Canada: Canada’s Retaliation Plan Against The USA’s COOL Measures

The Dispute Settlement Body of the WTO has issued a Panel Report regarding the United States' non-compliance with its obligations under the General Agreement on Tariffs and Trade 1994, and the Agreement on Technical Barriers to Trade.

The dispute relates to certain mandatory country of origin labeling (COOL) provisions in the United States' Agricultural Marketing Act of 1946 as amended. The measures in issue include obligations to inform consumers at the retail level of the country of origin in respect of covered commodities, including beef and pork. Only those commodities derived from an animal that was exclusively born, raised and slaughtered in the United States would be eligible for a designation of United States origin. As such, beef or pork derived from livestock exported to the United States for immediate slaughter would not qualify for designation as a covered commodity under the Act.

A WTO Panel (report dated Nov. 18, 2011) and the Appellate Body (report dated June 29, 2012) found the COOL measures in violation of the United States' obligations under the TBT Agreement and the GATT 1994.

Reasonable Period Of Time For the USA To Comply

The Appellate Body Report was adopted by the Dispute Settlement Body on July 23, 2012, and the United States indicated its intention to implement the recommendations of the Appellate Body Report, stating that it would require reasonable time to do so. At Canada's request, a binding arbitration was held to determine the "reasonable period of time". The arbitrator held that 10 months from the date of the adoption of the Appellate Body's ruling would be a "reasonable period of time" for the United States to implement the recommendations.

The "reasonable period of time" ended on May 23, 2013 and, the next day, the United States informed the Dispute Settlement Body about its actions to bring the United States in compliance with its WTO obligations. The United States claimed that a final ruling from the United States Department of Agriculture making certain amendments to the COOL measure had brought the United States into compliance with the Dispute Settlement Body's recommendations and rulings.

Canada disagreed that these changes brought the United States in full compliance and requested the establishment of a compliance panel.

Canada's Retaliation Plan

As a result of the United States' failure to implement the WTO's recommendations, Canada initiated public consultations in 2013 in preparation for a retaliation against the United States.

In June 2013, shortly after the "reasonable period of time" had expired, The Department of Finance published in the Canada Gazette the Notice seeking comments on possible trade retaliation action against the United States in response to that country's failure to comply with the World Trade Organization ruling on certain country of origin labelling requirements. The Department of Finance invited interested parties to submit their views on Canada's intention to retaliate against the United States "to a level equivalent to damages resulting from COOL requirements." The Notice describes Canada's intention to levy a 100% surtax on imports of selected products from the United States, "if and when authorized [to retaliate] by the WTO." The list of products proposed for the surtax include: live animals, meat, cheese, apple, corn, maple sugar and maple syrup, chocolate, tomato ketchup, as well as articles of jewellery or wooden furniture. The Department of Finance stated that these consultations were intended to ensure that Canada would be prepared to react and further clarified that any surtax would be rescinded in the event United States complied with its WTO obligations or the Parties reached a negotiated solution.

Compliance Panel Report

The original WTO Panel was called on to issue a decision on United States' compliance with the Dispute Settlement Body's recommendations and rulings in respect of the COOL measures. In a report issued on Oct. 20, 2014, the Compliance Panel concluded, that the amended COOL measure was not only in violation of the TBT Agreement, but it actually increased the original COOL measure's detrimental impact on the competitive opportunities of imported livestock in the United States market. The Panel further noted that this "detrimental impact does not stem exclusively from legitimate regulatory distinctions." The Panel once again recommended that the United States bring the inconsistent measure into conformity with its obligations under the TBT Agreement and the GATT 1994.

Following the compliance Panel's report, Ministers Fast (International Trade) and Ritz (Agriculture and Agri-Food) issued a joint statement, reiterating Canada's intentions to fully assert its rights, including seeking authorization to implement retaliatory measures on United States products, if necessary. The Canadian Ministers call on the United States to make the changes required in the legislation to eliminate "COOL's discriminatory treatment against Canadian hogs and cattle."

Minister Fast stated that Canada will continue to use the WTO process to "reach a satisfactory resolution to our concern, including if and as necessary, seeking authorization to implement retaliatory measures on U.S. agricultural and non-agricultural products." At this time, the United States has not expressed any intention to appeal the compliance Panel's recommendations.

According to Article 3(7) of the WTO Dispute Settlement Understanding, Canada can initiate further dispute settlement procedures, requesting authorization from the Dispute Settlement Body for retaliatory measures against the United States. As a last resort to secure a positive solution to a dispute, Article 3(7) provides for "the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis" the United States, subject to authorization of such measures from the Dispute Settlement Body. No such request was recorded with the WTO at this time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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