Softwood lumber has been, and continues to be, the most contentious trade issue dividing the United States and Canada. This article examines the economic issues surrounding the dispute and considers possible resolutions to it. Specifically, the article reviews the recently expired Softwood Lumber Agreement, which restricted exports from four Canadian provinces to the United States between 1996and2001.The authors describe this voluntary export restraint agreement (VER), explain how it created windfall gains for Canadian holders of export quotas, discuss how these gains were partly dissipated, and use this analysis to consider a reformed VER. The authors also review other feasible policy alternatives. They compare the likely effects on various Canadian and U.S. interest groups of a reformed VER, an export tax, and an import tariff. They rank these policies from the point of view of each country’s national welfare as well as from an aggregate North American perspective.
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