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

VI. The Article XI:1 Issue

6.01 The text of Article XI:1 is as follows:

6.02 The United States argued that Article XI:1 should be given its simple and straightforward meaning -- it enjoins "prohibitions or restrictions" on "exportation or sale for export". In accordance with existing GATT decisions,¹⁰ the United States argued, a measure need not refer directly to exports; in order to fall within Article XI:1, it need only have the effect of restricting exports. The United States claimed that the Canadian landing requirement has the effect of placing costs on export sales of unprocessed herring and salmon that are not borne by most domestic buyers, thereby placing many United States buyers at a competitive disadvantage. Such a competitive disadvantage, in the view of the United States, constitutes a "restriction" within the meaning of Article XI:1. According to the United States, while the landing requirement could also be viewed as a restriction on "exportation" it is certainly a restriction on the "sale for export" of such products.

6.03 Canada argued that Article XI:1 forbids restrictions on "exportation" -- in Canada's words the "act of exporting". However, the landing requirement does not regulate the act of exporting; it requires that all fish be landed without distinction between fish destined for domestic buyers or fish destined for export buyers. In Canada's view, the GATT decisions relied on by the United States are irrelevant because they deal either with imports or with measures closely related to an export licensing scheme. Canada further argued that a landing requirement is not the type of measure covered by Article XI:1. A reading of that article in accordance with the normal canons of interpretation, according to Canada, requires "other measures" covered by the article to be limited only to those of the same genus as "quotas" or "licences" which are specifically mentioned in Article XI:1. Furthermore, as United States buyers are able to procure unprocessed herring and salmon on the same terms and conditions as Canadian buyers, then there is no restriction on "sale for export" contrary to Article XI:1. Finally, Canada argued that the landing requirement did not constitute a de facto restriction on trade because the United States had failed to discharge the burden of proving that there was any trade impact.

6.04 In the course of the proceedings, the Panel asked the Parties whether the distinction between border measures and internal measures, which applied in the case of imports under Article XI.1,¹¹ had any relevance to exports under that article. After considering the arguments of the Parties on this issue, the Panel concluded that the "border measures-internal measures" distinction did not apply to export restrictions under Article XI:1. First, although there is an obvious parallel between the word "importation" and the word "exportation", Article XI:1 does not use the word "exportation" alone. It refers to "prohibitions or restrictions ... on the exportation or sale for export of any product." Thus, even if "exportation" was to refer to the act of exporting at the border alone, the concept of "sale for export" extends the coverage of Article XI:1 to restrictions imposed at an earlier stage of the process, before the act of exportation itself.

6.05 Second, there is a good reason for the broader coverage in Article XI:1 in respect of exports, which does not apply in the case of imports. Internal or non-border restrictions placed on imports are regulated elsewhere in the GATT under Article III. That article does not apply, nor could it readily be made to apply, to exports. While an import retains its distinct character as an import throughout its commercial life, and is identifiable as such, an export does not exist as an export until it is committed to the export process. In the Panel's view, the reference to restrictions on "sale for export" in Article XI:1 was designed to deal with this earlier phase of the process and to cover restrictions imposed on goods destined for export even though the restriction does not take effect at the border.¹²

6.06 The Panel concluded, therefore, that there was no justification for applying the "border measures-internal measures" distinction to export restrictions under Article XI:1. The issue before the Panel was whether the landing requirement constituted a restriction on "sale for export" regardless of whether it was an internal or a border measure. If the landing requirement was found to be a restriction on "sale for export", then there would be no need to decide whether it constituted a restriction on "exportation".

