Softwood Lumber Agreement Research Articles

Province specific impacts of the 2006 United States-Canada Softwood Lumber Agreement: A seemingly unrelated regression approach

In this paper, we evaluate effects of the 2006 U.S.-Canada Softwood Lumber Agreement (SLA 2006) in U.S. lumber imports from Canadian provinces. Based on monthly data from January 1988 to October 2015, we estimate a system of U.S. softwood lumber import equations by using Seemingly Unrelated Regression approach. The results reveal that SLA 2006 had a negative impact on softwood lumber shipments to the U.S. from British Columbia, Ontario, Quebec, and Saskatchewan, and no effect on those from SLA-exempted provinces. Thus, SLA 2006 did not provide an opportunity for trade diversion from SLA covered provinces to exempted provinces.

The softwood lumber dispute: Is a solution possible?

Canadian exports of softwood lumber to the USA have long been a source of conflict. As the last Softwood Lumber Agreement expired, we examined this issue as a University class project in forest policy. This text presents our analysis of the history of this conflict and the positions of various actors, along with our twenty-year plan for resolving this conflict. Our strategy is in three phases, corresponding to our expectations of future events: five years of conflict and negotiation that we should use to prepare certain changes in our forest sector; ten years under a new agreement during which we can implement these changes; followed by another conflict that we hope Canada will win, resulting in lumber becoming just another traded commodity. Our policy has four key elements: a gradual transition to market-price systems for 55% of public forest lumber volume; an expansion of value-added transformation and diversification of products; a reduction of softwood lumber production; and, a coordination role for the Canadian Council of Forest Ministers. We do not believe that our proposition is perfect, but we consider that it offers an option for breaking out of the box that characterises this conflict.

Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach

In this paper, a spatial price equilibrium model developed to shed new light on the economic impact of restrictive trade sanctions adopted in the Canada-U.S. softwood lumber dispute. Mixed complementarity programming is used to solve a 21-region, global trade model that is calibrated to 2011 observed bilateral trade flows using positive mathematical programming. In addition, the model employs a mechanism for analyzing the effects of the tariff rate quota used in the 2006 Softwood Lumber Agreement (SLA). It is estimated that the SLA created an annual deadweight loss of $28 million, paid by U.S. consumers. The quota constrained Alberta lumber producers while BC producers had excess quota. The lack of a proper mechanism for capturing quota rent, such as a tradable quota scheme or quota auction resulted in the survival of high-cost firms, perhaps to the detriment of lower-cost firms in Alberta. In the absence of SLA, it is estimated that Alberta would supply an additional 9% of Canadian softwood lumber to the U.S., eroding the supply share of all other regions while improving aggregate welfare.

The United States-Canada softwood lumber trade: An actual versus optimal export tax

By developing a two-country two-stage game model, this study examines an optimal level of export tax under the framework of the 2006 United States (U.S.)-Canada Softwood Lumber Agreement (SLA 2006). The theoretical results suggest that marginal lumber production costs in Canada and U.S. lumber production capacity along with linear demand parameters determine an optimum rate of export tax on Canadian lumber exports to the U.S. The empirical estimation reveals that the monthly optimal export tax during the SLA 2006 period follows the actual export tax closely with a monthly rate ranging from −4% to 19%.

Welfare impacts of the 2006 United States – Canada Softwood Lumber Agreement

In this paper, we evaluate the market and welfare effects of the 2006 United States (U.S.) – Canada Softwood Lumber Agreement (SLA 2006) based on a U.S. import demand model for Canadian softwood lumber. We find that SLA 2006 reduces the U.S. lumber imports from Canada by 7.78% in the months when export taxes took effect. The welfare analysis based on a partial equilibrium framework shows that U.S. lumber producers gained $1.6 billion and U.S. consumers lost $2.3 billion in 9 years under SLA 2006.

US Imports for Canadian Softwood Lumber in the Context of Trade Dispute: A Cointegration Approach

In this paper, we examine US imports of softwood lumber from Canadian provinces that are covered under various trade restriction measures between the two countries, and from the rest of the world, including other Canadian provinces that are not subject to the trade restriction measures and other countries. Using the cointegration framework, we find that in the long run, housing/construction activity and the US domestic lumber prices have a positive impact, while imported Canadian lumber prices had a negative impact on the quantity of US lumber imports from the covered provinces. In the short run, the last two lumber trade restriction measures, high Countervailing Duty and Anti-dumping Duty from August 2001 to September 2006, and the latest Softwood Lumber Agreement of 2006 from October 2006 to March 2012 (the latest data available), reduced the US imports of softwood lumber from the covered provinces by −12.8% and −11.2%, respectively.

What Drives Daily Volatility in Lumber Futures Markets?

Abstract Most financial asset returns exhibit volatility persistence. This article investigates this phenomenon in the context of daily returns in lumber futures markets. The volatility of lumber futures is found to vary with different phases of the United States-Canada softwood lumber trade dispute. Daily price volatility was the highest in the post-Softwood Lumber Agreement period (2001–2005), followed by the Softwood Lumber Agreement period (1996–2000) and the period with trade disputes and temporary tariffs (1992–1995). An inverse relationship between inventory levels and volatility is found. Further, the inventory effect on volatility varies across the different periods of the trade dispute. An inverse relation between time to delivery and volatility is also found. Moreover, it is shown that although volatility persistence exists in the lumber futures market, the time gap between the arrival of news to the markets and the delivery time of futures contracts is the fundamental variable in explaining volatility persistence.

