updated 12/14/2004 4:32:56 PM ET 2004-12-14T21:32:56

The government reduced punitive tariffs on imports of Canadian softwood lumber on Tuesday but by less than the Canadians had wanted, extending a heated cross-border dispute.

Canadian officials denounced the decision and said they would challenge it.

The Commerce Department decision would cut tariffs from an average of 27.2 percent to 21.2 percent. A preliminary U.S. decision had recommended that tariffs be cut in half for easy-to-saw pine, spruce and other softwood lumber used to build homes.

Commerce said the final decision accurately reflected subsidies by six Canadian provinces that allow their producers to sell lumber in the United States at below normal value — at prices that compete unfairly with U.S. producers.

While the U.S. timber industry has generally applauded the tariffs, home builders on both sides of the border say they have driven up the cost of new homes in the United States and hurt Canadian lumber exporters and communities that depend on them.

The United States imported about $4.6 billion of softwood lumber from Canada in 2003, about a third of the American market.

“Canada categorically rejects the Department of Commerce determination,” said Jim Peterson, the nation’s international trade minister.

He said the decision differed from those issued by panels of the North American Free Trade Agreement and World Trade Organization. “Panel after panel have consistently said the Canadian softwood lumber producers are fair traders,” Peterson said.

Canada will “pursue every recourse available” through NAFTA and the WTO, Peterson said.

The Bush administration imposed the tariffs in 2002 after accusing Canada of subsidizing its lumber industry. Most U.S. timber is harvested from private land at market prices, while in Canada, the government owns 90 percent of timberlands and charges fees for logging. The fee is based on the cost of maintaining and restoring the forest.

The Commerce Department decision set the countrywide antidumping tariff at 17.2 percent for Canada and added punitive tariffs ranging from 0.9 percent to 10.6 percent for individual companies. The weighted average of the punitive tariffs is 4 percent.

Despite the angry response, a Commerce Department spokeswoman said U.S. officials still hope to reach a negotiated settlement with their Canadian counterparts.

“The United States continues to believe that a long-term, durable solution provides the best means for resolving this dispute, and we will continue to work toward that end for our forest products industry,” spokeswoman Meredith Williams said.

The United States is appealing a recent finding by a North American Free Trade Agreement dispute panel that Canadian imports pose no threat to American companies.

The British Columbia Lumber Trade Council said such panels can expect more work.

“It’s difficult to imagine a more arbitrary process than the one in which the DOC (Department of Commerce) is constantly changing the rules of the game to reach predetermined results,” said John Allen, president of the council.

“We are confident that this decision will be reversed on appeal just as the previous subsidy findings in this case have been overturned by a unanimous NAFTA panel,” he said.

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