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It could be well into 2007 before the federal government applies retaliatory tariffs in the softwood lumber dispute, Trade Minister Jim Peterson said Tuesday.

Despite heightened rhetoric earlier in the day by high-ranking cabinet officials and the Prime Minister, Mr. Peterson said Canada would wait until after it received WTO approval and performed extensive consultation with Canadians before retaliatory tariffs would be considered in the softwood lumber dispute.

"We have not made that decision. We will pursue all measures including litigation, possible retaliation, and heightened political advocacy," Mr. Peterson said.

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Canada has filed two separate requests at the WTO: one for $200-million and another that matches the duties already collected, $5-billion. The Canadian case is strong, and approval is expected by mid-2006.

But the United States said that it had no intention of scrapping the duty on Canadian softwood. Washington says it found further evidence for the softwood duties in November, 2004, and that last week's decision only applies to the U.S. International Trade Commission's 2002 finding of injury.

Earlier Tuesday, during a brief media scrum, Prime Minister Paul Martin castigated the United States for its lumber protectionism and its decision to ignore yet another ruling by a NAFTA panel made last week.

"The American position is absolutely untenable. It's unacceptable," said Martin said, who didn't mention tariffs.

"The fact is that we won those cases and under the terms of NAFTA and under the terms of any kind of an agreement, when a panel comes down and makes a decision, that should be honoured."

Industry Minister David Emerson and Finance Minister Ralph Goodale said the federal government was considering escalating the near trade-war with U.S. by slapping trade tariffs on U.S. exports in retaliation for American protectionism on softwood lumber.

They said Mr. Peterson was identifying sectors where Canada could impose tariffs and place maximum pressure on the U.S.

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However, Mr. Peterson tempered those comments later Tuesday.

"Retaliation was never our first choice," Mr. Peterson said. " We would much prefer that the U.S. comply with NAFTA."

Mr. Peterson said it was too early to identify which sectors could become subject to trade tariffs, but it is expected that the Canadian government would likely select areas where there would be the least impact on Canadian industries. Most likely in the areas of water and wine, but Mr. Peterson said he has made no decision.

Foreign Affairs Minister Pierre Pettigrew appeared to welcome the idea of tariffs and admitted California wines were being considered as one possible target.

"I do believe that we should do it in a way that will not go to the detriment of other Canadian interests," said Pettigrew, a former trade minister who dealt with the softwood dispute.

"We have to do it in a way that some U.S. interests will ring their senators and congressmen in Washington."

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However, Mr. Peterson was not so quick to speculate on which products would become targets in a trade war.

"It's pointless to speculate what the particular products would be in terms of possible retaliation," Mr. Peterson said. "I don't want to speculate at this time."

His colleagues were less diplomatic.

Mr. Emerson used a hockey analogy, comparing U.S. tariffs to a dirty hit from a goon and said it's time for Canada to "take their number."

Mr. Emerson said Ottawa is trying to "identify a number of products where a tariff on American exports into Canada can be applied without serious damage to the Canadian economy and, hopefully, with maximum impact in the U.S.

"The idea is a wakeup call (to the U.S.)"

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U.S. Customs has collected roughly $5-billion in duties since May 2002, when American trade officials concluded Canadian softwood imports were unfairly subsidized.

NAFTA panels have three times concluded that the U.S. failed to prove that Canadian softwood poses a material threat of injury to U.S. producers.

Under trade rules, if Washington can't prove Canadian timber injures or threatens to injure U.S. producers, it is obliged to scrap the duties on Canadian lumber imports.

Canada's latest victory was on Aug. 10, when a NAFTA panel ruled that the U.S. had once again failed to adequately demonstrate injury to U.S. producers. The decision should have put an end to the dispute, but the United States said it had no intention of lifting the duties or returning the money.

In response, the federal government cancelled softwood negotiations scheduled for earlier this month with the U.S.

Despite a softening stance on retaliatory tariffs, Canadian officials have already ramped up their public relations campaign in the U.S.

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"We know that the world is watching the United States as it deals with its closest neighbour and partner," Mr. Peterson said.

Mr. Martin is expected to call U.S. President George W. Bush about the issue and Mr. Peterson has already spoken with his U.S. counterpart at least three times since the Aug. 10 NAFTA decision.

Ambassador to the U.S. Frank McKenna is also expected to take the issue directly to the American people and U.S. media is also being targeted by the Canadian campaign.

An editorial in the Wall Street Journal last week took on the issue, arguing that the U.S.'s failure to drop the tariffs was negatively impacting construction costs.

"The trade panel's pro-consumer ruling allows the Administration a graceful exit from one of its more bone-headed economic policy decisions: the imposition of the lumber tariffs in 2002," the editorial stated. "Its cave-in to the domestic timber industry - combined with the imposition of steel tariffs at about the same time - damaged U.S. trade credibility around the world."

The editorial went on to say that, "if there were ever a time for Canada to raise its voice forcefully, it is now."

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Ottawa is intent on making its point that U.S. Customs has illegally collected $5-billion in tariffs on Canadian softwood since 2002, said Mr. Goodale.

"We want to make sure that whatever option we pursue is effective in making our point ... without at the same time shooting ourselves in the foot," he said.

"Canada has wanted to make it very clear that we are not happy with the position of the United States to simply ignore what is a clear NAFTA ruling in Canada's favour."

One particularly Draconian measure has already been ruled out - imposing export quotas on Canadian oil exports to punish alleged U.S. protectionism on lumber.

With a report from the Canadian Press

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