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National Opinion Centre

By James Anderson | June 07, 2013

Today, the government of Canada fired its first retaliatory salvo at the US in the dispute over the USDA’s discriminatory meat labeling rules, releasing a list of products which would be potential targets for retaliation. Canada’s move is timely and justified.

Agriculture Minister Gerry Ritz and Trade Minister Ed Fast are right to be vigorously defending Canada’s livestock industry. As the two ministers asserted in their press release, the US has failed to live up to its World Trade Organization (WTO) obligations.

It was just two weeks ago – on May 23rd — that Canadian livestock producers learned that the US had no intention of complying with a WTO ruling calling for changes to its discriminatory Country of Origin Labeling (COOL) laws. May 23rd had been the deadline for the US Government to comply with a WTO Dispute Panel decision (later upheld by an Appellate Body).

Unfortunately, all hopes for an end to a protracted dispute were dashed when the US Department of Agriculture (USDA) announced measures which essentially gave the back of the hand to both the WTO and to Canadian exporters. Rather than remove the discrimination on imported livestock the USDA response, in effect, increased the discrimination against Canadian pork and beef producers.

Canada’s livestock producers were understandably incensed, suggesting the US was acting in “bad faith” and looking only to “game the system”, rather than comply with the WTO ruling. According to Canadian experts, the USDA move could end up wiping out demand for Canadian product in the US market.

Now the battle is heating up. While publishing a list of potential retaliatory moves could hardly be described as a firefight, in selecting a carefully considered list of items that could be tagged with WTO-sanctioned retaliatory tariffs, Canada is essentially indicating which weapons it is bringing to the battle. The list of US exports which could be affected is designed to get the attention of US legislators, who will no doubt be hearing very soon from business interests alarmed over the potential impact the retaliatory tariffs will have on their exports to Canada.

Canada’s extensive list of targets for retaliation includes: wine, pasta, chocolate, fruit, ketchup, corn (for human, not livestock, consumption), frozen orange juice (and many other food items), as well as ethyl alcohol, furniture, mattresses, tubes, pipes, jewellery and more. As required, the list will be published in the Canada Gazette for the usual public consultation period before any retaliation is announced. This will give time for pressure to build on US lawmakers to reconsider whether preserving the USDA’s discriminatory treatment – which has twice been condemned by the WTO – is worth sacrificing the interests of so many US exporters.

As is their custom in trade disputes, the U.S. strategy had been to delay, appeal and drag out any dispute where they are alleged to have discriminated. When faced with the May 23rd deadline for action, their next step was to announce wholly inadequate measures which would reset the arbitration process, even though the measures would undoubtedly be found wanting at the next stage of WTO adjudication.

With billions of dollars at stake and some Canadian producers already going out of business, Canada’s livestock producers (which includes the politically and economically powerful Alberta cattle industry) have been urging the government to take a hardball approach that would get the attention of US legislators. Our trade officials had been justifiably wary about the risks of getting into a tit-for-tat trade war with Canada’s biggest trade partner, but the alternative – acquiescence in the face of blatant discrimination and protectionism – is unacceptable. The publication of the retaliation list should reassure Canadian livestock producers that the government is fully prepared to go into battle with them.

All hope for peace is not yet lost. Reason might prevail if Canada’s target list leads to pressure on US lawmakers to come into compliance with the WTO rulings. But, Ministers Ritz and Fast need to continue to prepare for battle. As they do, they will want to ensure that collateral damage is avoided. With such an integrated market, many US exports serve as inputs into Canadian-manufactured items, which means retaliatory tariffs on the inputs would end up adding to the overall cost of a Canadian product.
To avoid inflicting unintended harm on Canadian interests, Chris Kyte, president of the Food Processors of Canada, suggests that “retaliatory measures should be focused on finished products, not inputs. In the food industry, this might include Nestle, Kraft, General Mills and ConAgra, all of whom import many finished products.” Canada’s trade officials should heed this sound advice.

As so often happens in disputes involving the US, even those who win at the WTO find little satisfaction. The Americans have been playing by their own rules, counting on their economic clout to deter trading partners from any aggressive retaliatory measures. As a major exporter dealing with much larger economies, Canada looks to the WTO to help level the playing field. If the US are allowed to ignore the WTO ruling, we may as well have no rules-based trading system. The US often wonders why international agencies have lost credibility in the public eye. In the case of the WTO, at least, they need only look in the mirror

Kudos to Ministers Ritz and Fast for standing up for Canadian interests and demanding that the US live by the same rules as everyone else.

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James Anderson served as senior policy advisor to the Minister for International Trade from 2000-2004. 

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