OTTAWA Canada and the United States have made progress in recent days on a dispute over Canadian lumber exports “but we are not there yet”, Canadian Foreign Minister Chrystia Freeland said on Wednesday.

Freeland, speaking to reporters on a conference call, also said the United States should treat Canada with respect, given that Canada is a major supplier of softwood.

U.S. Commerce Secretary Wilbur Ross on Monday announced tariffs on Canadian lumber exports, which U.S. producers complain are unfairly subsidized. The move triggered the fifth formal bilateral dispute over Canadian lumber in less than 40 years.

Freeland said she had had long conversations with Ross on Sunday and Monday about lumber.

“We have made progress in our conversations but we are not there yet,” she said. “We do believe a negotiated deal is achievable. There is a deal to be had … but we are also absolutely prepared to fight this out in the courts.”

The spat over tariffs erupted in the run-up to talks on updating the three-nation North American Free Trade Agreement, which Trump says he will abandon unless big changes are agreed.

That could have calamitous consequences for Canada, which sends 75 percent of all exports to the United States. Mexico is the other NAFTA member.

Perrin Beatty, president of the Canadian Chamber of Commerce and a minister in the former Conservative government that negotiated NAFTA, said the lumber dispute would “clearly contaminate” the talks on the trade agreement.

“If your negotiating partner across the (table) decides to smack you periodically, that affects the wider relationship,” he said in a phone interview from the United States, where he is on a trip to stress the benefits of the trade relationship.

Freeland, who described the tariffs as “punitive, unfair and just plain wrong”, said Canada would strongly defend its domestic industry.

Stocks in Canadian lumber firms, which rose on Tuesday on market relief that the duties had not been higher, posted more mixed results in early trading on Wednesday. Resolute Forest Products Inc shares were up 9.7 percent while West Fraser Timber Co Ltd fell by 6.0 percent.

In Washington, the National Association of Homebuilders said the new duties would hurt American wages and raise house prices.

But in a report issued on Wednesday, the Fitch Ratings agency said the tariffs should not result in material pressure for U.S. homebuilders, given that the increased cost per house would be around $850.

(Reporting by David Ljunggren; Editing by Chizu Nomiyama and Grant McCool)