An Evaluation of Canadian and U.S. Policies of Log and Lumber Markets

By Devadoss, Stephen | Journal of Agricultural and Applied Economics, April 2008 | Go to article overview

An Evaluation of Canadian and U.S. Policies of Log and Lumber Markets


Devadoss, Stephen, Journal of Agricultural and Applied Economics


The recent lumber trade war between Canada and the United States deals with Canadian stumpage policies, Canada's log export controls, and U.S. retaliatory duty. This study determines the appropriate level of U.S. countervailing duty (CVD) by employing a vertically interrelated log-lumber model. The theoretical results show that the U.S. CVD can be greater (will be less) than the Canadian subsidy for a vertically related log-lumber market (for lumber market only). Empirical results support the theoretical findings in that the U.S. CVD for the log-lumber market (lumber market alone) is 1.55 (0.91) times the Canadian subsidy.

Key Words: countervailing duty, dispute, log, lumber, subsidy

JEL Classifications: F13

In recent years, countervailing measures undertaken by many countries to protect domestic producers against unfair production subsidy practices in exporting countries have alarmingly burgeoned because the WTO's Agreement on Subsidies and Countervailing Measures (ASCM) allows for such trade retaliation. For instance, from 1996 to 2005, the number of countervailing duty (CVD) cases filed with the WTO increased from 6 to 81 (WTO 2005). However, many countries go overboard and abuse the ASCM, which further escalates the complexity of litigations, adding undue burdens on the WTO Dispute Settlement Body (Miranda).1 The crux of the issues involved in the vast majority of the CVD cases is this-what is the correct level of CVD that will offset the adverse effect of exporters' production subsidies without overly penalizing the exporting country?

The U.S.-Canadian softwood lumber (hereafter termed only as lumber) trade dispute is one such case filled with numerous and contentious disagreements over the magnitude of Canadian subsidies and U.S. countervailing duties, and it is a fertile ground for informative economic analysis. The underlying cause for this ongoing trade litigation is that the U.S. lumber producers contend that Canada with its vast endowment of government-owned forest land charges only nominal fees for stumpage (timber) sold to Canadian lumber producers. The U.S. lumber producers argue that selling timber at low prices amounts to an input subsidy because auctioning the timber in the open market will fetch much higher prices. In addition, the U.S. producers claim that Canadian log export restrictions amount to an implicit subsidy to Canadian lumber producers because U.S. lumber companies cannot avail the benefits of purchasing low-priced timber, and thus, log export controls help to keep costs down only for the Canadian companies. In 2001, a coalition of U.S. lumber producers submitted a petition to the International Trade Administration of the U.S. Department of Commerce (USDOC) and the U.S. International Trade Commission to investigate Canadian timber sales and trade policies (USDOC 2001a and 2001b). These agencies extensively studied Canadian lumber policies and found that Canada does subsidize its lumber companies with low-priced timber. On the basis of these findings, the U.S. government imputed that the Canadian government provides its lumber companies a production subsidy of 19.34% and retaliated by levying a countervailing duty of 18.8% in May 2002 (U.S. Federal Register) to protect its lumber producers from adverse effects of the Canadian subsidy.2 Canada vehemently refuted the level of U.S. computed subsidies and tariffs.

The objective of this study is to determine the appropriate level of U.S. countervailing duties on Canadian lumber produced from subsidized timber by employing a vertically interrelated log-lumber model. If the subsidy and CVD are for a single and not vertically integrated commodity, then the CVD will be necessarily less than the subsidy, as we show in the theoretical and empirical analyses. However, in a vertically integrated market, the value of CVD relative to production subsidy depends on several factors such as whether the subsidy is for production of output, input, or both and whether both output and input are traded or one of them is nontraded. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

An Evaluation of Canadian and U.S. Policies of Log and Lumber Markets
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.