IDEAS home Printed from https://ideas.repec.org/a/eee/forpol/v74y2017icp71-80.html
   My bibliography  Save this article

Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach

Author

Listed:
  • Johnston, Craig M.T.
  • van Kooten, G. Cornelis

Abstract

In this paper, a spatial price equilibrium model developed to shed new light on the economic impact of restrictive trade sanctions adopted in the Canada-U.S. softwood lumber dispute. Mixed complementarity programming is used to solve a 21-region, global trade model that is calibrated to 2011 observed bilateral trade flows using positive mathematical programming. In addition, the model employs a mechanism for analyzing the effects of the tariff rate quota used in the 2006 Softwood Lumber Agreement (SLA). It is estimated that the SLA created an annual deadweight loss of $28 million, paid by U.S. consumers. The quota constrained Alberta lumber producers while BC producers had excess quota. The lack of a proper mechanism for capturing quota rent, such as a tradable quota scheme or quota auction resulted in the survival of high-cost firms, perhaps to the detriment of lower-cost firms in Alberta. In the absence of SLA, it is estimated that Alberta would supply an additional 9% of Canadian softwood lumber to the U.S., eroding the supply share of all other regions while improving aggregate welfare.

Suggested Citation

  • Johnston, Craig M.T. & van Kooten, G. Cornelis, 2017. "Impact of inefficient quota allocation under the Canada-U.S. softwood lumber dispute: A calibrated mixed complementarity approach," Forest Policy and Economics, Elsevier, vol. 74(C), pages 71-80.
    • Handle: RePEc:eee:forpol:v:74:y:2017:i:c:p:71-80
    DOI: 10.1016/j.forpol.2016.10.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S138993411630209X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.forpol.2016.10.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Skully, David W., 2001. "Economics of Tariff-Rate Quota Administration," Technical Bulletins 184332, United States Department of Agriculture, Economic Research Service.
    2. Craig Johnston & G. Cornelis van Kooten, 2014. "Modelling Bi-lateral Forest Product Trade Flows: Experiencing Vertical and Horizontal Chain Optimization," Working Papers 2014-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    3. Baek, Jungho, 2011. "Dynamics of the U.S.-Canada Softwood Lumber Trade: Market and Welfare Effects of the 2006 Softwood Lumber Agreement," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 12(2), pages 1-13, November.
    4. Skully, David W., 2001. "Economics Of Tariff-Rate Quota Administration," Technical Bulletins 33576, United States Department of Agriculture, Economic Research Service.
    5. van Kooten, G. Cornelis & Johnston, Craig, 2014. "Global impacts of Russian log export restrictions and the Canada–U.S. lumber dispute: Modeling trade in logs and lumber," Forest Policy and Economics, Elsevier, vol. 39(C), pages 54-66.
    6. Nicholson, Charles F. & Bishop, Phillip M. & Nagurney, Anna, 1994. "Using Variational Equalities to Solve Spatial Price Equilibrium Models with Ad Valorem Tariffs and Activity Analysis," Working Papers 128023, Cornell University, Department of Applied Economics and Management.
    7. Parajuli, Rajan & Sarangi, Sudipta & Chang, Sun Joseph & Hill, R. Carter, 2016. "The United States-Canada softwood lumber trade: An actual versus optimal export tax," Forest Policy and Economics, Elsevier, vol. 73(C), pages 112-119.
    8. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    9. Paris, Quirino & Drogué, Sophie & Anania, Giovanni, 2011. "Calibrating spatial models of trade," Economic Modelling, Elsevier, vol. 28(6), pages 2509-2516.
    10. Yin, Runsheng & Baek, Jungho, 2004. "The US-Canada softwood lumber trade dispute: what we know and what we need to know," Forest Policy and Economics, Elsevier, vol. 6(2), pages 129-143, March.
