On October 20, 2014, a World Trade Organization (“WTO”) Compliance Panel confirmed the right of the U.S. to require country of origin labeling for meat products, but ultimately ruled that the U.S. Department of Agriculture’s (“USDA’s”) revised country-of-origin labeling (“COOL”) regulations for meat are inconsistent with U.S. obligations under the WTO. The Panel found that the revised COOL regulations—which were amended to include information about where each of the production steps, including birth, slaughtering and packaging, take place—actually increased the discriminatory effect against imported livestock from Canada and Mexico.
The U.S. Trade Representative is considering appealing this ruling. At the same time, the Administration is also receiving pressure from certain domestic industry organizations and members of Congress to bring the COOL regulations into WTO compliance. Whether this can be done through regulation without the enactment legislation remains unclear. WTO litigation appealing the decision could go well in to 2015, creating further uncertainty for importers and exporters alike, which is why groups like the National Association of Manufacturers and the U.S. Chamber of Commerce, and congressional members like Senator Debbie Stabenow (D-MI), are calling for immediate resolution and have hinted at seeking a settlement. Industry groups are motivated to stave off the harmful economic effects of retaliation against U.S. exports, while Senator Stabenow seeks to uphold the legitimacy of country of origin labeling laws in a way that strikes a balance between encouraging international trade and informing consumers.
If the United States does not bring the COOL regulations into compliance or provide Canada and Mexico “compensation” (additional trade benefits or cash), Canada and Mexico will be permitted to retaliate anywhere from $1 billion to $2 billion annually. In June 2013, Canada published a list of 38 U.S. commodities that could be subject to retaliation, including live bovine or swine, meat of bovine or swine, offal, cheese, apples, cherries, corn, rice, potatoes, syrups, breads, pastries, frozen orange juice, tomato ketchup and other tomato sauces, chocolate, pasta, cereals, wines, ethyl alcohol, certain sugars, as well as jewelry, welded stainless steel pipes and tubes, grinding balls, and certain furniture items (i.e., swivel seats, wood office furniture, and mattresses). The retaliatory measures would likely take the form of a 100-percent surtax on some or all of the above-listed U.S. products. Mexico is also threatening retaliation on products such as fruit, vegetables, juice, meat, dairy products, machinery, furniture, and household goods, but has not published a formal list.
In the meantime—and until the Administration decides to scrap the current labeling framework or go back to the drawing board—the COOL requirements remain in effect. U.S. companies that import beef and pork subject to these labeling requirements should consult with the USDA’s Agricultural Marketing Service to determine whether it will make any changes to the scope, application or enforcement of the rule. In addition, U.S. companies that export products to Canada or Mexico should monitor and review subsequent retaliation lists as they are updated or made available to determine if any of their products are targeted, and also consider working with Canadian and Mexican importers to ensure they are not affected.
A link to Canada's proposed retaliation list, published after the U.S. failed to comply with the results of the 2012 WTO Appellate Body ruling can be found here.
Additional information on the WTO litigation, as well as a link to the October 20 decision can be found here.
Kelley Drye will continue to monitor WTO COOL ruling developments. In the meantime, please contact our International Trade group for any questions related to compliance with the existing rule and updates on potential retaliation.