BINATIONAL PANEL REVIEW
PURSUANT TO
THE NORTH AMERICAN FREE TRADE AGREEMENT
Article 1904

Decision of the Panel on Review of the Canandian International Trade Tribunal Finding

IN THE MATTER OF:

Certain Malt Beverages from the United States of America (Injury)
(Continued)

III. Did the Tribunal Err in Determining That British Columbia No Longer Constitutes a Regional Market for Packaged Beer?

A. Finding of a Regional Market (Outflows)

Article 4.1(ii) of the Anti-dumping Code provides that in order for a tribunal to find that a regional market exists, two tests must be satisfied.⁶⁸

The first test, which refers to outflows, is that the producers within the market sell all or almost all of their production of the product in question in that market. The second test, which refers to inflows, is that demand in the market is not to any substantial degree supplied by the producers of the product in question located elsewhere in the territory.

If either of these two tests are not met, then a regional market cannot be found to exist. The Complainants argue that in reaching the conclusion that British Columbia no longer constitutes a regional market for packaged beer, the Tribunal:

(a) committed an error of law by ignoring jurisprudence of the Tribunal which establishes that the regional market criteria as set out in Article 4.1 of Anti-dumping Code could be found to be met where trade flows were in the range of 20%;

(b) erred by ignoring the uncontradicted evidence that recent outflow numbers were a transitional, and temporary phenomenon relating to the introduction of new beer which required specific new technologies; and

(c) erred by relying on irrelevant considerations relating to the 1991 Intergovernmental Agreement, the Canada-US Memorandum of Understanding ("MOU") and agreement in principle and the Agreement on Internal Trade.

The "All or Almost All" Test

Article 4.1 of Anti-dumping Code provides that one of the two criteria that must be met for a regional market to exist is that the producers within the market must sell all or almost all of their production in that market. Neither SIMA nor Article 4 of Anti-dumping Code provides any guidance as to what constitutes all or almost all of the production of the product in question.

Counsel for the Complainants argued that the Tribunal erred in law in misinterpreting and misapplying its own precedents. These precedents, it was argued, support the proposition that the all or almost all test can be met where outflows of production from the market are in the range of 20%. The Complainants rely on cases such as Fresh Cauliflower and Reinforcing Bars to ^{69 70} support their contention that a threshold for allowable outflows in a regional market is in the range of 20%. The Complainants argue that the Tribunal’s failure to follow or even to address its own precedents establishing this alleged threshold constitutes reversible error.

At page 18 of the Decision, the Tribunal states that it has reviewed all of the regional industry cases heard by it and its predecessors and was of the view that "in no case, where flows into and out of a market were of the magnitude of the flows in the present case, has a regional industry been found to exist". The Panel has also reviewed the cases cited by the Complainants.

While these cases indicate that the Tribunal considers that outflows of more than 20% do not meet the "all or almost all" test, the cases also indicate that the Tribunal has not developed a stringent 20% rule that will be automatically or uniformly applied.

Previous decisions of the Tribunal do not in any way constitute precedent for the application of a mathematical formula. This was acknowledged by the Complainants in oral ⁷¹ argument when they stated that "20% is very much a broad band 20 plus/minus. Twenty per cent is not a magic number". As stated above, the standard of review applicable to the Tribunal’s ⁷² interpretation of the law is that of considerable deference. The Tribunal’s decision is not contrary to law simply for failure to apply a percentage test within a specific range.

The Tribunal does not apply fixed percentages automatically and uniformly in such a way as to fetter its discretion. It examines each case on its merits. "[T]he evidence on the record indicates that the B.C. beer industry sold 24 and 22 percent of its packaged beer production in other provinces in 1992 and 1993, respectively." This was up from "5 and 7 percent" of its ⁷³ production [sold] in other provinces in 1990 and 1991, respectively." This evidence exceeded ⁷⁴ the 20% figure propounded by the Complainants in at least two of the years examined by the Tribunal. The Panel is of the view the Tribunal did consider its previous cases but relied on the particular evidence before it to make its decision that the "all or almost all" test was not met in this case.

