WASHINGTON – The government reduced punitive tariffs on imports of Canadian softwood lumber on Tuesday but by less than Canada had wanted, extending a heated cross-border dispute.

Canadian officials denounced the decision and said they would challenge it.

The Commerce Department decision would cut tariffs from an average of 27.2 percent to 21.2 percent. A preliminary U.S. decision had recommended that tariffs be cut in half for easy-to-saw pine, spruce and other softwood lumber used to build homes.

Commerce said the final decision accurately reflected subsidies by six Canadian provinces that allow their producers to sell lumber in the United States at below normal value – at prices that compete unfairly with U.S. producers.

While the U.S. timber industry has generally applauded the tariffs, home builders on both sides of the border say they have driven up the cost of new homes in the United States and hurt Canadian lumber exporters and communities that depend on them.

The United States imported about $4.6 billion of softwood lumber from Canada in 2003, about a third of the American market.

“Canada categorically rejects the Department of Commerce determination,” said Jim Peterson, the nation’s international trade minister.

He said the decision differed from those issued by panels of the North American Free Trade Agreement and World Trade Organization. “Panel after panel have consistently said the Canadian softwood lumber producers are fair traders,” Peterson said.

Canada will “pursue every recourse available” through NAFTA and the WTO, Peterson said.

The Bush administration imposed the tariffs in 2002 after accusing Canada of subsidizing its lumber industry. Most U.S. timber is harvested from private land at market prices, while in Canada, the government owns 90 percent of timberlands and charges fees for logging. The fee is based on the cost of maintaining and restoring the forest.

The Commerce Department decision set the countrywide antidumping tariff at 17.2 percent for Canada and added punitive tariffs ranging from 0.9 percent to 10.6 percent for individual companies. The weighted average of the punitive tariffs is 4 percent.

The Coalition for Fair Lumber Imports, a U.S. industry group, hailed the decision.

“Unfair imports have destroyed hundreds of sawmills, taken jobs from thousands of workers and undermined the livelihoods of millions of family tree farmers,” said W.J. “Rusty” Wood, the coalition’s chairman.

Despite the angry response from Canada, a Commerce Department spokeswoman said U.S. officials still hope to reach a negotiated settlement with their Canadian counterparts.

“The United States continues to believe that a long-term, durable solution provides the best means for resolving this dispute, and we will continue to work toward that end for our forest products industry,” spokeswoman Meredith Williams said.