Threat of US-Canada trade war. Ottawa's ire grows over US tariffs

A clash of domestic political necessities in Washington and Ottawa threatens to erupt into a trade war and damage Canadian-American relations. The United States lumber industry has been complaining for years about cheaper Canadian imports. The Reagan administration fired the first salvos at those imports May 22, imposing stiff tariffs on Canadian red cedar shakes and shingles -- used for roofing and siding on houses.

White House officials considered the action necessary to indicate to Congress its toughness on trade matters.

Only a day earlier, the House of Representatives brushed aside presidential objections to adopt a wide-ranging revision of US trade laws by a 295-115 vote. One key provision would remove considerable discretion from the President, possibly forcing him to retaliate against countries using ``unjustifiable'' trade practices. Mr. Reagan, it is thought, hopes the shingles-and-shake move will discourage similar legislation from passing the Senate.

But the reaction in Canada has been dramatic -- because of the threat to exports worth more than $180 million a year, and for political and personal reasons. In 1984, Prime Minister Brian Mulroney ran for office on a platform that included reestablishing good relations with the US. And at summits with Reagan in Quebec City last year and Washington earlier this year, Mr. Mulroney figured he had personal and written assurances that the US would not impose new discretionary protectionist measures.

Mulroney has argued that his personal friendship with Reagan was something of a safeguard for Canadian trade and economic interests. It wasn't in this case.

One External Relations official here complained that the White House did not notify the Canadian government in advance of its shingles-and-shakes decision.

Mulroney responded last Friday with an exceptionally sharp telex message to Reagan that was released to the press. He expressed his ``profound disappointment'' and regret at what he called a ``punitive measure against Canadian products.''

He continued: ``This American initiative is pure protectionism, the precise thing you and I pledged, in Quebec and Washington, we would seek to avoid. Canada is now placed in the position of being forced to consider an appropriate response.''

Canadian officials were in Washington May 22 to seek either a reversal of the trade decision or compensation in the form of reduced tariffs on other Canadian exports. But Canadian trade experts acknowledge that they are unlikely to get either. So the Cabinet has been given lists of possible retaliatory tariff measures.

Meanwhile, the opposition parties have been roasting the government in Parliament and demanding retaliatory action. New Democrat leader Ed Broadbent was ordered out of the House of Commons Wednesday for the rest of the day after accusing Mulroney of ``misleading'' the House over talks that morning with lumber industry representatives. Under parliamentary rules, no member can accuse another of lying.

The incident arose from the fact that Mulroney had not stayed for the entire meeting with the industry officials. They wanted the US measure rescinded, since retaliation would do them no good.

With the opposition biting at his heels, it is considered unlikely that Mulroney will resist the pressures to retaliate very long.

Also on Wednesday, a cable from US Ambassador Thomas Niles was leaked in Washington. He said he told a senior Canadian official that Canada was ``overreacting'' and explained ``the political realities in Washington in which the President was obliged to make this decision.'' Mr. Niles reportedly told Washington not to ``respond publicly'' beyond acknowledging Mulroney's telex, ``despite the most unfortunate language and tone.'' Canadian External Relations Minister Joe Clark is expected to meet US Secretary of State George Shultz over the issue today at the end of a NATO meeting in Halifax.

And the White House announced yesterday that Vice-President George Bush would visit Canada June 10-13.