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Workers sort wood at Murray Brothers Lumber Company woodlot in Madawaska, Ontario on April 25, 2017.

Sean Kilpatrick/THE CANADIAN PRESS

The American lumber lobby at the heart of the softwood trade dispute is attacking Ottawa's new $867-million aid package for the Canadian forestry industry as another "government subsidy," raising the possibility that Washington could impose further punitive duties on producers from Canada.

The Trudeau government unveiled a significant support program for the Canadian softwood industry Thursday to help blunt the pain of American duties on shipments bound for the United States – penalties imposed as the persistent trade dispute with Washington flares up again.

"Canada is standing up to the U.S. Canada is standing up for Canadians," Natural Resources Minister Jim Carr said at a news conference to announce the assistance.

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Opinion: Softwood lumber: The never-ending battle

Read more: Tensions over time: A primer on the Canada-U.S. softwood lumber dispute

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Nearly 70 per cent of the promised federal aid is in the form of loans and loan guarantees that two Crown corporations will extend to forestry companies struggling to cope with a cash crunch caused by the need for duty payments. There are many softwood producers in rural Canada that are critical to the economies of smaller towns and communities.

The federal government insisted the new support does not breach international trade rules because the loans will be made on commercial terms and that the measures "will stand the test of scrutiny."

This support arrives shortly after punitive U.S. duties began to bite into Canadian softwood producers' bottom lines. Preliminary countervailing duties were applied effective April 28 and higher penalties are expected in the months ahead.

The U.S. Lumber Coalition, responsible for triggering the softwood lumber dispute, was quick to lash out at the Canadian aid package Thursday, calling it "a new government subsidy for Canadian softwood-lumber producers."

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Coalition executive director Zoltan van Heyningen said the $867-million in aid "only further tilts the trade scale in Canada's favour, threatening more than 350,000 jobs in communities across the United States."

Asked if the American lumber lobby will push for higher duties as a result of the aid package, Mr. van Heyningen said that is for the U.S. Department of Commerce to decide. "We will continue to insist on the full enforcement of the trade laws."

Mark Warner, a Toronto lawyer who previously worked on trade matters for the Ontario government, warned that this sort of financing could very well trigger further retaliatory action from the United States in the form of higher duties.

Mr. Warner said Canada may well be able to defend these loans and loan guarantees at trade tribunals, but this could take a long time. "Maybe five years later, a World Trade Organization panel might agree with Canada," Mr. Warner said. In the interim, however, Canada may have to shoulder increased duties.

The United States alleges that 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 Conference Board of Canada recently warned that the trade dispute could trigger 2,200 forestry job cuts across Canada.

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The U.S. Department of Commerce slapped countervailing duties of nearly 20 per cent on most Canadian softwood shipments to the United States after a complaint from the American lumber lobby.

Mr. Carr said on Thursday that Ottawa will continue to fight the U.S. duties vigorously, including through litigation, but he acknowledged that this determination to push back "doesn't make the uncertain days ahead any easier for these affected."

The new aid includes more than $600-million in federal loans and loan guarantees that will be made available through two Crown corporations: the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).

EDC will make up to $500-million in commercial financing available, including loans and loan guarantees, to assist forestry companies.

The BDC will make $105-million in financing available to help firms.

As well, Ottawa will earmark $260-million to support efforts to help workers laid off by the dispute to upgrade their skills, to extend the maximum period for work-sharing agreements to 76 weeks from 38 and to help Indigenous organizations pursue new business opportunities.

Toronto trade lawyer Lawrence Herman said he did not believe the Canadian aid measures would contravene international trade rules. "If the loans are unrelated to the exported softwood products, are directed to different company activities and are provided on commercial terms, they would likely not be countervailable." He said the Canadian government examined this very carefully in constructing the assistance programs.

The Forest Products Association of Canada welcomed Ottawa's aid announcement. "We appreciate that the federal government is standing tall for Canadian forestry communities by launching a comprehensive package in the face of trade actions that we believe are without merit," association chief executive officer Derek Nighbor said in a statement.

The Trudeau Liberals are moving faster and with greater support for Canadian producers than their predecessors initially did 15 years ago during the past Canada-U.S. softwood-lumber dispute.

In the previous trade tussle, it was seven months before cabinet approved an aid package that was initially only $100-million.

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