COOL sanctions loom

COOL sanctions loom

Retroactive COOL retaliation could reach $10B as Canada and Mexico gear up to target key Congressional districts.

The World Trade Organization held a meeting June 17 to hear formal requests from Canada to retaliate against the United States. In recent weeks Canada has published it will request sanctions as high as $2.4 billion in U.S. dollars. Mexico will seek authorization for over US $713 million in retaliatory tariffs in a separate meeting that has been scheduled for June 29.

During the hearing on the sanctions level, the United States challenged that Canada’s request is “quite excessive” a U.S. delegate was quoted as saying in the Associated Press

An economic report from Auburn University demonstrates that “COOL has not impacted the livestock trade and that any harm to trading partners has in fact been negligible at most,” a coalition of 283 organizations wrote to House members ahead of their vote to repeal the labeling scheme.

The next step will be for the arbitration panel to be appointed. If the panelists from the original WTO panel (who also served for the WTO compliance panel in 2014) are available, the arbitration panel should be formed quickly and a schedule provided. The United States, Canada and Mexico agreed a year ago to enable the arbitrator to circulate its decision within 60 days, bringing a final decision as soon as August.

Sanctions that hurt

Some COOL supporters have said it is important for the arbitration process to play out. In the past the United States has avoided sanctions by negotiating a settlement. However, Canada and Mexico are no longer looking for a compromise on fixing the mandatory country-of-origin labeling for beef,  pork and chicken meat products, but rather are ready to apply pressure where needed in the form of retaliatory tariffs. And those tariffs in the first year could be as much as $10 billion.

Speaking at an event at the National Press Club June 16, Ken Smith Ramos, director of the trade and NAFTA office at the Embassy of Mexico, said that they have not formally published a potential list of products they plan to impose sanctions on, but a good starting point includes those that were targeted in the previous cross-border trucking dispute including fruits, vegetables, juices, meat products, dairy, machinery, office equipment and chocolate. Mexico plans to come up with a definite list that strategically targets those Congressional districts of COOL supporters to apply pressure where needed to “generate change.”

John Masswohl, Canadian Cattlemen’s Association director of governmental relations, said so far CCA has spent $3.25 million of producers’ money in legal fees and advocacy to have COOL changed. He said Canadians retaliatory level request of $2.4 billion ($3B Canadian dollars) is based on the impact on Canadian prices since May 2013 when USDA changed the law to require segregation and recordkeeping tracking of where an animal was born, raised and slaughtered. Interestingly, prior to the 2013 rule update by USDA, Canada had estimated a $1.1 billion impact on its cattle and hog sectors, but by switching from country-of-origin to point of production, it increased the amount of segregation required by those throughout the supply chain.

Masswohl didn’t mince words that the Canadian government was fully ready to apply retaliatory pressure to get results and its list of potential products is designed to “get some attention.”

He added they’re not looking for any compromise or middle path after seven years into this issue and four WTO cases in their favor. “We haven’t come through all of this to settle for half a loaf,” he said. "If the Senate thinks there is a middle path that is a very risky strategy to move forward."

Randy Russell, former chief of staff to U.S. Secretary of Agriculture John Block and consultant to many livestock commodity groups, shared he was part of the 2008 Farm Bill compromise on the law. He said at the center of COOL is now the economic costs associated with the tracking of livestock from birth to slaughter and managing the supply chain.

Once the WTO arbitration process is complete, the burden of proof shifts to the United States. Once retaliatory tariffs are instituted, they stay in effect until Canada, Mexico and the WTO are all satisfied, Russell noted.

David Bond, National Pork Producers Council outside trade counsel, said, “Congress doesn’t have the luxury of doing a half fix.” If they do, it could bring about retaliation for years when U.S. goes back and continues to litigate this. The fix needs to make everyone happy.

Russell added if there was a silver bullet to resolve the issue, it’s perplexing to him why it hasn’t surfaced before. A North American label, which some in the Senate have voiced support for, confers no new information to consumers and still does not address the segregation issues.

In the end, non-action by the Senate or an attempt to do anything less than repeal will create a COOL tax on U.S. goods, both ag and non-ag goods, Russel said. In its first year, WTO will allow retaliatory tariffs to equal $9-10 billion retroactively to May 2013 when USDA proposed the final rule to fix a previous ruling that went against the United States.

Mexico imposed tariffs as high as 45% on 99 products during the trucking dispute. Even before retaliation was in place, lost sales resulted, said Ken Monahan, director for international trade policy at the National Assn. of Manufacturers.

“With threat of retaliation looming, time has run out. We need to act now to prevent the economic fallout, not months into the future,” he warned.

USDA Secretary Tom Vilsack has said there is nothing else the administration can do to avoid tariffs and action must come from Congress to provide a workable fix.

Senate Agriculture Committee chairman Pat Roberts, R-Kan., announced his committee will hold a hearing June 25 at 10 a.m. to discuss COOL and the trade implications. The Senate has more supporters of COOL and many say a full repeal is too extreme. The House voted earlier in June for a full repeal COOL by an overwhelming vote of 300-131.

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