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

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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.

Keywords: Imperfect substitution; general equilibrium; impact assessment; softwood lumber trade

Document Type: Research Article

Affiliations: Jianbang Gan, Department of Forest Science, Texas A&M University, 305 Horticulture/Forest Science Bldg., 2135 TAMU, College Station, TX 77843-2135—Phone: (979) 862-4392; j-gan@silva.tamu.edu., Fax: (979) 845-6049

Publication date: August 1, 2006

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