Softwood lumber talks between Canada and the United States have broken down, Trade Minister Pierre Pettigrew said Tuesday.

Negotiations broke down over two key issues: the amount of a temporary export tax and whether the U.S. will return the $1 billion collected from Canadian companies.

Pettigrew says the gap between the two sides is "too large" and that American negotiators made demands Canada was not willing to meet.

"I'm very sorry that the American coalition...have excessive demands, once again, despite that this whole situation is creating a very difficult situation for themselves," Pettigrew said.

Pettigrew praised the work of Canadian negotiators, but said the two sides would take "a break" and resume discussions at a later date.

British Columbia Forestry Minister Mike de Jong says he doesn't believe the talks are dead and that the two sides will reach a solution.

The U.S. imposed a 27 per cent duty against Canadian exports in May 2001 after an agreement between the two countries expired. The U.S. alleges Canada unfairly subsidizes its industry by charging low fees for the wood.

The duty led to about 15,000 layoffs, primarily in B.C. The Atlantic provinces were exempt because their sales are managed differently.

Unless the sides reach an agreement, the World Trade Organization will rule on the issue in May. Canada brought the complaint to the WTO.