Guest post by Mara Chadnick.
The United States is Canada’s largest trading partner, and by and large, trade relations between the two countries have become increasingly open with time. Despite this strong relationship, Canada the United States continue to face areas of trade constraint and the resulting tension in our trading relationship. The softwood lumber dispute, ongoing since the 1980s, may be the most famous dispute in North American trade, but the most relevant, unresolved trade issue between Canada, Mexico, and the United States is known as “COOL”, or country of origin labeling.
COOL disputes began in earnest in 2002 when the U.S. Farm Security and Rural Investment Act (“Farm Bill”) introduced a COOL requirement in the United States, requiring that the country of origin for goods such as beef, pork, or lamb appear on their label. In 2008, COOL requirements were extended to certain fruits, vegetables, and nuts by the United States, and in 2009, Canada responded by launching proceedings against the United States at the World Trade Organization.
On four occasions the WTO ruled in favour of Canada and Mexico, agreeing that COOL is a violation of the United States’ trade commitments under the NAFTA. When the United States failed to fully implement the changes required by the WTO’s ruling, Canada and Mexico sought approval for over $3 billion in retaliatory duties on a wide array of U.S. exports. Finally, in June 2015, the United States’ Country of Origin Labeling Amendments Act of 2015 repealed COOL requirements for chicken, pork, and beef at the final point of sale.
This dispute would be simpler if it were true that Canadians oppose COOL and Americans support it, but the reality is more complicated. Considering the arguments from each side can help build understanding of how two countries whose economies rely so heavily on trade with one another can maintain such a profoundly contentious trade dispute.
Supporters of COOL claim that consumers have the right to know where their food comes from, and that environmental, health, and safety reasons allow many countries to use country of origin labeling without violating trade agreements. Supporters also argue that the extra cost in labeling the country of origin is inflated by critics, and in reality is not substantial. Critics counter that COOL requirements increase costs across the value chain in all three countries because of the complexity of the North American integrated market. The complications inherent in determining the origin of goods that cross borders throughout the production process discourage cross-border value chains, making COOL harmful to all three countries and a breach of the United States’ trade obligations under the NAFTA.
Today the COOL food labeling dispute has implications beyond acting as a trade barrier between Canada, the United States, and Mexico. The U.S. Senate’s most recent decision not to comply with the WTO’s ruling undermines the legitimacy of WTO rulings generally. Canada and Mexico can now impose up to one billion dollars in penalties, eroding the standard of North American free trade. Finally, the COOL controversy could harm the United States’ export market, needlessly costing American jobs and harming one of the world’s strongest trading relationships. As Americans head into presidential elections and Canada’s new Liberal government settles in, there may be hope that this lingering challenge can be resolved.
It’s time to cool down the COOL dispute.