Welfare Impacts of the Canada-U.S. Softwood Lumber Trade Dispute: Beggar Thy Consumer Trade Policy

The welfare impacts of the 1987–91 Canadian "voluntary" 15% lumber export tax and the current 6.51 % U. S. import duty are analyzed using a simultaneous equations model of the softwood lumber market. The results show that U.S. consumers suffer losses 35% to 45% of those endured by Canadian producers. Canadian national welfare was much higher under the voluntary export tax, indicating the Canadian government erred in unilaterally terminating the agreement. In both instances, the U.S. government pursued policies that benefited domestic producers at the expense of U.S. lumber consumers, with no attempt or discussion of compensation. Thus, this appears to be a case of "beggar thy consumer" trade policy.     

A Spatial Equilibrium Analysis of U.S.–Canadian Disputes on the World Softwood Lumber Market

This paper utilizes a world spatial equilibrium model to examine the effects of U.S.–Canadian softwood lumber disputes on U.S., Canadian, and other exporters' and importers' lumber markets. Results show that the U.S. import tariff on Canadian softwood lumber impacts prices, supply, demand and trade flows not only in the United States and Canada but also in the other countries. Though the goal of U.S. trade restriction is to limit imports from Canada and protect its producers, the United States cannot fully accomplish this goal as non-Canadian exporters fill the void left by the reduced imports from Canada. Canadian producers lose from the U.S. policy, but their loss is mitigated as Canada redirects its exports to other importers. Importing countries such as Japan and the European Union benefit from the U.S. trade restrictions as Canada seeks to sell its softwood lumber to these countries.     

Implications of a Tariff on Imported Canadian Softwood Lumber

The United States has been a net importer of softwood lumber for several decades, with more than 90% of its 1985 imports coming from Canada. A four-equation simultaneous sytem was developed to analyze the impact of a proposed tariff on domestic softwood lumber consumption production and on imports. The structural coefficients were estimated by two-stage least squares estimators using annual data from 1965 through 1985. The analysis indicated that U.S. softwood lumber consumption was price inelastic (-0.029) while import demand was highly elastic (-3.08). Consequently, the imposition of an import tariff or Canadian export tax on softwood lumber, as requested by the U.S. softwood lumber industry, will have little effect on total consumption, but will reduce imports significantly and will lead to higher prices for U.S. producers and consumers. Les États-Unis ont été un importateur net de bois ?oeuvre de résineux pendant plusieurs décennies et plus de 90% de leurs importations de 1985 provenaient du Canada. Nous avons élaboré un système simultané à quatre équations permettant ?analyser ?incidence ?un droit qu'on songe à imposer sur la consommation et la production intérieures du bois ?oeuvre de résineux et sur les importations. Les coefficients structuraux ont été estimés a ?aide ?une méthode ?analyse des moindres carrés à deux stades, à partir de données recueillies annuellement de 1965 jusqu'à 1985. ?analyse a démontré que la consommation américaine de bois ?oeuvre de résineux n'est pas élastique quant au prix (-0,029) mais que la demande à ?importation est très élastique (-3,08). En conséquence, ?imposition ?un droit à ?importation ou ?une taxe canadienne à ?exportation pour le bois ?oeuvre de résineux, telle que réclamée par le secteur américain de la production de bois ?oeuvre de résineux, aura peu ?effets sur la consommation totale mais elle réduira sensiblement les importations et mènera à une augmentation des prix pour les producteurs et les consommateurs américains.     

The Effects of NAFTA on Trade and Welfare in the U.S. Fresh Tomato Industry

Abstract

The purpose of this study was to measure NAFTA's impact to date and quantify how the producers and consumers of fresh tomatoes in the United States, Canada and Mexico have benefited or lost. Changes in consumer and producer surpluses were calculated in 2001 US dollars based on simulations of two scenarios. The analysis found that U.S. consumers captured $12.1 billion more surplus than they would have captured had NAFTA not been enacted. Mexican fresh tomato producers gained an additional $2.08 billion in surplus due to NAFTA. In contrast to Mexican growers, U.S. and Canadian producers appear not to have benefited economically from NAFTA. Findings suggest that U.S. producers would have earned $3.29 billion more if NAFTA had not gone into effect. Canadian producer surplus with NAFTA was estimated to be approximately $20 million less with NAFTA, and the total net benefit from NAFTA was found to be a positive $10.87 billion.     

