In a major escalation of a three-week pay battle at the Myrtleford timber mill, it has been alleged that the company, Carter Holt Harvey, has acted in breach of the conditions of the Forest Stewardship Council Certification by refusing to respect the rights of its workers.

Construction, Forestry, Mining and Energy Union secretary Michael O'Connor said losing the crucial certification would lead to a massive drop in the company's market share, and the decision to apply for its termination had not been taken lightly.

"Without certification it will be difficult for the company's products to get on to building sites and on the shelves of the big timber and hardware retailers," he said.

"If Carter Holt Harvey wants to continue to tell the market it is an ethical producer it needs to start acting like one."

The Forest Stewardship Council's association policy states it will disassociate with companies that are directly or indirectly involved in unacceptable activities, including violation of any of the ILO Core Conventions.

The union, Mr O'Connor said, was also writing to the institutional investors of the mill's major wood supplier, HVP Plantations, a US-based company owned by a number of pension funds.

Carter Holt Harvey locked out its workforce of 207, including casual staff, at the Myrtleford mill three weeks ago, in response to union members walking off the job for four hours.

Management called in security guards to keep them out and erected wire fencing around the mill.

Negotiations between the company and the union over the terms of a new workplace agreement have broken down, with staff pressing for a pay rise of 3 per cent a year and a week's annual leave over the Christmas period.

Carter Holt Harvey has not responded to a request for comment.