Temporary Nature of Outflows

The Complainants next assert that the Tribunal did not address their argument that recent inflows and outflows from the B.C. market were a transitional, and temporary phenomenon relating to the introduction of packaged "draft beer" and "ice beer", both of which required specific new technologies. The Complainants argued that there was absolutely no evidence that this phenomenon would reoccur and that the flows would continue at the level they had in 1992 -93.

In support of this contention, counsel for the Complainants referred to the statistics for the second quarter of 1994 which indicated that the outflows of packaged beer from the B.C. market declined over the same period in 1993. The Complainants argued that these figures demonstrate that the significant flows attributable to technological change have abated.

The second quarter 1994 numbers were provided to the Tribunal, at the Tribunal’s request, after the hearing. All parties were provided the opportunity to comment on them. The Complainants argue that the second quarter 1994 figures demonstrate a marked decrease in outflows over the same quarter in 1993. They further argue that the high outflow numbers were a temporary phenomenon caused by the introduction of what the Complainants called technology beers and that these numbers indicated a trend of decreasing flows out of the British Columbia market.

The Panel notes that the first quarter numbers of 1994 show a marked increase in outflows over the same quarter of the previous year, although the second quarter shows a decrease from the second quarter of 1993. The Panel also notes the Tribunal did not purport to base its finding of continued future interprovincial trade flows on any one quarter but stated that it looked to the outflow numbers from 1992, 1993 and first quarter of 1994. As stated above, the Panel will accord a very high level of deference to the Tribunal’s findings of fact. We are not prepared to interfere with the Tribunal’s finding on the basis that one quarter, albeit the most recent quarter, was not specifically commented on in arriving at its conclusion that the trend in interprovincial trade in beer is likely to continue.

Further, this Panel has reviewed the evidence before the Tribunal to assess the Complainants’ claim that there was no evidence upon which the Tribunal could conclude that the trend in inter-provincial trade is likely to continue. The Panel has concluded that the Tribunal had sufficient evidence to make the above findings.⁷⁵

The Tribunal rejected the Complainants’ argument that the increased level of trade in packaged beer should be viewed as a temporary phenomenon which resulted primarily from the introduction of new beers, such as genuine draft and "ice beer" which required the use of new brewing technologies. Review of the record shows there was evidence which entitled the Tribunal to reject this argument and to conclude that "new products are a way of life in the brewing industry [and] together with the manner in which production of new products is established, suggests that the trend in interprovincial trade in beer is likely to continue".⁷⁶

International and Interprovincial Trade Agreements

The Complainants argue that the Tribunal relied on irrelevant considerations and suspect conclusions in basing any of its decision on the Intergovernmental Agreement (1991), the MOU or the Agreement in Principle or the Agreement on Internal Trade. The Complainants argue that there was uncontroverted evidence on the record which established that the Interprovincial Agreement (1991) did not increase interprovincial beer flows. The Complainants further argue that the Tribunal based its decision on irrelevant considerations when it based its decision on the MOU and the Agreement in Principle as these agreements deal with trade between Canada and the U.S. and not interprovincial trade. Finally, the Complainants argue the Tribunal committed an error in basing its decision in part on the Agreement on Internal Trade which was not yet in force.

The Panel is of the view that the agreements referenced by the Tribunal in the Decision were referred to, not so much for their direct effect on trade flows, but because the Tribunal found that these agreements had contributed to the British Columbia Liquor Distribution Branch’s "LDB") relaxation of restrictions on interprovincial and international trade in beer. The Tribunal was recognizing a freer and more flexible regulatory environment which was demonstrated by the various governments concluding agreements aimed at reducing structural trade barriers. At page 18 of the Decision, the Tribunal stated:

The Tribunal is of the view that the conclusion of the various referenced interprovincial and international agreements relating to trade in beer has contributed substantially to the LDB’s relaxation of restrictions on interprovincial and international trade in beer. This, in turn, has led to increased interprovincial trade in packaged beer, both into and out of British Columbia.

