Canada Warns That Tariffs on Lumber Could Imperil U.S. Access to Oil

TORONTO, Oct. 11 - Upset over persistent American tariffs on Canadian softwood lumber, Canadian leaders are warning the Bush administration that it is risking secure access to Canadian oil supplies.

In recent days Canada has begun playing a newly minted China card, suggesting in a series of subtle threats that it was willing to satisfy China's growing appetite for Canadian oil and wood that would otherwise go south to the United States.

The trade conflict has been growing worse ever since August, when the Bush administration refused to obey a direction from a special North American Free Trade Agreement panel to refund $5 billion in tariffs collected from Canadian softwood lumber exporters.

"If Nafta is called into question by U.S. action, it calls for us to diversify our trade and investment relations," said Acting Natural Resources Minister John McCallum in a telephone interview on Tuesday, only moments before he left for China to meet with oil, mining and forestry officials.

"On the Chinese side I am sure there will be receptivity," he added.

Mr. McCallum noted that his trip came only after a month after President Hu Jintao of China visited Canada and declared that the two countries had upgraded their relations to a "strategic partnership" and a week after the Chinese Communist Party Central Committee declared that energy supplies was one of the top three challenges for the future.

About 85 percent of Canadian exports, including nearly all of its crude oil exports, are shipped to the United States. Canada exports more than 1.5 million barrels of oil a day south, or nearly 8 percent of American consumption, and that is quickly increasing with the fast development of Canadian oil sands.

China is already Canada's second-leading trading partner, and Chinese companies have begun investing in the oil sands and a pipeline that will take oil sand production to the Pacific coast for export.

About 90 percent of the goods and services that cross the United States-Canadian border each way do so without conflict. But decades of disputes over softwood lumber have become particularly nettlesome in recent years, and have provoked increasingly nationalistic sentiments at a time when most Canadians disagree sharply with Bush administration policies. The issue is also important politically in small towns across Canada at a time when the country is preparing for elections expected early next year.

In a speech last week in New York, Prime Minister Paul Martin sharply criticized the Bush administration's decision to ignore the Nafta panel's order to return the tariffs to Canadian companies.

"Forgive my departure from the safe language of diplomacy, but this is nonsense," he said. "Countries must live up to their agreements."

Mr. Martin's speech made front-page news in Canada, particularly because he seemed to link the dispute with the United States with a renewed effort to improve relations with emerging trading partners. "For us, there is no doubt, China and India represent an exciting new opportunity that we intend to take advantage of," he added in his speech.

Central to the lumber dispute is the fact that most wood harvested in Canada comes from land owned by provincial governments that set cutting fees that American companies say are artificially low. Even with the tariffs, Canadian wood has supplied much of the recent American housing boom.

Soon after the Nafta panel's decision, the World Trade Organization ruled in an interim decision that the American duties on Canadian softwood lumber did not violate international law. But Canada said the Nafta panel's decision trumped the W.T.O.

"The United States strongly disagrees with the allegation that we flout Nafta," said Neena Moorjani, spokeswoman for the United States trade representative, adding that differences over Nafta tariff decisions were still being litigated. "We continue to believe that a negotiated solution is in everyone's best interest."