U.S. Attacks Subsidies to Canada Loggers : Trade: A Commerce Dept. finding of unfairness paves the way for stiff new tariffs on timber imports. Ottawa vows to fight the case to the end.

In the latest and most fractious dispute with its largest trading partner, the United States accused Canada of unfairly subsidizing its timber exports to this country, paving the way for the imposition of stiff new tariffs.

A Commerce Department finding, released Friday, has determined that Canada provides its loggers a 6.51% subsidy, giving them an unfair advantage by making it possible for them to sell their exports at a lower price.

Although the rate was less than half that determined by a preliminary investigation in March, it may be enough to warrant new U.S.-imposed tariffs.

Determining what constitutes an unfair subsidy under the arcane and complex rules governing international trade has been the subject of countless disputes between the United States and its trading partners.

In addition to the Commerce Department finding, a separate ruling is required by the independent International Trade Commission. It has 45 days to determine whether Canadian timber subsidies injure, or threaten to injure, the U.S. industry. If it does, it can order the tariffs, known as countervailing duties, to offset the advantage.

The Commerce Department finding was hailed on Capitol Hill by Sen. Max Baucus (D-Mont.), chairman of the Senate International Trade subcommittee, who predicted that it could save the jobs of thousands of U.S. timber workers.

“Despite Canadian efforts to win State Department and White House intervention and despite $20 million in Canadian spending on lobbyists and lawyers, the Commerce Department made a decision based upon the facts,” Baucus said in a written statement. “I hope the International Trade Commission will soon follow suit.”

However, Canadian Trade Minister Michael Wilson vowed “to fight the case to the end. . . . The harassment of Canadian exports in this sector must stop.”

Canada has appealed the case to an international dispute-settlement committee in Geneva. If it loses before the ITC, it has indicated that it will also ask that a special review panel be established under provisions of the U.S.-Canada free trade agreement.

Originally, the Commerce Department had inauspiciously scheduled the announcement of its finding for Wednesday, the same day that President Bush is scheduled to meet with Canadian Prime Minister Brian Mulroney.

That meeting seems certain to be dominated by a number of disputes that have erupted in recent months over trade in products ranging from automobiles to beer. The battles have raged even as the two countries have continued to implement the 1989 free trade pact.

“They want the temperature lowered on all these disputes,” Canadian Ambassador Derek H. Burney said earlier this week.

The primary issue in the lumber case is the U.S. contention that Canadian provinces provide the subsidy in effect by charging loggers below-market fees for the timber they cut from government lands. Canada denies the accusation and insists that its policies are fair and legal.

Last year, the United States imported about $2.6 billion worth of Canadian softwood lumber products, including such building materials as framing, boards, planks, timbers, flooring and siding.

Among Canada’s allies in the fight is the National Assn. of Homebuilders, which contends that U.S. consumers will suffer if the price of building materials rises. The association has noted that lumber prices already have increased by more than 37% this year, adding $3,000 to the price of a new home.