The Tribunal referenced excerpts from the transcripts of the public hearing and the in-camera hearing held before it in support of its view. We have reviewed the transcripts and conclude that the Tribunal had evidence upon which to conclude that the various inter-provincial and international agreements relating to trade in beer have contributed to the LDB’s relaxation of restrictions on inter-provincial and international trade in beer. This evidence supports the ⁷⁷ finding that the relaxation has led, in part, to increased inter-provincial trade in packaged beer into and out of British Columbia.

The Tribunal is a specialized agency that is called upon to weigh and evaluate evidence, make findings of fact and draw inferences from the evidence in an international trade context.

Given the expertise of the Tribunal and the standard of review accorded to findings of fact, this Panel will not reweigh the evidence, nor substitute its view for that of the Tribunal on any of the above issues raised by the Complainants.

B. Finding of a Regional Market (Inflows)

As discussed in relation to outflows, in order to make a finding of a regional industry, both the outflows and inflows tests must be satisfied. If either of these tests is not met, then a regional industry does not exist.

The Complainants argue that the test for inflows requires that in determining whether an alleged regional market is supplied "to any substantial degree" by inflows, such inflows must be assessed in terms of the regional demand for domestic product, and not the total regional demand.

They argue that the Tribunal failed to make any such assessment in the present case. Finally, they allege the Tribunal misinterpreted its own precedents on inflows, which led it to misapply the "not to any substantial degree" test in the instant case.

The Tribunal’s submission is that neither SIMA nor the Anti-dumping Code provide any guidance as to the meaning of "not to any substantial degree" and, consequently, the determination of what level of trade is necessary to satisfy that requirement falls squarely within the Tribunal’s jurisdiction and expertise. In support of its finding that the "not to any substantial degree" test was not met, the Tribunal found that "[w]ith respect to B.C. sales of packaged beer produced by Canadian breweries located outside British Columbia, the evidence indicates, that subsequent to 1991, such sales have made significant year-over-year increases in both volume and percentage share of the B.C. market." The Tribunal stated that there was no case on record ⁷⁸ which found a regional market to exist where flows into a market were of the magnitude of the flows in the present case.

The United States’ Brewers take the position that no definition or numerical figure was provided by Parliament to interpret the meaning of "not to any substantial degree". The interpretation is left to the discretion of the Tribunal in each particular case. Therefore, the Brewers submit that the Tribunal did not wrongly decide that the inflow of products from outside British Columbia was to a substantial degree.

The Tribunal has previously decided cases concerning the issue of whether or not inflows existed to a substantial degree for the purpose of determining the existence of a regional industry.

In Solid Urea , the Canadian Import Tribunal ("C.I.T.") found that shipments of solid urea ⁷⁹ produced in western Canada accounted for 11.5 percent of the eastern Canadian market, that is, the total regional market. Based on that, the Tribunal concluded.

The demand for domestic product in the eastern market was therefore supplied to a substantial degree by western producers although the total demand in that market was not.⁸⁰

What this means is that shipments of solid urea from western Canada accounted for 11.5 percent of the total demand in the eastern Canadian market (i.e., domestic products plus imports), and were considered "not substantial" in relation to total demand. However, once imports were removed (which must be done under Article 4.1(ii) to arrive at a percentage of regional demand for domestic products), shipments of solid urea from western Canada to eastern Canada were held to be "substantial", although this figure was not published in the decision.

In Reinforcing Bars, the C.I.T. assessed inflows in terms of the total regional market and ⁸¹ found that shipments of the subject goods by other Canadian producers accounted for 20-27 percent of the total market. This figure does not exclude sales data attributed to imports as required by Article 4.1(ii). The C.I.T. in Reinforcing Bars did not provide a figure indicating percentage of regional demand for domestic product, which is relevant to the determination of the "not to any substantial degree" test. Although, no figure was provided, the C.I.T. held that inflows were substantial and that a regional market did not exist. ⁸²

In the case at hand, the Tribunal stated that in Solid Urea:

...the CIT found that a regional market did not exist, on the ground that there was an 11.5 percent inflow of solid urea into the market from other provinces.⁸³

The Tribunal stated that in Reinforcing Bars:

...the CIT found that an isolated market did not exist, on the basis that between 20 and 27 percent of the B.C. market for the goods in question was supplied by production from other provinces.⁸⁴

The Complainants claim that the figures for inflows in terms of regional demand for domestic product in both Solid Urea and Reinforcing Bars are higher than the inflows in the present case. By their calculation, the figures for inflows in terms of regional demand for domestic product in Solid Urea is 29 percent, while Heileman’s calculation is 22 to 29 percent.⁸⁵

Therefore, the Complainants’ position is that the Tribunal used the wrong figures for comparison to the current case, and had they used the right figures, they would not have found that demand in the regional market in British Columbia was supplied to any substantial degree by producers outside British Columbia.

