U.S. unlikely to comply with WTO COOL ruling by deadline

The U.S. government is not expected to comply with the World Trade Organization (WTO) ruling requiring changes to its mandatory country-of-origin labelling (COOL) law on meats and certain other foods by a May 23 deadline.

"The U.S. government could still pull a rabbit out of its hat and actually change the COOL regulations, but I don’t think they will," said John Masswohl, director of government and international relations with the Canadian Cattlemen’s Association.

For the U.S. to comply with the WTO ruling, it must actually remove the discrimination on imported livestock, he said.

The WTO’s Appellate Body last June 29 confirmed the most important part of the WTO’s Dispute Settlement Body panel decision from November 2011, which found COOL discriminates against Canadian livestock in the U.S. market. A WTO arbitrator in December established a firm deadline for the U.S. to ensure COOL squares with its WTO obligations.

"As far as we are concerned, the only way the U.S. government can comply with the WTO ruling is if they remove this legislation," Masswohl said, noting no such legislation is in the process of being passed.

Official Washington, he noted, appears preoccupied with its "fiscal cliff" budget problems and currently has "bigger fish to fry than dealing with the WTO COOL ruling.

"Essentially the polarized politics in Washington (have) blocked needed work on that country’s effort to comply with the WTO ruling," Masswohl said.

He acknowledged there are advocates in the U.S. trying to press forward work in ending this discrimination, but individuals and groups that like COOL the way it is are working hard to maintain it.

Options available

Groups opposed to making changes to COOL have suggested actual legislation is not needed and a regulatory change would be enough for the U.S. to comply with the WTO ruling.

"However, some of the proposals from these individuals would actually increase the burden of discrimination that already exists on imported livestock to the U.S.," Masswohl said.

The CCA has said such suggestions "run counter to the most significant portion of the Appellate Body ruling, that the discrimination caused by COOL stems from the fact that different labels are required for meat from cattle and hogs exclusively born, raised, and slaughtered in the U.S. than for meat from cattle and hogs born or raised in another country."

Since this requirement is stated in the U.S. government’s COOL legislation, "only an amendment to the COOL legislation will constitute an acceptable remedy," the CCA said in a recent statement.

A regulatory proposal was put forward by the U.S. Department of Agriculture and sent to the White House’s Office of Management and Budget (OMB) a number of weeks ago, Masswohl noted.

"Nobody, other than the individual who wrote the proposal and reviewed it, knows what it says," he said. "Because details of the regulatory proposal are not available, there is significant doubt that the change will be enough to end the discrimination the COOL law creates."

Even if the U.S. government decides to move ahead with USDA’s regulatory proposal it’s doubtful the changes would be made by the May 23 deadline because of the steps involved in the U.S. rulemaking process.

Once the OMB gives the proposal its blessing, USDA then has to publish the rule change for a public comment period, which could run from 30 up to 90 days, which would put the process into the end of April at the earliest, Masswohl said. USDA would then need to review the comments it received before publishing the final rule.

Scenarios

Masswohl felt there were two scenarios shaping up for the coming and going of the May 23 deadline — "one in which the U.S. government does something that is not good enough to comply with the WTO compliance ruling, and the other is that the U.S. government does nothing."

In his opinion, the U.S. will do nothing and Canada and Mexico will then have to go back to the WTO to request authority to put retaliatory tariffs on U.S. products. In that case, the next question would be how much Canada and Mexico would be allowed to charge in tariffs, and on what products.

The CCA’s recent analysis showed COOL has hurt the Canadian cattle industry to the tune of US$639 million a year. The cost to Canada’s hog industry, meanwhile, was pegged in the area of US$500 million per year. "So if Canada was authorized to implement regulatory measures, there definitely would be a push to recover some of those losses," Masswohl said.

Canada’s government would likely publish a list of potential U.S. targets and allow Canadian stakeholders to comment on it. This would also identify those items to U.S. stakeholders.

"I think beef and pork would have to be part of the process, given that those are the affected items," Masswohl said. "I think there would also be a good chance of U.S. fruit and vegetables ending up on the list as well as non-agricultural products."

He also felt the process would include a look at the products from the individual states in which congressmen have been most opposed to the US complying with the WTO ruling.

There have already been numerous meetings between interested parties and associations in Canada and the U.S., Masswohl noted. "A lot of our U.S. counterparts are more than aware that the COOL law in the U.S. hurt both Canadian and U.S. farmers and related industries."

For example, the CCA noted, the U.S. National Cattlemen’s Beef Association (NCBA), at its meeting last month in Tampa, Fla., reconfirmed its opposition to COOL in its current form and passed a policy establishing resolution of the COOL dispute as one of the "high priorities" for the association to achieve in 2013.

Consequences

Both Canada and the U.S. are short on cattle for the infrastructure that exists, Masswohl said, including too much slaughter capacity and feeding capacity. "When you make it more difficult for U.S. packing plants to acquire cattle, it is also more difficult for the U.S. feedlot sector to acquire feeder cattle," he said.

Analysis commissioned by the CCA, and prepared by U.S. ag economics professor Dan Sumner at the University of California at Davis, concluded that based on a very conservative estimate, there are 9,000 U.S. jobs at risk in the packing sector alone if the U.S. does not comply with the WTO ruling.

"I think the split was about 6,200 jobs on the cattle side, and 3,800 on the pork side. And that is not taking into account people whose job it is to drive trucks, and all the affiliated services," Masswohl said.

"We know the U.S. cattlemen who have the vision to see that if you are a cattle producer, within radius of the packing plant that ends up closing down, that is not going to be a very positive scenario."

However, the U.S. government, if it chooses not to comply with the WTO ruling, could also pursue an agreement by which it would write Canada and Mexico separate cheques covering the value of the countermeasures the two countries could impose, Masswohl said.

The U.S. agreed to such payments to Brazil in 2010, worth US$147.3 million per year, after WTO bodies ruled for Brazil against certain U.S. cotton support payments and guarantees in 2005 and 2008. Those payments will continue until passage of a new Farm Bill or the two countries reach a "mutually agreed solution" on the cotton dispute.

There would no value given back to the Canadian livestock producer, but it definitely would be noticed when the U.S. government sat down to work out its annual budget, Masswohl said.

— Dwayne Klassen writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Includes files from AGCanada.com staff.

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