Editorial: COOL’s $2.9-billion divide

It’s no secret that Canadian livestock groups and the federal government would like nothing better than to see the U.S. surrender and repeal its country-of-origin labelling (COOL) scheme.

It appears, however, that those efforts are bogged down once again.

Firstly, we’re in the midst of a federal election campaign. Even if the Harper government gets the go-ahead to start imposing retaliatory duties to the tune of $3 billion on imported American goods, it is an uneasy fit with the goal of wooing voters.

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As well, the U.S. has sought an arbitration panel ruling on the level of punitive sanctions Canada is proposing to impose. Not surprisingly, the U.S. view of how much damage COOL has done to the Canadian pork and beef sectors differs from Canada’s.

Canada is arguing for the ability to impose sanctions on imported U.S. goods in the order of just over $3 billion. The U.S. is suggesting a more appropriate figure for retaliation measures is $43.22 million.

The $2.9-billion discrepancy comes down to the different methods each side used to determine how much damage is being done.

The Canadian submission looked at the difference between the U.S. and imported livestock prices and trade flows. The U.S. used a model that analyzed how trade flows would differ if COOL was withdrawn against a 2014 baseline that factors in external influences.

It will be up to the arbitration panel to decide which methodology is the right one.

It’s notable that based on the way this has gone in determining whether COOL is trade distorting, the odds are decidedly in Canada’s favour. But assessing how much damage it has caused is a complex question. The USTR argues that it can’t be calculated solely on price differences and trade flows because there are a host of other factors that may have also influenced markets during the time COOL has been in force.

Those factors could include the effects of the recession, the ongoing downward trend in beef consumption, weather shocks such as the 2012 drought, and disease outbreaks such as PEDv. They could also include changes in fuel costs, exchange rates and unemployment or changes in biofuel policies that affect the demand for feed grains.

Canada wants compensation for export revenue losses, which the U.S. says it has set unrealistically high at US$1.61 billion annually, considering Canada’s total export value for affected livestock in 2014 was US$1.744 billion.

In other words, “Canada claims the value of its exports would increase 92 per cent if the United States came into compliance. Mexico makes similar claims,” the USTR says.

“On its face, neither the Canadian or Mexico’s estimate of trade effects appear to be based on the market realities of trade in the North American livestock and meat markets. They each claim the potential for massive growth, which, taken together, would expand U.S. imports by 74 per cent.”

Canada is also claiming compensation for domestic price suppression losses, which the USTR says are not sanctionable under the WTO. According to those rules, as well as previous arbitration rulings, trade sanctions can only be calculated based on the value of lost trade, not the effect on domestic prices.

As well, while implementing COOL caused high costs to the industry at the beginning, those costs would have diminished over time. Further, the U.S. says “the United States does not consider “full repeal” as advocated by Mexico and Canada to be the only available option for compliance.”

In that vein, although the U.S. House of Representatives has already passed a bill to repeal the law, the U.S. Senate is currently considering a bill that would establish a voluntary COOL scheme.

The logic behind this initiative is that times have changed in the food business since COOL was first made into law. Consumers are much more vocal about their right to know where their food is coming from and how it has been produced and handled. As a result, more companies are opting for a fully traceable value chain as part of their marketing strategy.

Those who follow this page will have noticed we’ve been critical of the Canadian fight to have COOL quashed. We don’t argue that it isn’t trade distorting, but we’ve taken the position that the money spent fighting it would have been better spent on a branding program that establishes Canadian meat as a premium product in grocery stores where ever they may be, instead of fighting for the right to blend in with everyone else.

We’ve also suggested that seeking compensation, rather than a repeal of COOL, might be a good way to fund such a program.

If the USTR position wins out, Canada’s victory in the COOL fight may prove to be a hollow one indeed.

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]

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