The rules have been declared by WTO dispute settlement rulings as breaching WTO agreements, even after the US amended its regulations in 2013. The WTO dispute panel and appeal judges said the labelling requirements were more costly for imports and therefore discriminated against foreign livestock. Rules for informing consumers should not impact trade this much, said the panel.
At a public hearing at the WTO’s headquarters in Geneva, Canada and Mexico defended their proposed retaliation, worth respectively US$2.32 billion and US$713.4m, based on estimates of annual losses for livestock trade as a result of US COOL rules. But the US argued these estimates were inflated, saying on September 15–16 that the value of Canada’s proposed retaliatory measures should be slashed by more than 98%, and Mexico’s by 93%.
The methods producing these huge differences were debated at length in response to questions from a WTO panel arbitrating the proposed scale of retaliation. This panel, comprising the same three experts as those handling the original disputes, is expected to announce a final ruling on 27 November. That would be six years after the dispute was first raised.
'Fatal damage'
“Industry players lost contracts and sales and, in some cases, their businesses, as a result of the COOL requirements,” a Canadian official told the meeting. “These requirements have led to serious, sometimes fatal damage, and that damage continues today.”
The US countered that the actual loss was much less: US$43.22m for Canada, and US$47.55m for Mexico, which is higher than for Canada even though the impact for Mexico was only on cattle. However, it added that this was within a range of estimates of up to US$128.71m for Canada and US$78.95m for Mexico.
“Canada and Mexico are arguing that if the amended COOL measure were withdrawn, their exports of livestock would increase 92% and 70% by value respectively, to never-before-seen levels,” the US said. “And even as overall demand for beef and pork muscle cuts in, the US [market] has been in decline since 2008, with no sign of rebound.”
A Mexico official countered that it had “put forward a comprehensive and well-supported estimate of the nullification and impairment caused by the COOL measure, and the US has not met its burden to demonstrate that Mexico’s calculations are wrong”.
Buying time?
Canada and Mexico questioned why the US had chosen to challenge the proposed retaliation rather than comply with the ruling. Some observers believe the US is buying time while Congress grapples with a solution.
The retaliation – prohibitively high tariffs on selected products – could be avoided if new legislation scraps the labelling requirement of the current 2008 Farm Act. A new bill which would scrap COOL was passed by the US House of Representatives in June, but the Senate has yet to vote. The Senate is also considering another bill to replace COOL with voluntary labelling.
US farm lobbies favour compulsory labelling so that consumers know the origin of the meat. Their Canadian and Mexican counterparts argue that this protects US producers by requiring tracking and stock segregation that cost more for imported than domestic livestock and products.
Tactically, the large difference in calculations is to be expected. Economically, it arises from different calculation methods.
Impact
Canada and Mexico have applied econometrics to data from before and after COOL was introduced and then modified, in order to measure its impact. The US said the technique and the choice of some of the data were flawed. The US’ own figures come from taking 2014 data and simulating what the impact of removing COOL would be, using an ‘equilibrium displacement model’, which calculates where a market would settle after a policy has changed.
Canada and Mexico argue this technique would only be suitable if “before-and-after” data were unavailable, and challenged the way the US had applied it. The two sides also debated whether WTO rules allow price depression in exporters’ domestic markets to be taken into account.