Canada: COOL: United States Not So Cool For Canadian farmers

Overview

In 2008, the United States ("US") changed its country-of-origin labeling (COOL) requirements for meat products such as beef and pork. The change meant that animals born and raised in a foreign country but slaughtered in the US, would also have to be labeled as originating in that foreign country. This is more complicated than the prior labeling rules where meat was properly labeled a product of the US if it was slaughtered in the US, regardless of where the animal was born or raised.

The changes increased the administrative burden associated with the sale of foreign animals. This favouring of US domestic animals led Canada and Mexico to launch a WTO complaint. The complaints were upheld before a Panel and the Appellate Body, and the US was required to remedy the situation.

In May 2013, the US implemented new COOL rules that were supposed to meet WTO requirements. The new rules have just made the problem worse by imposing an even heavier administrative burden on meat from imported animals. The 2013 rules now require that animals slaughtered in the US be labeled with the specific country in which they were born and the specific country in which they were raised.

Canada and Mexico are now considering taking retaliatory trade measures against the US.

The history of the US's country-of-origin labeling rules

Before 2002, the US's country-of-origin labeling (COOL) of meat for retail purposes was fairly simple. The country-of-origin for retail labeling purposes was the country where the animal underwent its last (pardon the euphemism) "substantial transformation": i.e. where it was slaughtered and packed. This meant that as long as the animal was slaughtered and processed in the US, it would be labeled as a product of the US.

In 2002, the US federal government passed legislation to change this. The legislation was ostensibly intended to provide the consumer with additional information about the origin of their food. The legislation provided that for an animal to be labeled as a product of the US, it would now have to be born, raised and slaughtered in the US. The details of this new scheme were to be implemented by the US Department of Agriculture in the form of Rules (the American equivalent of Canadian Regulations). The mandatory rules were originally required to be in place by 2004. This was deferred until 2008. Interim rules were made in August 2008, with slightly revised final rules coming into force in March 2009 (the "2009 COOL Rules").

Pursuant to the 2009 COOL Rules, even if the animal was slaughtered in the US, the countries where the animal was born and/or raised were also required in the labeling. The nature of the North American meat market has historically involved a lot of cross-border movement of animals in the birth, husbandry and slaughter process.

If an animal was born in Canada, raised in Mexico and slaughtered in the US, the country of origin label would read something to the effect of: "Product of the United States, Canada and Mexico". Purely US meat could be commingled during production and packaging with meat of foreign sourcing, but would still have to be labeled to reflect the broader mixed origin. Compliance with the 2009 COOL Rules was estimated to add $25-$40 per head in administrative overhead cost for animals of foreign origin. The additional overhead arose from the requirements to trace and track where animals were born and raised, as well as maintaining all the records required to substantiate this information for verification purposes.

Within a year of the 2009 COOL Rules being in force, Canadian cattle exports dropped by 50% and slaughter hog exports dropped by 58%. The COOL rules have been estimated to cost Canadian beef and pork exporters $1 billion per year.

While the commodities that the COOL rules have most significantly affected are beef and pork, the scope of the COOL rules is much broader, and also includes: lamb, goat, fish, shellfish, fresh and frozen fruits and vegetables, ginseng, and certain nuts.

Canada starts a WTO complaint against the US and its COOL rules

After the interim set of COOL rules came into force in 2008, Canada requested consultations with the US on December 1, 2008. Mexico requested consultations on December 17, 2008. WTO consultations between Canada, Mexico and the US were held in December 2008 and June 2009. The final 2009 COOL Rules came into force in early 2009, and were largely the same as the interim rules, and thus the WTO process continued.

After failing to resolve the issue, Canada launched a WTO case against the US (DS384) in October 2009. Mexico launched a similar case shortly thereafter (DS386).

The position of Canada and Mexico was that the administrative burden imposed on foreign animals by the 2009 COOL Rules increased the cost to US buyers of animals born and raised in Canada or Mexico compared to US animals. US producers would therefore prefer animals that were born, raised and slaughtered in the US to avoid the administrative burden. Canada and Mexico argued that the COOL rules therefore unfairly discriminated against Canadian and Mexican goods.

Canada and Mexico were of the view that the COOL rules violated the WTO agreement, specifically:

  • Articles III:4, IX:4 and X:3 of the General Agreement on Tariffs and Trade 1994;
  • Article 2 of the Agreement on Technical Barriers to Trade (the "TBT Agreement"), or in the alternative Articles 2, 5 and 7 of the Agreement on the Application of Sanitary and Phytosanitary Measures; and
  • Article 2 of the Agreement on Rules of Origin.

