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WASHINGTON/VANCOUVER (Reuters) - The United States accused Canada on Tuesday of violating a lumber trade deal by under pricing wood from trees killed in a massive insect infestation in British Columbia.
Washington filed the complaint on behalf of U.S. lumber producers who say their Western Canadian rivals are being subsidized though use of the cheap timber, which they say is prohibited under the 2006 trade deal.
The request for binding arbitration to resolve the dispute is the latest flare-up in a quarrel over lumber used for housing construction that has been a thorn between the major trading partners for decades.
"This type of benefit harms U.S. workers and firms in the lumber industry, and is inconsistent with Canada's obligations under the 2006 Softwood Lumber Agreement," United States Trade Representative Ron Kirk said in a statement.
If the United States wins the case in the London Court of International Arbitration, lumber shipped to the United States from British Columbia, Canada's largest softwood lumber producing province, could be subject to additional export taxes.
Unlike in the United States, nearly all Canadian forests are owned by provincial governments, which sell logging rights to forestry companies using often-Byzantine pricing systems that are based, in part, on the quality of the wood.
American producers complained that British Columbia has used the mountain pine beetle infestation to classify trees as having little or no lumber value when they are actually still usable by sawmills.
"I think the entire U.S. industry and in fact the entire North American industry outside of interior British Columbia has been affected by this behavior," said Zoltan van Heyningen, a spokesman for the U.S. Coalition for Fair Lumber Imports.
The beetle infestation that began in the late 1990s is estimated to have killed off trees with more than 600 million cubic meters of lumber. The tiny insects infect older lodgepole pine trees in order to reproduce.
British Columbia says the scale of the infestation is unprecedented in North America, and its pricing reflected the need to harvest the dead trees quickly - in part to control the spread of the insects.
Western Canadian lumber companies say they have invested millions of dollars in new technology to allow them to use the wood, which is difficult for sawmills to handle because the trees get drier the longer they remain unharvested.
"The United States is just trying to penalize us for our productivity," said John Allan, president of British Columbia's Council of Forest Industries, which says the White House only filed the complaint because of domestic political pressure.
The Canadian government dismissed the U.S. allegations as unfounded and contradicted by data that shows Canada is supplying less of the U.S. lumber market than it did when the trade deal was signed.
Allan says new U.S. trade restrictions will only increase British Columbia's incentive to sell more of its wood to China, which will further drive up lumber prices and hurt efforts to revive the U.S. housing construction market.
"It could be a case of beware of what you wish for," Allan said.
The 2006 trade agreement requires Canada to collect an export tax on lumber shipped to the United States. If Canada loses the case, it would have to collect additional fees.
Industry officials say it is difficult to estimate the size of a potential fine.
U.S. producers say that in 2007, British Columbia was pricing lumber from beetle-killed trees at 25 Canadian cents per cubic meter, which was 98 percent less than the average market price at the time.
Reporting by Doug Palmer, Allan Dowd and Roberta Rampton, Writing Allan Dowd; editing by Sandra Maler and Peter Galloway