June 4 (Bloomberg) -- The U.S. and Canada agreed to extend talks in a dispute over softwood lumber that may result in arbitration should those discussions fail, Canadian Trade Minister David Emerson said.

The U.S. requested formal consultations with Canada earlier this year, over unfair subsidies it says Canadian lumber companies get from the federal and provincial governments, as well as surging exports to the U.S.

``We've still got another discussion or two to have with the U.S. side,'' Emerson told reporters today in Ottawa. ``Until you actually go to arbitration, I think there is hope.''

The aid and the current volume of U.S. lumber imports may violate an agreement the two countries worked out last year, U.S. Trade Representative Susan C. Schwab's office said in a March 30 statement. Under the agreement, either party can seek arbitration 35 days after requesting consultations.

Emerson also said today that Canada has ``some heavy lifting to do'' before agreeing with South Korea on a free trade agreement. The minister, 61, said he's feeling ``cautiously optimistic'' he'll be able to signing a trade accord with the European Free Trade Association, a four-member bloc that includes Iceland, Liechtenstein, Norway and Switzerland.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

Last Updated: June 4, 2007 16:36 EDT