WTO upholds Canada's complaint and US is required to remedy

In November 2011 a WTO panel found that the US's COOL rules violated the WTO Agreement. The Panel concluded that the COOL rules violated Article 2.1 of the TBT Agreement by according treatment less favourable to foreign cattle and hogs than like domestic products. The Panel also found that the COOL rules violated Article 2.2 of the TBT Agreement because they did not fulfill a legitimate objective of providing consumers with information about the origin of goods. Based on those conclusions, the Panel did not need to address whether if the COOL rules violated other provisions of the WTO Agreement.

The US appealed the Panel decision to the WTO Appellate Body. In June 2012, the WTO Appellate Body upheld the Panel's conclusion that the COOL Rules violated Article 2.1 of the TBT Agreement, but reversed the Panel's decision that the COOL Rules violated Article 2.2 of the TBT Agreement. The WTO gave the US until May 23, 2013 to bring the COOL rules into compliance with the WTO Agreement.

The US "remedy" makes the problem worse

In March 2013, the US released a draft of revised COOL rules for public comment. These draft rules required that meat products specify in what country the animal was born, where it was raised and where it was slaughtered. The required country-of-origin labeling could be something like: "Born in Canada, Raised in Mexico, Slaughtered in the United States". The US stated that the objective of these rules is to pursue the US's goal of ensuring US consumers know where their meat comes from and also to comply with the US's WTO obligations.

Canada advised the US that these rules would not remedy the WTO violation. According to both Canada and Mexico, the revised rules make the problem worse.

The 2009 COOL Rules required producers to track whether the animal was born or raised in a foreign country, and if there was such a connection, the meat could be labeled "Product of US and Canada", regardless whether the animal was either born or raised in Canada. The draft revised COOL Rules further complicate reporting requirements. Producers would have to specifically trace where the animals was born, raised and slaughtered. As an example, the producer would need to track whether the animal was born in Canada or born and raised in Canada because in the latter case the meat would need to be labeled even more specifically.

While the revisions were supported by US consumer and farm groups, they were opposed by US meat producers and food makers, whose reporting requirements would extend across the lifespan of the animal, and whose profitability would be eroded by increased input costs and increased administrative overhead.

On May 23, 2013, the US promulgated the new COOL regulations (the "2013 COOL Rules"), which were effectively the same as the draft rules. The new rules came into effect immediately upon their announcement, but US authorities have allowed a 6 month grace period for compliance.

The 2013 COOL Rules are estimated to increase the administrative burden compared to the 2009 COOL Rules, with projected costs increased from $25-$40 per head to $90-$100 per head. Far from remedying the WTO violation, the 2013 COOL Rules have apparently made the discrimination against foreign goods even more serious.

Canada's ability to retaliate

Because the WTO has found that the US is violating its WTO obligations, and the deadline for remedy imposed by the WTO has passed, Canada and Mexico both believe they are in a position to legally retaliate against the US. Retaliatory measures are referred to as the "suspension of concessions" under the WTO agreement, and the action often taken is the assessment of tariffs on politically sensitive goods.

Retaliatory measures must first be authorized by the WTO. The process for obtaining authorization in this case will have a number of steps and take several months or longer. In the present case, the US position is that the 2013 COOL Rules remedy the violation, while Canada and Mexico disagree. The first step to imposing retaliatory measures would be to determine, pursuant to the WTO's Dispute Settlement Understanding ("DSU") Article 21.5, whether or not the 2013 COOL Rules do remedy the situation. This would be done by the original Panel, if possible. This determination of compliance is to be provided within 90 days of referral to the Panel, or such longer time as the Panel requires.

If the Panel determines that the 2013 COOL Rules do not remedy the situation, then Canada and Mexico can request authorization to suspend concessions (meaning impose specific retaliatory measures) pursuant to DSU Article 22.6. The WTO may authorize the request within 30 days of it being made, unless the US objects that the requested retaliation is disproportionate because it is not "equivalent to the level of the nullification or impairment" caused by the violation. The determination regarding proportionality will also be made by the original Panel if possible, and is to be made within 60 days. Accordingly, it will be at least five months after the request is made before Canada and Mexico are authorized to take retaliatory measures, and likely it could be much longer.

Retaliatory measures may target products from states whose legislators (Senators or Congressmen) supported the WTO-inconsistent measure, to pressure them to change their position, or be directed at other politically sensitive sectors. On June 7, 2013, Canada released a list of possible US goods that could be subject to retaliatory measures. Canada has proposed a number of possibilities, including: beef, pork, live cattle or pigs, wine, cheese, pasta, fruits and vegetables, chocolate and stainless steel tubing.

On the same day Mexico identified a similar list of retaliation targets, including: fruits, vegetables, juices, meat, dairy products, machinery, furniture and home appliances.

Conclusion

The COOL dispute continues to be a significant irritant in US-Canada trade relations. The retaliatory measures Canada may impose, could significantly affect US exports to Canada in the sectors selected for retaliatory measures. Importers or consumers of these goods should be aware of the implications that the COOL dispute may have on them.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Jonathan O'Hara
Geoffrey C. Kubrick
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions