Canada wants to avoid trade war with US. Retaliates with tariffs, but seeks talks with Washington

Canada wants to cool its trade conflict with the United States. Having retaliated against a US tariff on cedar shingles and shakes with a barrage of tariffs on American goods, Canada is now signaling Washington that it would rather negotiate an ``orderly marketing arrangement'' to replace the hiked tariffs of both sides.

``We are not in a trade war,'' maintained an Ottawa official.

But the US is not interested in such an arrangement for quotas or other limits on Canadian imports of shingles and shakes. An official in the Office of the US Trade Representative held that this had been considered earlier and found that any arrangement acceptable to Canada would be ``unsatisfactory to us.'' So the Cabinet and President Reagan had decided already on the tariff action.

Canada's tit-for-tat move Monday imposed duties on American books, periodicals, computer parts, and semiconductors.

``Our objective is to bring home to the United States the cost of protectionism,'' Finance Minister Michael Wilson told the House of Commons Monday. ``Nations which resort to unjustified protectionism must be made to realize that trade is a two-way street.''

The US is now considering whether the Canadian actions are too severe and deserve retaliation against the retaliation. ``We are taking a look at that right now,'' said the US trade official.

If the US should decide to counter the Canadian measures, the two nations -- enjoying the largest flow of trade across any border in the world -- would be launched on a genuine trade war.

However, the Canadians are aware that its retaliatory moves do nothing to help the manufacturers of shingles and shakes in British Columbia, now faced with a tariff starting at 35 percent and falling gradually over five years to zero again. So they still are hoping that President Reagan will be interested in exercising an available option of negotiating with Canada an arrangement for quotas or some other limit on Canadian exports of shingles and shakes into the US.

``The Canadian industry would see this as a more desirable outcome than a 35 percent tariff,'' noted an official.

The squabble started after the US International Trade Commission, ruling on a US industry complaint, found that imports of some US$180 million of Canadian shingles and shakes were damaging American manufacturers. It recommended that the President take what is known in trade circles as ``escape clause'' action against the Canadian imports. Such action is legal under the General Agreement on Tariffs and Trade (GATT), the arrangement governing international trade.

President Reagan took somewhat less drastic measures than those suggested by the commission.

Besides helping the American industry, many observers believe President Reagan wanted to demonstrate to Congress his ability to take tough decisions in the trade area. Only a day before the President acted, the House of Representatives passed a major trade bill regarded as protectionist. Many Congressmen charge the administration with not doing enough to reduce the massive US trade deficit.

In Canada, the new US tariffs caused a political storm. Opposition parties were similarly charging the Progressive Conservative government of Brian Mulroney with being soft on the US.

Canada at first sought voluntary compensation from the US in the form of reduced restrictions on other Canadian goods or other such offsets. But the US refused.

Under GATT, the US was under no legal obligation to offer compensation because the tariffs on shingles and shakes were ``unbound,'' that is, not fixed by the result of any GATT negotiations. Such tariffs can be altered at will by a nation. Canada was careful to retaliate by boosting similarly unbound tariffs. Thus it too did not violate GATT rules.

However, a US trade official cautioned, ``We have more unbound tariffs.'' In other words, should Canada and the US get into a trade war, the US has more internationally legal tariff ammunition than Canada.

He admitted that, ``unfortunately,'' other nations not involved directly in such a trade war will be sideswiped by the freshly boosted trade barriers.

Canadian trade officials argue that, aside from the political pressures, the Mulroney government had to act to restore the ``level playing field'' in the trade area.

Ambassador Clayton Yeutter, the US Trade Representative, said Monday: ``It seems to me it is inappropriate for Canada to even consider retaliation.'' At a press conference here in Boston, he warned that such a response would set an ``undesirable precedent.''