World Trade Organization rules U.S. country of origin labeling rules discriminatory

On May 18, the World Trade Organization ruled that country of origin labeling (COOL) of certain meat products is discriminatory in violation of the NAFTA trade agreement, and violates WTO rules. That ruling opened the door for Canada and Mexico, the two countries that complained about the COOL labeling requirements, to impose retaliatory tariffs on a number of U.S. products beginning as early as this summer or fall.

Both the Wine Institute and WineAmerica, key industry lobbying groups, are encouraging Congress to take action to prevent the threatened tariffs against American wine and other products from going into effect. Hundreds of millions of dollars and hard earned sales gains in the Canadian market could be at stake.

“This all goes back to the 2002 farm bill, which was signed into law by President Bush. It required that certain cuts of beef be labeled according the country of origin,” explained Michael Kaiser, WineAmerica’s director for public affairs. “It took a lot of time for the Department of Agriculture to actually implement the rule. Fast forward to 2014 and after it has been implemented for a few years, Mexico and Canada filed grievances with the World Trade Organization saying it is a discriminatory practice and violated the NAFTA trade agreement.”

The WTO has ruled on more than one occasion that the labeling requirement is, in fact, discriminatory and the United States will either have to change the rule, or the Mexican and Canadian governments will be allowed to implement retaliatory sanctions in the form of tariffs.

“Canada last year put out the list of possible retaliation products, a whole host of products, and wine was on the list. This isn’t necessarily the final list – that will be coming out this summer, unless Congress is able to ‘fix’ the issue,” Kaiser said.

He noted that Canada and Mexico have 30 days from May 18, the date of the last ruling, to submit a proposal to the WTO regarding their losses from COOL labeling and proposed sanctions. The U.S. will then have a chance to appeal those findings or approved sanctions.

Once that last appeal is heard and ruled on, the retaliatory tariffs can be implemented. That could be in late August or early September. “Both the Canadian and Mexican governments have said that nothing less than a full repeal of the law will satisfy them,” said Kaiser.

Wine would not be the only product export hit with stiff tariffs, but because if its value, it could be hit hard. According to Kaiser, the U.S. sold half a billion dollars’ worth of wine to Canada in 2013. “There’s been a marked increase in the amount of wine sold to Canada from California, Washington, Oregon, Virginia, New York and Michigan. It’s the No. 1 foreign market for American wine.”

Kaiser points out that entry-level wines exported to Canada and Mexico might be subject to the most dramatic taxes. The effect would be to drive wine consumers in those countries to otherwise comparably priced imports from New Zealand, Chile or South Africa. Loss of revenue for American wineries would be immediate, but lost shelf space can also be difficult and costly to regain even after the penalty tariffs are removed.

There is some room for optimism. While some cattle farmers would very much like the COOL labeling laws to stay in place, there seems to be a bi-partisan Congressional understanding that these proposed Canadian and Mexican sanctions, if put into practice, would do serious damage to several other American industries. On May 20, the House Agriculture Committee passed a bill that would repeal the COOL legislation by a 38-6 margin. If the same bill passed both houses of Congress, it would head off the trade sanctions.

“We’re hoping the House can get something done by mid-June, and that the Senate will take it up in July, so that by the time the sanctions would be implemented, the issue will have been resolved,” said Kaiser.