Canada and the U.S. have agreed on a framework deal to put the decades-old softwood lumber dispute behind them -- but it's a proposal that could prove to be a hard sell to lumber-producing provinces.

The breakthrough comes after around-the-clock negotiations between Michael Wilson, the ambassador to the United States and Susan Schwab, the deputy U.S. trade representative, reported CTV's Ottawa Bureau Chief Robert Fife on Wednesday.

As part of the proposed framework:

• Canadian lumber firms would be held to a 34 per cent share of softwood lumber in the U.S. market, which is roughly Canada's current share. That share would be broken down regionally, based on 2004-05 exports.
• The U.S. would return about 78 per cent of the $5 billion it collected in anti-dumping and countervailing duties beginning in 2002.
• Ottawa would impose an export tax which would vary according to lumber prices, export levels and the value of the Canadian dollar.
• A "surge mechanism" would penalize a region if its exports exceed 110 per cent of its allocated share.

However, before he signs off on the deal, Prime Minister Stephen Harper is seeking approval from the provinces where the major lumber companies are based.

"He'll have to negotiate how this 34 per cent of the quota will be distributed amongst the provinces, whether the provinces can barter, can sell or buy quotas," said Fife, who first reported a framework deal was in the works on Monday.

"And there will have to be a decision on how the billions of dollars returned to Canada are redistributed amongst the various provinces and lumber companies."

Provincial governments were briefing industry executives on the proposal Wednesday.

While the provinces have no veto power over a softwood deal between Ottawa and the U.S., Fife pointed out it would be "politically difficult" for Harper to sign off without the support of the provinces.

International Trade Minister David Emerson continued to tell Parliament Wednesday that no deal has been made.

Natural Resources Minister Gary Lunn stressed there are still issues to be resolved with the provinces, and until they are, "there is absolutely no deal."

"I want to make that absolutely clear," said Lunn Wednesday in an interview on CTV Newsnet's Mike Duffy Live.

"Until the ink is on the paper, there is no deal and there is nothing more that can be said than that."

Lunn added that the softwood file has been "an absolute priority" for his government and that Emerson should be "applauded" for the work he has been doing in negotiations so far.

Reaction

But news of the framework deal sparked an angry response from  Ontario's Minister of Natural Resources David Ramsay.

"We're very upset with the deal that's there," said Ramsay on Mike Duffy Live.

Ramsay, whose riding is in northern Ontario, said many communities in the region, dependent on the forest industry, would be hurt by the deal.

He said the 34 per cent quota system has been set unfairly and will result in massive layoffs.

The quota, he said, is "taking one of the worst years of Ontario's exports into the United States -- under a very punishing tariff regime under this dispute -- and set that as our benchmark.

"And it's going to cost thousands and thousands of jobs in Ontario."

In its best year, Ontario's forest sector has produced some 12 per cent of Canada's softwood lumber exports to the U.S. In 2005, the share for Ontario was around 11 per cent.

But under the new deal, Ontario's softwood lumber exports to the U.S. would be capped around nine per cent.

"Quite frankly, the Americans don't care where the wood comes from. They have just wanted the ceiling of 34 per cent from Canada, and that's fine with us and we can work under that with this arrangement," Ramsay said.

"But there has to be a fair distribution on the provincial level of how we export into the United States."

While Ontario made its objections clear, neither the Quebec nor B.C. governments reacted to news of the deal Wednesday.

Quebec and B.C. account for 75 per cent of this country's softwood lumber exports. The B.C. lumber sector alone accounts for more than half the $10-billion annual U.S. export business.

Guy Chevrette, CEO of Conseil de l'industrie forestiere du Quebec, said his members are split. The association is expected to announce its official position Thursday.

The U.S. had been pushing for a deal by midnight Thursday -- when Washington would have to decide whether to file a final challenge against a NAFTA ruling that orders an end to countervailing duties against Canadian lumber imports.

The deadline would not directly affect talks, but it's been seen as a benchmark for the willingness to negotiate a deal.

The framework would also require both sides -- embroiled in a softwood lumber dispute for decades -- to drop lawsuits and place a moratorium on future trade complaints.

With reports from CTV's Ottawa bureau chief Robert Fife and The Canadian Press