By Doug Struck and Paul Blustein
Washington Post Staff Writers
Friday, April 28, 2006

TORONTO, April 27 -- Canada and the United States announced a tentative agreement Thursday to end a long-festering dispute over imports of Canadian lumber, and Washington said it would repay $4 billion of $5 billion in tariffs collected on lumber that have been hotly contested by Ottawa.

But the agreement, on a two-decade-old issue that has helped sour Canadian attitudes toward the United States, is unlikely to end the controversy. Political opponents in Canada lambasted the deal as a sellout, and critics immediately attacked the plan.

The Canadian government engaged in a day of furious lobbying to try to put down domestic opposition to the deal.

At day's end, Prime Minister Stephen Harper appeared in parliament in Ottawa to argue that Canada had won the dispute. "The United States has accepted key conditions" in the negotiations, Harper said. "This is a good day."

He also announced that the chief lumber-producing provinces would support the deal, which he called "an advantageous agreement for all Canadians . . . and crucial for the industry."

His claims of success were immediately attacked by critics, who complained that the United States should have been required to repay all of the $5 billion in tariffs that international trade bodies have ruled were collected illegally.

"Where is the elusive $1 billion that is missing?" demanded Bill Graham, the leader of the opposition Liberal Party, adding that Harper had "caved in under the pressure of President Bush and the American lumber barons."

Under the seven-year accord, on which a few details still remain unresolved, shipments of pine, spruce, birch and other softwood lumber from Canada to the United States would be subject to no quotas or tariffs at current prices. But if prices fall below specified thresholds, export taxes or volume caps would be activated to limit the inflow of Canadian lumber. Provincial governments would have the option of imposing relatively steep taxes ranging from 5 to 15 percent, depending on how low prices fall, or they could restrict the quantities of exports while imposing more modest taxes.

The lumber, which primarily goes to the residential housing industry in America, is an important export for Canada. The U.S. government has imposed duties on such imports since 2002 based on the argument that Canada unfairly subsidizes its lumber producers by charging low fees for harvesting trees on vast tracts of provincial government land. Repeated rulings by tribunals of the North American Free Trade Agreement and World Trade Organization have rejected the U.S. position and found the duties illegal. Canadians had become increasingly irritated at the American administration's refusal to abide by those rulings.

Although the trade dispute attracted little public notice in the United States, it became an emotional issue in Canada, where critics excoriated Washington as an untrustworthy trade partner and a bully.

The deal, if it holds up, may be seen as an impressive success for Harper, whose Conservative government took office in January. Asked whether the Bush administration wanted to reward a Canadian leader who was viewed by the White House as something of an ideological soul mate to Bush, U.S. Trade Representative Rob Portman said: "I give credit where credit is due -- to the political will that we negotiators were given from the top."

At a news conference at the Canadian embassy in Washington, Portman noted that Bush and Harper had agreed recently to try to settle the issue. "I don't know if anyone 'gave' anything to anyone," he said, "but both Prime Minister Harper and President Bush made it clear they want a constructive relationship. . . . This was an irritant in what is otherwise a very strong relationship."

But Harper had campaigned on a promise of demanding a return of all of the lumber tariffs from the United States, a point seized on by his critics.

"Accepting 80 cents on the dollar -- that's a sellout," thundered Jack Layton, leader of the opposition New Democratic Party. "Is the prime minister finally going to stand up to U.S. trade bullying and say no to this slap in the face?"

Graham, the Liberal leader, noted that half of the $1 billion will be distributed to a coalition of U.S. lumber companies for distribution to its members, so the money will "go to the coffers of the American lumber industry to allow them to continue the aggressive attack" on Canadian lumber exports.

Asked how Ottawa could justify accepting the partial return of the duties, Michael Wilson, the Canadian ambassador to Washington, said, "A negotiation is a negotiation. Am I one-hundred percent in favor of everything in the agreement? No. But it meets the objectives we set out in advance," which he defined as settling the dispute and establishing "stable rules" for the Canadian industry.

While Canadian lumber industry associations were divided about the pact, it drew praise from the Coalition for Fair Lumber Imports, the main U.S. industry group. "We applaud the tireless efforts of the Bush administration officials who negotiated a means of offsetting Canadian unfair lumber practices," Steven Swanson, the group's chairman, said in a statement.

Some major U.S. buyers of lumber, however, attacked the agreement. "We are stunned that the administration would . . . seek to curtail supply and raise prices in a time when the homebuilding market is cooling," said Shawn Conrad, president of the National Lumber and Building Material Dealers Association.

Blustein reported from Washington.