Incidence of Russian log export tax: A vertical log-lumber model

In 2007, Russia imposed an ad valorem tax on its log exports that lasted until 2012. In this paper, we use a Muth-type equilibrium displacement model to investigate the market and welfare impacts of this tax, utilizing a vertical linkage between log and lumber markets and considering factor substitution. Our theoretical analysis indicates that, without considering the vertical linkage, the negative effects of log export tax on equilibrium price for log producers is underestimated when logs and processing services are gross substitutes, and the direction of bias is uncertain when they are gross complements. Empirical simulations show that the burden of Russian log export tax is shared almost equally between foreign log buyers and domestic log producers and that the tax increases domestic lumber production. Further, the marginal effect of the log export tax on domestic lumber production decreases as Russian domestic demand share of logs increases. Overall, the welfare gains for Russian lumber consumers, lumber producers in the form of quasi-rents to processing services, and tax revenue exceed the loss in its logging sector.     

The optimal export tax for a primary commodity in a vertical market

The conventional formula for the optimal export tax (derived from a partial equilibrium model that ignores importers’ welfare) is extended to include the deadweight loss to the domestic economy associated with the tax. Applying the extended formula to the tax Russia imposes on its exports of logs, results suggest ignoring the marketing channel causes the optimal export tax for a primary commodity to be understated. The degree of understatement increases as the supply of logs and processing/marketing inputs become less price elastic, and as buyer and seller power in the downstream (lumber) industry increases. For plausible values of model parameters, however, the degree of understatement is modest, less than 19%.     

Do U.S. citizens support government intervention in agriculture? Implications for the political economy of agricultural protection

The persistence of agricultural protectionism throughout the world is intriguing given the widely recognized benefits of free trade. The political economy literature over the last decades has considered groups’ interest, politicians’ preferences, and their interactions within domestic politics as the primary forces driving agricultural protection. Yet, a growing body of studies suggests that it would be judicious to weigh in consumers’ or taxpayers’ perspectives in deciphering the nature of agricultural protection. This study examines U.S. citizens’ preferences about government intervention in agriculture and trade. Results show that they are in strong support of agricultural protection and their perceptions of national food security, family farms, environmental sustainability, and multifunctionality of agriculture play a significant role in shaping their support/opposition toward government intervention. The conventional political economy literature theorizes that consumers or taxpayers would oppose public policies that increase their tax burden; however, in the case of the farm sector, they have little incentive to voice their objections given the costs of farm programs are spread across a large number of consumers and taxpayers. U.S. citizens’ support for government involvement in agriculture as reported in this and other prior studies does not lend support for such political economy explanation.     

China as a Potential Market for U.S. Pork Exports

This study provides details of emerging opportunities for U.S. pork exporters following the U.S.–China WTO Accession Agreement. The Agreement will enable the United States to gain unprecedented access to the Chinese pork market. The United States enjoys comparative advantages in producing hogs at lower cost, higher quality, and greater efficiency. Moreover, Chinese preference for pork is highly complementary to that of U.S. consumers. Therefore, U.S. pork exporters are expected to target primarily the Chinese variety meats market. Although China is expected to remain a surplus pork production nation, demographic shifts could provide additional opportunities for U.S. pork exporters to increase sales of more premium cuts for urban consumers in China.     

The Effects of Tariff Removals on the North American Lumber Trade

Under the North American Free Trade Agreement, the United States, Canada and Mexico are to remove all tariffs on softwood lumber. This paper examines the impact of loosening various present lumber trade restrictions on softwood lumber flows, prices and general economic welfare of these three countries. Some possible scenarios ranging from complete removal of tariffs on lumber trade throughout North America to a significant protection in this sector are examined. Using a spatial equilibrium model, we simulate various scenarios and quantify the effects of different levels of protection on lumber shipments and economic welfare in different geographical regions. According to our results, while lumber shipment will be affected significantly by trade liberalization, the overall of welfare will not change appreciably. L'ALENA engage les États-Unis, le Canada et le Mexique àéliminer tous les tarifs douaniers sur le bois d'oeuvre (bois tendre). Dans cet article nous examinons les conséquences éventuelles d'un relâchement des diverses restrictions actuelles au commerce du bois d'oeuvre sur le flux des échanges et sur le prix du bois, ainsi que sur la situation de bien-être générale dans ces trois pays. Quelques scénarios sont considérá, allant de l'abolition complète des tarifs sur ces denrees a la grandeur de l'Amérique du Nord au maintien d 'un niveau significatif de protection de ces secteurs. Au moyen d 'un modèle d'équilibre spatial nous simulons divers scénarios et nous quantifions les effets de differents niveaux de protection sur les échanges de bois d'oeuvre, ainsi que la situation économique dans les diverses regions géographiques du sous-continent. Il ressort de notre examen que même si les échanges de bois d'oeuvre seront touchés significativement par la libéralisation du commerce, la situation économique générate, c'est-à-dire le niveau de bien-être, ne changera pas beaucoup.     

