US-Canadian Softwood Lumber Trade: a Case of Perfectly Fungible Products
In May 2002, the US International Trade Commission (USITC) placed a countervailing duty of 18.79% on Canadian softwood lumber imports based on the premise that no difference exists between US and Canadian softwood lumber species and that Canadian producers receive stumpage subsidies. The USITC assumption was that the product requirements in all end-use markets for softwood lumber can be met across all available North American species. The USITC based its analysis of the fungible nature of softwood lumber on aggregate market analyses of cross-price elasticity of demand estimates across species/species groupings. The objective of this research is to develop and implement a product-market level conjoint model to measure substitutability of softwood lumber species in North America. The model will be developed and tested on disaggregated softwood
lumber markets through a survey of the US homebuilder market. These end-use markets represent the vast majority of softwood lumber used in the US, yet they are very distinct from one another with regard to performance requirements. Estimated conjoint model parameters will be used to derive cross-price elasticities of demand. Elasticity results will be used to assess whether softwood lumber species and species groups are substitutes in specific end-use markets as suggested by USITC decisions. Research results that point toward distinct differences in the substitutability between North American species/species groups of lumber would have considerable implications in future USITC analyses of the US-Canadian softwood lumber trade issue.