Country of Origin Labeling (COOL)

On June 25th, the Senate Committee on Agriculture, Nutrition and Forestry held a hearing on “Country of Origin Labeling and Trade Retaliation: What’s at stake for America’s Farmers, Ranchers, Businesses and Consumers.” The hearing was scheduled to discuss possible solutions to the recent World Trade Organization (WTO) ruling against the U.S. Country of Origin Labeling (COOL) requirements. In the WTO hearing, both Canada and Mexico sued the United States for its mandatory COOL laws and regulations, and the U.S. lost its case in the WTO Dispute Settlement Body for the fourth time since 2011.
The hearing followed House action on June 10th when the House passed H.R. 2393, which provided for “repeal [of] country of origin labeling requirements with respect to beef, pork, and chicken.” With the Senate taking up COOL, Senator Debbie Stabenow (D-MI) has proposed a voluntary labeling system instead of the outright repeal proposed in H.R. 2393. Her proposal unfortunately continues to pose the risk of retaliatory tariffs being implemented by Canada and Mexico, the potential costs of which could be as much as $3.2 billion. Senator Stabenow proposes a COOL regime with a voluntary system in which companies can opt in or out, but the U.S. statutes for COOL which define “made in America” would remain in place. While this proposal seems like an appealing solution, it carries risk for U.S. businesses for a number of reasons.
As a result of the WTO ruling, Mexico and Canada are permitted to impose retaliatory tariffs against the U.S. as soon as mid-August. If the U.S. enacts the Stabenow proposal and Mexico and Canada deem it noncompliant with WTO rules, they could impose retaliation. If the U.S. appealed their actions, it would take as long as two years for the appeal to wind its way through the WTO Dispute Settlement Body with U.S. companies having to cope with the retaliation throughout the period.

Supporters of COOL have been quick to point out that both Canada and Mexico use a voluntary system of country of origin labeling. They argue if the U.S. were to implement a system similar to theirs, it could avoid retaliatory tariffs. The risk in this assumption lies in the details of the U.S. COOL statute, including transportation clauses, which differ from both the Canadian and Mexican statutes. This could result in a scenario under which Canada, Mexico and the U.S. all have voluntary systems for COOL, but have different legal definitions for what defines a product’s country of origin. If Mexico and Canada disagreed with the language of the U.S. statute, it could result in retaliatory tariffs even though all three countries would have voluntary COOL laws.

Canadian and Mexican officials have stated on multiple occasions that the only way for the U.S. to avoid retaliation is for the U.S. to repeal its COOL requirements. One other possible alternative is for the U.S. to repeal COOL before the August 16 deadline when Canada and Mexico can begin to implement retaliatory tariffs and then subsequently create a voluntary COOL program in consultation with Mexico and Canada. Ultimately, the goals of the U.S. should be to comply with WTO rules and obligations and avoid any sanctions that could hurt U.S. businesses. Repealing COOL before the August deadline is the best way to achieve those objectives. Subsequently creating a voluntary program with Mexican and Canadian input would allow businesses to simultaneously differentiate their products on the global market, avoid potential losses from retaliatory tariffs and maintain a labeling regime that can give consumers information on the products they are buying. The Stabenow proposal points us in that direction, but does not fully do the job.