US-Canada Lobster Dispute

CASE NUMBER: 3
CASE MNEMONIC: LOBSTER
CASE NAME: Lobster Dispute

1. Issue

Is the Homarus Americanus (American Lobster) in danger of extinction? The question involved Canada and the United States and was brought up for dispute settlement under the Canada-United States Free Trade Agreement (FTA). American customs officials rejected Canadian lobster imports because they were too small in size and therefore deemed immature. Canada countered that these lobsters were simply small but mature lobsters, due to the colder waters in Canada. The panel determined that the lobsters were in danger of extinction and restrictions were legitimately placed on lobster fishing management practices. However, the case revolved around the administrative problems in discerning legal from illegal lobsters. Here, the panel sided with the United States on the grounds of administrative expense.

2. Measure: Import Standard

Canada argued that the 1989 amendment to the U.S. Magnuson Act was a disguised restriction on international trade, adopted in response to the perception that American lobster men were at a competitive disadvantage. The United States imposed an import ban on Canadian small live lobster that actualized this perception.

3. Exporter and Importer: CANADA and USA

The case involved Canada and the United States, but could conceivably apply to other cold-water lobster producers, such as Russia or Norway.

4. Trade Impacts

Canada's lobster exports to the United States were $95.4 million in 1988. Exports fell to a low of $35.4 million in 1991 and rose to $120.6 in 1994 (see Figure 4). Some of the decline is probably attributable to the weak American economy in 1991. Canada's exports in 1994 exceeded those of 1988.

In the FTA dispute, Canada claimed they would lose $127 million in the lobster market over three years (about $42.3 million per year). The United States claimed that a more realistic figure would lie between C$11.1 million (about $10 million US) and C$23.7 million annually (about $21 million US). The United States also argued that these measures were not losses but conservation for later sales. In 10 years, the U.S. argued, Canada could see benefits equal $C4.7 million annually through stock replenishments ($4.2 million US).

In 1988, total landings of American lobsters were worth $95.4 million and 14,462 metric tons. Most domestic U.S. lobster landings occur in Maine, the leading lobster producing U.S. state. For the United States, most lobsters are consumed domestically. The United States only exports 2,500 tons per year, valued at $23.5 million. U.S. imports account for 45 to 50 percent of the total lobster consumption in the United States. The United States claimed that the Canadian estimate of the trade effect was too high because small lobsters will continue to be harvested.

In 1988, Canada's lobster landings equaled 40,392 tons. Canada sold 48 percent (19,619 tons) on the live lobster market and of that, 14,528 tons was exported to the United States. In 1988, out of 80 million pounds of lobster harvested in Canada, 56 million were exported to the United States live, canned or frozen. The live lobster exports totaled almost 32 million pounds (14,528 tons) with a total export value of C$192 million (about 172.8 million US).

Both Canada and the United States agree that the proportion of total lobster landings in Canada below the U.S. Federal minimum lobster size requirements was between 8 percent and 8.4 percent in 1990, 12.1 percent and 12.4 percent in 1991, and 16.1 percent and 16.9 percent in 1992. However, Canada asserted that the number of live lobsters legally harvested from Canadian waters, which did not meet U.S. federal minimum size requirement and were exported to the United States, was actually much higher: 18 percent in 1990, 26 percent in 1991 and 34 percent in 1992.

5. Other Economic Impacts

International Trade Minister John Crosbie said April 26 that the government is not yet considering any financial assistance for the Canadian fishermen who will be affected if the U.S. restriction remains in place. The government will give "careful consideration" to any calls for assistance from the fishermen to deal with the negative effects of the ruling on the U.S. restrictions, he said in the House of Commons.1

Part of the dispute rests on comparative lobster prices. "This year Canada had what lobster men call an exceptional spring, and dealers in Maine bought up large supplies of Canadian lobster at lower prices, which contributed to a price decline in the United States. The price paid to Maine fishermen was described by former Governor John R. McKernan Jr. as "the lowest it has been in a number of years."2 William J. Brennan, Maine's Commissioner of Marine Resources, said the price to lobster men for their catch dropped from about $8 a pound last spring to an estimated $1.65 a pound. He attributed the drop to "the significant supply of Canadian lobster." Maine's annual catch of lobster is about 20 million pounds, 44 percent of the overall United States harvest.

6. Environmental Impacts

Some lobster wholesalers agree on the need for U.S.-Canadian uniformity in lobster size but say it is unfair to blame Canada entirely for the drop in prices. In that year, allegedly, tourism dropped unexpectedly that summer in Maine, resulting in a declining demand for Canadian lobsters and thus helping create a glut and the fall in trade prices.

The case represents a conflict between two reasonable positions. The problem is that systems for administrative import calibration are not sufficient for differentiating between sub-species in need of protection. These two systems should be synchronous. Conservation of supply and diversity of lobster is necessary but the irony is that the two systems came into conflict, rather than cooperation, in areas where there are clearly overlapping interests. Lobster conservation is often needed, but they need consideration in the context of other marine resources. This part of the problem has been relatively ignored.

7. References

1. "Clark Says Canada Will Continue to Fight U.S. Action on Lobster Despite Preliminary Ruling," .Bureau of National Affairs, Inc., International Trade Reporter, 7/18, 623, May 2, 1990.

2. Bernard Weinraub, "What Divides U.S. and Canada? Hint: It's Red and Has Big Claws," New York Times, September 1, 1989.