LUMBER CLOUDS US-CANADA TALKS

The United States and Canada are to wrap up next week the first stage of their exploratory talks toward a bilateral free trade pact.

Simon Reisman, chief Canadian negotiator, has been quoted as saying that so far There have been no obstacles of a kind that would lead me to anything but encouragement...By early October, however, the Canadian view may change.

The Commerce Department is scheduled to announce by Oct. 9 a preliminary

finding as to whether Canada is subsidizing lumber exports, one of Canada's top 10 exports to the United States.

If the department finds that yes, Canada is subsidizing the lumber, the U.S.-Canadian free trade talks could be set back indefinitely.

There is hope, however, even though the Commerce Department last week turned aside a Canadian government request to delay the ruling.

For one thing, Commerce's deadline comes several days after Congress is due to adjourn for the year. With Congress out of town, pressures on the administration to act against Canadian lumber may ease a bit, at least until January.

More importantly, the Canadians - specifically, the province of British Columbia - may act to deflect congressional demands for countervailing duties on the lumber.

The British Columbia government has begun a review of its forestry management policies, a periodic exercise. The review encompasses the prices the government charges Canadian lumbermen for timber - the core of the lumber controversy.

U.S. lumbermen insist that such relatively low stumpage fees give their Canadian competitors an unfair subsidy. In recent years, Canada has steadily boosted its share of the U.S. softwood lumber market. Last year, its exports exceeded $2.8 billion, for about one-third of the market.

If the lumber dispute is settled amicably, prospects for an eventual U.S.-Canadian free trade accord likely will improve greatly.

The only other immediate issue seemingly serious enough to cast doubts on U.S.-Canadian free trade efforts is the Reagan administration's ire over Canada's steel exports to the United States.

U.S. Trade Representative Clayton Yeutter recently cited Canada for increasing its share of the U.S. steel market, suggesting that Canadian steelmakers were exploiting the export restraints of other foreign suppliers.

If the United States decides to insist that the Canadian government control Canadian steelmakers' exports, Canada can be expected to resist strongly.

Canadians say that their higher market share does not reflect increased exports but rather a decline in the U.S. steel market. Most Canadian steel firms, an official says, are not looking for new U.S. customers, but they do want to keep servicing their old ones.

The most the Canadian government seems willing to do on this issue is to try moral suasion with the steel exporters.

So far, the U.S.-Canadian free trade discussions have focused on the matters each government wants to put to negotiation. After next week's meeting, each side probably will take stock of one another's proposed agenda.

The U.S. and Canadian negotiating priorities appear to differ, though both governments apparently are agreed on a goal to eliminate virtually all, if not all, tariffs on each other's products.

By January, under existing agreements, about 80 percent of Canada's exports to the United States and two-thirds of U.S. shipments to Canada will be free of duty.

Otherwise, Canada is expected to emphasize its desire for safeguards against U.S. import restrictions under the anti-dumping, anti-subsidy and other selective trade laws, an area where Canada has been hit. Canada also seeks greater access for its suppliers to government contracts in the United States.

For its part, the United States appears most interested in persuading Canada to liberalize yet further its treatment of foreign investors, to fix ground rules in the services sectors, and to improve patent and copyright laws. More open Canadian government procurement policies is another likely objective.

There is no formal target date for completing the negotiations, but each country is subject to possible constraints. Both governments may want to wrap up the talks by 1988. President Reagan's term will be near its end and Canada also might hold elections that year.

While the free trade proposal so far has had little apparent impact on the U.S. public, it is a vigorously debated issue in Canada. Recent polls suggest that Canadian support for the idea is starting to wane, though more than half of those polled still back it.

Free trade could be the central issue in Brian Mulroney's bid to stay on as prime minister. It may be his challenge to convince his fellow Canadians that a free trade pact would not, as one critic puts it, turn Canada into a trust territory of the United States.

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