U.S. Policy and Canadian Lumber: Effects of the 1986 Memorandum of Understanding
A 1986 Memorandum of Understanding on softwood lumber imports (MOU) between Canada and the United States required that provinvial governments levy export taxes on softwood lumber shipped to the United States. This agreement, with subsequent amendments, influenced trade from 1987 until it was abandoned by Canada in October of 1991. This paper investigates the market impact of the MOU, firest by estimating an aggregate impact model of the Canadian share of the U.S. softwood lumber market and then by examinin the implied price, quantity, and welfare effects. While the study shows the anticipated gains to U.S. producers of softwood lumber and losses to Canadian producers, U.S. consumer and efficiency costs were high, and the net Canadian profit loss and export tax revenue was strongly positive. In addition, the net impact on market share appears to have persisted through 1990, inspite of considerable change in the policy's structure. These and other results should provide information for ongoing policy debate.