The United States accused Canada of misinterpreting the agreement to give its exporters an unfair advantage.

The ruling marked a victory for the Western Canadian provinces of British Columbia and Alberta when the panel found against the U.S. claim that the provinces owed millions of dollars in export taxes aimed at limiting export surges.

Under the deal, Canadian lumber exporters can either pay export charges of up to 15 percent based on their selling price to the United States, or cap the charge at 5 percent along with an export quota that restrains volume.

British Columbia has traditionally produced about half of all the softwood that Canada exports to the United States.

However, the court found that Quebec and Ontario in Canada's east, which are also big producers and use the quota option to limit their exports, had sent too much lumber south.

"Under the panel decision, producers in the east of Canada will be penalized for over-shipping their allowable quota," said Zoltan van Heyningen, executive director of the Coalition for Fair Lumber Imports, the U.S. industry group that has been driving the complaints.

Canada claimed at least partial victory and said the ruling was a healthy step for the bilateral 2006 agreement, which was designed to avert more years of long, expensive lumber lawsuits.

"While Canada believes that it has fully complied with the agreement, we respect the tribunal's ruling ... Today's decision provides clarity with respect to the implementation of the SLA (Softwood Lumber Agreement) in the future," said Canadian Trade Minister David Emerson.

The United States had argued that the starting point for calculating export charges and volumes should be the first quarter of 2007, while Canada argued it should be July 2007. The court sided with the United States on that issue.

The two countries have one month to propose possible remedies for the overshipping issue, which might entail docking future exports, Van Heyningen said.

The U.S. coalition said it disagreed with the findings on the western provinces, which it said "let Canada off the hook regarding past collections of 'surge mechanism' export taxes," which they estimated at up to about $85 million.

The Bush administration has filed a separate complaint at the court, alleging that certain Canadian provinces were improperly propping up their lumber industries.