January 17, 2008 / 5:09 PM / 10 years ago

Canada aid to respect U.S. softwood deal: Harper

PRINCE ALBERT, Saskatchewan (Reuters) - Canada will not use a $1 billion domestic aid package to bail out forestry firms or in any way violate its softwood lumber deal with the United States, Prime Minister Stephen Harper said on Thursday.

Harper’s remarks came after Washington expressed concern that the promised rescue money for towns and workers hit hard by economic downturns could amount to subsidies to the industry that are not allowed under a bilateral trade agreement.

“I think this is pure political posturing in the United States during an election year,” Harper told reporters after pledging $36.4 million to the province of Saskatchewan.

“The federal government will be very insistent that the money not be used to violate any of Canada’s trade obligations and, frankly, in all my conversations with the provinces, none of them have indicated any intention of using the money in that way,” he said.

Harper has made the funding conditional on the next federal budget being passed by Parliament, putting pressure on opposition parties who see the budget bill as possibly their next opportunity to bring down the minority Conservative government and force an election.

Under the plan, each province will receive a base amount of $10 million, with the remainder of the funding allocated on a per capita basis. Harper is expected to announce each province’s deal piecemeal over the next few weeks.

Subsidies are a sore point for the U.S. lumber industry, which says they violate a shaky truce struck in 2006 by Canada and the United States, which they hoped would end years of acrimonious lawsuits.

U.S. Trade Representative Susan Schwab sent a letter on Tuesday to Canadian Trade Minister David Emerson seeking assurances that the aid package “will be used in a manner consistent with Canada’s obligations under the U.S.-Canada Softwood Lumber Agreement.”

Harper said there was “enormous flexibility” in how the provinces chose to spend the federal money but said he ruled out two options -- funding regions with healthy economies and funding companies in financial trouble.

“The other thing I’ve been clear on is this is a fund for communities, its for workers. It also could involve some broad-based initiatives to improve research and development for sectors but it is not for company bail-outs,” he said.

Saskatchewan’s portion of the funding would go toward support for communities affected by layoffs in the forestry sector, as well as infrastructure, biofuels and sustainable energy development, he said.

Opposition parties in Canada have been critical of the U.S.-Canada lumber deal, calling it a capitulation to Washington at a time they believed Ottawa had good chances of winning its case in court.

Liberal legislator Navdeep Bains accused Harper of misleading Canadians with promises of support to the forestry industry. “What he doesn’t mention is that under the terms of his own flawed Softwood Lumber Agreement, support to the forestry industry is considered an illegal subsidy,” Bains said in a statement.

Reporting by Mervin Brass, writing by Louise Egan; editing by Rob Wilson

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