Monday, August 13, 2012

Lobster Fight

I am just back from a week in Boston with a side trip to Portland, Maine. A few lobsters gave their lives for me and my family. Ditto a few dozen clams and sundry other sea creatures.

While we were in Maine, the local news was covering a dispute between Maine lobster-men and their New Brunswick, Canada counterparts. Because of the glut of lobsters, prices have fallen. The New Brunswick industry wants to keep low priced Maine lobsters out of the market and protested by literally blockading the Maine lobster boats from dropping their haul at New Brunswick processing plants.

This raised several questions in my head. First, what "processing" is done to lobsters? Most are pegged or banded in the boat and then live out the remainder of their lives in tanks waiting to be steamed or otherwise prepared. I suppose there are also industrial producers making frozen tails, lobster meat salad, and other goodies.

The second question I had was whether anyone was taking any legal action as a result. It turns out that the Maine industry did get an injunction against further protests. Also, Maine Senator Olympia Snowe has asked the State Department to help resolve the dispute. Her press release and letter to Secretary of State Clinton is here.

In my mind, this looked like a potential NAFTA Chapter 11 issue. I wondered whether the actions of the Canadian industry might count as a "measure" that is in violation of the national treatment provisions of the agreement. Certainly, the U.S. product is being treated in a manner that is less favorable than the local industry in similar circumstances because only the U.S.-origin lobster is being prevented from entering the processing plants. In intent and effect, the blockade hinders only the U.S. industry.

Second, I wonder whether there is an investment in Canada that is being harmed. Probably not. The Maine industry, as I understand it, just drops its catch in New Brunswick for processing. But, the recent NAFTA panel decision involving Cargill's sales of high fructose corn syrup to Mexico provided a very broad definition of an investment to include, in part, the development of a supply chain. So, may be there is an investment in the broader North American market that can be protected via NAFTA Chapter 11. 

But, this is a private action, not a measure adopted by the government, so that is a problem for my theory. The current lack of a governmental measure probably means there is no NAFTA case. That, of course, does not prevent me from musing on the topic, which might end up as an law school exam question at some point.


Matt said...

I think Professor Friedman's students will either have to review this blog daily, or take a cue from the Maine lobstermen and set up a blockade at the Illinois border whenever he decides to go on vacation.

Anonymous said...

275Could you please specify what NAFTA Chapter 11 is? I am familiar with the 19 CFR section on NAFTA but what do you mean by Chapter 11?

Anonymous said...

The basic problem here is that there is no investment.

Cargill's investment consisted of a terminal and loading dock for product shipped from the US to Mexico. That was it. The Cargill decision was scandalous. Chapter 11 was never intended to provide a remedy for damages to trade, only damages to investment.

In this case there is less, or nothing. Do the US lobstermen even own an offloading facility in Canada that is being made worthless by the New Brunswick blockade? I doubt it.

It is doubtful whether there is any violation of Chapter 11. In the Cargill case, there was a tax that three investment tribunals found violated national treatment to investors (and that a WTO panel found violated GATT Article III:2). National treatment obligations exist for both trade and investment. Here, there is an import ban, which only affects trade, not investment. Chapter 11 investor-state dispute settlement is not available as a remedy for violations of other chapters of NAFTA.

This case takes place against a rich history of cross-border trade friction over food. In the 80s, Maine potato farmers blocked the roads to stop imports of New Brunswick potatoes. And in the 90s the US prohibited importation and sale of undersize lobsters; because lobsters are smaller when they grow in cold water, the effect of this regulation was that importation and sale of Canadian lobsters was banned. See the panel report under Chapter 18 of the Canada-US FTA.

Larry said...

For Anonymous 1:

Chapter 11 of the NAFTA provides protection for investments by investors from one party in another party. The idea is to prevent a NAFTA country (or a government within a party) from enacting a measure that decreases the value of an investment from a NAFTA party in a way to that is less favorable than the treatment provided to a similarly situated investor from the same country (or to a non-NAFTA country). So, the U.S. cannot pass a law that targets or affects Canadian-owned businesses in the U.S. If that happens, or if a NAFTA party takes steps that constitute expropriation or are tantamount to expropriation except for a public purpose and with proper compensation, then a NAFTA claim can be brought for compensation. But, there has to be an investment and a measure that violates Chapter 11.

Larry said...

For Anonymous 2:

I do not know the specific facts of the lobster industry. But, I assume that there are some sort of contracts in place to reserve processing services for these lobsters. If the Maine lobstermen have paid a fee to effectively get the right to drop their catch at the processing plant, then there is an investment. If, on the other hand, the lobsters are really just being sold to the plans, there would be no obvious investment.

Assuming there is a contract or other investment, the blockade prevents U.S. lobstermen from benefiting from that investment in a way that is less favorable than the treatment accorded to Canadian lobstermen. That is a violation of national treatment.

I realize this all falls apart if there is no investment. If the Maine lobstermen do not have contracts or have not invested in the processing plants or related infrastructure, there is no investment for Chapter 11 to protect. I also realize that the bigger issue for my musing is that there is no governmental measure here. Although, I think if this were to continue and the Court in New Brunswick were to decide it was permissible, the Court decision might represent a governmental measure akin to the Mississippi court decision in the Loewen's case (which I also think was a bad decision).

Anonymous said...

Did you get to The International Cryptozoology Museum
in Portland?

Larry said...

Yes, I did make it to the ICM. We met the curator/director Loren Coleman and had a great visit. He was very nice to my son. The museum is broken down into "evidence" related to various cryptids and cultural references to them. Portland is a great town and the ICM is well worth the visit.