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WTO Ruling Against U.S. Meat Labeling Rules Could Mean Billions in Retaliation

Tuesday, October 21, 2014
Sandler, Travis & Rosenberg Trade Report

origin labeling of meat products continue to violate WTO rules by discriminating against livestock imports from Canada and Mexico. The decision brings the U.S. another step closer to billions of dollars’ worth of retaliatory measures against its exports to Canada and Mexico, although a settlement may be just as likely an outcome as sanctions.

The 2008 Farm Bill revised the previous mandatory COOL requirements to provide that 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 regulations implementing these requirements 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 country in which the production steps of birth, raising and slaughter of the animal from which the meat is derived took place. The revised regulations also eliminated the allowance for commingling of muscle cut covered commodities of different origins. The USDA believed these changes brought the COOL regulations into compliance with U.S. international trade obligations, but Mexico and Canada said they “made things worse” and took the U.S. back to the WTO to challenge them.

A WTO dispute settlement panel has now ruled that the amended COOL rules also violate WTO rules because they accord imported Canadian and Mexican livestock treatment less favorable than that accorded to like domestic livestock, in particular because they increase the original measure’s detrimental impact on the competitive opportunities of imported Canadian and Mexican livestock and this impact does not stem exclusively from legitimate regulatory distinctions. However, the panel also determined that the amended rules pursue a legitimate objective (i.e., informing consumers of the origin of the covered products) and contribute to the fulfilment of that objective to a considerable (but partial) degree. The panel added that neither Canada nor Mexico has made a prima facie case that the amended COOL rules are more trade restrictive than necessary.

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. Officials from both countries reiterated the threat of sanctions after this week’s decision.

However, whether any such measures will actually be imposed remains unclear. Any of the three parties can appeal the panel’s decision, and at least one likely will. Once the appeal process is completed (assuming it upholds the panel’s decision), retaliation would still have to be requested and authorized and the U.S. would be able to challenge whatever amount may be asserted. It remains possible that the parties will use the time afforded by these procedures to work out a settlement, an approach the U.S. has shown itself increasingly amenable to in recent months.

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