WTO Arbitration in Country-of-Origin Labelling Case Gets Underway

17 September 2015

The long-running dispute regarding Washington’s country-of-origin labelling (COOL) requirements for livestock and meat imports is going through its final phase this week, as arbitration hearings began at WTO headquarters in Geneva over the level of countermeasures that Canada and Mexico may be permitted in the case.

Originally launched by Ottawa and Mexico City in 2008, the dispute (DS384, DS386) is currently in its seventh year at the WTO and has become one of its most high-profile cases.

During this week’s hearings, which were open to public viewing, parties proved to be at odds both over the appropriate level of countermeasures, as well as how to determine the amount of economic damage that Canada and Mexico have suffered over the years because of the labelling policy.

Country-of-origin labelling on meat, livestock

The dispute concerns measures introduced by Washington regarding labelling requirements applicable to imported livestock and meat. Retailers were required to inform consumers of the origin of the products covered by the regulation, including beef and pork, with upstream meat suppliers obligated to provide retailers with information on the meat’s origin.

Unlike the definition generally applied by countries, including the US, for customs purposes, making use of the rule of “substantial transformation” as the determinant of a product’s origin, the definition of origin in the disputed COOL regulations instead makes this determination based on information regarding where the animals were born, raised, and slaughtered.

Non-compliance found in US’ amended legislation

In the original proceedings, both the panel and the Appellate Body found that the US regulation was not in line with global trade rules. (See Bridges Weekly, 23 November 2011 and Bridges Weekly 4 July 2012)

Notably, both the panel and Appellate Body found the US policy to violate Article 2.1 of the Technical Barriers to Trade (TBT) Agreement, on the grounds that it accorded less favourable treatment to imported Canadian and Mexican cattle and hogs than to like domestic products.

After those rulings, the US amended its COOL measure, imposing new point of production requirements to “enhance” the label’s accuracy, with an aim to bring it into compliance with WTO rules. However, Canada and Mexico still considered the policy to be in breach of global trade rules and in response launched compliance proceedings.

In these subsequent proceedings, both the compliance panel and the Appellate Body found that the COOL changes failed to address the earlier WTO inconsistencies. (See Bridges Weekly, 23 October 2014 and 21 May 2015).

Requested countermeasures

Following the Appellate Body’s ruling last May in the compliance proceedings, the dispute has now reached the final stage, in which the complainants may request the Dispute Settlement Body (DSB) to authorise the suspension of concessions under the relevant trade agreements if the respondent has not brought its measure into compliance.

In their respective requests filed in June, Canada asked for over C$3 billion (US$2.4 billion) per year in countermeasures, while Mexico requested US$713.4 million, commensurate with the nullification or impairment of benefits that they say has resulted annually from the COOL policy.

Following the US’ objection to the proposed level of retaliation, the original dispute panellists are now in the process of carrying out arbitration to assess the matter. WTO rules on dispute settlement provide that the level of the suspension of concessions or other obligations authorised by the DSB must equal the level of the nullification or impairment.

The US argues that that the levels proposed by Canada and Mexico far exceed the level of nullification or impairment, claiming instead that the appropriate level for Canada should be US$43.22 million, and should definitely not exceed US$128.71 million annually. Meanwhile, Mexico should be entitled to US$47.55 million per year, and at most US$78.95 million per year, the US says. 

The US said that in determining such level, arbitrators must compare the level of trade from the complainant occurring in the presence of the WTO-inconsistent measure, versus the expected trade levels should COOL be brought in line with trade rules. The latter situation does not refer to the pre-COOL “status quo,” Washington argues.

Comparing export volume and price data before and after the introduction of the COOL measure, Canada indicated that its cattle and hog industries have suffered “dramatic losses.” Mexico, for its part, raised similar concerns.

Domestic price suppression, benefit

During this week’s hearings, the parties were at odds over whether domestic price suppression could be considered part of the level of nullification or impairment of benefits accruing under the covered trade agreements and thus be reflected in the level of suspension of concessions. 

The US argued that effects on domestic prices could not be included, as a correct interpretation of the words “benefits accruing” would only encompass benefits accruing under the relevant trade agreements. For this dispute, those benefits relate to market access for foreign goods imported to the host country, not to the domestic market price of livestock, said Washington.

Canada replied that WTO dispute settlement rules allows for suspension of concessions for losses of benefits accruing to members directly and indirectly, and that therefore the term “benefit” should be interpreted broadly.

For Canada, the losses from domestic price suppression are the direct result, or at the very least an indirect result, of the WTO-inconsistency of the COOL measure. Furthermore, these price losses share the same causal link to the amended COOL measure as the export losses and are equally verifiable.

Similarly, Mexico argued that the concept of benefit under the WTO agreements is very broad and – referring to the ruling of the compliance panel – said that the wording in the agreements does not support a narrow reading of the concept.

More specifically, Mexico held that the concept of benefit was not limited to the content of the obligation that had been violated. Both complainants held that direct and indirect benefits are protected by WTO rules.

Mexico also indicated that there is a causal connection between the COOL measure and price suppression in its domestic market for feeder cattle. Barriers to US-bound exports, along with lower US prices for Mexican cattle, have directly affected Mexican market prices.

The parties also sparred over both the burden of proof that the US would have to meet in refuting the requested levels of countermeasures from Canada and Mexico, as well as on which economic methodology to use during the arbitration process.

Next steps

At the end of the hearing on Wednesday, the arbitrator indicated that its decision is scheduled for late November.

According to WTO rules, the parties must accept the arbitrator's decision as final and cannot seek a second arbitration.

The DSB shall then be informed of the arbitrator’s decision and shall upon request, grant authorisation to suspend concessions or other obligations in line with that decision, unless the Dispute Settlement Body decides by consensus to reject this request.

ICTSD reporting.

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