May 20, 2015 12:35PM

How a WTO Meat Labeling Dispute Could Prompt Congress to Change a Bad Law

After losing again at the World Trade Organization, U.S. regulations mandating country of origin labels (COOL) on meat may finally end.  Driven by the possibility that Canada and Mexico could retaliate with increased tariffs, Congress has already begun consideration of a bill to repeal the protectionist program.  If COOL regulations are indeed repealed, American consumers, meat packers, and retailers owe a debt to the WTO’s dispute settlement system.

In the latest WTO decision, the United States lost its appeal of a report originally issued last October.  At that time, I wrote about how the WTO process can help alter the political dynamics in ways that favor free market reform.

Under current U.S. COOL rules, retailers selling beef and pork must include labels stating what country the animal was in when it was born, raised, and slaughtered. This information might be interesting to a curious shopper, but it is completely useless in determining the quality or safety of meat. The same U.S. food safety standards apply regardless of where the animal came from.

Consumers are, of course, welcome to care about things that don’t really matter, and generally, more information is a good thing to have. Sometimes, though, the cost of providing that information is greater than its value. Mandating that companies provide consumers with information will overcome that hurdle by removing the low-information option and forcing consumers to pay the higher price. Making labels mandatory also introduces opportunities for rent-seeking by companies looking to shift costs onto their competitors.

That’s exactly what’s happening with the COOL regulations, and is the crux of the WTO complaint. Canada and Mexico are not complaining that American consumers, armed with their dinner’s travel itinerary will eschew immigrant cattle. Rather, they point out that complying with the rules imposes huge costs on U.S. meat processors who buy cattle that once lived across the border. If a slaughterhouse buys any cattle that rode on a truck traversing the 49th parallel, it must segregate those animals and their meat through the entire production and delivery process.

The arbitrary burdens imposed by COOL regulations create a strong incentive for meat packers to purchase only cattle that was born and raised in the United States in order to avoid segregation costs. The labeling rules create artificial demand for domestic cattle while increasing the cost of beef for all American consumers.

So far, this dynamic has made COOL very popular in Washington. The reality of politics is that the most popular policies are those in which the benefits go to a small well-organized group of people while the costs are spread thin to many. The Obama administration in particular is keen on furthering the interests of COOL supporters and has gone out of its way to make the rules as onerous as possible on importers of foreign cattle.

. . .

But the political dynamic is about to change. The latest loss at the WTO brings us one step closer to authorized sanctions by Canada and Mexico. If America’s two largest export markets retaliate by imposing tariffs on U.S. exports, the political dynamic underpinning COOL suddenly changes. Canada has released a list of products it intends to tax—including wine, apples, rice, corn, mattresses, and furniture. These are U.S. industries that normally could not care less about cross-border livestock trade. But they will not sit idly by while their business suffers on behalf of cattle ranchers.

As expected, the looming threat of retaliation has indeed prompted Congress to act.  The WTO issued its final decision on the merits Monday, and a bill to repeal the entire COOL program was just approved by the House Agriculture Committee today by a vote of 38-6.