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Incidence of the 1996 Canada–U.S. Softwood Lumber Agreement and the Optimal Export Tax
Author(s) -
Kinnucan Henry W.,
Zhang Daowei
Publication year - 2004
Publication title -
canadian journal of agricultural economics/revue canadienne d'agroeconomie
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 37
eISSN - 1744-7976
pISSN - 0008-3976
DOI - 10.1111/j.1744-7976.2004.tb00095.x
Subject(s) - softwood , tariff , partial equilibrium , economics , welfare , economic surplus , deadweight loss , international economics , value (mathematics) , agricultural economics , international trade , general equilibrium theory , pulp and paper industry , microeconomics , engineering , market economy , mathematics , statistics
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.