Protectionism through non-tariff trade barriers is alive and well in the trade arena, even with the U.S.’s largest trading partner, Canada. New U.S. Department of Agriculture regulations on mandatory Country of Origin Labeling (COOL) for meat and some other commodities aim to comply with a 2012 World Trade Organization decision on a dispute brought by Canada against the U.S., but fall short of that mark and may open the door to Canadian trade retaliation.
When the U.S. regulations were issued May 23, 2013, the Canadian government issued a statement asserting that the rule does not comply with the WTO ruling, would significantly increase costs for producers in both Canada and the U.S., and damage the meat and pork producing industries. The statement also said that Canada “will consider all options at its disposal, including, if necessary, the use of retaliatory measures.”
The current brouhaha arose from U.S. regulations that were dictated in the 2008 farm bill, which required retailers to notify their customers of the country of origin of certain commodities, including meat. The difficulty arose because beef and pork are part of an integrated multi-country supply chain among Canada, the U.S., and Mexico, where cattle or pigs may be born in one country, raised in another, and moved to the U.S. for slaughtering. To label the final product as “Made in America” required that all of those stages be carried out in the U.S.
When the rules were issued, Canada and Mexico brought a complaint to the WTO that the rules discriminated against those two countries and were in violation of the WTO Agreement on Technical Barriers to Trade. A WTO dispute panel ruled last summer that indeed the COOL regulations were a violation and gave the U.S. until May 23, 2013, to bring its rules into compliance.
The new regulations are an attempt by the U.S. to get around the WTO ruling by now requiring labels that detail the specific country where the cattle were born, where they were raised, and where they were slaughtered. For example, beef that never left the U.S. from birth on would have a label stating, “born, raised and slaughtered (or harvested) in the United States,” while beef from mixed origins would have a label “born in Canada, raised and harvested (or slaughtered) in the United States.”
The new labeling rules would require instituting a tracking and record-keeping system that would track livestock from birth through raising, then through the meat processing and distribution systems.
The U.S. Agriculture Secretary said that the rules are designed to provide information for consumers. What they are likely to do instead is raise the costs to those same consumers by significantly increasing production and distribution costs.
Even the National Cattlemen’s Beef Association said that the rules are a misguided attempt to comply with the WTO and would increase costs for producers and processors not only in Canada but in the US:
While trying to make an untenable mandate fit with our international trade obligations, USDA chose to set up U.S. cattle producers for financial losses. Moreover, this rule will place a greater record-keeping burden on producers, feeders and processors through the born, raised and harvested label.
CEI co-published a study on COOL with the Canadian policy group the Fraser Institute last summer. In his preface, CEI’s Fred Smith unveiled the protectionism bent of those rules. He wrote:
As multilateral, regional, and bilateral trade agreements have dramatically reduced tariffs among most trading countries, protectionist interests have become extremely creative at finding less direct ways to protect their domestic industries.
Since overt protectionist measures would violate these agreements, and in many cases, violate World Trade Organization (WTO) rules, opponents of trade liberalization have turned to non-tariff barriers to achieve their anti-competitive objectives. Usually, these are disguised as needed rules to advance the public good, ensure consumer safety and welfare, protect the environment, or any combination of these goals. Too often, these new fangled protectionist measures succeed, rolling back the gains of free trade.