Obama Admin. May Take Regulatory Approach to Complying With WTO MCOOL Ruling

January 25, 2013 12:43 AM
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Vilsack, USTR appear to follow NFU, R-CALF push to take regulatory, not farm bill approach

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Lobbyists for the National Farmers Union and R-CALF appear to have won over key members of the Obama administration in possibly taking a regulatory route to deal with a May 23 timeline for complying with a World Trade Organization (WTO) ruling against the US mandatory country-of-origin labeling (MCOOL) ruling, rather than including language in a new farm bill with an indefinite timeline, according to contacts familiar with the matter.

The WTO ruled on June 29 that MCOOL unfairly discriminates against Canada and Mexico because it gives less favorable treatment to beef and pork imported from those countries than to US meat.

U.S. Trade Representative Office staffers and others have been working with their counterparts at USDA and have been consulting with stakeholders, including Congress, about the topic. US officials have previously said they intend to bring COOL into compliance by the WTO deadline.

A regulatory approach to dealing with the issue “will make MCOOL even worse than it currently is,” according to one observer. “At least part of the reason Cargill announced they are shutting down production at their Plainview, Texas plant is in part due to the impact of MCOOL. Mexican feeder cattle simply are discounted – given what the meat from them brings in the marketplace. The same groups pushing for MCOOL are also contributing to the excess capacity in the packing industry, thus plants are closed, jobs lost and economic activity reduced. And if you talk to people in the industry – even with Cargill's announcement last week – there still is excess capacity in the packing industry, likely meaning more idling to come, and jobs lost,” the observer said.

Impacts. While the cost of slaughtering does not change relative to Mexican or Canadian or US born animals, said one contact, “what changes is what happens prior relative to segregation costs – pens, sorting and after that. The meat is held in separate cooler space. Mexican feeders, for example, are therefore traded at a discount.” The observer added that “those lobbying for MCOOL got exactly what they wanted and what they were told they would also get – less jobs, less economic activity and a WTO case which we (US) would lose. They were told this five years ago. You can't have it both ways.”

U.S. MCOOL rules have directly cost Canada's hog and pork industry more than $2 billion, according to a recent report that could help determine retaliation against US exports if Washington does not change its requirements. Citing no apparent movement by the US Congress since the original WTO ruling in mid-2012, the Canadian Pork Council released an estimate of damages that called on Ottawa to impose retaliatory tariffs on imports from the US if there is no change by the WTO deadline. "COOL continues to cost hog and cattle producers tens of millions of dollars every month and must be dealt with sooner rather than later," said Jean-Guy Vincent, a Quebec hog farmer and chairman of the Pork Council.

The labeling program has led to a sharp reduction in U.S. imports of Canadian pigs and cattle because it has raised costs for US packers by forcing them to segregate imported animals from US livestock.

MCOOL supporters say the program offers consumers valuable information about the origin of their food. Many meat processors opposed the provision, which they said would unnecessarily boost costs and disrupt trade. The US labeling law requires grocers to put labels on cuts of beef, pork, lamb, chicken and ground meat or to post signs that list the origin of the meat.

But a recent study from Kansas State Univ. (link) showed there were no measurable consumer benefits to MCOOL. Several quotes from the study:

“Given the costs of compliance introduced by MCOOL and no evidence of increased demand for covered products, our results suggest an aggregate economic loss for the US meat and livestock supply chain spanning from producers to consumers as a result of MCOOL implementation.”

“The overriding finding of limited awareness of MCOOL, narrow use of origin information in purchasing decisions, and no evidence of a demand impact following MCOOL implementation is consistent with the argument that voluntary labeling by country of origin would have occurred if it were economically beneficial to do so. More broadly, the findings of this project generally support the assertions of MCOOL opponents who have asked “where is the market failure?” While no one project can resolve all the political and economic issues surrounding the MCOOL situation, it is our hope that the findings of these studies will be utilized to improve decision making regarding the policy going forward.”

The Pork Council's report, written by economist Ron Gietz, calculated that the labeling rules had lead to an additional $442 million in reduced pork shipments and suppressed prices for feeder pigs, besides the estimated $2 billion in direct costs to Canada's hog and pork industry. The report does not address damages to the Canadian cattle industry, or to Mexico's livestock sector.

Canadian Agriculture Minister Gerry Ritz told Reuters that it is too early to assume the US will not comply with WTO rules before the deadline. "We expect that the US will bring itself into compliance with its WTO obligations by May 23," Ritz said in an emailed statement to Reuters. "It is premature to speculate on retaliatory measures at this time."

Regulatory approach preferred. USDA Secretary Tom Vilsack and the U.S. Trade Rep's office, contacts signal, have strongly signaled they prefer a regulatory approach to the matter, rather than waiting on an uncertain timeline for a new farm bill, or finding another legislative vehicle. But the administration to date has offered no legislative suggestions to the Agriculture panels with jurisdiction over the topic. If a regulatory route is taken, it is unclear how this path would comply with the WTO ruling.

NFU, an early MCOOL proponent, believes the Obama administration can adjust its labeling regulations and still be in full compliance with the WTO ruling, the group's president, Roger Johnson, said in an interview with Inside US Trade. Johnson, according to the publication, said his organization is in the process of formulating a specific recommendation for what the US government should do and will submit it prior to the deadline. He also stressed that NFU would oppose any attempt to comply with the WTO ruling through legislative means. "We will certainly fight that every step of the way," he told Inside US Trade.

However, officials from Canada and Mexico reportedly believe that the legislative language implementing MCOOL must be amended to allow all live animals slaughtered in the US to be eligible for a US-origin label.

R-CALF last year joined with the Made in the USA Foundation and food distributor Mile High Organics seeking a court order declaring that the WTO does not have the authority to override US law. "Consumers have a right to decide whether to buy US or imported meat, and accurate labeling is a consumer right," said Joel D. Joseph, general counsel for the Made in the USA Foundation. Announcing the court challenge in September last year, Joseph said more than 90 percent of US consumers favor MCOOL and rejected suggestions the rules discriminate against any country.

Some potential regulatory changes, contacts advise, could involve lessening the record-keeping burden on meat processors purchasing Canadian and Mexican livestock. USTR previously signaled one possibility would be to lengthen the timeframe during which packers can commingle animals from different countries and then apply a mixed-origin label. Current USDA rules allow for such commingling during only one processing day. But the initial USTR suggestion met with opposition from both opponents and proponents of MCOOL.

R-CALF, in an Aug. 22, letter suggested removing the current requirement that ranchers and feedlot operators maintain affidavits certifying the origin of U.S. cattle, and instead allow a presumption of U.S. origin for all cattle not branded and tagged otherwise. As a condition of entry into the US, cattle from Canada and Mexico that are not imported for immediate slaughter are currently required to be permanently identified with an official foreign marking that denotes their respective country of origin, according to the R-CALF letter. Those imported for immediate slaughter are brought in sealed trucks, also making them immediately distinguishable. "Thus, no record keeping is needed from any upstream supplier to distinguish domestic cattle from imported cattle, other than from the meat packer that would remove foreign markings from the carcass after the live cattle are visually inspected and slaughtered," the group said in its letter.

Comments: The executive order (by President Obama) and regulatory route (EPA, USDA, etc.) will likely be the route taken on many sensitive items during the second term of the Obama administration. Some of those actions could and likely should be challenged not only in Congress but in court. It is likely climate change issues will be dealt with this stealth approach to policy. Stay tuned for a very aggressive Obama administration. It could be a long four years.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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