BY AUDREY DIAS – On October 20, 2014, the World Trade Organization (WTO) ruled that the United States’ amended country-of-origin labeling requirements for beef and pork products are discriminatory and in violation of international fair trade rules.[1] This is the third adverse WTO ruling since 2011 against the United States in the ongoing dispute over its COOL measure.
The original dispute, brought by Canada and Mexico, began in December of 2008.[2] Canada requested consultations with the United States concerning certain mandatory country-of-origin labeling (COOL) provisions in the Agricultural Marketing Act of 1946 as amended by the 2008 Farm Bill.[3] The statute defines the “origin” of the cuts of meat as a function of the country(s) in which the animal is born, raised, and slaughtered.[4] It establishes four categories of origin:
- Category A – US origin;
- Category B – multiple countries of origin;
- Category C – imported for immediate slaughter; and
- Category D – foreign country of origin. [5]
However, the statute exempts certain meats from COOL requirements including meat served in restaurants, meat that is an ingredient in processed foods, and meat sold by entities that are not considered “retailers” within the meaning of the statute.[6]
In May of 2009, both Canada and Mexico requested subsequent consultations concerning related amendments and measures adopted by the United States after Canada’s initial objections in 2008.[7] This new request included any modifications or amendments to the COOL measures and any further implementing guidance or other documents that may be published in relation to such measures.[8]
On November 18, 2011, the WTO’s Dispute Settlement Body (DSB) issued its report to the Members.[9] The Panel found that the COOL measure is inconsistent with the United States’ WTO obligations.[10] In particular, the Panel found that the COOL measure violates Article 2.1 of the Technical Barriers to Trade Agreement (TBT Agreement) by according less favorable treatment to imported Canadian cattle and hogs than to similar domestic livestock.[11] The COOL measures necessitate additional record keeping and verification for imported livestock, which created an incentive for meat processors to use domestic livestock exclusively.[12] The Panel further determined that the COOL measure does not fulfill its stated, legitimate objective of providing consumers with information on origin, in violation of Article 2.2 of the TBT Agreement.[13]
In March of 2012, both the United States and Canada notified the DSB of their decision to appeal certain provisions of law covered in the panel report as well as certain legal interpretations developed by the panel. On June 29, 2012, the Appellate Body’s report was circulated to all members.[14] The Appellate Body upheld the Panel’s finding that the COOL measure violated Article 2.1 of the TBT Agreement by according less favorable treatment to imported Canadian cattle and hogs than to like domestic cattle and hogs.[15]
However, the Appellate Body reversed the Panel’s finding that the COOL measure violated Article 2.2 of the TBT Agreement.[16] In its analysis of Article 2.2, the Appellate Body found that the Panel properly identified the objective of the COOL measure as being “to provide consumer information on origin,” and did not err in concluding that this is in fact a appropriate objective.[17] As the Appellate court noted, the panel seemed to believe that a legitimate objective could only be consistent with Article 2.2 if it fulfilled its objective completely, while ignoring findings that the COOL measure did in fact contribute to achieving its objective to some extent.[18]
In 2013, United States reported compliance with the Appellate Body’s rulings.[19] The amended provision altered the labeling guidelines to require meats form certain categories to display origin information with regard to all steps of production. Congress did not amend the underlying COOL statute, skirting any change in the statute’s category designations or its broad exemptions for labeling at the retail level.[20] This was not unbeknownst to Canada, who requested the establishment of a WTO compliance panel to examine the United State’s amended COOL measure.[21]
The Compliance Panel handed down their decision on October 20, 2014. They upheld the Appellate Body’s finding that the amended COOL provision was inconsistent with Article 2.1 of the TBT Agreement because it increased the detrimental impact on trade competition of imported meats and livestock in the US market by imposing a disproportionate record-keeping burden on upstream producers and processors compared to information conveyed to consumers.[22] The result necessarily increased the original measure’s incentive to choose domestic over imported livestock.