THE EFFECTS OF THE 1996 U.S.‐CANADA SOFTWOOD LUMBER AGREEMENT ON THE INDUSTRIAL USERS OF LUMBER: AN EVENT STUDY

In this article, we analyze whether the Softwood Lumber Agreement between the United States and Canada imposed significant economic costs on industries that use softwood lumber in the United States. To ascertain this impact, we use an event study. Our event study analyzes variations in the stock prices of lumber‐using firms listed at the major stock markets in the United States. We find that the news of events leading to the Softwood Lumber Agreement had significant negative impacts on the stock prices of industries using softwood lumber. The average reduction of stock prices for our sample of firms was approximately 5.42% over all the events considered. (JEL F13, F23)

Community resiliency: Contribution from the forest resources sector

Forest-dependent communities in British Columbia are facing a crisis brought about by uncertainty surrounding their future economic viability. For over 45 years, the provincial government has successfully applied the same forest sector model, but it has shown signs of faltering in the last 15 years due to changes involving policies, investors in forest companies, and constraints imposed through the Canada-US Softwood Lumber Agreement. The combination of these influences has resulted in serious deterioration of the connection between the forest companies and forest-dependent communities, thereby affecting the sustainability of these communities. The resiliency of forest-dependent communities (Aboriginal and non-Aboriginal) is critical in this province and depends on a holistic application of environmental, health and wellness, economic, and human capital within the community to create wealth and productivity. The evolving forest sector must contribute to achieving this goal. As a community struggles with an uncertain future and tough economic times, it requires deployment of its resources in an efficient and effective manner. This is best realized through a strategic approach that begins with identifying a vision and goals for community resiliency. Once this groundwork is established, a strategic plan will help to focus available resources on appropriate actions to achieve resiliency.

USTR Pushes for Successful Conclusion of Doha Round; U.S., Canada Forge Softwood Lumber Agreement

USTR Pushes for Successful Conclusion of Doha Round; U.S., Canada Forge Softwood Lumber Agreement

Consequences of Neglecting National Product Differentiation in Assessing the Impact of U.S.–Canada Softwood Lumber Disputes

Abstract This study, using the Armington approach, analyzes the consequences of omitting national product differentiation on the impact assessment of U.S.–Canada softwood lumber disputes. Omitting national product differentiation is found to cause differences in the estimated impacts ranging from a 38% underestimation to a 340% overestimation under the quantity-based Canadian export tax, and from a 61.5% underestimation to a 413% overestimation under the value-based (ad valorem) U.S. import tariff. Demonstrated as an approach to alleviating the biases, a computable general equilibrium model is developed to simulate the impacts of the 1996 Softwood Lumber Agreement (SLA) and the countervailing duty (CVD) and anti-dumping duty (AD) imposed under the current round of the dispute. The SLA and the CVD and AD seem more likely to cause the redistribution of welfare than to improve the market share of U.S. domestic softwood lumber. The CVD and AD would be more beneficial to the U.S. in terms of overall welfare but causing greater distortions in both the U.S. and Canada than the SLA.

The Law of One Price in the North American Softwood Lumber Markets

Abstract The existence of the Law of One Price (LOP) in the North American (10 regional) markets for aggregate softwood lumber and homogeneous softwood lumber products is tested using the Johansen co-integration test and monthly price data for the Softwood Lumber Agreement (SLA) (1996–2001) period and the post-SLA (2001–2004) period. For the aggregate softwood lumber market, the LOP exists neither in the North American aggregate market nor in any combination of one regional market of Canada and all the five regional markets of the United States, nor in one regional market of the United States and all five regional markets of Canada; however, some of the regional markets are co-integrated. The regional markets of homogeneous softwood products in the two countries are co-integrated during both the SLA and post-SLA period. Further studies are essential to understand the difference between the aggregated and homogeneous softwood products market co-integration and to develop a comprehensive and comparative perspective of the Canadian and the US softwood lumber markets.

U.S.–Canada Softwood Lumber Trade: Measuring the Market and Welfare Impacts of Restrictions

Abstract The U.S.–Canada softwood lumber trade dispute is the largest and most contentious one between the two countries. Using a simultaneous system of equations and a vector auto-regression model, and quarterly data for over the last two decades, this article assesses the impacts of the Memorandum of Understanding (MOU) and Softwood Lumber Agreement (SLA). We find that the MOU causes Canadian exports to drop by 8.4–9% during 1986:4–1991:3, which in turn pushes up the U.S. production by 3%. But it does not lead to higher lumber prices. The SLA does not have any significant impacts on the lumber market during 1996:2–2001:1. In addition, the price elasticities of domestic and Canadian export supply are smaller than those commonly used in evaluating the gains and losses of the U.S. restrictions, whereas such factors as exchange rates, housing starts, and log prices have played major roles in shaping the lumber markets. Combining the modest market impacts and smaller price elasticities, we obtain only moderate welfare consequences of the trade restrictions.

