Déjà Vu on COOL

If you’re the type of person who spends hours in the grocery store reading every label, then you may have noticed that some items in the meat department bear a label that tells you where the animal you’re about to consume was born, raised, and harvested

By Inu Manak and Simon Leste – Cato Institute

The way things work now, retailers and producers can choose to provide this additional information to consumers who are curious about these things. But in a not so distant past, there was legislation that required such information to appear on packaging, which in turn required producers to gather information about where each bit of meat originated.

In a bit of a flash from that past, one of the chief supporters of what is called mandatory “country of origin labelling” (COOL) recently made remarks about how he regretted not being able implement COOL across the board. And he’s about to get a second shot at it.

“The trade problem with the measure was not the labelling requirement per se. Rather, it was that the structure of the measure gives certain meat processors an incentive to use only a single national source of products”

Tom Vilsack was Secretary of Agriculture during the Obama administration, and he is reprising the role under President Biden. While the Biden team has recycled some personnel from the Obama years, the choice of Vilsack for agriculture has led to some serious déjà vu among trade experts who follow regulatory barriers to trade. That’s because one of the big trade issues that Vilsack oversaw was the implementation of new rules for mandatory country of origin labelling for beef and pork products, a requirement in the 2008 Farm Bill. After Canada and Mexico brought the issue before the World Trade Organization (WTO)— and after years of litigation— these measures were repealed.

At his nomination hearing before the Senate Agriculture Committee, the topic of COOL came up again, with farm state senators pressing him about whether these measures could be revived. Instead of pushing back against these demands, Secretary Vilsack told the committee that “If there is a way to get it to be WTO-compliant, I would be more than happy to work with you and I look forward to that.” The last time this all happened, Vilsack took an active approach to implementation that made the COOL regulations more protectionist. Doing the same thing again would be a mistake.

The Origins of Cool

In thinking about how COOL works in theory and in practice, it may be helpful to first give a little background. While some proponents frame COOL as only being about providing consumers with information, in reality it was intertwined with complaints from American industry that Canadian and Mexican beef were being traded “unfairly.”

The first COOL legislation was put forward by Rep. Helen Chenoweth-Hage (R-ID) on April 17, 1997, when she introduced the Imported Meat Labelling Act of 1997. This measure would have amended the Federal Meat Inspection Act to require labelling of meat products with the country of origin, specifically to indicate where an animal was raised before slaughter. A similar bill was introduced by Sen. Tim Johnson (D-SD) on the same day; he argued that the reason for country-of-origin labelling was the lower quality meat found in imported products. These bills did not advance beyond the committee stage. Rep. Chenoweth-Hage and Sen. Johnson reintroduced their bills again two years later, and additional bills were put forward by Sen. Tom Daschle (D-SD) and Sen. Conrad Burns (R-MT). Sen. Burns stated that his “bill will protect the consumer as well as the agricultural industry, which has had to face severe competition from foreign countries in recent years,” singling out Canada and Mexico.

It was around this time that the Ranchers-Cattlemen Action Legal Foundation(R-CALF) was founded for the purpose of filing antidumping and countervailing duty cases on behalf of the U.S. cattle industry. On October 1, 1998, R-CALF initiated two antidumping cases against live cattle from Canada and Mexico, and a subsidies case against live cattle from Canada. In January 1999, the International Trade Commission (ITC) made a preliminary affirmative injury determination with respect to imports of live cattle from Canada; however, it reached a negative determination for the antidumping investigation on Mexico, which ended that case. The ITC made a negative final injury determinationwith respect to Canada, stating that “significantly increasing volume of subject imports are not imminent, and that material injury will not occur in the absence of an antidumping duty order.” This effectively ended R-CALF’s petition. In response, however, the group did not give up their fight against imports, but instead turned their attention to Congress, focusing on their push for a mandatory country-of-origin labelling rule.

Back in Congress, legislators were still expressing their worries about foreign competition. In a September 2000 hearing, Rep. Chenoweth-Hage stated that “One of the concerns of the northern-tiered States…is that there is a lot of cattle coming in in sealed trucks across the Canadian border to our border States, Idaho being one, the Dakotas, Montana, Washington, and then of course, it filters down and distorts the American market.”

Several attempts were made prior to the 2008 Farm Bill to institute mandatory country-of-origin labelling for certain muscle cuts of meat, including beef, lamb, pork, and farm-raised fish. However, legislation on labelling was delayed until September 2008, due to disagreements in Congress over whether labelling should be voluntary or mandatory. The original 2008 Farm Bill did not include country of origin labelling provisions; they were later added by the House Committee on Agriculture, and the Senate Agriculture Committee.

With the legislation in place, on August 1, 2008 the Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture announced that an interim rule on mandatory COOL would take effect on September 30, 2008; a final rulewas published on January 15, 2009, which would take effect on March 16, 2009.

The 2009 Final Rule established origin labelling rules for meat based on the following five categories:

(1) Category A muscle cuts (U.S. country of origin);

(2) Category B muscle cuts (multiple countries of origin);

(3) Category C muscle cuts (imported for immediate slaughter);

(4) Category D muscle cuts (foreign country of origin); and

(5) Category E (ground meat).

To qualify for category A, the animal must have been born, raised, and slaughtered in the United States; in contrast, category D is for products where no part of the production process has occurred in the United States, and it is therefore wholly of foreign origin. The other categories require labelling to specify that the meat is a product of the United States and Country X (and Country Y, if applicable). Through these requirements, the measure required tracking every point in the production process. In this regard, the amended 2013 Final Rule required categories B and C to specifically identify the production steps that occurred in each country, namely, where the product was born, raised, and slaughtered.

