Canada is stepping up pressure on the US in the softwood-lumber dispute by considering huge punitive duties for imports of US corn, worth US$100 million a year, according to an article in the National Post.

Government sources said that Canada is launching a formal probe of US corn exports to Canada just as it looks for ways to retaliate against the US over the softwood lumber dispute.

Canadian corn growers successfully complained to Ottawa this week that the US government illegally subsidizes its corn growers.

That, Canadian farmers argued, allows US farmers to dump low-price corn in the Canadian market for everything from animal feed to ethanol gasoline.

This new Canadian corn growers' complaint has been accepted by Ottawa and is being pursued aggressively in the wake of the Liberal government's unhappiness over of what it sees as a US government refusal to honor international trade rulings in the softwood dispute, the article said.

"This is definitely linked to softwood," a top trade source said in the article, noting that Ottawa plans to launch the probe by Sept. 16.

At a Regina Liberal caucus meeting, Canadian Prime Minister Paul Martin added his voice to the outcry over the US position on softwood.

"The American position is absolutely untenable," Martin told reporters. "It's unacceptable. When a panel comes down and makes a decision, that should be honored."

The article said Canada's Industry Minister David Emerson was in the process of drawing up a list of US goods on which to impose tariffs in retaliation for the Americans' decision to ignore a trade-panel ruling on softwood lumber.

"The idea is to create pressure in the US without creating damage at home," he said.

Emerson said Canada shouldn't try to penalize the US by imposing tariffs or quotas on energy exports, a move that would alienate Alberta, the country's major oil and gas producer, in particular. He made it clear that he is solidly in the retaliation camp.

Emerson in the article also said the US attitude on softwood lumber raises questions about the durability of the North American Free Trade Agreement. Asked directly if NAFTA needed to be rewritten, he said, "I think it's time we as a country considered our strategic options. And certainly I've been a strong advocate of diversifying our markets."

Earlier in the day, Finance Minister Ralph Goodale and Foreign Affairs Minister Pierre Pettigrew told reporters that the government plans to impose penalties on some US imports as soon as it determines what retaliatory tariffs will be most effective as a "wake-up call" to the US

"Any means to get their attention, as far as I am concerned, would be fair at this time," Pettigrew said in the National Post article, adding he was fed up with the US ignoring years of World Trade Organization and NAFTA rulings in Canada's favor on the softwood issue. The US has levied $5-billion in duties on the imports since 2002.

"It's time that someone wakes up in Washington and implements the decision," Pettigrew said of the latest NAFTA panel ruling that softwood imports from Canada aren't harming the US industry.

However, Trade Minister Jim Peterson in the article played down threats of immediate retaliation, insisting that he will not move until the WTO gives its blessing. That isn't expected to until mid-2006.

"We want to be fully compliant with our trade obligations," he said after meeting with Canadian lumber officials in Kamloops, BC.

However, import duties on US corn is seen as one effective way of applying pressure since it wouldn't hurt Canadian consumers. Other likely targets include tomatoes from Florida and other farm products such as lettuce.

The possibility of hitting US corn with punitive duties as high as US$1 per bushel - US corn sells for about US$2.24 per bushel - is part of a Canadian corn industry strategy that also would see Ottawa initiate another case at the Geneva-based WTO to complain about illegal subsidies to US corn farmers, the National Post article said.

The Canadian corn