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COOL Ruling Not COOL

As we noted last week, the WTO has just issued a major ruling against U.S. country-of-origin labels (COOL) on meats. The decision confirms the direst predictions when the WTO was established, which questioned the wisdom of setting internationally binding rules against consumer protection.

The ruling and its six supporting annexes are hundreds of pages long, so going through all of them will take some time. Here are some additional items that we did not include in our longer analysis from Friday.

COOL is hearted by consumers

COOL is very popular, as the Obama team noted during the proceedings:

Numerous polls also indicate strong consumer support for mandatory country of origin labeling. Among the polls cited in various submissions received by USDA during the regulatory process are the following:

  • 92 percent of respondents in a 2007 Consumers Union poll believed that imported foods should be labeled with their country of origin
  • 88 percent of respondents in a 2007 Zogby poll indicated that they want all retail foods labeled with country of origin information
  • 95 percent of respondents in 2007 Zogby poll indicated that they have a right to country of origin information for food
  • 82 percent of respondents in a 2007 Food & Water Watch poll supported mandatory country of origin labeling
  • 82 percent of respondents in a 2004 nationwide poll conducted for the National Farmers Union supported country of origin labeling
  • 86 percent of respondents in a 2002 survey for Packer magazine supported country of origin labeling

However, the panel didn’t explicitly mention these polls. Throughout much of the proceedings, it was treated as an open question whether consumers actually wanted COOL.

Democracy is impermissibly uncertain; hortatory is the new mandatory

This WTO decision is the most recent of three cases with deeply troubling implications for consumers. In September, the WTO also ruled against U.S. efforts to reduce teenage smoking and dolphin mortalities. In the dolphin case, the purely voluntary dolphin-safe labeling scheme was deemed “mandatory,” despite the fact that tuna not having the label was and is sold in the U.S. After that ruling, we joked that “voluntary is the new mandatory.”

But this COOL ruling takes this joke to sad new levels, so that “hortatory is the new mandatory.”

Here’s why.

As noted, the COOL law represented a balance between corporate and consumer interests. Many consumer groups thought that the concessions went too far. In a (fairly cheap) nod to consumer concerns, Obama’s Agriculture Secretary Tom Vilsack wrote a letter to industry in February 2009 that stated the following...

Though it is important for the COOL Final Rule to go into effect in a timely manner and for the rule to proceed with the March 16, 2009, implementation date, there are certain components of the Final Rule promulgated by the previous administration that raise legitimate concerns.

In particular, I am concerned about the regulation´s treatment of product from multiple countries, exemption provided to processed food, and time allowances provided to manufacturers for labeling ground meat products. In light of these concerns, I am suggesting, after the effective date of the final rule, that the industry voluntarily adopt the following practices to ensure that consumers are adequately informed about the source of food products….

Labeling of product from multiple countries of origin

In order to provide consumers with sufficient information about the origin of products, processors should voluntarily include information about what production step occurred in each country when multiple countries appear on the label. For example, animals born and raised in Country X and slaughtered in Country Y might be labeled as “Born and Raised in Country X and Slaughtered in Country Y”. Animals born in Country X but Raised and Slaughtered in Country Y might be labeled as “Born in Country X and Raised and Slaughtered in Country Y”…

Processed Foods

The definition of processed foods contained in the Final Rule may be too broadly drafted. Even if products are subject to curing, smoking, broiling, grilling, or steaming, voluntary labeling would be appropriate…

Inventory Allowance

The language in the Final Rule allows a label for ground meat product to bear the name of a country, even if product from that country was not present in a processor´s inventory, for up to 60 days. This provision allows for labels to be used in a way that does not clearly indicate the product´s country of origin. Reducing the time allowance to ten days would limit the amount of product with these labels and will enhance the credibility of the label…

The Department of Agriculture will be closely reviewing industry compliance with the regulation and its performance in relation to these suggestions for voluntary action. Depending on this performance, I will carefully consider whether modifications to the rule will be necessary to achieve the intent of Congress

This a pretty cheap date as far as consumers are concerned – nothing binding at all.

But Mexico and Canada successfully challenged the mere writing of this letter as a violation of the WTO’s General Agreement on Tariffs and Trade (GATT). As the panel wrote,

…we do not find any justifiable rationale for suggesting stricter labelling practices than the ones required by the 2009 Final Rule (AMS) while at the same time allowing the 2009 Final Rule (AMS) to enter into force. If anything, the suggestions in the letter – even if they concern voluntary action by industry – undermine the labelling requirements in the 2009 Final Rule (AMS). In fact, the letter addresses issues that do not directly emanate from the actual labelling requirements at issue under the 2009 Final Rule (AMS). Importantly, this is done in the very same letter announcing the entry into force of the 2009 Final Rule (AMS) as a result of Secretary Vilsack's having reviewed it. Although the suggested actions in the letter are only for voluntary action, the language of the letter may still have caused uncertainty and confusion as to the consequences of the letter, including possible modifications to the 2009 Final Rule (AMS) should the industry not follow Secretary Vilsack's suggestions for additional voluntary action.

