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

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

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

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

  2. 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

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

  4. 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

  5. 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

  6. 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

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

  8. Supply and Demand Projections

  9. Market Impacts

  10. 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

  11. 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

  12. Results

  13. Global Trade Impacts

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

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

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

  17. 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

  18. 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.

  19. Welfare Impacts 1996 - 2001

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

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

  22. 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

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