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Logs are loaded onto a machine for bark removal at a sawmill in Quesnel, B.C., in 2015.

David Ryder/Bloomberg

The Canadian government has suggested it might drop its major international trade case against the U.S., if it gets a softwood lumber deal.

Canada has filed a wide-ranging complaint to the World Trade Organization about the way the U.S. applies punitive tariffs, infuriating the Americans.

U.S. trade czar Robert Lighthizer called it a "massive attack" on the American system of international trade.

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"If it were successful, it would lead to more Chinese imports into the United States and likely fewer Canadian goods being sold in our market," he said Monday at the end of NAFTA talks in Montreal.

Foreign Affairs Minister Chrystia Freeland said the case is directly tied to softwood lumber, where the U.S. imposed duties.

"We are aware that the U.S. is concerned by our litigation. And to those concerns, I have a very clear response and a clear offer, which is: let's sit down and let's negotiate a softwood lumber deal," the minister told reporters following her earlier appearance with Lighthizer and their Mexican counterpart, Ildefonso Guajardo.

"I'm happy to start this afternoon."

A big challenge in reaching a softwood deal is that it's not entirely up to the governments of Canada and the U.S.

As part of any deal, the American lumber industry would need to sign off on the right to sue Canada again for punitive duties – and there's no indication that's happening.

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