OTTAWA (AFP) - A NAFTA panel ruled that Canada does not substantially subsidize its lumber industry and that the United States was wrong to have imposed punitive duties on Canadian softwood imports.

The North America Free Trade Agreement panel comprised of three Americans and two Canadians unanimously affirmed that miniscule Canadian subsidies (0.8 percent) were too small to warrant US retaliation.

The decision sparked celebrations in Canada's timber industry.

John Allan, president of the British Columbia Lumber Trade Council, called it "a huge victory for Canada" and urged Washington to revoke duties and refund monies collected over the past four years.

"This is the second NAFTA panel comprised of a majority of Americans to have unanimously ruled that there is no merit to the US allegations, first regarding injury, and now regarding subsidy," he said.

US lumber executives blasted the latest notch in a longstanding trade row that has soured relations between the world's two largest trading partners as "gravely flawed" but acknowledged that it may lead to an end to US tariffs if upheld.

The decision "signifies a potential end to an important antidote in the US lumber industry's efforts to counter the poison that is Canadian lumber industry practices. The US government must respond aggressively," the US-based Coalition for Fair Lumber Imports said in a statement.

Canadian officials broke off talks last year to protest a US decision to continue to collect duties on Canadian softwood imports despite a NAFTA ruling that Canadian imports of softwood lumber had not harmed the US lumber industry.

Canada is seeking a refund of 4.5 billion US dollars in duties on Canadian softwood imports since May 2002, but the United States has balked at the demands.

Instead, US officials have repeatedly pressed for a negotiated settlement.

"Resolving the softwood lumber dispute is my top priority," Canada's trade minister and former lumber executive David Emerson said in a statement.

"Today's panel decision will strengthen our position as we move forward on the softwood lumber file."

The United States has until April 27 to appeal the decision.