Thanks for the replies. Here's an update. I sanded by hand the part
of the gunnels that I wanted to bring flush. Thanks to those who
discouraged me from the belt sander.

I have disassembled the gunnels. They have rabbets which covers the
fabric, a suprise. They are assembled with 66 brass screws. I was
able to buy a box of 100 exact replacments, $20. Thanks to CW for the
suggestion. There is dirt inside the rabbets so more cleaning of the
wood will be necessary. The wood is sound everywhere and the screw
holes look perfect, very relieved.

Regarding Watco oil. Those who said Watco Stain is for furniture were
right up to a point. The Watco in the stores is all indeed interior
stain. I called my neighbor and asked about it.

He has a gallon of the Watco Marine Wood Finish which he had to
special order. He says I can use it since I need so little. The
Watco Marine is a penetrating oil and resin mixture which soaks into
the wood rather than lay on top. So it is quite a lot different from
the Watco in the stores.

I considered using a marine varnish as well but after looking a his
paddles that received the Watco Marine, I feel that it is sufficient.
I have been told that varnish will wear and flake, requiring more
sanding and finishing. With the Watco Marine the finish will just dry
out eventually. It can then be re-applied without any sanding. It is
specifically recommended for exterior woodwork above the waterline on
boats. It says to avoid spills on fiberglass in the directions so I'm
glad I dissasembled. Here are links for the Watco information:

http://i184.photobucket.com/albums/x...7/P5280001.jpg
http://i184.photobucket.com/albums/x...7/P5280002.jpg
http://i184.photobucket.com/albums/x...Directions.jpg

Thanks again to all who replied.