March 17 (Bloomberg) -- Margarine can't masquerade as butter in Quebec.

In a loss for Unilever NV, the world's biggest maker of food and soap, the Supreme Court of Canada ruled that the province, which produces 40 percent of the country's butter, can keep its ban on butter-colored margarine to protect the C$4 billion ($3.33 billion) dairy industry.

The case grew out of the 1997 seizure by provincial Agriculture Ministry inspectors of 384 containers of butter- colored margarine that Unilever had exported from the U.S. Quebec is the only Canadian province that doesn't let producers add coloring to margarine to make it look yellow like butter.

``The natural color of margarine is not the same as butter,'' Pierre Doyle, assistant director of the dairy section at Canada's Agriculture department, said in a telephone interview. ``The natural color of margarine would be whitish.''

The court dismissed a challenge to the law filed by the Canadian unit of Unilever and said reasons for the dismissal will be released later. Today's decision upholds Quebec trial and appellate rulings.

Unilever, based in Weena, The Netherlands, alleged that by imposing color restrictions, Quebec's government was violating the North American Free Trade Agreement, World Trade Organization rules and the Canadian Agreement on Internal Trade.

Quebec had said in 1997 that it planned to repeal the law. New regulations were never enacted.

The case is UL Canada Inc. v. Attorney General of Quebec, 30065, Ottawa.

To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net.

Last Updated: March 17, 2005 16:36 EST