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U.S. Argues for Sharply Lower Level of Retaliation in WTO Origin Labeling Dispute

Friday, August 14, 2015
Sandler, Travis & Rosenberg Trade Report

The United States is protesting the level of retaliatory sanctions that Canada and Mexico have requested World Trade Organization authorization to impose against imports of U.S. goods in a long-running dispute over U.S. mandatory country of origin labeling requirements for meat products. Canada and Mexico are seeking $3.7 billion in retaliation ($2.41 billion for Canada and $713 million for Mexico), but the U.S. is arguing for total retaliation at barely three percent of that amount. A WTO arbitration panel is scheduled to meet in mid-September to continue its consideration of the matter.

In a recent submission to the panel the U.S. asserted that the amounts sought by Canada and Mexico each reflect “a flawed economic methodology that severely overestimates” the damages caused by the COOL law. For example, both Canada and Mexico estimate that their livestock exports to the U.S. would increase substantially (92 percent and nearly 70 percent, respectively) if COOL were removed, but the U.S. says neither of these figures “appear to be based on the market realities of trade in the North American livestock and meat markets.” The U.S. also rejects the inclusion of lower domestic prices for cattle and pigs not shipped to the U.S. that Canada and Mexico say are due to COOL in the calculation of the damages suffered, which instead should be limited to the law’s “effect on cross-border trade.”

The U.S. then uses an equilibrium displacement model, which it says is “recognized in the agricultural economics literature as particularly well-suited for assessing the impact of policy changes on complex and interconnected markets,” to calculate the trade effects of COOL and conclude that total retaliation should be set at less than $91 million, including about $43 million for Canada and about $47 million for Mexico. This figure is being cited by U.S. lawmakers and trade groups that support COOL to fight an ongoing effort to repeal it, which passed the House of Representatives in June but has stalled in the Senate.

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