John Rust, Georgetown University: "Timber Cycles"

Timber harvesting is heavily regulated in Canada and in British Columbia, the province where the largest amount of timber is harvested, the Crown owns over 95% of all timberland and issues timber harvesting licenses to loggers and charges them a fee for cutting the timber called stumpage. In addition, the Crown imposes an annual constraint on timber harvests called the Annual Allowable Cut in order to insure "sustainable harvests" of timber.  The implication is that timber harvesting under a private ownership scenario, such as exists in the United States where the majority of timberland is privately owned, could be "unsustainable". We address this question using biological growth models for timber developed by the British Columbia Ministry of forests and a database of nearly 700,000 hectares of land in the Fraser Timber Supply Area of British Columbia with detailed geographic information that allows us to predict timber harvesting costs on a hectare by hectare basis. We conduct a counterfactual simulation of what timber harvesting would be if the Crown privatized the land in the Fraser Timber Supply Area. We find that there would be substantially *less* timber harvesting under the privatized scenario and that the Crown would earn substantially more in present value from selling off this timberland to privatize it than the present value of stumpage revenues. We suggest that the true motivation of regulation of timber harvesting is to subsidize lumber mills and production of finished lumber from the timber.  British Columbia has strict raw log export restrictions that result in equivalent logs selling for two to three times as much in the US, less than 100 kilometers south of the border. We argue that the harvest and trade restrictions are a form of Canadian protectionism to favor its sawmill industry at the expense of tax revenues and its logging industry. Our results have implications on the question of whether Canada is "dumping" lumber in the US, a disagreement that lead to the US vs. Canada Softwood Lumber Dispute. Though the World Trade Organization concluded that the subsidies Canada provides to its lumber industry were de minimis, we conclude that actually these subsidies are substantial and confirm the allegations of the US that Canada is indeed engaging in the dumping of lumber in the US market.  Our results suggest that this Canadian protectionism has both adverse economic and environmental consequences