The trade problem with the measure was not the labelling requirement per se. Rather, it was that the structure of the measure gives certain meat processors an incentive to use only a single national source of products, so as to avoid the cost of segregating products by nationality. Canada and Mexico were therefore worried that the measure would lead to decisions by meat processors to stop using meat and cattle of Canadian or Mexican origin. In fact, Canada had raised this issue repeatedly at the WTO’s technical barriers to trade (TBT) committee, arguing that “the United States had yet to provide evidence that the mandatory COOL program would benefit consumers as a retail labelling program. On the contrary, domestic support for the program did not appear to be consumer-driven, but rather, producer-driven.”

The Vilsack Letter

The United States was pressed by Canada and Mexico (and a few other countries) to clarify the COOL rules that were going to go into effect, to ensure that they would not be implemented in a protectionist way. In addition to bilateral discussions, the issue was discussed at the WTO’s TBT committee for 6 years. However, these discussions did not resolve things, and in December 2008, Canada and Mexico each made separate requests for consultations, thus starting litigation. But, because there was a change in administration with the election of President Obama, Canada and Mexico agreed to hold off on pushing the dispute forward until they could discuss the issue with the new administration.

It was reported that Mexico was waiting “until it has a greater understanding of the direction the Obama administration is taking on the issue” before moving forward with litigation. Discussions during consultations resulted in a lot of back and forth between the parties that led to an agreement on some modifications to the rule and, ultimately, the suspension of consultations pending the impact of the modifications to the Final Rule. There was some hope that the issue could be resolved without litigation.

But the Obama administration’s view of the measure soon became clear. A crucial component of implementing the COOL regulation was the so-called “Vilsack letter,” written by, you guessed it, the Secretary of Agriculture, Tom Vilsack. The letter recommends that “processors should voluntarily include information about what production step occurred in each country when multiple countries appear on the label,” which went beyond the obligations contained in the 2009 Final Rule (AMS), where the production step is not explicitly mentioned in the label and the commingling flexibilities provide leeway for interchanging the order in which the countries are listed. Thus, under the letter, labels might read, “Born and Raised in Country X and Slaughtered in Country Y.” The letter essentially asked industry to apply more stringent rules on COOL.

The letter was a turning point in the litigation proceedings that were put on hold by Canada and Mexico. In the March 2009 meeting of the TBT committee, the representative of Canada remarked that the changes put forward in the Vilsack letter “would increase production costs all along the beef and pork value chains, with no obvious benefits, and would unravel years of progress made in creating an efficient, integrated and competitive market.” Mexico also commented that “confusion remained” with regard to how the rule would be implemented because the Vilsack rule was more trade restrictive than the Final Rule. The Vilsack letter, and reaction to it, solidified the response to escalate the dispute further. Canada no longer felt bound by its pledge to hold off on formal litigation.

The reason the Vlisack Letter was such a problem was that it undercut the flexibilities that were included in the 2009 Final Rule. While the U.S. argued that the Vilsack letter was just a voluntary suggestion, the language of the letter contained a thinly veiled threat that the U.S. Department of Agriculture would closely monitor industry compliance to determine if “additional rulemaking may be necessary to provide consumers with adequate information.” That was enough for Canada and Mexico to go ahead with their WTO dispute, and ultimately, to win it.

Can COOL Be WTO-Compliant?

The fact that COOL was found to be in violation of the United States’ obligations at the WTO has not stopped calls to bring it back. Prior to the issue being brought up in Secretary Vilsack’s most recent confirmation hearing, the idea was floated again by U.S. industry groups, including R-CALF, during the renegotiation of the North American Free Trade Agreement. While those efforts failed, it has not stopped them from continuing to push for mandatory COOL rules. Secretary Vilsack seemed to suggest that he is willing to explore the idea again, and to see if COOL can be made WTO-compliant. But can it be?

Before getting into that, we must point out that having mandatory rules on COOL is unnecessary. Take our example of perusing the meat aisle—there are plenty of retailers or producers that choose to provide this information on a voluntary basis, and that’s completely fine. That retailer or producer has decided, on its own, that their consumers would like to have that information. But everybody doesn’t want that information, or in fact, needs it in deciding what to pick up at the supermarket.

But, if Congress wants to go down this road again, and take Vilsack along for the ride, COOL will need to made flexible enough so that it doesn’t have a protectionist impact. The simple answer as to how to do that is to have a more flexible labelling requirement that still provides consumers with country of origin information, while allowing meatpackers to avoid the costs of segregating all their meat by country of origin. For example, taking the case of meatpackers who only use cattle that could be classified as either U.S. or Canadian at some stage of production, you could have a label that said “Product of U.S. and/or Canada,” without identifying the particular country or stages of production any further. That would let meatpackers commingle from different countries of origin as much as they wanted.

This approach to COOL for these kinds of products would narrow down the country of origin for consumers, and the products in question could be distinguished from products where the retailer knew the products were of exclusively U.S. origin (and therefore could be labelled as “Product of the USA”). Consumers could determine which beef is 100% a product of the U.S., and meatpackers could avoid the costs of segregation and still use a label that conveys a good amount of information on origin. And if it turns out “Product of U.S. and/or Canada” makes consumers reluctant to buy the meat (that seems unlikely for most consumers), the meatpackers can think about whether to change their approach to production and sourcing.

So yes, there is a way to make COOL compliant with WTO rules, but Secretary Vilsack and Congress will have to take a very different approach than what they’ve tried in the past. Now, this may not produce the result they’re seeking, if, in fact, the outcome they are more concerned with is protecting U.S. industry instead of informing U.S. consumers. We will have to wait and see if COOL becomes a hot trade issue again, and if it does, let’s hope it’s doesn’t bring on déjà vu.

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