UNITED-STATES-POLICY AND CANADIAN LUMBER - EFFECTS OF THE 1986 MEMORANDUM OF UNDERSTANDING

A 1986 Memorandum of Understanding on softwood lumber imports (MOU) be tween Canada and the United States required that provincial government s levy export taxes on softwood lumber shipped to the United States. T his agreement, with subsequent amendments, influenced trade from 1987 until it was abandoned by Canada in October of 1991. This paper invest igates the market impact of the MOU, first by estimating an aggregate impact model of the Canadian share of the U.S. softwood lumber market and then by examining the implied price, quantity, and welfare effects . While the study shows the anticipated gains to U.S. producers of sof twood lumber and losses to Canadian producers, U.S. consumer and effic iency costs were high, and the net of Canadian profit loss and export tax revenue was strongly positive. In addition, the net impact on mark et share appears to have persisted through 1990, in spite of considera ble change in the policy's structure. These and other results should p rovide information for ongoing policy debate.