(Adds comment from Canadian, Chinese officials, industry)
By Rod Nickel
WINNIPEG, Manitoba, Aug 26 (Reuters) - Canadian exporters are making small sales of canola to China under Beijing's stricter terms, an industry group and three sources said, possibly undermining Ottawa's hardline negotiating stance with the world's top market for the oilseed.
The dispute over the new shipping standard, which industry groups in the world's biggest canola exporter warn would cripple C$2 billion ($1.55 billion) in trade, threatens to mar Canadian Prime Minister Justin Trudeau's visit to China next week. The tougher standard on canola, also called rapeseed, takes effect on Sept. 1.
Canada's trade minister told Reuters this week that the trade relationship could not progress until the issue is resolved, prompting Beijing to criticize Ottawa for linking the two matters. will raise the issue with Chinese leaders next week, a senior Canadian official said. sales of the oilseed, which is crushed to produce vegetable oil and animal feed, risk weakening Canada's negotiating stance with China, since they show trade continues.
While Canadian industry groups say the standard would be expensive to meet, China wants the tougher rule on foreign material in shipments to protect against crop disease.
Cargill Ltd CARGIL.UL , Louis Dreyfus Corp LOUDR.UL and Parrish & Heimbecker have made sales ranging from about 30,000 to 60,000 tonnes to China for delivery after Sept. 1, according to trade sources who were not authorized to speak publicly.
Louis Dreyfus's Canadian unit, Cargill and Parrish & Heimbecker declined to comment.
Canada's biggest canola exporters, Richardson International and Glencore Plc-owned Viterra Inc GLEN.L VILC.UL , however, are balking at China's new standard.
Viterra could not be reached, while Richardson referred comment to the Canola Council of Canada.
CROSSING THE PICKET LINE?
An industry source said the sales, which may intend to test China's new approach, weaken Canada's position, comparing their impact to striking workers crossing a picket line.
Another source said holdout exporters may now feel compelled into sales to preserve market share.
Asked if the sales hurt Canada's leverage, a spokesman for Canadian Trade Minister Chrystia Freeland said resolving the matter remains a government priority.
Yang Yundong, spokesman for China's embassy in Ottawa, said the two countries were having "positive consultations" and the issue could be "resolved properly through joint efforts."
The sales only show that deals are possible under the stricter regulation, but it is "not workable" for most of the roughly 4 million tonnes Canada annually ships to China, said Patti Miller, president of Canola Council of Canada.
As of Sept. 1, China will allow no more than 1 percent foreign material per canola shipment, down from the current 2.5 percent maximum.
Miller said China's move sets "a really bad precedent," and that agricultural trade should be based on science-based regulations.
Chinese officials have said they are concerned about the crop disease blackleg infecting domestic crops, but traders speculate that the move is due to high Chinese stocks.
China National Grain and Oils Information Center said last week that stocks of rapeseed were "plentiful," and demand looked "quite bad."
ICE Canada's most-active canola futures RSv1 dipped slightly on Friday.
($1 = 1.2869 Canadian dollars)