This study reports on market forces and government policies that influence the softwood trade between Japan and North America. The policy environment is described by a lumber import quota in Japan, an embargo on log export in Canada, and free log trade between the United States and Japan. A statistical model measures the influence of log processing and lumber consumption adjustments on the U.S.-Japanese log trade and prices in both countries. The empirical study is based on annual data from the 1960 to 197 6 period. Results indicate that Japan, excess demand and the United States' excess supply relations are price responsive in the log market. Mean value elasticities are around -0 .2 for Japan and +O. 7. for the United States. The finding of a price response on the part of the Japanese stand in contrast to research based on quarterly data from the 1950 to 1969 period and trade unit values instead of wholesale prices. (21.)

The estimates indicate that changes in housing starts and domestic log production in Japan are critical in explaining past and likely future level of U.S. log trade. Over the 1962 to 197 6 period, for example, Japan's increasing construction and declining domestic harvest contributed about equally to rising log purchases from the U.S. During most of the 1980s and 1990s developments in Japan's markets could encourage a log trade near the levels of the mid-1970s. This would be likely if brisk income growth fosters a strong residential construction market and softwood harvests from Japan's forests are comparable to those of the mid-l 1970s. However, it is possible that Japan could drastically reduce its dependence on U.S. log imports. This might occur if stagnant income precludes strong demand for new housing and the output potential of Japan's softwood forest is realized.