UPDATE 3-Canada says third canola exporter has run into trouble in China

Chinese authorities have filed a quality complaint against a third Canadian exporter of canola, Canada's agriculture minister said on Tuesday, potentially deepening a trade and diplomatic dispute between Beijing and Ottawa. Early last month, China cited the discovery of pests as the reason for blocking shipments of canola seed from Richardson International. Shortly afterward, it expanded the ban to a second major exporter, Viterra Inc.

"We have been informed that there is a third company that received a non-compliance notification ... it does not mean that they are suspended," Agriculture Minister Marie-Claude Bibeau told the House of Commons trade committee, saying she could not identify the firm. Beijing has been angry with Canada since the chief financial officer of Chinese telecom giant Huawei Technologies Co Ltd was arrested in Vancouver last December on a U.S. extradition request.

Richardson, Canada's largest exporter of canola seed to China, said on Tuesday it would "not be a painless exercise" to find new international markets if Beijing's ban on imports continued in the long term. Chief Executive Curt Vossen also predicted Canadian farmers could cut the amount of canola they plant this year by 10 percent or more.

China accounts for about 40 percent of Canada's canola seed, oil and meal exports, according to the Canola Council, with seed exports to China worth some C$2.7 billion ($2 billion) a year. Canadian Trade Minister Jim Carr dismissed the suggestion by one legislator that Ottawa strike back against Beijing, given that China runs a large trade surplus with Canada.

"We don't think it's in Canada's interest to escalate the tension," he told the trade committee. Carr said on Monday he was talking to other importers of canola, such as Pakistan, Mexico and Vietnam to discuss whether they might buy more.

Ottawa says it is prepared to send a high-level delegation to China to discuss the ban and is promising to examine ways to boost programs that compensate farmers in times of hardship. Vossen told reporters that canola plantings this year would fall by "5 to 10 percent, it may be more, it may be less."

While there are no signs yet that China is also moving to curb imports of Canadian wheat and soybeans, "there's always that concern," he added. He made his remarks after testifying to the House agriculture committee. ($1 = 1.3360 Canadian dollars) (Reporting by David Ljunggren; Editing by Susan Thomas and Peter Cooney)