Political Pressure: An Examination of U.S. Senators’ Actions in Restricting Canadian Softwood Lumber Imports

Over the past 30 years the U.S.–Canadian softwood lumber trade dispute has resulted in three managed trade agreements that have not been voted on in the U.S. Congress. Nevertheless, U.S. Senators have played an important role in shaping the political environment that has nurtured these agreements. In this paper we construct a lumber influence index based on 14 known events between 2001 and 2006 and analyze what factors influenced a senator's decision to publically call for restricting Canadian lumber imports and to adopt the 2006 Softwood Lumber Agreement. Our results show that the size of the wood products manufacturing industry in a state, campaign contributions, logrolling, and ideology played a significant role and that interest group politics is prevalent in this dispute. Au cours des 30  dernières années, le différend commercial entre le Canada et les États‐Unis au sujet du bois d’?uvre résineux s’est soldé par trois  accords de commerce administré qui n’ont pas été mis au vote du Congrès des États‐Unis. Néanmoins, les sénateurs américains ont joué un rôle important dans le façonnement du climat politique dans lequel ces accords ont été préparés. Dans le présent article, nous avons mis au point un indice de l’influence fondé sur 14 événements connus qui se sont déroulés entre 2001 et 2006, et nous avons analysé les facteurs qui ont influencé un sénateur à préconiser publiquement des restrictions sur les importations de bois d’?uvre canadien et à adopter l’Accord sur le bois d’?uvre résineux en 2006. Les résultats de notre étude montrent que la taille de l’industrie de la fabrication des produits en bois dans un État, les contributions aux campagnes, les alliances politiques dans un but intéressé et l’idéologie ont joué un rôle considérable et que l’influence des groupes d’intérêt a été un facteur apparent dans ce différend.     

Evaluating the uncertainty in estimates of the economic impacts of Bovine-Leukosis virus in U.S. dairy cows

An examination of the economic impacts of Bovine‐Leukosis virus indicated that reduced milk production, attributed to the presence of Bovine‐Leukosis virus in dairy cows, reduced consumer surplus by 2.7 ± 2.3 billion US$ (bUS$), and resulted in a total partial equilibrium loss of 720 ± 560 million US$ (mUS$) to the U.S. economy in 1996. Most of the economic surplus lost by consumers was transferred to producers, whose economic surplus increased by 2.0 ± 1.8 bUS$ as a result of reduced milk production attributed to the presence of Bovine‐Leukosis virus in dairy cattle. Uncertainty analysis showed that an estimate of the milk‐production decline per percent increase in the prevalence of Bovine‐Leukosis virus in dairy cows accounted for most of the uncertainty in the economic‐impact estimates. If Bovine‐Leukosis virus had not been present in U.S. dairy cows, then milk production would have increased by 2.0 billion ± 1.5 billion kg, the price would have fallen by 3.8 ± 3.2 cents/kg, and the value of the milk produced would have decreased by 2.1 ± 1.9 bUS$. Guidelines delineated by the International Organization for Standardization, for evaluating and expressing uncertainty in measurement, are discussed and proposed for use in the context of broad national estimates, for which the economic impacts of Bovine‐Leukosis virus serve as an example. The principal advantages of the methodology are the clarity and transparency of results, and the ability clearly to identify major uncertainty contributors.     

Impact of Environmental Policies in the Hog-Pork Sector on Trade and Market Welfare in North America

The objective of this study is to design a framework to assess trade patterns and market welfare (Marshallian measures of producer and consumer surpluses plus government payments) under various combinations of agricultural, environmental and trade policies. To reach this objective, an environmental model, EPIC, is linked to a model of the North American hog-pork sector. The reduction in Québec inventories, following the implementation of environmental policies, triggers a decrease of Canadian live hog exports to the U.S. and an increase of U.S. pork exports to Canada. Environmental policies are responsible for decreases in welfare. The decrease in welfare is the largest when a moratorium in North America is simulated. Since trade liberalization has a positive impact on welfare, the welfare decrease from a moratorium is somewhat attenuated under free trade conditions.     

