What’s in a label? In the case of Canada’s export of cattle and hogs, constrained by the impact of U.S. country-of-origin labeling (COOL), about $1-billion in potential retaliation.
It is a scenario that we need to avoid.
The May 23 deadline is fast approaching for U.S. compliance with a World Trade Organization (WTO) ruling that found U.S. labelling laws constitute an unfair trade barrier.
Unless the U.S. makes changes, Canada (and Mexico) will seek authorization to take retaliatory trade action. In our case, this is estimated at a billion dollars on U.S. products coming into Canada.
Today, especially in the case of commerce with the United States, we don’t so much trade as make things together ranging from soup to cereal and especially in the case of trains, planes and automobiles.
Beef and pork products aren’t that much different.
We breed weanlings in Manitoba and truck them south to fatten on Iowa corn. Heifers born in Wyoming are shipped to Alberta’s feedlot alley, then back across the border for slaughter in Washington state, Colorado or Nebraska. Some of the cuts return for sale in Canada, making us America’s top market for beef exports.
It works well unless you are a pig farmer in North Dakota or a rancher in Montana imagining your profit margin erode as Canadian competition is trucked south.
Like most trade disputes, COOL has elements of both high policy and low politics.
At first glance, the case for country labelling seems reasonable. Why shouldn’t consumers know what they’re eating and from where it came, especially with tales of toxic toys and tainted dog food from China? And why can’t we turn Canadian produce into a premium brand like Kobe beef or New Zealand lamb?
The problem is labelling.
A cow is processed into 300 different bits. Think of 3000 or 5000 cattle – a day’s slaughter in some packing houses – as though they were packs of cards and then separate them from deuce to ace for labelling purposes. For products like ground beef and sausages it is an impossible task.
To avoid this, packing plants will ‘Buy America,’ even though cutting off the Canadian supply will cost jobs in feed yards and perhaps shutter some U.S. slaughter houses.
Over the last decade – WTO trade litigation moves glacially – Canada and Mexico argued that the U.S. action constitutes an unfair trade practice. We won, but the U.S. Congress, in refusing to amend the original farm legislation, has put the Obama Administration in a tough spot. It needs to craft a way forward by May 23 that satisfies both U.S. law and the WTO ruling.
For now, in tandem with Mexico and our U.S. allies, we will push the U.S. to achieve a legislative fix through Congress, perhaps when the Farm Bill comes up for renewal this fall.
At the same time, we will develop and then submit to the WTO those goods on which we will seek to apply retaliatory tariffs. This process will take months.
Developing a list of U.S. goods to impose retaliatory duties is hard. What can we choose that won’t potentially damage Canadian consumers and manufacturers? So much of what we produce we make together.
Throw in the additional complication of targeting our list to have maximum impact on constituents of the dozen or so members of Congress behind COOL. But we can’t make it personal. An adversary on one file is an ally on the next.
We’ve been through retaliatory process over softwood lumber. After much effort - consultations with the provinces and industry - we put a duty on aquarium fish imported from the U.S. It was an elephantine process that gave birth to a minnow.
We have right on our side, but does it justify a trade war? A billion dollars is about half a day’s trade in what continues to be the world’s biggest bilateral trading relationship. Our agricultural trade is estimated at $38-billion annually.
As for the U.S., how does this help President Obama to double U.S. exports as part of his jobs recovery prescription? How does antagonizing the next-door neighbours secure a Trans-Pacific Partnership designed to renovate the NAFTA?
COOL comes at a time when we are deep into efforts to both ease passage for goods, people and services at the border and to eliminate silly regulatory differences. When we are done we will have set, once again, the standard for innovative trade negotiation.
The dispute does underline the need to develop alternative markets. It’s another reason to hang tough in the European trade deal negotiations around better access for our pork and beef.
Meantime, there is a ‘cow pie’ called COOL. Let’s figure this one out.
A former diplomat, Colin Robertson is vice president of the Canadian Defence and Foreign Affairs Institute and a strategic advisor to McKenna, Long and Aldridge LLP.