VANCOUVER, British Columbia (CP) – A heavy-handed attempt to push Canada back to the negotiating table in the softwood lumber dispute backfired, Trade Minister Jim Peterson told his American counterpart.

In a telephone call to U.S. Trade Representative Robert Zoellick, followed up with a letter, Peterson criticized the U.S. handling of the longstanding trade tiff.

An active lumber trade has existed between Maine and Canadian border provinces for more than a century, with logs, chips and lumber routinely flowing back and forth across the border.

Peterson told Zoellick that Canadians are very upset by the U.S. Commerce Department’s recent decision to leave softwood tariffs high when earlier indications pointed to a deep cut in the punitive duties.

Observers saw the move to reduce the combined countervailing and antidumping duties to about 21 per cent from 27 per cent – they were expected to be halved – as an attempt to force Canada into a compromise settlement.

But Peterson told Zoellick in their phone conversation Wednesday that if that was the strategy, it backfired, a government source said Thursday.

The Canadian forest industry responded by canceling talks with U.S. forestry executives to feel out interest in new negotiations.

The industry and lumber-producing provinces were upset that Commerce used an entirely new method to calculate alleged Canadian subsidies. A method used last June that would have cut the duty rate in half was discarded.

The new method also applied a distinct formula to British Columbia, which accounts for 53 per cent of Canadian lumber shipments to America, using a cross-border price comparison that has been ruled illegal by the World Trade Organization.

Peterson condemned the approach, as well as continued American unwillingness to abolish the so-called Byrd amendment despite a WTO ruling that it flouts international trade law.

The Byrd amendment allows U.S. companies deemed to have been injured by allegedly subsidized imports to receive proceeds of the tariffs.

Canadian lumber exporters have paid almost $4 billion in duties since they were imposed in May 2002. The money is held in trust by U.S. Customs until a raft of legal challenges is completed.

Peterson spokeswoman Jacqueline LaRocque would not discuss the specifics of the telephone call but confirmed Peterson told Zoellick that Byrd is a “flagrant breach of the rules.”

The WTO has given Canada, along with the European Union and several other countries, the right to retaliate against U.S. goods over Byrd.

In his letter to Zoellick, Peterson noted recent Commerce decisions seem to undermine commitments made by President Bush late last month in Ottawa.

Peterson reiterated his concern that Commerce has not refunded millions of dollars in antidumping duties to B.C.-based West Fraser Mills after they were effectively recalculated to zero.

U.S. officials maintain appeal decisions and other rulings affecting duties are not retrospective, meaning they can keep money already collected.

And American lumber interests say they have a right to all the duties collected since 2002 even if Canada wins an upcoming appeal under the North American Free Trade Agreement.

The United States launched the challenge in November after a NAFTA panel ruled Canadian lumber imports worth about $10 billion annually represent no threat of injury to American producers.

If it stands, the ruling would kill the duties outright because NAFTA decisions carry the weight of law.

In his letter, Peterson accused the U.S. side of dragging its feet in setting up the appeal.

The case is to be heard by a three-member panel, with a decision expected next spring. Each side gets to pick one member and Canada reportedly won a coin toss to choose the third.