Impact of the 2014 Suspension Agreement on sugar between the United States and Mexico

In December 2014, the U.S. and Mexico agreed to a suspension agreement that set a $22.25/cwt import price floor on U.S. sugar imports from Mexico. A partial equilibrium trade model was developed to estimate the economic impact the agreement would have had if it had been in effect from 2008 to 2014. In years when the price floor would have been binding, on average, U.S. producers would have gained $138 million and Mexican producers would have lost $218 million. However, total Mexican welfare would have actually increased by $11.5 million. Furthermore, the average price floor that would have maximized total Mexican welfare over that period is $22.76/cwt. Also, under certain supply and demand elasticity conditions, the average price floor that would have maximized joint U.S. and Mexican producer welfare over that period is $21.91/cwt. The latter two estimates are both close to the actual price floor agreed to in the 2014 Suspension Agreement.     

Social welfare effects of removing multiple exchange rates: evidence from the rice trade in Iran

In order to encourage the involvement of the private sector in importing rice, the Iranian government plans to relax the system of multiple foreign exchange rates applied to importers wishing to supply the domestic market. In this article, the welfare effects of removing the current controls on the rice trade, and a domestic rice coupon program, are evaluated by applying a partial equilibrium analysis to 1961–1999 data. The results show that, as far as foreign exchange is concerned, liberalization of the rice market causes an increase in rice imports, mainly due to a decrease in domestic supply. In welfare terms, the loss in producer surplus from rice market liberalization is relatively high, but most rice consumers, and the Iranian taxpayer, would gain. Overall, gains to consumers and taxpayers are estimated to be higher than the losses incurred by domestic suppliers, and therefore net social welfare at national level can be improved by rice market liberalization in Iran. Issues for further discussion include residual food security roles for the state, and supply‐side adjustments in terms of resource use and higher‐quality production.     

The consequences of a human food pathogen vaccine on food demand: a calibrated partial‐equilibrium analysis of the U.S. beef market

Human vaccines against several common foodborne pathogens are being developed and could substantially alter consumer and producer behaviour in the markets for foods commonly afflicted by these pathogens. To understand the possible impacts of such an innovation, we derive and calibrate a partial‐equilibrium model using parameters for consumer vaccine uptake from stated‐preference work under an array of assumptions concerning industry moral hazard, consumer awareness and alternative preventive effort exercised by consumers. We simulate three scenarios in the U.S. beef sector: the introduction of a vaccine, the tightening of pathogen standards for beef production and the simultaneous introduction of both vaccinations and tighter standards. Our simulation shows that all policies can increase aggregate surplus given most calibrations; though, the largest effects are attributed to vaccine introductions, which reduce expected damages from foodborne illness among vaccinated consumers without shifting firm costs. However, unaware consumers and aware consumers who choose not to vaccinate experience no change in expected damages when a vaccine is introduced but face a higher price of food because of the stronger demand of food from vaccinated consumers.     

U.S. sweeteners: Combating excess consumption with an excise tax?

Obesity is a public health problem in the United States that has been linked to excess sweetener consumption. The American Heart Association (AHA) recommends no more than 6–9 teaspoons/capita/day, while the U.S. Food and Drug Administration (FDA) recommends 200 calories/capita/day of caloric sweetener consumption. Both recommendations are well below the reported 2016 sweetener consumption levels. We quantify the input tax rates needed to reduce the current excess sweetener consumption level to the AHA and FDA recommended standards. We calculate the joint tax in the United States on two major sweeteners, sugar and High Fructose Corn Syrup (HFCS), to be 31 and 24 cents per pound, respectively, based on the AHA standard, and 19 and 17 cents per pound, respectively, using the FDA standard. These taxes would be roughly the magnitude of the existing sugar and HFCS prices. In both cases, the tax incidence on producers is much smaller than on consumers. Our focus is very different from past studies in that it deals with the effect of taxes on inputs to meet the recommended target rather than a selective tax (sugar‐sweetened beverage tax). If a sweetener tax were implemented, U.S. sugar and HFCS producers would lose US$398–US$489 and US$683–US$844 million per year, respectively.     

