VANCOUVER — Chances of a compromise resolution to the longstanding Canada-U.S. softwood lumber dispute appeared to dwindle on Tuesday after the U.S. side tabled a tough new proposal at talks in Washington, D.C.

The package includes a lumber export tax to replace U.S. duties, which Canada has previously accepted in principle. But it's pegged far higher than Canadian lumber-producing would deem acceptable, a source told The Canadian Press.

The U.S. proposal also puts a ceiling on lumber exports from British Columbia. American producers apparently fear their domestic market would be flooded with high volumes of wood from the B.C. Interior, where accelerated logging is underway to quell a massive pine-beetle infestation.

The Americans also have not budged on a previous demand to keep about half the $5 billion in lumber duties already paid by Canadian producers since tariffs were imposed in May 2002.

The U.S. proposal's so-called "exit ramp'' to get out from under tariffs permanently would require provinces to institute market-based reforms to their forest policies that would raise stumpage anywhere from 100 to 230 per cent, with no provision for future reductions in the Crown timber-cutting fee, the source said.

A Canadian proposal tabled last spring included a temporary export tax while provinces completed policy reforms, coupled with an independent dispute-resolution tribunal. But it ruled out export quotas and demanded all duties held as cash deposits by U.S. Customs be returned.

A delegation of federal and provincial officials and Canadian lumber industry executives, came to Washington on Monday for renewed talks, expected to last until Wednesday.

The U.S. Commerce Department slapped on countervailing and anti-dumping duties after American producers complained for the fourth time in 20 years that Canadian lumber exports were unfairly subsidized, mainly through low stumpage fees.

Canada has always rejected the allegation and is embroiled in a complex set of legal challenges to the duties through the North American Free Trade Agreement and World Trade Organization. Canada has claimed victory in several key rounds of the litigation.

Canadian producers sell about $10 billion worth of spruce, pine and fir lumber a year to the U.S. home-construction and renovation sectors, accounting for about 34 per cent of the market.

Despite the duties, export volumes rose last year because of the continued strong U.S. demand for housing. But American consumer groups oppose the tariffs, arguing they boost the average price of new homes by upwards of $1,500.