We agree that the figures from Solid Urea and Reinforcing Bars were misinterpreted or erroneously applied by the Tribunal. However, the Panel is uncertain what effect this misinterpretation had on the Tribunal’s conclusion that:

In no case, where flows into and out of a market were of the magnitude of the flows in the present case, has a regional industry been found to exist. In the present case, given the consistent pattern of a significant movement of packaged beer both into and out of British Columbia, the Tribunal is of the view that there is no longer a regional industry in packaged beer in British Columbia.⁸⁶

It is not clear to the Panel whether the Tribunal based its conclusion regarding inflows on the evidence before it and found that it did not meet the "not to any substantial degree" test, or whether the Tribunal simply measured the level of inflows against the numbers used in the Solid Urea and Reinforcing Bars cases which it misinterpreted. The Panel is of the opinion that the Tribunal has not fulfilled adequately its statutory obligation under section 45(1) of SIMA to provide "...a statement of facts and reasons that caused it to be of [an] opinion...". The Panel believes that pivotal issues, such as inflow and outflow determinations in the context of a regional industry determination, must be handled with enough depth for this Panel to understand the steps the Tribunal made in arriving at its findings.

On the one hand, if the Tribunal’s finding on inflows was based on the evidence before it, then it is a finding of fact which the Tribunal was entitled to make. Neither SIMA nor the legislator has seen fit to provide any guidance as to the meaning of "not to any substantial degree." The lack of a legislative definition obliges the Tribunal to determine what magnitude of inflows is necessary to satisfy the "not to any substantial degree" test. As it is required to do, the Tribunal found evidence that could have supported a finding that inflows were substantial, but ⁸⁷ it is unclear what relation that evidence had to the Tribunal’s decision.

On the other hand, if the Tribunal measured the inflows against the numbers used in Solid Urea and Reinforcing Bars and which it misinterpreted or erroneously applied to arrive at its conclusion then this is an error of law which could lead to interference by a reviewing panel.

In any event, the Panel finds that uncertainty in the Tribunal’s decision on inflows is immaterial to the result. This is because the test for a regional market is conjunctive. Both of the Tribunal’s findings regarding inflows and outflows must be reversible for a material error to have been made in the determination that a regional market no longer exists. As no reviewable error on outflows was made, this matter need not be remanded to the Tribunal. Since the Tribunal found that the domestic producers no longer constituted a regional industry, and had evidence upon which to make its finding related to outflows and inflows, it did not err in declining to make a decision of the issues of vulnerability to injury and propensity to dump.

CONCLUSION

In view of the foregoing, the Panel hereby orders that the decision of the Tribunal in this matter be and is hereby affirmed. The Panel directs the Canadian Secretary of the NAFTA Secretariat to issue a Notice of Final Panel Action pursuant to rule 77 of the NAFTA Article 1904 Panel Rules.

Signed in the Original by:

Wilhelmina K. Tyler (Chair)

Bruce Aitken, Esq.

Hon. Frank G. Evans

Frank R. Foran, Q.C.

Prof. Gilbert R. Winham

Issued on the 15th day of November, 1995.

¹ North American Free Trade Agreement.

² Administrative Record, Vol. 1, p. 8.

³ R.S.C. 1985, c. S-15, as amended.

⁴ Section 76 (2) provides as follows:

⁵ Decision, p. 14

⁶ GATT, [1980] B.I.S.D. 26^th Supp., 35^th Sess. at 171, Article 4.1

⁷ Decision, p. 14

⁸ Id., p. 15

⁹ Id., p. 17

¹⁰ Id., p. 17

¹¹ R.S.C. 1985, c. F-7 (as amended).

