The largest issue in US-Canadian relations may move to a resolution within the next few days, according to the Globe & Mail. The free-trade dispute over softwood subsidies has complicated relations between Washington and Ottawa since the NAFTA accord, but the new Tory government may have found the key to bringing the issue to a close:

Canada and the United States appear very close to a historic breakthrough in the enduring softwood lumber dispute.

Industry sources who have been briefed on the discussions told The Globe and Mail that U.S. President George W. Bush called Stephen Harper on the weekend to outline an offer. In it the United States would lift duties on Canadian lumber and return most of the $5-billion it has collected from Canadian lumber companies.

In a complex arrangement that would include both a quota and an export tax, Canada would agree to cap its share of the U.S. lumber market at one third, which is roughly the current level.

PM Stephen Harper wanted to resolve the dispute before making a visit to DC, and the deal looks like a winner for Canada. Bush wanted the matter closed before moving the US trade representative, Rob Portman, into the White House as budget director. Both leaders need a foreign-policy victory and both need to demonstrate strengthened ties. Faced with a deadline for an unfavorable ruling from a NAFTA tribunal, the timing seems perfect for an announcement of this kind.

Getting the duties returned to the Canadian logging industry will give Harper a huge political boost. In return, the ongoing lumber trade between the two countries will have better regulation to keep American companies from bankruptcy from subsidized price wars, allowing George Bush to save American jobs. Bush needs to make Canada a more visible ally; they are the largest trading partner of the US and our largest supplier of oil (trading spots often with Mexico at #2). Bush needs to highlight the Canadian relationship as a close friendship, and he has no better opportunity than with Harper at the helm in Ottawa. He had to bend on softwoods to give Harper the necessary domestic support for improved relations with DC.

The agreement still has to pass muster with the lumber industries of both countries, or the agreement will never see ratification. It appears designed to give enough protection to American loggers while giving Canadian loggers enough of the American market to keep everyone satisfied, if not exactly happy. Expect this agreement to get announced in the next couple of days and for the US and Canada to withdraw their grievances from the NAFTA boards forthwith.

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