Are Log Markets Competitive? Empirical Evidence and Implications for Canada-U.S. Trade in Softwood Lumber

Under the U.S. Department of Commerce’s ‘changed circumstances’ review, it is possible that the countervail duty on Canadian lumber can be lowered if administered stumpage prices are based on transaction evidence appraisal – on actual auction data and regression analysis. The Province of British Columbia is implementing such a market-based approach to set stumpage fees, relying on timber auction data from the Small Business Forest Enterprise Program (SBFEP) and OLS regression. We employ SBFEP data to estimate a truncated regression model, comparing our estimates of stumpage fees with the OLS results. It turns out that the OLS approach is biased and likely results in overestimates of stumpage in some timber stands and underestimates in others. Further, we demonstrate that number of bidders has an important impact on bids, but that this could create even more problems for resolving the trade dispute.