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FINAL REPORT OF THE PANEL UNDER CHAPTER 18 OF THE CANADA-UNITED STATES FREE TRADE AGREEMENT


Article 1807
Secretariat File No.
USA 89-1807-01

IN THE MATTER OF:

Lobsters from Canada

Panel:

    Bernard Norwood, Chair

    Thomas A. Clingan, Jr.

    Robert E. Latimer

    Simon V. Potter

    Mary Beth West


Table of Contents

1. Introduction

2. Terms of Reference

3. Factual Background

3.1 The applicable species
3.2 The American lobster
3.3 The industry
3.4 Processing and marketing
3.5 Legislative background

4. The Main Arguments

4.1 General
4.2 Article XI
4.3 Article III
4.4 Article XX
4.5 Trade Effects
4.6 Remedies

5. What Is Not Covered

6. Views on the Possible Applicability of Article XI and III


6.1 The two Parties had directly opposing views on the applicability of Article XI and Article III.
6.2 The relative treatment of imported and domestic products is a key to GATT rules.
6.3 The Panel arrived at differing views.

7. The Majority View: That Article XI Is Inapplicable -- and Article III Is Applicable

7.1 What are the key provisions of the amended Magnuson Act, Article XI, and Article III?
7.2Articles XI and III represent the basic classifications of measures applying to foreign goods.
7.3 Contrasting Article XI and III by the term "border/internal" may obscure the "competition" requirement and be misleading.
7.4 The actual classification terminology is stated in Article XI and III.
7.5 Are the U.S. measures formulated as internal or border measures?
7.6 What is the U.S. policy on where the measures will be imposed?
7.7 Are the U.S. measures actually applied internally or at the border?
7.8 Does the trade effect of a measure determine whether it is covered by Articles XI and III?
7.9In deciding possible coverage under Article III, does it matter that the measures are a prohibition rather than a restriction?
7.10 Other prohibitions and restrictions presently embraced under Article III.
7.11 Is there a case history to aid in analyzing the main issue in the present case?
7.12 An early set of criteria: from a Havana Sub-Committee
7.13 GATT Panel Report on the Canadian Foreign Investment Review Act (FIRA)
7.14 GATT Panel on U.S. Section 337 Procedures
7.15 GATT Panel on Italian Discrimination Against Imported Agricultural Machinery
7.16 Classification of internal taxes between Articles applying to importation and Article III on internal marketing
7.17 A case cited that is ambiguous: GATT Panel on Canadian Provincial Alcoholic Beverage Distribution
7.18 A case cited that is not relevant: GATT Panel on Tomato Concentrate
7.19 The irrelevancy of cases involving measures on exports
7.20 Is the policy objective of a measure relevant to a classification under Article III?
7.21 FTA Panel on Canada's Landing Requirement for Pacific Coast Salmon and Herring
7.22 Conclusions

8. The Minority View: That Article XI Is Applicable

8.1. The issue
8.2 The language of GATT Articles XI and III
8.3 The precedent regarding the interpretation of GATT Articles XI and III
8.4 Irrelevant considerations
8.5 Conclusion

9. The Minority View: Assuming Article XI Is Applicable, Does Article XX(g) Provide an Exception?

9.1 The steps to be taken to examine the application of Article XX(g) in this case
9.2 The criteria of Article XX(g)
9.3 The burden of proof is on the United States
9.4 How fully the criteria were met
9.5 The United States said the measures were for conservation enforcement.
9.6 The previous conservation system utilized a "rebuttable presumption" of illegality.
9.7 The legislative history
9.8 Were alternatives to the U.S. measures considered?
9.9 Conclusion

10. The Minority View: Assuming Article XI Is Applicable and XX(g) Does Not Provide an Exception, What Are the Trade Effects, If Any?

10.1 Terms of reference
10.2 The Canadian and U.S. estimates
10.3 Comments and observations of the Panel
10.4 The amount of trade affected
10.5 The degree of adverse trade effect

11. Conclusions

11.1 The Panel is not unanimous on the basic question
11.2 The view of the Panel as represented by the majority
11.3 The views of a minority of the Panel


1 Introduction

.1 This report has been prepared by a panel of experts established under the U.S.-Canada Free Trade Agreement ("FTA") to assist the Governments of Canada and of the United States to resolve a dispute over the trade between them in live lobsters harvested in Canada.

.2 The two governments referred the dispute to the Canada-United States Trade Commission under Chapter 18 of the FTA in accordance with an exchange of letters between the United States Trade Representative, Carla A. Hills, and Canada's Minister for International Trade, John C. Crosbie, dated January 18 and 27, 1990).

