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U.S. Faces Billions in Retaliatory Tariffs After Reported WTO Loss on Meat Labeling Rules

Tuesday, August 26, 2014
Sandler, Travis & Rosenberg Trade Report

Press reports indicate that the World Trade Organization has again ruled against U.S. regulations on the country of origin labeling of meat products. The decision brings the U.S. one step closer to billions of dollars’ worth of retaliatory sanctions against its exports to Canada and Mexico.

The 2008 Farm Bill revised the previous mandatory COOL requirements to provide that in order for a commodity to be labeled as a product of the U.S. all production activities associated with the commodity have to occur on U.S. soil or in U.S. waters. For products produced in the integrated North American marketplace, the label must indicate every country in which a stage of production has taken place. The 2008 Farm Bill also imposed mandatory COOL requirements for muscle cuts of beef (including veal), lamb, chicken, goat and pork; ground beef, lamb, chicken, goat and pork; wild and farm-raised fish and shellfish; perishable agricultural commodities; macadamia nuts; pecans; ginseng; and peanuts.

The WTO subsequently ruled that the U.S. Department of Agriculture’s implementing regulations were inconsistent with U.S. obligations under the WTO Agreement on Technical Barriers to Trade to accord imported products treatment no less favorable than that accorded to domestic products. The USDA responded by revising its regulations to require origin designations for muscle cut covered commodities derived from animals slaughtered in the U.S. to specify the production steps of birth, raising and slaughter of the animal from which the meat is derived that took place in each country listed on the origin designation. The rule also eliminated the allowance for commingling of muscle cut covered commodities of different origins.

While the USDA believed these changes brought the COOL regulations into compliance with U.S. international trade obligations, Mexico and Canada said they “made things worse” and took the U.S. back to the WTO to challenge them. According to press reports, a WTO dispute settlement panel has now ruled in favor of Mexico and Canada, although no details are yet available because the decision is not expected to be made public for at least another month.

In June 2013 Canada issued a list of U.S. goods that could be subject to retaliatory sanctions (expected to be in the form of higher tariffs) if the WTO were to overturn the revised COOL regulations and Mexico’s Economy Ministry said it could target products such as fruits and vegetables, juices, meat, dairy products, machinery, furniture and home appliances, among others. It could be another year or more before any such measures are actually imposed, however, given that the U.S. is likely to appeal the panel’s decision.

More than 100 U.S. lawmakers have called on USDA to amend the COOL regulations to preempt the sanctions, but the most recent farm bill adopted earlier this year left those regulations and the associated statutory provision in place. With the WTO panel having now issued its decision, Congress may revisit the issue when it returns from its August recess. There is likely to be increased pressure to revoke the rules from agricultural exporters and their representatives, but supporters will be able to point to a July 29 decision by the U.S. Court of Appeals for the District of Columbia Circuit holding that the federal government does have the authority to impose the COOL requirements.

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