The key questions behind the COOL challenge

Sunday, February 6, 2011

Some time next summer, a WTO panel will likely issue its findings on the Canadian-Mexican challenge to U.S. country-of-origin labelling. Here are some of the main arguments the panel will consider

by PATRICK O'NEIL

Trade law can bring to mind Bill Clinton's famous defense, "It depends on what the meaning of the word is is."

Questions like "define the word 'necessary' in this context" or the Australian position that "the second sentence of TBT Article 2.2 elaborates on the meaning and fundamental discipline of the first sentence" seem eerily similar.

In March 2009, U.S. Country of Origin Labelling (COOL) legislation came into effect. It stated that muscle cuts of meat at the retail level must be sold under one of four labels:

- Label A – Born, Raised and Slaughtered in the USA.
- Label B – Born in Country X, Raised and Slaughtered in the USA.
- Label C – Born and Raised in Country X, Slaughtered in the USA.
- Label D – Product of Country X if slaughtered outside the USA.

Canada's exports of live animals, both for finishing and slaughter, dropped dramatically in response to this legislation. Many Mexican producers were forced to sell livestock at sacrifice prices.

In November 2009, the World Trade Organization (WTO) created a dispute settlement panel. Full panel hearings were held in Geneva in September 2010 and again in early December. At risk of oversimplifying the case, there are a number of key questions the panel must consider:
 
•    Is imported livestock subject to "less favourable treatment" than domestic (U.S.) livestock? The Americans argue that all meat needs to have a country-of-origin label, so all livestock is treated equally. Canada argues that there is a significant cost for plants and retailers to segregate product; therefore many plants will not accept foreign animals or attempt to transfer the costs to producers. Canada has put forward several examples of this and provided econometric data outlining the impact COOL has had on live exports.

•    What is the objective of the legislation? The Americans argue that the purpose of the legislation is to provide consumers with information. The Canadian position is that, while providing consumer information is legitimate, history shows that COOL was designed as a trade barrier and that consumer information was only a thin veil added late in the process. The Mexicans are less charitable.

•    If the objective is legitimate, are the provisions more "trade restrictive than necessary." The Mexican and Canadian delegations presented alternatives that could be less harmful including: a voluntary system; a mandatory system defining origin based on where the animals were processed; and finally a labelling system that would trace the meat back to the farm of origin.

•    The nature of "the Vilsack letter." A letter from U.S. Secretary of Agriculture Tom Vilsack in February 2009 contained a threat of tougher regulations unless meat processors held themselves up to a higher standard than that outlined in the initial rule. The letter is truly extraordinary. The Americans argue it has no bearing on the legislation, but Canada notes that packers changed their strategy on how to comply with COOL after the letter was issued.  

There's still a distance between now and the finish line. The panel could hold another round of hearings, but will likely issue its finding by summer. After that, any party could appeal, adding two to three months until final decision.

If the Americans are found to be in violation of an agreement, they will have "a reasonable period of time" to bring the regulation into compliance. Only then, if there's still no resolution, will the discussion turn to compensation or trade sanctions. BP

Patrick O'Neil is Strategist, Markets, Policy & Government Relations, with Ontario Pork.