Last month, officials from the U.S. Trade Representative’s (USTR) Office were again at the WTO in Geneva arguing that U.S. mandatory country-of-origin-labeling (COOL) for pork and beef was consistent with U.S. WTO trade policy commitments. Canada and Mexico in 2009 had challenged the implementation of the law and won a partial ruling in their favor. The U.S. changed how it is implementing the law and Canada and Mexico are contesting those changes. A final ruling by the WTO is expected early this summer.
Congress first passed mandatory COOL for meat in the 2002 farm bill, but delayed its implementation. The 2008 farm bill stopped the delay and USDA published an interim Final Rule on COOL in the Federal Register in August 2008. Canada asked for WTO consultations in December 2008 on the interim rule and on the final rule published on January 2009. Consultations were held with the U.S. in December 2008 and again in June of 2009. The issues were not resolved and in October 2009 Canada requested that a WTO Dispute Resolution Panel be formed to hear the case. The panel also concurrently heard the Mexican complaint.
In November of 2011, the panel found that COOL as implemented was in violation of the WTO Technical Barriers to Trade Agreement by providing less favorable treatment to imported Canadian and Mexican cattle and Canadian hogs than for U.S. domestic livestock and meat products. It also did not meeting its legitimate objective of providing consumers with information on the origins of meat. In April of 2012 the U.S. government appealed the decision and in June 2012, the WTO Appellate Body affirmed much of the previous WTO Panel’s findings.
The issues at hand are fairly narrow – do the rules put Canadian and Mexican live animals at a competitive disadvantage and do the labels provide adequate information to consumers? The Agricultural Marketing Service (AMS) of USDA which administers COOL changed the labeling requirements in May 2013 to specifically show where animals were born, raised and slaughtered. Canada claims the new rules result in even more discrimination against Canadian animals by also removing the option of comingling U.S. and Canadian meat.
Supporters of COOL have argued since 2002 that their intent was to increase demand for meat from U.S. hogs and cattle and decrease demand for meat of foreign origin or mixed origin by informing consumers where the animals were raised. While the U.S. has the right under WTO rules to label meat for country of origin, it cannot do it in a way that result in more costs for imported animals and meat – know as ‘national treatment’ for imported products treated the same as domestic products. The Canadians argue the current rules cost them a billion dollars a year in lost trade. Some U.S. meat packers have chosen to stop buying slaughter-ready cattle born or raised in Canada or Mexico.
In this latest hearing, USTR officials argued that the U.S. did not adopt COOL to protect domestic production, but to provide accurate and meaningful information to consumers about the food they purchase. The U.S. had to draw distinctions between like products so that, when sold at retail, muscle cut labels will accurately reflect their origin. The U.S. disputes that simply because COOL has a detrimental impact on Canadian and Mexican livestock producers, the U.S. has acted inconsistently with its WTO obligations. There has to be a balance between the pursuit of liberalized trade and other legitimate government objectives such as country of origin labeling. The U.S. noted in its closing comments that Canada and Mexico have not shown how the U.S. could achieve its informational objectives in some other way.
Canadian pork and beef interests have turned the issue around by saying the U.S. is claiming that as long as it has a legitimate consumer information objective it can discriminate against trading partners. They see the issue as protectionism. The government of Canada views the new cool labels as indicating that the U.S. has no interest in a negotiated settlement. The WTO case is the only means for achieving a change in the U.S. position.
Some trade lawyers believe Canada will win the ruling because the new regulations are more trade distorting than the ones in the original case. The U.S. also has the right to appeal this outcome if it loses. Canada and Mexico cannot impose retaliatory tariffs until the U.S. runs out of appeals and the WTO rules on how much trade has been lost by Canada and Mexico. Canada has talked retaliation reaching a billion dollars a year. Many consumer products like cherries, chocolate, corn flakes, grapes, meat and pasta are potential targets for retaliatory tariffs.
Some domestic opponents of COOL looked to the 2014 farm bill for relief from the affects of COOL and the task of defending it at the WTO. Neither the House nor Senate farm bills provided for repeal of COOL, but intense lobbying occurred in the House/Senate Farm Bill Conference Committee to take some action. It chose to make no changes.
This case points out how policymakers need to consider possible actions at the WTO. This issue is already in the sixth year of dispute resolution with no end in sight. Once the U.S. loses some portion of a case brought against it at the WTO, it is subject to the winning country for a final solution. The U.S. lost a cotton/export credit case to Brazil in 2004 and is still trying to gain closure on that issue. The U.S. won a beef hormone case against the EU in 1999 that is still disrupting trade relations. Circumstances have changed substantially in both industry, but the unresolved issues live on.
How the U.S. seeks to resolve issues is watched by other WTO members. U.S. market access has been an issue with newer WTO members like Russia and with older members like Japan. If the U.S. does not accommodate its trading partners on complicated issues, others will likely take the same actions toward the U.S.
Unless there is a change of heart on one side or the other, the near term path seems set. If the conventional wisdom is correct, the U.S. will lose the case and appeal the outcome. The Canadians and Mexicans will continue to hold-off on retaliation waiting for the U.S. to run out appeals and the WTO to set the amount of retaliation. Year six will turn into years seven or eight.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).
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