It’s the kind of non-tariff trade barrier Canadian exporters can expect to see more of in the future
Not long ago, tariffs were the key barriers to Canadian beef exports. Tariff barriers are still significant problems (Korea for example), but as tariff barriers fall, countries are getting more creative in building border barriers.
In some ways, it makes me nostalgic for the good old days when our market access efforts primarily consisted of the cry: “Tear down that tariff wall.” It is not that simple anymore.
Mandatory country-of-origin labelling (COOL) is one example of a non-tariff barrier that is costing Manitoba’s beef industry hundreds of millions of dollars. COOL became law in the U.S. in 2002.
What is COOL? Simply speaking, COOL requires all meat sold in the U.S. to carry a label indicating the country from which the product originated.
American politicians argue that the law is necessary to help inform U.S. consumers about where their meat comes from. But market research indicates that those consumers place very little value on the information provided by the new labels. Basically, consumers care about the information only if it does not cost them anything to get it.
But while the price at U.S. meat counters may not be any different, the cost to the Canadian beef industry has been huge. It is estimated that COOL costs the Canadian beef industry about $625 million each and every year. COOL hits Canada’s pork producers equally hard.
Canada and Mexico have always objected to COOL because it unfairly discriminates against beef exported into the U.S. The law requires segregation of animals that have been imported from another country. This has significantly increased the cost of processing Canadian livestock and many U.S. plants have cut back on Canadian purchases, or cut them out altogether.
Canada and Mexico have taken the U.S. to the World Trade Organization (WTO), and convincingly won both the initial case and the appeal launched by the Americans. The WTO ordered the U.S. to end its unfair discrimination by May 23, 2013. That is not going to happen. Earlier this month, the U.S. agriculture secretary proposed regulatory changes that he claims will address the WTO’s concerns. In fact, the proposed changes will make things worse.
Additional labelling requirements will increase discrimination against Canada and Mexico. Instead of decreasing the regulatory burden, the proposals will increase the costs of compliance. In fact, it is my view that not only do these proposals fail to comply with the existing WTO ruling, but they also violate additional trade provisions.
You might think that U.S. beef and pork producers are 110 per cent behind their government on COOL, but they are not. You see, free trade is good for both sides of the border. The vast majority of U.S. producers and processors support removing COOL provisions because the regulations are hurting the U.S. industry. It is estimated that the new rules proposed in the U.S. will cost 9,000 American jobs. This is a case of a lose-lose situation.
This fight is not over. If the U.S. proceeds down the current path, Canada will return to the WTO. Ultimately, the WTO may grant Canada and Mexico the right to impose tariffs on U.S. goods to compensate us for the cost of COOL. I hope it does not come to this but given the losses to our livestock sectors, this is not something our governments will back away from.
Unfortunately, in the short term the legal process will continue. It is likely that there will be six to eight months of additional legal review at the WTO (making some trade lawyers a lot more money) before a conclusion is reached.
What lesson can livestock producers take from the COOL battle? The simple answer is that trade is more complicated than it used to be. COOL is just one example of non-tariff barriers to export access.
Some countries do not like the supplements that are commonly used in North American meat production. Some countries do not like the extra food safety precautions in place in Canadian plants. Our approaches are science based and an improvement of food safety. But because they have not been approved by the EU’s own internal bureaucracy, they do not accept them. I am certain that there are bureaucrats around the world who are currently trying to invent barriers based on environmental factors or their perception of animal welfare.
Manitoba’s beef producers, and our province as a whole, benefit significantly from beef trade. Over half of what we produce leaves the country. We must continue to aggressively pursue new opportunities on the international market. But we need to keep in mind that trade will be complicated.
New barriers will appear, often when least expected. We need to be ready to deal with these issues as they come up. But we also need to be proactively addressing the problem. Governments can do their part by building better dispute resolution processes, which is anticipated in the Canada-EU trade deal.
Producers are also going to be asked to take steps if they want to continue to access international markets. Today some producers will say that they find these measures, like traceability, costly and of little benefit.
But more and more of our customers are telling us that they will only purchase our products if we can prove how our animals were raised. This is increasingly becoming the price of doing business.