¹² NAFTA Article 1911 defines "general legal principles" to include principles such as standing, due process, rules of statutory construction, mootness and exhaustion of administrative remedies.

¹³ Supra, footnote 11.

¹⁴ U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048 ("Bibeault").

¹⁵ Id., p. 1087.

¹⁶ p. 1088.

¹⁷ Canadian Broadcasting Corporation v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157 at p. 179 ("CBC").

¹⁸ See, for example, CAIMAW v. Paccar of Canada Ltd., [1989] 2 S.C.R. 983 ("CAIMAW"); Canada (Attorney General) v. Public Service Alliance of Canada, [1991] 1 S.C.R. 614 ("PSAC No.1"); Canada (Attorney General) v. Public Service Alliance of Canada, [1993] 1 S.C.R. 941 ("PSAC No.2"); Dayco (Canada) Ltd. v. CAW-Canada, [1993] 2 S.C.R. 230 ("Dayco"); Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554 ("Mossop"); CBC, Id.

¹⁹ Bibeault, supra, footnote 14, at p. 1086.

²⁰ See, for example, Bibeault, supra, footnote 14; Dayco, supra, footnote 18; CAIMAW, supra, footnote 18; Syndicat des employes de production du Quebec et de l’Acadie v. Canada Labour Relations Board, [1984] 2 S.C.R. 412 ("Syndicat"). See, also, Certain Corrosion Resistant Steel Sheet Products Originating in or Exported from the United States of America (Injury), (1995), CDA-94-1904-04 ("Corrosion Resistant Steel Sheet"); Synthetic Baler Twine With a Knot Strength of 200 Lbs or less Originating in or Exported from the United States of America, (1995), CDA-94-1904-02 ("Synthetic Baler Twine"); Certain Hot-Rolled Carbon Steel Plate and High-Strength Low-Alloy Plate, Heat-Treated or not Originating in or Exported from the U.S.A., (1994), CDA-93-1904-06 ("Carbon Steel Plate"); Certain Cold-Rolled Steel Sheet Originating in or Exported from the United States of America (Injury), (1994), CDA-93-1904-09 ("Cold-Rolled Steel Sheet"); Certain Flat Hot-Rolled Carbon Steel Sheet Products Originating in or Exported from the United States

²¹ (Injury), (1994), CDA-93-1904-07 ("Hot-Rolled Carbon Steel Sheet"). Also, the Canadian International Trade Tribunal Act, R.S.C. 1985, c. 47 (4th Supplement) ("CITT Act").

²² R.S.C. 1970, c. A-15

²³ PSAC No.2, supra, footnote 18 at 964

²⁴ Mossop, supra, footnote 18, p. 584

²⁵ Id., p. 584.

²⁶ [1993] 2 S.C.R. 316 ("Bradco").

²⁷ Id., p. 332.

²⁸ [1994] 2 S.C.R. 557 ("Pezim") at 590

²⁹ Id., p. 591.

³⁰ Supra, footnote 22, s. 16.

³¹ See, infra, footnote 65.

³² Synthetic Baler Twine, supra, footnote 20: Corrosion Resistant Steel Sheet, supra, footnote 20.

³³ Supra, footnote 11.

³⁴ May 23, 1995, No.: A-360-93 (F.C.A.).

³⁵ [1990] 3 S.C.R. 644, ("Lester").

³⁶ Id., pp. 687-88.

³⁷ Id., p. 669.

³⁸ Japan Electrical Manufacturers’ Assn. v. Anti-dumping Tribunal, [1982] 2 F.C. 816 (F.C.A.), at p. 818.

³⁹ Tribunal’s Brief, p. 8.

⁴⁰ SIMA, supra, footnote 3.

