Canada Is Unhappy With U.S. Trade Pact : Foreign relations: Recent moves in Washington have exacerbated tensions. The prime minister meets with his Cabinet today to discuss possible retaliation.

A series of adverse trade decisions by Washington is prompting Canada to take a hard look at its 3-year-old free-trade accord with the United States and to consider retaliation.

The U.S.-Canada trade pact, which was supposed to establish a formal and lasting framework for the world’s largest trading relationship, has been the subject of a heated debate in Canada ever since it was signed in January, 1989. Labor forces and social democrats have argued all along that the accord is hurting Canada and should be rescinded.

Specifically, the opponents blame the accord for the disappearance of more than 400,000 Canadian jobs over the last three years.

Until now, the government of Progressive Conservative Prime Minister Brian Mulroney has defended the U.S.-Canada trade accord. But now, Washington’s actions are making even Canadian free-marketeers, from Mulroney on down, complain that the United States is violating the spirit--if not the letter--of the deal.

Mulroney, normally a staunch ally and supporter of George Bush, is calling the latest trade decisions “unworthy” of Washington--the sort of thing he’d more expect from “some tin-pot dictator.”

He has been careful to add that he believes that the measures must be the handiwork of “low-level functionaries,” not the U.S. President himself.

Mulroney’s Cabinet is expected to meet today to discuss possible retaliation.

The furor comes as Washington is struggling toward a three-way trade agreement among the United States, Canada and Mexico. It can only be expected to sour an already edgy negotiating atmosphere.

Even before the latest disputes flared up, Canadians had been suspicious that the three-way talks were merely a way for American business to bully its way into the few remaining closed Canadian preserves, such as commercial aviation and the entertainment industries.

Now Canada’s trade minister, Michael Wilson, is hinting that the three-way trade deal cannot go ahead until the bilateral trading relationship between the United States and Canada is repaired.

Although the United States and Canada have had recent spats over pork, beef, plywood and electricity, it is lumber and Honda Civics that have brought things to a head.

Last week, the U.S. Commerce Department ruled that about 90,000 Honda Civics assembled in Alliston, Ontario, are the equivalent of overseas imports and are therefore not eligible for duty-free entry into the United States under the free-trade accord.

Canadian-made cars usually are shipped duty-free to America as long as 50% of their components are North American. Commerce based the Honda ruling in large part on the Civics’ engines, which are cast and assembled in Anna, Ohio, but are deemed foreign because costly foreign components are added when they are finished.

The Commerce Department’s ruling effectively sticks Honda Motor Co. with a $17-million bill for back duties, since the cars have already been shipped to the United States.

But the Honda action didn’t have the shock value of the ruling made by the U.S. Commerce Department a few days later: that Canada is subsidizing its softwood lumber.

In that decision, Commerce said it would take the first steps toward levying a 14.48% duty on virtually all Canadian softwood exports to America.

The decision has thrown the lumber markets--which export about $3 billion worth of softwood to the United States each year--into chaos.

The forest-products industry is the biggest job producer in Canada, but it is now in a painful recession.

American forestry interests have been claiming for years that Canadian timber is unfairly subsidized. Canadian timberlands are generally owned by the provincial governments, which charge logging companies a fee--called the stumpage fee--for the right to cut the trees.

American timber interests say the stumpage fee is artificially low--so low that it constitutes an unfair subsidy.

The two countries struck a truce in 1986, under a memorandum of understanding that required Canadian provinces to raise their stumpage fees. If they didn’t, the memorandum allowed for a 15% duty on softwood exports to America.

That worked until last October, when Canada decided that the economics underlying the memorandum had changed and that it was time to terminate the arrangement.

The Commerce Department then began moving toward last week’s announcement of the 14.48% duty.

If the duty is ultimately imposed, Canada can still bring the matter before a special panel, made up of both Canadian and American experts, for a final ruling. The dispute-resolution panels were created when the 1989 free trade agreement was signed.

Even the Canadian trade experts who negotiated the bilateral trade pact are now expressing doubts about the way it is working.

America’s behavior “is raising serious questions as to what America’s word is worth,” said Gordon Ritchie, who was the deputy chief trade negotiator when the accord was written and who is now a private consultant.

He pointed out that 1993 will be an election year in Canada and that both major opposition parties are on record for either tearing up the bilateral free-trade agreement or overhauling it.

If one of those parties forms the next government in Canada, and the free-trade pact is terminated, then Washington’s recent behavior will have “hurt the American economy more than it hurts anybody else’s,” Ritchie said. “Canada is far and away the biggest market for American goods. You can kiss that goodby.”