Activists and Animal Welfare: Quality Verifications in the Canadian Pork Sector

Animal welfare is an emotive topic. Although most governments legislate against outright animal cruelty, animal welfare organisations have actively lobbied for more stringent farm animal welfare regulations. Food retailers and restaurant chains have faced pressure from animal welfare organisations to implement more stringent animal welfare requirements for their suppliers. Is the demand for more stringent farm animal welfare protocols primarily determined by a subset of consumers with very strong preferences or does it signal a more fundamental underlying change in societal preferences? Given the credence nature of farm animal welfare, whom do consumers trust for credible quality assurances? This article analyses the role of quality verification in a market characterised by consumers with heterogeneous preferences for animal welfare. Of particular interest are the relative strength of preferences for humane animal treatment assurances and the credibility of these quality claims. Using data from a Canadian survey targeted at two distinct samples – a general population group and members of animal welfare organisations – a discrete choice experiment is used to assess consumer attitudes towards animal welfare assurances for pork products. The credibility of quality verification by public sector, private sector and third party agents is assessed. Evidence confirms that consumer preferences for farm animal welfare assurance and the source of verification are indeed heterogeneous. Although a portion of consumers remain largely indifferent to pork products with animal welfare assurances, a group of highly motivated consumers exist with an economic incentive to lobby for tougher animal welfare standards.     

Implications of the Comprehensive Economic and Trade Agreement for Processed Food Markets

Canada and the European Union (EU) recently completed the Comprehensive Economic and Trade Agreement (CETA) to liberalize bilateral trade. Processed food trade between Canada and the EU is one of the fastest growing markets, in spite of large trade restrictions due to high tariffs and egregious nontariff barriers (NTB). The processed food sector is characterized by firms which differ in size, productivity, produce differentiated products, and engage in monopolistic competition. We implement a four‐region (Canada, the EU, the United States, and the Rest of the World) model of the processed food industry, incorporating these firm characteristics to study the effects of CETA. The results show Canadian and EU bilateral trade flows expand, the number of exporting firms rises, and net welfare in both these countries increases. Though CETA does not liberalize NTBs, we examine the impacts of a 40% cut in NTBs to highlight the benefits that would have accrued had CETA also covered NTBs. Under this scenario, the trade flows would have expanded significantly, and, more importantly, Canadian and EU welfare would have risen by 11.8‐ and 39.4‐fold, respectively. Since CETA excludes the United States, the U.S. processed food industry loses due to greater competition in Canadian and the EU markets, and the net U.S. welfare declines.     

Pricing to Market Behavior by Canadian and U.S. Agri-food Exporters: Evidence from Wheat, Pulse and Apples

A fixed-effects model to control for time variation in marginal costs is employed to pinpoint evidence of price discriminatory behavior of Canadian and U.S. exporters of agri-food products. We test for evidence of pricing to market behavior and whether price discrimination or commodity/country characteristics may provide a plausible explanation. A distinguishing feature of our approach is to examine the time-series properties of the data by the conventional augmented Dickey-Fuller and recently developed panel unit root test. The panel data set employed in this paper consists of annual exchange rates and export prices for three agri-food products (wheat, pulse and apples) exported by Canada and the U.S. in foreign markets during 1980–98. Our fixed-effects model suggests that U.S. exporters are sensitive to exchange rate changes, while Canadian exporters in most cases raised price markups in response to a depreciated currency in overseas markets. The results highlight the differences in pricing policy that both countries employ to merchandise agri-food products in export markets.     

Implications of the Philadelphia Beverage Tax on Sales and Beverage Substitution for a Major Grocery Retailer Chain

To understand whether substitution effects occurred for a major national grocery retailer after the implementation of a beverage tax in Philadelphia, the authors used November 2015/2016 and February 2016/2017 data from a major national grocery retailer with stores alongside the borders of Philadelphia County (within 5 miles of each side). A difference in difference was conducted, a statistical technique that allows comparison among groups in an observational data setting, to understand whether the introduction of a beverage tax on January 1, 2017 would lead consumers to shift their buying habits to healthier options. Results are consistent with the notion that the implementation of a beverage tax on sweetened beverages (SBs: both sugar and artificially sweetened) did not generally lead consumers of that retailer to switch purchases to non-sweetened beverages. In contrast, data suggest that consumer purchasing of SBs and general sales increased significantly outside of Philadelphia County at that retailer. A potential explanation is that, some consumers continued buying SBs but traveled outside of Philadelphia County not just to buy the SBs but also for other grocery as well.