"There's been reference to retaliation; I see linkage (with other trade issues) is coming back onto the table," he said, referring to NDP Leader Jack Layton's suggestion Monday that Canada slap an export tax on oil and gas shipments.

NDP Leader Jack Layton has said Canada must play "hardball" with the Americans by imposing export charges on oil and gas. Otherwise, he said, the United States won't take the issue seriously.

Finance Minister Ralph Goodale said Washington has to understand that "Canada takes this very, very seriously."'

At this point, there are no good options. Canada has appealed to the World Trade Organization, which will almost certainly rule in Canada's favour, allowing this country to impose counter-measures to collect the $5-billion in tariffs that the Americans have illegally confiscated.

That ruling won't come until next year, however. And imposing tariffs on wine, orange juice and other American imports, to recoup the $5-billion, would only hurt Canadian consumers.

Conversely, slapping export tariffs on Canadian oil and gas exports to the United States, as some have proposed, would harm that sector of the Canadian economy and enrage the Alberta government.
Ms. Carney believes that Ottawa should order a freeze on all American investments in Canadian energy companies, claiming it is in the interest of national security.

Emerson said Trade Minister Jim Peterson and Finance Minister Ralph Goodale have begun the process of identifying suitable U.S. targets for tariffs.

Goodale was cautious in his comments and Peterson said he could only proceed after a crucial WTO ruling expected next year. Canada has already sought approval for $4.8 billion in retaliatory measures.

Foreign Affairs Minister Pierre Pettigrew appeared to welcome the idea of tariffs and said California wines were being considered as one possible target.

"I do believe that we should do it in a way that will not go to the detriment of other Canadian interests," said Pettigrew, a former trade minister who dealt with the softwood dispute.

"We have to do it in a way that some U.S. interests will ring their senators and congressmen in Washington."

The warnings come one week after the United States announced it would ignore a decision by a NAFTA panel that found Canadian lumber exports posed no threat of injury to U.S. producers.

With more that 80 per cent of Canadian exports going to the U.S. and the countries exchanging $1 billion each day, Canada would need to tread carefully to avoid a crippling trade war.