David Schepp BBC News Online's North America Business Reporter

The United States has said it will impose an average 29% tariff on imported softwood lumber from Canada in a bid to salvage its ailing forestry industry.

Canada quickly condemned the measure and has said it will take the issue before a panel of the North America Free Trade Agreement (NAFTA).

"I can honestly say I find the final determination obscene," Canada's International Trade Minister Pierre Pettigrew told reporters at a press conference following the decision.

The US government said it would slap a duty of up to 35% - or an average 29% - on imported softwood lumber products, such as pine and spruce, used mainly in home building.

The decision to impose duties is based on deeply flawed trade law

William Corbin, vice president, Weyerhauser

The Commerce Department said it had determined Canada had acted illegally in subsidising its lumber industry by charging minimal fees to log public lands.

US officials contend chronic dumping of subsidised lumber - selling at below cost - by Canada has resulted in the closure of 120 lumber mills and the loss of thousands of jobs.

Canadian officials deny the charges.

Increased home prices

American homebuilders denounced the US decision, saying it would harm consumers by making homes less affordable.

"If the entire 29% border duties are reflected in US prices, this will add nearly $1,500 to the cost of building a typical new home," said Bobby Rayburn, a homebuilder in Jackson, Mississippi.

Mr Rayburn, who also serves on the National Association of Home Builders, says the US government's calculations for determining Canada's forest-industry subsidy were imprecise.

Pettigrew: US softwood duties are "obscene"

"Independent trade panels have reviewed Canada's timber pricing on three separate occasions," Mr Rayburn said.

"In each case... it was ultimately determined that the Canadian government did not provide unfair subsidies."

Market-driven solution sought

Meanwhile, American forest-industry officials called on the Canadian and US governments to resume negotiations.

Weyerhauser, the world's largest wood-products company, said it is weighing all its options in response to a possible 35% tariff on imports of Canadian lumber.

"The decision to impose duties is based on deeply flawed trade law and the extreme demands of a protectionist special interest group of some US lumber producers," said Weyerhauser executive William Corbin.

"The right way to solve this trade dispute is to negotiate a long-term, market-driven solution that accounts for broader interests on both sides of the border," he said.

Protectionist tendencies

Canadian lumber-industry officials say they have worked in vain to secure a reasonable solution to the trade issue.

"We have negotiated in good faith and have taken all reasonable steps to solve this dispute," said John Kerr, chief executive of the British Columbia Lumber Trade Council.

The US says Canada's actions have cost jobs

Mr Kerr represents a large portion of more than 100 firms in the western Canadian province of British Columbia, where logging is a major industry.

British Columbia supplies fully half of all lumber production and exports to the US used mainly in home building.

The US imports $6bn (�4.2bn) worth of lumber from Canada each year.

'Outlandish' tax

This latest row over international trade threatens to once again portray the Bush administration as protectionist, following a recent decision by the US president to impose stiff tariffs on steel imports.

The European Union has denounced the duties and has petitioned the World Trade Organisation (WTO), demanding subsidies in response to the steel tariffs.

Before Friday's decision on lumber, the Commerce Department had threatened to impose tariffs as high as 37%, a figure Canadian government and lumber-industry officials characterised as "outlandish".

Canada had sought to have an import tax of no more than 10%.

The imposition of tariffs represents a stiff fine for those Canadians involved in the logging industry.

Early estimates put the toll on the Canadian lumber industry at C$3bn (�1.33bn).