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The United States government is threatening to launch a trade war against Canada over what U.S. officials claim are unfair subsidies by the Export Development Corp.

American officials believe the EDC is violating international trade rules by providing indirect government support to promote Canadian exports. U.S. officials said yesterday that unless Canada reins in the EDC within five months, the U.S. government is prepared to start using a special fund to help American exporters undercut Canadians.

The EDC is a crown corporation that provides financing and risk insurance to exporters. It pays no taxes and its borrowings are backed by the federal government.

Glen Hodgson, an EDC vice- president, said the agency is not undermining trade rules.”

I have met with the Americans many, many times on this and I have told them to their face that if you have any evidence of transactions where you see us distorting trade agreements bring them forward,” Mr. Hodgson said yesterday. “They have not been able to bring forward a single transaction.”

Mr. Hodgson said the Canadian government has recently required the EDC to clarify how it operates. That “will help strengthen the confidence of the Americans that we are not distorting trade,” he said.

The trade war threat was first issued in May by Lawrence Summers, the U.S. Treasury Secretary, who criticized “some countries” for undermining international trade rules.

Export agencies in these countries “operate with an unfair competitive advantage because they benefit from special government concessions,” he said in a speech at a conference in Washington.

“The United States cannot stand by and watch a small number of countries undermine the multilateral discipline that we have all worked so hard to achieve,” he added. “The U.S. government has both the responsibility and the tools in hand to protect U.S. exporters from unfair practices that undermine their competitiveness, and we can and will act if multilateral negotiations fail.”

A U.S. trade official said yesterday Mr. Summers was referring to Canada’s EDC and Germany’s export development agency.

He added that the American government is prepared to act if Canada and Germany don’t address these issues during negotiations in November among members of the Organization for Economic Co-operation and Development, the OECD.

The OECD, which includes about two dozen developed countries, established a set of trade rules 22 years ago in a bid to stop governments from distorting international trade through massive subsidies to exporters. Mr. Summers contends the EDC and the German equivalent operate unfairly because they pay no taxes and their borrowings are guaranteed by the government.

The EDC has also been criticized for not providing extensive information about how it operates.

American officials are coming forward now in part because of an article in the National Post last month by Patrick Lavelle, the chairman of the EDC. Mr. Lavelle wrote that he was at the May conference and the EDC received great attention. “This attention, it turned out, was largely a tribute to EDC’s outstanding success,” he wrote without mentioning Mr. Summers’s speech.

Several U.S. trade officials were furious at the comments, sources said yesterday.

Mr. Hodgson said the Americans are wrong to attack the EDC, which receives no direct government support and turns a profit. He noted that the American export bank gets up to US$1-billion a year in government support. He added that the issues raised by the U.S. are among many before the OECD.

“At any time the OECD may have 20 issues in play,” he said.