    11. Johnston, Craig M.T. & van Kooten, G. Cornelis, 2016. "Global trade impacts of increasing Europe's bioenergy demand," Journal of Forest Economics, Elsevier, vol. 23(C), pages 27-44.
    12. Nicholson, Charles F. & Bishop, Phillip M., 2001. "World Dairy Product Trade: Analysis With A Mixed Complementarity Problem Formulation," 2001 Annual meeting, August 5-8, Chicago, IL 20754, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    13. Stennes, Brad & Wilson, Bill, 2005. "An analysis of lumber trade restrictions in North America: application of a spatial equilibrium model," Forest Policy and Economics, Elsevier, vol. 7(3), pages 297-308, March.
    14. Nicholson, Charles F. & Bishop, Phillip M. & Nagurney, Anna, 1994. "Using Variational Equalities to Solve Spatial Price Equilibrium Models with Ad Valorem Tariffs and Activity Analysis," Working Papers 179221, Cornell University, Department of Applied Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nagurney, Anna & Besik, Deniz & Dong, June, 2019. "Tariffs and quotas in world trade: A unified variational inequality framework," European Journal of Operational Research, Elsevier, vol. 275(1), pages 347-360.
    2. Miguel Riviere & Sylvain Caurla, 2020. "Representations of the Forest Sector in Economic Models [Les représentations du secteur forestier dans les modèles économiques]," Post-Print hal-03088084, HAL.
    3. Jon Duan & G. Cornelis van Kooten & A. T. M. Hasibul Islam, 2023. "Calibration of Grid Models for Analyzing Energy Policies," Energies, MDPI, vol. 16(3), pages 1-21, January.
    4. Liu, Xuan & van Kooten, Gerrit Cornelis & Duan, Jun, 2020. "Calibration of agricultural risk programming models using positive mathematical programming," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(3), July.
    5. Kanieski da Silva, Bruno & Schons, Stella Z. & Cubbage, Frederick W. & Parajuli, Rajan, 2020. "Spatial and cross-product price linkages in the Brazilian pine timber markets," Forest Policy and Economics, Elsevier, vol. 117(C).
    6. Mathieu, Valentin & Roda, Jean-Marc, 2023. "A meta-analysis on wood trade flow modeling concepts," Forest Policy and Economics, Elsevier, vol. 149(C).
    7. Parajuli, Rajan & Zhang, Daowei & Kosman, Keta, 2018. "Province specific impacts of the 2006 United States-Canada Softwood Lumber Agreement: A seemingly unrelated regression approach," Forest Policy and Economics, Elsevier, vol. 90(C), pages 1-6.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johnston, Craig M.T. & Parajuli, Rajan, 2017. "What's next in the U.S.-Canada softwood lumber dispute? An economic analysis of restrictive trade policy measures," Forest Policy and Economics, Elsevier, vol. 85(P1), pages 135-146.
    2. Ahmed, Wasim & Hussain, Safdar & Jafar, Rana Muhammad Sohail & Guang-Ju, Wang & Rabnawaz, Ambar & Saqib, Zulkaif Ahmed & JianZhou, Yang, 2016. "Impacts of Trade Liberalization on Dairy Industry in China," MPRA Paper 70385, University Library of Munich, Germany.
    3. Oyewumi, Olubukola Ayodeju, 2005. "Modeling tariff rate quotas in the South African livestock industry," Master's Degree Theses 28064, University of the Free State, Department of Agricultural Economics.
    4. Johnston, Craig M.T. & van Kooten, G. Cornelis, 2016. "Global trade impacts of increasing Europe's bioenergy demand," Journal of Forest Economics, Elsevier, vol. 23(C), pages 27-44.
    5. Pan, Suwen & Welch, Mark & Mohanty, Samarendu & Fadiga, Mohamadou L. & Ethridge, Don E., 2005. "Assessing the Impacts of the Chinese TRQ System and U.S. Subsidies on the World Cotton Market," Estey Centre Journal of International Law and Trade Policy, Estey Centre for Law and Economics in International Trade, vol. 6(2), pages 1-16.
