The United States' trade war with China is leading to fears that Canada will be used as a "gray market" conduit to the Chinese market for lobsters from Maine.

China slapped a 25 per cent tariff on U.S. lobster in July — effectively closing the fastest-growing market in the world to Maine's lobster industry.

Geoff Irvine of the Lobster Council of Canada says there have been indications since then that Maine lobster is coming into Canada and then being sent onwards to China.

"We are digging into the country-of-origin rules. But we believe if it comes in as U.S. it has to be sold as U.S.," Irvine says.

"Some of our live shippers are worried it could erode the Canadian market. It would undercut our market advantage [in China] and the prices we have, and we don't want that," Irvine tells CBC News.

The impact of the U.S.-China trade war kicked off a lobster forum in Yarmouth, N.S. (Robert Short/CBC News)

The impact of China's game-changing seafood tariff kicked off a lobster forum in Yarmouth, N.S., Wednesday.

Veteran seafood industry analyst John Sackton blamed the Trump administration for initiating a "crazy" trade war which clearly hurts the Maine lobster industry.

"This has essentially frozen or stopped in its tracks a lot of U.S. shipment of lobster to China, which had been growing year-over-year," says Sackton, editor of Massachusetts-based Seafood News.

Sackton says he is still waiting to see how Chinese border and customs agencies would handle Maine lobster shipped as Canadian.

"It's not clear to me how it's going to play out," Sackton says.

Companies from Canada and Maine have traded lobster across the border for many years.

In fact companies have operations in Maine and Canada. That trade has been integrated into business supply chains. Maine lobster is typically used in Canadian lobster meat processing operations.

John Sackton, editor of the U.S.-based Seafood News, spoke to a lobster forum in Yarmouth, N.S., Wednesday. (Robert Short/CBC News)

Sackton sees a scenario where live lobster from Maine would be used to supply markets in Montreal or Toronto, while Nova Scotia lobster is shipped to China.

What is clear, he says, is that Canada is now far better positioned because of the Chinese tariff and the Canada-Europe free trade deal.

"It makes Canada the preferred lobster in China and the preferred lobster in Europe," he says.

The United States is still the largest market for Canadian lobster exporters.

A favourable exchange rate and a strong U.S. economy should help Canadian lobster exports south of the border, even if Maine companies sell at a discount domestically to make up for lost business in China, Sackton says.

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