Northern states protest competition from Canada

While the rest of the country is looking over its shoulder to see what Japan will export next, the Northern tier states are looking to Canada for much the same reason.

Instead of Toyotas and microchips, the players in this trade drama are cash crops and other commodities. At issue are long-standing disputes over lumber in Washington state and potatos in Maine, and more recent troubles with maple syrup in Vermont and grain throughout New England.

Growers, producers, and manufacturers are complaining that Canadian imports are undercutting their prices and taking a bite out of profits. For example, a grain dealer in Vermont says he has lost between $300,000 to $400,000 in sales per year to Canadian grain in the last two years. And Canadian softwood lumber and other wood products represented 30 percent of US lumber sales in 1981, up from 18.6 percent in 1975.

Like their automotive industry counterparts seeking relief from cross-Pacific competition, northern state businessmen are casting a wary eye across the 49th parallel and calling for protectionist legislation.

The root of the problem, in the view of those south of the border, is the continuing strength of the US dollar relative to the Canadian dollar. The current rate of exchange is roughly 17 cents on the dollar, quite high by historical standards.

Complicating the problem are charges by lumbermen, grain dealers, and others that the Canadian government is unfairly subsidizing various industries with tax breaks, preferential financing, grants, and labor aids.

Washington has shown no inclination to alter the otherwise harmonious $85 billion-a-year trade between the two countries, the largest volume of bilateral trade in the world. The political reality, say affected firms and individuals, is that the impact of low-priced products is largely regional and not widely felt outside border states, except in the case of lumber. The result: negligible political support for the imposition of trade barriers. Add to that the Reagan administration's much-heralded free trade policy, and little change is expected in the basic US-Canadian trade relationship.

With federal initiative lacking, states and industry groups are taking matters into their own hands. A longstanding dispute over lumber imports was brought to a head in early October when an ad hoc group known as the United States Coalition for Fair Canadian Lumber Imports, complaining of Canadian government subsidies, filed a petition for countervailing duties. The US Commerce Department is expected to make a preliminary ruling on the petition on March 7.

A similar controversy in the potato country of northern Maine is blowing hot again. Imports rose 18 percent last year over the year before, and a whopping 700 percent since 1976, according to the Maine Potato Council. Those circumstances led the state to enact regulations last year that effectively cut off potato imports from Canada. The matter wound up in court where the federal government won a permanent injunction barring any interference with the imports. But the problem has persisted, and on Feb. 10 the Maine Potato Council filed an anti-dumping suit on behalf of growers in the state.

In other states, such as Vermont where an estimated 1,000 tons of low-priced grain is flooding across the border each day, the impact on domestic growers and producers is only now being assessed. Few political or legal initiatives have as yet been formulated.

The latest trade skirmishes between the two countries come against the backdrop of a lingering dispute over a decision by Canada to speed up enforcement of laws designed to limit foreign investment in domestic industries, especially energy, and the failure of the US Senate to approve a treaty for joint management of Alantic fishing. But the localized nature of the current disputes tend to limit their negative impact.

For its part, Canada says it wants nothing more than to retain the free flow of trade. With 30 percent of its GNP dependent on exports (one of the highest percentages among industrialized nations) and the economy in a recession worse than that in the US, an open border is to its advantage.

''There haven't been any unfair subsidies,'' says a Canadian embassy official in Washington. ''US lumber companies have sought to blame their own problems on Canadian imports. There will always be problems, especially in times of economic downturn, but in general the management of trade issues is improving substantially.''

Others see the current flap as a temporary aberration that will blow over. ''It's only a thorn in the side of a very successful, long-term trade relationship,'' says William Merkin, director of Canadian Affairs in the Office of the US Trade Representative. ''It's inevitable that you have some friction with the discrepancy in currencies we're seeing now, but the pressures we face in Canada are minor compared with Japan.''

The objections of grain dealers, potato farmers, and lumbermen go beyond the difference in the value between US and Canadian currencies. They also complain that Canadian products are not subject to the same regulations as US goods, and are therefore of less reliable quality.