RICHMOND, B.C. -- The Liberal government, days away from a non-confidence vote in Parliament that will trigger an election campaign, announced Thursday a $1.5-billion forest industry aid package.

More than half the money will go to help lumber exporters caught in the softwood trade war with the United States.

Federal Industry Minister David Emerson, a former forest company executive, announced the package in front of a pile of lumber at a suburban Vancouver mill simultaneously with Natural Resources Minister John McCallum in Timmins, northern Ontario timber country.

Dubbed the Forest Industry Competitive Strategy, it will earmark about $600 million, including tax breaks, to develop new technologies and expand markets for Canadian forest products.

But the lion's share -- about $900 million -- will come in the form of loan insurance and direct support to prop up financially strapped lumber exporters that have more than $5 billion tied up in U.S. duties.

"We are basically saying to our industry, `look, we've got to continue the fight on the softwood lumber dispute because this is more than softwood lumber,"' Emerson said.

"This is NAFTA and you've got to stick with us and we're going to stick with you as we go through this little bit of a difficult period with the United States on this issue."

The package drew quick criticism from the U.S. government.

"Today's announcement is disappointing," U.S. Trade Representative Rob Portman said in a statement. "Only days after we fully complied with a NAFTA decision, Canada responds by announcing huge new subsidies.

"Canada's actions illustrate what the United States has been saying all along: the Canadian industry is the beneficiary of subsidies that create an un-level playing field to the detriment of the U.S. industry."

Portman and Commerce Secretary Carlos Gutierrez said the U.S. administration will consult with American industry officials on the potential impact of the subsidies.

"This just goes to show that Canada will continue to funnel vast amounts of assistance to its industry," said Gutierrez. "We will continue to insist that their subsidies be eliminated by all means at our disposal."

Emerson, one-time CEO of Canfor Corp., the country's top lumber exporter, said the reaction is not unexpected but the government strongly believes the aid package doesn't represent a countervailable subsidy.

"That is not a guarantee that American protectionists will not launch further countervail actions," he said. "We know that it doesn't take much for them to create often a fictitious case and drag it out for years."

Canada has been locked in a 25-year struggle with the United States over softwood exports. American producers have filed three trade complaints since the early 1980s, the latest resulting in stiff countervailing and anti-dumping duties confirmed in May 2002.

The dispute has burdened the forest industry, some sectors of which were already struggling with rising costs, offshore competition and overcapacity.

On Tuesday, for example, Cascades Inc. (TSX:CAS) announced a paper mill closure in Thunder Bay, Ont., that until last summer employed 500 people. The dispute also helped put B.C.'s once thriving coastal forest sector on life support.

The two sides have been fighting it out before North American Free Trade Agreement and World Trade Organization panels.

Canada believed it won a decisive victory last summer when a top NAFTA panel ruled Canadian lumber posed no threat of injury to U.S. producers. But the U.S. government refused to return duties already collected, citing its compliance with a WTO ruling on the same issue.

Prime Minister Paul Martin has warned that stance undermines support for NAFTA and its rules.

"Canada will vigorously defend its efforts to help sustain an industry that is being unjustly persecuted while the U.S. continues to ignore NAFTA panel decisions," Trade Minister Jim Peterson said from Ottawa.

However, he suggested the aid could be reconsidered if Washington cancels the duties.

"If the U.S. actually does the right thing -- that is, drop the duties and return our money -- the support package can be reviewed," Peterson said. "Until then the government will stand behind our workers and we will keep reminding the U.S. of the need to respect the letter and spirit of the NAFTA."

Emerson said the government will fast track as much of the package as possible but "there's no doubt about it that it's going to get bumpy in terms of implementation over the next couple of months."

Some elements not connected to the softwood dispute will require budget appropriations that would have to go through Parliament, he said.

Emerson conceded the package looks like a vote-getter aimed at forestry-dependent regions.

"People will spin it that way," he said, but added he's been working on some of these initiatives since he was first elected in May 2004. "Are we trying to do what the public would like us to do? Yeah!"

A spokesman for the B.C. forest industry, which accounts for more than half of Canada's softwood exports, said the aid package is welcome.

"I think this measure the government announced is entirely appropriate to buy us some time to see if we can't find a negotiated solution to this dispute or till we see if we have to take the dispute all the way to the courts in the U.S.," said John Allan, president of the B.C. Lumber Trade Council and the Council of Forest Industries.

Avrim Lazar, President of the Forest Products Association of Canada, stressed the parts of the package that position the industry for future competitiveness.

"The softwood loans are useful in getting us over this hopefully temporary impasse with the United States," he said in Montreal.

"But in the long run what has to be done in order to keep jobs in Canada is to have an industry that can compete with the best in the world. Investments in research, technology and market developments are a big step in that direction."