OTTAWA—Canada is being brought before an international court by the United States, which alleges British Columbia is breaking the 2006 softwood lumber agreement by selling the province’s timber at artificially low prices.

The U.S. trade representative has asked the London Court of International Arbitration to rule on the complaint that, insiders say, could result in a fine of up to $500 million.

Under the rules, a decision from the London court is final. The process can take up to two years to reach a verdict.

The complaint accuses the B.C. government of “dramatically” increasing the amount of timber it is selling that has been infested by the mountain pine beetle at the cut-rate price of 25 cents a cubic metre.

This has given B.C. mills at unfair advantage in softwood sales, the U.S. alleges.

An industry group calculates the practice has “saved B.C. interior lumber producers hundreds of millions of dollars in fibre costs,” allowing them to undercut U.S. competitors.

Ottawa responded to the announcement saying it will “vigorously defend” the domestic industry in the proceedings.

Canadian Trade Minister Peter Van Loan said he was disappointed the U.S. had taken the step to take the case to court and that the case was based on “unfounded allegations.”

B.C. forestry minister Pat Bell also denied the province had been cheating, saying American producers should have known there would be an effort to clear dead, beetle-infested timber.

“The history behind the United States is when they can’t compete on a level playing field, they try to skew the playing field,” Bell said in a telephone interview.

“In 2006, when we signed the softwood lumber agreement, it was broadly known that there were huge swaths of pine forests that had been killed, and it was just a matter of time before those pine stands degraded.”

Bell said the industry has stepped up production of the damaged timber because it wants to get as much value as possible from the “dead pine” over the next decade.

The U.S. acknowledges some timber has been damaged by the pine beetle, but said the amount classified by B.C. as “grade 4,” or cut-rate, can’t be justified.

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“The central issue in the dispute involves the mis-assignment of public timber to the salvage ‘grade 4,’ which B.C. then sells to Canadian softwood lumber producers at the very low fixed rate,” the statement from the U.S. trade representative Ron Kirk states.

In one previous case, the U.S. won a judgment of $68 million in export duties as compensation for what the court ruled was cheating by Ontario and Quebec.

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