VANCOUVER — Canada lost a round Tuesday in its endless legal war with the United States over American softwood lumber duties.

The World Trade Organization found the U.S. Commerce Department had sufficiently modified its import duties that they now complied with international trade rules.

But International Trade Minister Jim Peterson brushed off the setback.

The government will appeal the ruling immediately, he said. But it is more focused on confronting the Americans for failing to abide by a North American Free Trade Agreement ruling that Ottawa thinks should have ended the dispute in a Canadian victory.

"I want to make it perfectly clear,'' he told a news conference in Ottawa.

"The WTO report provides no justification, legal or otherwise, for the U.S.'s failure to comply with its NAFTA obligations ... The NAFTA is what we need to focus our attention on.''

The WTO decision might have found U.S. softwood duties now conform to international trade rules but NAFTA rulings are enforceable under U.S. law, Peterson said.

"The U.S. was wrong to collect the duties in the first place and is obliged under the NAFTA to return them,'' he said. "Canada isn't making this up. This is what is enshrined in U.S. law.''

But a U.S. lumber industry spokesman said the WTO ruling reinforces the American position.

"We're pleased with the decision for a couple of reasons. One, it supports our position on injury and secondly, it's not often the U.S. wins at the WTO,'' Barry Cullen, executive director of the Coalition for Fair Lumber Imports, said from Washington, D.C.

Coalition chairman Steve Swanson said in a news release the WTO ruling reinforces American producers' claims Canada subsidizes its $10-billion annual lumber sales to the U.S. market, damaging domestic mills.

"Only the NAFTA panels are stubbornly refusing to acknowledge these facts on subsidy and injury,'' Swanson said in a news release.

Canadian industry lobbyist Carl Grenier said he's not surprised the Americans are crowing about the WTO ruling, though he found it ironic.

"They're now putting a lot of stock in WTO decisions but of course we know very well they don't usually care about WTO decisions,'' said Grenier, executive vice-president of the Montreal-based Free Trade Lumber Council.

But he agreed with Peterson that it has no impact on the strength of the NAFTA ruling.

"It means that even though they're now rejoicing that the WTO has given them the green light ..n. in U.S. law they don't have value,'' said Grenier.

Canada has waged a multi-pronged legal fight ever since the United States imposed countervailing and anti-dumping duties on Canadian lumber in May 2002 after a complaint by American producers.

Canada has steadfastly rejected the subsidy allegation and challenged U.S. methodology for determining injury from Canadian imports.

It won decisively in NAFTA appeal panels, culminating in an extraordinary-challenge committee final ruling in August that was supposed to trigger the return of more than $5 billion in duties collected so far.

But the United States ignored that decision, saying it was superseded by WTO rulings in late 2004 that found U.S. changes to their tariff calculations after a Canadian challenge had brought them into compliance.

The ruling Tuesday out of Geneva affirmed that position and rejected Canadian claims the duties were unfair.

"The (U.S. trade commission) fully addressed the findings in the panel report,'' the WTO panel found. "Canada's assertions to the contrary simply are incorrect.''

"As the administration made clear to the Canadians, the injury finding stays in place despite what the Canadians said after the NAFTA panel ECC came in,'' said Cullen.

The decision makes it impossible for Canada to get WTO authorization to impose more than $4 billion in sanctions against the United States for non-compliance.

But Canada insists the United States' obligations under NAFTA override the WTO findings because the treaty has the force of domestic law.

Ottawa is challenging American non-compliance with the NAFTA ruling at the U.S. Court of International Trade in New York.

Peterson said the trade court could rule by next year, though a further U.S. appeal would drag it out a couple more years.

Canada's appeal of the latest WTO ruling could be decided by early spring, he said.

No one seemed to believe the decision would freshen efforts to revive a negotiated settlement. U.S. defiance of the NAFTA ruling makes that a non-starter.

"We would seek a long-term durable solution that would bring certainty to our industry,'' said Peterson.

"On the other hand we have to make sure that the rules by which we govern our trading relationships globally and continentally are respected.''