By James Anderson | May 24, 2013
May 23rd was the deadline for the U.S. Government to comply with a World Trade Organization (WTO) ruling calling for changes to its Country of Origin Labeling (COOL) Laws. Canadian livestock producers who had been hoping for the U.S. to abide by a WTO Dispute Settlement ruling have come away disappointed, angry and determined to get justice.
Rather than remove the actual discrimination on imported livestock the U.S. Department of Agriculture’s announcement leaves Canadian pork and beef producers still facing discriminatory treatment that could wipe out demand for their product in the U.S. market. In June, 2012, a WTO Appellate Body confirmed an earlier Dispute Panel decision which found that the U.S.’s COOL regime discriminated against Canadian and Mexican livestock in the U.S. market by establishing different requirements for both recordkeeping and the segregation of beef cattle and hogs born in Canada and Mexico. (Segregation is not required for beef cattle and hogs born and raised in the USA.)
Subsequent to last June’s decision, a WTO arbitrator established the May 23 deadline for the U.S. government to ensure its COOL regime met the requirements set out by the WTO panel and appellate body. While there had been low expectations that the U.S. would enact the necessary legislative changes to bring its system into compliance, the degree to which the U.S. response has failed to do so has caused significant concerns within Canada’s livestock industry.
Using terms such as “bad faith” and “gaming the system” the Canadian Pork Council (CPC) have suggested that the USDA’s revisions to the COOL rule falls so far short of compliance that it has the effect of further exacerbating discrimination against Canadian livestock exports. In a press release the CPC asserted that the new rule will make a bad situation even worse. Both the CPC and the Canadian Cattlemen’s Association (CCA) have criticized the USDA decision to remove even the limited flexibility to comingle Canadian and U.S. livestock at processing plants that exists under the current rule.
The CCA and the CPC have been lobbying against the discriminatory treatment for some time, emphasizing that COOL had created additional costs and uncertainties which made Canadian live swine and beef cattle much less attractive to U.S. feeders, feedlots and packers. Canadian Pork Council Vice-Chair Rick Bergmann says “the introduction of COOL has been devastating to the pork sector. Since 2008, COOL has cost Canadian hog producers roughly $2 Billion. The discriminatory treatment drove up costs and caused Canadian pork producers to lose contracts and go out of business.”
In a press release, Canadian Cattlemen’s Association President Martin Unrau said “USDA’s statement that their amendment complies with the WTO is absurd.”
With the U.S. having responded inadequately to the WTO ruling, the ball is now in the federal government’s court. Agriculture Canada’s backgrounder on the issue says “COOL led to the disintegration of the North American supply chain, created unpredictability in the market and imposed additional costs for producers on both sides of the border.”
Canada’s trade officials have consulted closely with Canadian livestock producers and are well aware of the implications of continued discrimination. In a statement yesterday, Agriculture Minister Gerry Ritz and Trade Minister Ed Fast asserted that the U.S. was not in compliance and said the changes announced by the USDA “will increase discrimination against Canadian cattle and hogs and increase damages to industry on both sides of the border”. The statement also indicated Canada will consider all options at its disposal, including the use of retaliatory measures.
Arguing that the best way to earn the attention of Washington’s lawmakers is to play hardball, Canada’s livestock producers have been urging the government to prepare a list of attention-getting retaliatory measures to be announced if the Americans failed to end the discriminatory treatment. With billions of dollars at stake and producers going out of business they argue the time has now come for Canada to respond forcefully.
In their press release, the CCA called upon the government to publish “a list of retaliatory options to be imposed on the U.S. should they continue to ignore their international obligations and flaunt the WTO’s ruling”. CCA president Martin Unrau bluntly stated “USDA has demonstrated that they have no intention of attempting to end the discrimination and it is time they experience some consequences.”
According to normal WTO procedures, the next step in the process would be for Canada and Mexico to make the case to a WTO Compliance Panel arguing that the U.S. has failed to respect the WTO decision and request authority to retaliate. This decision would be referred to the Appellate Body, adding to the delay in justice already due to Canadian famers and ranchers.
If the WTO determines that the U.S. has not taken appropriate action the retaliatory measures could be imposed in an amount decided by yet another panel. Unfortunately, the process to get to that decision could take more than a year.
The CPC’s Bergmann is adamant that a resolution is needed sooner rather than later: “We were naïve enough to have faith in the system, to believe that when the WTO ruled we could expect positive results. We cannot wait for another year or more”.
The U.S. strategy in all trade disputes is typically to drag out the process for as long as possible and to appeal every unfavourable ruling; when the ruling is confirmed, compliance measures tend to be inadequate and the “winners” are forced to take the fight through another round of WTO dispute settlement where the U.S. can drag things out for another year or so.
A rules-based trading system is critical to the ability of countries like Canada to compete on a level playing field. But, as is so often the case, the Americans are playing by their own rules, and counting on their considerable economic clout to deter its trading partners from any aggressive retaliatory measures.
It is not surprising that Canada’s trade officials would be wary about the prospects of a tit-for-tat trade war but, the unacceptable alternative is acquiescing and watching Canada’s livestock producers continue to decline and go out of business.
Justice delayed in this case is truly justice denied.
James Anderson served as senior policy advisor to the Minister for International Trade from 2000-2004.