7.860 Furthermore, the Vilsack letter was issued less than one month prior to the entry into force of the 2009 Final Rule (AMS). This may have caused further confusion for industry in terms of the specific labelling requirements to be observed. In particular, what we are addressing here is a letter issued by the head of a government agency to the industry in general. Compared to situations where the administration applies the COOL measure to particular individual entities, this type of letter can, in our view, have a broader impact on the industry because the letter was issued to the industry in general, not to specific entities.

7.861 Although, in general, a WTO Member has the discretion to administer its laws and regulations in the manner it deems fit, it equally has the responsibility to respect "certain minimum standards for transparency and procedural fairness" as regards its actions. As the Appellate Body observed, Article X:3(a) of the GATT 1994 establishes certain minimum standards for transparency and procedural fairness in the administration of trade regulations.

7.862 This responsibility, in our view, applies to all types of actions falling within the broad scope of the term "administer" under Article X:3(a). We consider that the Vilsack letter did not meet these minimum standards of procedural fairness in relation to the implementation of the 2009 Final Rule by both allowing the 2009 Final Rule (AMS) to enter into force and, at the same time, suggesting industry compliance with stricter labelling requirements than those contained in the 2009 Final Rule (AMS).

7.863 Based on the manner in which the Secretary of Agriculture addressed the decision to implement the 2009 Final Rule (AMS), taken together with the circumstances under which the letter was issued, we consider that the Vilsack letter was not "appropriate", and thus does not meet the requirement of reasonable administration of the COOL measure within the meaning of Article X:3(a).

7.864 We therefore conclude that Canada has demonstrated that the United States acted inconsistently with Article X:3(a) by failing to administer the COOL measure in a reasonable manner through the issuance of the Vilsack letter.

The implications for political freedom of speech are huge. In any democracy, a new administration is likely to put a political spin on the actions of the previous administration, without necessarily or immediately undoing everything that came before them. They’re also likely to try to appease stakeholders without starting all-out wars with business. Under the WTO ruling, non-binding political speech can wind up costing trade sanctions.

This also just echoes so much of the idiotic corporate rhetoric around uncertainty, as Media Matters documents. Uncertainty is a fact of life – it typically will not explain economic phenomena. It is troublesome to democracy that so-called “trade” rules would make it a right to face a completely certain business environment.

Importers complain about concession to them

The 2008-09 COOL law represented a hard-fought balance. On the one hand, you had consumer groups, who were pushing for as much information as possible. On the other hand, you had slaughterhouses and importers, who demanded and got some concessions.

One of the concessions to business on ground beef labeling was that a company could have pre-made labels describing all the potential countries of origin of their meat, based on meat that might have been in their inventory in the past 60 days. This obviated the need to be constantly shifting labels. (see pages 109-111 of the panel ruling).

However, the complainants (Mexico and Canada) cited that this flexibility for why the measure violated Article 2.2 of the WTO’s Agreement on Technical Barriers to Trade (TBT).

As the EU notes in its third party comments,

It seems to us that the objective of the measure might fairly be stated to be informing consumers whilst at the same time avoiding unnecessary costs for importers. Furthermore, it appears to the EU that the 60 day flexibility is an aspect of the measure that is designed to reasonably accommodate the interests of importers. For the importers to attack it appears both to ignore the mixed nature of the measure's objectives, and to be at least potentially counter-productive.

Unfortunately, the WTO panel sided with the complainants:

… the COOL measure allows the ground meat label to list "all of the reasonably possible countries of origin of … ground beef [or] … pork" and to reference a country of origin even if the processor has not had ground meat from that particular country in its inventory for the last 60 days or less. Because of this so-called "60-day inventory allowance" in the 2009 Final Rule (AMS), the ground meat label is likely to convey inaccurate origin information as a processor may use the same label for all of its ground meat listing all countries of origin of the ground meat that the processor has had in its inventory at least for 60 days. In other words, an origin label affixed on ground meat could be listing a country name of meat that the processor might not even have used to produce the specific ground meat in that package. In fact, the Vilsack letter contains a statement confirming this: "[t]his provision [60-day inventory allowance] allows for labels to be used in a way that does not clearly indicate the product's country of origin".

7.707 Therefore, for the reasons explained above, the labelling under the COOL measure in our view provides information on meat with regard to the possible, but not necessarily actual, or for that matter accurate, origin as defined by the measure…

Further, the United States created exceptions and added flexibility into the regulations because the United States strived to reduce the costs of compliance, and it wanted to provide as much consumer information as possible. The United States argues that it had to strike a balance between providing consumer information and reducing the compliance costs for industry. Of course, it is often necessary and important for governments to take conflicting interests into account in implementing laws and regulations to fulfil policy objectives. The act of balancing conflicting interests cannot, however, justify any inconsistency found in the impugned measure with the obligations of the respondent under the covered agreements. In the factual circumstances of the present dispute, the pertinent question for us is whether the COOL measure is fulfilling the identified objective in accordance with the obligations under Article 2.2 of the TBT Agreement…

We acknowledge that labels required to be affixed to meat products according to the requirements under the measure provide additional country of origin information that was not available prior to the COOL measure. We also agree that the labelling requirements under the COOL measure may have reduced consumer confusion that existed under the pre-COOL measure and USDA grade labelling system.

