Softwood wars.

Byline: The Register-Guard

The benefits of regional trade pacts such as the North America Free Trade Agreement have always been hotly debated by stakeholders who stood to gain or lose under terms of the agreements. For the most part, however, government leaders in countries that signed the trade treaties were strong supporters.

But the high-level backing is rapidly unraveling in Canada, where mounting anger over a long-running softwood lumber trade dispute has inflamed passions in Ottawa and damaged relations with the United States' oldest and largest free-trade partner. If the two NAFTA nations can't settle their $5 billion spat through negotiation or agree to abide by the rulings of various international trade dispute panels, U.S. credibility about the benefits of trade pacts will suffer significantly.

Frustrated by American refusal to honor a NAFTA panel's ruling in favor of Canada, the Canadian government canceled further negotiations with U.S. trade representatives. Though Canada cites three separate rulings by trade dispute panels that its softwood lumber exports are not unfairly subsidized, the United States also can claim a couple of favorable rulings from the World Trade Organization and the U.S. International Trade Commission.

At the heart of the dispute is U.S. lumber companies' charge - vehemently denied by Canada - that the Canadian government unfairly subsidizes its lumber industry. In the United States, most timber is harvested from private land. But 90 percent of Canada's timber comes from public land.

U.S. companies claim the unfair subsidy occurs when Canadian provinces impose artificially low cutting fees on their timber producers, making Canadian softwood considerably less expensive than U.S. timber.

The Bush administration responded to industry pressure in 2002 by imposing a 20 percent tariff on Canadian lumber imports. Ottawa countered by filing dozens of lawsuits with trade arbitration panels seeking to overturn the tariffs and have the money refunded to Canadian companies.

So far, Canada has won most of the legal battles, but the response from Washington has been a dismissive shrug and continued defiance of the rulings with stiff tariffs. That so outraged Canadians that widespread calls arose for retaliatory tariffs on California wines and Florida orange juice. If nothing changes, there will be considerable internal political pressure for Canada to withdraw completely from NAFTA.

Reality check: With 86 percent of Canada's total exports going to the United States and the U.S. market for Canadian softwood expected to boom as the Gulf Coast rebuilds in the wake of Hurricane Katrina, an all-out trade war isn't going to happen. But Washington ignores Canada's grievances at its peril.

If the largest U.S. trading partner seriously considers withdrawing from NAFTA because Canadians find using the treaty's dispute resolution process pointless, the White House can count on growing skepticism abroad as it attempts to sell the benefits of regional and bilateral free trade agreements.

At some point, U.S. Trade Representative Rob Portman is going to have to come up with a better explanation for why the United States ignores these rulings than "Litigation has obviously not proved to be an effective way to resolve this relatively small but highly disruptive agreement."

No argument from Canada on that.