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Canada's COOL reaction to USDA proposals

Tuesday, March 3, 2015

Canada’s frustration with the U.S. country-of-origin-labeling (COOL) regulations has been ongoing since the rules were announced in September 2008. While the battle over COOL might be classified as a Canada-U.S. trade dispute, it is important to recognize that many, if not most, farmers, meat processors and industry groups in the United States share the Canadian goal for a free flow of livestock and livestock products across our borders. 

Reasonable consumer information as to where food comes has widespread support in both Canada and the United States. While the system is not perfect, canned and processed goods are generally well labeled. 

The livestock sector, however, is not as well defined. There is considerable cattle sector trade across the U.S.-Canadian border in embryos, calves, feeders and finished cattle. Processed meat may include carcass, boxed, packaged cuts and a multitude of highly-processed and packaged products. Historically, the United States required labeling with exceptions made if substantial transformation took place. 

The livestock industry in Canada and the United States has been highly integrated since pre-Columbian days. If weather, markets and other factors caused a shortage or surplus of one class of livestock in one region of Canada or the United States, simple transportation and economic arbitrage would solve the problem. The same logic applies for livestock processing. The natural order of things for the Canadian-U.S. livestock sector is a fully-integrated market. This more-or-less comfortable balance of livestock trade was interrupted by the 2002 Farm Bill, which required retailers to label fresh beef, pork and several other commodities with the country-of-origin. 

COOL held the potential to create de-facto trade barriers under the guise of consumer information and protection. This situation was reinforced by the 2003 bovine spongiform encephalopathy (BSE)crisis. Now, 10 years later, the quagmire of COOL rules have significantly blurred the distinction between consumer interest and protectionism. Welcome to the brave new world of global trade. 

Mandatory COOL was introduced by the United States in September 2008, taking full effect in March 2009. Muscle cuts or ground product of beef, veal, pork, lamb, chicken and goat sold at retail required one of four labels: 1) Product of the United States (for animals born, raised and slaughtered in the United States); 2) Product of the United States and Canada (for example where feeder cattle were finished and slaughtered in the United States); 3) Product of Canada and the United States (imported from Canada for immediate slaughter); and (4) Product of Canada. One of the positive elements of the rule was that commingling of different origins was allowed. 

COOL 2009 forced processors to segregate pigs and cattle by country-of-origin—United States, Canada or Mexico—and brought a quantum jump in bookkeeping and costs. U. S. processors in general backed away from Canadian born hogs and cattle. Canada and Mexico viewed COOL as an illegal, non-tariff barrier that disadvantaged Canadian and Mexican products relative to U.S. products. 

Canada and Mexico each filed complaints with the World Trade Organization (WTO) in 2009. In May 2011 the WTO issued a preliminarily ruling that COOL is a violation of the WTO agreement to which the United States is a signatory. The United States appealed in March 2012. Three months later the WTO Appellate Body confirmed that COOL discriminates against livestock in the U.S. market. In August 2012 the United States informed the WTO they would make respect the decision and make changes. 

On May 23, 2013, the deadline set for those changes, the United States published Final Rule to Amend Meat Labeling Provisions under Country of Origin Labeling, which would require labels to detail where animals were born, raised and slaughtered. It would also end commingling—the one element of flexibility in the previous regulations. Even those of us outside the industry can readily see that this is not a step in the right direction if the end goal is freer markets, lower costs and less regulation. Rather, the result will be more trade barriers, lower livestock prices in Canada and vastly higher costs in both Canada and the United States.

It is difficult to avoid the conclusion that the politics of protectionism are overriding both common sense and the positive underlying economics of the North American livestock sector. Canada and Mexico now have two options: formally appeal the U.S. action to a WTO compliance panel, or retaliate by imposing tariffs on U.S. exports. We will readily take the first action but will try to avoid the second, even if it is our strongest alternative.

Canada does not want to alienate a friend, ally and our most important trading partner. We share the longest undefended border in the world and are the largest trading partners in the world. In 2012, agricultural trade between our two countries was almost perfectly balanced at a whopping $20 billion in exports to each other. Are there any better reasons to search for a better approach to COOL?


Brian Oleson Brian Oleson (Brian.Oleson@ad.umanitoba.ca)
Department Head, Department of Agribusiness & Agricultural Economics, University of Manitoba, Winnipeg, Canada

View more posts by Brian Oleson

The views and opinions expressed in AgChllenge2050 blog posts are solely the opinions of the authors, and not those of Farm Foundation, NFP.