(Adds details on exclusion decision, anti-dumping probe)
By Eric Beech
WASHINGTON, June 26 (Reuters) - The U.S. Commerce Department said on Monday it had made a preliminary decision to exclude three of Canada's Atlantic provinces from a U.S. investigation into whether Canada is dumping or subsidizing exports of softwood lumber.
The decision to exclude Newfoundland and Labrador, Nova Scotia and Prince Edward Island follows a preliminary finding by the department in April that Canada subsidizes its softwood lumber exports, which prompted the United States to slap on countervailing duties of 20 percent. a statement announcing the latest decision, U.S. Commerce Secretary Wilbur Ross said those duties would still be collected pending a final determination.
The decision to exclude the three provinces came at the request of U.S industry and the Canadian provinces and had the backing of the U.S. lumber industry, Commerce said. The exclusion does not include New Brunswick, an Atlantic province bordering Maine that is also a major producer of softwood lumber.
The Commerce Department said later on Monday it still expects to announce a preliminary determination on a parallel anti-dumping investigation on Canadian softwood lumber.
The U.S. anti-subsidy and anti-dumping probes affect about $5.66 billion worth of imports of the construction material, and they show the United States taking a tough stance on trade with Canada as the two countries and Mexico prepare to renegotiate the 23-year-old North American Free Trade Agreement (NAFTA).
U.S. lumber producers asked the Commerce Department last November to investigate what they viewed as unfair subsidies to Canadian competitors who procure their timber from government lands at cheaper rates. U.S. lumber producers generally cut timber grown on private land.
Much of the wood in the excluded provinces is harvested from private land, and the Canadian provinces had argued that they operate under more of a free-market model.
Canadian Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland said in a joint statement in April that the Commerce Department's findings were "baseless and unfounded," and would raise U.S. home construction and renovation costs.
Ross said he remains "hopeful that a negotiated settlement is both possible and in the best interests of both countries, our forestry workers, producers and affected communities."
NAFTA has not addressed the softwood lumber issue or Canada's largely closed dairy market. The Trump administration has vowed to renegotiate NAFTA on terms that would reduce U.S. trade deficits on goods of $63 billion with Mexico and $11 billion with Canada last year.
NAFTA talks are expected to begin later this summer after a 90-day legal consultation period.