6.07 On the question of the scope of the term "restriction" under Article XI:1, the Panel was not convinced that the reference to "other measures" in the definition was limited to a genus confined by the words "quotas, import or export licences". The common genus of these measures might well be that they constitute a restriction on trade. Further, the ordinary meaning of an amplifying phrase introduced by the word "whether" is to affirm the inclusive rather than the limited nature of the term. In this regard, the Panel noted that the definition of "restriction" in Article 410 of the FTA, which is applicable to all of Chapter Four and thus relevant to the interpretation of Article XI:1, elaborates the meaning of restriction to include "permits" and "minimum price requirements" as well as quotas and licences. Moreover, GATT interpretations of Article XI:1 support a liberal approach¹³ stressing that the article should be interpreted broadly enough to accomplish its basic purpose.¹⁴

6.08 Canada argued that the only measures that can be regarded as "restrictions ...on the ... sale for export" under Article XI:1 are those that actually provide for different treatment of domestic sales and export sales. The Panel noted that such an approach would create a significant limitation on the scope of GATT obligations regarding exports. It would allow governments to impose measures that in fact place heavier commercial burdens on exports than on domestic products, provided only that the form of the measure itself was neutral. The Panel noted that no such limitation is made in the parallel GATT obligation regarding imports in Article III:2 and III:4.

6.09 In considering the Canadian argument, the Panel noted that the landing requirement was not merely a general measure that happened to have an adverse impact on exports. An important reason for the specific rule requiring that all salmon and herring be landed in Canada (as distinct from the rules requiring inspection and reporting) was to make exports more amenable to data collection and this, in fact, is its principal effect. The Panel concluded that where the primary effect of a measure is in fact the regulation of export transactions, the measure may be considered a restriction within the meaning of Article XI:1 if it has the effect of imposing a materially greater commercial burden on exports than on domestic sales. In the view of the Panel it was not necessary to demonstrate the actual trade effects of such a measure. As a practical matter there cannot be data to show what would have happened without the measure and GATT decisions have not required such proof.¹⁵ What has to be shown is that the measure has altered the competitive relationship between foreign and domestic buyers.

6.10 The basic United States argument with regard to the competitive disadvantage of the landing requirement was that a substantial proportion of potential exports to the United States would be required to take steps that would not be required in the case of sales to Canadian buyers. Canadian buyers would be able to land at their chosen processing plant or at a location most convenient to that processing plant. The United States did not deny that some export buyers might find it economically advantageous to land in Canada and ship by truck from there; the problem was that exports had to be landed in Canada whether economically advantageous or not. The United States argued that many export buyers would find it economically advantageous to ship directly from the fishing grounds to United states landing sites by water; for these buyers, the landing requirement would impose the extra expense of landing, unloading and reloading at a Canadian landing station.

6.11 The Panel agreed that while the landing requirement affects both Canadian and United States buyers, the burden on export buyers of having to make an unwanted landing would be additional to the burden of inspection and reporting which is imposed on all buyers. Moreover, while there was no actual data on the proportion of export buyers for whom direct transport by water would be most advantageous, the Panel was persuaded that the proportion would be significant. Water transport is the only means available to export buyers from Alaska. Export buyers from the State of Washington do have the alternative of truck transport, but even in this case the proportion of export purchases shipped directly by water is likely to be significant. The evidence of Canadian landing practice submitted to the Panel showed that a substantial majority of Canadian buyers land their catch directly at their processing plants.¹⁶ There is no reason to assume that a similar proportion of United States buyers would not do the same.

6.12 Both Parties devoted a considerable part of their written submissions and oral argument to demonstrate, on the part of the United States, the nature and extent of the additional costs on United States buyers, and on the part of Canada, that the costs were insignificant. Neither side was able to demonstrate what the actual costs to United States buyers would be. Based simply on the steps that export buyers would be required to take--landing in Canada, unloading and loading for reshipment to the United States --the Panel was satisfied that the cost of complying with the landing requirement would be more than an insignificant expense for those buyers who would have otherwise shipped directly from the fishing ground to a landing site in the United States.¹⁷

6.13 In sum, although the evidence presented made it difficult to assess the impact of the landing requirement with any precision, and although it was clear that the landing requirement would not be a commercial burden for some export buyers, the Panel was satisfied that a considerable number of potential export buyers would find direct shipment by water more economical, and that for most of these buyers the extra expense of making an unwanted landing in Canada would be significant. Accordingly, the Panel concluded that, as presently constituted, the Canadian landing requirement is a restriction on "sale for export" within the meaning of GATT Article XI:1.

