Canada, Mexico Threaten Retaliatory Tariffs if COOL Proposal Implemented

Canada, Mexico Threaten Retaliation if Proposed Rule is Finalized

Instead of eliminating incentives to favor domestic U.S. cattle over imported cattle, the proposed rule would increase them, said the Mexican government. “Rather than taking steps to eliminate the discriminatory burdens placed on the use of Mexican-born cattle in the processing of meat products, it would enhance those burdens by eliminating the commingling flexibility in the present regulations and increasing the complexity of labeling requirements ... .” it said.

“Notably, the expanded labeling requirements will result in increased segregation and cost for firms using animals born or raised outside of the United States, or the meat produced from them,” said Canadian Ambassador Gary Doer in his comments. “In the light of this, if the proposed rule is put into force as published, the Government of Canada intends to pursue all available options available to it under the WTO dispute settlement system, including requiring compensation from the United States or requesting authorization from the WTO Dispute Settlement Body to impose retaliatory measures,” he said.

The Mexican government also threatened retaliation. “Because the proposed rule, if adopted in its current form, would leave the United States in violation of its WTO commitments, Mexico would be forced to pursue the available mechanisms for withdrawing trade benefits from the United States,” it said in its comments.

Retaliation Threat Means AMS Should Back Down, say Pork Producers, Exporters

Facing the threat of retaliation by Mexico and Canada, the National Pork Producers Council condemned the AMS proposal. U.S. pork had been subject to retaliatory duties for WTO non-compliance before -- Mexico raised tariffs on ham for U.S. noncompliance in the recent trucking dispute. The council said there would be “significant risk” that U.S. pork exports would be targeted for retaliation again, this time by Canada, too. “To avoid retaliation against U.S. pork exports and the consequent injury that would be caused to U.S. producers, NPPC urges the United States to take all necessary action to bring COOL into compliance with U.S. obligations under the [WTO Technical Barriers to Trade] agreement,” the council said.

The U.S. Meat Export Federation concurred. “Talk of retaliatory measures against the United States by senior Canadian or Mexican government officials is cause for serious concern to the U.S. beef and pork industries,” it said. Canada and Mexico are two of the United States’ biggest markets, with beef and pork exports to the countries totaling almost $4 billion in 2012. “To avoid jeopardizing our exports to these two vitally important markets I strongly urge the USDA to replace the existing COOL requirements with an approach to country of origin labeling that does not discriminate against imported livestock.”

It's no surprise that Mexico and Canada fault the proposed rule, said the Meat Export Council of America. “It is in our view that the changes that have been proposed in this regulation are regressive, discriminatory, and even less compliant with WTO rules than the previous regulations which resulted in the WTO decision against the United States,” it said. The regulations would increase costs for retailers that sell meat from animals imported into the U.S. for slaughter. The effect would be a move by retailers away from selling imported meat, to reduce the risk of inadvertent regulatory noncompliance, it said.

Consumer, Industry Groups say Proposal Will Add Value

Many of the 918 comments received on the proposal, particularly those from individual consumers and consumer groups, were in favor of the proposal. Food & Water Watch said the “straightforward labeling provides consumers with the vital information they need to make informed choices about the source of food and how it was raised.” According to the group, AMS even overestimated the costs, and underestimated the benefits, of implementing the revised scheme.

The U.S. Cattlemen’s Association was in favor as well. The proposal would bring the U.S. into compliance with its WTO obligations, the group said, and would even add value to U.S. beef. Because consumers would pay more for precisely labeled meat, the proposal would create value totaling at least $331 million to $474 million on top of any labeling at all, it said.

But Smaller Companies Worry About Ability to Meet Costs

Some smaller producers worried about the additional costs COOL labeling would impose. “Since we are not vertically integrated, we do not have first-hand knowledge of their origin or where they were raised,” said Johnsonville Sausage. “Country of origin information will need to be managed by our suppliers and provided to us with each load," it said. These recordkeeping requirements would be expensive to implement and maintain. The company would also have to increase livestock space to segregate cows by origin which, beyond increasing costs, will negatively impact the welfare of the animals as well, it said. Johnsonville estimated about $20 million to $25 million in capital costs to meet the new requirements.

The proposed regulations would require even more duplication of labels for Nolan Ryan’s All-Natural Beef, adding costs for a company already constrained in its sourcing of cattle by a drought in South Texas. “This may be possible for a large packer and a large retailer, but it is extremely difficult and restrictive for a small operator,” it said. "Perhaps these consequences were in fact what was anticipated and expected from the law,” said Charlie Bradbury, president and CEO of Nolan Ryan. “I can certainly see why our trading partners In Canada and Mexico are unhappy with these regulations because they absolutely do create severe restrictions on how companies like ours can utilize their cattle.”

Comments on the COOL proposed rule are available (here).