THE TTALK QUOTES 

On Global Trade & Investment

 

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No. 73 of 2015

FRIDAY, OCTOBER 23, 2015

Filed from Portland, Oregon

Click  here for Monday's TPP quote from Canada.
COOL - U.S. DAIRY IS WORRIED

"[W]e write to express our growing apprehension about the U.S. drawing continually closer to the imposition of retaliatory tariffs by Canada and Mexico on U.S. exports ... ."

Thomas M. Suber
James Mulhern, and
Connie Tipton
October 19, 2015
CONTEXT
Thomas Suber is the president of the U.S. Dairy Export Council.  James Mulhern is the president and CEO of the National Milk Producers Federation, and Connie Tipton is the president and CEO of the International Dairy Foods Association. On October 19, they sent a joint letter to U.S. Senators urging them to do something.  "It is critical," the three dairy industry leaders said, "that Congress put in place a solution to this WTO dispute that removes the threat of retaliatory tariffs."
Some of the elements of this issue are old.  Some are new.  And, of course, the most important ones are still to be decided.  The familiar elements on these.

FAMILIAR ELEMENTS
The U.S. country of origin labeling rules - especially those for beef and pork - have been a disruptive irritant to Canada and Mexico since they first went into effect in 2008.  Primarily that is because they forced expensive changes onto an otherwise integrated North American market for cattle, hogs and related products, resulting in lost sales for both Canadian and Mexican producers.

Canada and Mexico both took their complaints to the World Trade Organization, and on May 18, 2015, the WTO ruled for the fourth and final time that the U.S. requirements do violate global rules and, further, that, unless the offending measures - the COOL regulations - are changed, Canada and Mexico will have the right to retaliate against some level of U.S. exports.

How much retaliation would be justified?  Putting the Canadian and Mexican claims together comes to roughly $3.2 billion in U.S. exports.  That's huge, but it is just an estimate.  The final figure will come from a WTO arbitration panel.  That panel is expected to issue its decision on December 7, 2015, though admittedly that date could slip.

In Congress, the U.S. House of Representative passed legislation that would repeal the COOL requirements for beef, pork, and chicken.  If that bill were to become law, presumably that would solve the problem.   And, in fact, the chairman of the Senate Committee on Agriculture, Nutrition and Forestry, Senator Pat Roberts (R KS) has also offered legislation to repeal those COOL regulations that have been found to violate WTO rules.   The Senate, however, is not of one mind on this issue. 

Senators John Hoeven (R ND) and Senator Debbie Stabenow, the Ranking Member of the Senate Agriculture Committee, have also offered legislation to address the problem.  Their bill, S.1844, would repeal the mandatory requirements of the current COOL regulations and replace them with a "voluntary" program.  Critics of the Hoeven-Stabenow bill, including officials of Canada and Mexico, have argued that it would not address the commercial harm that COOL is causing them.   They have said that the only way the United States can avoid retaliation is with a straightforward repeal of the current COOL provisions.

In their October 19 letter to the Senate, the leaders of the three major dairy associations did not expressly state a preference for one Senate approach over another.  That said, it is hard not to read their letter as an argument for unalloyed repeal.  The association leaders wrote:

"At this advanced stage of the case, .... any resolution can only be successful at avoiding those tariff penalties if Canada and Mexico agree that it sufficiently addresses their concerns."

NEW ELEMENTS
If there is a new element in all of this, it is the Canadian election, also an October 19 event.  As the world now knows, Canada chose a new prime minister and a new governing party.   The question is, will the choices of Justin Trudeau and Liberal Party control change Canada's view of COOL?

There are some who hope it will.  One of those is R-CALF, which describes itself as "the largest producer-only cattle trade association in the United States.  R-CALF is a strong proponent of the current COOL regulations, and on October 21, two days after Canada's election, R-CALF's CEO, Bill Bullard, wrote to the Obama Administration, urging them to work with the incoming Trudeau government on a new approach to COOL. 

In a letter addressed to President Obama, Agriculture Secretary Tom Vilsack, and USTR Michael Froman, Mr. Bullard wrote:

"Canada's election affords the United States with a new and unique opportunity to amicably resolve Canada's dispute in a manner that preserves mandatory COOL for U.S. livestock producers and U.S. consumers."

While he did not - at least not in his letter - get into specifics, Mr. Bullard did suggest the broad outline of a new U.S. approach to Canada, as follow:

"There are numerous, if not unlimited, country to country matters between the United States and Canada that could be used to amicably persuade newly elected Prime Minister Trudeau to cease Canada's sabre rattling against mandatory COOL."

