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Published: Friday, 12/2/2005

Canada takes a hard stand on softwood lumber dispute

DETROIT - Nobody ever talks about it, but the economies of Michigan and Ontario are so tightly interwoven that separating them would almost be like separating Siamese twins.

Canada is also America's biggest trading partner by far, a relationship that has ballooned since the North American Free Trade Agreement (NAFTA) took effect a decade ago.

Yet there is a real crisis brewing between the two nations, which have traditionally seen their relationship as the closest international partnership in the world.

The feud isn't over the war in Iraq, something most Canadians strongly oppose.

Nor is it over the United States' implication that border security is too lax, something Canadians resent.

The real problem is over, of all things wood. Softwood lumber, to be exact. The United States is imposing a steep duty on lumber imports. Canada thinks the United States is violating NAFTA, which calls for completely free trade.

So does almost everyone else in the world, as a matter of fact, including former U.S. Ambassador to Canada James Blanchard.

Everyone in Canada knows about the softwood lumber dispute; there are stories about it in the Canadian press every day.

But the American press has virtually ignored it, as they tend to do with everything having to do with Canada.

Why is this happening? The Bush Administration says Canada is improperly subsidizing its timber industry, and has been imposing a steep 22 percent tariff on lumber imports since 2002.

That's not toothpicks in importance or dollar amount.

Softwood lumber is used in building homes, and the United States buys more than a third of all the lumber it needs from Canada.

So far, we've collected more than $4 billion in tariffs. Canada thinks that is an outrageous violation of NAFTA, and wants the money back. Last week, I talked to Jim Peterson, who is Canada's minister for international trade.

"This really raises questions about America's commitment to the rule of law," said Mr. Peterson, who is also a member of Parliament.

The trade dispute has been appealed to a series of impartial NAFTA arbitration panels. Each one has ruled that Canada is right and the United States wrong.

They have told Washington to stop collecting the duty and to refund Canada's money. But the administration refuses.

"This never should have happened," said Mr. Blanchard, a former Michigan governor (1983-91) who represented the United States in Ottawa during the Clinton Administration. "Things got out of hand. The timber industry keeps filing lawsuits, and I think the Bush Administration felt it had to take their side."

Mr. Blanchard, who was considered a highly effective ambassador, has been quietly urging a settlement.

But the Canadians are hopping mad. "A treaty is a compromise by definition, and all we want is for the United States to live up to the treaty," Mr. Peterson said.

"Besides, if you are going to settle a case, you do so on the courthouse steps - not after the jury reaches a verdict."

On Monday, the Canadian government lost a no-confidence vote in Parliament. That means a national election at the end of January. Any serious negotiations at resolving the lumber dispute will have to wait until after that.

The lumber dispute wasn't the main reason for the fall of the current Liberal government, but it will play a part in the campaign.

Paul Martin, the Liberal prime minister, is not very popular. But polls show that Canadians do admire his government's standing up to the United States on softwood lumber. And they are grateful to him and his predecessor, Jean Chretien, for keeping Canada out of Iraq.

Last time Canada had an election, Stephen Harper, the head of the opposition Conservative party, said that if he were elected, he would strive for closer ties with the United States. Nobody expects the Conservatives, or any other party, to do that this time.

What raises the stakes for Washington is that the United States potentially has a lot to lose as well. Overall, America does far more trade with Canada than with any other country.

Might Canada retaliate and start slapping duties on something that we sell to them? That's a distinct possibility, said Minister Peterson. What is perhaps most embarrassing is a notice posted on Canada's official government Web site:

"The U.S. refusal to respect the international panel decisions [on softwood lumber] raises questions about America's commitment to the rule of law. As a result, Canada has little confidence that our two countries can reach, in good faith, a long-term resolution."



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