Upstream Battle Over Polluted River. Job layoffs at issue in cleanup of Pigeon River along North Carolina-Tennessee border. ENVIRONMENT

AFTER 80 years, two lawsuits, and a spectacular outpouring of public emotion, pollution from Champion International's giant paper mill here may soon be sharply curtailed. But no one in this Appalachian town is celebrating: 1,000 high-paying jobs may go too. Since 1908, the mill has dumped its waste into the Pigeon River, which flows dark, toxic, and malodorous down through impoverished communities in eastern Tennessee.

Early this year, Environmental Protection Agency (EPA) officials announced that they would require the mill to comply with Tennessee water quality standards as mandated in the Clean Water Act. But Champion has long maintained that the 80-year-old plant is technologically unable to meet the standards for water color without downsizing, at a cost of some 1,000 jobs.

Coming soon after the new Bush administration has pledged its commitment for a cleaner environment, the developments on the Pigeon River are a fresh reminder of the kind of hard choices that will have to be made before the earth's environment is truly clean.

The largest employer in western North Carolina, Champion has an annual payroll of $100 million at the Canton mill, where one-third of all the nation's paper for milk and juice cartons and about a quarter of all paper for envelopes are made.

In addition to 1,800 workers in Canton (pop. 4,800), the Champion mill supports thousands of spinoff jobs in saw-mills., chain saw manufacturing plants, truck dealerships, banks, and stores. By Appalachian standards, the mill is virtually a gold mine.

``I hate that it messes up the river. But you've got to think about throwing all those people out of their jobs,'' says Chris Stevens, whose father and two brothers work for Champion and who had hoped to work for the company himself when he got out of college. ``Shops will close. Banks will close.''

Beulah Baptist Church, where Mr. Stevens is a deacon, recently borrowed $82,000 to build a sanctuary, after 10 years of holding services in a basement. ``Now how can we pay that money off if people lose their jobs?'' he worries.

But downstream in Tennessee, there are few jobs to lose. ``Industries don't want to locate here because of the smell,'' says Charles Moore, executive of Cocke County, where unemployment averaged 14 percent last year.

``We can't use the Pigeon for agricultural purposes because of the dioxin. We don't build homes on the Pigeon, and we have beautiful sites for homes.''

The brown, foam-flecked river runs right through Newport, Tenn. (pop. 8,000), but municipal authorities pump drinking water six miles over a mountain rather than try to remove the toxins and dark color from the Pigeon.

None but the poorest mountain people risk eating Pigeon River fish.

Tennessee has protested the fouling of the river since 1912, says Gay Webb, a hardware store owner in Newport and vice president of Newport's citizens' action group, the Dead Pigeon River Council.

But for most of that time, the protests were ignored. North Carolina officials, required under the Clean Water Act of 1972 to regulate industrial pollution, wrote what was literally a permit to pollute for the giant mill.

Finally, in 1983, Tennessee sued North Carolina over the condition of the river and asked the Environmental Protection Agency for help.

What followed has become one of the most complex and controversial cases EPA has faced in recent years. Involving two states with different standards, constituencies and priorities, the dispute has provided a foretaste of what might well lie ahead in other places as the world tries to solve cross-border environmental conflicts.

Since the agency vetoed North Carolina's permit for the mill in 1985 (a rare move upheld by a federal judge), two governors, US senators, and thousands of incensed citizens have taken turns trying to influence the outcome of events.

At last year's public hearings in Asheville, N.C., and Knoxville, Tenn., some 11,000 angry citizens - the greatest number attending any hearing in the history of the EPA - turned out to express their feelings for and against more restrictions on the Champion plant.

Along with 160,000 letters, officials in EPA's Region 4 office in Atlanta received anonymous, violent threats.

Meanwhile, citizens of Tennessee have grown more outraged as they have learned of the dangerously high levels of dioxin found in fish below the Champion plant.

Last summer, EPA tests found dioxin in 80 parts per trillion in the fillet of brown trout and in 92.01 parts per trillion in the whole body of white sucker below the mill. Although EPA has no standard for dioxin, the US Food and Drug Administration advises against eating fish contaminated with more than 25 parts per trillion.

Noting that dioxin is one of the most dangerous compounds known to man, the international environmental group Greenpeace has posted the Pigeon River with warning signs.

North Carolina health officials have closed the river to fishing from Canton to the state border, making it the only river in the southeast closed because of dioxin contamination, according to John Marlar, head of the facilities performance branch for the water division of EPA's Region 4.

With emotions running high, Tennessee Gov. Ned McWherter announced in December that the state would not waive its water-color standards as part of an EPA-sponsored compromise that would have saved 500 jobs at the mill.

Exactly what regulations will be placed on the plant, and when, are not clear. Four years have passed since EPA took the authority for regulating the mill from North Carolina. The agency has yet to issue a permit.

But with Tennessee's refusal to compromise and fears of dioxin growing, alternatives seem to have run out.

``Whatever we do will be in compliance with [Tennessee] standard,'' says EPA's John Marlar. For the first time, the permit will also include an as-yet-unspecified limit on dioxin discharges.

``I'm not assuming anything,'' says Bob Turner, a vice president at Champion's Stamford, Conn., headquarters. ``That's one thing I've learned.'' But last month the company submitted a proposal to EPA for a downsized plant that would meet the Tennessee standard, says Mr. Turner. The proposal assumes 1,000 fewer jobs.

Tensions are palpable along the state border. Chris Stevens's brother Mike, a Champion sanitation employee for 10 years, was one of hundreds of Canton citizens who called the Tennessee governor's office in protest, asking if they had any job openings.

Some Tennessee citizens are limiting their trips to North Carolina, where out-of-state license plates have provoked verbal attacks and incidents of egg throwing. But after decades of enduring the rank pollution, most Tennesseans affected by the pollution are unshaken in their desire for justice.

``We may not see the end of this now, but we are going to end it for our children,'' says Cindie Runnion, treasurer of the Dead Pigeon River Council.

``We've worked within the framework of the system, but we're a determined people,'' explains Bob Seay, executive director of the Newport Chamber of Commerce and a founder of the citizens' council. ``We're going to make them do what's right.''