REUTER 14/3/95

BRUSSELS Spain said diplomatic relations with Canada may be severed in a deepening row over fishing rights and the European Union rejected peace talks with Ottawa until it released a seized Spanish trawler.

Canada in turn accused Spanish fishermen of killing off stocks in the once rich fishing areas of the North Atlantic.

Diplomats from the 15 EU countries met in Brussels on Monday for their third emergency session since Canadian gunboats fired across the bows of the Spanish trawler Estai and seized it in international waters last Thursday.

The EU, holding fire on trade sanctions, rejected formal talks with Canada until the vessel was released and refused to consider a new Canadian proposal to solve the row.

"They have to liberate the boat unconditionally (before negotiations)," Spanish EU ambassador Javier Elorza told reporters after the meeting.

In Madrid, Spanish Foreign Minister Javier Solana conceded that the dispute with Canada could lead to a break in diplomatic links between the two countries.

He told a news conference Spain was banning official visits with Canada and had started proceedings to lodge a formal complaint with the World Court in The Hague.

Solana said Spain had the full range of diplomatic measures at its disposal in its efforts to free the Estai.

He said he did not want to be more explicit but, pressed by a reporter on whether the row could ultimately mean a break in relations, the minister replied:

"I am foreign minister and I have to use diplomatic language, but I will not deny what you say."

Spain and the EU accuse Canada of piracy while Ottawa says it is legally trying to preserve fish stocks.

The Estai remained in St John's, Newfoundland, where it was taken after the Canadian gunboats seized it.

Canadian Fisheries Minister Brian Tobin said the Spanish vessel was full of undersized, immature fish whose loss underlined Ottawa's concern that fishing stocks in the North Atlantic were being killed off.

"Many of the fish that were caught were smaller than the palm of my hand. This must stop," Tobin told parliament. "When you take these size animals from the ocean you preclude any opportunity of sustaining the stocks."

EU sources said Canada had proposed an increased EU fishing quota in the disputed area around the Grand Banks in the North Atlantic in return for neutral country checks on EU vessels fishing there.

But Canadian Department of Foreign Affairs official Jennifer Sloan denied in Brussels that Ottawa had made a detailed offer.

"We have just had some very preliminary discussions, we have put nothing formally on the table yet," she told Reuters.

Madrid's Elorza said the EU diplomats had not discussed trade sanctions as a way of punishing Ottawa during their meeting. But the EU's executive body, the European Commission, is studying possible retaliatory measures.

"It's very easy to condemn Canada, it's not so easy to agree on what we do next," an EU source said.

Trade between Canada and the EU is estimated at $21.27 billion annually, including $1.13 billion in Canadian fish and farm exports.

The Estai was seized and its captain arrested while fishing for Greenland halibut, also known as turbot, 28 miles outside Canada's 200 mile limit.

Canada says it is trying to conserve the fish by limiting catches in the region, an argument one European official dismissed as a smokescreen for "crude domestic political gain".

"I am afraid all this guitar strumming in Newfoundland is hooey (rubbish). One thing this is not about is conservation, they are disguising greed as conservation," the official said.

Spain responded to the Estai's capture by sending a warship to the disputed area in the North Atlantic. Solana told reporters on Monday a second ship was ready to go if necessary.