As part of a massive US$1.4 trillion omnibus spending bill (H.R.2029) that passed on December 18 and was signed into law by President Barack Obama, Congress repealed the World Trade Organization (WTO)-inconsistent country-of-origin labeling rules (COOL) that it adopted in the 2002 and 2006 farm bills, avoiding a major trade war with Canada and Mexico. The bill repeals COOL as it applies to beef and pork — which were the commodities involved in the WTO challenge — but leaves it in place for the other covered commodities, including chicken, lamb, and perishable agricultural commodities.

The 2002 and 2006 farm bills amended Section 281 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1638) to apply extremely restrictive country-of-origin labeling (COOL) requirements to beef, lamb, pork, chicken, ground beef, ground pork, ground lamb, ground chicken, ground goat, or ground venison, goat, or venison meat, and wild and farm-raised fish. While Section 281 also lists perishable agricultural commodities, peanuts, ginseng, pecans, and macadamia nuts as subject to origin labeling requirements, the origin rules for these commodities do not create the same practical tracing and segregation requirements that got the U.S. into trouble with beef and pork because the rules allow commingling and have never been challenged in the WTO.

After Canada and Mexico challenged the U.S. COOL regime under the WTO’s dispute settlement understanding (DSU), WTO panels and the appellate body repeatedly found that COOL violates Article 2.1 of the WTO Agreement on Technical Barriers to Trade (TBT Agreement). While the United States Trade Representative (USTR) recognized immediately that COOL was a loser, it managed to string the WTO dispute out for six years. After the first U.S. loss, USDA tried to fix COOL by making it even more restrictive, but that failed, when the WTO panels and appellate body again found that the U.S. was violating WTO TBT rules in a compliance proceeding under Article 22 of the DSU.

On December 7, 2015, a WTO arbitrator found that Mexico and Canada were entitled to impose retaliatory duties on just over US$1 billion in U.S. exports. That represented the amount of trade damage that the Arbitrator calculated they are suffering from COOL. The prospect of imminent retaliation was enough to beat down opposition from some senators who were holding out against repeal and pushing to amend COOL by making it “voluntary.”  Senate Agriculture Chairman Roberts (R-Ks) and House Agriculture Chairman Conaway (R.-Tx) played key roles in forcing a repeal through the Congress over opposition from a handful of senators in both parties.

Technically, the omnibus bill repeals the statutory mandate for COOL for beef and pork but leaves in place the United States Department of Agriculture (USDA) regulations. However, Secretary Vilsack has indicated that effective immediately USDA will no longer enforce the COOL requirements for beef and pork products. USDA also plans to amend its regulations “as expeditiously as possible” to conform to the Congressional mandate.  

The omnibus spending bill is a rifle-shot repeal that is limited to beef and pork and ground beef and pork, but leaves restrictive COOL rules in effect for the other meat and fish products. While the WTO’s dispute settlement body formally authorized Mexico and Canada to impose retaliatory tariffs on December 21, we do not expect Canada or Mexico to implement such duties unless USDA backtracks on repeal of its regulations. Despite the incomplete repeal, Mexico and Canada don’t have any retaliation rights going forward since the other products such as chicken, lamb, fish, and nuts were not part of the current WTO proceeding.

In short, despite the incomplete repeal, the looming threat of US$1 billion in Canadian and Mexican retaliation against U.S. exports to Mexico and Canada should go away as long as beef and pork are taken care of through Congressional repeal and Secretary Vilsack’s announcement that USDA will cease enforcing the current USDA regulations. This should be particularly good news for U.S. exporters with major shipments in transit, or who are exporting goods from states like Michigan, Iowa, North Dakota, Minnesota, Montana, and Wyoming whose Congressional delegations were prominent COOL supporters and would likely have been targeted for retaliatory duties. COOL could resurface, but this would likely require bringing a new WTO dispute. Unlike the current dispute, any new dispute will not take six years, since most of the issues already have been fully litigated, but it is likely to take at least a couple of years before the U.S. loses again.

We attach for your convenience an excerpt from the omnibus spending bill containing the relevant language implementing the COOL repeal for beef and pork. The language is buried in a massive omnibus spending bill, which is over 2,000 pages long and is designed to fund the federal government for the next fiscal year.

SEC. 759. (a) Section 281 of the Agricultural Marketing Act of 1946 (7 U.S.C. 1638) is amended —

10 (1) by striking paragraphs (1) and (7);

11 (2) by redesignating paragraphs (2), (3), (4),

12 (5), (6), (8), and (9) as paragraphs (1), (2), (3),

13 (4), (5), (6), and (7), respectively; and

14 (3) in paragraph (1)(A) (as so redesignated) —

15 (A) in clause (i), by striking ‘‘beef,’’ and ‘‘,

16 pork,’’; and

17 (B) in clause (ii), by striking ‘‘ground

18 beef,’’ and ‘‘, ground pork,’’.

19 (b) Section 282 of the Agricultural Marketing Act of

20 1946 (7 U.S.C. 1638a) is amended —

21 (1) in subsection (a)(2) —

22 (A) in the heading, by striking ‘‘BEEF,’’

23 and ‘‘PORK,’’;

1 (B) by striking ‘‘beef,’’ and ‘‘pork,’’ each

2 place it appears in subparagraphs (A), (B), (C),

3 and (D); and

4 (C) in subparagraph (E) —

5 (i) in the heading, by striking ‘‘BEEF,

6 PORK,’’; and

7 (ii) by striking ‘‘ground beef, ground

8 pork,’’ each place it appears; and

9 (2) in subsection (f)(2) —

10 (A) by striking subparagraphs (B) and

11 (C); and

12 (B) by redesignating subparagraphs (D)

13 and (E) as subparagraphs (B) and (C), respectively.