Canadian retailers and manufacturers in the food and beverage space should be aware of the upcoming decision of the Appellate Body of the World Trade Organization (WTO) regarding country-of-origin labelling (COOL) requirements in the United States. Previously expected on January 27, 2015, this highly anticipated decision will be released on May 18, 2015 and is likely to have a serious impact on both sides of the border.

Background

Since 2008, a U.S. agricultural policy law called the Food, Conservation and Energy Act of 2008 has imposed rules requiring detailed labels identifying the country of origin of beef, pork, chicken and certain other agricultural products sold in U.S. stores. The additional cost of sorting, labelling and storing Canadian-sourced meat differently in order to comply with the requirement has deterred some companies in the U.S. from purchasing Canadian meat.

Canada successfully challenged the COOL requirements before a WTO panel in 2010, with the panel finding that the COOL requirements are inconsistent with the U.S.’s WTO obligations. The U.S. appealed unsuccessfully in 2012 and was ultimately afforded until May 2013 to amend the COOL requirements in order to make them compliant with trade rules.

In 2013, Canada challenged the U.S.’s amendments before a WTO compliance panel, which agreed that the amended COOL measures remained in contravention of the U.S.’s trade obligations. The upcoming Appellate Body decision will be the result of a U.S. appeal of that compliance panel finding.

Canada’s Proposed Retaliation

If the current U.S. appeal is unsuccessful, Canada will be permitted under WTO rules to retaliate by imposing import tariffs on U.S. goods. In June 2013, the Canadian government published a list of proposed retaliatory tariffs which would levy a 100% surtax on select U.S. imports, including:

  • corn
  • sugar
  • chocolate
  • pasta
  • cereal products
  • cheese
  • breads and pastries
  • orange juice

The Canadian government may be in a position to begin applying these retaliatory tariffs on U.S. imports by late 2015.

If implemented, the tariffs are likely to impact the highly-integrated North American agri-food supply chain, affecting industry players on both sides of the border.

The proposed tariffs are targeted almost exclusively at the food and beverage sector, which affects the business of a large cross-section of manufacturers and retailers, and may be passed on in the form of increased grocery bills for Canadian consumers.

What can be done?

Before tariffs are implemented, potentially affected manufacturers and retailers (and their U.S. affiliates) may reach out to advise the Canadian government of the impact of the proposed tariffs on their business and present alternatives.

If the proposed tariffs are implemented, potential avenues of legal recourse available to affected companies include: (1) taking action under Chapter 11 of the North American Free Trade Agreement (NAFTA), which would generally proceed as an arbitration conducted in accordance with a specified set of international rules (such as UNCITRAL or ICSID); or (2) applying to the Federal Court to judicially review the decision to retaliate, the outcome of which, if successful, would be to obtain a declaration requiring the Canadian government to revise its decision to impose tariffs (rather than damages).