Incidence of the 1996 U.S.–Canada Softwood Lumber Agreement among Landowners, Loggers, and Lumber Manufacturers in the U.S. South

Abstract A framework was developed to estimate the welfare incidence of the 1996 U.S.–Canada Softwood Lumber Agreement among producers in two-processing-stage markets—timberland owners, loggers, and lumber manufacturers—in the U.S. South. Timberland owners are the largest beneficiary whereas lumber manufacturers are the second and loggers the least. Empirically, without considering substitution effects among production inputs, timberland owners have 47.4% of total incremental producer surplus, whereas lumber manufacturers have 39.4% and loggers 13.2%. When the substitution effects are considered, timberland owners gain slightly less whereas lumber manufacturers and loggers gain slightly more.

Estimating Export Response in Canadian Provinces to the Canada-US Softwood Lumber Agreement

We estimate the degree of trade diversion from provinces named under the Softwood Lumber Agreement (SLA) to provinces not named. Our regression results indicate that the SLA had a significant impact on the exports of non-named SLA provinces. Controlling for other factors, the SLA by itself would have increased exports from these provinces four times. The corresponding effect for the provinces named in the SLA is estimated at minus 5 percent. This decrease is not, however, statistically significant.

Welfare impacts of the 1996 United States - Canada softwood lumber agreement: an update

This research note provides updated estimates on the market and welfare impacts of the 1996 United States – Canada Softwood Lumber Agreement (SLA). Using the aggregate price model in Zhang (2001), the anticipated change in lumber price is estimated at US$30 (based on 1997 dollars), or 7.4%, on average for the first 4 years under the SLA; this is smaller than the previous estimate. In the fifth year, the price impact was negative because of a decline in lumber demand, oversupply in the United States, and excessive supply from Canada due to the structure and expected expiration of the SLA. The consequent gains to US producers of softwood lumber and the losses to US consumers are reestimated.

Canadian-U.S. Trade Policy

Softwood lumber has been, and continues to be, the most contentious trade issue dividing the United States and Canada. This article examines the economic issues surrounding the dispute and considers possible resolutions to it. Specifically, the article reviews the recently expired Softwood Lumber Agreement, which restricted exports from four Canadian provinces to the United States between 1996and2001.The authors describe this voluntary export restraint agreement (VER), explain how it created windfall gains for Canadian holders of export quotas, discuss how these gains were partly dissipated, and use this analysis to consider a reformed VER. The authors also review other feasible policy alternatives. They compare the likely effects on various Canadian and U.S. interest groups of a reformed VER, an export tax, and an import tariff. They rank these policies from the point of view of each country’s national welfare as well as from an aggregate North American perspective.

Incidence of the 1996 Canada–U.S. Softwood Lumber Agreement and the Optimal Export Tax

Our partial‐equilibrium analysis suggests 63% of the Canada‐U.S. Softwood Lumber Agreement's export tax is absorbed by Canadian consumers. Still, sufficient surplus was extracted from U.S. consumers for the agreement to be in Canada's national interest. In fact, the agreement was suboptimal from a Canadian perspective in that a higher tax rate would have raised national welfare, at least in the short run. Although the agreement decreased U.S. welfare, the net loss for the combined U.S. and Canadian economies is modest, about 5% of the bilateral softwood lumber trade value according to our baseline estimates. This suggests the agreement's tariff rate quota scheme is a reasonably efficient mechanism for redistributing economic surplus from U.S. consumers to producers. Still, a better policy may be to enlarge the softwood lumber market via a research and promotion program funded by a modest (say, 5%) tax on Canadian exports.

Economic Analysis of the Canada–United States Softwood Lumber Dispute: Playing the Quota Game

Abstract The Canada–U.S. Softwood Lumber Agreement (SLA) was the latest measure to restrict Canadian exports of softwood lumber to the United States. Rather than a countervail duty or export tax, SLA employed a quota that provides a large windfall (quota) rent to Canadian lumber producers in addition to extra quasi-rents to U.S. producers, all at the expense of U.S. consumers. However, Canadian producers have not taken full advantage of the quota regime to maximize their overall gains, which exceed what they could earn under free trade or an export/import tax. This is demonstrated using a theoretical framework and numerical illustration. It is shown that the net gain to Canadian producers does not occur when the quota rent is maximized, but rather when the sum of producer surplus and quota rent is maximized. It is also argued that the existence of resource rents from logging does not constitute a subsidy to lumber producers. It is concluded that, from Canada's perspective, export quotas are preferred to both free trade or an export/import tax, at least in the short run, but only if all provinces and all softwood lumber products are included in the Agreement and a means for sharing the windfall rents can be found. For. Sci. 48(4):712–721.

Revival of Grey-Area Measures? The US–Canada Softwood Lumber Agreement: Conflict with the WTO Agreement on Safeguards

Revival of Grey-Area Measures? <i>The US–Canada Softwood Lumber Agreement: Conflict with the WTO Agreement on Safeguards</i>