Ken Smith heads the Trade and NAFTA office at the Mexican Embassy in Washington, and he was the first speaker at last week's program on
"COOL and the Threat of Trade Retaliation." Held at the National Press Club, this event was a joint project of the Global Business Dialogue and the National Pork Producers Council.
Today's quote is from comments Mr. Smith made in response to a question. During the Q&A, both Mr. Smith and another speaker,
Randy Russell of the Russell Group, talked about one of trade policy's bedrock concepts, "substantial transformation," and how it applies, or does not apply, to North American trade in beef and pork. We will come back to substantial transformation in a moment.
First, though, here is Mr. Smith's, and so Mexico's, overview of the COOL dispute as it stands today, that is after the WTO's fourth and final determination that these U.S. labeling regulations violate WTO rules.
Transcript of an Opening Statement
(prepared by GBD and
not reviewed by the speaker.
Emphasis added in all cases.)
MR. SMITH RAMOS...
One of the most important achievements of the North American Free Trade Agreement has been the consolidation and strengthening of supply chains throughout the region. Now, one often hears about supply-chain integration in sectors such as automotive, electronic, and increasingly today in aerospace and biotechnologies between our countries.
However, the same is true for the agricultural sector, and in particular in the livestock and meat industries. Over the years, Mexico and the U.S. have greatly integrated the trade in live cattle and meat products to the benefit of consumers in both countries.
The story begins where U.S. genetics are brought into Mexico, and the newly born calves are exported to the U.S. as live cattle at a young age. They are then fed, raised, and slaughtered in the U.S., and the resulting beef products are packed for domestic consumption or are exported to Mexico or third markets.
Now this integration model has worked for decades and has been strengthened by the duty-free environment created by the NAFTA. The truth is that we are producing jointly live cattle and beef products and, in the case of Canada, hogs and pork as well, for consumption in our region but also in the households and restaurants of Japan and Korea and many other countries. It is a model that has worked.
Now, our integrated market was disrupted by the COOL provisions contained in the 2002 and then 2009 farm bill that established the labeling requirements, forcing U.S. processing plants and ranchers to segregate the cattle in order to comply with the measure.
USDA has acknowledged that COOL has no measurable consumer benefits. And, on the contrary, it imposes significant costs associated with the label. USDA informed the U.S. Congress, in fact, in April that the cost of establishing obligatory requirements for COOL on meat products outweighed the benefits.
COOL has harmed and seriously impacted the cattle and beef industry in North America. Over the years, we have exhausted all possible alternatives that would help the U.S. to bring its measure into compliance without success.
And, as David [Bond, the event moderator] mentioned, on May 18 the Appellate Body of the World Trade Organization published the compliance panel report regarding the case of country of origin labeling. This decision confirms that the amended COOL measure is not in compliance with U.S. international obligations under the WTO and that the discrimination effect remains in place for Canadian and Mexican livestock.
Mexico and Canada, in turn, requested on June 4th an extraordinary meeting of the WTO Dispute Settlement Body, and this will be held on June 17, tomorrow. Mexico originally estimated that the impact of the COOL measure amounted to $653 million U.S. dollars annually, but last Friday we filed a correction, which increases the amount to $713 U.S. dollars. This, combined with a $2.4 billion U.S. dollars that Canada has estimated, makes this one of the largest retaliation amounts recorded. And it is particularly troublesome, the fact that it is both Canada and Mexico - two of the most important trading partners of the U.S. that are bringing this claim to the WTO.
Now, if the U.S. were to appeal the retaliatory amount presented by Mexico and Canada, a WTO arbitration could issue the final determination as early as August, and retaliation could begin then. So the issue is imminent.
Mexico has imposed similar measures in the past. You may recall the cross-border trucking dispute which started in 1995, as well as the Byrd Amendment in 2001. Regarding the former, Mexico raised tariffs on 89 different U.S. goods, ranging from agricultural products to jewelry and valued at $2.4 billion dollars.
We applaud Congressman [Mike] Conaway's [R-TX] bill to repeal COOL and its overwhelming approval in the House of Representatives, where it received 300 votes in favor. We commend the House for understanding the importance of restoring the balance of a fully integrated market for cattle and beef between Mexico and the U.S. We are hopeful now that the U.S. Senate will take the necessary steps to fully eliminate the discriminatory effect of COOL and avoid an imminent retaliation for its most important trading partners.
Mexico looks forward to working closely with the United States in order to return to the free-trade environment that has generated great benefits for both of our countries.
Between Mexico and the U.S., we have built a trade relationship in the agricultural sector that now amounts to $40 billion U.S. dollars, $19 and a half of which are U.S. exports of agricultural products into Mexico. We want to continue and to strengthen free-trade in agricultural products and in all the products that are covered by the NAFTA. So we believe that the time for action, for Congressional action in the Senate, is now.SUBSTANTIAL TRANSFORMATIONBoth Mr. Russell and Mr. Smith talked about this. Mr. Russell started with first principles. He said:
"Under most trade rules, we use a term known as "substantial transformation." And when a product is substantially transformed in a country, that is the country of origin. Now, all of a sudden, for U.S. livestock and meat interests, that has changed. If you take a live animal and slaughter it in the United States, I would say that's substantial transformation of that product. And under any other product under any other rules, the country of origin would be that [in] which substantial transformation occurred, which would be in this case the United States. But that is not the case under these COOL rules."
When he addressed the same issue, Mr. Smith said:
"You have substantial transformation rule of origin in the NAFTA. You have live cattle that crosses, and then it's transformed into meat products. And that is a different product. It's a product, if you want to call it, a product from the U.S. A piece of ribeye is no longer a live cattle. That is just intuitively obvious."
