AN EVALUATION OF THE CANADA-US WHEAT AGREEMENT OF 1994

The U.S. government notified the GATT in 1994 that it intended to incr ease tariff rates on wheat and barley imported from Canada. This threa t of increased permanent protection resulted in Canada voluntarily agr eeing to restrict wheat sales to the United States. Why would Canada a gree to this outcome which would lead to a welfare loss? The payoffs t o each country associated with alternative trade war outcomes are esti mated. We find that welfare, as measured by equivalent variation, fall s in both countries, although Canada was better off limiting exports t han becoming engaged in a trade war with the United Stares.