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The U.S. proposal for a deal to manage the softwood-lumber trade envisions a level of exports from Canada that is still far below what Canada would accept.

DARRYL DYCK/The Globe and Mail

Canada's International Trade Minister is warning it may not be possible for Canadian and American officials to settle a looming softwood-lumber battle before an October deadline – after which Washington is free to slap duties on timber from Canada.

"This is a notoriously, historically tough and complicated issue to resolve," Chrystia Freeland told media in a conference call Wednesday from Washington, where she met with counterpart U.S Trade Representative Michael Froman on the matter.

"We know it may not be possible – but we are working hard at it."

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The U.S. proposal for a deal to manage the softwood-lumber trade envisions a level of exports from Canada that is still far below what Canada would accept. The dispute covers about $6-billion in annual exports.

Ms. Freeland said there is goodwill among both the Trudeau and Obama administrations to try to resolve this but warned the protectionist climate in Washington – which she said is worse than at any time since the Second World War – is making it hard to reach a settlement.

Mr. Froman is preparing to come to Canada soon to talk to Canadian softwood-lumber executives in an effort to bridge the impasse.

He's expected to travel north the week of Oct. 3 and the meeting may be in Toronto, although this is not confirmed yet.

The 2006 softwood-lumber truce between Canada and the United States expired Oct. 12, 2015, and under the terms of that deal, Washington had pledged not to initiate a new trade case against Canada for one year.

That cooling-off period expires next month.

The diverse U.S. lumber industry alleges that Canadian softwood producers have an unfair cost advantage.

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The Americans say Canadian provinces unfairly subsidize exports by undercharging lumber producers for cutting on Crown land and in the case of British Columbia, by restricting log exports.

The nine-year agreement negotiated by former prime minister Stephen Harper bridged this disagreement by agreeing that duties would be imposed on U.S.-bound softwood lumber when prices fell below a certain level and set a mechanism for managing disputes.

The U.S. lumber industry holds many of the cards right now.

If it doesn't get what it wants, the United States will proceed to levy what are called preliminary duties on Canadian timber – which increases costs for producers in Canada – as the U.S. Department of Commerce investigates what it considers the extent of Canadian subsidies.

This will lead to expensive litigation – a process that could take years to end as Ottawa is forced to fight the case in court and at the World Trade Organization.

As recently as June, U.S. timber interests were demanding Canada agree to limit softwood-lumber shipments such that the Canadian share of U.S. lumber consumption is capped at 25 per cent.

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That's lower than Canada's 2015 market share of 30 per cent and well below the 33-per-cent level reached before the two countries signed their last managed trade deal in 2006.

Sources say the U.S. demand is still roughly the same today as it was in June.

Ms. Freeland said Ottawa is not willing to capitulate and noted Canada has successfully defended its lumber practices internationally. Previous rounds of U.S. litigation have failed to prove historic American grievances about Canadian softwood practices.

"We are looking for a good deal but we are not looking for any deal."

The International Trade Minister has already met with American lumber producers as part of efforts to try to reach a solution.

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