Assessment of Quotas, Tariffs and Taxes on the U.S. - Canada

Softwood Lumber Dispute

Patrick ShannonMarch 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 1996 - 2001

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