Now that the deadline to reach a new softwood lumber deal has passed, both Canada and the U.S. are preparing to launch into a new round of trade disputes.

The U.S. claims that the Canadian softwood lumber is unfairly subsidized because most of that nation's lumber is owned by Crown land, Janyce McGregor reports for CBC News. The U.S. can levy countervailing duties if "[Canadian] government subsidies are found to be injuring a domestic [U.S.] industry. That harm must be proven." Should the U.S. Department of Commerce decide to levy those duties against Canadian imports, it could take up to 130 days to complete a full investigation to prove the harm.

Despite the threat of levying duties against Canada and the passing of the deadline to reach a new deal, both nations are still discussing a new deal, McGregor writes:

"While our engagement has yet to produce a new agreement, our governments will continue negotiations though the standstill period has expired," said a joint statement Wednesday from Canada's International Trade Minister Chrystia Freeland and United States Trade Representative Michael Froman.

They're aiming for an agreement that offers "the stability, consistency and flexibility necessary to achieve the confidence of both industries..."

Right now, lumber exporters are doing quite well, benefiting from a low dollar and rising demand from the U.S. housing sector.

Once the U.S. election concludes, there may be a short window to make the most of the final, friendly weeks of the Obama administration and break through.

On the other hand, negotiations with Washington are driven more by U.S. industry, which must give up its right to trade action for any deal to hold.

The U.S. is hoping to cap Canada's market share of softwood lumber at 22%, whereas Canada's 2015 share of the market was 30%, according to Steven Chase of The Globe and Mail. A decreased market share is not Canada's biggest problem with the ongoing negotiations, however. McGregor writes:

A bigger problem may be the U.S. unwillingness to acknowledge Canada's varied industry. Individual companies and provinces could opt out of measures in the last deal.

"They see Canada as one block," [Naomi Christensen, an analyst at think-tank Canada West Foundation] said. "They're not keen on what was in the last agreement."

Canada's industry has diversified, slowly, over the past decade. About 10 per cent of exports now go to China.

Major Canadian forest companies also expanded into the U.S., making them less vulnerable to trade actions.

But smaller lumber producers, particularly those landlocked (without access to Asia), could be hit hard. Again.

That brings another cost for the Canadian government: if mills close and rural economies take a hit, demands for compensation might start.

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