The WTO and Beef Labelling

Yesterday, the Senate Finance Committee held a hearing on World Trade Organization (WTO) reform. There were a number of big picture points discussed, such as the role of WTO dispute settlement and the failure to negotiate new WTO agreements in recent years, but there’s a narrower point that I want to discuss here. Some people seem to think there was a WTO dispute settlement ruling that says one of the following two things: (1) U.S. beef can’t be labelled with its country of origin when it is for sale in stores, or (2) that the U.S. government can’t require beef to be labelled with its country of origin. Sometimes it can be hard to sort out which point they are making, but it doesn’t matter because neither one of those things is true. (This issue comes up every few months on Twitter, and I figure if I explain it thoroughly here, I can just point people to this blog post in the future.)

The issue arose yesterday when Senator Thune stated the following (1:21:16 and then 1:24:39 of the linked video):

In many parts of my home state of South Dakota, and probably some in your home state of Iowa Mr. Chairman, WTO is a bad word.

That’s because South Dakota ranchers feel like the WTO isn’t with them. And I would say, who can blame them, when the WTO has ruled against them in major disputes impacting their livelihoods like the country of origin labelling case.

Still to this day, it makes no sense to most South Dakotans why the t‐​shirt they wear can say made in country Y but in most instances the beef that they eat cannot.

…

It is very hard to explain why some products that come into the United States are labelled accordingly, but for something that we consume, that we eat, we can’t seem to get a ruling that recognizes that people in this country would like to know where in the world their beef is coming from.

I can see why that would be hard to explain, but it’s not what happened in the WTO disputes brought by Canada and Mexico over country of origin labelling. Let me explain what actually happened.

After failed attempts by the U.S. industry to get anti‐​dumping and countervailing duties imposed on live cattle imports from Canada and Mexico, the industry was able to convince Congress to pass a country of origin labelling statute that was written in such a way that it could serve the purpose of discriminating against those imports. Under the statute, retailers (e.g. grocery stores) would have to include information on the product label about where the cattle was born, raised, and slaughtered (the statute also applied to pork products, but I’m going to focus on beef here). In order to fulfill this requirement, the stores needed the relevant information on origin from the upstream producers, which was costly for the producers to gather when part of their production relied on imports (if they only used U.S. cattle, the record‐​keeping was much easier). The statute itself was worded vaguely enough that it was not completely clear how it would apply, but when the regulations were developed and implemented, it was clear that there would be an extra cost involved where imports made up part of the production. Sometimes that cost was so high that it made financial sense to shift to using only domestic products.

In response to this, Canada and Mexico brought a complaint at the WTO, basically arguing that the measure discriminated against their products through the extra costs it imposed on the use of their (imported) products. On the basis of the evidence presented, when the panel hearing the case looked at the part of the U.S. statute/​regulation dealing with muscle cuts of beef, it found that discrimination existed. On appeal, the WTO’s Appellate Body agreed.

The U.S. then amended the regulation, but not enough to change the impact. The new regulation was also found to be in violation by the panel and then also by the Appellate Body, for the same reasons.

At that point, Canada and Mexico obtained authorization, through a WTO arbitration, to retaliate with trade sanctions. In response, Congress repealed the statute. (The United States could have just accepted the retaliation as a way to rebalance the obligations under the WTO agreements while leaving the statute in place, but it decided that repeal was the better option.)

Now let me mention a couple key takeaways. First, the WTO panel/​Appellate Body rulings do not say that labelling requirements always violate the rules. They simply looked at this particular requirement, carefully considered its design, and found that it violates the rules because of the way it discriminates against imports. There were plenty of ways to structure such a labelling requirement so that it didn’t discriminate against imports. In fact, the first panel looking at the issues here found that the labelling requirement that applies to ground beef (as opposed to muscle cuts of beef) does not violate the rules.

Second, depending on where you shop, you are probably well aware that labelling on beef products is common. A store like Whole Foods indicates the origin of its products, and often does so in more useful ways than the statute here required. “Product of the United States” was one of the categories under the statute, but that is pretty broad and I’m not sure how valuable it is. Whole Foods sometimes tells you the specific farm the beef comes from, which seems much more useful if you really want to know something about how the product has been made.

Summing up, the explanation to Senator Thune and any others is, companies are always free to put origin labels on beef if they want to. That was not at issue at all in the WTO dispute. And the WTO does not prohibit governments from requiring such labels (although it’s not at all clear to me how many people want such labels to be required if it means they have to pay more for the beef, which they will!). What the WTO does prohibit is using domestic regulations as a disguised way of protecting your domestic industry from foreign competition.