For the fourth time in the last three years, the WTO has rejected regulations implementing the meat mandatory country of origin law (COOL) passed by the U.S. Congress. The Appellate Body ruled the U.S. COOL legislation, as passed in 2002 and amended in 2008 and in 2013, violates Article 2.1 of the Agreement on Technical Barriers to Trade (TBT), which requires WTO members to treat imported products “no less favorable than accorded to like products of national origin and to like products originating in any other country.” The Body also upheld the earlier finding that COOL did not violate Article 2.2 of the TBT Agreement, which requires technical regulations “not be more trade-restrictive than necessary to fulfill a legitimate objective.”
National COOL regulations are a confluence of national government commitments to WTO rules on markets open to international trade, national political influences in response to open markets and economic forces that are constantly changing comparative advantages in markets. All three of these policies need to be in alignment with each other to avoid the policy conflicts that have occurred in recent years. The immediate outlook is that a more harmonious alignment may be developing.
What has not changed is the WTO commitment to open trade. Within the workings of the WTO policy process is an institutional bias in favor of trade and against subsidized production that competes in trade. The so-called ‘national treatment’ issue that tripped up COOL is a basic rule of open trade. While that ruling was made under WTO commitments, it is also consistent with open trade under NAFTA. The ruling sets somewhat of a bright line on what is permissible under WTO commitments. That line had become rather blurred in the last ten years of debate on COOL. The 36-8 vote in the House of Representatives Agriculture Committee to repeal COOL for red meat and poultry may be an indication of what had been a fairly narrow consensus split in U.S. politics for and against COOL may have shifted to the against side, at least for now.
Regardless of how the U.S. politics has shifted, the Canadians and Mexicans have repeatedly won on the COOL case at the WTO and are entitled to compensation. While the House Agriculture Committee has made a good first step, there are some indications the Senate may not follow. As long as there is not complete repeal, retaliation remains on the table. As the U.S. found in the Brazilian cotton and export credit case, working out a compensation agreement can be a long process. The winning party controls the process. One encouraging sign is that Senate Agricultural Committee Chair Roberts (KS-R) reportedly said, “I will consider any solution – including repeal regarding meat – that will allow the United States to be WTO-compliant and avoid retaliation from Canada and Mexico.”
That leaves the economics of changes in livestock production and processing as the last part of the process, and the hardest, to influence the outcome. Some Canadian interests give the impression that repealing COOL will automatically roll the production clock back seven years. Changes have occurred because of COOL and for other reasons that will not be reversed. The drought in the southern plains and west has shrunk the total beef cow herd in the three countries and forced the closure of beef slaughter and processing plants. The beef herd may be rebuilt, but not in the same places.
There was not something particularly right or wrong about the livestock industries in the three countries in 2008. It was a snapshot at one point in time. Some thought the sow herd in Canada had expanded too rapidly. That is why it was hard to measure the impact of COOL because it was hard to measure a beginning point. This may cause problems in the compensation negotiations, but is not a reason to delay the process.
Those who are calling for a delay in the process of resolving the WTO dispute are taking the wrong approach. Appealing the initial ruling was defending a law passed by Congress and some members of the President’s party thought they could fix it with new regulations. Now even U.S. Secretary of Agriculture Vilsack agrees that it cannot be implemented within WTO commitments. Continuing to disagree with two of our biggest trading partners in that case clearly serves no useful purpose for the U.S.
The supply/demand balance in the North American pork and beef markets is probably better than in 2008. As noted earlier, the beef herd has shrunk due to drought. Pork production has been hurt by disease. China has been added to the market on the demand side, even though the U.S. does not have access to that market.
The Obama Administration’s support of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) trade agreements has called more attention to the benefits of more open trade. It is counter-productive to try to lead on new trade agreements while continuing to deal with past disagreements with major trading partners.
COOL is clearly now in the political arena where it should be. Trade policy, like most economic policy, is under the control of Congress. The WTO decisions show what is inconsistent with our trade policies. Economic forces will drive production and use whether or not Congress is paying attention. Between those two is a fertile middle ground where political forces can operate. Many things could go wrong in finding the agreeable middle ground. It is the current interest in overall trade policy that will lead to an acceptable political outcome.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade and @World_Farmers on Twitter | Truth About Trade & Technology on Facebook.