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Retroactive COOL retaliation could reach $10B

Canada and Mexico gear up to target key Congressional districts with billions in retaliatory sanctions.

Canada and Mexico are no longer looking for a compromise on fixing the mandatory country-of-origin labeling for beef,  pork and chicken meat products, but rather are ready to apply pressure where needed in the form of retaliatory tariffs. And those tariffs in the first year could be as much as $10 billion.

This was the main message of a panel of speakers at an event held at the National Press Club June 16 on the consequences if the Senate doesn’t act on repealing COOL. Last week the House overwhelmingly supported a full repeal of COOL.

On June 17, the World Trade Organization will hold a meeting to hear formal requests from Mexico and Canada to retaliate against the United States. In recent weeks Canada has published it will request sanctions as high as $2.4 billion in U.S. dollars and Mexico updated its level to $713 million last Friday.

Ken Smith Ramos, director of the trade and NAFTA office at the Embassy of Mexico, said those levels are determined by the price discount that has resulted on feeder cattle. He added that they have not formally published a potential list of products they plan to impose sanctions on, but a good starting point includes those that were targeted in the previous cross-border trucking dispute between the United States and Mexico including fruits, vegetables, juices, meat products, dairy, machinery, office equipment and chocolate. Mexico plans to come up with a definite list that strategically targets those Congressional districts of COOL supporters to apply pressure where needed to “generate change.”

John Masswohl, Canadian Cattlemen’s Association director of governmental relations, said so far CCA has spent $3.5 million of producers’ money in legal fees and advocacy to have COOL changed. He said Canadians retaliatory level request of $2.4 billion ($3B Canadian dollars) is based on the impact on Canadian prices since May 2013 when USDA changed the law to require segregation and recordkeeping tracking of where an animal was born, raised and slaughtered. Interestingly, prior to the 2013 rule update by USDA, Canada had estimated a $1.1 billion impact on its cattle and hog sectors, but by switching from country-of-origin to point of production, it increased the amount of segregation required by those throughout the supply chain.

Masswohl didn’t mince words that the Canadian government was fully ready to apply retaliatory pressure to get results and its list of potential products is designed to “get some attention.”

He added they’re not looking for any compromise or middle path after seven years into this issue and four WTO cases in their favor. “We haven’t come through all of this to settle for half a loaf,” he said. "If the Senate thinks there is a middle path that is a very risky strategy to move forward."

Randy Russell, former chief of staff to U.S. Secretary of Agriculture John Block and consultant to many livestock commodity groups, shared he was part of the 2008 Farm Bill compromise on the law. He said at the center of COOL is now the economic costs associated with the tracking of livestock from birth to slaughter and managing the supply chain.

The arbitration process on settling retaliatory tariffs could cause a decision from the WTO as soon as August. And then the burden of proof shifts to the United States. Once retaliatory tariffs are implemented, they stay in effect until Canada, Mexico and the WTO are all satisfied, Russell noted.

David Bond, National Pork Producers Council outside trade counsel, said, “Congress doesn’t have the luxury of doing a half fix.” If they do, it could bring about retaliation for years when U.S. goes back and continues to litigate this. The fix needs to make everyone happy.

Russell added if there was a silver bullet to resolve the issue, it’s perplexing to him why it hasn’t surfaced before. A North American label, which some in the Senate have voiced support for, confers no new information to consumers and still does not address the segregation issues.

In the end, non-action by the Senate or an attempt to do anything less than repeal will create a COOL tax on U.S. goods, both ag and non-ag goods, Russel said. In its first year, WTO will allow retaliatory tariffs to equal $9-10 billion retroactively to May 2013 when USDA proposed the final rule to fix a previous ruling that went against the United States.

Mexico imposed tariffs as high as 45% on 99 products during the trucking dispute. Even before retaliation was in place, lost sales resulted, said Ken Monahan, director for international trade policy at the National Assn. of Manufacturers. “With threat of retaliation looming, time has run out. We need to act now to prevent the economic fallout, not months into the future,” he warned.

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