The Panel further found that the detrimental impact did not stem entirely, or sufficiently, from legitimate regulatory distinctions.[23] In makin this determination, the Panel followed the Appellate Body’s approach, by considering the amended COOL provision’s increased recordkeeping burden, potential for label inaccuracy, and continued exemption for a large proportion of relevant meats and livestock violated Art. They analyzed these considerations against potential alternatives and concluded that, like the original provision, the impact on producers and the market could not justified by the level of information conveyed to consumers regarding the countries of origin.[24]
However, the Panel found that Canada had not made a prima facie case that the amended COOL provision was more restrictive than appropriate within the meaning of Article 2.2 of the TBT agreement.[25] The panel’s analysis followed the Appellate Body’s consideration of Article 2.2, by comparing various alternative measures proposed by Canada and member complainants against the amended, trade-restrictive provision. The Panel found that the alternative measures would not contribute to fulfilling the objective to the same extent that COOL would.[26] On these findings, thee Panel was unable to conclude that the amended COOL measure is more trade restrictive than necessary, in light of the proposed alternatives.[27] Lastly, the panel found that amended COOL measure violates Article III:4 of the GATT because it provides less-favorable treatment to imported livestock than to like domestic livestock, for the reasons discussed above.[28]
The United States can appeal the compliance panel’s decision to the Appellate Body. However, many think that a fourth round of litigation would be futile given the lengthy and thorough review process that began in 2008. Bob McCan, president of the National Cattlemen’s Beef Association (NCBA) in the United States, said that the compliance report “brings us all one step closer to facing retaliatory tariffs from two of our largest trading partners.”[29] He further indicated that COOL is a failed program that will end up costing, not just the meat and livestock industry, but the entire United States economy, with very little corresponding benefit to the consumers and producers.[30]
Dave Solverson, President of the Canadian Cattlemen’s Association (CCA), said, “Until COOL comes into compliance with the WTO, the CCA will continue to insist that the Government of Canada prepares to impost prohibitively high tariffs on key US exports to Canada, including beef.[31] If the United States appeals one more time and loses, the loss will trigger Canada’s right to compensation or retaliation, even in the form of retaliatory tariffs on US exports. Canada supported its threat in June of 2013, when it produced a list of US products for possible trade retaliation.[32]
[1] United States – Certain Country Of Origin Labelling (Cool) Requirements, Recourse To Article 21.5 Of The Dsu By Canada And Mexico: Reports Of The Panel, World Trade Organization, p. 182, para 7.616, (20 Oct. 2014), http://www.wto.org/english/tratop_e/dispu_e/384_386rw_e.pdf.
[2] United States – Certain Country Of Origin Labelling (Cool) Requirements, World Trade Organization, (20 Oct. 2014), http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds384_e.htm#bkmk384rw.
[3] Id.
[4] Country of Origin Labeling Compliance and Enforcement Requirements, USDA, Agricultural Marketing Service, p. 1, para. 3(a), (Last revised, Dec. 10, 2013). http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5095400.
[5] Id. at 1.
[6] Supra, note 2
[7] Id.
[8] United States — Certain Country of Origin Labeling (COOL) Requirements, World Trade Organization, (Last Revised, 20 October 2014), http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds384_e.htm.
[9] See United States – Certain country of origin labeling (cool) requirements – Final reports of the Panel, World Trade Organization, (18 Nov. 2011), https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds384/r*%20not%20rw*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#.
[10] Id.
[11] Id.
[12] United States – COOL, supra note 7.
[13] Id.
[14] Id.
[15] United States: WTO Appellate Body Brings Coherence to Trade Rules on Technical Regulations, Duane A. Layton, et al., Mayer Brown, (July 10, 2012), http://www.mondaq.com/unitedstates/x/185860/international+trade+investment/WTO+Appellate+Body+Brings+Coherence+to+Trade+Rules+on+Technical+Regulations
[16] Id.
[17] See, United States – Certain country of origin labelling (cool) requirements – Final reports of the Panel, World Trade Organization, (18 Nov. 2011), https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds384/r*%20not%20rw*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#.
[18] Duane A. Layton, et al., supra note 15
[19] Supra, note 15
[20] United States – Certain Country Of Origin Labelling (Cool) Requirements, World Trade Organization, (20 Oct. 2014), http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds384_e.htm#bkmk384rw.
[21] WTO Panel Finds New US COOL Labelling Measure in Violation of Trade Rules, International Centre for Trade and Sustainable Development, Bridges, Volume 18 – Number 35, (23 Oct., 2014), http://www.ictsd.org/bridges-news/bridges/news/wto-panel-finds-new-us-cool-labelling-measure-in-violation-of-trade-rules.
[22] Supra, note 20
[23] Id.
[24] Id.
[25] United States – Certain Country Of Origin Labelling (COOL) Requirements, Reports of the Panel, World Trade Organization, p. 181, para. 7.6.6., (20 Oct. 2014), http://www.worldtradelaw.net/reports/wtopanels/us-cool(panel)(21.5).pdf.download.
[26] Id.
[27] Id.
[28] United States – Certain Country Of Origin Labelling (Cool) Requirements, World Trade Organization, (20 Oct. 2014), http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds384_e.htm#bkmk384rw.
[29] WTO panel finds US COOL rule violates TBT Agreement, Georgi Gyton, et al, (21 Oct. 2014), http://www.globalmeatnews.com/Industry-Markets/WTO-panel-finds-US-COOL-rule-violates-TBT-Agreement.
[30] Id.
[31] Id.
[32] Id.