6.14 One Panel member did not consider the evidence adequate to support the Panel's conclusion as to the significance of the burden imposed by the landing requirement, but was of the view that, on the basis of all the evidence, the landing requirement was a restriction within the meaning of Article XI:1. Another Panel member did not believe that existing GATT rules or previous GATT decisions provide a clear basis for reaching a judgment in the present case as to whether the landing requirement constitutes a restriction within the meaning of Article XI:1, and was not prepared to make a decision on this issue. This member was of the view that the consistency of landing requirements with GATT rules raises conceptual issues that may deserve further consideration by the GATT Contracting Parties.

VII The Article XX(G) Issue

1. The Appropriate Legal Standard

7.01 Article XX(g) provides that nothing in the General Agreement shall be construed to prohibit measures:

provided that such conservation measures:

Canada argued that, even if the landing requirement were found to violate Article XI:1, it is nevertheless excused by this provision. The United States disagreed.

7.02 The Parties are in agreement that, since Article XX(g) is an exception to the obligations of the General Agreement, Canada has the burden of demonstrating the application of this provision. They also agree that several of the criteria of Article XX(g) have been satisfied and are not in issue: (1) it is agreed that the fish subject to the landing requirement are an "exhaustible natural resource" within the meaning of Article XX(g); (2) it is agreed that Canada's restrictions on the amount of such fish taken by domestic fishermen satisfies the requirement in paragraph (g) that domestic production of the resource be restricted; (3) it is agreed that the first proviso stated in the preamble to Article XX is not in issue, there being no claim that the landing requirement involves arbitrary or unjustifiable discrimination between foreign countries.

7.03 The Parties are agreed that the issues in dispute are:

7.04 The Parties have also agreed on the general meaning of the criteria in issue. Both accept the interpretation given by the GATT Panel in its 1987 report on the GATT consistency of Canada's former export prohibition which provided:

As the quoted text indicates, the prohibition against "disguised" restrictions on international trade stated in the preamble to Article XX is in essence just the opposite face of the requirement in paragraph (g) that trade-restricting conservation measures must in fact have a true conservation purpose.

7.05 The Panel began by examining the purpose and meaning of the GATT Panel's conclusion that Article XX(g) measures must be "primarily aimed at" conservation. The Panel recognized that Article XX(g) exists to ensure that the provisions of the GATT do not prevent governments from pursuing their conservation policies. In this regard, the Panel acknowledged that the conservation of natural resources encompasses broader environmental concerns reflecting both economic and non-economic interests. The Panel was conscious of the relevance of such concerns to the interpretation and application of Article XX(g) and of the need to allow governments appropriate latitude in implementing their conservation policies. It was not the intention of Article XX(g) to allow the trade interests of one state to override the legitimate environmental concerns of another.

7.06 However, the Panel also recognized that to achieve its broad objective, it is not necessary that Article XX(g) exempt from prohibition every measure that has a conservation-promoting effect. The only measures that Article XX(g) protects are those that are part of a genuine conservation programme. The "primarily aimed at" test is meant to determine whether this condition has been met.

7.07 In the Panel's view, the "primarily aimed at" test should be applied on the basis of the objective qualities of the measure concerned. A measure such as the Canadian landing requirement might achieve several effects including both a conservation-promoting and a trade-restricting effect. But even so, this would not exclude the existence of a genuine conservation objective. The measure in question could be a valuable part of a conservation programme, worth doing for conservation reasons alone. This, in the Panel's view, ultimately is the basis for the test to be applied; if the measure would have been adopted for conservation reasons alone, Article XX(g) permits a government the freedom to employ it.