Suggestions like that beg the question, does Canada's Liberal Party have a position on COOL?  Apparently, they do.  The president of the Liberal Party of Canada is Anna Gainey.   On October 9, she wrote to the president of the Canadian Cattlemen's Association, Dave Solverson, with responses to a number of the association's questions on trade.  The most pertinent were this question and response:

Question:
"Will your Party move swiftly in the fall of 2015 to impose retaliatory tariffs on the United States if the U.S. Congress does not repeal its discriminatory Country of Origin Labelling legislation that has cost Canadian livestock producers several billions of dollars since 2008?"

Answer:
"The Conservatives have already failed with the country of origin labelling with the United States, and it is costing our livestock industry billions.  It constitutes nothing more than a trade infringement on a long established liberal trade arrangement.

"A Liberal government will follow through with an aggressive response to ensure that the United States adheres to the ruling of the WTO."


COMMENT
The foregoing provides an ample basis for lively speculation as to how this issue will play out.  The first place to look for an answer, of course, is the United States Senate.  We are fond of quoting the axiom that there are no facts about the future.  That said, it seems a near certainty that, if the Senate passed and President Obama signed legislation simply repealing the COOL requirements for beef, pork, and chicken, the issue would go away.  Conversely, if COOL is not repealed soon, lots of American exports and lots and lots of U.S. producers will see new threats to their livelihoods, not because they started this quarrel but because they are on a retaliation list. 

Three more points.  All of this could happen this year.  The WTO could issues its determination about the value of allowable retaliation on December 7, and Canada and Mexico could follow with punitive tariffs very quickly thereafter.  That is possible.  It seems just as likely, however, that this issue will be pushed over to the first quarter of 2016.

Second, we are not uncritical of the WTO, but, in our view, the argument that cases like this are somehow manifestations of a WTO threat to national sovereignty are way off base.  The WTO has issued findings on COOL and will issue at least one more, but it does not itself take any action.  If there is retaliation, if Canada and Mexico impose punitive tariffs on selected U.S. products, it will be the governments of those two countries that make and enforce those decisions, not the WTO.

America's neighbors to the north and south have implicitly indicated that they will be restrained by whatever limits the WTO decides to put on the retaliation, and for that the U.S. should be grateful.  But again, it will be those two governments that impose the new tariffs, not the WTO. 

Finally, as we read R-CALF's suggestions for working with Canada on a new approach to COOL, an old saying came to mind, one that Russell Long (1918 - 2003) was fond of reciting:  "Don't tax you.  Don't tax me.  Tax the fellow behind the tree." 
Senator Long, a Democrat from Louisiana, was chairman of the Senate Finance Committee from 1966 to 1981. 
RELATED EVENT
COOL will be one of several issues discussed at next Thursday's event, on New Realities for Canada and the United States.  The link will take you to a flyer with full details, including registration information.
SOURCES & LINKS
A Letter to the Senate takes you a page on the website of the U.S. Dairy Export Council with a release about the dairy associations' letter to the Senate that was the source for today's quote.  This also contains a link to the text of the letter.

H.R. 2393 is a link to a page on the website of the House Committee on Agriculture, with information on this bill, the "Country of Origin Labeling Amendments Act," which passed the House on June 10, 2015, 300 to 131.

A Senate Effort to Repeal is a link to a page on the website of the Senator Agriculture Committee's website that takes note of an amendment to other legislation that the chairman of the Committee, Senator Pat Roberts (R-KS) introduced.  The amendment would repeal the contentious elements of COOL.

A Senate Alternative  takes you to the Library of Congress pages on S. 1844, a bill offered by Sen. John Hoeven (R ND), Sen. Debbie Stabenow (D MI), and others to replace the current COOL program with one described as voluntary.

A GBD Event.  On June 16, 2015, GBD held an event on COOL at the National Press Club.  This is a link to the video recording of that event.

An R-CALF proposal is a link to the page on the R-CALF website with information on the organization's October 21 letter to the Obama Administration on COOL.

From Canada's Liberal Party is a link to the October 9 letter, quoted above, from Liberal Party President Anna Gainey to the president of the Canadian Cattlemen's Association, Dave Solverson.

From USDA is a background note on COOL from the U.S. Department of Agriculture, with links to the relevant Federal Register notices.

 

 

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