Canada, Mexico Think U.S. Labeling Requirements are un-COOL

By John G. Dillard

The United States has irked its neighbors with a meat labeling mandate that may have the effect of discriminating against Canadian and Mexican livestock.  The Canadian and Mexican governments believe that USDA’s new mandatory Country-of-Origin-Labeling (mCOOL) Rule is a thinly-veiled technical trade barrier that will be devastating to their respective livestock sectors, which are dependent on U.S. trade.

Sample COOL label, as mandated by USDA.

Sample COOL label, as mandated by USDA.

In an effort to pressure USDA to not implement the new mCOOL rule, Canada and Mexico have requested the World Trade Organization (WTO) to establish a compliance panel to sign off on a number of politically-charged retaliatory tariffs that they can bring to bear if USDA does not scrap the new rule.  This is the latest development in an ongoing controversy that has chilled livestock trade between our neighbors for the last few years.

mCOOL’s Origins

The 2002 Farm Bill contained a provision requiring USDA to develop rules that require certain meat packages to bear a label indicating the country of origin for meat sold at retail establishments.  However, Congress did not authorize funding for USDA to carry out this rulemaking.  The 2008 Farm Bill amended the labeling provision to its current form, which created four COOL categories (Product of US, Multiple Countries of Origin, Imported for Immediate Slaughter, and Foreign Country of Origin).

Based on these new categorizations and a lift on the funding ban, USDA released a final rule in 2009.  The 2009 Rule required labels stating “Product of the U.S” if the packaging contained strictly meat from livestock that were born, raised and slaughtered in the United States.  If the packaging contained meat with commingled origins, the packaging was required to state “Product of the U.S./Canada” or “Product of U.S./Mexico.”

The Canadian and Mexican governments did not take kindly to the 2009 mCOOL Rule.  They filed a complaint with the WTO, arguing that USDA’s rule discriminated against foreign livestock by favoring U.S.-origin meat products.  The WTO panel agreed.  In June 2012, the WTO appellate body issued a report finding that the 2009 rule was not in compliance with the United States’ obligations under the WTO.  They ordered USDA to issue new regulations that would bring it into compliance.

The 2013 mCOOL Rule

USDA followed the order to issue new mCOOL regulations, but it’s not apparent that it took the WTO’s ruling to heart.  The new mCOOL Rule further discriminates against foreign livestock by banning the practice of comingling products with a different country or origin in a single package.  Under the new rule, U.S.-only products must bear a label stating “Born, Raised, and Slaughtered in the United States.”  Packaging containing meat products from Canadian or Mexican cattle that are fed and slaughtered in the U.S. must be labeled “Born in Canada (or Mexico), Raised and Slaughtered in the U.S.”  Foreign fed cattle shipped to the U.S. for slaughter must be labeled “Born and raised in Canada (or Mexico), Slaughtered in the U.S.”

The labeling requirements and the ban on commingling of packaged product is likely to create a logistical nightmare for some packers and retailers.  Packers near our northern and southern borders will be required to segregate livestock and maintain several different production runs based on the COOL label categorizations.  Distributors and retailers will also be required to handle a bevy of new SKUs to accommodate the new labeling requirements.  Many experts believe that the end result of the labeling scheme will be that packers will favor U.S.-origin livestock, and aggressively discount foreign-born livestock to reduce the costs of compliance with the 2013 mCOOL Rule.

In addition to facing scrutiny under the WTO, the logistical difficulties of implementation and compliance with the 2013 mCOOL Rule are also the subject of litigation in the U. S. District Court for the District of Columbia.  In the case, American Meat Institute v. USDA, a group of trade associations representing packers, domestic livestock producers, and Mexican and Canadian livestock producers are seeking to overturn the 2013 mCOOL Rule.  (Disclosure: OFW Law represents a client in this matter).  The groups oppose the new rule on the basis that the law compels commercial speech in violation of the First Amendment and that it is “arbitrary and capricious” under the Administrative Procedure Act.  A federal judge heard oral arguments for a preliminary injunction in this case on August 27th.  We expect to hear a decision on the case within the next two weeks.

WTO: Round 2

Anticipating heavy losses to their respective livestock industries, the Canadian and Mexican governments compiled an extensive list of retaliatory tariffs that they wish to enact.  In addition to instituting tariffs on U.S. livestock and meat products, the Canadian government has identified products from influential legislator’s districts, in hopes of exerting maximum pain on those with the power to repeal mCOOL.  This list includes wheat products, such as cereal, bread and pasta, cheese, sugar, some steel products, jewelry, and wooden furniture.  The Mexican government is expected to announce similar politically-motivated tariffs in the near future.

Before the Canadian and Mexican government can implement these retaliatory measures, they must receive approval by the WTO.  They have requested that the WTO’s Dispute Settlement Body (DSB) form a compliance panel to evaluate their proposed tariffs.  The DSB, which meets this Friday (8/30), will decide whether to form a compliance committee.  If the Canadian and Mexican governments receive approval for retaliatory tariffs, it will likely be 18 to 24 months before they are implemented.

With the proposed tariffs looming in the future, Congress and USDA may begin to question whether mCOOL is more trouble than it is worth.  Or at least that is the hope of our neighbors and trade partners.