OTTAWA (Reuters) - Canada said on Tuesday it would scrap lumber-dispute talks next week with the United States to express its dismay over Washington's refusal to eliminate duties on Canadian softwood despite a trade panel ruling that found the duties unjustified.

"Following consultations with provincial governments, and in light of the U.S. response to the August 10 decision of the NAFTA Extraordinary Challenge Committee, the government of Canada has decided to not proceed with the negotiations planned for next week," Trade Minister Jim Peterson said in a statement.

The North American Free Trade Agreement committee had rejected a U.S. appeal of a ruling that said Washington had failed to justify imposing duties on imports of Canadian softwood, used in building and remodeling homes.

The United States said the decision referred only to a 2002 claim but had no bearing on a newer claim it made in November 2004.

This angered Canada, which had been gearing up for next week's talks, to have been held in Ottawa. The discussions have been held every two to three months with the aim at arriving at a negotiated settlement, while legal challenges ground on.

"The government of Canada will continue to consult with industry stakeholders as we consider all possible options for promoting Canada's interests in this long-standing dispute. I will take the necessary time to consult with provincial and cabinet colleagues on next steps," Peterson said.

He conveyed his decision to U.S. Trade Representative Rob Portman (news, bio, voting record).

A Canadian official said talks would remain suspended until Canada decides it is in its best interests to return to the table. Meantime, the duties remain.

"We support the decision," John Allan, president of the B.C. Softwood Lumber Trade Council, one of Canada's biggest forest-industry groups, told Reuters. He said the U.S. reaction called into question Washington's support of NAFTA and international trade agreements.