U.S. and Canadian trade negotiators were to meet on Thursday in a last-ditch effort to settle a $6 billion lumber dispute, but officials said the chances of a deal were slim as the U.S. Commerce Department (news - web sites) prepared to slap Canadian shipments with punishing duties.

Schnittholz

U.S. Poised to Impose Duties on Canadian Lumber

U.S. and Canadian trade negotiators were to meet on Thursday in a last-ditch effort to settle a $6 billion lumber dispute, but officials said the chances of a deal were slim as the U.S. Commerce Department (news - web sites) prepared to slap Canadian shipments with punishing duties. Both sides remained far apart in negotiating a temporary export tax on Canadian softwood lumber, which accounts for one-third of the U.S. market and is used in home building. In the most recent chapter of a decades-long trade fight, Washington accused Ottawa of unfairly subsidizing timber grown on publicly held lands. It also claimed Canadian companies sell wood from those lands at below-market prices. Canada has denied any wrongdoing, saying the United States is being protectionist. But Ottawa agreed to try and negotiate a solution to avoid punitive duties and end a string of legal challenges over the past two decades.

"I think the gap (between the two sides) is still rather significant," U.S. Trade Representative Robert Zoellick told reporters on Wednesday. Without a deal by the end of Thursday, the Commerce Department would be required by law to finalize duties on Canadian shipments as a punishment for alleged illegal subsidies and dumping. The Commerce Department last year set preliminary duties averaging about 32 percent against Canadian softwood lumber. In a final decision likely to be announced on Friday, the U.S. government could raise, lower or maintain the rate.

Canadian Trade Minister Pierre Pettigrew remained in Washington for a final session of negotiations before the deadline. Pettigrew, who declined to predict the outcome of the talks, said Canada was "making the best possible effort" toward an agreement. "There is a lot of daylight between where we are and where they (Canadians) are" to resolve the trade dispute, said Deborah Regan of the Coalition for Fair Lumber Imports. The coalition represents the U.S. lumber industry, which launched the trade case. While Regan insisted the crux of the negotiations were over long-term reforms to Canada's lumber industry practices, a U.S. Senate source, who asked not to be identified, said the talks had foundered over the size of a tax on Canadian lumber. Canada was said to favor an export tax of no more than 10 percent while the United States called for up to 37 percent. Zoellick said Canada offered to auction 13 percent of its timber at market rates, far below the 65 percent sought by the U.S. industry. Even if duties are imposed, the negotiations are likely to continue as the two countries try to find some sort of long-term resolution to the lumber dispute. "I think we've made some serious progress. We ought to consolidate that progress," Zoellick said.

For a while in the 1980s, Canada controlled its exports of softwood to the United States with a voluntary 15 percent levy on shipments from British Columbia and Quebec. With the U.S. economy showing signs of a rebound, duties on Canadian lumber are likely to mean higher housing prices for American consumers. The U.S. government this week reported February housing starts increased 2.8 percent to an annualized rate of 1.769 million units, the fastest pace in more than three years. The trade dispute has been closely watched by retailers such as Home Depot Inc.,, which has said that finalizing the preliminary duties on Canadian shipments could add about $1,500 to the price of an average new U.S. home. On Wednesday, lumber futures traded on the Chicago Mercantile Exchange soared on indications that Canadian shipments may soon face duties. The May contract rose $4.40 to close at $314.00 per thousand board feet. Canada is expected to take its case to the World Trade Organization and NAFTA.