The US says it is merely a question of how much the duties should be

Canada said the WTO had ruled that the comparatively low timber logging fees charged by its provincial governments did not amount to subsidies.

"Yet again, it appears that the US is being told that its attempts to prove that our softwood industry is subsidised are flawed," said International Trade Minister Pierre Pettigrew.

US trade officials disputed the Canadian interpretation, saying the WTO panel had decided that the Canadian system amounted to a financial contribution and was, therefore, subject to duties.

"There is no longer any question that the United States can impose countervailing duties against softwood lumber imports from Canada," said a US trade official quoted by Reuters news agency.

"The only question now is the amount of the countervailing duties that the United States can impose."

Nafta challenge

Last year the US imposed 18.79% duty on imports of Canadian woods such as pine, spruce and fir.

The WTO ruling is not binding but Canadian officials predicted it would help Canada win a case it filed against the US under the North America Free Trade Agreement, the result of which will be binding.

"[The WTO decision] has no binding impact on the Nafta panel, but you would think that the Nafta panelists would be, shall we say, informed by what the WTO looked at," said John Allan of the British Columbia Lumber Trade Council.