COOL could have chilling effect on U.S.-Canada trade

Canada is Missouri’s No. 1 trade partner with roughly $8 billion in bilateral trade annually, but come May, the warm relationship with the United States’ neighbor to the north could get a bit chilly.

Signed into law under the Farm Security and Rural Investment Act of 2002 and further expanded and implemented in 2008, country of origin labeling – or COOL – requires U.S. retailers to provide labeling on products such as fresh beef, pork and lamb, along with fresh fruits and vegetables.

Originally touted as equitable under longstanding country labeling already required of most imported consumer products, such as automobiles, opponents believe COOL is a thinly disguised trade barrier intended to increase importers’ costs and to foster the perception that imports are of lower quality than their U.S. counterparts.

“If the consumer sees two packages of meat on the shelf, one labeled from Canada and one from the U.S., that consumer is going to think, ‘Why am I not buying this cow from Iowa?’” said David Mitchell, director of the Missouri State University Bureau of Economic Research. “They aren’t calling it a trade barrier, but in essence that’s exactly what it is.”

During a Feb. 27 luncheon with the Missouri Association of Manufacturers, Canadian Consul General Roy Norton estimated the damage to the Canadian economy at roughly $1 billion annually, saying, “we Canadians don’t think COOL is very cool at all.”

“Canada will take the steps necessary to protect its interests,” he said in a follow-up interview. “If the U.S. does not address the discriminatory effects of COOL, Canada may impose tariffs.

“These tariffs would not necessarily be limited to beef, pork or other agricultural sectors. For example, in the case of Missouri, mill equipment may also be affected.”

In total, $92 million in annual Missouri exports to Canada could be in jeopardy.

Unsteady ground
In 2009, the Canadian government launched a challenge to COOL with the World Trade Organization, arguing the labeling actually worked to the detriment of the meat industry on both sides of the U.S.-Canadian border by increasing costs, lowering processing efficiency and otherwise distorting trade. Mexico made similar claims.

For example, U.S. meat processors were able to respond to gaps in domestic  supply with livestock from Canada, helping plants run at capacity year-round.

In 2011, Canada said the WTO ruled in its favor, but the U.S. said the panel affirmed the right of the United States to require labeling for meat products, prompting another review request from Canada and Mexico.

The final compliance panel report on COOL, publicly released Oct. 20, 2014, found the labeling “accorded less favorable treatment to imported livestock than to like domestic livestock. ... The least costly way of complying with the COOL measure was to rely exclusively on domestic livestock, creating an incentive for U.S. producers to use exclusively domestic livestock and thus causing a detrimental impact on the competitive opportunities of imported livestock.”

In November, the U.S. again appealed.

“This is the final opportunity for the U.S. to appeal, and a decision is expected to be rendered mid-May,” Norton said. “Canada remains confident in the decision of the compliance panel and that we will prevail in this final appeal.

“Provided that is the case, the WTO process will move into the next phase, where Canada will request retaliation rights and the amount that Canada may retaliate on will be determined.”

A professor at MSU, Mitchell is familiar with political posturing from both countries, noting he has long taught trade barriers and the use of tariffs in class.

“This could start a trade war,” he said. “Things like this have a tendency to escalate. It starts over pork, but other items receive trade restrictions. All of a sudden, you can’t get airplane parts, for example. Now, a major company like Boeing is hurting because we wanted to protect pork producers.

“It could have a major effect on the economy.”

With a few hundred head of cattle and more than 1,500 acres of farmland in Greene County, Rep. Lincoln Hough, R-Springfield, said he supports a voluntary labeling system.

“I’ve never had a problem with it being a voluntary system,” he said. “There is a consumer trust built into products made in America, both at home and overseas.

“The people in the cattle industry are an independent group of people, but that being said, you have to keep up with market trends and the worldwide economy.”

Serving on a 2013 Missouri trade mission to South Korea and Taiwan, which netted a nearly $3 billion trade agreement with the two countries, Hough said keeping trade lines open is essential.

“As Missouri and the U.S. export more beef, there is a constant increase in the scrutiny our food is under,” he said. “Exports in the last half dozen years in pork and beef have grown considerably. In the last few years, beef exports have grown double digits.

“Individual farmers or states that want to be part of those world economies could adopt a set of rules. My farm has a registered ID number and my cattle can be tracked, but not everyone does it that way.”

The Missouri Pork Association and Missouri Beef Council did not respond to requests for comment by press time.

Mitchell said tariffs are quite common, with most international products, from shoes to coffee, under varying percentages. However, to bolster the economy, tariffs on many goods traded between Canada and Mexico were eliminated in 1994 through the North American Free Trade Agreement. According to the WTO, updates were made in subsequent years to include virtually all products between the three countries.

What it means for Missouri
Exports in animal meats from Missouri to Canada represent $18 million per year, of which $11 million in pork may be targeted for retaliation. Norton said a tariff of as much as 20 percent could be placed on hogs and cattle to recoup Canadian losses, but other products could see trade restrictions, including 26 export commodities from Missouri, such as pasta, couscous, breads, pastries, cakes, and grinding balls and similar forged or stamped articles for mills.

Canadians maintain the intergrated livestock industry is important for jobs on both sides of the border. According to information from Norton’s office, COOL effectively requires cattle or hogs born or raised in Canada to be completely segregated from U.S. cattle and hogs, which also applies to the meat derived from those animals.

“It’s expensive and it adds cost to the final product,” Mitchell said. “Imagine you make pork sausage. You have to label each pack with how much pork is from each country. It’s not worth the hassle.

“By requiring this labeling, it’s essentially a tariff already without being official. It’s more costly to the farmers.”

The American Packing Industry estimates seven packing plants nationwide are particularly vulnerable to closure due to COOL and Norton’s office estimates roughly 9,000 American jobs could be lost.

With 33 percent of all Missouri trade originating with Canada, Norton’s office estimates 163,800 Show-Me-State jobs depend on the alliance, with nearly 15,000 of those jobs in Missouri’s seventh congressional district covers southwest Missouri.

The Show-Me State traded $378 million in agriculture exports with Canada last year and $243 million in ag imports. It’s a vital relationship Norton doesn’t want to see lost.

“It is our hope that the U.S. will change the COOL rules,” he said. “Canada and the U.S. are the closest of trading partners, and we do not want to impose tariffs if this can be avoided.”

Mitchell said following the May WTO ruling, Congress might address the labeling issue, but it’s all a matter of who has the better lobby.

“Unfortunately, Congress responds to who complains the loudest,” he said.[[In-content Ad]]