The U.S. International Trade Commission was wrong last year when it found that government subsidies gave Canadian softwood lumber mills an unfair advantage over their American competitors.

That finding by a dispute-settlement panel created as part of the U.S.-Canada Free Trade Agreement was hailed by the Canadian government, which had filed an appeal with the panel.

The free-trade panel ordered the ITC to reconsider its July 1992 decision authorizing a 6.51-percent import tax on some Canadian building materials.

“This is a very positive ruling for the Canadian softwood lumber industry,” said Tom Hockin, Canada’s minister for international trade.

“…We are fortunate to have the FTA dispute-settlement mechanism to review the basis of these decisions in an objective and impartial manner.”

The U.S. government appeared to be caught unawares by the ruling. Spokesmen for the ITC, the Commerce Department and the office of the U.S. trade representative had no comment on the decision.

Canadians say the U.S. market is critical to the survival of their mills. Building products valued at more than $4 billion Canadian, about 54 percent of that country’s lumber production, were exported to the United States in 1992.

The free-trade panel’s decision was the latest skirmish in an 11-year battle between forest products companies in the two nations. American mills argue that Canada unfairly subsidizes lumber production by charging artificially low stumpage fees on government land. Canadians accuse U.S. mills of trying to drive foreign competitors from the market.

In May 1992, the Commerce Department found that Canada was subsidizing its mills through log-export restrictions in British Columbia and reduced stumpage fees in British Columbia, Alberta, Ontario and Quebec. The department called for a 6.51-percent import tax on Canadian lumber, and the ITC ratified that decision two months later.

In a 78-page decision released Monday, the free-trade panel concluded there was insufficient evidence to support the U.S. position.

The ruling was not unexpected. In May, the panel instructed the U.S. Commerce Department to re-examine the case.