Saturday, November 19, 2011

"COOL" is not so cool for the United States

The Dispute Panel Report on the Country of Origin Labelling case has reported that the measure of the United States was in violation of its obligations in the WTO Agreements, particularly the TBT Agreement. The USTR Press Release hinted at a possible appeal.

In a detailed Panel Report running into more than 200 pages the Panel has decided on the issue whether the US statutory provisions and implementing regulations setting out the United States' mandatory country of origin labelling regime for beef and pork (“COOL measure”);  as well as a letter issued by the US Secretary of Agriculture Vilsack on the implementation of the COOL measure (“Vilsack letter”) is in violation of United States commitments in the WTO agreements. Canada and Mexico had brought the dispute to the panel.

According tot he WTO website "the Panel determined that the COOL measure is a technical regulation under the TBT Agreement, and that it is inconsistent with the United States' WTO obligations.  In particular, the Panel found that the COOL measure violates Article 2.1 of the TBT Agreement by according less favourable treatment to imported Canadian cattle and hogs than to like domestic products.  The Panel also found that the COOL measure does not fulfil its legitimate objective of providing consumers with information on origin, and therefore violates Article 2.2 of the TBT Agreement."

As per Article 2.1 of the TBT Agreement, 

"With respect to their central government bodies:
2.1 Parties shall ensure that technical regulations and standards are not prepared, adopted or applied with a view to creating obstacles to international trade. Furthermore, products imported from the territory of any Party 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 in relation to such technical regulations or standards. They shall likewise ensure that neither technical regulations nor standards themselves nor their application have the effect of creating unnecessary obstacles to international trade."

Amongst a plethora of issues that the Panel addressed, the issue whether the mandatory nature of country of origin labelling mandated by the statutory and administrative measures of the United States resulted in the according of a "less favourable treatment" to imported products from Canada and Mexico as compared to products of the national origin in the United States. The arguments of Canada and Mexico, which the Panel accepted were to the effect that the COOL requirements did accord "less favourable treatment" to imported products. It even referred to a Congressional Research Service Report on COOL measures on page 90 of its Report. The Panel has in coming to a conclusion on whether "less favourable treatment" has been accorded has studied in detail the entire industry practice of meat production and segregation. Essentially, to comply with the labelling conditions imposed by the COOL provisions would be imposing a greater cost on multiple country of origins labelling and hence according "less favourable treatment" to imported products. 

As the Panel noted "As a result, overall, the least costly way of complying with the COOL measure is to rely on
exclusively domestic livestock. Thus, in general, business scenarios involving imported livestock, including the scenario involving exclusively imported products, are overall more costly than the exclusively Label A approach".

The reduction of competitiveness of imported products due to compliance with the COOL measures was one of the primary motivations for the panel to come to the conclusion that the measure was in violation of Article 2.1 of the TBT Agreement. The Panel also found that the COOL measure does not fulfil its legitimate objective of providing consumers with information on origin, and therefore violates Article 2.2 of the TBT Agreement.

An interesting aspect of this Report is the threadbare analysis of industry practices and econometric models to arrive at conclusions. It is a classic case of analysing economic principles and realities in interpreting legal provisions. In other words, the Panel has not interpreted law in a vacuum but has done so in the context of trade and economic practices!

This analysis of mine has been from a cursory reading of the Panel report. What impact this Report would have on Country of origin labelling regulations across the world needs to be analysed. I might have missed out major issues and undertsandings. That would be for another day!

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