How effective is the United States-Canada softwood lumber agreement 2006? An econometric study

Abstract

The ongoing softwood lumber trade dispute between the United States (US) and Canada is one of the most contentious and longest bilateral trade battles in international trade history. The Softwood Lumber Agreement (SLA) 2006 is the latest temporary solution for this dispute, requiring Canada to impose mandatory export charges on lumber shipments to the United States. By estimating a system of supply and demand equations for the US softwood lumber market, this article assesses the possible effects of the export tax on the lumber trade between the US and Canada. Unlike previous studies, this study computes the actual monthly export tax collected by Canada during the period of SLA 2006 and incorporates it into the empirical modeling. The findings reveal that SLA 2006 has no statistically significant effect on the softwood lumber trade between the United States and Canada. The Canadian lumber exports from SLA-included provinces are found to be price elastic, whereas the US domestic supply schedule is price inelastic. Further, Canadian overseas lumber exports significantly influence the Canadian lumber exports to the United States. Given that SLA 2006 is scheduled to expire in October 2015, this article provides useful insights into the decades-long trade battle between the otherwise friendly neighboring nations.