OTTAWA (Reuters) - A dispute over C$2 billion ($1.55 billion) worth of Canadian canola exports to China intensified on Thursday when Beijing criticized Ottawa's insistence that bilateral relations could not improve until the matter is settled.
The situation threatens to mar Canadian Prime Minister Justin Trudeau's visit to China next week.
"We oppose linking a concrete issue of bilateral trade with China-Canada relations," the Chinese embassy in Ottawa said by email.
Canada, the world's biggest canola exporter, wants China, its top export market for the oilseed, to drop plans to toughen inspection standards on Sept 1. The crop is used mainly to produce vegetable oil.
China says the tougher standard on foreign material is needed to protect against crop disease.
"The quarantine of canola is merely a technical issue that should be solved properly through consultations by relevant competent departments," said the embassy.
The mission issued its statement after Canadian Trade Minister Chrystia Freeland said on Wednesday that "we cannot take the next step in our relationship with China" until the issue had been resolved.
Freeland called Chinese Commerce Minister Gao Hucheng late on Wednesday to convey Canada's concerns, but her intervention did not produce an immediate breakthrough.
"They agreed to continue working closely and to remain personally focused on a solution," said Freeland's spokesman, Alex Lawrence. Asked about the embassy statement, he said Freeland had nothing to add.
China imports 3 million to 4 million tonnes of Canadian canola seed annually.
"If one of your biggest customers isn't there to buy from you, in combination with (big) canola production, prices are going to have to come down," said Tony Tryhuk, manager of commodity trading at RBC Dominion Securities.
ICE Canada canola futures for November delivery fell 1.7 percent on Thursday.
China has raised concerns for years that blackleg disease could spread from canola into Chinese rapeseed, another name for the oilseed.
Traders suggest China's real reason for a higher standard is its ample domestic rapeseed oil stocks, similar to other disputes.
China effectively halted imports of U.S. corn and corn products for more than a year beginning in late 2013 as the country rejected shipments of an unapproved biotech variety. Traders speculated that the spat was tied to China’s domestic grain surplus.
Similarly, some traders believe a recent antidumping dispute raised by China over U.S. distillers' grains is aimed at supporting China’s ethanol industry.
Additional reporting by Rod Nickel in Winnipeg and Karl Plume in Chicago; Editing by Lisa Von Ahn, Alan Crosby and Bill Rigby