COOL Requirements: Retaliatory Trade Actions may Cost American Jobs

In May, the World Trade Organization found country-of-origin labeling requirements, often referred to as COOL requirements, in the United States to be inconsistent with its international obligations. If Congress fails to repeal these requirements, Canada or Mexico may enact retaliatory trade actions valued at more than $3 billion against various companies across all 50 states.

The dispute originates from the 2002 and 2008 Farm Bills that mandated retailers to include country-of-origin labels on agricultural products, such as beef, pork and lamb. The regulations became mandatory in 2008, which provoked Canada and Mexico to challenge the rules. America’s two neighbors claimed that the label requirements discriminated against foreign cattle and hogs.

After multiple World Trade Organization rulings and appeals, the group issued its final ruling in May 2015. The WTO appellate body agreed with Canada and Mexico that country-of-origin labeling requirements had a detrimental impact on imported livestock, prompting Congress to either reform or repeal the label requirements.

After the WTO’s latest ruling, the U.S. House of Representatives quickly passed the bipartisan Country- of-Origin Labeling Amendments Act of 2015 (H.R. 2393). This act would repeal the labeling requirements for beef, pork and chicken.

"In order to avoid what could be devastating retaliatory sanctions against U.S. businesses if we lose, the starting point needs to be that mandatory COOL for meat is a failed experiment which should be repealed,” said U.S. Rep. K. Michael Conaway of Texas, chairman of the House Agriculture Committee.

In the Senate, repealing the labeling requirements has been difficult. U.S. Sen. Debbie Stabenow of Michigan, a ranking member of the Senate Agriculture Committee, prefers replacing the mandatory label requirements for beef and pork with voluntary requirements. U.S. Sen. Pat Roberts of Kansas, chair of the committee, believes Congress should repeal the labeling requirements and has said that “facts are stubborn things, and whether you support COOL or oppose COOL, the fact is retaliation is coming.”

If Congress fails to reform or repeal the labeling requirements, Canada and Mexico have requested authorization to enact retaliatory trade actions against the U.S. valued at $2.5 billion and $713 million, respectively. The U.S. has objected to these amounts and has requested a WTO arbitrator to establish an appropriate level of retaliation.

Canada issued a list of possible U.S. products that it would target for retaliation, which could mean significant tariffs for American products ranging from produce and meat to consumer care products and office furniture. Sources say Canada will target products that are made in states or districts that have legislators who support the labeling requirements.

Mexico has not released an official list of targeted products, but many assume that it will be similar to a list used when Mexico, under the auspices of the WTO, levied retaliatory duties against the U.S. during a cross-border trucking dispute.

The amount of retaliation taken by Canada and Mexico depends on a WTO ruling, but some states could very well face retaliatory trade actions of more than $1 billion. California could lose $1.8 billion worth of exports if Canada and Mexico levy tariffs on wine, bread and jewelry. Canada and Mexico also could target beef from Texas, frozen orange juice from Florida, and car parts and chicken from Michigan.

The states that stand to lose the most are those that export the most to our neighbors, and unfortunately, this may translate to job losses. According to economist Dermot Hayes from Iowa State University, the United States stands to lose 17,000 American jobs if the WTO grants Canada and Mexico the authority to enact $2 billion in retaliatory actions. In this scenario, California could lose 828 jobs, Texas could lose 4,234 jobs and Michigan could lose 1,473 jobs.