    6. Binfield, Julian C.R. & Donnellan, Trevor & Hanrahan, Kevin F. & Westhoff, Patrick C., 2009. "WTO Doha Round: Impact of an Agreement on Agriculture and the Importance of Sensitive Products," 83rd Annual Conference, March 30 - April 1, 2009, Dublin, Ireland 50936, Agricultural Economics Society.
    7. W. H. Furtan & Blain M. van Melle, 2004. "Canada's Agricultural Trade in North America: Do National Borders Matter?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(3), pages 317-331.
    8. Anonymous & Meilke, Karl D. & Knutson, Ronald D. & Ochoa, Rene F. & Rude, James, 2006. "Achieving NAFTA Plus," 2006 NAAMIC Workshop III: Achieving NAFTA Plus 163871, North American Agrifood Market Integration Consortium (NAAMIC).
    9. Anna Nagurney & Deniz Besik & Ladimer S. Nagurney, 2019. "Global supply chain networks and tariff rate quotas: equilibrium analysis with application to agricultural products," Journal of Global Optimization, Springer, vol. 75(2), pages 439-460, October.
    10. Colin A. Carter & Tina L. Saitone & K. Aleks Schaefer, 2019. "Managed trade: The USMexico sugar suspension agreements," Canadian Journal of Economics, Canadian Economics Association, vol. 52(3), pages 1195-1222, August.
    11. Li, Xianghong & Carter, Colin A., 2005. "Agricultural Tariff Rate Quotas: Impacts on Market Access," 2005 Annual meeting, July 24-27, Providence, RI 19413, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Listorti, Giulia & Kempen, Markus & Girardin, Jean & Kranzlein, Tim, 2011. "Do Price Uncertainties Affect the Use of Policy Flexibilities? The Selection of Sensitive Products in WTO Agricultural Negotiations," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114381, European Association of Agricultural Economists.
    13. Gouel, Christophe & Mitaritonna, Cristina & Ramos, Maria Priscila, 2011. "Sensitive products in the Doha negotiations: The case of European and Japanese market access," Economic Modelling, Elsevier, vol. 28(6), pages 2395-2403.
    14. Feng’ e Yang & Shashi Kant, 2008. "Rent Capture Analysis of Ontario’s Stumpage System Using an Enhanced Parity Bounds Model," Land Economics, University of Wisconsin Press, vol. 84(4), pages 667-688.
    15. Bishop, Phillip M. & Nicholson, Charles F., 2004. "Dairy Market Impacts of US Milk Protein Imports and Trade Policy Alternatives," Research Bulletins 122102, Cornell University, Department of Applied Economics and Management.
    16. Jafari, Yaghoob & Britz, Wolfgang & Guimbard, Houssein & Beckman, Jayson, 2021. "Properly capturing tariff rate quotas for trade policy analysis in computable general equilibrium models," Economic Modelling, Elsevier, vol. 104(C).
    17. Schmitz, Troy G. & Lewis, Karen E., 2015. "Impact of NAFTA on U.S. and Mexican Sugar Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(3), pages 1-18, September.
    18. Parajuli, Rajan & Zhang, Daowei & Kosman, Keta, 2018. "Province specific impacts of the 2006 United States-Canada Softwood Lumber Agreement: A seemingly unrelated regression approach," Forest Policy and Economics, Elsevier, vol. 90(C), pages 1-6.
    19. Kerkelä, Leena & Huan-Niemi, Ellen, 2005. "Trade Preferences in the EU Sugar Sector: Winners and Losers," Discussion Papers 358, VATT Institute for Economic Research.
    20. Miguel RIVIERE & Sylvain CAURLA, 2018. "Integrating non-timber objectives into bio-economic models of the forest sector: a review of recent innovations and current shortcomings," Working Papers of BETA 2018-26, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Canada-U.S. lumber trade dispute; Tariff rate quota; Mixed complementarity programming; Global trade model; Model calibration; Quota trading;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:forpol:v:74:y:2017:i:c:p:71-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/forpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.