Assessment of Quotas, Tariffs and Taxes on the U.S. - Canada Softwood Lumber Dispute Patrick Shannon March 10, 2008 ECON 543

Background U.S.– Canada softwood lumber tariffs since 1840 U.S. claims that the Canadian lumber industry is unfairly subsidized by the federal and provincial governments Stumpage fee is set administratively rather than through a competitive auction

Types of Dispute Mechanisms Tariff on all Canadian imports to U.S. Quota-regulated tariff on all Canadian imports (including tax)

Tariff on Imports Different percentage tariffs in the past 2002, U.S. imposed a 27.2% tariff on all Canadian imports of softwood lumber Based on a countervailing and antidumping duty

Projected Economic Impacts Title: “Market and Resource Impacts of a Canadian Lumber Tariff” Author: Darius M. Adams Journal: Journal of Forestry. 2003, 101: 48-52

Analysis Method Spatial model to calculate projections of production, consumption, prices and trade between the U.S. and Canada Accounts for elasticity and price sensitivity of the markets Compares projections without and with a tariff

Data Source Historical government and industry data Elasticities are based on econometric estimates derived from historical data

Supply and Demand Projections

Market Impacts

Global Impact of the Tariff Title: “A Spatial Equilibrium Analysis of U.S.-Canadian Disputes on the World Softwood Lumber Market” Author: Stephen Devadoss et al. Journal: Canadian Journal of Agricultural Economics. 2005

Analysis Spatial equilibrium model to estimate supply and demand functions Impacts of the tariff on global prices, demand, supply, total trade volume and bilateral trade flows Welfare analysis

Results

Global Trade Impacts

Welfare Impacts: Producer Surplus U.S. = $1.92 billion South America = $450 million All other countries negative Canada = -$932 million

Welfare Impacts: Consumer Surplus U.S. = -$2.90 billion South America = -$366 million European Union = $870 million

World Welfare Total producer and consumer surpluses are negative 27.2% tariff results in -$860 million

Quota-Regulated Tariff (Export tax) 1996 Softwood Lumber Agreement Quota of 14.7 billion board feet Exports up to 650 million board feet more assessed a fee of $50 per 1,000 board feet (mbf) Exports exceeding that tier would be assessed $10 per mbf thereafter

Economic Analysis Author: Daowei Zhang Title: “Welfare impacts of the 1996 United States–Canada softwood lumber (trade) agreement” Journal: Canadian Journal of Forestry, 31: 1958–1967.

Welfare Impacts

Welfare Impacts – U.S. Producers gain = $7.74 billion Consumers loose = -$12.5 billion Net U.S. loss = -$4.7 billion

Welfare Impacts – Canada Producers gain = $2.86 billion Treasury gain = $226 million Net gain = $3.09 billion

Conclusions Ongoing trade dispute, solutions hard to find Quota-regulated tariff benefited Canada and U.S. producers Global lumber trade World Trade Organization to decide