US-Canada wood war: more smoke than fire. Canada upset by lumber duties, but hasn't threatened retaliation

Canada is speaking loudly and carrying a small stick in its fight against the preliminary decision by the United States Department of Commerce to impose a 15 percent countervailing duty on some $4 billion of Canadian softwood lumber imports. Pat Carney, Canada's minister for international trade, has termed the action ``an attack on our sovereignty.''

Speaking here to the Canada-New England Business Society last week, she also warned vaguely that ``support for all American initiatives could be affected.'' And, she said, some provincial premiers see greater anti-Americanism in Canada. However, Canada has not cancelled the free-trade talks now underway with the US, as urged by some nationalists in Canada.

Indeed, Mrs. Carney argues that the lumber case illustrates the need for a special long-term, binding trade agreement between the two nations that would limit ``the ability of interest groups on both sides of the border to use harassment tactics.''

Nor has Canada threatened trade retaliation. It's too early, indicated a Canadian diplomat.

Last spring when the US imposed a 35 percent duty on Canadian shakes and shingles, Canada did retaliate by boosting tariffs on computer parts, books, and some other US exports.

What Mrs. Carney and representatives of Canada's 10 provinces, the lumber industry, and its trade unions did decide at a meeting last week in Toronto was ``to fight right through the process.''

That means Canada will seek a reversal of the preliminary decision. The Department of Commerce, in that decision, found that four provinces (British Columbia, Alberta, Ontario, and Quebec) were subsidizing Canadian lumber exports by charging inadequate fees on timber harvested from government lands. The same group of Commerce officials are to make a final subsidy determination by Dec. 30. A number of them are visiting Canada this week on another fact-finding mission.

Some Canadian officials hope that once the Congressional elections are over, protectionist pressures in Washington will ease. Though the subsidy-determination process is described as ``quasi-judicial,'' they wonder if one goal of the preliminary ruling was to help elect Republicans in major lumber-producing states.

Mrs. Carney noted that the lumber duty could boost the cost of a house in the US by at least $1,000. She cited Senator John H. Chafee (R), of Rhode Island, as saying that the decision would result in only four states being winners (because of higher lumber prices) and 46 states the losers.

If the final subsidy decision should go against Canada, the next step would be a ruling in February by the International Trade Commission on whether Canadian lumber imports have seriously injured the American industry.

The Canadian forest industry has won a larger share of the American lumber market in recent years, taking a 33 percent share currently. Nonetheless, with housing booming in the US, some degree of prosperity has also returned to American lumber producers.

However, because of greater productivity on both sides of the border, the number of employees in the relatively high-paying North American forest industry has shown marked decline.

Mrs. Carney holds that the analysis in the preliminary subsidy determination was ``badly flawed and contrived.'' She also maintains it was an act of ``double jeopardy'' since a 1983 decision by the Commerce Department on the same question had found no subsidy.

Canada has left open the possibility of its industry at some point attempting once more to negotiate a deal with the US industry aimed at raising Canadian lumber prices and thus escaping countervailing duties.