⁴¹ Anti-dumping Code, supra, footnote 6

⁴² SIMA, supra, footnote 3, s. 42

⁴³ Id., s. 2

⁴⁴ Id., s. 42(3)

⁴⁵ Anti-dumping Code, supra, footnote 6

⁴⁶ Id., art. 4.1(ii)

⁴⁷ SIMA, supra, footnote 3, s. 76(2)

⁴⁸ Countertop Microwave Ovens Originating in or Exported from Japan, Singapore and the Republic of Korea (1986), RR- 1-86 ("Countertop Microwave Ovens")

⁴⁹ Fresh, Whole, Yellow Onions Originating in or Exported from the United States of America, for Use or Consumption in the Province of British Columbia (1992), RR-91-004 ("Yellow Onions")

⁵⁰ SIMA, supra, footnote 3, s. 76(5)

⁵¹ Id., s. 42(3)(a)

⁵² Anti-dumping Code, supra footnote 6, Art. 4.1. A review of the negotiating history of the Anti-dumping Code reveals no such five (5) year grace period. See also The GATT Uruguay Round: A Negotiating History (1986-1992), T. Stewart (1993 Kluwer Law and Taxation Publishers) at 225, citing the Anti-dumping Code.

⁵³ Yellow Onions, supra, footnote 49, p.5

⁵⁴ Id, pp. 4 - 5.

⁵⁵ Countertop Microwave Ovens , supra, footnote 48

⁵⁶ Decision, p. 13.

⁵⁷ Id.

⁵⁸ Solid Urea Originating in or Exported From the German Democratic Republic and The Union of Soviet Socialist

⁵⁹ Complainants’ Reply Brief, pp. 4-7.

⁶⁰ Certain Beer Originating in or Exported from the United States of America by or on behalf of G. Heileman Brewing Company Inc. and Pabst Brewing Company and the Stroh Brewery Company, their Successors and Assigns, for Use or Consumption in the Province of British Columbia (Injury), (1992), CDA-91-1904-02, pp. 15-16.

⁶¹ Supra, footnote 17.

⁶² Supra, footnote 14.

⁶³ Supra, footnote 21, s.3

⁶⁴ [1990] 2 S.C.R. 1324 ("National Corn Growers")

⁶⁵ Id., p. 1348.

⁶⁶ Supra, footnote 20.

⁶⁷ Supra, footnote 64, pp. 1349-1350.

⁶⁸ Supra, footnote 46.

⁶⁹ Fresh Cauliflower Originating in or Exported from the United States of America (1993) Inquiry No. NQ-92-003, ("Fresh Cauliflower")

⁷⁰ Certain Hot-Rolled Carbon Steel Concrete Reinforcing Bars, Bars and Structurals originating in or exported from Mexico and the United States of America for use or consumption in the province of British Columbia (1988), 15 C.E.R. 253 ("Reinforcing Bars").

⁷¹ Domtar Inc. v. Quebec (Commission d’appel en matiere de lesions professionnelles), [1993] 2 S.C.R. 756, and Carbon Steel Plate, supra, footnote 20.

⁷² Panel Review Public Hearing Transcript, Volume 1, p 89.

⁷³ Decision, p. 15

⁷⁴ Decision, p. 15.

⁷⁵ Public Transcripts, Volume 11, pp. 50, 140-151, 157-160, 168 - 169.

⁷⁶ Decision, p. 17.

⁷⁷ Public Transcripts, Volume 11, pp. 71-73, 74. Protected Transcripts, Volume 12, pp. 31, 32-33, 38-40, 84-85.

⁷⁸ Decision of the Tribunal, p. 15 citing Protected Prehearing Staff Report, August 5, 1994, Tribunal Exhibit RR-94-001-6 (protected), Administrative Record, Vol. 2 at 23.

⁷⁹ Solid Urea, supra, footnote 58.

⁸⁰ Id., p. 289.

⁸¹ Reinforcing Bars, supra, footnote 70.

⁸² Id, p. 262.

⁸³ Decision, p. 16

⁸⁴ Id., pp. 15-16.

⁸⁵ Complainants’ calculation of 29 percent for Solid Urea found at p. 48 of Complainants’ Reply Brief; Heileman’s calculation for 22-29 percent for Reinforcing Bars provided in handout given during oral hearing before Panel.

⁸⁶ Decision, p. 18.

⁸⁷ Supra, footnote 76.