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US ‘hypocrisy’ could lead to trade war with Canada, Mexico

Retaliation, however, is a double-edged sword, especially in Canada-U.S. relations

June 7, 2013

Joe-RosarioEDMONTON, AB, Jun 7, 2013/ Troy Media/ – Late last month the U.S. Department of Agriculture published its new Mandatory Country of Origin Labeling (COOL) regulations, replacing the provisions of the 2009 version.

The U.S. undertook the revisions to “provide consumers with more specific information and other modifications to enhance the overall operation of the program” and to comply with a World Trade Organization (WTO) directive resulting from a Canada-initiated dispute, which claimed the 2009 rules discriminated against Canadian meat exporters.

The fact is, however, that the revised COOL regulations of 2013 are even more detrimental to Canadian cattle, beef and hogs than COOL 2009. The new rules require that Canadian livestock imported by the U.S. must include records showing not only the country of origin, but also where it was born, where it was raised, and where it was slaughtered.

But the competitive disadvantage imposed on imported livestock is further escalated by additional new rules affecting beef. Under the 2013 rules, packers and retailers will no longer be able to make a claim of ‘mixed origin’ for products of different countries – which include U.S. beef and pork. The rules eliminate the allowance for commingling muscle cut covered commodities of different origins. This makes the competitive disadvantage imposed on imported livestock and meat even greater than under the old rules.

The U.S. may be correct when it claims that only 12.5 per cent of the U.S. cattle and hog packing industry is making use of the co-mingling flexibility. However, that 12.5 per cent constitutes the bulk of Canadian and Mexican cattle and beef, and all of Canadian hog exports to the U.S.. This is clearly a trade restrictive measure.

In my view, the 2013 COOL rules are even more trade restrictive, disruptive and trade distorting than the 2009 rules which the WTO ruled violated U.S. trade obligations. As it is, the COOL 2009 regulations have had serious adverse effects on Canadian livestock exports. Over the past five years, exports of cattle declined by half and hog exports fell 40 per cent. Canadian ranchers claim to have lost $1 billion due to existing COOL regulations.

The advantages gained following the Canada-U.S. Free Trade Agreement and North American Free Trade Agreement have been frustrated by these protectionist actions. COOL 2013, if allowed to prevail, will further distort production and trade of livestock in North America, with the result that industry on both sides of the border will lose. It clearly does not speak well to the U.S. respect for the WTO multilateral rules process.

Talk of swift retaliation by Canada and Mexico is in the air. In fact, Canada has already announced a list of commodities it will target for retaliation, and Mexico is expected to follow suit shortly (Read Canada announces potential retaliation targets to US COOL). Any reasonable reading of COOL 2013 indicates the U.S. Agriculture Secretary has no regard for either the WTO panel findings or the changes in industry practices since 2008 which further strengthened the case by Canada.

At the same time, it must be acknowledged that major broad-based U.S. organizations such as the National Cattle and Beef Association, The American Meat Institute, and The National Pork Producers Council made strong representations against the disruptive and trade discriminatory aspects of the rules. They were unsuccessful even in their plea for delaying the effective date of implementation and their request for negotiations of a sequencing agreement with Canada appears to have been ignored.

It is to Canada’s advantage to work in cooperation with these organizations to minimize trade disruption as the WTO dispute resolution proceeds. Actions with these like-minded organizations as allies could be initiated under NAFTA

But this is not the time for hasty retaliation – a double-edged sword, especially in Canada-U.S. relations. It would be more effective to simply expose the Agriculture Secretary’s hypocritical and cynical approach to the WTO process.

In the longer term, Canada needs to develop a far more aggressive market diversification strategy and agriculture and food manufacturing industry. The Canada/EU and the Trans-Pacific Partnership negotiations could enhance export opportunities in livestock and meat, and contribute to investment and supply chain considerations.

But at the same time, the necessity of food safety and enforcement standards and a robust surveillance for disease and environmental practices to increasing exports of livestock products is imperative.

Joe Rosario is Adjunct Professor, Western Centre for Economic Research, University of Alberta School of Business.

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