If America Had Canada's Stumpage System.

The North American lumber market is integrated and, under normal conditions, provides unhindered access to all suppliers. North American log markets, in contrast, function on different principles: in one principle, a profit allowance for the wood processor plays a role in timber pricing, whereas in the other it is a byproduct of the give-and-take of arm's length market negotiations. Under the first system, markets are characterized by high elasticities of price transmission and, at times of market weakness, by low elasticities of product supply. Under the second system, the opposite of these benchmarks prevails. This can result in asymmetric supply responses in weak markets, to the detriment of U.S. producers. Whether this is a subsidy in the sense of conferring a direct financial contribution by the government or merely a more efficient pricing mechanism is beclouded by the dearth of market-based transactions. The challenge in the lumber dispute then is to devise a system of pricing in Canada that is more transparent in regard to the underlying valuation of timber.