7.08 In order to apply this test, the Panel considered that it must examine the objective factors that go into a decision to adopt such a measure, including the conservation benefits that the measure itself would produce and whether there is a genuine conservation reason for choosing the actual measure in question as opposed to others that might accomplish the same objective. The Panel also considered that since governments do not adopt conservation measures unless the benefits to conservation are worth the costs involved, the Panel must examine the costs of the conservation measure -- both resource costs and the costs of inconvenience to commercial and other interests affected by the measure -- to determine whether the conservation benefits would in fact have led to the adoption of the measure.

7.09 The Panel recognized that the issue in this case presented a special difficulty as the primary cost factor associated with the landing requirement is the commercial inconvenience to exporters who have to make an unwanted landing, unloading and reloading. In the Panel's view, the purpose of Article XX(g) requires that this commercial inconvenience to exporters be treated in exactly the same way as an equivalent burden on Canadian buyers would be treated. In other words, how genuine the conservation purpose of a measure is, must be determined by whether the government would have been prepared to adopt that measure if its own nationals had to bear the actual costs of the measure. Otherwise, the law of Article XX(g) would require a different test for conservation measures imposing burdens on exporters than for measures imposing burdens on domestic buyers.¹⁹

7.10 Accordingly, the Panel concluded that in determining whether the Canadian landing requirement would have been adopted for conservation reasons alone, the central issue was whether the conservation benefits of the landing requirement would have been large enough to justify imposing the commercial inconvenience in question. To comply with the trade neutrality required by Article XX(g), the issue must be posed in terms of whether Canada would have adopted the landing requirement if that measure had required an equivalent number of Canadian buyers to land and unload elsewhere than at their intended destination.

7.11 The Panel recognized that the test called for by Article XX(g) required a number of judgments about matters relating to conservation policy. The Panel was aware that each state has the sovereign right to decide upon the particular conservation policies it wishes to employ. But, at the same time, the Panel was required to take account of the obligations that Canada and the United States have accepted, under GATT and the FTA, regarding trade-restricting conservation measures. The preamble to GATT Article XX, which expressly prohibits "disguised" restrictions on international trade, is an acknowledgement by the Parties that they will submit the purposes of trade-restricting conservation measures to third-party scrutiny. By directing the application of this provision, the Panel's terms of reference required the Panel to make its own independent evaluation of the conservation justification in question.²⁰

2. The Conservation Rationale for the Landing Requirement

7.12 Canada stated that the conservation objective of the landing requirement is to maintain and improve the quality of the conservation data obtained from commercial catches in its Pacific salmon and roe herring fisheries.²¹ Canada acknowledged that the landing requirement involves a more intrusive methodology than employed in its other Pacific fisheries. It sought to justify this greater intrusion on the ground that the salmon and roe herring fisheries were commercially more important, and more difficult to manage. Upon reviewing all the evidence, the Panel concluded that there is a rational case for distinguishing the salmon and roe herring fisheries. The most persuasive distinction is the relatively greater pressure for overfishing in these fisheries, due to the greater size and harvesting power of the salmon and herring fleets and the greater economic rewards of overfishing.²²

7.13 The United States made a number of arguments suggesting that the high level of data quality sought by the Canadian landing requirement is simply not useful in view of all other inadequate and less perfect data on salmon and roe herring which Canada accepts, or is forced to accept. Mentioned in this connection were the inadequate data received concerning the important numbers of salmon taken by sports fishermen, the difficulty of monitoring salmon trollers, the practice of allowing tenders to mix catches from different fisheries, and the need to rely on United States data for those of its salmon stocks subject to interception in United States waters. The Panel found it difficult, however, to accept that having better data about one phenomenon is not useful because of data inadequacies elsewhere. Apart from certain specific points made below, the Panel did not find that Canada's general objectives with regard to data quality were excessive.

To Continue with The Landing Requirement's Contribution to Data Collection

¹⁰ The United States cited EEC Programme of Minimum Import Prices, L/4687, BISD 25th Supp. p. 68; EEC Quantitative Restrictions Against Imports of Certain Products from Hong Kong, L/5511, BISD 30th Supp. p. 129 and Japan - Trade in Semiconductors, L/6309.

