Within the next month a ruling is expected on the U.S. appeal of the outcome of the WTO case brought by Canada against the U.S. mandatory country of origin labeling law (MCOOL) for beef and pork.  The U.S. is expected to lose as it did in the original ruling.  An analysis by the Competitive Enterprise Institute (CEI) in Washington, DC and the Fraser Institute in Vancouver, B.C., Canada, MCOOL and the Politics of Country-Of-Origin Labeling proposes “establishing ‘mutual recognition’ of their regulatory regimes for cattle, beef, and pork, instituting a label that would state ‘Produced in the US and Canada,’ and creation of a bi-national group that would work to ensure that any future standards or regulations were negotiated jointly.”

In December of 2008 the Canadian government, and separately the Mexican government, requested consultations with the U.S. regarding implementation of MCOOL for pork and beef at the consumer level.  USDA had published an interim final rule on MCOOL in August 2008 and a final rule in January 2009 effective March 16, 2009.  The final rule requires retailers to use one of four types of labels based on the country of origin of the animal, where it was raised, and the country where it was slaughtered and processed.

Consultations did not resolve the dispute, and in October 2009 Canada asked that a WTO dispute settlement panel be formed.  In November of 2011, the panel found that MCOOL as implemented was in violation of the WTO Technical Barriers to Trade Agreement by providing less favorable treatment to imported Canadian cattle and hogs than for U.S. domestic products and not meeting its legitimate objective of providing consumers with information on the origins of meat.  In April of this year the U.S. government appealed the decision.

While MCOOL has a 10 year political and legislative history, the only relevant points for trade policy at this time are the WTO panel findings of unequal treatment of products and failure to inform consumer of the origin of meat.  The Canadian government has a right to demand increased tariffs on other items, but has made clear it has little interest in retaliation against the U.S.  Canada seeks a way to resolve the dispute.  Brazil took the same position after winning the WTO cotton and export credit case against the U.S.  The U.S. had a similar stance after winning a beef hormone case against the EU and imposing higher tariffs against EU products which resulted in no change in market access for U.S. beef.  WTO cases are not about retaliation; they are about gaining market access, as they should be.

The CEI/Fraser analysis proposes a plan that would provide market access that the WTO panel said Canada should have, while having a label that serves the two countries interests without discriminating against Mexico and other countries.  According to the analysis, WTO issues will likely be avoided because this plan applies to live animals, not packaged meat.  The plan would fulfill the U.S. obligation to change policies that are harming the trade interests of Canada.  The plan would be similar to broader talks by the U.S. and Canada to remove differences in regulations that impede trade and raise costs for consumers.

Red Meat Committee

U.S. and Canadian regulations for pork and beef are complementary in national grading standards, inspection services, re-inspection services at ports-of-entry, national identification systems, and the use of growth hormones and antibiotics in livestock.  The analysis does not propose that the laws of the two countries be unified because that would be unacceptable to both sovereign national governments.  That approach has been generally rejected in most trade harmonization efforts globally.  What is proposed is a mixture of harmonization of rules and mutual recognition of processes with similar outcomes, along with a bi-national ‘Red Meat Committee’ under the Regulatory Cooperation Council created recently by President Obama and Prime Minister Harper.

Both countries have the same approach to yield grades and quality; Canada has three yield grades while the U.S. has five.  Quality grades measure tenderness, juiciness and flavor.  In 1996 Canada formally adopted the copyrighted U.S. marbling standards.  For inspection services, both countries recognize each system as practically equivalent.  Canada will need to do more annual plants inspections to match the U.S. effort.  Canadian meat is inspected at the point of entry by the U.S. even though Canadian inspection is considered equivalent.   President Obama and Prime Minister Harper have already agreed to a pilot bi-national inspection team starting this month that could lead to ending border inspections.

Canada has a mandatory national livestock identification system for hogs and cattle.  The U.S. system only covers animals that are traded in interstate commerce under state government operated identification systems that meet minimum federal standards.  The solution suggested is mutual recognition and national treatment.  The U.S. would benefit from the better traceability of the Canadian system that reduces the risk of transmitting animal diseases to the U.S.  The two countries have similar policies on use of hormones in beef, except for the U.S. allowing the use of rBST to improve milk production in dairy cows.  Both employ regulations to minimize antibiotic use and ensure no or minimal residue after slaughter.

The bi-national ‘Red Meat Committee’ would keep the process moving forward and resolve problems as they arise.  Harmonization would not be easy, but doable given the existing commonalities in the two systems.  With $2.8 billion of animals and meat moving south in 2011and $1.3 billion moving north, producers and consumers in both countries have much to gain from a more efficient supply chain.

Efforts at harmonization and mutual recognition of regulations have become popular globally in recent months to overcome regulations that provide small benefits and high costs in restricted trade.  The analysis argues that live animals and beef and pork trade between the U.S. and Canada fit that basic model.  Of course, the proposed changes would do nothing to stop the protectionist pressures in Congress that led to the MCOOL law and the WTO case.  Those can only be resolved by recognizing that the costs to consumers and the supply chain far outweigh the benefits to specific groups that gain from protectionism.

Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology