WASHINGTON, DC - The Bush Administration has said it will challenge a decision by a North American Free Trade Agreement (NAFTA) panel to reject a claim by Washington that imports of Canadian softwood lumber pose no threat to US lumber producers.

According to the Office of the US Trade Representative (USTR), the White
House will file a rare "extraordinary challenge" to the ruling by the special three-judge panel - composed of two Americans and one Canadian - formed under the terms of the 10-year old NAFTA accord.

In August, the NAFTA dispute panel ruled against the US saying that Washington had failed to justify placing tariffs averaging 27% on Canadian lumber imports since 2002 and ordered that they be rescinded immediately.

Sources say the US so far has collected about $2.6 billion in countervailing and anti-dumping duties on softwood imports from Canada, which currently supplies more than one-third of all the softwood lumber used in construction in the US, according to the Commerce Department.

Softwood lumber encompasses pine, spruce, and other wood primarily used to build and remodel homes.

Last month, the US International Trade Commission (USITC) voted to comply with the NAFTA ruling but said it disagreed with the finding.

According to a spokesman for the USTR, trade officials in Washington believe the NAFTA panel "seriously misapplied the standard of review" in ordering the ITC to come up with its no-harm finding.

"There were also other irregularities that we intend to draw to the [panel's] attention," the spokesman said.

Canada's Minister of International Trade, Jim Peterson, said the US action to appeal the ruling "was not unexpected."

Ottawa, he said, "will continue to fight for the interests of our softwood lumber industry and for Canadians. All along, Canada has maintained that the American industry is not injured by Canadian softwood. Our position will not change."

At the time the tariffs were levied, the US lumber industry was in a severe slump with more than 100 mills having closed and an estimated 100,000 related industry jobs lost.

Canadian softwood lumber shipments currently account for about one-third of the total US market for softwood lumber and the tariffs have caused serious friction between the US and Canada, the world's largest bilateral trading partners over the past two years.

Interviewed by the San Francisco Chronicle in June, Sherm Harmer, president of the California Building Industries Association (CBIA), whose 6,000 members have been lobbying to lift the tariffs, praised the original decision to halve the tariffs saying, "It'll go a long way toward keeping housing costs as affordable as possible."

California contractors, said Harmer, were on track to build more than 200,000 homes in 2004, the most since 1989, but increased demand has raised the price of wood and caused spot shortages with the average California home using about $40,000 worth of softwood.

The Bush Administration imposed the tariffs two years ago to offset what it said were illegal subsidies provided by the Canadian government.

The original duties were calculated by comparing the price charged to log Canada's vast public forests with logging costs in the US - a methodology that drew the wrath of international trade officials.

In contrast to the earlier position of the CBIA praising the initial move to reduce the tariffs, another group - The Coalition for Fair Lumber Imports - applauded Washington's decision to appeal the NAFTA panel ruling with the group's Chairman W.J. Wood, telling reporters, "We wholeheartedly support this initiative to correct unauthorized, egregiously defective action by the NAFTA panel and we are confident that the judges ... will not accept this aberrant outcome."

Acknowledging that the US had never won an extraordinary challenge, he said the ruling by the panel had "emphasized that NAFTA panels must be reversed if they fail to follow US law or are infected with conflicts of interest. Both are true in our case."