.3 In their exchange of letters, the Parties agreed that a panel should be established to prepare a report and that the task should be done according to an accelerated schedule as follows (as amended):

January 30 - Panel selection completed

February 1 - Canada files initial brief

February 21 - United States files reply brief

March 5 - Oral hearing

March 13 - Parties file supplementary briefs

April 18 - Initial Panel report submitted to Parties

April 30 - Parties' objections filed

May 21 - Final report issued

.4 In all other respects, Canada and the United States agreed that the procedures of Article 1807 of the FTA and of the Model Rules of Procedure for Chapter 18 Panels were to apply.

.5 The Parties also agreed that the Panel would be composed of Bernard Norwood (Chair), Thomas A. Clingan, Jr., Robert E. Latimer, Simon V. Potter, and Mary Beth West.

.6 The Parties' briefs were filed and the oral hearing of a day and a half was held in Washington in accordance with the agreed schedule. The Panel met for deliberations in Washington and Ottawa and has prepared this Final Report for submission to the Parties for comments under the established timetable.

2 Terms Of Reference

.1 On December 12, 1989, the United States enacted an amendment to the Magnuson Fishery Conservation and Management Act (the "Magnuson Act") to prohibit, among other things, the sale or transport in or from the United States of whole live lobsters smaller than the minimum possession size in effect under U.S. federal law ("sub-sized lobsters"). By that amendment (the "1989 amendment" or "U.S. measures"), lobsters originating in foreign countries or in states having minimum lobster size requirements smaller than the minimum limits imposed by U.S. federal law are prohibited, with effect from December 12, 1989, from entering into interstate or foreign commerce for sale within or from the United States.

.2 The complete text of section 307(1)(J) of the Magnuson Act is as follows:

It is unlawful --

(1) for any person --

(J) to ship, transport, offer for sale, sell, or purchase, in interstate or foreign commerce, any whole live lobster of the species Homarus americanus, that --

(i) is smaller than the minimum possession size in effect at the time under the American Lobster Fishery Management Plan, as implemented by regulations published in part 649 of title 50, Code of Federal Regulations, or any successor to that plan, implemented under this title;

(ii) is bearing eggs attached to its abdominal appendages; or

(iii) bears evidence of the forcible removal of extruded eggs from its abdominal appendages [16 U.S.C. 1857 (1)(J)].1

.3 This 1989 amendment to the Magnuson Act was the latest of numerous initiatives by federal and state governments in the United States to ensure effective management of U.S. fishery stocks in general and, in particular, to implement a coherent, integrated management program of U.S. lobsters. Until the 1989 amendment, lobsters harvested in federal waters could not be sold in interstate commerce if they failed to meet federal minimum size requirements, but Canadian lobsters could. Someone found selling sub-sized lobsters could, until the amendment, avoid conviction by showing evidence of purchase of the lobster from a jurisdiction, such as Canada, which did not impose the U.S. federal minima.

.4 In December 1989, Canada advised the United States that the application of a minimum lobster size requirement to Canadian lobster exports to the United States was a GATT-illegal import prohibition.2

.5 The difference of view between the United States and Canadian governments on the application of U.S. minimum lobster size requirements to Canadian exports was not resolved through consultations.

.6 Canada and the United States, in their exchange of letters, agreed on terms of reference for the Panel. They said that the questions to be considered by the Panel were as follows:

(1)Is section 307 (1)(J) of the Magnuson Fishery Conservation and Management Act making it unlawful for any person to ship, transport, offer for sale, sell or purchase, in interstate or foreign commerce any whole live lobster of the species Homarus americanus that is smaller than the minimum possession size in effect at the time under the American Lobster Fishery Management Plan inconsistent with the obligations of the United States under Article 407 of the FTA, which incorporates GATT Article XI?

(2) If the answer to the foregoing question is affirmative, is the measure subject to an exception applicable under Article 1201 of the FTA which incorporates Article XX of the GATT?

It is understood that in agreeing to have the Panel examine the consistency of the Magnuson Act amendment with Article 407, and hence GATT Article XI, the United States is not precluded from arguing that the legislation in question is properly within the terms of, and consistent with, the national treatment provisions of the FTA and the GATT.

Further, pursuant to FTA Article 1807 (5), the United States has requested that, in the event the Panel makes an affirmative determination on issue (1) and a negative determination on issue (2), the Panel in addition present findings based on the Parties' submissions as to the degree of adverse trade effect of the amendment, if any.

To Continue with Factual Background


1 The 1989 amendment is sect. 8 of the 1989 National Oceanic and Atmospheric Adminstration Ocean Coastal Programs Authorization Act, Pub. L. No. 101-224, sect. 8, 103 Stat. 1905, 1907 (1989) (to be codified at 16 U.S.C. sect. 1857 (1) (J)).

2 Canada does not challenge the Magnuson Act prohibitions (sections 307(1)(J)(ii) and (iii)) on the marketing of egg-bearing or "scrubbed" lobsters (that is, lobsters bearing evidence of the forcible removal of extruded eggs), the harvesting of such lobsters being also prohibited in Canada.