A dispute over meat imports and exports between the U.S. and trading partners Canada and Mexico is starting to heat up, following a decision in late May by the World Trade Organization.

The U.S. passed a law in 2002 which would require all meat sold in the U.S. to carry country-of-origin-labeling (COOL) to indicate where the livestock was born, raised, and slaughtered.

Canada and Mexico contend that this regulation is protectionist, as the regulations impose costs on non-American meat vendors.

The WTO had ruled in favour of Canada and Mexico in 2014, and then again in their favor in May.

Trade penalties against the U.S. proposed

In response to the latest ruling, Mexico and Canada have asked the WTO to authorize sanctions on the U.S. amounting to US$3 billion. Canada is seeking a US$2.4 billion penalty on the U.S., while Mexico would like the WTO to impose a US$653 million penalty.

Canada is also aiming to impose a 100% tariff on the following U.S. products: furniture, liquor, wine, jewelry, prepared food, baked goods, chocolates, pasta, grains, vegetables and fruits.

Canada’s agriculture minister Gerry Ritz is pressuring the U.S. to repeal the COOL legislation.

The only way for the United States to avoid billions [of dollars] in immediate retaliation is to repeal the COOL law,

CBC News quoted Ritz June 4.

The WTO is scheduled to address the request for these penalties in a June 17 meeting.

The U.S. Trade Representative spokesperson hit back, saying: “It is notable that neither Canada nor Mexico provided any justification for the numbers they asserted.”

Food quality organizations have attacked Canada and Mexico, arguing that the U.S. should be able to impose the regulations in the interests of the health and safety of meat customers.

The U.S. is already feeling the costs of COOL

The Canadian consul in Dallas, Texas, Sara Wilshaw, argues that the rules are punitive not only for Canadian and Mexican meat exporters but also for those in the meat-raising and processing industry in the U.S.

“The measures have led to losses of over US$8.5 billion to the U.S. beef industry and US$1.7 billion to the U.S. pork industry over 10 years, according to a 2015 U.S. Department of Agriculture study,” she wrote in The Dallas Morning News on June 5.

An estimated 6,000 American jobs have already been lost due to plant closures associated with the rules.

Should the costly retaliations threatened by Canada and Mexico come into existence, she said, it could have an even larger impact on the sector.

Is the end of COOL near?

Several representatives to the U.S. House of Representatives have quickly put together a bill, HR 2393, that would repeal the COOL measures applying to the labeling of beef, chicken and pork. A vote on the measure is expected on July 11.

The house is expected to vote for bill, in an effort to bypass the billions in punitive measures threatened by Canada and Mexico.

The Product Marketing Association in the U.S. estimates that approximately US$1 billion in annual produce exports could be lost should Congress fail to pass the bill.

Canada and Mexico first voiced their objections to the COOL legislation in December 2008.

Do you think the COOL law is unfair?

The post Canada and Mexico get bullish over COOL meat trade wars with U.S. appeared first on Trade Ready.

I have to wonder though:

Is it really that we’re backsliding toward a protectionist mentality when it comes to international trade, or are these measures being taken simply as acts of political persuasion?

In other words, are our world leaders foregoing long-term economic gains in the name of short-term politics?

Negotiating NAFTA

The United States, for example, is in the news every day as a player in the pursuit of bigger and better global trade deals. There’s the Trans-Atlantic Trade and Investment Partnership (TTIP), which is a proposed free trade agreement with the UK, and the Trans-Pacific Partnership (TPP); a 12-country agreement for which the U.S. has been part of negotiations since 2008.

There’s also the U.S.’s recent technology-related agreement with China, which promises to reduce tariffs on high-tech goods, and a breakthrough agreement with India regarding food stock holdings.

This agreement is ‘clearing the way for passage of the biggest trade deal in the World Trade Organization’s 19-year history,’ reports Bloomberg’s Unni Krishnan.

However, at the same time as the U.S. is negotiating these new trade opportunities, it’s been creating some tension with its older trade partners.

In 2008, the U.S. passed new rules regarding the labelling of meat. Although these rules were updated in 2013, they are still prohibitive for Canadian and Mexican meat exporters, and resulted in a reduction of Canadian meat exports to the U.S. by half, according to the Canadian beef industry.

The World Trade Organization’s (WTO) compliance panel ruled against these meat labelling procedures—referred to as country-of-origin labeling (COOL)—three times, stating that they break trade rules because they treat Mexican and Canadian livestock less favourably than U.S. livestock.

Canada’s Agriculture Minister responded to the situation by threatening its own punitive duties on products such as ketchup and California wine, among 38 other commodities listed.

Mexico and Canada will be permitted to retaliate with duties totalling anywhere from $1-2 billion each year if the U.S. doesn’t bring its COOL regulations into compliance.

What came first, the chicken or the trade?

India has similarly been creating challenges for the U.S. meat and poultry industry ever since it implemented an agricultural ban in 2007 to prevent the spread of avian influenza, or bird flu. The issue is that there hasn’t been a case of this flu in the U.S. since 2005.

The WTO recently ruled that India violated a number of trade rules when it set the ban on American meat, poultry, eggs and live pigs.

Our farmers and producers deserve a level playing field—and this dispute reflects that we will accept nothing less, said U.S. Agriculture Secretary Tom Vilsack to USA Today.

U.S. trade and agriculture officials hope this ruling will give the U.S. a case against other trade barriers they find arbitrary.

“We want all WTO members to abide by the rules that have been established and to avoid using arbitrary, non-scientific claims to prevent competition,” said David Miller, director of research and commodity services for the Iowa Farm Bureau Federation to USA Today.

When global business loses out to geopolitics

The unrest in the Ukraine earlier this year resulted in a number of international governments applying sanctions against individuals and businesses in both Russia and the Ukraine. Although these sanctions don’t have anything to do with governments’ efforts to protect local growers, producers and manufacturers, they do show a prime example of trade being used as a geopolitical tool rather than for economic development.

Russia retaliated to these sanctions by banning agricultural imports from the EU, the U.S., Canada, Norway, and Australia for a year.

These trade barriers are creating heavy losses for agricultural exporters, especially in the EU’s Germany, Poland and the Netherlands—Russia’s biggest trading partners. But the hardships obviously extend further than these three countries.

If there isn’t a sufficient market, prices will go down, and we don’t know if we can cover the costs of production, because it is so expensive, Jose Emilio Bofi, an orange farmer in Spain, told RT.

These trade bans also have negative ramifications for Russia itself, as it now has a $9.5 billion gap to fill in its food market. The country has been looking to Latin America, as well as Kazakhstan and Belarus, to avoid trade with Western nations.

The deer and the hare

I came across a wonderful fable by philosopher Jean-Jacques Rousseau that sums up these types of politics-over-economics situations. It is apparently often used to explain to students of international relations the potential pitfalls of acting individually for small, short-term gains:

A group of hunters go off in search of a deer. They need to work together as a team if they hope to catch one, but a single hunter could successfully capture a hare all by himself. One of the hunters becomes distracted by this opportunity, and does indeed abandon his party to pursue the hare. As a result, the deer escapes.

The individual hunter does catch his hare, but he also misses out on the bigger opportunity to cooperate and catch the deer, which would have brought greater benefits to the entire group.

As in the fable, it can be difficult to sustain cooperation when individual incentives can be realized in the short term by cheating out partners. However, a bit more patience and cooperation can result in greater rewards for all.

What do you think? Are there situations during which trade protectionism is warranted, and what are they?

The post Are countries using trade protectionism to safeguard their economies or as political ammunition? appeared first on Trade Ready.