Canada denied an accusation by the United States Trade Office Tuesday accusing British Columbia of illegally subsidizing its softwood lumber producers.

The U.S. said Tuesday it is taking Canada to court over the issue of whether the province is over-playing the impact of pine beetle infestation and selling timber cutting rights at an artificially low rate.

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Canada is denying U.S. accusations that British Columbia is illegally subsidizing its softwood lumber producers. ((Richard Lam/Canadian Press))

Minister of International Trade Peter Van Loan said in a statement the complaint deals with a pricing system that is no longer in place.

"The increased proportion of low-value logs in B.C.'s timber harvest is due to the unprecedented infestation of the mountain pine beetle," Van Loan said.

"Regrettably, the United States continues to rely on unfounded allegations that are flatly contradicted by trade and other economic data," the minister said.

"I am disappointed that the United States has rejected co-operative dialogue on this matter in favour of formal dispute settlement. There is no justification for arbitration, and Canada will vigorously defend the interests of its softwood lumber industry."

The U.S. has said the increase in sales of wood labelled as rejected lumber is due to a concerted effort to clear away damaged forests.

Canada and the U.S. signed the Softwood Lumber Agreement in 2006 with the aim of ending years of litigation over whether Canada unfairly subsidized producers of spruce, pine and fir lumber.

With files from The Canadian Press