ANALYSIS - The disputes panel of the World Trade Organisation has ruled that the US Country of Origin Labelling legislation is legitimate as a tool to tell consumers where their produce comes from, writes Chris Harris.
However, the appellate body of the WTO has also ruled that the legislation as it stands is unfair by bringing unnecessary obstacles to trade for Canadian and Mexican beef and pork producers.
The settlement produced by the appellate body on the initial decision of the WTO Disputes Panel in November last year ostensibly now leaves the two sides in a quandary.
On the one side, the US has been given the green light to go full steam ahead with its COOL legislation, but on the other hand it has to find a way of implementing the rules without preventing the Canadians and Mexicans trading freely.
Where the US regulations had fallen down was in breaching a clause that covers Technical Barriers to Trade.
The clause state: "Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country."
The appellate body said that the US violated this clause because is accorded "less favourable treatment to imported Canadian cattle and hogs than to like domestic cattle and hogs.
The main concern was that COOL has a detrimental impact on imported livestock because its recordkeeping and verification requirements create an incentive for processors to use exclusively domestic livestock, and a disincentive against using like imported livestock.
However, the settlement also said that the COOL measure lacks even-handedness because its recordkeeping and verification requirements impose a disproportionate burden on upstream producers and processors of livestock as compared to the information conveyed to consumers through the mandatory labelling requirements for meat sold at the retail level.
That is, although a large amount of information must be tracked and transmitted by upstream producers for purposes of providing consumers with information on origin, only a small amount of this information is actually communicated to consumers in an understandable or accurate manner, including because a considerable proportion of meat sold in the United States is not subject to the COOL measure's labelling requirements at all.
The appellate body did find that: "the Panel properly identified the objective of the COOL measure as being 'to provide consumer information on origin', and did not err in concluding that this is a 'legitimate' objective."
But the body has also muddied the waters by reversing an original decision by the WTO Disputes Panel that the COOL measures put up technical barriers because they do not fulfil their objectives of informing the consumer of the origin of products.
The clause in question that the Appellate Body reversed states: "Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create. Such legitimate objectives are, inter alia: national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment. In assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of products."
The decision has naturally brought approval from both sides, with both sides claiming victory.
United States Trade Representative Ron Kirk said: "We are pleased with today's ruling, which affirmed the United States' right to adopt labeling requirements that provide information to American consumers about the meat they buy,"
He added: While overturning some of the Panel's key findings against the United States, however, the Appellate Body continued to find fault with certain aspects of COOL's design. Due to COOL's recordkeeping and verification requirements, it upheld the Panel's finding that COOL provides less favourable treatment to Canadian and Mexican cattle and hogs than American livestock.
The United States Department of Agriculture (USDA) has worked closely with the Office of the United States Trade Representative on this case. We look forward to continuing to work with USDA to ensure that American consumers have relevant information to inform their food purchasing decisions. The next step in the process is for the WTO Dispute Settlement Body to adopt its recommendations and rulings. The United States will then have a reasonable period of time to comply.
Canadian Agriculture Minister Gerry Ritz said: "We are pleased with today's World Trade Organization appeal decision in favour of our livestock industry.
"Our government has always stood with our cattle and hog producers, in order to create a stronger and more profitable integrated North American livestock industry."
Canadian International Trade Parliamentary Secretary Gerald Keddy added: "We are very pleased with today's decision.
"We will continue to engage with our US partners to ensure trade can move more freely and benefit producers and processors on both sides of the border.
"That is why we are asking the United States to respect its international trade obligations and comply with the outcome of the World Trade Organization findings."
A statement from the Mexican Agriculture department said: "With this ruling, we can bring a finality to the process in a successful way for Mexico.
"The United States must change the measures to conform with WTO rules to ensure equal conditions of competition for Mexican cattle are applied as those accorded to US livestock.
"This means a price gap of $95 per head between Mexican and American cattle would have to be reduced."
Under the WTO rules the report has to be formally adopted within the next 30 days and then the US will be given a deadline to comply with the WTO rules.
How the US, Canadian and Mexican authorities will be able to reach an amicable conclusion allowing a lifting of the restrictions and free trade has yet to be worked out and how any decision that is reached between the three sides and by the US in particular will be accepted and interpreted by the US meat processors remains uncertain.
In the long run market forces are likely to determine how the US processors and retailers react more than the interpretation of legislative measures.