COOL Requirement Partially Repealed Under Threat of Sanctions
/In May 2015, the World Trade Organization (“WTO”) settled a years-long international trade dispute arising out of the United States’ country of origin labeling (“COOL”) requirement for muscle cuts of meat. Finding that the U.S. COOL requirement violated the terms of two international trade agreements, the WTO paved the way for the aggrieved countries, Canada and Mexico, to retaliate. Then on December 9th, the WTO authorized Canada and Mexico to seek sanctions against the U.S. totaling approximately $1 billion. On December 21, however, the U.S. Congress passed a budget bill that contained language repealing part of the COOL requirement. The President signed the bill into law the same day. Misleading headlines proliferated, so let’s take a look at what was really repealed—and what this change in the law means to the wine industry.
Background
As I wrote last year, the COOL requirement mandated that muscle cuts of beef, lamb, pork, chicken, goat, and venison sold in the U.S. bear labels indicating their country of origin. Canada and Mexico initiated proceedings before the WTO on December 1, 2008, alleging that the requirement violated the terms of the General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Technical Barriers to Trade (TBT), to which the U.S., Canada, and Mexico are parties. To compensate Canada and Mexico for the loss of export revenue as a result of COOL, the WTO granted the countries permission to seek sanctions[1] in the amount of CAD 1,054,729,000 (roughly USD 760,000,000) and USD 227,758,000, respectively.
Meanwhile, legislation intended to bring the U.S. into compliance with its GATT and TBT obligations (H.R. 2393), was quickly approved by the U.S. House of Representatives. The bill would have repealed the COOL requirement with respect to beef, pork, and chicken. H.R. 2393 languished in the Senate, however. Ultimately, repeal language was added to the omnibus spending bill, which cannot be vetoed on a line item basis.[2]
The Partial Repeal
What most headlines fail to mention is that the spending bill, H.R. 2029, only partially repealed the COOL requirement. It eliminated the requirement with respect to muscle cuts of beef and pork, but it left lamb, chicken, goat, and venison subject to the labeling mandate. This omission is due in large part to the fact that Canada’s and Mexico’s formal complaints focused on beef and pork. In fact, in calculating the appropriate level of sanctions, the WTO arbitrator considered only the export revenue loss on cattle and pigs. Some Canadian sheep exporters are not too happy with the outcome.[3]
The spending bill is a long piece of legislation that, in addition to making appropriations, contains many riders (items that are at best tenuously related to the appropriations in the bill). The COOL repeal language is inconspicuous—you won’t find the terms “COOL” or “country of origin labeling” anywhere in the bill—so I’ve pulled out the relevant language:
SEC. 759.
(a) Section 281 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1638) is amended—
(1) by striking paragraphs (1) and (7);
(2) by redesignating paragraphs (2), (3), (4), (5), (6), (8), and (9) as paragraphs (1), (2), (3), (4), (5), (6), and (7), respectively; and
(3) in paragraph (1)(A) (as so redesignated)—
(A) in clause (i), by striking “beef,” and “, pork,”; and
(B) in clause (ii), by striking “ground beef,” and “, ground pork,”.
(b) Section 282 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1638a) is amended—
(1) in subsection (a)(2)—
(A) in the heading, by striking “BEEF,” and “PORK,”;
(B) by striking “beef,” and “pork,” each place it appears in subparagraphs (A), (B), (C), and (D); and
(C) in subparagraph (E)—
(i) in the heading, by striking “BEEF, PORK,”; and
(ii) by striking “ground beef, ground pork,” each place it appears; and
(2) in subsection (f)(2)—
(A) by striking subparagraphs (B) and (C); and
(B) by redesignating subparagraphs (D) and (E) as subparagraphs (B) and (C), respectively.
Implications
There are three important facts to remember regarding the repeal. First, in order for sanctions to be averted, Canada and Mexico must agree that H.R. 2029 satisfies the terms of the GATT and the TBT. Second, because the repeal is only partial, even if it satisfies Canada and Mexico, the remaining parts of the COOL requirement are susceptible to challenges from parties to the GATT and the TBT. This means that threats of sanctions could rattle the wine industry again in the future.
Finally, it is important to remember that prospective compliance with treaty obligations does not erase the preceding years of noncompliance. In this case the noncompliance caused about $1 billion in revenue losses for Canada and Mexico. The primary purpose of WTO proceedings, however, is to compel compliance—not to make aggrieved parties whole.[4] Accordingly, sanctions must be lifted once compliance is achieved. This means that a party may suffer years of export revenue losses while awaiting a final WTO decision and never be compensated for those losses. While Canada and Mexico may have gotten the short end of the stick this time, it could be the U.S. in a future dispute. And if the U.S. ever chooses to impose retaliatory tariffs on wine, imported wines will become even more expensive.
In addition to its international trade implications, the repeal could have far-reaching policy ramifications. Many American consumers want to know where their meat comes from, and they rely on COOL to tell them. In the near future, Congress might be confronted with public backlash against a perceived intentional effort to keep consumers in the dark. That backlash could take the form of popular opposition to trade agreements. The partial repeal thus sheds light on the tension between international trade and domestic policy, as well as the ability of international trade in one class of goods to affect trade in completely unrelated classes of goods. Stay tuned for updates.
[1] The WTO refers to sanctions as "suspension of concessions" or "suspension of obligations," meaning that the aggrieved party no longer has to comply with a trade agreement due to another party's noncompliance.
[2] This makes it unlikely that an omnibus spending bill will be vetoed.
[3] It should also be noted that repeal was not Congress’ only option. Congress could have amended the law to make the COOL scheme voluntary rather than mandatory, for example. In July 2015, Senators John Hoeven (R-ND) and Debbie Stabenow (D-MI) introduced Senate Bill 1844, which would have established a voluntary COOL scheme. That bill was never even assigned to a committee.
[4] Article 3.7 of the WTO Dispute Settlement Understanding provides:
The provision of compensation should be resorted to only if the immediate withdrawal of the [disputed] measure is impracticable and as a temporary measure pending the withdrawal of the measure which is inconsistent with a covered agreement. The last resort which this Understanding provides to the Member invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis the other Member, subject to authorization by the [Dispute Settlement Body] of such measures.
In this case, withdrawal, or repeal, did not occur until seven years after Canada and Mexico took their grievance to the WTO. Nonetheless, compensation is not mentioned in the final WTO report.
