to get together is not to stop competition, is to allow competition, and I think the refusal to deal is a much more difficult question to deal with.

There is something… one of the questions asked by the Court is round log shipping.

You cannot ship blocks of wood, you cannot float them.

Once you’ve decided to primary manufacture them, they must be dry-handled all the time, and they become very difficult to deal with.

You can get them into the ship, but you can’t put any on the decks because they’ll get wet, and logs that have been primarily manufactured are no longer safe.

And my time is up.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.