Secretary of State George P. Shultz said here today that the Reagan administration intends to begin negotiations on liberalizing trade with Canada early next year despite strong protectionist sentiments in the U.S. Congress.

But in meetings here in western Canadian prairie country with his counterpart, Foreign Minister Joe Clark, Shultz bluntly informed the Canadians that they should be prepared to discuss difficult concessions.

President Reagan and Prime Minister Brian Mulroney first discussed last March the prospect of negotiations between the two countries whose two-way trade exceeds $100 billion annually -- the largest trading relationship in the world. Late last month Mulroney formally notified Reagan that his government was prepared to enter talks.

Under existing international trading agreements, roughly 80 percent of Canadian exports to the United States are unrestricted while about 60 percent of U.S. exports to Canada are duty free.

Although U.S. officials and members of Congress have generally regarded Canada as a fair trader compared with Japan and the European Community, there are a host of small-scale disputes between the two countries.

Expressing optimism today about attaining a trade pact with Canada in the face of congressional sentiment, Shultz noted that Reagan had stood up to pressures for import quotas on shoes and that the House of Representatives had been unable to pass tariff barriers to textile imports with a majority large enough to override Reagan's threatened veto.

"Don't count us out," Shultz admonished reporters here.

In the sessions between Clark and Shultz today, one of four such meetings each year, the U.S. side voiced concern over Canadian shoe import quotas and liberal Canadian laws that afford scant patent or copyright protection for U.S. pharmaceuticals and computer software. American diplomats long have been in contention with Canada over the pirating of television signals from the United States by Canadian cable firms.

Shultz singled out current restrictions on U.S. investment in Canadian publishing houses as an example of the issues that will figure in the trade talks.

Canadians contend that the restrictions are necessary to protect their country's cultural integrity, and recently ordered U.S. owners to sell Canadians a majority of stock in the Canadian subsidiary of the textbook publisher Prentice-Hall.

Clark has refused to place any restrictions on so-called Canadian cultural industries in the forthcoming negotiations despite demands from opposition leaders to do so. But, in a toast to Shultz at a luncheon of western Canadian business and political leaders, Clark did attempt to describe, gingerly, Canadian sensitivities on the matter.

"Issues between Canada and the United States have a different significance in our smaller country than in your larger one," the Canadian minister said. "What is incidental to you can be central to us; what is entertainment to you can be culture to us."

At a press conference afterward, Shultz remarked, "It turns out that there is a great appetite in Canada for the acquisition of U.S. publishing houses, so it shouldn't come as any suprise that it should be all right for a U.S. company to make an [Canadian] acquisition." He said he had given Clark a two-page, typewritten list of U.S. publishing firms recently acquired by Canadians.

For their part, the Canadians expressed their concern about U.S. proposals for restrictions on the export of hogs, lumber and steel.

Mulroney's notification to Reagan last month came as protectionist fervor in the United States and in Congress was reaching a peak. The prime minister was candid in telling the Canadian Parliament that one important reason for negotiating a bilateral trade arrangement with the United States was to ensure that Canada would not be the victim of any new tariff barriers imposed by Congress.

While Reagan warmly welcomed Mulroney's offer to begin negotiations, U.S. officials had hesitated in getting the formal go-ahead from Congress, apparently as they attempted to shape a strategy for dealing with the rising outcry and stiff proposals for dealing with imports. Shultz said today he expected that the formal consultations with Congress that are mandated by trade legislation prior to entering negotiations, could be taken care of in November and December so talks could begin early in 1986.