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Assessment of Quotas, Tariffs and Taxes on the U.S. - Canada
Softwood Lumber Dispute
Patrick ShannonMarch 10, 2008
ECON 543
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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
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Types of Dispute Mechanisms
Tariff on all Canadian imports to U.S.
Quota-regulated tariff on all Canadian imports (including tax)
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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
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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
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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
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Data Source
Historical government and industry data
Elasticities are based on econometric estimates derived from historical data
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Supply and Demand Projections
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Market Impacts
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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
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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
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Results
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Global Trade Impacts
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Welfare Impacts: Producer Surplus
U.S. = $1.92 billion
South America = $450 million
All other countries negative
Canada = -$932 million
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Welfare Impacts: Consumer Surplus
U.S. = -$2.90 billion
South America = -$366 million
European Union = $870 million
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World Welfare
Total producer and consumer surpluses are negative
27.2% tariff results in -$860 million
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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
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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.
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Welfare Impacts 1996 - 2001
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Welfare Impacts – U.S.
Producers gain = $7.74 billion
Consumers loose = -$12.5 billion
Net U.S. loss = -$4.7 billion
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Welfare Impacts – Canada
Producers gain = $2.86 billion
Treasury gain = $226 million
Net gain = $3.09 billion
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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