A World Trade Organization (WTO) ruling on the U.S.-Canada softwood lumber dispute found the United States inappropriately applied countervailing duties on Canadian softwood lumber. The WTO determined that duties put in place to help balance Canadian subsidies were in violation of global trading rules because the United States had not provided evidence that prices paid by Canadian firms for timber were artificially low.

The WTO report comes in response to Canada’s challenge of the U.S. Commerce Department’s imposition of countervailing duties on Canadian softwood lumber in 2017 after the countries failed to reach a new softwood lumber agreement.

“Canada expects the United States to comply with its WTO obligations. U.S. duties on Canadian softwood lumber must not persist,” Mary Ng, Canada’s trade minister said of the decision.

In response to the findings, the U.S. said it is considering options including appealing the WTO ruling. U.S. Trade Representative Robert Lighthizer called the report “flawed” and said the WTO dispute-settlement system “is being used to shield non-market practices and harm U.S. interests.” WTO rules permit the U.S. to appeal the ruling within the next 60 days. If the Trump administration lodges an appeal, it will deny tariff relief to Canadian lumber companies, including Canfor, Resolute Forest Products, Tolko Industries, and West Fraser Mills.

The softwood lumber dispute dates back several decades and included a previous round of WTO cases lasting five years between 2001 and 2006. The previous round of WTO cases resulted in a settlement under which the U.S. suspended duties as long as lumber prices were sufficiently high. The agreement expired in 2015 and the Trump administration imposed tariffs up to 17.99% against what it called “unfair subsidies” for Canadian exporters of softwood lumber.

In recent months, lumber prices have experienced a dramatic increase due to an imbalance of demand and supply. Since mid-April, prices have increased more than 30% and have added approximately $16,000 to the cost of a new home, according to estimates by the National Association of Home Builders (NAHB).

In recent weeks, the NAHB has submitted letters to Commerce Secretary Wilbur Ross and Lighthizer calling for officials to re-engage with Canadian officials to reach a long-term agreement on softwood lumber. The NAHB also recently sent a letter to President Trump expressing concern and seeking prompt action regarding lumber prices and supply shortages.