U.S.-Canada softwood lumber trade disputes and lumber price volatility

In the last 20 years, U.S.-Canada trade in forest products has received a great deal of attention on both sides of the border, as well as in international organizations such as the World Trade Organization. A dispute regarding softwood lumber imported from Canada to the United States, a $7 billion business in 1999, has been the most controversial. People involved in the dispute have described it as a “softwood lumber war,” and the two countries have experienced four formal rounds of countervailing duty proceedings. The latest round of negotiations between the two countries during 1994 to 1996 resulted in a 1996 Softwood Lumber Trade Agreement (SLA), which set up a tariff-regulated quota system on Canadian softwood lumber imports (3). The SLA covers 5 years, starting in April 1996, and defines Canada’s tax-free export limit, tax level, fee collection, and trigger price mechanism. The softwood lumber trade disputes and debates focus on several factors. One factor is whether several provincial governments in Canada have subsidized their lumber producers through low stumpage rates and log export bans and whether the U.S. producers have been injured by the alleged subsidies. Another factor is the impact of the SLA on the welfare of U.S. producers, consumers, and the public in general. The agreement has been welcomed by the Coalition for Fair Lumber Imports, which represents a group of U.S. lumber producers who initiated several rounds of lobbying to restrict Canadian softwood imports in the past two decades. On the other hand, the National Association of Home Builders and the National Lumber and Building Material Dealers Association are firmly against the agreement, alleging that high prices and high price volatility caused by the SLA have hurt U.S. homebuilders and homebuyers (1). The parties in the debate tend to be polarized, and their arguments are political and uncompromising. Yet the only accurate way to evaluate these issues is through a careful analysis of the alleged subsidies and the welfare impacts of the agreement. This paper contributes to the debate by presenting scientific and empirical evidence of lumber price volatility associated with the SLA. To date, both sides have had totally different views on the