OUR CANADIAN SPAT

A flurry of international decisions in August has produced both a fresh crisis and an opportunity for a settlement of the long-simmering dispute with Canada over its export of softwood lumber.

Canada says that the United States has illegally collected $5 billion since 2002 in tariffs on Canadian pine, spruce and fir lumber. The United States charges Canada with unfair competition, contending that the import duties are justified to make up for Canada’s relatively cheap “stumpage” charges for cutting timber on government-owned land.

From Canada’s viewpoint, the dispute is estimated to have cost its lumber producers billions of dollars and thousands of jobs, according to a recent in-depth history by CBC News. The dispute boiled over in May 2002, when the Bush administration imposed duties of 27 percent – later lowered to the present 18 percent – arguing unfair subsidization.

Until then, relations had been relatively peaceful under a 1996 agreement imposing quotas on Canadian softwood exports to the United States. But that wasn’t good enough for the U.S. softwood industry. Thus the new tariffs, hard feelings on both sides and threats of a trade war that could jeopardize the $1 billion-a-day commerce between the United States and its largest trading partner.

Negotiators came close to a new quota agreement in 2003, but the talks broke up when the Bush administration insisted on further Canadian concessions.

As the dispute ground on, rulings under the North American Free Trade Agreement and the World Trade Organization generally supported Canada’s position that the U.S. import duties were illegal. The Bush administration appealed the rulings.

Things came to a head on Aug. 10, when an “extraordinary challenge panel” under NAFTA dismissed U.S. claims that an earlier NAFTA decision in favor of Canada had violated trade rules. Canada’s international trade minister, Jim Peterson, hailed the action, demanding that the United States stop collecting the duties and refund the $5 billion in duties collected in the past three years. Washington rejected the decision and said it would not abide by it.

Canadians erupted in anger. Senior cabinet ministers hinted at a trade war and suggested retaliatory tariffs on imports on such American products as oranges and wine.

But the WTO stepped in on Aug. 30, declaring that it would first have to approve any retaliatory tariffs. Canadian officials promptly stopped talking about retaliation, and Prime Minister Paul Martin is reported to have said he would telephone President Bush when the timing was right.

That suggests a possible solution. Negotiation is better than litigation through the cumbersome treaty procedures and seemingly endless appeals. Negotiation will require concessions on both sides. The United States and Canada both have an interest in peaceful trade relations. Their leaders should work toward that end, concentrating on their national interests without too much deference for industry pressure groups.