VANCOUVER, British Columbia, Aug 1 (Reuters) - A lawsuit has been filed against restrictions on whole log exports from private forests in Canada's largest timber-producing province, setting the stage for a new battle between the industry, its unions and environmentalists. TimberWest Forest Corp. (Toronto:TWF_u.TO - news) alleges in a lawsuit filed in federal court on Tuesday that long-standing rules on British Columbia's private forests are unfair, because they are are more restrictive than those in other Canadian provinces and the United States, and do not apply to Indian-owned land. ``We believe B.C.'s private landowners are entitled to the same rights and freedoms as all other Canadian private landowners, including First Nations,'' TimberWest, which is British Columbia's largest owner private forest lands, said in statement on Wednesday. Under a federal rule, logs cut in most private forests in British Columbia must be offered to local sawmills at domestic prices before they can be sold on the export market -- where they can often receive higher prices. The so-called ``surplus rule'' in British Columbia has been around since 1906, but was first used to ensure a log supply for defense purposes in World War Two. It was allowed to lapse after the war, but then renewed in 1969. The rules only apply to timberlands bought after 1906, which make up less than 4 percent of British Columbia's forests, but the effort to change the regulations is opposed by labor unions, who argue it would hurt local mills struggling to get enough timber supply. The Industrial Wood and Allied Workers Union, which represents most of British Columbia's sawmill workers, estimates as many as 10 mills in the coastal region could be forced to close if TimberWest wins its lawsuit. TimberWest's suit also comes as British Columbia's new Liberal government is eyeing an overhaul of rules for timber sales from public lands to make them more market-oriented, and may press for more land to be put into private hands. Former University of British Columbia forestry professor Les Reed, an expert on North America's lumber industry, said TimberWest appeared to be ``paving the way for the future'' by challenging the rules. Whole logs cut from British Columbia's 58 million hectares of public forests can only be exported whole if they are deemed as surplus by three domestic users. Environmentalists also complain that whole log exports encourage companies to overharvest old-growth trees that are valuable for export and ignore the long-term management of forests that supply timber to local sawmills. Private landowners in the western United States are allowed to export whole logs, but since 1990 the U.S. government has barred those landowners from from bidding on timber rights in government-owned forests. Log exports from public forests in the western U.S. are prohibited.