Threat of Wheat War Riles US-Canada Scene

CANADA and the United States for more than a century have shared the world's longest peaceful international frontier. But when it comes to trade issues, ''peace'' often isn't the correct word.

On July 14, the US filed a complaint under the North American Free Trade Agreement against Canadian tariffs on poultry, dairy, and egg products. This complaint ranks as a sideshow to a flare-up in the US-Canada ''wheat war.'' As American farmers reap a comparatively scant crop of winter wheat, the US is preparing to thwart a potentially disruptive flood of Canadian wheat exports after the Sept. 12 expiration of limits on such shipments.

''We're headed for a rough spot,'' says Karen Fegley of the National Association of Wheat Growers in Washington.

The North American neighbors last year narrowly prevented the wheat dispute from spreading into a broad trade war.

US officials and wheat farmers say Canada exports wheat below cost. They have demanded the extension of a 1.5 million metric ton cap on annual Canadian wheat exports to the US.

For its part, Canada notes that the US often subsidizes exports. It has indicated it will let the export restraint expire.

The wrangle has intensified as world wheat stocks, as a percent- age of consumption, fall toward a record low, and farmers anticipate a lucrative seller's market.

Moreover, the meager US winter-wheat crop stirs memories of the deluge of Canadian imports after the 1993 flood decimated the US wheat harvest. That surge followed years of steady increases in Canadian wheat and barley shipments across the border. Between 1988 and '94, such exports rose sevenfold.

A report issued last month by the Canada-US Joint Commission on Grains has also intensified the wheat wrangle. In a preliminary finding, the commission - formed last year to reduce bilateral trade tensions and promote fairness - urged the two countries to liberalize grain trade.

Thrown on the defensive, wheat interests on both sides of the border have criticized the report by the commission, which is made up of five Canadians and five Americans. They have begun an intensive lobbying effort to influence the final report, which will be issued Sept. 11.

US wheat growers criticize the commission for urging vague changes to Canada's grain trade while calling for an end to the use of US grain-export subsidies under the Export Enhancement Program. But they applaud the commission finding that Canada distorts grain prices.

''For the first time, you had a binational commission that agreed there are elements in the way the Canadian Wheat Board operates that distort markets and act as export subsidies,'' a congressional aide from an agricultural state says. ''That has been our contention for a long time.''

A longstanding US diplomatic campaign has urged Canada to expose the wheat board to market forces. The board is the sole marketing agency for wheat and barley grown in western Canada.

Washington says the board routinely undercuts rival exporters by marketing grain below cost. While declining to publicize its prices in order to maintain a marketing advantage, the board denies that it distorts prices.

''There is certainly no interest for us, on behalf of the growers we represent, to sell grain below what we need to sell in order to do the business,'' says board spokesman Brian Stacey. ''We are acting completely as a fair trader.''

US trade representative Mickey Kantor has indicated that if the two nations fail to compromise on grain trade, the US will maintain limits on Canadian wheat imports beyond Sept. 12.

''We need some sort of concrete mechanism where we are not going to face a situation where Canadian wheat is coming in and driving domestic prices down to a level below cost of production,'' the aide says. Since Canada limited wheat exports to the US, complaints by US farmers to Washington have fallen significantly, he adds.

Efforts to resolve the grain-trade conflict are complicated by a belief among Canadians that their powerful southern neighbor is throwing its weight around at their expense.