7.718 However, we agree with the complainants that origin information on labels as prescribed by the measure does not ensure meaningful information for consumers…

7.719 We therefore conclude that the COOL measure does not fulfil the identified objective within the meaning of Article 2.2 because it fails to convey meaningful origin information to consumers.

As we noted in last Friday’s post, this is very much a damned if you do, damned if you don’t situation.

WTO allows you to quibble over what you can’t quantify

Mexico and Canada were at best lazy and at worst inept at proving that the COOL had a clear, consistent and demonstrable impact on their trade.

The panel examined eight sets of numbers on total imports of livestock from Canada and Mexico, but only half of them show a decline in imports starting in 2008, the year that COOL was implemented. For instance:

  • Data provided by the U.S. indicates that imports of Canadian cattle in Jan-Sept 2010 increased slightly over the same period in 2009, but the panel declares that there is no clear trend in 2010 trade.
  • Data presented by the U.S. and Mexico shows that imports of Mexican cattle declined in 2007 and 2008, but rose in 2009. U.S. imports of Mexican cattle stood at about one million head in 2009.
  • Data presented by the U.S. and Mexico indicates that imports of Mexican cattle rose significantly between Jan-July 2009 and Jan-July 2010.
  • The share of Mexican cattle in U.S. slaughter declined in 2008 and then rose in 2009. In 2009, the share stood at 5.0%.

Other data showed distinct trends over different time periods, but didn’t necessarily account for outbreaks of animal illness or recession that may have also negatively affected import levels.

The panel then moves onto trying to tease out evidence of import decline from competing U.S. and Canadian statistical studies, and declares the Canadian results more valid even though the contradictory results just depend upon which variables are considered important.

So, how can discrimination be shown without evidence?

I’ve got a feeling that neoliberals have a way around this in the long term, because it must be pretty embarrassing to have so little good evidence. It’s called regulatory coherence or cost-benefit analysis. In the proposed Trans-Pacific trade deal, for instance, the Obama administration is pushing countries to engage in detailed analysis of how regulations impact trade. As my colleague Jane Kelsey has noted,

Cost benefit analysis involving quantitative assessment of competing interests may indicate costs to an investor for which the government does not compensate. At present, the complainant bears the burden of proof in an investment dispute and has to mount its own argument using the information it can piece together. The [Obama proposal] could provide evidential material that has been prepared by the government itself, either as evidence to support a complaint or as an evidential basis for the dispute.

(HT to Public Citizen researcher Travis McArthur.)

Europe is Consumer Advocate #1

The Obama administration didn’t use all the legal quivers of arguments in its arsenal, as we noted last week. In this regard, it is instructive to read some of the impassioned defense of the COOL law by the European Union, who repeatedly notes arguments that the U.S. did not raise in its defense. For instance,

The European Union recognizes that origin labelling might also facilitate choices by consumers. Depending upon one's perspective, one might consider some of these choices to be rational and in harmony with the WTO agreements, or one might consider some of these choices to be irrational or economically inefficient. For example, choices might reflect actual or perceived risk associated with food from a particular region or Member; or actual or perceived positive qualities of food from a particular region or Member; or ethical considerations about a particular region or Member; or a desire to foster sustainable development in a particular region or Member; or a desire to economically support a regional or domestic industry; or considerations of taste and personal judgment. One cannot hope to have perfect information about why such choices are made – that is the whole point of the label – it empowers the consumer.

13. The European Union might have an issue with measures adopted by a Member that would initiate, encourage or amplify such choices in a manner that would be inconsistent with the covered agreements. However, the European Union does not consider that the covered agreements set out to preclude origin labelling in itself, nor the making of such choices by consumers, nor that they could hope to do so effectively in the long term. If it is true that one of the basic objectives of the WTO is to facilitate the operation of market forces in the global economy, it is equally true that consumers are the market, it being up to firms to persuade consumers to prefer their products. One could hardly imagine firms being precluded from identifying products as their own. From this perspective, origin labelling may not be obstructing market forces, but facilitating their operation.

14. The essential difference between voluntary and mandatory labelling is that an individual consumer in a supermarket is hardly in a position to demand labelling with respect to particular information. They are only able to do that through organisation, notably through their domestic political processes. Thus, if a domestic political process leads to mandatory origin labelling, that may reasonably be taken as an indication that consumers want it, so that they are in a position to make the kinds of choices outlined above.

This vision of regulation is informed by sound social science. Too bad that the WTO panel decided to chuck that overboard, along with democracy and consumer protection.


Don Juan of Austria

"Too bad that the WTO panel decided to chuck that overboard, along with democracy and consumer protection."

It's too bad that our government- no matter what the voters say- continues our membership in this horrible organization. Let the WTO say what it will. The United States should not be a member, and then it won't matter.

There is no way to reform the WTO or make it more democratic. This kind of horrible decision is what it was built to do. We should get out, now.

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