¹¹ The distinction was applied in the panel report in Canada -Administration of the Foreign Investment Review Act, L/5504, BISD 30th Supp. p.140 (1984), at 5.13-5.14 (pp.162-163). The distinction was also recognized, and somewhat qualified, in the panel report in Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, L/6304, (5 February 1988), at 4.23-4.26 (p.48).

¹² In this connection, although neither Party raised the point, the Panel noted that Chapter Four of the FTA, into which Article XI is incorporated, is headed "Border Measures". However, the Panel concluded that this title was not intended to serve the substantive task of restricting, for the purposes of the FTA, the range of application of GATT provisions incorporated therein.

¹³ One recent GATT Panel has interpreted the term "other measures" as being broad enough to encompass restrictive internal measures taken by a state trading monopoly: Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, L/6304, (5 February 1988), paras. 4.23-4.26.

¹⁴ Japan - Trade in Semi-conductors, L/6309 (24 March 1988), paras 104-106; Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, L/6216, BISD, 34th Supp. p.83 (1987), para. 5.11.

¹⁵ Japan - Customs Duties, Taxes and Labelling Practices on Inported Wines and Alcoholic Beverages, L/6216, BISD, 34th Supp, p. 83 (1987) para. 5.10-5.11; see also United States - Taxes on Petroleum and Certain Imported Substances, L/6175, BISD 34th Supp. p. 136 (1987) para. 5.1.9.

¹⁶ See Canadian Responses to Additional Questions from the B.C. Salmon and Herring Panelists, 25 July 1989.

¹⁷ The United States also argued that there would be an additional cost to United States exporters from the deterioration in the quality of the fish from the extra handling involved. Canada argued that modern handling techniques limited or eliminated any such loss of quality from handling. While it appeared to the Panel plausible that in some circumstances a loss of quality could occur, the Panel found it unnecessary to resolve this issue and does not rely on it in its finding.

¹⁸ Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, L/6268, (20 November 1987), at para. 4.6 (p.15) (emphasis added). 

¹⁹ Concern to assure that Article XX burdens not be imposed on foreign commercial interests alone figured prominently in the drafting of Article XX. In the Geneva meeting of the ITO Preparatory Committee, several delegates proposed drafting a proviso to what is now Article XX(b) requiring that any member applying a restrictive health measure under that provision impose corresponding health-security measures in its own country, so that the exporting country would not "bear the full burden" of the health measure. E/PC/T/A/PV/30 at 8. The delegates eventually deleted the proviso when they were unable to agree on its wording. In doing so, however, they agreed that the probihition against disguised restrictions on trade stated in what is now the preamble to Article XX would ban any attempt to use the exception in Article XX(b) to burden imports alone without analogous domestic restrictions. Id. at 11-15. The same concern for equal burdens is reflected in the central requirement of Article XX(g) that restrictions on foreign trade be accompanied by, and be imposed in conjunction with, restrictions on domestic production or consumption.

²⁰ The power to look behind a government's representations as to its purpose in enacting a measure was made part of Article XX because of concern that the Article XX exceptions could be abused. See E/PC/T/C.II/32 at 11 (delegate of the Netherlands points out that exceptions such as that in XX(b) "are misused for indirect protection", and recommends amendment to prohibit measures that constitute an indirect protection); E/PC/T/C.II/50 at 7 (summary record shows United Kingdom proposed text of what is now Article XX preamble and said that purpose was "to prevent abuse of the exceptions" of Article XX).

²¹ Canada noted that the data-collection effects of the new landing requirement will in large part be just a continuation of past practice, given that the previous export restriction amounted to a de facto landing requirement giving Canadian fisheries officials access to almost 100% of the Canadian salmon and herring catch. At the same time, however, Canada has called attention to its recent efforts to improve upon existing data collection methods -- improvements that also depend, it argued, on continuing to land 100% of the catch in Canada. 

²² Although reference was made to the lack of a landing requirement in Canada's Atlantic fisheries, the information about Atlantic fisheries submitted to the Panel was not sufficient to permit any conclusions to be drawn from that comparison.